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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-6446
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K N ENERGY, INC.
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(Exact name of registrant as specified in its charter)
Kansas 48-0290000
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
370 Van Gordon Street
P.O. Box 281304, Lakewood, Colorado 80228-8304
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 989-1740
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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Common stock, par value $5 per share New York Stock Exchange
Preferred share purchase rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Preferred stock, Class A $5 cumulative series
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant.
$1,693,628,233 as of February 20, 1998
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Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Common stock, $5 par value; authorized 50,000,000 shares; outstanding 32,140,425
shares as of February 20, 1998
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List hereunder documents incorporated by reference and the Part of the Form 10-K
into which the document is incorporated.
1998 Proxy Statement Part III
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K N ENERGY, INC. AND SUBSIDIARIES
Documents Incorporated by Reference and Index
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Page Number
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1998 Proxy Included
Statement Herein
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PART I
ITEMS 1 & 2: BUSINESS AND PROPERTIES.................................................... 3-12
ITEM 3: LEGAL PROCEEDINGS ......................................................... 12-14
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders
during the last quarter of 1997.
EXECUTIVE OFFICERS OF THE REGISTRANT....................................... 15-16
PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS................................................... 17
ITEM 6: SELECTED FINANCIAL DATA.................................................... 18
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..................................... 19-26
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Public Accountants ................................ 27
Consolidated Statements of Income for the Three
Years Ended December 31, 1997, 1996 and 1995 ........................ 28
Consolidated Balance Sheets as of December 31, 1997 and 1996............. 29
Consolidated Statements of Common Stockholders' Equity
for the Three Years Ended December 31, 1997, 1996 and 1995 30
Consolidated Statements of Cash Flows for the Three
Years Ended December 31, 1997, 1996 and 1995......................... 31
Notes to Consolidated Financial Statements............................... 32-51
Selected Quarterly Financial Data (Unaudited)......................... 52
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There were no such matters during 1997.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT......................... 3-17*
ITEM 11: EXECUTIVE COMPENSATION..................................................... 9-17*
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............. 3-7*, 19*
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................. 7*
PART IV
ITEM 14: EXHIBITS AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
Reference is made to the listing of financial statements and
supplementary data under Item 8 in Part II of this index.
2. Financial Statement Schedules
None
3. Exhibits
Exhibit Index................................................... 58-60
List of Executive Compensation Plans and Arrangements........... 55-56
Exhibit 12 - Ratio of Earnings to Fixed Charges................. 61
Exhibit 13 - 1997 Annual Report to Shareholders**............... 62
Exhibit 21 - Subsidiaries of the Registrant..................... 63-65
Exhibit 23 - Consent of Independent Public Accountants.......... 66
Exhibit 27 - Financial Data Schedule***
Exhibit 99 - Consent of Independent Public Accountants.......... 67
(b) Reports on Form 8-K.................................................. 56
SIGNATURES ................................................................................ 57
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Note: Individual financial statements of the parent Company are omitted
pursuant to the provisions of Accounting Series Release No. 302.
* Incorporated herein by reference.
** Such report is being furnished for the information of the Securities and
Exchange Commission ("SEC") only and is not to be deemed filed as a part of
this annual report on Form 10-K.
*** Included in SEC copy only.
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PART I
ITEMS 1 and 2: BUSINESS and PROPERTIES
As used in this report "the Company," "K N" and "K N Energy" refer to K N
Energy, Inc., together with its consolidated subsidiaries (excluding MidCon),
unless the context otherwise requires. "MidCon" refers to MidCon Corp., together
with its consolidated subsidiaries, unless the context otherwise requires. All
volumes of natural gas referred to herein are stated at a pressure base of 14.73
pounds per square inch absolute and at 60 degrees Fahrenheit and, in most
instances, are rounded to the nearest major multiple. The term "Mcf" means
thousand cubic feet, the term "MMcf" means million cubic feet, the term "Bcf"
means billion cubic feet and the term "Tcf" means trillion cubic feet. The term
"MMBtus" means million British thermal units ("Btus"). "NGLs" refers to natural
gas liquids, which consist of ethane, propane, butane, iso-butane and natural
gasoline. The term "Bbls" means barrels.
(A) General Description
K N Energy is an integrated energy services provider whose operations include
the gathering, processing, transportation and storage of natural gas, and the
marketing of natural gas and NGLs. As of December 31, 1997, the Company operated
over 12,300 miles of interstate and intrastate pipelines and over 8,800 miles of
gathering and processing pipeline that connect major supply areas with major
consuming areas in the Western and Mid-Continent United States. The Company also
owned or operated at such date 19 natural gas processing plants with total
processing capacity of approximately 1.7 Bcf per day, including the Bushton
complex in the Hugoton Basin, one of the largest natural gas extraction
facilities in the United States, and 7 storage facilities with 827 MMcf per day
of withdrawal capacity. As of December 31, 1997, the Company's regulated retail
natural gas business served over 210,000 customers in Colorado, Nebraska and
Wyoming (excluding customers served by the Company's Kansas natural gas
distribution assets which are the subject of a definitive sale agreement,
expected to be closed in the first half of 1998). The Company also markets
innovative products and services, such as the Simple Choicesm ("Simple Choice")
menu of products and call center services designed for residential consumers,
utilities and small businesses through its 50% owned ENOable, LLC ("ENOable")
affiliate.
The Company's executive offices are located at 370 Van Gordon Street, P.O. Box
281304, Lakewood, Colorado 80228-8304 and its telephone number is (303)
989-1740. K N was incorporated in the State of Kansas on May 18, 1927. The
Company employed 2,134 people at December 31, 1997.
On January 30, 1998, pursuant to a definitive stock purchase agreement (the
"Agreement"), K N Energy paid approximately $2.1 billion in cash and issued a
note in an aggregate principal amount of approximately $1.39 billion (the
"Substitute Note") to Occidental Petroleum Corporation ("Occidental") to acquire
the outstanding shares of capital stock of MidCon (the "MidCon Shares") and a
note in a like aggregate principal amount (the "ESOP Note") issued to Occidental
by MidCon's employee stock ownership plan (the "Acquisition"). As a result of
the Acquisition, MidCon became a wholly owned subsidiary of K N Energy. In
connection with the planned termination of MidCon's employee stock ownership
plan following the Acquisition, the ESOP Note was cancelled. The Substitute Note
is required to be paid in full on January 4, 1999 and bears interest at 5.798%.
The Company is required to collateralize the Substitute Note plus an amount
equal to 105 days of accrued interest with U.S. government securities or one or
more letters of credit, or a combination thereof. Such amounts were initially
collateralized with letters of credit which the Company intends to replace with
U.S. government securities purchased utilizing all or a portion of the proceeds
of certain future securities offerings, see Capital Resources.
The Agreement contains representations and warranties of each of Occidental and
the Company, which survive the closing for one year (except as to certain tax
matters, which survive for two years), and customary
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covenants. In connection with its acquisition of the MidCon Shares, the Company
became obligated with respect to MidCon's liabilities, including, without
limitation, liabilities with respect to environmental matters, liabilities under
MidCon's benefit plans for active and retired employees and the obligations of
Occidental's insurance subsidiary with respect to insurance policies previously
issued to MidCon. Each party has agreed to indemnify the other party for certain
losses or liabilities incurred as a result of a breach of representation or
warranty or covenant and, in the case of Occidental, to indemnify the Company
for certain losses or liabilities arising out of MidCon's employee stock
ownership plan.
As a result of various regulatory requirements, prior to the consummation of the
Acquisition, MidCon dividended all of the issued and outstanding capital stock
of MidCon Power Services Corp. ("MidCon Power"), a wholly owned subsidiary of
MidCon, to Occidental. K N and Occidental have entered into a separate stock
transfer agreement for the acquisition of all the issued and outstanding capital
stock of MidCon Power by K N. The acquisition of the MidCon Power capital stock
by K N was contingent on the Federal Energy Regulatory Commission ("FERC")
approving the transaction, which approved was received on March 2, 1998. The
closing of the MidCon Power acquisition is expected to occur by mid-March 1998.
MidCon is engaged in the purchase, gathering, processing, transmission, storage
and sale of natural gas to utilities, municipalities and industrial and
commercial users. MidCon operates over 14,000 miles of natural gas pipelines
which are located in the center of the North American pipeline grid. These
pipeline assets include two major interconnected transmission pipelines
terminating in the Chicago area: one originating in West Texas and the other in
the Gulf Coast areas of Texas and Louisiana, as well as a major intrastate
pipeline located in Texas. MidCon also purchases electricity from electric
utilities and other electric power producers and marketers and resells the
electricity to wholesale and end-use customers.
(B) Narrative Description of Business
Overview
K N Energy is an integrated energy services provider with operations that
include the gathering, processing, transportation and storage of natural gas and
the marketing of natural gas and NGLs. The Company's operations currently are
organized into three segments: (i) gathering, processing and marketing services
(including intrastate transmission and storage in Texas), (ii) interstate
transportation and storage, and (iii) retail natural gas services, although the
Company currently expects that its future reporting of business unit results may
change as a result of the implementation of statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information". As discussed below, certain of the Company's operations are
regulated by various federal and state entities. For the year ended December 31,
1997, approximately 48% of the Company's operating income was derived from
regulated assets, although such percentage has increased as a result of the
acquisition of MidCon as described preceding.
(1) Gathering, Processing, and Marketing Services
The Company provides natural gas gathering, processing, storage, transportation,
marketing, field services and supply services, to a variety of customers. Within
this business segment, the Company owns and operates approximately 12,900 miles
of pipeline in nine states and operates 19 gas processing plants in five states
and natural gas storage facilities in West Texas and on the Gulf Coast. For the
year ended December 31, 1997, this business segment accounted for approximately
52% of consolidated operating income.
Revenues from the Company's gathering, processing, storage, transportation,
marketing and supply activities are generated in four different ways. First, the
Company performs a merchant function whereby the Company
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purchases gas at the wellhead, combines such gas with other supplies of gas, and
markets the aggregated gas to consumers. Second, the Company gathers, transports
and/or processes gas for producers or other third parties who retain title to
the gas. Third, the Company processes gas into NGLs and markets NGLs. Fourth,
the Company provides gas marketing and supply services, including certain
storage services, to producers, various natural gas resellers and end users. The
Company also arranges the purchase and transportation of producers' excess or
uncommitted gas to end users, acts as shipper or agent for the end users,
administers nominations and provides balancing assistance when needed.
In conjunction with its merchant function, the Company engages in price risk
management activities in the energy financial instruments market to hedge its
price and basis risk exposure. The Company buys and sells gas and crude oil
futures positions on the New York Mercantile Exchange and Kansas City Board of
Trade and uses over-the-counter energy swaps and options for the purpose of
reducing adverse price exposure to gas supply costs or specific market margins.
Pursuant to guidelines approved by its Board of Directors, the Company engages
in these activities only as a hedging mechanism against price volatility
associated with pre-existing or anticipated physical gas and condensate sales,
gas purchases, system use and storage in order to protect profit margins, and is
prohibited from engaging in speculative trading.
Gas Gathering and Processing
The Company's gathering and processing subsidiaries operate pipeline systems in
seven Mid-Continent and Rocky Mountains states. These subsidiaries perform
various services for customers including, among others, gathering gas at the
wellhead or other field aggregation points, transporting gas on an intrastate
basis at negotiated rates, processing gas to extract NGLs, and marketing natural
gas and NGLs. Based on average throughput, the Company's largest gathering
operation is its Hugoton Basin system in Kansas which gathers approximately 530
MMcf per day, making K N the largest gatherer in this basin. The Hugoton Basin
system interconnects with several gas processing plants in the area including
K N's Bushton plant. The Company's Wattenberg System in northeastern Colorado,
which includes gathering and transmission lines, has current throughput of
approximately 150 MMcf per day. K N's West Texas System is located primarily in
western Texas and the Texas Panhandle. This system, which includes gathering,
intrastate transmission and storage pipelines, six gas processing plants, and
one storage facility, has gathering throughput of approximately 140 MMcf per
day. The Company also owns gathering facilities in the Powder River and Wind
River Basins of Wyoming and the Piceance and Uinta Basins of western Colorado
and eastern Utah with combined throughput of approximately 130 MMcf per day.
In addition to the above systems, K N recently acquired two gathering systems in
the Rocky Mountains which gather in aggregate approximately 460 MMcf per day. In
December 1997, K N purchased an equity interest in the Red Cedar Gathering
System in the San Juan Basin of New Mexico. The Red Cedar system gathers
approximately 440 MMcf per day of natural gas and is connected to the Company's
jointly owned Coyote Gulch processing plant and to the TransColorado pipeline.
Also in December 1997, K N acquired Interenergy Corporation, a closely held
provider of natural gas services in the Rocky Mountain area. The Interenergy
assets include pipelines which gather approximately 20 MMcf per day, a gas
processing plant in Wyoming and an interest in a gas processing plant in North
Dakota.
In 1996, Wildhorse Energy Partners, LLC ("Wildhorse"), a joint venture between
K N and Tom Brown, Inc. ("TBI"), purchased gathering and processing assets of
Williams Field Services in western Colorado and eastern Utah. The acquisition of
these assets provided Wildhorse access to existing TBI production, to
approximately 240,000 acres of undeveloped leaseholds held by TBI in the
Piceance Basin and to undeveloped third-party acreage throughout the Piceance
and Uinta basins. The assets acquired included approximately 950 miles of
natural gas gathering lines, two processing plants, a carbon dioxide treatment
plant and a dew point control
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plant. During the year ended December 31, 1997, these facilities processed and
treated approximately 70 MMcf of natural gas per day.
At December 31, 1997, the Company's gathering, processing and marketing segment
operated 19 natural gas processing plants, including the Bushton complex, one of
the largest NGLs extraction facilities in the United States. On a daily basis,
these plants process approximately 1.4 Bcf of natural gas (and have capacity to
process 1.7 Bcf of natural gas per day) and produce approximately 2.4 million
gallons] of NGLs. NGLs are sold by the Company on a contractual basis to various
NGL pipelines, end users and marketers at index-based prices.
Marketing
In 1997, the Company's natural gas marketing customers included local
distribution companies, industrial, commercial and agricultural end users,
electric utilities, Company affiliates, and other marketers located both on and
off K N's pipeline systems. Natural gas is purchased by K N's gathering,
processing and marketing business from various sources, including gas producers,
gas processing plants and pipeline interconnections. For the year ended December
31, 1997, the Company's gathering, processing and marketing operations sold an
average of approximately 1.6 Bcf of natural gas per day before intersegment
eliminations.
As is customary in the industry, most of the Company's gas purchase agreements
are for periods of one year or less, and many are for periods of 60 days or
less. Various agreements permit the purchaser or the supplier to renegotiate the
purchase price or discontinue the purchase under certain circumstances. Purchase
volume obligations under many of the agreements utilized by this business
segment are generally "best efforts" and do not have traditional take-or-pay
provisions. However, certain agreements require the Company to prepay for, or to
receive, minimum quantities of natural gas.
The Company owns a storage facility located in Gaines County, Texas, which had a
working storage capacity of 16.4 Bcf of natural gas at December 31, 1997 and
withdrawal capacity of 525 MMcf per day. This facility has traditionally been
used to meet peak day requirements of the West Texas system. K N also has lease
rights in the Stratton Ridge facility located in Brazoria County, Texas,
including a peak day natural gas withdrawal capacity of 150 MMcf per day at
December 31, 1997.
K N Field Services
K N Field Services, Inc. ("KNFS") provides field operations services to gas and
oil industry customers who own production, gathering, processing and
transportation assets. To the extent possible, KNFS uses the existing
infrastructure and labor force employed in the Company's own systems to serve
its clients. Among the services KNFS provides are well tending, site services,
corrosion monitoring, compression operations and maintenance, safety training,
gathering and pipeline operations and maintenance, measurement, pressure and
flow monitoring, water hauling and line locating.
(2) Interstate Transportation and Storage Services
The Company's interstate pipeline system provides transportation and storage
services to affiliates, third-party natural gas distribution utilities, and
other shippers. For the year ended December 31, 1997, this business segment
accounted for approximately 25% of consolidated operating income. As of December
31, 1997, the Company's interstate pipeline system consisted of approximately
6,900 miles of transmission lines and one storage field.
The Company provides both firm and interruptible transportation and no-notice
services to its customers. Under no-notice service, customers are able to meet
their peak day requirements without making specific nominations
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as required by firm and interruptible transportation service tariffs. The local
distribution companies and other shippers may release their unused firm
transportation capacity rights to other shippers. It is the Company's experience
that this released capacity has, to a large extent, replaced interruptible
transportation on the Company's interstate pipeline system. Firm transportation
customers pay a monthly reservation charge plus a commodity charge based on
actual volumes transported. Interruptible transportation is billed on the basis
of volumes shipped.
In 1996, K N purchased a crude oil pipeline (renamed the Pony Express Pipeline)
running from Lost Cabin in central Wyoming to Freeman, Missouri near Kansas
City, and converted it to natural gas transport service. The line became
operational in August 1997 and, under its current configuration, has a maximum
capacity of 255 MMcf per day. The Pony Express Pipeline provides access to
significant natural gas reserves principally from the Denver-Julesburg, Wind
River and Powder River Basins and is a catalyst for the development of the
market hub at Rockport, Colorado. As a complement to this pipeline, in November
1996 the Company acquired one 20-year contract and one 19-year contract to
provide firm transportation capacity of 230 MMcf of natural gas per day to the
Kansas City metropolitan area. This project reflects the Company's ongoing
strategy to balance regulated pipeline projects with the corresponding potential
for greater returns from other nonregulated business segments.
The Company is a one-half joint venture partner in the TransColorado Gas
Transmission Company ("TransColorado"). TransColorado's pipeline is expected to
provide increased flexibility in accessing multiple natural gas basins in the
Rocky Mountain region. Though only a portion of the pipeline is currently
operational, when completed, the TransColorado Pipeline will extend 290 miles,
from the Piceance Basin of Colorado to Blanco, New Mexico, and will have an
initial capacity of 300 MMcf per day. The TransColorado Pipeline will operate as
an interstate pipeline regulated by the FERC.
The Company's interstate pipeline system provides storage services to its
customers through its Huntsman Storage Field in Cheyenne County, Nebraska. The
facility had a peak natural gas withdrawal capacity of 100 MMcf per day at
December 31, 1997.
(3) Retail Natural Gas Services
The Company provides retail natural gas services to residential, commercial,
agricultural and industrial customers for space heating, crop irrigation,
drying, and processing of agricultural products. The Company's en*able joint
venture also has a 24-hour Customer Service Center in Scottsbluff, Nebraska,
which centralizes customer service calls, service start-up and billing calls,
service dispatch and remittance operations for the three-state region. For the
year ended December 31, 1997, this business segment accounted for approximately
23% of consolidated operating income.
Regulated Retail Services
The Company's retail natural gas business operated approximately 1,500 miles of
intrastate natural gas transmission, gathering and storage facilities as of
December 31, 1997. These intrastate pipeline systems serve industrial customers
and much of the Company's retail natural gas business in Colorado and Wyoming.
As of December 31, 1997, the Company's retail natural gas business served over
210,000 customers in Colorado, Nebraska and Wyoming through approximately 7,200
miles of distribution pipelines (excluding the Company's Kansas natural gas
distribution assets which the Company entered into an agreement to sell in
December 1997, and which sale is expected to be consummated in the first half of
1998, following receipt of regulatory approval).
The Company's underground storage facilities are used to provide natural gas for
load balancing and peak system demand. Storage services for the Company's retail
natural gas services segment are provided by three facilities
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owned in Wyoming, one facility in Colorado owned and operated by Wildhorse and a
storage facility located in Nebraska and owned by the Company's interstate
pipeline system. The peak day natural gas withdrawal capacity available for this
segment at December 31, 1997 was 103 MMcf per day.
The Company's retail operations in Nebraska, Wyoming and northeastern Colorado
serve areas that are primarily rural and agriculturally based. In much of
Nebraska, the winter heating load is balanced by irrigation requirements in
summer months and grain drying in the fall. The economy in the western Colorado
service territory continues to grow as a result of growth in mountain resort
communities and development of retirement communities.
Gas Purchases and Supply
The Company's retail natural gas business relies on the Company's interstate
pipeline system, the intrastate pipeline systems it operates, and third-party
pipelines for transportation and storage services required to serve its markets.
Its gas supply requirements are being met through a combination of purchases
from wholly owned marketing subsidiaries and third-party suppliers.
The gas supply for the retail natural gas business segment comes primarily from
basins in Kansas, Montana, Wyoming, Colorado, New Mexico and western Nebraska
which include under-developed basins that represent significant proved reserves.
The Company's gas supplies are strategically located with respect to existing
and planned pipeline capacity, giving the Company access to gas for its retail
customer base.
Certain gas purchase contracts contain take-or-pay clauses which require that a
certain purchase level be attained each contract year, or the Company must make
a payment which is generally equal to the contract price multiplied by the
deficient volume. All such payments are fully recoupable under the terms of the
gas purchase contracts and the existing regulatory rules. To date, no buy-out or
buy-down payments relating to take-or-pay contracts have been made by this
business segment. See "--Gathering, Processing and Marketing
Services--Marketing."
Unregulated Retail Services
In September 1996, the Company, through its subsidiary K N Services, Inc.
("KNS"), began marketing its Simple Choice package of products and services. In
addition to natural gas service, under Simple Choice, customers can order
satellite TV, appliance protection, long-distance telephone service, wireless
Internet access and other products and services with one call, paid for with one
monthly payment and backed by one service guarantee. Simple Choice was launched
in Scottsbluff, Nebraska, where the Company also opened its first Simple Choice
General Store.
In early 1997, K N and PacifiCorp jointly formed en*able to market the Simple
Choice brand to K N's approximately 200,000 and PacifiCorp's approximately 1.5
million customers as well as to other utilities. en*able is engaged in efforts
to create Simple Choice partnerships and licensing agreements with other
utilities. An integral part of the Simple Choice package is outsourced billing
and customer service for third-party utilities. To enhance this capability,
early in 1997 KNS and PacifiCorp's subsidiary, PacifiCorp Holdings, Inc.,
acquired OrCom Systems, Inc., the software development company that designed the
billing system which supports the Simple Choice brand of products and services.
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(4) General
(a) Federal and State Regulation
Gathering, Processing and Marketing Services
Under the Natural Gas Act, facilities used for and operations involving the
production and gathering of natural gas are exempt from FERC's jurisdiction,
while facilities used for and operations involving interstate transmission are
not exempt. However, the FERC's determination of what constitutes exempt
gathering facilities as opposed to jurisdictional transmission facilities has
evolved over time. Under current law, facilities which otherwise are classified
as gathering may be subject to ancillary FERC rate and service jurisdiction when
owned by an interstate pipeline company and used in connection with interstate
transportation or jurisdictional sales.
The FERC has historically distinguished between facilities owned by
noninterstate pipeline companies, such as the Company's gathering facilities, on
a fact-specific basis.
The issue of state jurisdiction over gathering activities has previously been
raised before the Colorado Public Utilities Commission, Kansas Corporation
Commission, New Mexico Public Service Commission, Texas Railroad Commission and
Wyoming Public Service Commission, as well as before state legislative bodies.
The Company is closely monitoring developments in this area.
As part of its corporate reorganization, the Company requested, was granted
authority and in 1994 transferred substantially all of its gathering facilities
to a wholly owned subsidiary. The FERC determined that after the transfer the
gathering facilities would be nonjurisdictional, but the FERC reserved the right
to reassert jurisdiction if the Company was found to be operating the facilities
in an anti-competitive manner or contrary to open access principles.
The operations of the Company's intrastate pipeline and marketing subsidiaries
located primarily in Texas are affected by FERC rules and regulations issued
pursuant to the Natural Gas Act and the Natural Gas Policy Act. Of particular
importance are regulations which allow increased access to interstate
transportation services, without the necessity of obtaining prior FERC
authorization for each transaction. The most important element of the program is
nondiscriminatory access, under which a regulated pipeline must agree, under
certain conditions, to transport gas for any party requesting such service.
The interstate gas marketing activities of the Company's various marketing and
pipeline subsidiaries are conducted either as unregulated first sales or
pursuant to blanket certificate authority granted by the FERC under the Natural
Gas Act.
Certain of the Company's intrastate pipeline services and assets are subject to
regulation by the Texas Railroad Commission.
Interstate Transportation and Storage Services
Facilities for the transportation of natural gas in interstate commerce and for
storage services in interstate commerce are subject to regulation by the FERC
under the Natural Gas Act and the Natural Gas Policy Act. The acquisition of
MidCon's interstate natural gas pipeline system results in a significant
increase in the percentage of the Company's assets subject to regulation by the
FERC. The Company is also subject to the requirements of FERC Order Nos. 497, et
seq. and 566, et. seq., the Marketing Affiliate Rules, which prohibit
preferential treatment by an interstate pipeline of its marketing affiliates and
govern in particular the provision of information by an interstate pipeline to
its marketing affiliates.
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In January 1998, the Company's subsidiary, K N Interstate Gas Transmission Co.
("KNI") filed a rate case requesting an increase in its rates which would result
in additional annual revenues of $30.2 million. The FERC, by an order dated
February 26, 1998, accepted the filing and suspended its effective date for the
full five-month period permitted by the Natural Gas Act thus permitting the
rates to go into effect subject to refund August 1, 1998. Various parties
intervened in the proceedings. There will be additional proceedings before the
FERC to resolve differences.
Retail Natural Gas Services
Certain of the Company's intrastate pipelines, storage, distribution and/or
retail sales in Colorado, Kansas, Texas and Wyoming are under the regulatory
authority of each state's utility commission. In Nebraska, retail gas sales
rates for residential and small commercial customers within a municipality are
regulated by each municipality served.
In certain of the incorporated communities in which the Company provides natural
gas services at retail, the Company operates under franchises granted by the
applicable municipal authorities. The duration of franchises varies. In
unincorporated areas, the Company's natural gas utility services are not subject
to municipal franchise. The Company has been issued various certificates of
public convenience and necessity by the regulatory commissions in Colorado,
Kansas and Wyoming authorizing it to provide natural gas utility services within
certain incorporated and unincorporated areas of those states.
Continuing regulatory change will provide energy consumers with increasing
choices among their suppliers. The Company emerged as a leader in providing for
customer choice by filing an application with the Wyoming Public Service
Commission in 1995 to allow 10,500 residential and commercial customers to
choose to purchase the gas from a qualified list of suppliers. The proposal
provided that the Company would continue to provide all other utility services.
In early 1996, the Wyoming Public Service Commission issued an order allowing
the Company to bring competition to these 10,500 residential and commercial
customers beginning in mid 1996. Choosing from a menu of three competing
suppliers, approximately 80% of the Company's customers chose to remain with the
Company. The experience gave the Company early and valuable experience in
competing in an unbundled environment and led to the development of new products
and services that add value to the natural gas commodity. The innovative program
was one of the first in the nation that allowed essentially all customers the
opportunity to exercise energy choice for natural gas. Similarly, the Company
has made voluntary filings with municipal authorities in Nebraska to provide its
retail customers with an opportunity to purchase gas from competing suppliers on
an unregulated basis. The Company will continue to provide all other gas utility
services. If municipal approvals are received, the program will be implemented
in 1998.
(b) Environmental Regulation
The Company's operations and properties are subject to extensive and evolving
Federal, state and local laws and regulations governing the release or discharge
of regulated materials into the environment or otherwise relating to
environmental protection. Numerous governmental departments issue rules and
regulations to implement and enforce such laws which are often difficult and
costly to comply with and which carry substantial penalties for failure to
comply. Moreover, the Company believes recent trends toward stricter standards
in environmental legislation and regulation are likely to continue.
The United States Oil Pollution Act of 1990 and regulations promulgated
thereunder by the Minerals Management Service impose a variety of requirements
on persons who are or may be responsible for oil spills in waters of the United
States. The term "waters of the United States" has been broadly defined to
include inland waterbodies, such as wetlands, playa lakes and intermittent
streams. The Company has a limited number of facilities that could affect
"waters of the United States." The Federal Water Pollution Control Act, also
known as the Clean Water Act, and
10
<PAGE> 11
regulations promulgated thereunder, require containment of potential discharges
of oil or hazardous substances and preparation of oil spill contingency plans.
The Company has implemented programs that address containment of potential
discharges and spill contingency planning. The failure to comply with ongoing
environmental regulatory requirements or inadequate cooperation during a spill
event may subject a responsible party to civil or criminal enforcement actions.
The Comprehensive Environmental Response, Compensation and Liability Act, as
amended ("Superfund"), imposes liability on certain classes of persons who are
considered to have contributed to the release of a "hazardous substance" into
the environment without regard to fault or the legality of the original conduct.
Under Superfund, such persons may be subject to joint and several liability for
the costs of cleaning up the hazardous substances that have been released into
the environment and for damages to natural resources. Furthermore, neighboring
landowners and other third parties have the right to file claims for personal
injury and property damage allegedly caused by the hazardous substances released
into the environment.
Federal and state regulations implementing the 1990 Amendments to the Clean Air
Act affect the Company's operations in several ways. Natural gas compressors for
both gathering and transmission activity are now required to meet stricter air
emission standards. Additionally, states in which the Company operates are
adopting regulations under the authority of the "Operating Permit Program" under
Title V of these 1990 Amendments. This Operating Permit Program requires
operators of certain facilities to obtain individual site-specific air permits
containing stricter operational and technological standards of operation in
order to achieve compliance with this section of the 1990 Clean Air Act
Amendments and associated state air regulations.
The Toxic Substances Control Act, as amended ("TSCA"), imposes certain
operational and technical standards on persons who manufacture, process,
distribute, use or dispose of TSCA-related substances, including such things as
polychlorinated biphenyls ("PCBs"), asbestos, and lead-based paints. The Company
has facilities which contain such TSCA-related substances.
In connection with the Acquisition of MidCon, Occidental indemnified the Company
against certain liabilities, including litigation and the failure of MidCon to
be in compliance with applicable laws, in each case which would have a material
adverse effect on MidCon, for one year following the closing date. To the extent
that an environmental liability of MidCon is not covered by Occidental's
indemnity obligation or, to the extent that matters arise following the
termination of Occidental's indemnification obligation, the Company will be
responsible for MidCon's environmental liabilities. The Company does not expect
that such costs will have a material adverse impact on its business, financial
position or results of operations.
Based on current information and taking into account reserves established for
environmental matters, the Company does not believe that compliance with
Federal, state and local environmental laws and regulations will have a material
adverse effect on the Company's business, financial position or results of
operations. In addition, the clean-up programs in which the Company is engaged
are not expected to interrupt or diminish the Company's operational ability to
gather or transport natural gas. However, there can be no assurances that future
events, such as changes in existing laws, the promulgation of new laws, or the
development of new facts or conditions will not cause the Company to incur
significant costs.
(c) Safety Regulation
The operations of certain of the Company's gas pipelines are subject to
regulation by the United States Department of Transportation (the "DOT") under
the Natural Gas Pipeline Safety Act of 1968, as amended (the "NGPSA"). The NGPSA
establishes safety standards with respect to the design, installation, testing,
construction, operation and management of natural gas pipelines, and requires
entities that own or operate pipeline facilities to comply with the applicable
safety standards, to establish and maintain inspection and maintenance plans,
and to comply with such plans.
11
<PAGE> 12
The NGPSA was amended by the Pipeline Safety Act of 1992 to require the DOT's
Office of Pipeline Safety to consider, among other things, protection of the
environment when developing minimum pipeline safety regulations. Management
believes the Company's operations, to the extent they may be subject to the
NGPSA, comply in all material respects with the NGPSA.
The Company is also subject to state and federal laws and regulations concerning
occupational health and safety.
(d) Other
Amounts spent by the Company during 1997, 1996 and 1995 on research and
development activities were not material.
(C) Financial Information About Foreign and Domestic Operations and Export
Sales
Substantially all of the Company's operations are in the contiguous 48 states.
ITEM 3: LEGAL PROCEEDINGS
The Company was named as one of four potentially responsible parties ("PRPs") at
a U.S. Environmental Protection Agency ("EPA") Superfund site known as the
Mystery Bridge Road/U.S. Highway 20 site located near Casper, Wyoming (the
"Brookhurst Subdivision") in 1989. A majority of the Company's groundwater, soil
and free phase petroleum cleanup occurred between 1990 and 1996. Groundwater
remediation standards were recently achieved at the Company's operable unit, and
the EPA has allowed the Company to go into a post-remedial action monitoring
phase. The total remaining estimated cost is not expected to exceed $150,000.
(United States of America v. Dow Chemical Company, Dowell Schlumberger, Inc.,
and K N Energy, Inc., Civil Action No. 91CV1042, United States District Court
for the District of Wyoming; formerly reported as Administrative Orders for
Removal Action on Consent, October 15, 1987, and Amendment to Administrative
Order for Removal Order on Consent, October 10, 1989, Docket No. CERCLA
VII-88-01, United States Environmental Protection Agency; Judicial Entry of
Consent Decree, United States v. Dow Chemical Company, et al. (D. Wyo)
USDC-WY-91CV1042B, Superfund Site Number 8T83, Natrona County, Wyoming; EPA
Docket Number CERCLA-VIII).
In 1994, a mercury sampling program was initiated on the Company's systems in
central and western portions of Kansas. The Company is working with the Kansas
Department of Health and Environment pursuant to a voluntary agreement. The
assessment program is being completed, and the Company in 1998 will commence a
phased remediation program for those sites where concentrations are above
regulatory thresholds, at an expected cost of $200,000 in 1998. The program will
take place over a period of years, and the costs are not expected to have a
material adverse impact on the Company's business, financial position or results
of operations.
The Company performed environmental audits in Colorado, Kansas and Nebraska,
which revealed that certain grease and lubricating oils used at various pipeline
and facilities locations contained PCBs. The Company is working with the
appropriate regulatory agencies to manage the cleanup and remediation of the
pipelines and facilities. The Company filed suit against Rockwell International
Corporation ("Rockwell"), manufacturer of the PCB-containing grease used in
certain of the Company's pipelines and facilities, and two other related
defendants for expenses and losses incurred by the Company for cleanup or
mitigation. The Company settled with Rockwell in March 1994. (K N Energy, Inc.
and Rocky Mountain Natural Gas Company v. Rockwell International Corp et al.,
United States District Court for the District of Colorado, Case No. 93-711). To
date since 1991, the Company has incurred approximately $500,000 in costs
associated with the remediation and management of this issue, including
preparation and implementation of a workplan. In 1998, the Company may spend up
to approximately $470,000. A substantial portion of these costs are recoverable
under the settlement entered into with Rockwell. The total potential remediation
and cleanup costs at
12
<PAGE> 13
currently identified locations is not expected to have a material adverse impact
on the Company's financial position or results of operations. The cleanup
programs are not expected to interrupt or diminish the Company's operational
ability to gather or transport natural gas.
Pursuant to certain acquisition agreements involving Cabot Corporation
("Cabot"), the Company's largest stockholder, Cabot indemnified the Company for
certain environmental liabilities. Issues have arisen concerning Cabot's
indemnification obligations. The Company and Cabot have agreed to enter into
binding arbitration to resolve all issues in dispute. The Company is unable to
estimate its potential exposure for such liabilities at this time, but does not
expect them to have a material adverse impact on the Company's financial
position or results of operations.
The Company acquired certain gathering and processing assets from Parker &
Parsley Gas Processing Co. and its affiliates in October 1995. In connection
with that acquisition, and for a reduction in the purchase price that included
the estimated costs of remediation of $3.9 million, the Company agreed to accept
all responsibility and liability for environmental matters associated with such
properties. Also, in March 1997, the Company acquired the Bushton processing
complex and Hugoton Basin gathering assets from Enron Corporation and certain of
its affiliates. In connection with that acquisition, the Company established
reserves to fund previously-identified environmental/operational issues; the
Company will also be reimbursed on a shared basis for costs and expenses
associated with any environmental deficiencies identified at the facility in the
next five years up to a maximum of $10 million, although the Company does not
anticipate costs will reach that amount. After consideration of reserves
established and the agreements entered into in connection with these various
acquisitions, costs and expenses related to environmental matters are not
expected to have a material adverse effect on the business, financial position
or results of operations of the Company.
In May 1997, the Nebraska Department of Environmental Quality ("NDEQ") issued a
violation notice to KNI regarding historical Prevention of Significant
Deterioration permitting issues related to certain engines at the Big Springs,
Nebraska, facility. KNI is in the process of obtaining the proper permits at
this time, and is also engaged in discussions with NDEQ regarding settlement of
the violation notice and a $500,000 fine currently proposed by the NDEQ. The
costs associated with this matter are not expected to have a material adverse
effect on the Company's business, financial position or results of operations.
On October 9, 1992, Jack J. Grynberg filed suit in the United States District
Court for the District of Colorado against the Company, Rocky Mountain Natural
Gas Company ("RMNG') and GASCO, Inc. (the "K N Entities") alleging that the KN
Entities as well as K N Production Company and K N Gas Gathering, Inc., have
violated federal and state antitrust laws. In essence, Grynberg asserts that the
defendant companies have engaged in an illegal exercise of monopoly power, have
illegally denied him economically feasible access to essential facilities to
transport and distribute gas produced from fewer than 20 wells located in
northwest Colorado, and have illegally attempted to monopolize or to enhance or
maintain an existing monopoly. Grynberg also asserts certain causes of action
relating to a gas purchase contract. The Company's potential liability for
monetary damages and the amount of such damages, if any, are subject to dispute
between the parties; however, the Company believes it has a meritorious position
in these matters and does not expect this lawsuit to have a material adverse
effect on the Company's financial position or results of operations. In July
1996, the U. S. District Court, District of Colorado lifted its stay and allowed
discovery for a period of time. Currently, this case is still pending. Discovery
is now complete, but no trial date has yet been set. (Grynberg v. K N, et al.,
Civil Action No. 92-2000, United States District Court for the District of
Colorado).
On July 26, 1996, K N and RMNG along with over 70 other natural gas pipeline
companies, were served by Jack J. Grynberg, acting on behalf of the Government
of the United States, with a Civil False Claims Act lawsuit alleging
mismeasurement of the heating content and volume of natural gas resulting in
underpayment of royalties to the federal government. The government,
particularly officials from the Departments of Justice and Interior, reviewed
the complaint and the evidence presented by Mr. Grynberg and declined to
intervene in the action, allowing Mr. Grynberg to proceed on his own. No
specific claims were made against K N or RMNG, and no specific monetary damages
were
13
<PAGE> 14
claimed. K N and the other named companies filed a motion to dismiss the
lawsuit on grounds of improper joinder and lack of jurisdiction. The motion to
dismiss was granted in 1997, and K N is no longer required to respond to this
action. However, the court did give Mr. Grynberg leave to refile and pursue this
action in a court with proper jurisdiction. The Company believes it has a
meritorious position in this matter, and does not expect this lawsuit to have a
material adverse effect on the Company's financial position or results of
operations. (United States of America ex rel. Jack J. Grynberg v. Alaska
Pipeline Company, et al., Civil Action No. 95-725-TF#, United States District
Court for the District of Columbia).
The Company believes it has meritorious defenses to all lawsuits and legal
proceedings in which it is a defendant and will vigorously defend against them.
Based on its evaluation of the above matters, and after consideration of
reserves established, the Company believes that the resolution of such matters
will not have a material adverse effect on the Company's financial position or
results of operations.
14
<PAGE> 15
EXECUTIVE OFFICERS OF THE REGISTRANT
(A) Identification and Business Experience of Executive Officers
<TABLE>
<CAPTION>
Name Age Position and Business Experience
- ------------------------------------------------- --- ------------------------------------------------------------
<S> <C> <C>
Morton C. Aaronson............................... 39 Chief Marketing Officer since April 1996. Vice President
since January 1996. Vice President, MCI/ NewsCorp. Business
Development from May 1995 to January 1996. Vice President,
Market Management, MCI Communications Corporation from
August 1994 to May 1995. Vice President, Large Accounts and
Global Markets, MCI Communications Corporation, from July
1993 to August 1994. Director, Major Accounts Marketing, MCI
Communications Corporation from July 1992 to July 1993.
John N. DiNardo.................................. 50 Vice President and General Manager since April 1996. Vice
President - Gas Gathering and Processing from March 1994 to
April 1996. General Manager, K N Gas Gathering, Inc. and K N
Front Range Gathering Company from May 1993 to March 1994.
Director of Project Development, K N Gas Gathering, Inc.
from August 1991 to May 1993.
Jack W. Ellis II................................. 44 Vice President and Controller since December 1997. Vice
President and Controller, NorAm Energy Co. from December
1989 to August 1997.
William S. Garner, Jr............................ 48 Vice President since April 1997. Vice President and General
Counsel from January 1991 to April 1997 and Secretary from
April 1992 to April 1996.
Larry D. Hall.................................... 55 Chairman of the Board since April 1996. President and Chief
Executive Officer since July 1994. President and Chief
Operating Officer from May 1988 to July 1994. Director since
1984.
S. Wesley Haun................................... 50 Vice President, Strategic Business Development Since April
1997. Vice President since April 1996. Vice President,
Marketing and Supply from May 1993 to April 1996. Vice
President, Gas Supply from March 1990 to May 1993.
E. Wayne Lundhagen............................... 60 Vice President and Treasurer since March 1995. Vice
President, Finance and Accounting from May 1988 to March
1995.
Clyde E. McKenzie................................ 50 Vice President and Chief Financial Officer since April 1996.
Vice President and Treasurer, Apache Corporation from 1988
to 1996.
John L. Pelletier............................... 49 Vice President, Administration since February 1998. Vice
President, Administration of MidCon Corp. from 1992 to
January 1998.
</TABLE>
15
<PAGE> 16
<TABLE>
<S> <C> <C>
John F. Riordan................................. 62 Vice Chairman of the Board and Director since February 1998.
President and Chief Executive Officer of MidCon Corp. from
1990 to January 1998. Executive Vice President and
Director of Occidental Petroleum Corporation from 1991 to
January 1998.
Murray R. Smith................................. 43 Vice President - Corporate Communications since August 1996.
Senior Vice President, K N Services, Inc. from April to
August 1996. Director of Field Communications, Training and
Sales Programs, MCI Communications Corporation from October
1995 to April 1996. Director of Field Marketing and
Communications, WorldWide Sales, MCI Communications
Corporation from October 1994 to October 1995. Director of
Field Marketing - Business Services, MCI Communications
Corporation from June 1992 to October 1994. Director of
Marketing, Southern Division, MCI Communications Corporation
from November 1990 to June 1992.
H. Rickey Wells................................. 41 Vice President - Business Operations since April 1996. Vice
President, Operations from June 1988 to April 1996.
Martha B. Wyrsch................................ 40 Vice President, General Counsel and Secretary since August
1997. Vice President, Deputy General Counsel and Secretary
from April 1996 to August 1997. Deputy General Counsel from
November 1995 to April 1996. Assistant General Counsel from
June 1995 to November 1995. Senior Counsel from June 1993 to
June 1995.
</TABLE>
These officers generally serve until April of each year.
(B) Involvement in Certain Legal Proceedings
None.
16
<PAGE> 17
PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock is listed for trading on the New York Stock Exchange
under the symbol KNE. Dividends paid and the price range of the Company's common
stock by quarter for the last two years are provided below.
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Market Price Data
(Low-High-Close)
Quarter Ended:
March 31 $36.125 - $41.75 - $39.50 $27.00 - $31.75 - $31.125
June 30 $36.875 - $43.125 - $42.125 $30.625 - $34.375 - $33.50
September 30 $39.00 - $47.938 - $45.75 $31.75 - $36.625 - $35.25
December 31 $41.00 - $54.00 - $54.00 $35.00 - $41.25 - $39.25
Dividends
Quarter Ended:
March 31 $0.27 $0.26
June 30 $0.27 $0.26
September 30 $0.27 $0.26
December 31 $0.28 $0.27
Common Stockholders
Year-end 10,090 9,794
</TABLE>
17
<PAGE> 18
ITEM 6: SELECTED FINANCIAL DATA
FIVE-YEAR REVIEW
K N ENERGY, INC. AND SUBSIDIARIES
Selected Financial Data (In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Gathering, Processing and
Marketing Services $ 1,866,327 $ 1,191,292 $ 854,462 $ 838,474 $ 730,895
Interstate Transportation and
Storage Services 23,757 25,352 22,217 21,044 99,838
Retail Natural Gas Services 255,034 223,838 227,282 220,431 212,905
Gas and Oil Production -- -- 7,437 11,328 5,321
----------- ----------- ----------- ----------- -----------
Total Operating Revenues $ 2,145,118 $ 1,440,482 $ 1,111,398 $ 1,091,277 $ 1,048,959
=========== =========== =========== =========== ===========
OPERATING INCOME $ 142,249 $ 134,801 $ 115,362 $ 54,879 $ 80,874
Other Income and (Deductions) (29,091) (35,085) (33,790) (30,058) (31,406)
----------- ----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 113,158 99,716 81,572 24,821 49,468
Income Taxes 35,661 35,897 29,050 9,500 18,599
----------- ----------- ----------- ----------- -----------
NET INCOME 77,497 63,819 52,522 15,321 30,869
Less - Preferred Stock Dividends 350 398 492 630 853
----------- ----------- ----------- ----------- -----------
EARNINGS AVAILABLE FOR
COMMON STOCK $ 77,147 $ 63,421 $ 52,030 $ 14,691 $ 30,016
=========== =========== =========== =========== ===========
DILUTED EARNINGS PER
COMMON SHARE $ 2.45 $ 2.14 $ 1.83 $ 0.52 $ 1.09
=========== =========== =========== =========== ===========
DIVIDENDS PER COMMON SHARE $ 1.09 $ 1.05 $ 1.01 $ 0.76 $ 0.51
=========== =========== =========== =========== ===========
NUMBER OF SHARES USED IN
COMPUTING DILUTED EARNINGS
PER COMMON SHARE 31,538 29,624 28,360 28,044 27,424
=========== =========== =========== =========== ===========
TOTAL ASSETS $ 2,305,805 $ 1,629,720 $ 1,257,457 $ 1,172,384 $ 1,169,275
=========== =========== =========== =========== ===========
CAPITAL EXPENDITURES $ 311,093 $ 119,987 $ 79,313 $ 70,511 $ 100,780
=========== =========== =========== =========== ===========
ACQUISITIONS $ 153,756 $ 155,909 $ 35,897 $ 31,363 $ 65,172
=========== =========== =========== =========== ===========
CAPITALIZATION:
Common Stockholders' Equity $ 606,132 48% $ 519,794 55% $ 426,760 57% $ 393,686 54% $ 391,462 53%
Preferred Stock 7,000 -- 7,000 1% 7,000 1% 7,000 1% 7,000 1%
Preferred Stock Subject to
Mandatory Redemption -- -- -- -- 572 -- 1,715 -- 2,858 --
Preferred Capital Trust
Securities 100,000 8% -- -- -- -- -- -- -- --
Long-Term Debt 553,816 44% 423,676 44% 315,564 42% 334,644 45% 335,190 46%
----------- --- ----------- --- ----------- --- ----------- --- ----------- ---
Total Capitalization $ 1,266,948 100% $ 950,470 100% $ 749,896 100% $ 737,045 100% $ 736,510 100%
=========== === =========== === =========== === =========== === =========== ===
BOOK VALUE PER COMMON SHARE $ 18.93 $ 17.16 $ 15.19 $ 14.25 $ 14.39
=========== =========== =========== =========== ===========
</TABLE>
18
<PAGE> 19
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
On January 30, 1998, K N acquired all the outstanding capital stock of MidCon
Corp. for approximately $2.1 billion in cash and a $1.39 billion short-term
note. See K N - MidCon Combination in the Outlook/Forward-Looking Information
section of this report and Note 2 of Notes to Consolidated Financial Statements.
CONSOLIDATED EARNINGS
Consolidated net income, diluted earnings per common share and return on average
common equity for the three years ended December 31, 1997 were:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net Income (In Millions) $77.5 $63.8 $52.5
Earnings per Common Share $2.45 $2.14 $1.83
Return on Average Common Equity 13.7% 13.4% 12.7%
</TABLE>
Net income and diluted earnings per share for 1997 represent increases of 21
percent and 14 percent, respectively, from 1996. This improvement resulted
principally from (1) the earnings contribution of the Bushton assets acquired in
April 1997, (2) the August 1997 startup of the Pony Express Pipeline, (3)
earnings from the Company's equity investments in the TransColorado Pipeline and
the Coyote Gulch Gas Treating Plant, (4) income related to the sale of a 50
percent interest in en*able, and (5) a lower 1997 income tax provision. To
achieve its double-digit earnings growth in 1997, the Company overcame several
challenges, including losses in certain power marketing transactions, lower
natural gas liquids ("NGLs") prices, record low demand for wholesale irrigation
load in the Texas intrastate market area and a delay in reaching full throughput
capacity on the Pony Express Pipeline (which impacted operating results for both
the gathering, processing and marketing, and the interstate pipeline segments).
These negative factors were mitigated by the Company's decision to take
advantage of favorable market conditions to effect certain transactions as
discussed following.
The 17 percent increase in 1996 diluted earnings per share from 1995 was
primarily attributable to business growth on the interstate pipeline and
gathering and processing systems, higher prices for NGLs, expense savings from
the 1995 corporate restructuring, and incremental sales of storage gas.
Operating results for 1996 were adversely impacted by low demand for retail
irrigation sales and transportation services due to abnormally heavy rainfall
during the summer.
19
<PAGE> 20
RESULTS OF OPERATIONS
Comparative operating results by business segment, consolidated other income and
(deductions) and income taxes are presented below. Segment operating revenues,
costs and expenses and volumetric data cited below are before intersegment
eliminations; dollar amounts are in millions.
<TABLE>
<CAPTION>
GATHERING, PROCESSING AND MARKETING SERVICES 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Operating Revenues -
Gas Sales $1,443.9 $ 983.4 $706.8
Natural Gas Liquids Sales 275.9 189.9 117.0
Gathering, Transportation and Other 210.6 83.2 66.7
-------- -------- ------
1,930.4 1,256.5 890.5
-------- -------- ------
Operating Costs and Expenses -
Gas Purchases and Other Costs of Sales 1,691.5 1,050.1 704.3
Operations and Maintenance 115.1 89.1 85.1
Depreciation and Amortization 34.8 31.7 26.5
Taxes, Other Than Income Taxes 14.6 11.1 10.0
-------- -------- ------
1,856.0 1,182.0 825.9
-------- -------- ------
Operating Income $ 74.4 $ 74.5 $ 64.6
======== ======== ======
Systems Throughput (Trillion Btus) -
Gas Sales 573.7 430.1 407.8
Gathering and Transportation 423.0 313.1 306.0
-------- -------- ------
996.7 743.2 713.8
======== ======== ======
Natural Gas Liquids Sales (Million Gallons) -
Company-Owned and Processed 549.7 405.9 375.6
Third-Party Marketed 167.7 63.9 12.5
-------- -------- ------
717.4 469.8 388.1
======== ======== ======
</TABLE>
The significant increases in 1997 operating revenues, costs and expenses and
volumetric data largely reflect the acquisition of the Bushton gathering and
processing assets effective April 1, 1997. Other operating revenues and other
costs of sales also reflect a significant increase in 1997 power marketing
activity which, as discussed below, was suspended in the third quarter. The
Bushton acquisition contributed incremental 1997 operating revenues of $114.8
million and operating income of $15.4 million. This segment's 1997 operating
income was level with the prior year's results, as 1997 operations were
adversely impacted by losses from certain power marketing transactions, lower
NGLs prices, reduced wholesale irrigation demand (5.9 trillion Btus below 1996
deliveries due to abundant rainfall in the Texas intrastate market area) and
$1.4 million of expenses incurred to centralize the Company's marketing
activities in Houston.
During 1997, losses of approximately $4.0 million were incurred in connection
with certain power marketing transactions which were not in compliance with the
Company's risk management policies. Subsequently, power marketing activities
were suspended in the third quarter.
Excluding the Bushton facility, average NGLs prices in 1997 were $0.03 per
gallon lower than 1996, creating a negative impact on 1997 operating income of
approximately $7.5 million. Irrigation-related gas marketing and transportation
and storage margins were adversely impacted by approximately $5.4 million due to
the abnormally wet 1997 summer. Additionally, the delay until January 1998 in
reaching full throughput capability on the Pony Express Pipeline limited growth
in gathering and processing volumes at the Company's expanded Douglas plant and
marketing opportunities into the Kansas City area, as upstream business
expansion opportunities off the Pony Express Pipeline were expected to offset
on-going declines in certain producing areas. The cumulative unfavorable
earnings impact of these 1997 events was substantially mitigated by increased
sales of storage gas and the sale of certain non-strategic gas supply, NGLs
marketing and storage-related contracts. These transactions, aggregating $15.9
million of net margin increases over similar transactions in 1996,
20
<PAGE> 21
essentially offset the losses and negative market circumstances enumerated
above. The Company currently expects that future margins from storage sales will
be less.
The 15 percent increase in 1996 operating income over 1995 largely resulted from
three factors: (1) growth in volumes (principally due to acquisitions, the
Wildhorse joint venture with Tom Brown, Inc., and sales of storage gas), (2)
higher NGLs prices and (3) expense savings accruing from the 1995 corporate
restructuring. This segment did experience compression of margins during 1996 in
all three of its principal activities (gas sales, NGLs sales and transportation
and gathering services) due to competitive factors and significantly higher gas
costs influenced by colder weather nationwide. Average 1996 NGLs sales prices
exceeded those realized in 1995 by $0.10 per gallon. However, the impact of
higher NGLs prices was partially offset by the effect of higher gas prices on
shrink and fuel payments to producers under "keep whole" processing agreements.
<TABLE>
<CAPTION>
INTERSTATE TRANSPORTATION AND STORAGE SERVICES 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Operating Revenues -
Transportation and Storage $ 73.8 $ 63.4 $ 58.6
Other 6.0 8.4 5.8
-------- -------- --------
79.8 71.8 64.4
-------- -------- --------
Operating Costs and Expenses -
Gas Purchases and Other Costs of Sales 6.0 7.3 7.7
Operations and Maintenance 26.1 24.3 27.5
Depreciation and Amortization 9.0 8.0 7.8
Taxes, Other Than Income Taxes 3.7 2.8 3.4
-------- -------- --------
44.8 42.4 46.4
-------- -------- --------
Operating Income $ 35.0 $ 29.4 $ 18.0
======== ======== ========
Systems Throughput (Trillion Btus) 177.4 156.8 155.6
======== ======== ========
</TABLE>
The Pony Express Pipeline accounted for the majority of the 1997 improvement in
the interstate pipeline's operating income, despite regulatory delays in
commencing the project and operational delays in reaching its design capability.
Additionally, 1997 operating results were positively impacted by increased 1997
gas supply requirements in the Company's retail natural gas services segment
resulting from colder weather and higher irrigation demand. Effective August 31,
1997, the Casper processing plant was transferred to an unregulated subsidiary
included in the gathering, processing and marketing segment. The reduction in
1997 other operating revenues and gas purchases and other costs of sales is
primarily due to this transfer.
21
<PAGE> 22
This segment's 1996 results showed substantial improvement over 1995 as
throughput and demand revenues increased due to mid-year 1996 system expansions
in Wyoming. Throughput in 1996 was adversely affected by below normal irrigation
load on the Company's retail segment served by the interstate pipeline. Lower
1996 operations and maintenance and payroll taxes resulted from expense savings
due to the 1995 corporate restructuring.
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
RETAIL NATURAL GAS SERVICES
Operating Revenues -
Gas Sales $ 219.4 $ 190.0 $ 204.0
Transportation and Other 37.4 35.4 28.3
-------- -------- --------
256.8 225.4 232.3
-------- -------- --------
Operating Costs and Expenses -
Gas Purchases and Other Costs of Sales 148.3 115.3 122.4
Operations and Maintenance 57.9 62.3 60.3
Depreciation and Amortization 12.2 11.5 11.0
Taxes, Other Than Income Taxes 5.6 5.4 5.6
-------- -------- --------
224.0 194.5 199.3
-------- -------- --------
Operating Income $ 32.8 $ 30.9 $ 33.0
======== ======== ========
Systems Throughput (Trillion Btus) -
Gas Sales 38.6 34.7 39.0
Transportation 34.9 32.9 27.4
-------- -------- --------
73.5 67.6 66.4
======== ======== ========
</TABLE>
Operating income in 1997 as compared to 1996 was positively affected by
increased demand for space-heating and irrigation due to colder weather and less
rainfall during the summer. Although approximately 13 percent below a normal
year, irrigation deliveries of 10.9 trillion Btus in 1997 exceeded 1996
requirements by 1.4 trillion Btus. The impact of 1997 company-wide expense
controls on operations and maintenance costs is most apparent in this segment,
as this segment has not experienced significant acquisitions or expansion
projects this year.
Operating results for 1996 were adversely impacted by low demand for irrigation
requirements due to abnormally heavy rainfall during the summer. Irrigation
sales and transportation volumes in 1996 were 3.8 trillion Btus below the 1995
season. Deliveries to irrigators of 12.6 trillion Btus in 1995 were more
indicative of a normal year's load. This negative impact on 1996 earnings was
partially mitigated by increased customer requirements for grain drying and
growth in transportation volumes on the Rocky Mountain intrastate pipeline due
to the fourth quarter 1996 acquisition of interconnected gathering and
processing facilities. Operations and maintenance expenses were 3.3 percent
higher than in 1995, as costs incurred in the development of new marketing
initiatives exceeded savings realized from the 1995 corporate restructuring.
<TABLE>
<CAPTION>
OTHER INCOME AND (DEDUCTIONS) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Interest Expense $ (43.5) $ (35.9) $ (34.2)
------- ------- -------
Minority Interests and Other, Net 14.4 0.8 0.4
------- ------- -------
$ (29.1) $ (35.1) $ (33.8)
======= ======= =======
</TABLE>
Increases in the most recent two years' interest expense result from the
issuance of long-term debt in 1997 and 1996 and higher levels of short-term
borrowings incurred principally to fund capital expenditures. In 1997 and 1996,
the Company capitalized $7.8 million and $1.8 million, respectively, of interest
costs primarily related to the construction of the Pony Express Pipeline.
Minority Interests and Other, Net for 1997 includes $5.7 million of earnings
from the Company's equity investments in the TransColorado Pipeline and the
Coyote Gulch Gas Treating Plant, and $7.0 million of income related to the sale
of a 50 percent interest in en*able, with no corresponding amounts in 1996. Net
gains totaling $ 3.7 million on the sale of several non-strategic gathering
systems and, in accordance with regulatory guidelines, the capitalization of
equity financing costs of $4.5 million
22
<PAGE> 23
related to the Pony Express Pipeline, more than offset the $5.8 million of
financing costs (included in Minority Interests) associated with the 8.56%
Preferred Capital Trust Securities issued in April 1997.
<TABLE>
<CAPTION>
INCOME TAXES 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Provisions $ 35.7 $ 35.9 $ 29.1
======= ======= =======
Effective Tax Rate 31.5% 36.0% 35.6%
======= ======= =======
</TABLE>
The reduced 1997 provision for income taxes and the resulting reduction in the
effective tax rate are due to the successful resolution of certain issues from
prior years' income tax filings. Refer to Note 7 of Notes to Consolidated
Financial Statements for a reconciliation of the statutory rate to yearly
effective rates.
LIQUIDITY AND CAPITAL RESOURCES
During 1997 the primary sources of cash were from internally generated cash
flows, the public offerings of long-term debt and preferred capital trust
securities and short-term borrowings. Cash outflows funded capital expenditures
and acquisitions, debt service and dividend payments.
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash flows from operating activities for 1997 totaled $97.5 million,
compared with $75.6 million and $132.2 million for 1996 and 1995, respectively.
The improvement in 1997's net operating cash flows was largely attributable to
the same factors resulting in the reported increase in earnings. Net operating
cash flows in 1996 were primarily negatively impacted by disbursements to buyout
above-market gas purchase contracts and increases in storage gas inventories.
CAPITAL EXPENDITURES AND COMMITMENTS
Capital expenditures of $311.1 million in 1997 were significantly higher than
expenditures of $120.0 million in 1996 and $79.3 million in 1995. The large
increase in 1997 capital expenditures resulted from the completion of the Pony
Express Pipeline, construction of transmission laterals into the Kansas City
metropolitan area, and capital investment related to the Bushton acquisition,
including initial expenditures to reduce field pressures in the Hugoton Basin.
The 1998 capital expenditures budget totals $149.5 million (before adjustment to
reflect the consolidation with MidCon). Budgeted maintenance, safety and
environmental expenditures approximate $56.4 million and budgeted business
growth or expansion expenditures approximate $93.1 million.
Principal acquisitions or investments made during 1997 included the Bushton gas
gathering and processing assets effective in April, Interenergy effective in
December (primarily a gathering and marketing entity) and an interest in the Red
Cedar Gathering Company acquired at year-end. See Notes 3(A), 3(C) and 3(B) of
Notes to Consolidated Financial Statements.
23
<PAGE> 24
CAPITAL RESOURCES
At December 31, 1997, the Company had a credit agreement with 11 banks (the
"Pre-Acquisition Facility") pursuant to which the Company could borrow or
provide support for commercial paper issuance up to a total of $350 million.
Borrowings under the Pre-Acquisition Facility were $329.2 million and $129.3
million at December 31, 1997 and 1996, respectively. The Pre-Acquisition
Facility was terminated in January 1998 and replaced with new credit lines and
an acquisition facility in conjunction with the acquisition of MidCon. See Note
8(A) of Notes to Consolidated Financial Statements.
In January 1998, following a review of the K N - MidCon combination, Fitch
Investors Service ("Fitch"), Moody's Investors Service ("Moody's") and Standard
& Poor's ("S&P") lowered their ratings of the Company's senior unsecured debt.
Fitch lowered its rating from A- to BBB, Moody's lowered its rating from A3 to
Baa2 and S&P lowered its rating from BBB+ to BBB-. The Company intends to
strengthen its balance sheet during 1998 by public equity offerings, limiting
capital expenditures (for both MidCon and the historical K N companies) and
increasing internally generated cash flows.
In recent years, the Company's capitalization has averaged approximately 45
percent debt to 55 percent equity. As a result of the acquisition of MidCon on
January 30, 1998, the Company's leverage has increased significantly through the
utilization of an acquisition debt facility and new revolving credit facilities.
See Note 8(A) of Notes to Consolidated Financial Statements. The Company
currently has in place a shelf registration statement with the Securities and
Exchange Commission in a total amount of $4.0 billion, pursuant to which, as of
March 4, 1997, the Company had agreed to the pricing for public sale of $2.35
billion principal amount of debt securities of varying maturities and 10 million
shares of common stock (up to 11.5 million shares if the underwriters'
over-allotment option is fully exercised). The proceeds of these offerings are
expected to be used to (1) repay the acquisition debt associated with the
purchase of MidCon and (2) purchase U.S. government securities to serve as a
portion of the collateral required for the note issued to the seller in the
MidCon acquisition. The Company's future financing plans include the public
issuance of other securities, including trust securities which are mandatorily
redeemable or convertible. The Company currently expects that, even if it is
successful in completing both the offerings currently in progress and its
planned offerings, its degree of leverage in the near-term will remain
significantly above historical levels.
REGULATION
In 1997, approximately 48 percent of the Company's operating income was derived
from assets which are rate-regulated at either the federal, state or local
level. At least in the near-term, a significantly higher percentage of the
Company's operating income is expected to be derived from rate-regulated
operations as a result of the acquisition of MidCon. In substantially all
regulatory jurisdictions, rates are currently determined using cost-based
regulation and, at this time, the Company does not expect a significant change
in the manner in which rates are set. Thus far, the primary impact of
competition on the Company's regulated businesses has been the conversion of
services from the "bundled" merchant and transportation function (including the
pass-through of actual gas costs expended) to transportation services only. The
Company anticipates that this conversion to transportation service will continue
and become more prevalent at the retail level. During 1998, K N will continue to
implement its Choice Gas Program in Nebraska, pursuant to which approximately
100,000 retail customers will be able to choose their gas supplier. See Note
4(B) of Notes to Consolidated Financial Statements.
RISK MANAGEMENT
To minimize the risk of price changes in the natural gas and NGLs markets, the
Company uses certain financial instruments for hedging purposes. These
instruments include energy products traded on the New York Mercantile Exchange,
the Kansas City Board of Trade and over-the-counter markets, including futures
and options contracts and fixed-price swaps.
Pursuant to guidelines approved by its Board of Directors, the Company is to
engage in these activities only as a hedging mechanism against price volatility
associated with pre-existing or anticipated physical gas and
24
<PAGE> 25
condensate sales, gas purchases, system use and storage in order to protect
profit margins, and is not to engage in speculative trading. See "Results of
Operations - Gathering, Processing and Marketing Services." Commodity-related
activities of the risk management group are monitored by the Company's Risk
Management Committee, which is charged with the review and enforcement of the
Board of Directors' risk management guidelines. The Risk Management Committee
reviews the types of hedging instruments used, contract limits and approval
levels and may review the pricing and hedging of any or all commodity
transactions. All energy futures, swaps and options are recorded at fair value.
Gains and losses on hedging positions are deferred and recognized as gas
purchases expense in the periods in which the underlying physical transactions
occur.
The Company's Treasury Department manages the Company's interest rate exposure,
utilizing interest rate swaps, caps or similar derivatives within
Board-established guidelines. None of these interest rate derivatives are
leveraged.
OUTLOOK/FORWARD-LOOKING INFORMATION
GENERAL
The statements contained in this section, Outlook/Forward-Looking Information,
include forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Although the Company believes that these statements are based upon reasonable
assumptions, it can give no assurance that its goals will be achieved. Important
factors that could cause actual results to differ materially from those in the
forward-looking statements contained herein include, among other factors, the
pace of deregulation of retail natural gas and electricity markets in the United
States, federal and state regulatory developments, the timing and extent of
changes in commodity prices for oil, gas, NGLs, electricity, certain
agricultural products and interest rates, the extent of success in acquiring
natural gas facilities, the timing and success of efforts to develop power,
pipeline and other projects, political developments in foreign countries, and
conditions of the capital markets and equity markets during the periods covered
by the forward-looking statements.
K N - MIDCON COMBINATION
On December 18, 1997, K N entered into a definitive agreement to acquire all of
the outstanding capital stock of MidCon from Occidental Petroleum Corporation
for $3.49 billion, consisting of $2.1 billion in cash and the assumption of
$1.39 billion of short-term debt. The acquisition closed on January 30, 1998, at
which time MidCon became a wholly owned subsidiary of the Company.
MidCon is engaged in the purchase, gathering, processing, transmission, storage
and sale of natural gas to utilities, municipalities and industrial and
commercial users. MidCon operates over 14,000 miles of natural gas pipelines
which are located in the center of the North American pipeline grid. These
pipeline assets include two major interconnected transmission pipelines
terminating in the Chicago area: one originating in West Texas and the other in
the Gulf Coast areas of Texas and Louisiana, as well as a major intrastate
pipeline located in Texas. MidCon also purchases electricity from electric
utilities and other electric power producers and marketers and resells the
electricity to wholesale and end-use customers.
As a result of the acquisition, K N will be one of the largest integrated
natural gas companies in the United States. The Company will own and/or operate
approximately 26,000 miles of interstate, intrastate and offshore natural gas
transmission pipeline, approximately 11,000 miles of gathering pipeline,
approximately 7,000 miles of local distribution pipeline, and 16 storage
facilities with storage capacity of more than 250 Bcf of working gas. The
Company will also be one of the largest transporters and marketers of natural
gas in the United States with average sales volumes of 3.7 Bcf and average
transportation volumes of 5.1 Bcf of natural gas per day. On a pro forma basis
including only adjustments directly attributable to the acquisition of MidCon,
as of and for the year ended December 31, 1997, the Company had approximately
$8.2 billion in assets, operating revenues of
25
<PAGE> 26
approximately $5.2 billion, operating income of approximately $358.6 million and
net income of approximately $83.0 million.
In addition to significantly increasing the Company's size and scope of
operations, as well as its geographic presence, management believes the
acquisition will also provide K N with a strong platform for future growth. The
Company will have assets in 16 states and access to several of the largest
natural gas markets in the United States, including Chicago, Houston, Kansas
City and Denver. The combined company will have access to natural gas supplies
in the major natural gas supply basins in the United States, including those in
the Mid-Continent, West Texas, Rocky Mountain and Gulf Coast regions. The
Company will also be one of the nation's largest owners and operators of natural
gas storage assets in both supply and market areas. Management believes these
assets are strategically located and will allow the Company to become a major
supplier of storage service, particularly in the Chicago market, and that the
acquisition will also significantly broaden the Company's retail presence in
both the residential and small business market segments.
LITIGATION AND ENVIRONMENTAL
The Company's anticipated environmental capital costs and expenses for 1998,
including expected costs and expenses for voluntary remediation efforts, are
approximately $7.7 million, exclusive of anticipated costs and expenses
associated with the recently acquired MidCon assets. A substantial portion of
the Company's environmental costs are either recoverable through insurance and
indemnification provisions, have reserves associated with them or have been
previously expensed as part of ongoing business operations.
Refer to Notes 2 and 5 of Notes to Consolidated Financial Statements for
additional information on the Company's pending litigation and environmental
matters. The Company's management believes it has established reserves such that
the resolution of pending litigation and environmental matters will not have a
material adverse impact on the Company's financial position or results of
operations.
SIGNIFICANT OPERATING VARIABLES
The Company's principal exposure to price variability is with NGLs prices. The
Company attempts to mitigate this exposure by an appropriate mix of "percent of
proceeds" and "keep whole" processing agreements and by the use of financial
hedging instruments. See Risk Management elsewhere herein. Under current
agreements with producers, excluding MidCon processing facilities, a one cent
change in average per gallon prices impacts pre-tax operating income by
approximately $5.5 million.
READINESS FOR YEAR 2000
The Company has completed a high-level assessment of its systems and
infrastructure to determine the extent of the work needed to ensure Year 2000
compliance. A plan has been developed and is being implemented to test and
verify Year 2000 compliance, including making necessary modifications, for all
systems and processes. K N will continue to evaluate the estimated costs
associated with these efforts based on the results of this work. While these
efforts involve additional costs, the Company believes, based on available
information, that these costs will not be material to its results of operations.
26
<PAGE> 27
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To K N Energy, Inc.:
We have audited the accompanying consolidated balance sheets of K N Energy, Inc.
(a Kansas corporation) and subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of income, common stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of K N Energy, Inc. and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Denver, Colorado
February 3, 1998
27
<PAGE> 28
CONSOLIDATED STATEMENTS OF INCOME
K N ENERGY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------
1997 1996 1995
---- ---- ----
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C>
OPERATING REVENUES:
Gathering, Processing and Marketing Services $ 1,866,327 $ 1,191,292 $ 854,462
Interstate Transportation and Storage Services 23,757 25,352 22,217
Retail Natural Gas Services 255,034 223,838 227,282
Gas and Oil Production -- -- 7,437
----------- ----------- -----------
Total Operating Revenues 2,145,118 1,440,482 1,111,398
----------- ----------- -----------
OPERATING COSTS AND EXPENSES:
Gas Purchases and Other Costs of Sales 1,724,671 1,060,374 753,022
Operations and Maintenance 198,274 174,774 173,288
Depreciation, Depletion and Amortization 55,994 51,212 49,891
Taxes, Other Than Income Taxes 23,930 19,321 19,835
----------- ----------- -----------
Total Operating Costs and Expenses 2,002,869 1,305,681 996,036
----------- ----------- -----------
OPERATING INCOME 142,249 134,801 115,362
----------- ----------- -----------
OTHER INCOME AND (DEDUCTIONS):
Interest Expense (43,495) (35,933) (34,211)
Minority Interests (8,706) (2,946) (905)
Other, Net 23,110 3,794 1,326
----------- ----------- -----------
Total Other Income and (Deductions) (29,091) (35,085) (33,790)
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 113,158 99,716 81,572
Income Taxes 35,661 35,897 29,050
----------- ----------- -----------
NET INCOME 77,497 63,819 52,522
Less - Preferred Stock Dividends 350 398 492
----------- ----------- -----------
EARNINGS AVAILABLE FOR COMMON STOCK $ 77,147 $ 63,421 $ 52,030
=========== =========== ===========
BASIC EARNINGS PER COMMON SHARE $ 2.48 $ 2.18 $ 1.87
=========== =========== ===========
DILUTED EARNINGS PER COMMON SHARE $ 2.45 $ 2.14 $ 1.83
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
28
<PAGE> 29
CONSOLIDATED BALANCE SHEETS
K N ENERGY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1997 1996
---- ----
(In Thousands)
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and Cash Equivalents $ 22,471 $ 10,339
Restricted Deposits 11,339 6,666
Accounts Receivable 409,937 304,942
Materials and Supplies 13,476 6,092
Gas in Underground Storage 33,558 43,511
Prepaid Gas 5,507 12,001
Other Prepaid Expenses 16,687 12,824
Gas Imbalances and Other 63,555 65,319
---------- ----------
576,530 461,694
---------- ----------
INVESTMENTS 149,869 50,538
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, NET 1,420,975 1,022,301
---------- ----------
DEFERRED CHARGES AND OTHER ASSETS 158,431 95,187
---------- ----------
TOTAL ASSETS $2,305,805 $1,629,720
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Current Maturities of Long-Term Debt $ 30,751 $ 26,971
Notes Payable 329,200 129,300
Accounts Payable 334,418 241,187
Accrued Expenses 37,264 34,696
Accrued Taxes 7,445 16,045
Gas Imbalances and Other 57,733 50,417
---------- ----------
796,811 498,616
---------- ----------
DEFERRED LIABILITIES, CREDITS AND RESERVES:
Deferred Income Taxes 168,583 122,371
Other 26,160 31,930
---------- ----------
194,743 154,301
---------- ----------
LONG-TERM DEBT 553,816 423,676
---------- ----------
K N-OBLIGATED MANDATORILY REDEEMABLE PREFERRED CAPITAL TRUST SECURITIES OF
SUBSIDIARY TRUST HOLDING SOLELY DEBENTURES OF K N 100,000 -
---------- ----------
MINORITY INTERESTS IN EQUITY OF SUBSIDIARIES 47,303 26,333
---------- ----------
COMMITMENTS AND CONTINGENT LIABILITIES (NOTES 2, 3(A), 5 AND 13)
STOCKHOLDERS' EQUITY:
Preferred Stock 7,000 7,000
---------- ----------
Common Stock-
Authorized - 50,000,000 Shares, Par Value $5 Per Share
Outstanding - 32,024,557 and 30,295,792 Shares, Respectively 160,123 151,479
Additional Paid-in Capital 270,678 228,902
Retained Earnings 185,658 142,578
Deferred Compensation (9,203) (2,908)
Treasury Stock, at Cost - 28,482 and 7,216 Shares, Respectively (1,124) (257)
---------- ----------
Total Common Stockholders' Equity 606,132 519,794
---------- ----------
Total Stockholders' Equity 613,132 526,794
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,305,805 $1,629,720
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
29
<PAGE> 30
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
K N ENERGY, INC. AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL DEFERRED TREASURY STOCK
------------ PAID-IN RETAINED COMPEN- --------------
SHARES AMOUNT CAPITAL EARNINGS SATION SHARES AMOUNT
------ ------ ------- -------- ------ ------ ------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 27,617,531 $ 138,088 $ 170,932 $ 86,032 $ (378) (44,417) $ (988)
Net Income 52,522
Cash Dividends -
Common, $1.01 Per Share (28,167)
Preferred (492)
Treasury Stock Acquired (72,500) (1,959)
Employee Stock Options 354,901 1,774 4,006
Employee Benefit Plans 20,738 104 394 80 2
Dividend Reinvestment and
Stock Purchase Plans 97,979 490 1,444 106,098 2,633
Issuance of Common Shares as
Executive Compensation 6,600 33 134
Amortization of Deferred
Compensation 156
---------- ----------- ----------- ----------- ----------- ------- --------
BALANCE, DECEMBER 31, 1995 28,097,749 140,489 176,910 109,895 (222) (10,739) (312)
Net Income 63,819
Cash Dividends -
Common, $1.05 Per Share (30,738)
Preferred (398)
Sale of Common Stock, Net 1,715,000 8,575 44,591
Redemption and Cancellation of
Common Stock Warrants (7,420)
Unrealized Holding Gains on
Available-for-Sale Securities 5,735
Treasury Stock Acquired (220,178) (7,069)
Acquisition of Business 1,648 33,765 1,183
Employee Stock Options 292,421 1,462 2,981 517 16
Dividend Reinvestment and
Stock Purchase Plans 95,572 478 1,438 189,419 5,925
Issuance of Common Shares as
Executive Compensation 95,050 475 3,019 (3,494)
Amortization of Deferred
Compensation 808
---------- ----------- ----------- ----------- ----------- ------- --------
BALANCE, DECEMBER 31, 1996 30,295,792 151,479 228,902 142,578 (2,908) (7,216) (257)
Net Income 77,497
Cash Dividends -
Common, $1.09 Per Share (34,067)
Preferred (350)
Exercise of Common Stock Warrants 642,232 3,211 8,060
Unrealized Holding Losses on
Available-for-Sale Securities (1,492)
Treasury Stock Acquired (53,190) (2,096)
Acquisition of Business 544,604 2,723 21,411
Employee Stock Options 223,564 1,118 4,459 514 19
Dividend Reinvestment and
Stock Purchase Plans 87,615 438 1,805 31,410 1,210
Issuance of Common Shares as
Executive Compensation 230,750 1,154 7,533 (8,687)
Amortization of Deferred
Compensation 2,392
---------- ----------- ----------- ----------- ----------- ------- --------
BALANCE, DECEMBER 31, 1997 32,024,557 $ 160,123 $ 270,678 $ 185,658 $ (9,203) (28,482) $ (1,124)
========== =========== =========== =========== =========== ======= ========
</TABLE>
The accompanying notes are an integral part of these statements.
30
<PAGE> 31
CONSOLIDATED STATEMENTS OF CASH FLOWS
K N ENERGY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 77,497 $ 63,819 $ 52,522
Adjustments to Reconcile Net Income to
Net Cash Flows From Operating Activities:
Depreciation, Depletion and Amortization 55,994 51,212 49,891
Deferred Income Taxes 17,155 16,443 15,975
Deferred Purchased Gas Costs (17,146) (8,109) (1,458)
Provision for Losses on Accounts Receivable 1,479 307 949
(Gain) Loss on Sale of Facilities (4,860) 491 --
Changes in Gas in Underground Storage (3,167) (22,056) 26,541
Changes in Other Working Capital Items,
Net of Acquisitions and Dispositions (17,381) (2,803) 4,016
Changes in Deferred Revenues (5,736) (13,883) (21,267)
Other, Net (6,332) (9,811) 5,080
--------- --------- ---------
NET CASH FLOWS FROM OPERATING ACTIVITIES 97,503 75,610 132,249
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (311,093) (119,987) (79,313)
Acquisitions (118,590) (147,137) (31,945)
Investments (89,307) (2,142) (6,598)
Proceeds from Sales of Assets 22,433 11,922 2,706
Collections Under Basket Agreement -- 6 1,491
--------- --------- ---------
NET CASH FLOWS USED IN INVESTING ACTIVITIES (496,557) (257,338) (113,659)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-Term Debt, Net 199,900 41,300 28,000
Long-Term Debt - Issued 150,000 125,000 --
- Retired (27,832) (18,170) (21,322)
Preferred Capital Trust Securities Issued 100,000 -- --
Preferred Stock Redemption -- (572) (1,143)
Common Stock Issued 19,091 61,668 8,379
Redemption and Cancellation of Common Stock Warrants -- (7,420) --
Treasury Stock - Issued 1,229 5,941 2,635
- Acquired (2,096) (7,069) (1,959)
Cash Dividends - Common (34,067) (30,738) (28,167)
- Preferred (350) (398) (492)
Minority Interests - Contributions 7,823 13,586 2,906
- Distributions (212) (2,182) (2,765)
Securities Issuance Costs (2,300) (3,133) (35)
--------- --------- ---------
NET CASH FLOWS FROM (USED IN) FINANCING
ACTIVITIES 411,186 177,813 (13,963)
--------- --------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents 12,132 (3,915) 4,627
Cash and Cash Equivalents at Beginning of Year 10,339 14,254 9,627
--------- --------- ---------
Cash and Cash Equivalents at End of Year $ 22,471 $ 10,339 $ 14,254
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
31
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) Nature of Operations
K N Energy, Inc., referred to herein together with its consolidated subsidiaries
as "K N" or "the Company," is an energy services provider and has operations in
11 states in the Rocky Mountain and Mid-Continent regions, with principal
operations in Colorado, Kansas, Nebraska, Oklahoma, Texas and Wyoming. The
Company is building a natural gas distribution system, expected to begin
operations in the first quarter of 1998, in the Mexican state of Sonora. Energy
services include: gathering, processing, storing, transporting and marketing
natural gas, providing retail natural gas distribution services, providing field
services to natural gas producers and marketing natural gas liquids ("NGLs").
The Company has both regulated and nonregulated operations.
(B) Basis of Presentation
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported amounts of revenues and expenses. Actual results could differ from
these estimates.
The consolidated financial statements include the accounts of K N and its
majority-owned subsidiaries. Investments in jointly owned operations in which
the Company has 20 to 50 percent ownership are accounted for under the equity
method. All material intercompany transactions and balances have been
eliminated. Certain prior year amounts have been reclassified to conform to the
current presentation.
(C) Accounting for Regulatory Activities
The Company's regulated public utilities are accounted for in accordance with
the provisions of Statement of Financial Accounting Standards ("SFAS") No. 71,
Accounting for the Effects of Certain Types of Regulation, which prescribes the
circumstances in which the application of generally accepted accounting
principles is affected by the economic effects of regulation.
32
<PAGE> 33
Regulatory assets and liabilities represent probable future revenues or expenses
to the Company associated with certain charges and credits, which will be
recovered from or refunded to customers through the ratemaking process. The
following regulatory assets and liabilities are reflected in the accompanying
Consolidated Balance Sheets (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1997 1996
---- ----
<S> <C> <C>
REGULATORY ASSETS:
Employee Benefit Costs $ 1,348 $ 1,084
Debt Refinancing Costs 2,682 3,100
Deferred Income Taxes 754 706
Purchased Gas Costs 53,790 28,814
Plant Acquisition Adjustments 454 454
Rate Regulation and Application Costs 601 830
------- ------
Total Regulatory Assets 59,629 34,988
------- ------
REGULATORY LIABILITIES:
Deferred Income Taxes 3,718 4,218
Purchased Gas Costs 5,195 6,529
------- -----
Total Regulatory Liabilities 8,913 10,747
------- ------
NET REGULATORY ASSETS $50,716 $24,241
======= =======
</TABLE>
As of December 31, 1997, $46.1 million of the Company's regulated assets and
$8.1 million of the Company's regulated liabilities were being recovered from or
refunded to customers through rates over periods ranging from one to 16 years.
All of the regulatory assets being recovered at December 31, 1997, are being
recovered without a return on investment.
(D) Revenue Recognition Policies
In general, the Company recognizes revenues as services are rendered or goods
are delivered. The Company's rate-regulated retail natural gas distribution
business bills customers on a monthly cycle billing basis. Revenues are recorded
on an accrual basis, including an estimate for gas delivered but unbilled at the
end of each accounting period.
(E) Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
Earnings Per Share. This new statement became effective December 15, 1997, and
provides computation, presentation and disclosure requirements for earnings per
share. Basic earnings per share is computed based on the monthly
weighted-average number of common shares outstanding during the periods. The
weighted-average number of common shares used in computing basic earnings per
share was 31,059,000, 29,102,000 and 27,836,000 for 1997, 1996 and 1995,
respectively. Diluted earnings per share is computed based on the monthly
weighted-average number of common shares outstanding during the periods and the
assumed exercise of dilutive common stock equivalents (stock options and
warrants) using the treasury stock method. Dilutive common stock equivalents
assumed to have been exercised totaled 479,000, 522,000 and 524,000 for 1997,
1996 and 1995, respectively.
(F) Restricted Deposits
The Company uses energy financial instruments to minimize its exposure to price
risk related to natural gas and NGLs. Restricted Deposits consist of monies on
deposit with brokers that are restricted to meet exchange trading requirements.
See Note 10.
33
<PAGE> 34
(G) Gas in Underground Storage
K N's rate-regulated retail distribution business and Northern Gas Company
account for gas in underground storage using the last-in, first-out ("LIFO")
method. AOG Gas Transmission Company, L.P., KN Services, Inc., KN Gas Supply
Services, Inc., KN Marketing, L.P., KN Natural Gas, Inc. and Westar Transmission
Company value gas in underground storage at average cost. Rocky Mountain Natural
Gas Company ("RMNG") uses the first-in, first-out ("FIFO") method. All entities
discussed above are wholly owned by K N.
The Company also maintains gas in its underground storage facilities on behalf
of certain third parties. The Company receives a fee for its storage services
but does not reflect the value of third party gas in the accompanying financial
statements.
(H) Investments
Investments consist primarily of equity method investments in unconsolidated
subsidiaries and joint ventures. In addition, the Company has an investment in
Tom Brown, Inc. common and convertible preferred stock. See Note 3(F).
(I) Prepaid Gas
Prepaid gas represents payments made in lieu of taking delivery of natural gas
under the take-or-pay provisions of certain of the Company's gas purchase
contracts, net of any subsequent recoupments in kind from producers. Such
payments are fully recoupable from future production and, when recoupment is
made in kind in a subsequent contract year, natural gas purchase expense is
recorded and the asset is reduced.
(J) Property, Plant and Equipment
Property, plant and equipment is stated at historical cost which, for
constructed plant, includes indirect costs such as payroll taxes, fringe
benefits, and administrative and general costs. Expenditures which increase
capacities, improve efficiencies or extend useful lives are capitalized. Routine
maintenance, repairs and renewal costs are expensed as incurred.
The cost of normal retirements of depreciable utility property, plant and
equipment, plus the cost of removal less salvage, is deducted from accumulated
depreciation with no effect on current period earnings. Gains or losses are
recognized upon retirement of nonutility property, plant and equipment, and when
utility property, plant and equipment constituting an operating unit or system
is sold or abandoned.
In accordance with the provisions of SFAS 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, the Company
reviews the carrying values of its long-lived assets whenever events or changes
in circumstances indicate that such carrying values may not be recoverable. As
yet, no asset or group of assets has been identified for which the sum of
expected future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the asset(s) and, accordingly, no impairment losses
have been recorded. However, currently unforeseen events and changes in
circumstances could require the recognition of impairment losses at some future
date.
(K) Depreciation, Depletion and Amortization
Depreciation is computed based on the straight-line method over estimated useful
lives ranging from three to 40 years each for the Gathering, Processing and
Marketing, Interstate Transportation and Storage and Retail Natural Gas Services
segments.
34
<PAGE> 35
(L) Cash Flow Information
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Changes in Other Working Capital Items Summary and Supplemental Disclosures of
Cash Flow Information are as follows (in thousands):
CHANGES IN OTHER WORKING CAPITAL ITEMS SUMMARY
(NET OF ACQUISITION AND DISPOSITION EFFECTS)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Accounts Receivable $ (82,088) $ (89,773) $ (67,364)
Materials and Supplies (1,777) 4,761 2,172
Other Current Assets (7,656) (43,847) 19,650
Accounts Payable 82,504 83,934 50,447
Other Current Liabilities (8,364) 42,122 (889)
--------- --------- ---------
$ (17,381) $ (2,803) $ 4,016
========= ========= =========
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<S> <C> <C> <C>
CASH PAID DURING THE YEAR FOR:
Interest (Net of Amount Capitalized) $ 41,986 $ 31,748 $34,503
======== ======== =======
Distributions on Preferred Capital Trust Securities $ 4,066 $ - $ -
======== ======== =======
Income Taxes $ 15,823 $ 14,156 $ 9,774
======== ======== =======
</TABLE>
2. SUBSEQUENT EVENT
On January 30, 1998, K N acquired from Occidental Petroleum Corporation
("Occidental") all of the outstanding shares of common stock of MidCon Corp.
("MidCon"), a wholly owned subisdiary of Occidental, for approximately $2.1
billion in cash and a short-term note of approximately $1.39 billion. In
conjunction with the acquisition, the Company assumed MidCon's obligation to
lease the MidCon Texas intrastate pipeline system under a 30-year operating
lease, requiring average annual lease payments of $30 million. This acquisition
is being accounted for as a purchase.
The total amount of funds required by the Company to complete the acquisition,
including payment of related transaction costs, was approximately $2.5 billion,
which was financed through a credit facililty established on January 30, 1998,
with a syndicate of lenders. See Note 8(A).
MidCon is engaged in the purchase, gathering, processing, transmission, storage
and sale of natural gas to utilities, municipalities, and industrial and
commercial users. MidCon also purchases electricity from electric utilities and
other electric power producers and marketers and resells the electricity to
wholesale and end-use customers.
The Company's consolidated financial statements and related notes will include
the transactions and balances of MidCon effective with its purchase date of
January 30, 1998. While the Company has assumed responsibility for liabilities
and contingencies of MidCon as of the date of the acquisition, the Company
believes that its allocation of purchase price to assets acquired and
liabilities assumed, when finalized, will make adequate provision for such items
and, accordingly, the Company expects that the ultimate resolution of such items
will not have a material adverse impact on its results of operations or
financial position.
35
<PAGE> 36
3. MERGER, ACQUISITIONS AND DISPOSITIONS
(A) Bushton
In March 1997, K N completed its purchase of several Enron Corporation
subsidiaries that owned or operated the Bushton natural gas processing facility
located in Ellsworth County, Kansas, and other Hugoton Basin gathering assets
located in Kansas and Oklahoma. The Company assumed operation of these
facilities effective April 1, 1997, and has accounted for this transaction as a
purchase.
Pursuant to this agreement, K N also leases the processing facilities at Bushton
under operating leases requiring semi-annual payments averaging $23.1 million
per annum for the remaining term of the leases. Under the terms of these leases,
K N has the option of terminating the leases and/or buying the assets at any
time after November 2003, and extending the leases beyond May 2012, the
scheduled termination date. In addition, K N may purchase the processing
facilities upon termination of the leases.
(B) Red Cedar
In December 1997, K N purchased an equity interest in Red Cedar Gathering
Company ("Red Cedar"), a gathering system located in the northern San Juan Basin
on the Southern Ute Indian Reservation in La Plata County, Colorado. Red Cedar
is jointly owned by the Southern Ute Indian Tribe.
(C) Interenergy
On December 19, 1997, K N acquired Interenergy Corporation ("Interenergy"), a
diversified energy company involved with natural gas gathering, processing and
marketing in the Rocky Mountain and mid-continent states. K N exchanged 544,604
shares of K N common stock for all the outstanding shares of Interenergy and
assumed Interenergy's debt in a transaction accounted for as a purchase.
(D) Sale of Kansas Distribution Properties
In October 1997, K N entered into an agreement to sell its retail natural gas
distribution properties in Kansas to Midwest Energy, Inc., a customer-owned
cooperative based in Hays, Kansas. The agreement provides for the sale of
natural gas distribution systems in 58 Kansas communities, serving approximately
30,000 residential, commercial and industrial customers. The transaction is
subject to approval by applicable state and federal regulatory authorities, and
is expected to close in the first half of 1998.
(E) Pony Express Pipeline
In 1996, K N purchased a 900-mile crude oil pipeline owned by Amoco Pipeline
Company for conversion to natural gas service. In May 1996, one of K N's
regulated interstate pipeline subsidiaries, K N Interstate Gas Transmission Co.
("KNI"), filed with the Federal Energy Regulatory Commission ("FERC") requesting
authority to purchase from K N the portion of the line, renamed the Pony Express
Pipeline, from Lost Cabin, Wyoming in central Wyoming to Freeman, Missouri near
Kansas City. KNI also requested authority to convert the pipeline to natural gas
service, install compression and construct additional pipeline facilities. On
May 30, 1997, the FERC issued an order granting KNI's requested authority to
proceed with the project.
On November 27, 1996, KNI acquired two contracts to provide firm transportation
capacity of 230 MMcf per day to the Kansas City metropolitan area, part of which
is transported through the Pony Express Pipeline. KNI constructed approximately
36 miles of lateral facilities to connect the new markets with the Pony Express
Pipeline and a third party pipeline.
36
<PAGE> 37
(F) Gas and Oil Properties
On January 31, 1996, K N and Tom Brown, Inc. ("TBI") closed a transaction
pursuant to which K N transferred its stock in K N Production Company ("KNPC"),
a wholly owned subsidiary of K N, to TBI in exchange for common and convertible
preferred stock of TBI. The transaction represents a non-monetary exchange
(valued at that time at $39.1 million) of oil and gas assets for accounting
purposes. The common shares are considered available-for-sale securities and, as
a result, unrealized holding gains totaling $4.2 million are included in
additional paid-in capital in the Consolidated Balance Sheet at December 31,
1997.
In conjunction with this transaction, K N and TBI formed Wildhorse Energy
Partners, LLC, owned 55 percent by K N and 45 percent by TBI, which performs
certain gathering, processing, field, marketing and storage services in a
defined area of mutual interest.
(G) TransColorado Project
During 1996, an agreement was executed providing for the construction and
operation of a new unregulated gas treating plant in southwestern Colorado owned
by affiliates of K N and El Paso Natural Gas Company. The treating plant is
connected to Phase I (New Mexico pre-build) of the TransColorado pipeline. The
pipeline and plant had a combined capital cost of approximately $30 million.
4. REGULATORY MATTERS
(A) Rate Matters
On January 23, 1998, KNI filed a general rate case with the FERC requesting a
$30.2 million annual increase in revenues. KNI expects revised rates to become
effective August 1, 1998, subject to refund.
(B) Retail Unbundling
In November 1997, K N announced a plan, subject to municipal regulatory approval
in each community it serves, to give residential and small commercial customers
in Nebraska a choice of natural gas suppliers, effective June 1, 1998.
Currently, K N purchases natural gas, transports it across interstate
transmission systems and delivers it to these customers, providing what is known
as a "bundled" service. This program would separate, or "unbundle," the natural
gas purchases from other utility services. By early February 1998, over 60
communities had approved the plan. If approved by all 178 communities served in
Nebraska, the unbundling of retail natural gas service to all of K N's
approximately 100,000 customers in Nebraska will be complete. In June 1996,
after receiving Wyoming Public Service Commission approval for a pilot program,
K N implemented a similar plan for approximately 10,500 residential and
commercial customers in 10 Wyoming communities. The Company does not believe
these regulatory changes will have a material adverse impact on its financial
position or results of operations.
5. ENVIRONMENTAL AND LEGAL MATTERS
(A) Environmental
The Company was named as one of four potentially responsible parties ("PRPs") at
a U.S. Environmental Protection Agency ("EPA") Superfund site known as the
Mystery Bridge Road/U.S. Highway 20 site located near Casper, Wyoming (the
"Brookhurst Subdivision") in 1989. A majority of the Company's groundwater, soil
and free phase petroleum cleanup occurred between 1990 and 1996. Groundwater
remediation standards were recently achieved at
37
<PAGE> 38
the Company's operable unit, and the EPA has allowed the Company to go into a
post-remedial action monitoring phase. The total remaining estimated cost is not
expected to exceed $150,000.
In 1994, a mercury sampling program was initiated on the Company's systems in
central and western portions of Kansas. The Company is working with the Kansas
Department of Health and Environment pursuant to a voluntary agreement. The
assessment program is being completed, and the Company in 1998 will commence a
phased remediation program for those sites where concentrations are above
regulatory thresholds, at an expected cost of $200,000 in 1998. The program will
take place over a period of years, and the costs are not expected to have a
material adverse impact on the Company's business, financial position or results
of operations.
The Company performed environmental audits in Colorado, Kansas and Nebraska,
which revealed that certain grease and lubricating oils used at various pipeline
and facilities locations contained polychlorinated biphenyls ("PCBs"). The
Company is working with the appropriate regulatory agencies to manage the
cleanup and remediation of the pipelines and facilities. The Company filed suit
against Rockwell International Corporation ("Rockwell"), manufacturer of the
PCB-containing grease used in certain of the Company's pipelines and facilities,
and two other related defendants for expenses and losses incurred by the Company
for cleanup or mitigation. The Company settled with Rockwell in March 1994. To
date since 1991, the Company has incurred approximately $500,000 in costs
associated with the remediation and management of this issue, including
preparation and implementation of a workplan. In 1998, the Company may spend up
to approximately $470,000. A substantial portion of these costs are recoverable
under the settlement entered into with Rockwell. The total potential remediation
and cleanup costs at currently identified locations is not expected to have a
material adverse impact on the Company's financial position or results of
operations. The cleanup programs are not expected to interrupt or diminish the
Company's operational ability to gather or transport natural gas.
Pursuant to certain acquisition agreements involving Cabot Corporation
("Cabot"), the Company's largest stockholder, Cabot indemnified the Company for
certain environmental liabilities. Issues have arisen concerning Cabot's
indemnification obligations. The Company and Cabot have agreed to enter into
binding arbitration to resolve all issues in dispute. The Company is unable to
estimate its potential exposure for such liabilities at this time, but does not
expect them to have a material adverse impact on the Company's financial
position or results of operations.
The Company acquired certain gathering and processing assets from Parker &
Parsley Gas Processing Co. and its affiliates in October 1995. In connection
with that acquisition, and for a reduction in the purchase price that included
the estimated costs of remediation of $3.9 million, the Company agreed to accept
all responsibility and liability for environmental matters associated with such
properties. Also, in March 1997, the Company acquired the Bushton processing
complex and Hugoton Basin gathering assets form Enron Corporation and certain of
its affiliates. In connection with that acquisition, the Company established
reserves to fund previously-identified environmental/operational issues; the
Company will also be reimbursed on a shared basis for costs and expenses
associated with any environmental deficiencies identified at the facility in the
next five years up to a maximum of $10 million, although the Company does not
anticipate costs will reach that amount. After consideration of reserves
established and the agreements entered into in connection with these various
acquisitions, costs and expenses related to environmental matters are not
expected to have a material adverse effect on the business, financial position
or results of operations of the Company.
In May 1997, the Nebraska Department of Environmental Quality ("NDEQ") issued a
violation notice to KNI regarding historical Prevention of Significant
Deterioration permitting issues related to certain engines at the Big Springs,
Nebraska, facility. KNI is in the process of obtaining the proper permits at
this time, and is also engaged in discussions with NDEQ regarding settlement of
the violation notice and a $500,000 fine currently proposed by the NDEQ. The
costs associated with this matter are not expected to have a material adverse
effect on the Company's business, financial position or results of operations.
38
<PAGE> 39
(B) Litigation
On October 9, 1992, Jack J. Grynberg filed suit in the United States District
Court for the District of Colorado against the Company, RMNG and GASCO, Inc.
(the "K N Entities") alleging that the K N Entities as well as KNPC and K N Gas
Gathering, Inc., have violated federal and state antitrust laws. In essence,
Grynberg asserts that the defendant companies have engaged in an illegal
exercise of monopoly power, have illegally denied him economically feasible
access to essential facilities to transport and distribute gas produced from
fewer than 20 wells located in northwest Colorado, and have illegally attempted
to monopolize or to enhance or maintain an existing monopoly. Grynberg also
asserts certain causes of action relating to a gas purchase contract. The
Company's potential liability for monetary damages and the amount of such
damages, if any, are subject to dispute between the parties; however, the
Company believes it has a meritorious position in these matters and does not
expect this lawsuit to have a material adverse effect on the Company's financial
position or results of operations. In July 1996, the U. S. District Court,
District of Colorado lifted its stay and allowed discovery for a period of time.
Currently, this case is still pending. Discovery is now complete, but no trial
date has yet been set.
On July 26, 1996, K N and RMNG along with over 70 other natural gas pipeline
companies, were served by Jack J. Grynberg, acting on behalf of the Government
of the United States, with a Civil False Claims Act lawsuit alleging
mismeasurement of the heating content and volume of natural gas resulting in
underpayment of royalties to the federal government. The government,
particularly officials from the Departments of Justice and Interior, reviewed
the complaint and the evidence presented by Mr. Grynberg and declined to
intervene in the action, allowing Mr. Grynberg to proceed on his own. No
specific claims were made against K N or RMNG, and no specific monetary damages
were claimed. K N and the other named companies filed a motion to dismiss the
lawsuit on grounds of improper joinder and lack of jurisdiction. The motion to
dismiss was granted in 1997, and K N is no longer required to respond to this
action. However, the court did give Mr. Grynberg leave to refile and pursue this
action in a court with proper jurisdiction. The Company believes it has a
meritorious position in this matter, and does not expect this lawsuit to have a
material adverse effect on the Company's financial position or results of
operations.
The Company believes it has meritorious defenses to all lawsuits and legal
proceedings in which it is a defendant and will vigorously defend against them.
Based on its evaluation of the above matters, and after consideration of
reserves established, the Company believes that the resolution of such matters
will not have a material adverse effect on the Company's financial position or
results of operations.
6. PROPERTY, PLANT AND EQUIPMENT
Investment in property, plant and equipment, at cost, and accumulated
depreciation and amortization ("Accumulated D&A"), detailed by business segment,
are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
PROPERTY, PLANT ACCUMULATED
AND EQUIPMENT D&A NET
------------- ----------------- ---
<S> <C> <C> <C>
Gathering, Processing and Marketing Services $ 900,084 $ 235,640 $ 664,444
Interstate Transportation and Storage Services 632,685 156,383 476,302
Retail Natural Gas Services 438,832 158,603 280,229
----------- --------- -----------
$ 1,971,601 $ 550,626 $ 1,420,975
=========== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
PROPERTY, PLANT ACCUMULATED
AND EQUIPMENT D&A NET
------------- ----------------- ---
<S> <C> <C> <C>
Gathering, Processing and Marketing Services $ 683,569 $ 212,926 $ 470,643
Interstate Transportation and Storage Services 447,557 156,358 291,199
Retail Natural Gas Services 409,626 149,167 260,459
----------- --------- -----------
$ 1,540,752 $ 518,451 $ 1,022,301
=========== ========= ===========
</TABLE>
39
<PAGE> 40
7. INCOME TAXES
Deferred income tax assets and liabilities are recognized for temporary
differences between the basis of assets and liabilities for financial reporting
and tax purposes. Changes in tax legislation are included in the relevant
computations in the period in which such changes are effective. Deferred tax
assets are reduced by a valuation allowance for the amount of any tax benefit
that is not expected to be realized.
Components of the income tax provision applicable to federal and state income
taxes are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
TAXES CURRENTLY PAYABLE:
Federal $15,932 $17,685 $11,069
State 2,574 1,769 2,006
------- ------- -------
Total 18,506 19,454 13,075
------- ------- -------
TAXES DEFERRED:
Federal 16,497 15,601 15,672
State 658 842 303
------- ------- -------
Total 17,155 16,443 15,975
------- ------- -------
TOTAL TAX PROVISION $35,661 $35,897 $29,050
======= ======= =======
EFFECTIVE TAX RATE 31.5% 36.0% 35.6%
======= ======= =======
</TABLE>
The difference between the statutory federal income tax rate and the Company's
effective income tax rate is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
FEDERAL INCOME TAX RATE 35.0% 35.0% 35.0%
INCREASE (DECREASE) AS A RESULT OF:
State Income Tax, Net of Federal Benefit 1.9% 1.7% 1.8%
Nonconventional Fuels Credit -- -- (1.0%)
Adjustments to Prior Year Accruals* (5.1%) -- --
Other (0.3%) (0.7%) (0.2%)
------ ------ -------
EFFECTIVE TAX RATE 31.5% 36.0% 35.6%
====== ====== =======
</TABLE>
*Adjustments relate to the successful resolution of certain issues from prior
years' income tax filings.
40
<PAGE> 41
The Company has recorded deferred regulatory assets of $0.8 million and $0.7
million, and deferred regulatory liabilities of $3.7 million and $4.2 million at
December 31, 1997, and 1996, respectively, which are expected to result in
cost-of-service adjustments. These amounts reflect the "gross of tax"
presentation required under SFAS No. 109, Accounting for Income Taxes. The
deferred tax assets and liabilities and deferred regulatory assets and
liabilities for rate-regulated entities computed according to SFAS 109 result
from the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
---- ----
<S> <C> <C>
DEFERRED TAX ASSETS:
Unbilled Revenue $ 913 $ 925
Vacation Accrual 2,008 1,599
State Taxes 5,722 4,438
Capitalized Overhead Adjustment 1,086 1,858
Operating Reserves 2,281 1,155
Alternative Minimum Tax Credits 6,780 10,164
Other 996 4,339
--------- ---------
TOTAL DEFERRED TAX ASSETS 19,786 24,478
--------- ---------
DEFERRED TAX LIABILITIES:
Liberalized Depreciation 168,707 131,192
Rate Matters 8,420 6,757
Prepaid Pension 2,814 2,735
Stock Investments 3,556 3,457
Other 4,872 2,708
--------- ---------
TOTAL DEFERRED TAX LIABILITIES 188,369 146,849
--------- ---------
NET DEFERRED TAX LIABILITIES $ 168,583 $ 122,371
========= =========
DEFERRED ACCOUNTS FOR RATE REGULATED ENTITIES:
Assets $ 754 $ 706
========= =========
Liabilities $ 3,718 $ 4,218
========= =========
</TABLE>
8. FINANCING
(A) Notes Payable
At December 31, 1996, K N had a revolving credit agreement with seven banks to
borrow for general corporate purposes, including commercial paper support, up to
a total of $200 million. On March 7, 1997, this agreement was amended to include
a total of 11 banks and to increase the amount of the credit facility to $350
million, (the "Pre-Acquisition Facility"). Borrowings were made at rates
negotiated on the borrowing date and for a term of no more than 360 days. Under
the credit agreement, K N agreed to pay a facility fee based on the total
commitment, at rates which varied based on the financial rating of K N's
long-term debt. Facility fees paid in 1997 and 1996 were $0.3 million and $0.2
million, respectively. At December 31, 1997, $100 million was outstanding under
this credit agreement, compared with $40 million at December 31, 1996, and the
agreement was terminated concurrently with the acquisition of MidCon as
described following.
Commercial paper issued by K N and supported by short-term credit facilities
represents unsecured short-term notes with maturities not to exceed 270 days
from the date of issue. During 1997, all commercial paper was redeemed within 61
days, with interest rates ranging from 5.20 to 7.40 percent. Commercial paper
outstanding at December 31, 1997, and 1996, respectively, was $229.2 and $89.3
million. The weighted-average interest rates on short-term borrowings
outstanding at December 31, 1997, and 1996, respectively, were 6.87 percent and
6.93 percent.
Average short-term borrowings outstanding during 1997 and 1996 were $200.4
million and $60.8 million, respectively. During 1997 and 1996, the
weighted-average interest rates on short-term borrowings outstanding were 5.32
percent and 5.62 percent, respectively.
41
<PAGE> 42
Effective with the acquisition of MidCon on January 30, 1998, the Pre-Acquistion
Facility was replaced with a $4.5 billion credit facility (the "Bank Facility")
consisting of (1) a $1.4 billion 11-month letter of credit facility (the "L/C
Facility") to support the note issued to Occidental in conjunction with the
purchase of MidCon, (2) a $2.1 billion, 364-day revolving facility (the
"Acquisition Facility"), (3) a $400 million five-year revolving credit facility
(the "$400 million Facility") providing for loans and letters of credit, of
which the letter of credit usage may not exceed $100 million and (4) a 364-day
$600 million revolving credit facility (the "$600 million Facility"). The L/C
Facility and the Acquisition Facility may be used only in conjunction with the
acquisition of MidCon. On February 3, 1998, the Company had fully utilized the
Acquisition Facility and the L/C Facility. In addition, the Company had $150
million of borrowings and $23 million of letter of credit utilization under the
$400 million Facility. The Company is in the process of implementing its plans
to refinance the acquisition-related borrowings through the public issuance of
common stock, trust securities and long-term debt. See Note 2 for additional
information regarding the MidCon acquisition.
The Bank Facility includes covenants which are common in such arrangements,
including requirements that (1) the ratio of the Company's total debt to total
capitalization not exceed 87 percent initially, or 67 percent upon completion of
the Company's refinancing plan for the MidCon acquisition borrowings and (2) the
Company's consolidated net worth be at least $570 million plus (i) 50 percent of
incremental consolidated net income and (ii) 80 percent of any increase in net
worth resulting from the issuance of certain securities. In addition, a minimum
interest coverage ratio requirement would be triggered if the Company's senior
debt ratings fall below specified levels.
(B) Long-Term Debt
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1997 1996
---- ----
(In Thousands)
<S> <C> <C>
DEBENTURES:
6.5% Series, Due 2013 $ 50,000 $ 50,000
7.85% Series, Due 2022 26,684 27,545
8.75% Series, Due 2024 75,000 75,000
7.35% Series, Due 2026 125,000 125,000
6.67% Series, Due 2027 150,000 -
SINKING FUND DEBENTURES:
9.95% Series, Due 2020 20,000 20,000
9.625% Series, Due 2021 45,000 45,000
8.35% Series, Due 2022 35,000 35,000
Unamortized Debt Discount (957) (1,013)
SENIOR NOTES:
7.27%, Due 1998-2002 25,000 30,000
11.846% (AOG), Due 1998-1999 11,875 18,661
Medium-Term Notes, 10.01%
Average Rate, Due 1998-1999 7,000 8,000
Other 14,965 17,454
Current Maturities of Long-Term Debt (30,751) (26,971)
--------- ---------
Total Long-Term Debt $ 553,816 $ 423,676
========= =========
</TABLE>
Maturities of long-term debt for the five years ending December 31, 2002, are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- ------
<S> <C>
1998 $30,751
1999 13,089
2000 5,000
2001 6,000
2002 8,250
</TABLE>
42
<PAGE> 43
On November 24, 1997, K N filed a shelf registration statement with the
Securities and Exchange Commission ("SEC") allowing the Company to issue up to
an aggregate of $500 million of common stock, and/or unsecured debt securities.
In January 1998, the Company filed a shelf registration with the SEC on Form S-3
which, together with the $500 million filing in November 1997, now covers the
issuance of a total of $4.0 billion of securities including common stock, stock
purchase units, preferred trust securities, and unsecured debt. The registration
statement became effective January 30, 1998.
On October 27, 1997, K N publicly sold $150 million of 6.67% debentures maturing
on November 1, 2027. These debentures are callable by the Company any time after
November 1, 2004 and are redeemable at the option of the registered holders on
November 1, 2004. The Company used the net proceeds from the sale to reduce
short-term indebtedness.
On July 26, 1996, K N sold publicly $125 million of 30-year 7.35% debentures at
an all-in cost to the Company of 7.40 percent.
At December 31, 1997, and 1996, the carrying amount of the Company's long-term
debt was $585.5 million and $451.7 million, respectively. The estimated fair
values of the Company's long-term debt at 1997 and 1996 are shown in Note 14.
(C) Capital Securities
On April 24, 1997, the Company sold $100 million of 8.56% Preferred Capital
Trust Securities (the "Capital Securities") maturing on April 15, 2027. The sale
was effected through a wholly owned business trust named K N Capital Trust I
(the "Trust"). The Company used the net proceeds from the sale to reduce
short-term indebtedness. The financial statements of the Trust are consolidated
into the Company's consolidated financial statements, with the Capital
Securities treated as a minority interest and shown in the Company's
Consolidated Balance Sheet as "K N-Obligated Mandatorily Redeemable Preferred
Capital Trust Securities of Subsidiary Trust Holding Solely Debentures of K N."
See Note 14 for the fair value of these securities.
(D) Common Stock
On June 11, 1997, Cabot Corporation exercised the remaining warrants held by it
and purchased, in an unregistered offering, 642,232 shares of K N's Common
Stock, which were issued to Cabot Specialty Chemicals, Inc., in exchange for
Cabot's payment of $11.3 million. After this exercise, Cabot Corporation owned
2,990,186 shares, or approximately 9 percent of the common stock of K N.
On August 6, 1996, K N sold publicly 1,715,000 shares of its common stock at
$32.25 per share, less offering expenses. K N applied approximately $7.4 million
of the net proceeds from the offering to redeem and cancel outstanding warrants
to purchase a total of 545,200 shares of K N's common stock. In connection with
this sale of K N common stock, Cabot Corporation sold 1,850,000 shares of K N
common stock. K N did not receive any of the proceeds from the sale of K N
common stock by Cabot Corporation.
9. PREFERRED STOCK
The Company has authorized 200,000 shares of Class A and 2,000,000 shares of
Class B preferred stock, all without par value.
43
<PAGE> 44
(A) Class A $5.00 Preferred Stock
At both December 31, 1997, and 1996, 70,000 shares of the Company's Class A
$5.00 Cumulative Series preferred stock were outstanding. The Class A $5.00
Preferred Stock is redeemable, in whole or in part, at the option of the Company
at any time on 30 days' notice at $105 per share plus accrued dividends and has
no sinking fund requirements.
(B) Class B Preferred Stock
The Company did not have any outstanding shares of Class B Preferred Stock at
December 31, 1997, or 1996. The remaining 5,720 shares of K N Class B $8.30
Preferred Stock subject to mandatory redemption were redeemed by the Company in
1996. In 1995, the Company redeemed 5,714 shares subject to mandatory
redemption, and an additional 5,714 shares at $100 per share.
(C) Rights of Preferred Shareholders
All outstanding series of preferred stock have voting rights. If, for any class
of preferred stock, the Company (i) is in arrears on dividends, (ii) has failed
to pay or set aside any amounts required to be paid or set aside for all sinking
funds, or (iii) is in default on any of its redemption obligations, then no
dividends shall be paid or declared on any class of stock junior to the
preferred stock nor shall any of such stock be purchased or redeemed by the
Company. Also, if dividends on any class of preferred stock are sufficiently in
arrears, the holders of that stock may elect one-third of the Company's Board of
Directors.
10. RISK MANAGEMENT
The Company uses two types of risk management instruments - energy financial
instruments and interest rate swaps - which are discussed below. The Company is
exposed to credit-related losses in the event of nonperformance by
counterparties to these financial instruments, but does not expect any
counterparties to fail to meet their obligations given their existing credit
ratings.
The fair value of these risk management instruments reflects the estimated
amounts that the Company would receive or pay to terminate the contracts at the
reporting date, thereby taking into account the current unrealized gains or
losses on open contracts. Market quotes are available for substantially all
financial instruments used by the Company.
(A) Energy Financial Instruments
The Company uses energy financial instruments to minimize its risk of price
changes in the spot and fixed price natural gas and NGLs markets. Energy risk
management products include commodity futures and options contracts, fixed-price
swaps and basis swaps. Pursuant to its Board of Directors' approved guidelines,
the Company is to engage in these activities only as a hedging mechanism against
price volatility associated with pre-existing or anticipated physical gas and
condensate sales, gas purchases, system use and storage in order to protect
profit margins, and is prohibited from engaging in speculative trading.
Commodity-related activities of the risk management group are monitored by the
Company's Risk Management Committee, which is charged with the review and
enforcement of the Board of Directors' risk management guidelines. All energy
futures, swaps and options are recorded at fair value. Gains and losses on
hedging positions are deferred and recognized as gas purchases expense in the
periods in which the underlying physical transactions occur.
The differences between the current market value and the original physical
contracts' value, associated with hedging activities, are reflected, depending
on maturity, as deferred charges or credits and other current assets or
liabilities in the accompanying Consolidated Balance Sheets. These deferrals are
offset by the corresponding
44
<PAGE> 45
value of the underlying physical transactions. In the event energy financial
instruments do not meet the criteria for hedge accounting, the deferred gains or
losses associated with the corresponding financial instruments would be included
in the results of operations in the current period. In the event energy
financial instruments are terminated prior to the period of physical delivery of
the items being hedged, the gains or losses on the energy financial instruments
at the time of termination remain deferred until the period of physical delivery
unless both the energy financial instruments and the items being hedged result
in a loss. If this occurs, the loss is recorded immediately.
As of December 31, 1997, the Company had deferred a net loss of $11.8 million
associated with hedging activities, of which $4.0 million relates to commodity
contracts and $7.8 million to over-the-counter swaps and options. The deferrals
are reflected as other current assets and deferred charges in the accompanying
Consolidated Balance Sheet and will be matched with the corresponding underlying
physical transactions. At December 31, 1997, the Company held notional long
volumetric positions of 28.6 Bcf of gas, of which 7.6 Bcf short positions were
held in gas commodity positions, and 36.2 Bcf long positions were held in
over-the-counter swaps and options. Of the 28.6 Bcf notional total, associated
physical transactions of 28.3 Bcf were expected to occur in 1998 and 0.3 Bcf in
1999 and 2000. A change of plus or minus 10 percent of the fair market prices of
the above financial instruments would have the approximate effect of reducing or
increasing the deferrals by $9.2 million, which would be offset by corresponding
increases or decreases in the value of the underlying physical transactions.
(B) Interest Rate Swaps
From time to time, the Company has entered into various interest rate swap and
cap agreements for the purpose of managing interest rate exposure. Settlement
amounts payable or receivable under these agreements are recorded as interest
expense or income in the accounting period they are incurred. The notional
principal covered under such arrangements for the periods presented are not
material to the consolidated financial statements taken as a whole. As of
December 31, 1997, all such agreements had expired.
11. EMPLOYEE BENEFITS
(A) Retirement Plans
The Company has defined benefit pension plans covering substantially all
full-time employees. These plans provide pension benefits that are based on the
employees' compensation during the period of employment, age and years of
service. These plans are tax-qualified subject to the minimum funding
requirements of the Employee Retirement Income Security Act of 1974. The
Company's funding policy is to contribute annually the recommended contribution
using the actuarial cost method and assumptions used for determining annual
funding requirements. Plan assets consist primarily of pooled fixed income,
equity, bond and money market funds.
Net periodic pension cost includes the following components (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service Cost - Benefits Earned During the Period $ 3,462 $ 3,289 $ 3,332
Interest Cost on Projected Benefit Obligation 7,155 6,756 6,372
Actual Return on Assets (23,663) (18,243) (17,569)
Net Amortization and Deferral 13,076 8,896 8,415
-------- -------- --------
Net Periodic Pension Cost $ 30 $ 698 $ 550
======== ======== ========
</TABLE>
45
<PAGE> 46
The following table sets forth the plans' funded status and amounts recognized
under the caption "Gas Imbalances and Other" in the Company's Consolidated
Balance Sheets at December 31, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1997 1996
---- ----
<S> <C> <C>
Actuarial Present Value of Benefit Obligations:
Vested Benefit Obligation $ (92,292) $(84,861)
========= ========
Accumulated Benefit Obligation $ (99,299) $(90,779)
========= ========
Projected Benefit Obligation $(106,383) $(97,182)
Plan Assets at Fair Value 141,423 123,736
--------- --------
Plan Assets in Excess of Projected Benefit Obligation 35,040 26,554
Unrecognized Net Gain (24,669) (16,023)
Prior Service Cost Not Yet Recognized in Net Periodic
Pension Costs 138 155
Unrecognized Net Asset (1,136) (1,282)
--------- --------
Prepaid Pension Cost $ 9,373 $ 9,404
========= ========
</TABLE>
The rate of increase in future compensation and the expected long-term rate of
return on plan assets were 3.5 and 8.5 percent, respectively, for both 1997 and
1996. The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.25 percent for 1997 and
7.5 percent for 1996.
For 1997, seven percent, and for 1996 an amount equal to a maximum of 10
percent, of eligible employee compensation was contributed to the Employees
Retirement Fund Trust Profit Sharing Plan (the "Profit Sharing Plan"), a defined
contribution plan. In 1997 and 1996, the Company's contribution was determined
by comparing actual results to a predetermined graduated scale of annual
operating income goals. Prior to 1996 the Company contributed an amount equal to
the lesser of 10 percent of the Company's net income or 10 percent of eligible
employee compensation to the Profit Sharing Plan. Contributions by the Company
were $5.3 million, $6.6 million, and $5.6 million for 1997, 1996 and 1995,
respectively, 50 percent of which was in the form of the Company's common stock.
(B) Other Postretirement Employee Benefits
The Company has a defined benefit postretirement plan providing medical care
benefits upon retirement for all eligible employees with at least five years of
credited service as of January 1, 1993, and also covers their eligible
dependents. Retired employees are required to contribute monthly amounts which
depend upon the retired employee's age, years of service upon retirement and
date of retirement.
This plan also provides life insurance benefits upon retirement for all
employees with at least 10 years of credited service who are age 55 or older
when they retire. The Company pays for a portion of the life insurance benefit.
Employees may, at their option, increase the benefit by making contributions
from age 55 until age 65 or retirement, whichever is earlier. The Company funds
the future expected postretirement benefit costs under the plan by making
payments to Voluntary Employee Benefit Association trusts. The Company's funding
policy is to contribute amounts within the deductible limits imposed on Internal
Revenue Code Sec. 501(c)(9) trusts. Plan assets consist primarily of pooled
fixed income funds.
Net periodic postretirement benefit cost includes the following components (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service Cost - Benefits Earned During the Period $ 205 $ 324 $ 378
Interest Cost on APBO 1,394 1,392 1,381
Actual Return on Assets (159) (114) (156)
Net Amortization and Deferral 811 894 884
------ ------ ------
Net Periodic Postretirement Benefit Cost $2,251 $2,496 $2,487
====== ====== ======
</TABLE>
46
<PAGE> 47
The following table sets forth the plan's funded status and the amounts
recognized in the Company's Consolidated Balance Sheets as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1997 1996
---- ----
<S> <C> <C>
Accumulated Postretirement Benefit Obligation:
Retirees $ (13,824) $ (15,578)
Eligible Active Plan Participants (1,949) (1,549)
Ineligible Active Plan Participants (3,995) (2,294)
--------- ---------
Total APBO (19,768) (19,421)
Plan Assets at Fair Value 3,569 3,192
--------- ---------
APBO in Excess of Plan Assets (16,199) (16,229)
Unrecognized Net Gain (681) (1,179)
Unrecognized Transition Obligation 13,936 14,865
-------- --------
Accrued Postretirement Benefit Cost $ (2,944) $ (2,543)
======== ========
</TABLE>
The weighted-average discount rate used in determining the actuarial present
value of the APBO was 7.25 percent in 1997 and 7.5 percent in 1996. The assumed
health care cost trend rate was seven percent for 1997 and beyond. A
one-percentage-point increase in the assumed health care cost trend rate for
each future year would have increased the aggregate of the service and interest
cost components of the 1997 net periodic postretirement benefit cost by
approximately $14,000 and would have increased the APBO as of December 31, 1997,
by approximately $198,000.
12. COMMON STOCK OPTION AND PURCHASE PLANS
The Company has the following stock option plans: The 1982 Incentive Stock
Option Plan ("the 1982 Plan"), the 1982 Stock Option Plan for Non-Employee
Directors ("the 1982 Directors' Plan"), the 1986 Incentive Option Plan ("the
1986 Plan"), the 1988 Incentive Stock Option Plan ("the 1988 Plan"), the 1992
Stock Option Plan for Non-Employee Directors ("the 1992 Directors' Plan"), the
1994 K N Energy, Inc. Long-Term Incentive Plan ("the LTIP Plan") and the
American Oil and Gas Corporation Stock Incentive Plan ("the AOG Plan"). The
Company also has an employee stock purchase plan ("the ESP Plan").
The Company accounts for its plans under Accounting Principles Board Opinion
("APB") No. 25, Accounting for Stock Issued to Employees. The Company recorded
compensation expense totaling $2.4 million, $0.8 million, and $0.2 million for
1997, 1996 and 1995, respectively, relating to restricted stock grants awarded
under the plans.
Had compensation cost for these plans been determined consistent with SFAS No.
123, Accounting for Stock-Based Compensation, the Company's net income and
diluted earnings per share would have been reduced to the following pro forma
amounts (in thousands except per share amounts):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
NET INCOME:
As Reported $77,497 $63,819 $52,522
======= ======= =======
Pro Forma $73,028 $62,497 $52,101
======= ======= =======
EARNINGS PER SHARE:
As Reported $ 2.45 $ 2.14 $ 1.83
======= ======= =======
Pro Forma $ 2.30 $ 2.10 $ 1.82
======= ======= =======
</TABLE>
Because the SFAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years. Additionally,
47
<PAGE> 48
the pro forma amounts include $0.4 million, $0.4 million and $0.3 million
related to the purchase discount offered under the ESP Plan for 1997, 1996 and
1995, respectively.
The Company may sell up to 600,000 shares of stock to its eligible employees
under the ESP Plan. Employees purchased 88,135 shares, 87,615 shares, and 95,572
shares for plan years 1997, 1996 and 1995, respectively, and have purchased
572,734 shares through the 1997 plan year. Shares are issued in the month
following the end of each plan year. Employees purchase shares through voluntary
payroll deductions at a 15 percent discount from the market value of the common
stock, as defined in the plan. The weighted-average fair value per share of
purchase rights granted in 1997, 1996 and 1995 was $9.72, $6.45 and $5.35,
respectively.
<TABLE>
<CAPTION>
OPTION SHARES
GRANTED
SHARES SUBJECT THROUGH EXPIRATION
PLAN NAME TO THE PLAN 12/31/97 VESTING PERIOD PERIOD
--------- ----------- -------- -------------- ------
<S> <C> <C> <C> <C>
1982 Plan 888,525 888,525 Immediate 10 years
1982 Directors' Plan 124,393 124,393 Three years 10 years
1986 Plan 412,500 412,500 Immediate 10 years
1988 Plan 412,500 412,500 Immediate 10 years
1992 Directors' Plan 350,000 122,250 Immediate 10 years
LTIP Plan 2,200,000 2,078,785 0 - 5 years 5 - 10 years
AOG Plan 517,000 517,000 Three years 10 years
</TABLE>
Under all plans, except the LTIP Plan and the AOG Plan, options are granted at
not less than 100 percent of the market value of the stock at the date of grant.
Under the LTIP Plan options may be granted at less than 100 percent of the
market value of the stock at the date of grant. Certain restricted stock awards
include provisions accelerating the lapsing of restrictions in the event certain
operating goals are met.
At December 31, 1997, 161 employees, officers and directors of the Company held
options under the plans. A summary of the status of the Company's stock option
plans at December 31, 1997, 1996 and 1995, and changes during the years then
ended is presented in the table and narrative below:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
WTD AVG WTD AVG WTD AVG
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
OUTSTANDING AT BEGINNING
OF YEAR 1,726,487 $27.78 1,164,510 $21.25 1,214,024 $18.49
Granted 752,402 $28.52 925,126 $31.61 348,200 $25.87
Exercised (253,050) $21.17 (329,574) $15.88 (373,423) $16.54
Forfeited (79,129) $28.45 (33,575) $23.69 (24,291) $21.80
--------- ----- --------- ----- --------- -----
OUTSTANDING AT END OF YEAR 2,146,710 $28.79 1,726,487 $27.78 1,164,510 $21.25
========= ====== ========= ====== ========= ======
EXERCISABLE AT END OF YEAR 895,415 $29.62 604,962 $24.52 584,902 $18.16
========= ====== ========= ====== ========= ======
WEIGHTED-AVERAGE FAIR VALUE
OF OPTIONS GRANTED $ 15.71 $ 9.53 $ 4.71
======== ========= =========
</TABLE>
48
<PAGE> 49
The following table sets forth K N's December 31, 1997 price ranges, common
stock options outstanding, weighted-average exercise prices, weighted-average
remaining contractual lives, common stock options exercisable and the
exercisable weighted-average exercise price.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -------------------------------------------------------------------------------------- -------------------------------------
WTD AVG
WTD AVG REMAINING WTD AVG
PRICE NUMBER EXERCISE CONTRACTUAL NUMBER EXERCISE
RANGE OUTSTANDING PRICE LIFE EXERCISABLE PRICE
----- ----------- ----- ---- ----------- -----
<S> <C> <C> <C> <C> <C>
$ 0.00 - $25.19 801,335 $14.62 5.65 406,541 $21.49
$28.00 - $36.06 840,974 $34.65 8.50 329,083 $34.12
$37.31 - $52.13 504,401 $41.53 9.53 159,791 $41.03
--------- -------
2,146,710 $28.79 7.68 895,415 $29.62
========= =======
</TABLE>
The weighted-average fair value of each option grant is estimated on the date of
grant using the Black Scholes option pricing model with the following
assumptions: risk-free interest rate of 5.5 percent, expected weighted-average
lives of 4 years and expected volatility of 20 percent for grants in 1997, 1996
and 1995; and expected dividend yields of 2.5 percent for grants in 1997 and
1996 and 3.5 percent for grants in 1995.
13. COMMITMENTS AND CONTINGENT LIABILITIES
(A) Leases
The Company has entered into several lease agreements that are classified as
operating leases including those referred to in Notes 2 and 3(A).
Expenses incurred under operating leases were $33.0 million in 1997, $22.3
million in 1996 and $16.2 million in 1995. Excluding the assumption of operating
leases of MidCon, future minimum commitments under major operating leases as of
December 31, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31 AMOUNT
- ----------- ------
<S> <C>
1998 $ 36,254
1999 35,802
2000 39,363
2001 41,432
2002 34,838
Thereafter 248,551
--------
Total Commitments $436,240
========
</TABLE>
(B) Basket Agreement
Under terms of an agreement (the "Basket Agreement") entered into with Cabot as
part of AOG's acquisition of Cabot's natural gas pipeline business, AOG and
Cabot equally shared net payments made in settlement of certain liabilities
related to operations of the acquired business prior to the acquisition date The
Basket Agreement was settled in 1997, without a material impact on the Company's
financial position or results of operations.
(C) Guarantees of Unconsolidated Subsidiaries' Debt
The Company executed guarantees of two unconsolidated subsidiaries' revolving
credit agreements with Credit Lyonnais, effective July 19, 1996. One guarantee
is for TransColorado Gas Transmission Company ("TransColorado") for a maximum of
$7.5 million due by December 31, 1999, and another guarantee is for Coyote
49
<PAGE> 50
Gas Treating, LLC ("Coyote") for a maximum of $10 million due by December 31,
1999. As of December 31, 1997, $6.4 and $8.7 million, respectively, represent
the guaranteed amounts by the Company borrowed against the TransColorado and
Coyote agreements.
(D) Capital Expenditures Budget
The consolidated capital expenditures budget for 1998 totals $149.5 million,
(before adjustment to reflect the consolidation with MidCon). Approximately
$15.1 million had been committed for the purchase of plant and equipment at
December 31, 1997.
14. FAIR VALUE
The following fair values of investments, Long-Term Debt, Capital Securities and
K N Preferred Stock were estimated based on an evaluation made by an independent
securities analyst. Fair values of Energy Financial Instruments, net reflect the
estimated amounts that the Company would receive or pay to terminate the
contracts at the reporting date, thereby taking into account the current
unrealized gains or losses on open contracts. Market quotes are available for
substantially all instruments used by the Company.
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1997 1996
---- ----
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
(In Millions)
FINANCIAL ASSETS
<S> <C> <C> <C> <C>
TBI Class A Preferred Stock $ 25.6 $ (i) $ 25.6 $ (i)
TBI Common Stock $ 17.7 $ 17.7 $ 19.2 $ 19.2
Energy Financial Instruments, net - - $ 1.8 $ 1.8
FINANCIAL LIABILITIES
Long-Term Debt $585.5 $622.1 $451.7 $471.7
Capital Securities $100.0 $100.7 $ - $ -
Energy Financial Instruments, net $ 11.8 $ 11.8 $ - $ -
K N Class A $5.00 Preferred Stock $ 7.0 $ 6.0 $ 7.0 $ 5.3
</TABLE>
(i) Fair values for TBI Class A Preferred Stock are not readily available.
15. MAJOR CUSTOMER
Sales to Atmos Energy Corporation and affiliates comprised 10 percent of
consolidated revenues in 1995.
16. BUSINESS SEGMENT INFORMATION
The Company is a natural gas energy products and services provider engaged in
the following activities:
o gathering, processing, marketing, transporting and storing natural gas;
providing field services to natural gas producers and marketing NGLs
(Gathering, Processing and Marketing Services);
o interstate storing and transporting natural gas (Interstate Transportation
and Storage Services);
o providing retail natural gas sales and transportation services (Retail
Natural Gas Services).
The Company was involved in developing and producing natural gas and crude oil
in 1995 (Gas and Oil Production).
50
<PAGE> 51
BUSINESS SEGMENT INFORMATION
(Before Intersegment Eliminations)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
OPERATING REVENUES:
Gathering, Processing and Marketing Services $1,930,360 $1,256,478 $ 890,455
Interstate Transportation and Storage Services 79,811 71,769 64,405
Retail Natural Gas Services 256,837 225,432 232,317
Gas and Oil Production - - 10,721
Intersegment Eliminations (121,890) (113,197) (86,500)
---------- ---------- ----------
$2,145,118 $1,440,482 $1,111,398
========== ========== ==========
OPERATING INCOME:
Gathering, Processing and Marketing Services $ 74,373 $ 74,460 $ 64,623
Interstate Transportation and Storage Services 35,024 29,460 17,933
Retail Natural Gas Services 32,852 30,881 32,995
Gas and Oil Production - - (189)
---------- ---------- ----------
OPERATING INCOME 142,249 134,801 115,362
Other Income and (Deductions) (29,091) (35,085) (33,790)
---------- ---------- ----------
INCOME BEFORE INCOME TAXES $ 113,158 $ 99,716 $ 81,572
========== ========== ==========
IDENTIFIABLE ASSETS (AT DECEMBER 31):
Gathering, Processing and Marketing Services $1,165,086 $ 869,141 $ 685,023
Interstate Transportation and Storage Services 493,864 315,503 178,882
Retail Natural Gas Services 491,719 419,415 328,166
Gas and Oil Production - - 36,451
Corporate * 155,136 25,661 28,935
---------- ---------- ----------
$2,305,805 $1,629,720 $1,257,457
========== ========== ==========
DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE:
Gathering, Processing and Marketing Services $ 34,769 $ 31,654 $ 26,510
Interstate Transportation and Storage Services 9,063 8,078 7,767
Retail Natural Gas Services 12,162 11,480 11,006
Gas and Oil Production - - 4,608
---------- ---------- ----------
$ 55,994 $ 51,212 $ 49,891
========== ========== ==========
CAPITAL EXPENDITURES AND ACQUISITIONS:
Gathering, Processing and Marketing Services $ 236,728 $ 96,486 $ 67,774
Interstate Transportation and Storage Services 188,893 150,640 11,200
Retail Natural Gas Services 39,228 28,770 30,080
Gas and Oil Production - - 6,156
---------- ---------- ----------
$ 464,849 $ 275,896 $ 115,210
========== ========== ==========
</TABLE>
* Principally cash and investments in equity of unconsolidated subsidiaries
51
<PAGE> 52
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
K N ENERGY, INC. AND SUBSIDIARIES
QUARTERLY OPERATING RESULTS FOR 1997 AND 1996
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
1997
----
FIRST SECOND THIRD FOURTH
----- ------ ----- ------
<S> <C> <C> <C> <C>
Operating Revenues $489,473 $357,847 $515,137 $782,661
Operating Income 39,905 23,932 32,382 46,030
Net Income 20,358 10,872 17,808 28,459
Preferred Dividends 88 87 88 87
Earnings Available for Common Stock $ 20,270 $ 10,785 $ 17,720 $ 28,372
======== ======== ======== ========
Number of Common Shares Used In
Computing Basic Earnings Per Share 30,518 30,787 31,372 31,558
======== ======== ======== ========
Number of Common Shares Used In
Computing Diluted Earnings Per Share 30,169 31,377 31,709 31,997
======== ======== ======== ========
Basic Earnings Per Common Share $ 0.66 $ 0.35 $ 0.56 $ 0.90
======== ======== ======== ========
Diluted Earnings Per Common Share $ 0.65 $ 0.34 $ 0.56 $ 0.89
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1996
----
FIRST SECOND THIRD FOURTH
----- ------ ----- ------
<S> <C> <C> <C> <C>
Operating Revenues $384,440 $277,148 $303,632 $475,262
Operating Income 35,776 22,084 30,157 46,784
Net Income 17,507 8,848 13,693 23,771
Preferred Dividends 100 99 99 100
Earnings Available for Common Stock $ 17,407 $ 8,749 $ 13,594 $ 23,671
======== ======== ======== ========
Number of Common Shares Used In
Computing Basic Earnings Per Share 28,265 28,411 29,509 30,221
======== ======== ======== ========
Number of Common Shares Used In
Computing Diluted Earnings Per Share 28,945 29,181 30,046 30,875
======== ======== ======== ========
Basic Earnings Per Common Share $ 0.62 $ 0.31 $ 0.46 $ 0.78
======== ======== ======== ========
Diluted Earnings Per Common Share $ 0.60 $ 0.30 $ 0.46 $ 0.78
======== ======== ======== ========
</TABLE>
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no such matters during 1997.
52
<PAGE> 53
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(A) Identification of Directors
For information regarding the Directors, see pages 2-9 of the 1998 Proxy
Statement.
(B) Identification of Executive Officers
See Executive Officers of the Registrant under Part I.
(C) Identification of Certain Significant Employees
None.
(D) Family Relationships
See "Election of Directors" on page 7 of the 1998 Proxy Statement.
(E) Business Experience
See Executive Officers of the Registrant under Part I. For business
experience of the Directors, see pages 3-6 of the 1998 Proxy Statement.
(F) Involvement in Certain Legal Proceedings
None.
(G) Promoters and Control Persons
None.
ITEM 11: EXECUTIVE COMPENSATION
See "Director Compensation," "Report of the Compensation Committee on Executive
Compensation," "Executive Compensation," "Stock Options," "Performance Graph,"
"Pension and Supplemental Benefits" and "Severance and Other Agreements" on
pages 8-21 of the 1998 Proxy Statement.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See the following pages of the 1998 Proxy Statement: (i) Pages 3-7 relating
to common stock owned by directors; (ii) page 19, "Executive Stock Ownership;"
and (iii) pages 31-32, "Principal Shareholders."
53
<PAGE> 54
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(A) Transactions with Management and Others
See "Relationship Between Certain Directors and the Company" on page 7 of
the 1998 Proxy Statement.
(B) Certain Business Relationships
See "Relationship Between Certain Directors and the Company"on page 7 of
the 1998 Proxy Statement.
(C) Indebtedness of Management
See "Relationship Between Certain Directors and the Company" on page 7 of
the 1998 Proxy Statement.
(D) Transactions with Promoters
Not applicable.
54
<PAGE> 55
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) See the index for a listing and page numbers of financial statements and
exhibits included herein or incorporated by reference.
Executive Compensation Plans and Arrangements
Form of Key Employee Severance Agreement (Exhibit 10.2, Amendment No. 1
on Form 8 dated September 2, 1988 to the Annual Report on Form 10-K for the year
ended December 31, 1987)*
1982 Stock Option Plan for Nonemployee Directors of the Company with
Form of Grant Certificate (Exhibit 10.3, Amendment No. 1 on Form 8 dated
September 2, 1988 to the Annual Report on Form 10-K for the year ended December
31, 1987)*
1982 Incentive Stock Option Plan for key employees of the Company
(Exhibit 10.4, Amendment No. 1 on Form 8 dated September 2, 1988 to the Annual
Report on Form 10-K for the year ended December 31, 1987)*
1986 Incentive Stock Option Plan for key employees of the Company
(Exhibit 10.5, Amendment No. 1 on Form 8 dated September 2, 1988 to the Annual
Report on Form 10-K for the year ended December 31, 1987)*
1988 Incentive Stock Option Plan for key employees of the Company
(Exhibit 10.6, Amendment No. 1 on Form 8 dated September 2, 1988 to the Annual
Report on Form 10-K for the year ended December 31, 1987)*
Form of Grant Certificate for Employee Stock Option Plans (Exhibit
10.7, Amendment No. 1 on Form 8 dated September 2, 1988 to the Annual Report on
Form 10-K for the year ended December 31, 1987)*
Directors' Deferred Compensation Plan Agreement (Exhibit 10.8,
Amendment No. 1 on Form 8 dated September 2, 1988 to the Annual Report on Form
10-K for the year ended December 31, 1987)*
1987 Directors' Deferred Fee Plan As Amended and Form of Participation
Agreement regarding the Plan (Exhibit 10(h) to the Annual Report on Form 10-K
for the year ended December 31, 1995)*
1992 Stock Option Plan for Nonemployee Directors of the Company with
Form of Grant Certificate (Exhibit 4.1, File No. 33-46999)*
1994 K N Energy, Inc. Long-Term Incentive Plan (Attachment A to the K N
Energy, Inc. 1994 Proxy Statement on Schedule 14-A)*
K N Energy, Inc. 1996 Executive Incentive Plan (Exhibit 10(l) to the
Annual Report on Form 10-K for the year ended December 31, 1995)*
K N Energy, Inc. Nonqualified Deferred Compensation Plan (Exhibit 10(m)
to the Annual Report on Form 10-K for the year ended December 31, 1994)*
K N Energy, Inc. Nonqualified Retirement Income Restoration Plan
(Exhibit 10(n) to the Annual Report on Form 10-K for the year ended December 31,
1994)*
55
<PAGE> 56
K N Energy, Inc. Nonqualified Profit Sharing Restoration Plan (Exhibit
10(o) to the Annual Report on Form 10-K for the year ended December 31, 1994)*
Employment Agreement dated December 14, 1995 between K N Energy, Inc.
and Morton C. Aaronson (Exhibit 10(p) to the Annual Report on Form 10-K for the
year ended December 31, 1995)*
Letter Agreement dated December 4, 1995 between K N Energy, Inc. and
Charles W. Battey (Exhibit 10(q) to the Annual Report on Form 10-K for the year
ended December 31, 1995)*
K N Energy, Inc. Performance Incentive Plan (Exhibit 10(u) to the
Annual Report on Form 10-K for the year ended December 31, 1995)*
Form of Change of Control Severance Agreement (Exhibit 10(u) to the
Annual Report on Form 10-K for the year ended December 31, 1996)*
Form of Incentive Stock Option Agreement (Exhibit 10(v) to the Annual
Report on Form 10-K for the year ended December 31, 1996)*
Form of Restricted Stock Agreement (Exhibit 10(w) to the Annual Report
on Form 10-K for the year ended December 31, 1996)*
Employment Agreement dated March 21, 1996 between K N Energy, Inc. and
Murray R. Smith (Exhibit 10(x) to the Annual Report on Form 10-K for the year
ended December 31, 1996)*
(b) Reports on Form 8-K
On October 27, 1997, a Current Report on Form 8-K was filed to report that on
that date K N Energy, Inc. sold $150 million of its 6.67% debentures due
November 1, 1997 pursuant to an underwritten public offering.
* Incorporated herein by reference.
56
<PAGE> 57
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
K N ENERGY, INC.
(Registrant)
March 5, 1998 By /s/ Clyde E. McKenzie
-------------------------
Clyde E. McKenzie
Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
<TABLE>
<S> <C>
/s/ Edward H. Austin, Jr. Director
- ------------------------------
Edward H. Austin, Jr.
/s/ Charles W. Battey Director
- ------------------------------
Charles W. Battey
/s/ Stewart A. Bliss Director
- ------------------------------
Stewart A. Bliss
/s/ David W. Burkholder Director
- ------------------------------
David W. Burkholder
/s/ David M. Carmichael Director
- ------------------------------
David M. Carmichael
/s/ Robert H. Chitwood Director
- ------------------------------
Robert H. Chitwood
/s/ Howard P. Coghlan Director
- ------------------------------
Howard P. Coghlan
/s/ Jordan L. Haines Director
- ------------------------------
Jordan L. Haines
/s/ Larry D. Hall Chairman, President, Chief Executive Officer
- ------------------------------ and Director (Principal Executive Officer)
Larry D. Hall
/s/ William J. Hybl Director
- ------------------------------
William J. Hybl
/s/ Richard D. Kinder Director
- ------------------------------
Richard D. Kinder
/s/ Clyde E. McKenzie Vice President and Chief Financial Officer
- ------------------------------ (Principal Financial and Accounting Officer)
Clyde E. McKenzie
/s/ Edward Randall, III Director
- ------------------------------
Edward Randall, III
/s/ John F. Riordan Director
- ------------------------------
John F. Riordan
/s/ James C. Taylor Director
- ------------------------------
James C. Taylor
/s/ H. A. True, III Director
- ------------------------------
H. A. True, III
</TABLE>
57
<PAGE> 58
<TABLE>
<CAPTION>
Exhibit Index Page Number
------------- -----------
<S> <C>
List of Executive Compensation Plans and Arrangements........................... 55-56
Exhibit 2(a) - Stock Purchase Agreement, dated December
18, 1997, between K N Energy, Inc. and Occidental
Petroleum Corporation (Exhibit 2.1, File No. 333-44421)*
Exhibit 2(b) - Amendment No. 1 to Stock Purchase Agreement,
dated January 30,1998, between K N Energy, Inc. and
Occidental Petroleum Corporation (Attached hereto as Exhibit 2(b))**
Exhibit 3(a) - Restated Articles of Incorporation
(Exhibit 3(a) to the Annual Report on Form 10-K
for the year ended December 31, 1994)*
Exhibit 3(b) - By-Laws of the Company, as amended
(Exhibit 3(b) to the Annual Report on Form 10-K
for the year ended December 31, 1996)*
Exhibit 4(a) - Indenture dated as of September 1,
1988, between K N Energy, Inc. and Continental
Illinois National Bank and Trust Company of Chicago
(Exhibit 1.2, Current Report on Form 8-K
Dated October 5, 1988)*
Exhibit 4(b) - First supplemental indenture dated
as of January 15, 1992, between K N Energy, Inc.
and Continental Illinois National Bank and Trust
Company of Chicago (Exhibit 4.2, File No. 33-45091)*
Exhibit 4(c) - Second supplemental indenture dated
as of December 15, 1992, between K N Energy, Inc.
and Continental Bank, National Association (Exhibit
1.2 Current Report on Form 8-K dated December 15,
1992)*
Exhibit 4(d) - Indenture dated as of November 20,
1993, between K N Energy, Inc. and Continental
Bank, National Association (Exhibit 4.1, File No.
33-51115)* Note - Copies of instruments relative
to long-term debt in authorized amounts that do
not exceed 10 percent of the consolidated total
assets of the Company and its subsidiaries have
not been furnished. The Company will furnish such
instruments to the Commission upon request
Exhibit 4(e) - $600,000,000 364-Day Credit
Agreement among K N Energy, Inc., certain banks
listed therein and Morgan Guaranty Trust Company
of New York as Administrative Agent (Attached
hereto as Exhibit 4(e))**
Exhibit 4(f) - $400,000,000 Five-Year Credit
Agreement among K N Energy, Inc., certain banks
listed therein and Morgan Guaranty Trust Company
of New York as Administrative Agent (Attached
hereto as Exhibit 4(f))**
Exhibit 4(g) - $2,100,000,000 364-Day Credit
Agreement among K N Energy, Inc., certain banks
listed therein and Morgan Guaranty Trust Company
of New York as Administrative Agent (Attached
hereto as Exhibit 4(g))**
Exhibit 4(h) - $1,394,846,122 Reimbursement
Agreement among K N Energy, Inc., certain banks
listed therein and Morgan Guaranty Trust Company
of New York as Administrative Agent (Attached
hereto as Exhibit 4(h))**
Exhibit 10(a) - Form of Key Employee Severance
Agreement (Exhibit 10.2, Amendment No. 1 on Form
8 dated September 2, 1988 to the Annual Report on
Form 10-K for the year ended December 31, 1987)*
Exhibit 10(b) - 1982 Stock Option Plan for Non-Employee
</TABLE>
58
<PAGE> 59
<TABLE>
<CAPTION>
Exhibit Index Page Number
------------- -----------
<S> <C>
Directors of the Company with Form of
Grant Certificate (Exhibit 10.3, Amendment No. 1
on Form 8 dated September 2, 1988 to the Annual
Report on Form 10-K for the year ended
December 31, 1987)*
Exhibit 10(c) - 1982 Incentive Stock Option Plan
for key employees of the Company (Exhibit 10.4,
Amendment No. 1 on Form 8 dated September 2, 1988
to the Annual Report on Form 10-K for the year ended
December 31, 1987)*
Exhibit 10(d) - 1986 Incentive Stock Option Plan
for key employees of the Company (Exhibit 10.5,
Amendment No. 1 on Form 8 dated September 2, 1988
to the Annual Report on Form 10-K for the year
ended December 31, 1987)*
Exhibit 10(e) - 1988 Incentive Stock Option Plan
for key employees of the Company (Exhibit 10.6,
Amendment No. 1 on Form 8 dated September 2, 1988
to the Annual Report on Form 10-K for the year
ended December 31, 1987)*
Exhibit 10(f) - Form of Grant Certificate for
Employee Stock Option Plans (Exhibit 10.7,
Amendment No. 1 on Form 8 dated September 2, 1988
to the Annual Report on Form 10-K for the year
ended December 31, 1987)*
Exhibit 10(g) - Directors' Deferred Compensation
Plan Agreement (Exhibit 10.8, Amendment No. 1 on
Form 8 dated September 2, 1988 to the Annual
Report on Form 10-K for the year ended December
31, 1987)*
Exhibit 10(h) - 1987 Directors' Deferred Fee Plan
As Amended and Form of Participation Agreement
regarding the Plan (Exhibit 10(h) to the Annual
Report on Form 10-K for the year ended December
31, 1995)*
Exhibit 10(i) - 1992 Stock Option Plan for Nonemployee
Directors of the Company with Form of Grant Certificate
(Exhibit 4.1, File No. 33-46999)*
Exhibit 10(j) - 1994 K N Energy, Inc. Long-Term Incentive Plan
(Attachment A to the K N Energy, Inc. 1994 Proxy Statement
on Schedule 14-A)*
Exhibit 10(k) - K N Energy, Inc. 1996 Executive
Incentive Plan (Exhibit 10(l) to the Annual
Report on Form 10-K for the year ended
December 31, 1995)*
Exhibit 10(l) - K N Energy, Inc. Nonqualified
Deferred Compensation Plan (Exhibit 10(m) to the
Annual Report on Form 10-K for the year ended
December 31, 1994)*
Exhibit 10(m) - K N Energy, Inc. Nonqualified
Retirement Income Restoration Plan (Exhibit 10(n)
to the Annual Report on Form 10-K for the year
ended December 31, 1994)*
Exhibit 10(n) - K N Energy, Inc. Nonqualified
Profit Sharing Restoration Plan (Exhibit 10(o) to
the Annual Report on Form 10-K for the year ended
December 31, 1994)*
Exhibit 10(o) - Employment Agreement dated December 14, 1995
between K N Energy, Inc. and Morton C. Aaronson
(Exhibit 10(p) to the Annual Report on Form 10-K for the year ended
December 31, 1995)*
</TABLE>
59
<PAGE> 60
<TABLE>
<CAPTION>
Exhibit Index Page Number
------------- -----------
<S> <C>
Exhibit 10(p) - Letter Agreement dated December 4,
1995 between K N Energy, Inc. and Charles W.
Battey (Exhibit 10(q) to the Annual Report on
Form 10-K for the year ended December 31, 1995)*
Exhibit 10(q) - Amended and Restated Basket
Agreement dated as of June 30, 1990, by and
between American Pipeline Company ("APC"), Cabot
and Cabot Transmission Corporation (Exhibit
10.5(a) to the Annual Report on Form 10-K for
American Oil and Gas Corporation ("AOG") for the
year ended December 31, 1993)*
Exhibit 10(r) - First Amendment to Amended and
Restated Omnibus Acquisition Agreement and
Amended and Restated Basket Agreement dated as of
March 31, 1992 by and among AOG, APC, Cabot and
Cabot Transmission (Exhibit 10.5(d) to the Annual
Report on Form 10-K for AOG for the year ended
December 31, 1993)*
Exhibit 10(s) - Rights Agreement between K N
Energy, Inc. and the Bank of New York, as Rights
Agent, dated as of August 21, 1995 (Exhibit 1 on
Form 8-A dated August 21, 1995)*
Exhibit 10(t) - K N Energy, Inc. Performance
Incentive Plan (Exhibit 10(u) to the Annual
Report on Form 10-K for the year ended December
31, 1995)*
Exhibit 10(u) - Form of Change of Control Severance
Agreement (Exhibit 10(u) to the Annual Report on
Form 10-K for the year ended December 31, 1996)*
Exhibit 10(v) - Form of Incentive Stock Option
Agreement (Exhibit 10(v) to the Annual Report on
Form 10-K for the year ended December 31, 1996)*
Exhibit 10(w) - Form of Restricted Stock Agreement
(Exhibit 10(w) to the Annual Report on Form 10-K
for the year ended December 31, 1996)*
Exhibit 10(x) - Employment Agreement dated March
21, 1996 between K N Energy, Inc. and Murray R.
Smith (Exhibit 10(x) to the Annual Report on Form
10-K for the year ended December 31, 1996)*
Exhibit 10(y) - Intrastate Pipeline System Lease,
dated December 31, 1996, between MidCon Texas
Pipeline, L.P. and MidCon Texas Pipeline
Operator, Inc. (Attached hereto as Exhibit 10(y))**
Exhibit 10(z) - Amendment Number One To Intrastate Pipeline System
Lease, dated January 31, 1998, between MidCon Texas Pipeline, L.P.
and MidCon Texas Pipeline Operator, Inc.
(Attached hereto as Exhibit 10(z))**
Exhibit 12 - Ratio of Earnings to Fixed Charges................ 61
Exhibit 13 - 1997 Annual Report to Shareholders***.............. 62
Exhibit 21 - Subsidiaries of the Registrant..................... 63-65
Exhibit 23 - Consent of Independent Public Accountants.......... 66
Exhibit 27 - Financial Data Schedule****
Exhibit 99 - Consent of Independent Public Accountants.......... 67
</TABLE>
* Incorporated herein by reference.
** Included in SEC and NYSE copies only.
*** Such report is being furnished for the information of the Securities
and Exchange Commission only and is not to be deemed filed as a part
of this annual report on Form 10-K.
**** Included in SEC copy only.
60
<PAGE> 1
AMENDMENT NO. 1 TO STOCK PURCHASE AGREEMENT
AMENDMENT NO. 1 TO STOCK PURCHASE AGREEMENT (this "Amendment"), dated
January 30, 1998, by and between Occidental Petroleum Corporation, a Delaware
corporation (the "Seller"), and KN Energy, Inc., a Kansas corporation (the
"Buyer"), amending that certain Stock Purchase Agreement (the "Original SPA"),
dated as of December 18, 1997, by and between the Seller and the Buyer.
Capitalized terms used but not otherwise defined herein shall have the
respective meanings ascribed thereto in the Original SPA.
W I T N E S S E T H:
WHEREAS, the Seller and the Buyer have entered into the Original SPA
pursuant to which the Buyer is purchasing all of the issued and outstanding
Common Stock of MidCon; and
WHEREAS, the Original SPA has previously been amended by that certain
Supplemental Agreement dated January 20, 1998 (the "Supplemental Agreement"),
between the Buyer and the Seller, providing for, among other things, the
dividend of MPSC from MidCon to the Seller, on the terms and subject to the
conditions provided therein (the Original SPA, as amended by the Supplemental
Agreement and this Amendment is referred to herein as the "SPA");
WHEREAS, the Buyer and the Seller have agreed to amend the Original
SPA as provided herein in order to resolve certain issues that have arisen
under the SPA in view of the passage of time and certain interests of the Buyer
and the Seller.
<PAGE> 2
NOW, THEREFORE, in consideration of, and subject to, the mutual
covenants, agreements, terms and conditions herein contained, the Parties
hereto hereby agree as follows:
1. Delivery Date.
(a) Sections 1.2, 4.2 (excluding Sections 4.2.5 and
4.2.7), 4.3, 4.4, 5.2.5, 5.3.3 and 5.3.6 of the Original SPA are hereby amended
by (i) deleting therefrom the words "at the Closing" and inserting, in lieu
thereof, the words "on the Delivery Date," and (ii) after giving effect to the
amendment provided for in the immediately preceding clause (i), deleting
therefrom the words "Closing" and "Closing Date" and inserting, in lieu
thereof, the words "Delivery Date."
(b) Section 4.1 of the Original SPA is hereby amended and
restated in its entirety to read as follows:
"4.1 Time and Place of the Closing.
Subject to the satisfaction or waiver of the conditions precedent set
forth herein, the closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of the
Seller, 10889 Wilshire Boulevard, Los Angeles, California, at 11:59
p.m., Los Angeles time, on January 31, 1998."
(c) Section 4.2.7 of the Original SPA is hereby amended
by deleting therefrom the words "Closing Date" and inserting, in lieu thereof,
the words "Delivery Date."
(d) Section 9.16 of the Original SPA is hereby amended
and restated in its entirety to read as follows:
"9.16 'Closing Date' shall mean January
31, 1998."
2
<PAGE> 3
(e) Article IX of the Original SPA is hereby amended by
inserting, immediately following Section 9.25, a new Section 9.25(a), which
shall read in its entirety as follows:
"9.25(a) 'Delivery Date' shall mean
the date immediately preceding the Closing Date."
2. Cash Management Agreement (Section 5.1.2(b)). Section
5.1.2(b) of the Original SPA shall be deleted in its entirety and the following
shall be substituted therefor:
"(b) Loan Balances at Closing. The
balance of each of the OPC Loans and the MidCon Loans as at the
Closing shall be calculated by including all amounts accrued but not
yet payable (other than cash payments which have been settled directly
notwithstanding the terms of the Cash Management Agreement) for the
period elapsed up to the Closing, which amounts will include (i) the
payment by, or on behalf of, MidCon to the MidCon ESOP Trustee and its
advisors, (ii) the amount of Taxes of all sorts accrued pursuant to
Article VI , (iii) $5,928,000, representing the amount by which (A)
Taxes credited to MidCon during the calendar year ending December 31,
1997, exceed (B) the amount of Taxes which would have ultimately been
credited to MidCon for the calendar year ending December 31, 1997,
pursuant to the Tax Sharing Agreement, if it were not terminated and
(iv) any tax benefit pursuant to the Tax Sharing Agreement for the
period prior to the Closing resulting from the payment of $5,970,000
under the Bonus Agreements referenced in the Letter Agreement dated
December 18, 1997."
3. Revision to the Schedules to the SPA (Section 5.3.3). The
Buyer and the Seller have agreed to amend and restate all of the Schedules in
their entirety as attached hereto and incorporated by this reference herein.
The Schedules attached to the Original SPA shall have no further force or
effect from and after the date hereof. The Buyer hereby waives any breach of
the Seller's representations and warranties in Section 2.16 arising as a result
of the contract between MidCon and Kamine/Besicorp ("Kamine") listed in clause
(d) of Schedule 2.16.5, including Kamine's bankruptcy and failure to perform
thereunder. The Buyer and the Seller hereby amend
3
<PAGE> 4
Section 5.3.3 to delete the five (5) Business Days' notice requirement for any
further Schedule revisions pursuant to Section 5.3.3 of the Original SPA.
4. Insurance Matters (Section 5.1.5). The Buyer and the Seller
hereby agree that the Novation Agreement effective on the Closing, by and among
National Union Fire Insurance Company of Pittsburgh, PA., acting on its own
behalf and on behalf of its affiliated insurance companies (collectively, the
"Insurer"), the Buyer and the Seller, together with the related Hold Harmless
Agreement by and between the Insurer and the Buyer effective on the Closing,
have been delivered in satisfaction of the requirement for a Novation
Agreement, in substantially the form of Exhibit 5.1.5(b) to the Original SPA,
and in satisfaction of the undertaking set forth in Section 5.1.5 of the
Original SPA.
5. Substitute Note.
(a) Section 9.83 of the Original SPA is hereby amended
and restated in its entirety to read as follows:
"9.83 'Substitute Note' shall mean a note
substantially in the form of Exhibit 9.83 hereto."
(b) Exhibit 9.83 to the Original SPA is hereby amended
and restated in its entirety to read as set forth on Exhibit 9.83 to this
Amendment.
6. Financing Arrangements (Section 5.3.4). Section 5.3.4 of the
Original SPA shall be deleted in its entirety and the following shall be
substituted therefor:
"5.3.4 Substitute Note. On the Delivery Date, the
Seller shall assign to the Buyer (a) the ESOP Note, and (b) by
execution and delivery to the Buyer of the Term
4
<PAGE> 5
Loan Assignment Agreement, all of the Seller's rights and obligations
under the Term Loan Agreement and, in exchange therefor, on the
Delivery Date the Buyer shall execute and deliver to the Seller the
Term Loan Assignment Agreement and shall issue to the Seller a
Substitute Note, which entitles the holder thereof to the benefit of
one or more letters of credit that entitle the holder to draw up to
$1,418,434,132 in the aggregate in the event that the Buyer fails to
make a payment of principal or interest under the Substitute Note,
which letters of credit shall be in form and substance satisfactory to
the Seller, and shall be issued by a bank or group of banks with each
such bank either (a) having an investment grade credit rating by
either Standard & Poor's Corporation ("S&P") or Moody's Investors
Service, Inc. ("Moody's"), so long as neither of the above rating
agencies has provided a credit rating below investment grade, (b)
having been agreed to by the Seller or (c) if a bank is not such an
investment grade credit, its portion of the letter of credit can be
fronted by a bank having such investment grade credit."
7. MC Panhandle Indemnity (Section 8.3.1). Section 8.3.1(d) of
the Original SPA shall be deleted in its entirety and the following shall be
substituted therefor:
"(d) any loss, claim, damage, liability,
cost or expense arising out of or relating to any claims by Persons
which own interests in the assets assigned by MidCon Gas Services
Corp. ("MGS") to MC Panhandle Inc. ("MCP") pursuant to the Assignment
and Assumption Agreement dated December 31, 1996 by and between MGS
and MCP (the "Assignment"), including those cases referred to on
Schedule 2.13, but only to the extent such losses, claims, damages,
liabilities, costs and expenses (i) relate to the liability of MidCon
or its Subsidiaries in such matter and (ii) exceed $10 million;
provided, however, that the Seller shall be entitled to defend, in
accordance with the procedures set forth in Section 8.4.5, all
actions, suits, proceedings or claims referenced in this clause (d).
Notwithstanding anything to the contrary contained in this Agreement
or in the Assignment, the Parties hereby agree that to avoid any
dispute regarding the interpretation of any of the other relevant
provisions of this Agreement or the Assignment, the Buyer shall, or
shall cause MidCon or MGS to, pay for, and the Seller shall, or shall
cause MCP to, charge MidCon or MGS for, all amounts payable to
discharge all losses, claims, damages, liabilities, costs and expenses
incurred by the Seller or its Subsidiaries, including MCP (in each
case, directly or on behalf of MidCon and its subsidiaries), to
defend, to discharge judgments and to pay the cash portion of
settlements relating to or arising from the ownership or operation of
the assets assigned pursuant to the Assignment, regardless of whether
or not the payments are specifically made to discharge claims for the
period prior to December 31, 1996; provided, however, that such
amounts shall under no circumstances exceed $10 million. The Buyer
shall, or shall cause MidCon and MGS, to pay the foregoing amounts ten
(10) days after receipt of information properly documenting that the
amounts were incurred after the Closing. None of the obligations of
the Buyer, MidCon or MGS to reimburse the Seller for such amounts
shall be terminated by reason of the limitations or survival
provisions set forth in Section 8.1 of the SPA."
5
<PAGE> 6
8. Orders of Federal Energy Regulatory Commission Regarding the
Complaint Filed by Amoco. The Buyer hereby waives all claims it may have, now
or in the future, against the Seller arising directly or indirectly from the
penalties imposed by the FERC in its January 16, 1998, orders or the settlement
of the Amoco matter identified in Schedule 2.13 to the SPA.
9. Financial Information (Section 10.1). From time to time, the
Seller may require financial information or other information regarding
MidCon's business and operations through January 31, 1998, in order to (a)
review the Loan Balances at the Closing, (b) prepare Tax returns including any
periods ending on or prior to January 31, 1998, or (c) to satisfy legal or
operational requirements, including financial reporting requirements, or to
obtain any revenue or SIC Code information which may be required by the HSR
Act. The Buyer hereby agrees that it shall promptly furnish such information
upon the request of the Seller.
10. Entire Agreement; Third Party Beneficiaries (Section 10.10).
This Amendment, taken together with (i) the Original SPA, as amended by this
Amendment and the Supplemental Agreement, (ii) those certain Confidentiality
Agreements by and between the Seller and the Buyer (including the documents and
the instruments referred to herein and therein) as more fully described in
Section 10.3 of the SPA, (iii) those certain letter agreements from the Seller
to the Buyer dated December 18, 1997, and the date hereof, respectively,
regarding compensation of certain officers of MidCon and (iv) the Supplemental
Agreement (a) constitute the entire agreement and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, and (b) except as provided under Section
5.2.3, Section 5.2.6, Section 8.2 and Section 8.3 of the SPA, are not intended
to confer upon any person other than the Parties any rights or remedies
hereunder.
6
<PAGE> 7
11. Effect of Amendment and Modification. Except as amended by
this Amendment and the Supplemental Agreement, the Original SPA shall continue
in full force and effect.
12. Counterparts. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
be considered one and the same agreement.
7
<PAGE> 8
IN WITNESS WHEREOF, the Seller and the Buyer have caused this
Amendment to be signed by their respective officers thereunder duly authorized,
all as of the date first written above.
OCCIDENTAL PETROLEUM CORPORATION
("Seller")
By:
----------------------------------------------
Name: Stephen I. Chazen
Title: Executive Vice President - Corporate
Development
KN ENERGY, INC.
("Buyer")
By:
----------------------------------------------
Name: Larry D. Hall
Title: Chairman, President and Chief
Executive Officer
8
<PAGE> 1
CONFORMED COPY
$600,000,000
364-DAY CREDIT AGREEMENT
dated as of
January 30, 1998
among
K N Energy, Inc.,
The Banks Listed Herein,
and
Morgan Guaranty Trust Company of New York,
as Administrative Agent
----------------
J. P. Morgan Securities Inc.,
BancAmerica Robertson Stephens,
Chase Securities Inc.
and
NationsBanc Montgomery Securities LLC,
Syndication Agents
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
ARTICLE 1
DEFINITIONS
<S> <C>
SECTION 1.1. Definitions.....................................................1
SECTION 1.2. Accounting Terms and Determinations............................15
SECTION 1.3. Types of Borrowings............................................15
ARTICLE 2
THE CREDITS
SECTION 2.1. Commitments to Lend............................................16
SECTION 2.2. Notice of Committed Borrowing..................................16
SECTION 2.3. Money Market Borrowings........................................16
SECTION 2.4. Notice to Banks; Funding of Loans..............................20
SECTION 2.5. Notes..........................................................21
SECTION 2.6. Maturity of Loans..............................................22
SECTION 2.7. Interest Rates.................................................22
SECTION 2.8. Fees...........................................................26
SECTION 2.9. Optional Termination or Reduction of Commitments...............26
SECTION 2.10. Scheduled Termination of Commitments...........................26
SECTION 2.11. Optional Prepayments...........................................27
SECTION 2.12. General Provisions as to Payments..............................27
SECTION 2.13. Funding Losses.................................................28
SECTION 2.14. Computation of Interest and Fees...............................28
SECTION 2.15. Regulation D Compensation......................................29
ARTICLE 3
CONDITIONS
SECTION 3.1. Effectiveness..................................................29
SECTION 3.2. Borrowings.....................................................30
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
SECTION 4.1. Corporate Existence and Power..................................31
SECTION 4.2. Corporate and Governmental Authorization; No
Contravention..............................................31
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 4.3. Binding Effect.................................................32
SECTION 4.4. Financial Information..........................................32
SECTION 4.5. Litigation.....................................................32
SECTION 4.6. Compliance with ERISA..........................................33
SECTION 4.7. Environmental Matters..........................................33
SECTION 4.8. Taxes..........................................................34
SECTION 4.9. Subsidiaries...................................................34
SECTION 4.10. Not an Investment Company......................................34
SECTION 4.11. Full Disclosure................................................34
SECTION 4.12. MidCon Acquisition.............................................34
ARTICLE 5
COVENANTS
SECTION 5.1. Information....................................................35
SECTION 5.2. Payment of Obligations.........................................37
SECTION 5.3. Maintenance of Property; Insurance.............................37
SECTION 5.4. Conduct of Business and Maintenance of Existence...............38
SECTION 5.5. Compliance with Laws...........................................38
SECTION 5.6. Inspection of Property, Books and Records......................38
SECTION 5.7. Debt...........................................................39
SECTION 5.8. Minimum Net Worth..............................................39
SECTION 5.9. Minimum Interest Coverage Ratio................................39
SECTION 5.10. Negative Pledge................................................40
SECTION 5.11. Consolidations, Mergers and Sales of Assets....................40
SECTION 5.12. Use of Proceeds................................................41
SECTION 5.13. Transactions with Affiliates...................................41
ARTICLE 6
DEFAULTS
SECTION 6.1. Events of Default..............................................41
SECTION 6.2. Notice of Default..............................................44
ARTICLE 7
THE AGENTS
SECTION 7.1. Appointment and Authorization..................................44
SECTION 7.2. Administrative Agent and Affiliates............................44
SECTION 7.3. Action by Administrative Agent.................................45
SECTION 7.4. Consultation with Experts......................................45
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 7.5. Liability of Administrative Agent..............................45
SECTION 7.6. Indemnification................................................45
SECTION 7.7. Credit Decision................................................46
SECTION 7.8. Successor Administrative Agent.................................46
SECTION 7.9. Agents' Fees...................................................46
SECTION 7.10. Other Agents...................................................46
ARTICLE 8
CHANGE IN CIRCUMSTANCES
SECTION 8.1. Basis for Determining Interest Rate Inadequate or Unfair.......47
SECTION 8.2. Illegality.....................................................47
SECTION 8.3. Increased Cost and Reduced Return..............................48
SECTION 8.4. Taxes..........................................................50
SECTION 8.5. Base Rate Loans Substituted for Affected Fixed Rate Loans......51
SECTION 8.6. Substitution of Bank...........................................52
ARTICLE 9
MISCELLANEOUS
SECTION 9.1. Notices........................................................52
SECTION 9.2. No Waivers.....................................................53
SECTION 9.3. Expenses; Indemnification......................................53
SECTION 9.4. Sharing of Set-offs............................................53
SECTION 9.5. Amendments and Waivers.........................................54
SECTION 9.6. Successors and Assigns.........................................54
SECTION 9.7. Collateral.....................................................56
SECTION 9.8. Governing Law; Submission to Jurisdiction......................56
SECTION 9.9. Counterparts; Integration......................................56
SECTION 9.10. WAIVER OF JURY TRIAL...........................................56
SECTION 9.11. Existing Credit Agreement......................................57
</TABLE>
<PAGE> 5
PRICING SCHEDULE
EXHIBIT A - NOTE
EXHIBIT B - MONEY MARKET QUOTE REQUEST
EXHIBIT C - INVITATION FOR MONEY MARKET QUOTES
EXHIBIT D - MONEY MARKET QUOTE
EXHIBIT E-1 - OPINION OF SPECIAL COUNSEL FOR THE BORROWER
EXHIBIT E-2 - OPINION OF KANSAS COUNSEL FOR THE BORROWER
EXHIBIT E-3 - OPINION OF GENERAL COUNSEL OF THE BORROWER
EXHIBIT F - OPINION OF DAVIS POLK & WARDWELL, SPECIAL
COUNSEL FOR THE AGENTS
EXHIBIT G - ASSIGNMENT AND ASSUMPTION AGREEMENT
<PAGE> 6
364-DAY CREDIT AGREEMENT
AGREEMENT dated as of January 30, 1998 among K N ENERGY, INC., the
BANKS listed on the signature pages hereof and MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, as Administrative Agent.
W I T N E S S E T H:
WHEREAS, the Borrower, desires to replace the Amended and Restated
Credit Agreement dated as of March 7, 1997 (the "Existing Credit Agreement"),
among the Borrower, certain banks and Morgan Guaranty Trust Company of New
York, as agent, by entering into this Agreement; and
WHEREAS, the Banks agree to do so.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1. Definitions. The following terms, as used herein, have
the following meanings:
"Absolute Rate Auction" means a solicitation of Money Market Quotes
setting forth Money Market Absolute Rates pursuant to Section 2.3.
"Acquisition" means the purchase of MidCon Corp. by the Borrower from
Occidental Petroleum Corporation pursuant to the Stock Purchase Agreement.
"Adjusted CD Rate" has the meaning set forth in Section 2.7(b).
"Administrative Agent" means Morgan Guaranty Trust Company of New
York in its capacity as administrative agent for the Banks under this
Agreement, and its successors in such capacity.
"Administrative Questionnaire" means, with respect to each Bank, an
administrative questionnaire in the form prepared by the Administrative Agent
and submitted to the Administrative Agent (with a copy to the Borrower) duly
completed by such Bank.
"Affiliate" means (i) any Person that directly, or indirectly through
one or more intermediaries, controls the Borrower (a "Controlling Person") or
(ii) any Person (other than the Borrower or a Subsidiary) which is controlled
by or is under common control with a Controlling Person. As used herein, the
term "control" means possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.
<PAGE> 7
"Agent" means each of the Administrative Agent and the Syndication
Agents, and "Agents" means any combination of them, as the context may require.
"Applicable Lending Office" means, with respect to any Bank, (i) in
the case of its Domestic Loans, its Domestic Lending Office, (ii) in the case
of its Euro-Dollar Loans, its Euro-Dollar Lending Office and (iii) in the case
of its Money Market Loans, its Money Market Lending Office.
"Assessment Rate" has the meaning set forth in Section 2.7(b).
"Assignee" has the meaning set forth in Section 9.6(c).
"Bank" means each bank listed on the signature pages hereof, each
Assignee which becomes a Bank pursuant to Section 9.6(c), and their respective
successors.
"Base Rate" means, for any day, a rate per annum equal to the higher
of (i) the Prime Rate for such day or (ii) the sum of 1/2 of 1% plus the
Federal Funds Rate for such day.
"Base Rate Loan" means a Committed Loan to be made by a Bank as a
Base Rate Loan in accordance with the applicable Notice of Committed Borrowing
or pursuant to Article 8.
"Benefit Arrangement" means at any time an employee benefit plan
within the meaning of Section 3(3) of ERISA which is not a Plan or a
Multiemployer Plan and which is maintained or otherwise contributed to by any
member of the ERISA Group.
"Borrower" means K N Energy, Inc., a Kansas corporation, and its
successors.
"Borrower's 1996 Form 10-K" means the Borrower's annual report on
Form 10-K for 1996, as filed with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934.
"Borrower's Latest Form 10-Q" means the Borrower's quarterly report
on Form 10-Q for the quarter ended September 30, 1997, as filed with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934.
"Borrowing" has the meaning set forth in Section 1.3.
"CD Base Rate" has the meaning set forth in Section 2.7(b).
"CD Loan" means a Committed Loan to be made by a Bank as a CD Loan in
accordance with the applicable Notice of Committed Borrowing.
"CD Margin" has the meaning set forth in Section 2.7(b).
"CD Reference Banks" means NationsBank, N.A., The Chase Manhattan
Bank and Morgan Guaranty Trust Company of New York.
"Commitment" means, with respect to each Bank, the amount set forth
<PAGE> 8
opposite the name of such Bank on the signature pages of this Agreement, as
such amount may be reduced from time to time pursuant to Sections 2.9 and 2.10.
"Committed Loan" means a loan made by a Bank pursuant to Section 2.1.
"Consolidated Assets" means the total amount of assets appearing on
the consolidated balance sheet of the Borrower and its Consolidated
Subsidiaries, prepared in accordance with generally accepted accounting
principles as of the date of the most recent regularly prepared consolidated
financial statements prior to the taking of any action for the purposes of
which the determination is being made.
"Consolidated Debt" of any Person means at any date the sum (without
duplication) of (i) the Debt of such Person and its Consolidated Subsidiaries,
determined on a consolidated basis as of such date plus (ii) the excess (if
any) of the Trust Preferred Securities of such Person over 10% of the
Consolidated Total Capitalization of such Person at such date minus (iii) the
portion of the Substitute Note collateralized as contemplated by Section
5.10(b) hereof.
"Consolidated EBITDA" means, for any period, Consolidated Net Income
for such period plus, to the extent deducted in determining Consolidated Net
Income for such period, the aggregate amount of (i) Consolidated Interest
Expense, (ii) income tax expense and (iii) depreciation and amortization
expense.
"Consolidated Interest Expense" means, for any period, the interest
expense of the Borrower and its Consolidated Subsidiaries, determined on a
consolidated basis for such period.
"Consolidated Subsidiary" of any Person means at any date any
Subsidiary or other entity the accounts of which would be consolidated with
those of such Person in its consolidated financial statements if such
statements were prepared as of such date.
"Consolidated Net Income" means, for any period, the net income of
the Borrower and its Consolidated Subsidiaries before extraordinary items,
determined on a consolidated basis for such period.
"Consolidated Net Worth" of any Person means at any date the sum
(without duplication) of (i) the consolidated stockholders' equity of such
Person and its Consolidated Subsidiaries, determined as of such date plus (ii)
the Mandatorily Convertible Preferred Stock of such Person plus (iii) the Trust
Preferred Securities of such Person; provided that the amount of Trust
Preferred Securities added pursuant to this clause (iii) shall not exceed 10%
of Consolidated Total Capitalization of such Person at such date.
"Consolidated Total Capitalization" of any Person means at any date
the sum of Consolidated Debt of such Person and Consolidated Net Worth of such
Person, each determined as of such date.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments,
(iii)
<PAGE> 9
all obligations of such Person to pay the deferred purchase price of property
or services, except trade accounts payable or deferred employee and director
compensation arising in the ordinary course of business, (iv) all obligations
of such Person as lessee which are capitalized in accordance with generally
accepted accounting principles, (v) all non-contingent obligations (and, for
purposes of Section 5.11 and the definitions of Material Debt and Material
Financial Obligations, all contingent obligations) of such Person to reimburse
any bank or other Person in respect of amounts paid under a letter of credit or
similar instrument, (vi) all Debt secured by a Lien on any asset of such
Person, whether or not such Debt is otherwise an obligation of such Person, and
(vii) all Debt of others Guaranteed by such Person.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Derivatives Obligations" of any Person means all obligations of such
Person in respect of any rate swap transaction, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap,
equity or equity index option, bond option, interest rate option, foreign
exchange transaction, cap transaction, floor transaction, collar transaction,
currency swap transaction, cross-currency rate swap transaction, currency
option or any other similar transaction (including any option with respect to
any of the foregoing transactions) or any combination of the foregoing
transactions.
"Domestic Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in New York City are authorized by law to
close.
"Domestic Lending Office" means, as to each Bank, its office located
at its address set forth in its Administrative Questionnaire (or identified in
its Administrative Questionnaire as its Domestic Lending Office) or such other
office as such Bank may hereafter designate as its Domestic Lending Office by
notice to the Borrower and the Administrative Agent; provided that any Bank may
so designate separate Domestic Lending Offices for its Base Rate Loans, on the
one hand, and its CD Loans, on the other hand, in which case all references
herein to the Domestic Lending Office of such Bank shall be deemed to refer to
either or both of such offices, as the context may require.
"Domestic Loans" means CD Loans or Base Rate Loans or both.
"Domestic Reserve Percentage" has the meaning set forth in Section
2.7(b).
"Effective Date" means the date this Agreement becomes effective in
accordance with Section 3.1.
"Environmental Laws" means any and all federal, state, local and
foreign statutes, laws, judicial decisions, regulations, ordinances, rules,
judgments, orders, decrees, plans, injunctions, permits, concessions, grants,
franchises, licenses, agreements and other governmental restrictions relating
to the environment, the effect of the environment on human health or to
emissions, discharges or releases of pollutants, contaminants, Hazardous
Substances or wastes into the environment including, without limitation,
ambient air, surface
<PAGE> 10
water, ground water, or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, Hazardous Substances or wastes or the
clean-up or other remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA Group" means the Borrower, any Subsidiary and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Borrower or any
Subsidiary, are treated as a single employer under Section 414 of the Internal
Revenue Code.
"Euro-Dollar Business Day" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
dollar deposits) in London.
"Euro-Dollar Lending Office" means, as to each Bank, its office,
branch or affiliate located at its address set forth in its Administrative
Questionnaire (or identified in its Administrative Questionnaire as its
Euro-Dollar Lending Office) or such other office, branch or affiliate of such
Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice
to the Borrower and the Administrative Agent.
"Euro-Dollar Loan" means a Committed Loan to be made by a Bank as a
Euro-Dollar Loan in accordance with the applicable Notice of Committed
Borrowing.
"Euro-Dollar Margin" has the meaning set forth in Section 2.7(c).
"Euro-Dollar Reference Banks" means the principal London offices (for
determinations of a London Interbank Offered Rate) or domestic offices (for
determinations of an Interbank Offered Rate) of NationsBank, N.A., The Chase
Manhattan Bank and Morgan Guaranty Trust Company of New York.
"Euro-Dollar Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of "Eurocurrency liabilities" (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions of credit or
other assets which includes loans by a non-United States office of any Bank to
United States residents).
"Event of Default" has the meaning set forth in Section 6.1.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of
the Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Domestic Business Day
<PAGE> 11
next succeeding such day, provided that (i) if such day is not a Domestic
Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Domestic Business Day as so published on the
next succeeding Domestic Business Day, and (ii) if no such rate is so published
on such next succeeding Domestic Business Day, the Federal Funds Rate for such
day shall be the average rate quoted to Morgan Guaranty Trust Company of New
York on such day on such transactions as determined by the Administrative
Agent.
"Fixed Rate Loans" means CD Loans or Euro-Dollar Loans or Money
Market Loans (excluding Money Market LIBOR Loans bearing interest at the Base
Rate pursuant to Section 8.1(a)) or any combination of the foregoing.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or other obligation (whether arising by virtue of
partnership arrangements, by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in
any other manner the obligee of such Debt or other obligation of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part), provided that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Hazardous Substances" means any toxic, radioactive, caustic or
otherwise hazardous substance, including petroleum, its derivatives,
by-products and other hydrocarbons, or any substance having any constituent
elements displaying any of the foregoing characteristics.
"Indemnitee" has the meaning set forth in Section 9.3(b).
"Interest Coverage Ratio" means, at any date, the ratio of
Consolidated EBITDA to Consolidated Interest Expense for the period of four
consecutive fiscal quarters most recently ended on or before such date.
"Interest Period" means: (1) with respect to each Euro-Dollar
Borrowing, the period commencing on the date of such Borrowing and ending one,
two, three or six months thereafter, as the Borrower may elect in the
applicable Notice of Borrowing; except that with respect to any Borrowing
occurring prior to the Syndication Date, (i) any such Borrowing occurring prior
to February 23, 1998 shall have an Interest Period ending on February 23, 1998
and (ii) any such Borrowing on or after February 23, 1998 shall have an
Interest Period ending one week thereafter; provided that:
(a) any Interest Period which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the next
succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls
in another calendar month, in which case such Interest Period shall end on the
next preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar
<PAGE> 12
Business Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall, subject to clause (c) below, end on the last Euro-Dollar Business Day of
a calendar month; and
(c) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date;
(2) with respect to each CD Borrowing, the period commencing on the
date of such Borrowing and ending 30, 60, 90 or 180 days thereafter, as the
Borrower may elect in the applicable Notice of Borrowing; provided that:
(a) any Interest Period (other than an Interest Period
determined pursuant to clause (b) below) which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the next
succeeding Euro-Dollar Business Day; and
(b) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date;
(3) with respect to each Base Rate Borrowing, the period commencing
on the date of such Borrowing and ending 30 days thereafter; provided that:
(a) any Interest Period (other than an Interest Period
determined pursuant to clause (b) below) which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the next
succeeding Euro-Dollar Business Day; and
(b) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date;
(4) with respect to each Money Market LIBOR Borrowing, the period
commencing on the date of such Borrowing and ending such whole number of months
thereafter (but not more than nine months) as the Borrower may elect in
accordance with Section 2.3; provided that:
(a) any Interest Period which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the next
succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls
in another calendar month, in which case such Interest Period shall end on the
next preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar
Business Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall, subject to clause (c) below, end on the last Euro-Dollar Business Day of
a calendar month; and
(c) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date;
(5) with respect to each Money Market Absolute Rate Borrowing, the
period commencing on the date of such Borrowing and ending such number of days
thereafter (but not less than seven days nor more than 360 days) as the
Borrower may elect in accordance with Section 2.3; provided that:
<PAGE> 13
(a) any Interest Period which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the next
succeeding Euro-Dollar Business Day; and
(b) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, or any successor statute.
"Investment" means any investment in any Person, whether by means of
share purchase, capital contribution, loan, time deposit or otherwise.
"LIBOR Auction" means a solicitation of Money Market Quotes setting
forth Money Market Margins based on the London Interbank Offered Rate pursuant
to Section 2.3.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind, or any other type of
preferential arrangement that has the practical effect of creating a security
interest, in respect of such asset. For the purposes of this Agreement, the
Borrower or any Subsidiary shall be deemed to own subject to a Lien any asset
which it has acquired or holds subject to the interest of a vendor or lessor
under any conditional sale agreement, capital lease or other title retention
agreement relating to such asset.
"Loan" means a Domestic Loan or a Euro-Dollar Loan or a Money Market
Loan and "Loans" means Domestic Loans or Euro-Dollar Loans or Money Market
Loans or any combination of the foregoing.
"London Interbank Offered Rate" has the meaning set forth in Section
2.7(c).
"Mandatorily Convertible Preferred Stock", means, with respect to the
Borrower, preferred securities of a Subsidiary which are (i) mandatorily
convertible into common equity securities of the Borrower within approximately
three years of their date of issuance, (ii) issued in conjunction with, and
pledged to secure, an obligation to purchase common equity securities of the
Borrower within approximately three years for an equal amount or (iii)
otherwise structured in a manner satisfactory to the Administrative Agent so as
to ensure the issuance of incremental common equity securities of the Borrower
in a substantially equal amount within approximately three years.
"Material Debt" means Debt (other than (i) the Notes and (ii) Debt
owing to the Borrower or a Subsidiary) of the Borrower and/or one or more of
its Subsidiaries, arising in one or more related or unrelated transactions, in
an aggregate principal or face amount exceeding $75,000,000.
"Material Financial Obligations" means a principal or face amount of
Debt (other than (i) the Notes and (ii) Debt owing to the Borrower or a
Subsidiary) and/or payment obligations in respect of Derivatives Obligations of
the Borrower and/or one or more of its Subsidiaries, arising in one or more
related or unrelated transactions, exceeding in the aggregate $125,000,000.
<PAGE> 14
"Material Subsidiary" means any Subsidiary the consolidated assets of
which constitute 10% or more of Consolidated Assets.
"Money Market Absolute Rate" has the meaning set forth in Section
2.3(d).
"Money Market Absolute Rate Loan" means a loan to be made by a Bank
pursuant to an Absolute Rate Auction.
"Money Market Lending Office" means, as to each Bank, its Domestic
Lending Office or such other office, branch or affiliate of such Bank as it may
hereafter designate as its Money Market Lending Office by notice to the
Borrower and the Administrative Agent; provided that any Bank may from time to
time by notice to the Borrower and the Administrative Agent designate separate
Money Market Lending Offices for its Money Market LIBOR Loans, on the one hand,
and its Money Market Absolute Rate Loans, on the other hand, in which case all
references herein to the Money Market Lending Office of such Bank shall be
deemed to refer to either or both of such offices, as the context may require.
"Money Market LIBOR Loan" means a loan to be made by a Bank pursuant
to a LIBOR Auction (including such a loan bearing interest at the Base Rate
pursuant to Section 8.1(a)).
"Money Market Loan" means a Money Market LIBOR Loan or a Money Market
Absolute Rate Loan.
"Money Market Margin" has the meaning set forth in Section 2.3(d).
"Money Market Quote" means an offer by a Bank to make a Money Market
Loan in accordance with Section 2.3.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means at any time an employee pension benefit
plan within the meaning of Section 4001(a)(3) of ERISA to which any member of
the ERISA Group is then making or accruing an obligation to make contributions
or has within the preceding five plan years made contributions, including for
these purposes any Person which ceased to be a member of the ERISA Group during
such five year period.
"Notes" means promissory notes of the Borrower, substantially in the
form of Exhibit A hereto, evidencing the obligation of the Borrower to repay
the Loans, and "Note" means any one of such promissory notes issued hereunder.
"Notice of Borrowing" means a Notice of Committed Borrowing (as
defined in Section 2.2) or a Notice of Money Market Borrowing (as defined in
Section 2.3(f)).
"Parent" means, with respect to any Bank, any Person controlling such
Bank.
"Participant" has the meaning set forth in Section 9.6(b).
<PAGE> 15
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"Plan" means at any time an employee pension benefit plan (other than
a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Internal Revenue Code and
either (i) is maintained, or contributed to, by any member of the ERISA Group
for employees of any member of the ERISA Group or (ii) has at any time within
the preceding five years been maintained, or contributed to, by any Person
which was at such time a member of the ERISA Group for employees of any Person
which was at such time a member of the ERISA Group.
"Purchase Agreement" means the Purchase and Sale Agreement dated as
of January 28, 1994, among K N Gas Supply Services, Inc., the Borrower, Bank of
America National Trust and Savings Association, as the initial Purchaser (as
defined therein), and Bank of America National Trust and Savings Association,
as agent for the Purchasers.
"Pricing Schedule" means the Schedule attached hereto identified as
such.
"Prime Rate" means the rate of interest publicly announced by Morgan
Guaranty Trust Company of New York in New York City from time to time as its
Prime Rate.
"Reference Banks" means the CD Reference Banks or the Euro-Dollar
Reference Banks, as the context may require, and "Reference Bank" means any one
of such Reference Banks.
"Refunding Borrowing" means a Committed Borrowing which, after
application of the proceeds thereof, results in no net increase in the
outstanding principal amount of Committed Loans made by any Bank.
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"Reimbursement Agreement" means the Reimbursement Agreement dated as
of January 30, 1998, among the Borrower, the banks parties thereto and Morgan
Guaranty Trust Company as the administrative agent, as amended and in effect
from time to time.
"Required Banks" means at any time Banks having at least 66 2/3 % of
the aggregate amount of the Commitments or, if the Commitments shall have been
terminated, holding Notes evidencing at least 66 2/3% of the aggregate unpaid
principal amount of the Loans.
"Revolving Credit Period" means the period from and including the
Effective Date to but not including the Termination Date.
<PAGE> 16
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc.
"Stock Purchase Agreement" means the Stock Purchase Agreement dated
as of December 18, 1997, between Occidental Petroleum Corporation, a Delaware
corporation, and the Borrower as amended and in effect from time to time;
provided that any such amendment from the form thereof heretofore furnished to
each of the Banks which could reasonably be expected to materially adversely
affect the business, consolidated financial position or consolidated results of
operations of the Borrower and its Consolidated Subsidiaries, considered as a
whole, shall be effective for purposes of references thereto in this Agreement
only if such amendment shall have received the written consent of the Required
Banks (which shall not be unreasonably withheld).
"Subsidiary" means, as to any Person, any corporation or other entity
of which securities or other ownership interests having ordinary voting power
to elect a majority of the board of directors or other persons performing
similar functions are at the time directly or indirectly owned by such Person;
unless otherwise specified, "Subsidiary" means a Subsidiary of the Borrower.
"Substitute Note" means the Substitute Note (as defined in the Stock
Purchase Agreement) issued by the Borrower to Occidental Petroleum Corporation
in connection with the Acquisition.
"Syndication Agent" means either J.P. Morgan Securities Inc.,
BancAmerica Robertson Stephens, Chase Securities Inc. or NationsBanc Montgomery
Securities LLC in its capacity as a syndication agent in respect of this
Agreement, and "Syndication Agents" means all of them.
"Syndication Date" means the earlier of (i) March 31, 1998 and (ii)
the first date subsequent to the date hereof on which the Commitments of the
Banks listed on the signature pages hereof shall have been reduced to an amount
less than 75% of the aggregate amount of the Commitments by reason of the
completion of primary syndication.
"Termination Date" means January 29, 1999, or, if such day is not a
Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day.
"Trust Preferred Securities" means, with respect to the Borrower,
mandatorily redeemable capital trust securities of trusts which are
Subsidiaries and the subordinated debentures of the Borrower in which the
proceeds of the issuance of such capital trust securities are invested,
including, without limitation, (i) the 8.56% Series B Capital Trust
Pass-through Securities of K N Capital Trust I and (ii) the capital securities
trust of K N Capital Trust II anticipated to be issued after the Effective
Date.
"Unfunded Liabilities" means, with respect to any Plan at any time,
the amount (if any) by which (i) the value of all benefit liabilities under
such Plan, determined on a plan termination basis using the assumptions
prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the
fair market value of all Plan assets allocable to such liabilities under Title
IV of ERISA (excluding any accrued but unpaid contributions), all determined as
of the then most recent valuation date for such Plan, but only to the extent
that such excess represents a potential liability of a member of the ERISA Group
to the PBGC or any other Person under Title IV of ERISA.
<PAGE> 17
"United States" means the United States of America, including the
States and the District of Columbia, but excluding its territories and
possessions.
"Wholly-Owned Consolidated Subsidiary" of any Person means any
Consolidated Subsidiary all of the shares of capital stock or other ownership
interests of which (except directors' qualifying shares) are at the time
directly or indirectly owned by such Person.
SECTION 1.2. Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with
generally accepted accounting principles as in effect from time to time,
applied on a basis consistent (except for changes concurred in by the
Borrower's independent public accountants) with the most recent audited
consolidated financial statements of the Borrower and its Consolidated
Subsidiaries delivered to the Banks; provided that, if the Borrower notifies
the Administrative Agent that the Borrower wishes to amend any covenant in
Article 5 to eliminate the effect of any change in generally accepted
accounting principles on the operation of such covenant (or if the
Administrative Agent notifies the Borrower that the Required Banks wish to
amend Article 5 for such purpose), then the Borrower's compliance with such
covenant shall be determined on the basis of generally accepted accounting
principles in effect immediately before the relevant change in generally
accepted accounting principles became effective, until either such notice is
withdrawn or such covenant is amended in a manner satisfactory to the Borrower
and the Required Banks.
SECTION 1.3. Types of Borrowings. The term "Borrowing" denotes the
aggregation of Loans of one or more Banks to be made to the Borrower pursuant
to Article 2 on a single date and for a single Interest Period. Borrowings are
classified for purposes of this Agreement either by reference to the pricing of
Loans comprising such Borrowing (e.g., a "Euro-Dollar Borrowing" is a Borrowing
comprised of Euro-Dollar Loans) or by reference to the provisions of Article 2
under which participation therein is determined (i.e., a "Committed Borrowing"
is a Borrowing under Section 2.1 in which all Banks participate in proportion
to their Commitments, while a "Money Market Borrowing" is a Borrowing under
Section 2.3 in which the Bank participants are determined on the basis of their
bids in accordance therewith).
ARTICLE 2
THE CREDITS
SECTION 2.1. Commitments to Lend. During the Revolving Credit Period
each Bank severally agrees, on the terms and conditions set forth in this
Agreement, to make loans to the Borrower pursuant to this Section from time to
time in amounts such that the aggregate principal amount of Committed Loans by
such Bank at any one time outstanding shall not exceed the amount of its
Commitment. Each Borrowing under this Section shall be in an aggregate
principal amount of $5,000,000 or any larger multiple of $1,000,000 (except
that any such Borrowing may be in the aggregate amount available in accordance
with Section 3.2(e)) and shall be made from the several Banks ratably in
proportion to their
<PAGE> 18
respective Commitments. Within the foregoing limits, the Borrower may borrow
under this Section, repay, or to the extent permitted by Section 2.11, prepay
Loans and reborrow at any time during the Revolving Credit Period under this
Section.
SECTION 2.2. Notice of Committed Borrowing. The Borrower shall give
the Administrative Agent notice (a "Notice of Committed Borrowing") not later
than 10:30 A.M. (New York City time) on (x) the date of each Base Rate
Borrowing, (y) the second Domestic Business Day before each CD Borrowing and
(z) the third Euro-Dollar Business Day before each Euro-Dollar Borrowing,
except if the Euro-Dollar Borrowing is at the Interbank Offered Rate, then upon
the date of each such borrowing, specifying:
(a) the date of such Borrowing, which shall be a Domestic Business
Day in the case of a Domestic Borrowing or a Euro-Dollar Business Day in the
case of a Euro-Dollar Borrowing,
(b) the aggregate amount of such Borrowing,
(c) whether the Loans comprising such Borrowing are to be CD Loans,
Base Rate Loans or Euro-Dollar Loans, and
(d) in the case of a Fixed Rate Borrowing, the duration of the
Interest Period applicable thereto, subject to the provisions of the definition
of Interest Period.
SECTION 2.3. Money Market Borrowings. (a) The Money Market Option.
In addition to Committed Borrowings pursuant to Section 2.1, the Borrower may,
as set forth in this Section, request the Banks during the Revolving Credit
Period to make offers to make Money Market Loans to the Borrower. The Banks
may, but shall have no obligation to, make such offers and the Borrower may,
but shall have no obligation to, accept any such offers in the manner set forth
in this Section.
(b) Money Market Quote Request. When the Borrower wishes to request
offers to make Money Market Loans under this Section, it shall transmit to the
Administrative Agent by telex or facsimile transmission a Money Market Quote
Request substantially in the form of Exhibit B hereto so as to be received not
later than 10:30 A.M. (New York City time) on (x) the fifth Euro-Dollar
Business Day prior to the date of Borrowing proposed therein, in the case of a
LIBOR Auction or (y) the Domestic Business Day next preceding the date of
Borrowing proposed therein, in the case of an Absolute Rate Auction (or, in
either case, such other time or date as the Borrower and the Administrative
Agent shall have mutually agreed and shall have notified to the Banks not later
than the date of the Money Market Quote Request for the first LIBOR Auction or
Absolute Rate Auction for which such change is to be effective) specifying:
(i) the proposed date of Borrowing, which shall be a Euro-Dollar
Business Day in the case of a LIBOR Auction or a Domestic Business
Day in the case of an Absolute Rate Auction,
(ii) the aggregate amount of such Borrowing, which shall be
$5,000,000 or a larger multiple of $1,000,000,
<PAGE> 19
(iii) the duration of the Interest Period applicable thereto, subject
to the provisions of the definition of Interest Period, and
(iv) whether the Money Market Quotes requested are to set forth a
Money Market Margin or a Money Market Absolute Rate.
The Borrower may request offers to make Money Market Loans for more
than one Interest Period in a single Money Market Quote Request. No Money
Market Quote Request shall be given within five Euro-Dollar Business Days (or
such other number of days as the Borrower and the Administrative Agent may
agree) of any other Money Market Quote Request.
(c) Invitation for Money Market Quotes. Promptly upon receipt of a
Money Market Quote Request, the Administrative Agent shall send to the Banks by
telex or facsimile transmission an Invitation for Money Market Quotes
substantially in the form of Exhibit C hereto, which shall constitute an
invitation by the Borrower to each Bank to submit Money Market Quotes offering
to make the Money Market Loans to which such Money Market Quote Request relates
in accordance with this Section.
(d) Submission and Contents of Money Market Quotes. (i) Each Bank
may submit a Money Market Quote containing an offer or offers to make Money
Market Loans in response to any Invitation for Money Market Quotes. Each Money
Market Quote must comply with the requirements of this subsection (d) and must
be submitted to the Administrative Agent by telex or facsimile transmission at
its offices specified in or pursuant to Section 9.1 not later than (x) 2:00
P.M. (New York City time) on the fourth Euro-Dollar Business Day prior to the
proposed date of Borrowing, in the case of a LIBOR Auction or (y) 9:30 A.M.
(New York City time) on the proposed date of Borrowing, in the case of an
Absolute Rate Auction (or, in either case, such other time or date as the
Borrower and the Administrative Agent shall have mutually agreed and shall have
notified to the Banks not later than the date of the Money Market Quote Request
for the first LIBOR Auction or Absolute Rate Auction for which such change is
to be effective); provided that Money Market Quotes submitted by the
Administrative Agent (or any affiliate of the Administrative Agent) in the
capacity of a Bank may be submitted, and may only be submitted, if the
Administrative Agent or such affiliate notifies the Borrower of the terms of
the offer or offers contained therein not later than (x) one hour prior to the
deadline for the other Banks, in the case of a LIBOR Auction or (y) 15 minutes
prior to the deadline for the other Banks, in the case of an Absolute Rate
Auction. Subject to Articles 3 and 6, any Money Market Quote so made shall be
irrevocable except with the written consent of the Administrative Agent given
on the instructions of the Borrower.
(ii) Each Money Market Quote shall be in substantially the form of
Exhibit D hereto and shall in any case specify:
(A) the proposed date of Borrowing,
(B) the principal amount of the Money Market Loan for
which each such offer is being made, which principal amount
(w) may be greater than or less than the Commitment of the
quoting Bank, (x) must be $5,000,000 or a larger multiple of
$1,000,000, (y) may not exceed the principal amount of Money
Market Loans for which offers were requested and (z) may be
<PAGE> 20
subject to an aggregate limitation as to the principal
amount of Money Market Loans for which offers being made by
such quoting Bank may be accepted,
(C) in the case of a LIBOR Auction, the margin above or
below the applicable London Interbank Offered Rate (the
"Money Market Margin") offered for each such Money Market
Loan, expressed as a percentage (specified to the nearest
1/10,000th of 1%) to be added to or subtracted from such
base rate,
(D) in the case of an Absolute Rate Auction, the rate
of interest per annum (specified to the nearest 1/10,000th
of 1%) (the "Money Market Absolute Rate") offered for each
such Money Market Loan, and
(E) the identity of the quoting Bank.
A Money Market Quote may set forth up to five separate offers by the
quoting Bank with respect to each Interest Period specified in the related
Invitation for Money Market Quotes.
(iii) Any Money Market Quote shall be disregarded if it:
(A) is not substantially in conformity with Exhibit D
hereto or does not specify all of the information required
by subsection (d)(ii);
(B) contains qualifying, conditional or similar
language;
(C) proposes terms other than or in addition to those
set forth in the applicable Invitation for Money Market
Quotes; or
(D) arrives after the time set forth in subsection
(d)(i).
(e) Notice to Borrower. The Administrative Agent shall promptly
notify the Borrower of the terms (x) of any Money Market Quote submitted by a
Bank that is in accordance with subsection (d) and (y) of any Money Market
Quote that amends, modifies or is otherwise inconsistent with a previous Money
Market Quote submitted by such Bank with respect to the same Money Market Quote
Request. Any such subsequent Money Market Quote shall be disregarded by the
Administrative Agent unless such subsequent Money Market Quote is submitted
solely to correct a manifest error in such former Money Market Quote. The
Administrative Agent's notice to the Borrower shall specify (A) the aggregate
principal amount of Money Market Loans for which offers have been received for
each Interest Period specified in the related Money Market Quote Request, (B)
the respective principal amounts and Money Market Margins or Money Market
Absolute Rates, as the case may be, so offered and (C) if applicable,
limitations on the aggregate principal amount of Money Market Loans for which
offers in any single Money Market Quote may be accepted.
(f) Acceptance and Notice by Borrower. Not later than 10:30 A.M.
(New York City time) on (x) the third Euro-Dollar Business Day prior to the
proposed date of Borrowing, in the case of a LIBOR Auction or (y) the proposed
date of
<PAGE> 21
Borrowing, in the case of an Absolute Rate Auction (or, in either case, such
other time or date as the Borrower and the Administrative Agent shall have
mutually agreed and shall have notified to the Banks not later than the date of
the Money Market Quote Request for the first LIBOR Auction or Absolute Rate
Auction for which such change is to be effective), the Borrower shall notify
the Administrative Agent of its acceptance or non-acceptance of the offers so
notified to it pursuant to subsection (e). In the case of acceptance, such
notice (a "Notice of Money Market Borrowing") shall specify the aggregate
principal amount of offers for each Interest Period that are accepted. The
Borrower may accept any Money Market Quote in whole or in part; provided that:
(i) the aggregate principal amount of each Money Market Borrowing
may not exceed the applicable amount set forth in the related Money
Market Quote Request,
(ii) the principal amount of each Money Market Borrowing must be
$5,000,000 or a larger multiple of $1,000,000,
(iii) acceptance of offers may only be made on the basis of ascending
Money Market Margins or Money Market Absolute Rates, as the case may
be, and
(iv) the Borrower may not accept any offer that is described in
subsection (d)(iii) or that otherwise fails to comply with the
requirements of this Agreement.
(g) Allocation by Administrative Agent. If offers are made by two or
more Banks with the same Money Market Margins or Money Market Absolute Rates,
as the case may be, for a greater aggregate principal amount than the amount in
respect of which such offers are accepted for the related Interest Period, the
principal amount of Money Market Loans in respect of which such offers are
accepted shall be allocated by the Administrative Agent among such Banks as
nearly as possible (in multiples of $1,000,000, as the Administrative Agent may
deem appropriate) in proportion to the aggregate principal amounts of such
offers. Determinations by the Administrative Agent of the amounts of Money
Market Loans shall be conclusive in the absence of manifest error.
SECTION 2.4. Notice to Banks; Funding of Loans. (a) Upon receipt
of a Notice of Borrowing, the Administrative Agent shall promptly notify each
Bank of the contents thereof and of such Bank's share (if any) of such
Borrowing and such Notice of Borrowing shall not thereafter be revocable by the
Borrower.
(b) Not later than 12:00 Noon (New York City time) on the date of
each Borrowing, each Bank participating therein shall (except as provided in
subsection (c) of this Section) make available its share of such Borrowing, in
Federal or other funds immediately available in New York City, to the
Administrative Agent at its address referred to in Section 9.1. Unless the
Administrative Agent determines that any applicable condition specified in
Article 3 has not been satisfied, the Administrative Agent will make the funds
so received from the Banks available to the Borrower at the Administrative
Agent's aforesaid address.
(c) If any Bank makes a new Loan hereunder on a day on which the
Borrower is to repay all or any part of an outstanding Loan from such Bank,
such
<PAGE> 22
Bank shall apply the proceeds of its new Loan to make such repayment and only
an amount equal to the difference (if any) between the amount being borrowed
and the amount being repaid shall be made available by such Bank to the
Administrative Agent as provided in subsection (b) of this Section, or remitted
by the Borrower to the Administrative Agent as provided in Section 2.12, as the
case may be.
(d) Unless the Administrative Agent shall have received notice from
a Bank prior to the date of any Borrowing that such Bank will not make
available to the Administrative Agent such Bank's share of such Borrowing, the
Administrative Agent may assume that such Bank has made such share available to
the Administrative Agent on the date of such Borrowing in accordance with
subsections (b) and (c) of this Section 2.4 and the Administrative Agent may,
in reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent that such Bank shall not have so
made such share available to the Administrative Agent, such Bank and the
Borrower severally agree to repay to the Administrative Agent forthwith on
demand such corresponding amount together with interest thereon, for each day
from the date such amount Administrative Agent, at (i) in the case of the
Borrower, a rate per annum equal to the higher of the Federal Funds Rate and
the interest rate applicable thereto pursuant to Section 2.7 and (ii) in the
case of such Bank, the Federal Funds Rate. If such Bank shall repay to the
Administrative Agent such corresponding amount, such amount so repaid shall
constitute such Bank's Loan included in such Borrowing for purposes of this
Agreement.
SECTION 2.5. Notes. (a) The Loans of each Bank shall be evidenced by
a single Note payable to the order of such Bank for the account of its
Applicable Lending Office in an amount equal to the aggregate unpaid principal
amount of such Bank's Loans.
(b) Each Bank may, by notice to the Borrower and the Administrative
Agent, request that its Loans of a particular type be evidenced by a separate
Note in an amount equal to the aggregate unpaid principal amount of such Loans.
Each such Note shall be in substantially the form of Exhibit A hereto with
appropriate modifications to reflect the fact that it evidences solely Loans of
the relevant type. Each reference in this Agreement to the "Note" of such Bank
shall be deemed to refer to and include any or all of such Notes, as the
context may require.
(c) Upon receipt of each Bank's Note pursuant to Section 3.1(b), the
Administrative Agent shall forward such Note to such Bank. Each Bank shall
record the date, amount, type and maturity of each Loan made by it and the date
and amount of each payment of principal made by the Borrower with respect
thereto, and may, if such Bank so elects in connection with any transfer or
enforcement of its Note, endorse on the schedule forming a part thereof
appropriate notations to evidence the foregoing information with respect to
each such Loan then outstanding; provided that the failure of any Bank to make
any such recordation or endorsement shall not affect the obligations of the
Borrower hereunder or under the Notes. Each Bank is hereby irrevocably
authorized by the Borrower so to endorse its Note and to attach to and make a
part of its Note a continuation of any such schedule as and when required.
SECTION 2.6. Maturity of Loans. Each Loan included in any Borrowing
shall mature, and the principal amount thereof shall be due and payable, on the
last day of the Interest Period applicable to such Borrowing.
<PAGE> 23
SECTION 2.7. Interest Rates. (a) Each Base Rate Loan shall bear
interest on the outstanding principal amount thereof, for each day from the
date such Loan is made until it becomes due, at a rate per annum equal to the
Base Rate for such day. Such interest shall be payable for each Interest Period
on the last day thereof. Any overdue principal of or interest on any Base Rate
Loan shall bear interest, payable on demand, for each day until paid at a rate
per annum equal to the sum of 2% plus the rate otherwise applicable to Base
Rate Loans for such day.
(b) Each CD Loan shall bear interest on the outstanding principal
amount thereof, for each day during the Interest Period applicable thereto, at
a rate per annum equal to the sum of the CD Margin for such day plus the
Adjusted CD Rate applicable to such Interest Period; provided that if any CD
Loan shall, as a result of clause (2)(b) of the definition of Interest Period,
have an Interest Period of less than 30 days, such CD Loan shall bear interest
during such Interest Period at the rate applicable to Base Rate Loans during
such period. Such interest shall be payable for each Interest Period on the
last day thereof and, if such Interest Period is longer than 90 days, at
intervals of 90 days after the first day thereof. Any overdue principal of or
interest on any CD Loan shall bear interest, payable on demand, for each day
until paid at a rate per annum equal to the sum of 2% plus the higher of (i)
the sum of the CD Margin for such day plus the Adjusted CD Rate applicable to
the Interest Period for such Loan and (ii) the rate applicable to Base Rate
Loans for such day.
"CD Margin" means a rate per annum determined in accordance with the
Pricing Schedule.
The "Adjusted CD Rate" applicable to any Interest Period means a rate
per annum determined pursuant to the following formula:
[ CDBR ]*
ACDR = [ ---------- ] + AR
[ 1.00 - DRP ]
ACDR = Adjusted CD Rate
CDBR = CD Base Rate
DRP = Domestic Reserve Percentage
AR = Assessment Rate
----------
* The amount in brackets being rounded upward, if necessary, to the
next higher 1/100 of 1%
The "CD Base Rate" applicable to any Interest Period is the rate of
interest determined by the Administrative Agent to be the average (rounded
upward, if necessary, to the next higher 1/100 of 1%) of the prevailing rates
per annum bid at 10:00 A.M. (New York City time) (or as soon thereafter as
practicable) on the first day of such Interest Period by two or more New York
certificate of deposit dealers of recognized standing for the purchase at face
value from each CD Reference Bank of its certificates of deposit in an amount
comparable to the principal amount of the CD Loan of such CD Reference Bank to
which such Interest Period applies and having a maturity comparable to such
Interest Period.
<PAGE> 24
"Domestic Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement (including without limitation any
basic, supplemental or emergency reserves) for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of new non-personal time deposits in dollars in New York City having a
maturity comparable to the related Interest Period and in an amount of $100,000
or more. The Adjusted CD Rate shall be adjusted automatically on and as of the
effective date of any change in the Domestic Reserve Percentage.
"Assessment Rate" means for any day the annual assessment rate in
effect on such day which is payable by a member of the Bank Insurance Fund
classified as adequately capitalized and within supervisory subgroup "A" (or a
comparable successor assessment risk classification) within the meaning of 12
C.F.R. ss. 327.4(a) (or any successor provision) to the Federal Deposit
Insurance Corporation (or any successor) for such Corporation's (or such
successor's) insuring time deposits at offices of such institution in the
United States. The Adjusted CD Rate shall be adjusted automatically on and as
of the effective date of any change in the Assessment Rate.
(c) Each Euro-Dollar Loan shall bear interest on the outstanding
principal amount thereof, for each day during the Interest Period applicable
thereto, at a rate per annum equal to the sum of the Euro-Dollar Margin for
such day plus the London Interbank Offered Rate applicable to such Interest
Period; provided that each Euro-Dollar Loan made prior to the Syndication Date
having an Interest Period of one week shall bear interest on the outstanding
principal thereof, for each day during such Interest Period, at a rate per
annum equal to the sum of the Euro-Dollar Margin for such day plus the
Interbank Offered Rate applicable to such Interest Period. Such interest shall
be payable for each Interest Period on the last day thereof and, if such
Interest Period is longer than three months, at intervals of three months after
the first day thereof.
"Euro-Dollar Margin" means a rate per annum determined in accordance
with the Pricing Schedule.
The "London Interbank Offered Rate" applicable to any Interest Period
means the average (rounded upward, if necessary, to the next higher 1/16 of 1%)
of the respective rates per annum at which deposits in dollars are offered to
each of the Euro-Dollar Reference Banks in the London interbank market at
approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before the
first day of such Interest Period in an amount approximately equal to the
principal amount of the Euro-Dollar Loan of such Euro-Dollar Reference Bank to
which such Interest Period is to apply and for a period of time comparable to
such Interest Period.
The "Interbank Offered Rate" applicable to any Interest Period means
the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of
the respective rates per annum at which deposits in dollars are offered to each
of the Reference Banks in the New York interbank market at approximately 12:00
Noon (New York City time) on the first day of such Interest Period in an amount
approximately equal to the principal amount of the Euro-Dollar Loan of such
<PAGE> 25
Reference Bank to which such Interest Period is to apply and for a period of
time comparable to such Interest Period.
(d) Any overdue principal of or interest on any Euro-Dollar Loan
shall bear interest, payable on demand, for each day until paid at a rate per
annum equal to the higher of (i) the sum of 2% plus the Euro-Dollar Margin for
such day plus the London Interbank Offered Rate applicable to the Interest
Period for such Loan and (ii) the sum of 2% plus the Euro-Dollar Margin for
such day plus the quotient obtained (rounded upward, if necessary, to the next
higher 1/100 of 1%) by dividing (x) the average (rounded upward, if necessary,
to the next higher 1/16 of 1%) of the respective rates per annum at which one
day (or, if such amount due remains unpaid more than three Euro-Dollar Business
Days, then for such other period of time not longer than six months as the
Administrative Agent may select) deposits in dollars in an amount approximately
equal to such overdue payment due to each of the Euro-Dollar Reference Banks
are offered to such Euro-Dollar Reference Bank in the London interbank market
for the applicable period determined as provided above by (y) 1.00 minus the
Euro-Dollar Reserve Percentage (or, if the circumstances described in clause
(a) or (b) of Section 8.1 shall exist, at a rate per annum equal to the sum of
2% plus the rate applicable to Base Rate Loans for such day).
(e) Subject to Section 8.1(a), each Money Market LIBOR Loan shall
bear interest on the outstanding principal amount thereof, for the Interest
Period applicable thereto, at a rate per annum equal to the sum of the London
Interbank Offered Rate for such Interest Period (determined in accordance with
Section 2.7(c) as if the related Money Market LIBOR Borrowing were a Committed
Euro-Dollar Borrowing) plus (or minus) the Money Market Margin quoted by the
Bank making such Loan in accordance with Section 2.3. Each Money Market
Absolute Rate Loan shall bear interest on the outstanding principal amount
thereof, for the Interest Period applicable thereto, at a rate per annum equal
to the Money Market Absolute Rate quoted by the Bank making such Loan in
accordance with Section 2.3. Such interest shall be payable for each Interest
Period on the last day thereof and, if such Interest Period is longer than
three months, at intervals of three months after the first day thereof. Any
overdue principal of or interest on any Money Market Loan shall bear interest,
payable on demand, for each day until paid at a rate per annum equal to the sum
of 2% plus the Base Rate for such day.
(f) The Administrative Agent shall determine each interest rate
applicable to the Loans hereunder. The Administrative Agent shall give prompt
notice to the Borrower and the participating Banks of each rate of interest so
determined, and its determination thereof shall be conclusive in the absence of
manifest error.
(g) Each Reference Bank agrees to use its best efforts to furnish
quotations to the Administrative Agent as contemplated by this Section. If any
Reference Bank does not furnish a timely quotation, the Administrative Agent
shall determine the relevant interest rate on the basis of the quotation or
quotations furnished by the remaining Reference Bank or Banks or, if none of
such quotations is available on a timely basis, the provisions of Section 8.1
shall apply.
SECTION 2.8. Fees. The Borrower shall pay to the Administrative Agent
for the account of the Banks ratably a facility fee at the Facility Fee Rate
<PAGE> 26
(determined daily in accordance with the Pricing Schedule). Such facility fee
shall accrue (i) from and including the Effective Date to but excluding the
Termination Date (or earlier date of termination of the Commitments in their
entirety), on the daily aggregate amount of the Commitments (whether used or
unused) and (ii) from and including the Termination Date or such earlier date
of termination to but excluding the date the Loans shall be repaid in their
entirety, on the daily aggregate outstanding principal amount of the Loans.
Accrued fees under this Section shall be payable quarterly in arrears on each
March 31, June 30, September 30 and December 31 and upon the date of
termination of the Commitments in their entirety (and, if later, the date the
Loans shall be repaid in their entirety).
SECTION 2.9. Optional Termination or Reduction of Commitments. During
the Revolving Credit Period, the Borrower may, upon at least three Domestic
Business Days' notice to the Administrative Agent, (i) terminate the
Commitments at any time, if no Loans are outstanding at such time or (ii)
ratably reduce from time to time by an aggregate amount of $10,000,000 or any
larger multiple of $1,000,000, the aggregate amount of the Commitments in
excess of the aggregate outstanding principal amount of the Loans. Promptly
after receiving a notice pursuant to this subsection, the Administrative Agent
shall notify each Bank of the contents thereof.
SECTION 2.10. Scheduled Termination of Commitments. The Commitments
shall terminate on the Termination Date, and any Loans then outstanding
(together with accrued interest thereon) shall be due and payable on such date.
SECTION 2.11. Optional Prepayments. (a) The Borrower may, upon at
least one Domestic Business Day's notice by 11:00 A.M. (New York City time) to
the Administrative Agent, prepay any Base Rate Borrowing (or any Money Market
Borrowing bearing interest at the Base Rate pursuant to Section 8.1(a)) in
whole at any time, or from time to time in part in amounts aggregating
$5,000,000 or any larger multiple of $1,000,000, by paying the principal amount
to be prepaid together with accrued interest thereon to the date of prepayment.
Each such optional prepayment shall be applied to prepay ratably the Base Rate
Loans of the several Banks included in such Borrowing.
(b) Subject to Section 2.13, the Borrower may, upon at least three
Domestic Business Days' notice to the Administrative Agent, prepay any CD
Borrowing or upon at least three Euro-Dollar Business Days' notice to the
Administrative Agent prepay any Euro-Dollar Borrowing, in each case in whole at
any time, or from time to time in part in amounts aggregating $5,000,000 or any
larger multiple of $1,000,000, by paying the principal amount to be prepaid
together with accrued interest thereon to the date of prepayment. Each such
optional prepayment shall be applied to prepay ratably the Loans of the several
Banks included in such Borrowing.
(c) Except as provided in Section 2.11(a), the Borrower may not
prepay all or any portion of the principal amount of any Money Market Loan
prior to the maturity thereof.
(d) Upon receipt of a notice of prepayment pursuant to this Section,
the Administrative Agent shall promptly notify each Bank of the contents
thereof and of such Bank's ratable share (if any) of such prepayment and such
notice shall not thereafter be revocable by the Borrower.
<PAGE> 27
SECTION 2.12. General Provisions as to Payments. (a) The Borrower
shall make each payment of principal of, and interest on, the Loans and of fees
hereunder, without any set-off or counterclaim, not later than 12:00 Noon (New
York City time) on the date when due, in Federal or other funds immediately
available in New York City, to the Administrative Agent at its address referred
to in Section 9.1. The Administrative Agent will promptly distribute to each
Bank its ratable share of each such payment received by the Administrative
Agent for the account of the Banks. Whenever any payment of principal of, or
interest on, the Domestic Loans or of fees shall be due on a day which is not a
Domestic Business Day, the date for payment thereof shall be extended to the
next succeeding Domestic Business Day. Whenever any payment of principal of, or
interest on, the Euro-Dollar Loans shall be due on a day which is not a
Euro-Dollar Business Day, the date for payment thereof shall be extended to the
next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day
falls in another calendar month, in which case the date for payment thereof
shall be the next preceding Euro-Dollar Business Day. Whenever any payment of
principal of, or interest on, the Money Market Loans shall be due on a day
which is not a Euro-Dollar Business Day, the date for payment thereof shall be
extended to the next succeeding Euro-Dollar Business Day. If the date for any
payment of principal is extended by operation of law or otherwise, interest
thereon shall be payable for such extended time.
(b) Unless the Administrative Agent shall have received notice from
the Borrower prior to the date on which any payment is due to the Banks
hereunder that the Borrower will not make such payment in full, the
Administrative Agent may assume that the Borrower has made such payment in full
to the Administrative Agent on such date and the Administrative Agent may, in
reliance upon such assumption, cause to be distributed to each Bank on such due
date an amount equal to the amount then due such Bank. If and to the extent
that the Borrower shall not have so made such payment, each Bank shall repay to
the Administrative Agent forthwith on demand such amount distributed to such
Bank together with interest thereon, for each day from the date such amount is
distributed to such Bank until the date such Bank repays such amount to the
Administrative Agent, at the Federal Funds Rate.
SECTION 2.13. Funding Losses. If the Borrower makes any payment of
principal with respect to any Fixed Rate Loan (pursuant to Article 2, 6 or 8 or
otherwise) on any day other than the last day of the Interest Period applicable
thereto, or the last day of an applicable period fixed pursuant to Section
2.7(d), or if the Borrower fails to borrow or prepay any Fixed Rate Loans after
notice has been given to any Bank in accordance with Section 2.4(a) or 2.11(d),
the Borrower shall reimburse each Bank within 15 days after demand for any
resulting loss or expense incurred by it (or by an existing or prospective
Participant in the related Loan), including (without limitation) any loss
incurred in obtaining, liquidating or employing deposits from third parties,
but excluding loss of margin for the period after any such payment or failure
to borrow or prepay, provided that such Bank shall have delivered to the
Borrower a certificate setting forth in reasonable detail the amount of such
loss or expense, which certificate shall be conclusive in the absence of
manifest error.
SECTION 2.14. Computation of Interest and Fees. Interest based on the
Prime Rate hereunder shall be computed on the basis of a year of 365 days (or
366 days in a leap year) and paid for the actual number of days elapsed
<PAGE> 28
(including the first day but excluding the last day). All other interest and
fees shall be computed on the basis of a year of 360 days and paid for the
actual number of days elapsed (including the first day but excluding the last
day).
SECTION 2.15. Regulation D Compensation. For so long as any Bank
maintains reserves against "Eurocurrency liabilities" (or any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions of credit or
other assets which includes loans by a non-United States office of such Bank to
United States residents), and as a result the cost to such Bank (or its
Euro-Dollar Lending Office) of making or maintaining its Euro-Dollar Loans is
increased, then such Bank may require the Borrower to pay, contemporaneously
with each payment of interest on the Euro-Dollar Loans, additional interest on
the related Euro-Dollar Loan of such Bank at a rate per annum up to but not
exceeding the excess of (i) (A) the applicable London Interbank Offered Rate
divided by (B) one minus the Euro-Dollar Reserve Percentage over (ii) the
applicable London Interbank Offered Rate. Any Bank wishing to require payment
of such additional interest (x) shall so notify the Borrower and the
Administrative Agent, in which case such additional interest on the Euro-Dollar
Loans of such Bank shall be payable to such Bank at the place indicated in such
notice with respect to each Interest Period commencing at least three
Euro-Dollar Business Days after the giving of such notice and (y) shall furnish
to the Borrower at least five Euro-Dollar Business Days prior to each date on
which interest is payable on the Euro-Dollar Loans an officer's certificate
setting forth the amount to which such Bank is then entitled under this Section
(which shall be consistent with such Bank's good faith estimate of the level at
which the related reserves are maintained by it). Each such certificate shall
be accompanied by such information as the Borrower may reasonably request as to
the computation set forth therein.
ARTICLE 3
CONDITIONS
SECTION 3.1. Effectiveness. This Agreement shall become effective
upon (x) termination of the Commitments (as defined in the Existing Credit
Agreement referred to below in this clause (x)) under the Existing Credit
Agreement dated as of March 7, 1997 among the Borrower, the banks listed
therein and Morgan Guaranty Trust Company of New York, as agent, and payment in
full of all amounts owing thereunder to any of such banks or such agent and (y)
receipt by the Administrative Agent of the following documents, each dated the
Effective Date unless otherwise indicated:
(a) counterparts hereof signed by each of the parties hereto (or, in
the case of any party as to which an executed counterpart shall not have been
received, receipt by the Administrative Agent in form satisfactory to it of
telegraphic, telex, facsimile or other written confirmation from such party of
execution of a counterpart hereof by such party);
(b) a duly executed Note for the account of each Bank dated on or
before the Effective Date complying with the provisions of Section 2.5;
(c) opinions of Simpson Thacher & Bartlett, special counsel for the
Borrower, Polsinelli, White, Vardeman & Shalton, Kansas counsel for the
<PAGE> 29
Borrower, and Martha B. Wyrsch, General Counsel of the Borrower, substantially
in the respective forms of Exhibits E-1, E-2 and E-3 hereto and covering such
additional matters relating to the transactions contemplated hereby as the
Required Banks may reasonably request;
(d) an opinion of Davis Polk & Wardwell, special counsel for the
Administrative Agent, substantially in the form of Exhibit F hereto and
covering such additional matters relating to the transactions contemplated
hereby as the Required Banks may reasonably request; and
(e) all documents the Administrative Agent may reasonably request
relating to the existence of the Borrower, the corporate authority for and the
validity of this Agreement and the Notes, and any other matters relevant
hereto, all in form and substance satisfactory to the Administrative Agent.
The Administrative Agent shall promptly notify the Borrower and each Bank of
the effectiveness of this Agreement, and such notice shall be conclusive and
binding on all parties hereto.
SECTION 3.2. Borrowings. The obligation of any Bank to make a Loan
on the occasion of any Borrowing is subject to the satisfaction of the
following conditions:
(a) the fact that the Closing Date shall have occurred on or prior
to March 31, 1998;
(b) in the case of the first Borrowing, the fact that prior to or
substantially simultaneously with such Borrowing, the Borrower shall have
consummated the Acquisition in accordance with the Stock Purchase Agreement
without waiver of any material condition specified therein;
(c) in the case of the first Borrowing, the fact that the Borrower
shall have paid or shall concurrently pay all fees then due and payable to the
Administrative Agent for the account of any Agent or Bank, as previously
agreed;
(d) receipt by the Administrative Agent of a Notice of Borrowing as
required by Section 2.2 or 2.3, as the case may be;
(e) the fact that, immediately after such Borrowing, the aggregate
outstanding principal amount of the Loans will not exceed the aggregate amount
of the Commitments;
(f) the fact that, immediately before and after such Borrowing, no
Default shall have occurred and be continuing; and
(g) the fact that the representations and warranties of the Borrower
contained in this Agreement (except (i) in the case of Borrowings subsequent to
the first Borrowing, the representation and warranty set forth in Section 4.12
and (ii) in the case of a Refunding Borrowing, the representations and
warranties set forth in Sections 4.4(c), 4.5 and 4.7 as to any matter which has
theretofore been disclosed in writing by the Borrower to the Banks) shall be
true on and as of the date of such Borrowing.
<PAGE> 30
Each Borrowing hereunder shall be deemed to be a representation and
warranty by the Borrower on the date of such Borrowing as to the facts
specified in clauses (b) and (c) (in the case of the first Borrowing) and (e),
(f) and (g) of this Section.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
SECTION 4.1. Corporate Existence and Power. The Borrower is a
corporation duly incorporated, validly existing and in good standing under the
laws of Kansas, and has all corporate powers and all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted.
SECTION 4.2. Corporate and Governmental Authorization; No
Contravention. The execution, delivery and performance by the Borrower of this
Agreement and the Notes are within the Borrower's corporate powers, have been
duly authorized by all necessary corporate action, require no action by or in
respect of, or filing with, any governmental body, agency or official (other
than filings of this Agreement and the Notes with the Securities and Exchange
Commission pursuant to the reporting requirements of the Securities Exchange
Act of 1934) and do not contravene, or constitute a default under, any
provision of applicable law or regulation or of the articles of incorporation
or by-laws of the Borrower or of any agreement, judgment, injunction, order,
decree or other instrument binding upon the Borrower or any of its Subsidiaries
or result in the creation or imposition of any Lien on any asset of the
Borrower or any of its Subsidiaries.
SECTION 4.3. Binding Effect. This Agreement constitutes a valid and
binding agreement of the Borrower and each Note, when executed and delivered in
accordance with this Agreement, will constitute a valid and binding obligation
of the Borrower, in each case enforceable in accordance with its terms.
SECTION 4.4. Financial Information. (a) The consolidated balance
sheet of the Borrower and its Consolidated Subsidiaries as of December 31, 1996
and the related consolidated statements of income, cash flows and common
stockholders' equity for the fiscal year then ended, reported on by Arthur
Andersen LLP and set forth in the Borrower's 1996 Form 10-K, a copy of which
has been delivered to each of the Banks, fairly present, in conformity with
generally accepted accounting principles, the consolidated financial position
of the Borrower and its Consolidated Subsidiaries as of such date and their
consolidated results of operations and cash flows for such fiscal year.
(b) The unaudited consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries as of September 30, 1997 and the related unaudited
consolidated statements of income and cash flows for the nine months then
ended, set forth in the Borrower's Latest Form 10-Q, a copy of which has been
delivered to each of the Banks, fairly present, in conformity with generally
accepted accounting principles applied on a basis consistent with the financial
statements referred to in subsection (a) of this Section, the consolidated
<PAGE> 31
financial position of the Borrower and its Consolidated Subsidiaries as of such
date and their consolidated results of operations and cash flows for such
nine-month period (subject to normal year-end adjustments).
(c) Since September 30, 1997 there has been no material adverse
change in the business, financial position, results of operations or prospects
of the Borrower and its Consolidated Subsidiaries, considered as a whole.
SECTION 4.5. Litigation. Except as disclosed in the most recent
Annual Report on Form 10-K delivered by the Borrower to the Banks, there is no
action, suit or proceeding pending against, or to the knowledge of the Borrower
threatened against or affecting, the Borrower or any of its Subsidiaries before
any court or arbitrator or any governmental body, agency or official in which
there is a reasonable possibility of an adverse decision which would materially
adversely affect the business, consolidated financial position or consolidated
results of operations of the Borrower and its Consolidated Subsidiaries,
considered as a whole, or which in any manner draws into question the validity
of this Agreement or the Notes.
SECTION 4.6. Compliance with ERISA. Each member of the ERISA Group
has fulfilled its obligations under the minimum funding standards of ERISA and
the Internal Revenue Code with respect to each Plan and is in compliance in all
material respects with the presently applicable provisions of ERISA and the
Internal Revenue Code with respect to each Plan. No member of the ERISA Group
has (i) sought a waiver of the minimum funding standard under Section 412 of
the Internal Revenue Code in respect of any Plan, (ii) failed to make any
contribution or payment to any Plan or Multiemployer Plan or in respect of any
Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement,
which has resulted or could result in the imposition of a Lien or the posting
of a bond or other security under ERISA or the Internal Revenue Code or (iii)
incurred any liability under Title IV of ERISA other than a liability to the
PBGC for premiums under Section 4007 of ERISA, which waiver, failure or
liability could reasonably be expected to materially adversely affect the
business, consolidated financial position or consolidated results of operations
of the Borrower and its Consolidated Subsidiaries, considered as a whole.
SECTION 4.7. Environmental Matters. In the ordinary course of its
business, the Borrower conducts an ongoing review of the effect of
Environmental Laws on the business, operations and properties of the Borrower
and its Subsidiaries, in the course of which it identifies and evaluates
associated liabilities and costs (including, without limitation, any capital or
operating expenditures required for clean-up or closure of properties presently
or previously owned, any capital or operating expenditures required to achieve
or maintain compliance with environmental protection standards imposed by law
or as a condition of any license, permit or contract, any related constraints
on operating activities, including any periodic or permanent shutdown of any
facility or reduction in the level of or change in the nature of operations
conducted thereat, any costs or liabilities in connection with off-site
disposal of wastes or Hazardous Substances, and any actual or potential
liabilities to third parties, including employees, and any related costs and
expenses). On the basis of this review, the Borrower has reasonably concluded
that such associated liabilities and costs, including the costs of compliance
with Environmental Laws, are unlikely to have a material adverse effect on the
business, financial condition, results of operations or prospects of the
Borrower and its Consolidated Subsidiaries, considered as a whole.
<PAGE> 32
SECTION 4.8. Taxes. The Borrower and its Subsidiaries have filed all
United States Federal income tax returns and all other material tax returns
which are required to be filed by them and have paid all taxes shown to be due
on such returns or pursuant to any assessment received by the Borrower or any
Subsidiary to the extent that such taxes have become due and before they have
become delinquent, except such taxes as are being contested in good faith by
appropriate proceedings for which adequate reserves have been established in
accordance with generally accepted accounting principles.
SECTION 4.9. Subsidiaries. Each of the Borrower's corporate Material
Subsidiaries is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation, and has all
corporate powers and all material governmental licenses, authorizations,
consents and approvals required to carry on its business as now conducted.
SECTION 4.10. Not an Investment Company. The Borrower is not an
"investment company" or controlled by an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
SECTION 4.11. Full Disclosure. All information heretofore furnished
by the Borrower to any Agent or any Bank for purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all such
information hereafter furnished by the Borrower to any Agent or any Bank will
be, true and accurate in all material respects on the date as of which such
information is stated or certified. The Borrower has disclosed to the Banks in
writing any and all facts peculiar to the business of the Company or any of its
Subsidiaries which materially and adversely affect or may affect (to the extent
the Borrower can now reasonably foresee), the business, operations or financial
condition of the Borrower and its Consolidated Subsidiaries, taken as a whole,
or the ability of the Borrower to perform its obligations under this Agreement.
SECTION 4.12. MidCon Acquisition. The representations and warranties
of all parties contained in the Stock Purchase Agreement will be true and
correct on and as of the date of the first Borrowing under this Agreement
except to the extent that the failure of the same to be true and correct could
not reasonably be expected to materially adversely affect the business,
consolidated financial position or consolidated results of operations of the
Borrower and its Consolidated Subsidiaries, considered as a whole.
ARTICLE 5
COVENANTS
The Borrower agrees that, so long as any Bank has any Commitment
hereunder or any amount payable under any Note remains unpaid:
SECTION 5.1. Information. The Borrower will deliver to each of the
Banks:
(a) as soon as available and in any event within 90 days after the
end of each fiscal year of the Borrower, a consolidated balance sheet of the
Borrower and its Consolidated Subsidiaries as of the end of such fiscal year
and the related consolidated statements of income, cash flows and common
<PAGE> 33
stockholder's equity for such fiscal year, setting forth in each case in
comparative form the figures for the previous fiscal year, all audited by
Arthur Andersen LLP or other independent public accountants of nationally
recognized standing; provided, however, that delivery pursuant to clause (g)
below of copies of the Annual Report on Form 10- K (without exhibits) of the
Borrower for such fiscal year filed with the Securities and Exchange Commission
shall be deemed to satisfy the requirements of this clause (a);
(b) as soon as available and in any event within 45 days after the
end of each of the first three quarters of each fiscal year of the Borrower, a
consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as
of the end of such quarter and the related consolidated statements of income
and cash flows for such quarter (in the case of such statements of income) and
for the portion of the Borrower's fiscal year ended at the end of such quarter,
setting forth in the case of such income and cash flows in comparative form the
figures for the corresponding quarter (in the case of such statements of
income) and the corresponding portion of the Borrower's previous fiscal year,
all certified (subject to normal year-end adjustments) as to fairness of
presentation, generally accepted accounting principles and consistency by an
authorized financial or accounting officer of the Borrower; provided, however,
that delivery pursuant to clause (g) below of copies of the Quarterly Report on
Form 10-Q (without exhibits) of the Borrower for such quarter filed with the
Securities and Exchange Commission shall be deemed to satisfy the requirements
of this clause (b);
(c) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, a certificate of an
authorized financial or accounting officer of the Borrower (i) setting forth in
reasonable detail the calculations required to establish whether the Borrower
was in compliance with the requirements of Section 5.7 and, if applicable,
Sections 5.8 and 5.9 on the date of such financial statements and (ii) stating
whether any Default exists on the date of such certificate and, if any Default
then exists, setting forth the details thereof and the action which the
Borrower is taking or proposes to take with respect thereto;
(d) simultaneously with the delivery of each set of financial
statements referred to in clause (a) above, a statement of the firm of
independent public accountants which reported on such statements (i) whether
anything has come to their attention to cause them to believe that any Default
existed on the date of such statements and (ii) confirming the calculations set
forth in the officer's certificate delivered simultaneously therewith pursuant
to clause (c) above; provided, however, that such accountants shall not be
liable to anyone by reason of their failure to obtain knowledge of any Default
which would not be disclosed in the course of an audit conducted in accordance
with generally accepted auditing standards;
(e) within five Domestic Business Days after any officer of the
Borrower obtains knowledge of any Default, if such Default is then continuing,
a certificate of the chief financial officer or the chief accounting officer of
the Borrower setting forth the details thereof and the action which the
Borrower is taking or proposes to take with respect thereto;
(f) promptly upon the mailing thereof to the public shareholders of
the Borrower generally, copies of all financial statements, reports and proxy
statements so mailed;
<PAGE> 34
(g) promptly upon the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration statements on
Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their
equivalents, in each case without exhibits) which the Borrower shall have filed
with the Securities and Exchange Commission;
(h) if and when any member of the ERISA Group (i) gives or is
required to give notice to the PBGC of any "reportable event" (as defined in
Section 4043 of ERISA) (other than such event as to which the 30-day notice
requirement is waived or which is triggered by the Acquisition) with respect to
any Plan which might constitute grounds for a termination of such Plan under
Title IV of ERISA, or knows that the plan administrator of any Plan has given
or is required to give notice of any such reportable event, a copy of the
notice of such reportable event given or required to be given to the PBGC; (ii)
receives notice of complete or partial withdrawal liability under Title IV of
ERISA or notice that any Multiemployer Plan is in reorganization, is insolvent
or has been terminated, a copy of such notice; (iii) receives notice from the
PBGC under Title IV of ERISA of an intent to terminate, impose liability (other
than for premiums under Section 4007 of ERISA) in respect of, or appoint a
trustee to administer any Plan, a copy of such notice; (iv) applies for a
waiver of the minimum funding standard under Section 412 of the Internal
Revenue Code, a copy of such application; (v) gives notice of intent to
terminate any Plan under Section 4041(c) of ERISA, a copy of such notice and
other information filed with the PBGC; (vi) gives notice of withdrawal from any
Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (vii) fails
to make any payment or contribution to any Plan or Multiemployer Plan or in
respect of any Benefit Arrangement or makes any amendment to any Plan or
Benefit Arrangement which has resulted or could result in the imposition of a
Lien or the posting of a bond or other security, a certificate of the chief
financial officer or the chief accounting officer of the Borrower setting forth
details as to such occurrence and action, if any, which the Borrower or
applicable member of the ERISA Group is required or proposes to take; and
(i) from time to time such additional information regarding the
financial position or business of the Borrower and its Subsidiaries as the
Administrative Agent, at the request of any Bank, may reasonably request.
SECTION 5.2. Payment of Obligations. The Borrower will pay and
discharge, and will cause each Subsidiary to pay and discharge, at or before
maturity, all their respective material obligations and liabilities, including,
without limitation, tax liabilities, except where the same may be contested in
good faith by appropriate proceedings, and will maintain, and will cause each
Subsidiary to maintain, in accordance with generally accepted accounting
principles, appropriate reserves for the accrual of any of the same.
SECTION 5.3. Maintenance of Property; Insurance. (a) The Borrower
will keep, and will cause each Subsidiary to keep, all property useful and
necessary in its business in good working order and condition, ordinary wear
and tear excepted.
(b) The Borrower will maintain or cause to be maintained with, in the
good faith judgment of the Borrower, financially sound and reputable insurers,
<PAGE> 35
or through self-insurance, insurance with respect to its properties and
business and the properties and businesses of its Subsidiaries against loss or
damage of the kinds customarily insured against by corporations of established
reputation engaged in the same or similar business and similarly situated, of
such types and in such amounts as are customarily carried under similar
circumstances by such other corporations. Such insurance may include
self-insurance or be subject to co-insurance, deductibility or similar clauses
which, in effect, result in self-insurance of certain losses, provided that
such self-insurance is in accord with the approved practices of corporations
similarly situated and adequate insurance reserves are maintained in connection
with such self-insurance, and, notwithstanding the foregoing provisions of this
Section 5.3 the Borrower or any Subsidiary may effect workers' compensation or
similar insurance in respect of operations in any state or other jurisdiction
either through an insurance fund operated by such state or other jurisdiction
or by causing to be maintained a system or systems of self-insurance in accord
with applicable laws.
SECTION 5.4. Conduct of Business and Maintenance of Existence. The
Borrower will continue, and will cause each Material Subsidiary to continue, to
engage in business of the same general type as now conducted by the Borrower
and its Subsidiaries, and will preserve, renew and keep in full force and
effect, and will cause each Subsidiary to preserve, renew and keep in full
force and effect their respective corporate existence and their respective
rights, privileges and franchises necessary or desirable in the normal conduct
of business; provided that nothing in this Section 5.4 shall prohibit (i) the
merger of a Subsidiary into the Borrower or the merger or consolidation of a
Subsidiary with or into another Person if the corporation surviving such
consolidation or merger is a Subsidiary and if, in each case, after giving
effect thereto, no Default shall have occurred and be continuing, (ii) the sale
or other disposition (whether by merger or otherwise) of the capital stock or
assets of any Subsidiary, if such transaction complies with the provisions of
Section 5.11 or (iii) the termination of the corporate existence of any
Subsidiary if the Borrower in good faith determines that such termination is in
the best interest of the Borrower and is not materially disadvantageous to the
Banks.
SECTION 5.5. Compliance with Laws. The Borrower will comply, and
cause each Subsidiary to comply, in all respects with all applicable laws,
ordinances, rules, regulations, and requirements of governmental authorities
(including, without limitation, Environmental Laws and ERISA and the rules and
regulations thereunder) except (i) where the necessity of compliance therewith
is contested in good faith by appropriate proceedings or (ii) where failure to
comply could not reasonably be expected to materially adversely affect the
business, consolidated financial position or consolidated results of operations
of the Borrower and its Consolidated Subsidiaries, considered as a whole.
SECTION 5.6. Inspection of Property, Books and Records. The Borrower
will keep, and will cause each Subsidiary to keep, proper books of record and
account in which full, true and correct entries, as required by generally
accepted accounting principles, shall be made of all dealings and transactions
in relation to its business and activities; and will permit, and will cause
each Subsidiary to permit, representatives of any Bank at such Bank's expense
to visit and inspect any of their respective properties, to examine and make
abstracts from any of their respective books and records (subject to compliance
with confidentiality agreements, copyrights and the like) and to discuss their
<PAGE> 36
respective affairs, finances and accounts with their respective officers,
employees and independent public accountants, all at such reasonable times and
as often as may reasonably be desired.
SECTION 5.7. Debt. (a) Consolidated Debt of the Borrower will at no
time exceed the MLP of Consolidated Total Capitalization. "MLP" means Maximum
Leverage Percentage, which is 87.00%, subject to adjustment from time to time
after the date hereof as follows: (a) upon the issuance of Trust Preferred
Securities in the amount of $300,000,000, the MLP will be reduced by 5.25%; (b)
upon issuance of common equity securities in the amount of $500,000,000, the
MLP will be reduced by 8.75%; and (c) upon issuance of Mandatorily Convertible
Preferred Stock in the amount of $400,000,000, the MLP will be reduced by
6.00%. In the event of issuance of securities of the type described above in
an amount different from that specified, the consequent reduction of the MLP
will be adjusted on a pro rata basis; provided that in the event of issuance of
Trust Preferred Securities in an amount greater than the indicated amount,
there will not be an additional reduction in the MLP to the extent that the
Trust Preferred Securities exceed 10% of the Consolidated Total Capitalization
of the Borrower. Upon issuance of all securities of the types described above,
the MLP will at all times thereafter be 67.00%.
(b) Total Debt of all Consolidated Subsidiaries (excluding Debt of a
Consolidated Subsidiary of the Borrower to the Borrower or to another
Consolidated Subsidiary of the Borrower) will at no time exceed 10% of
Consolidated Debt of the Borrower.
(c) Consolidated Debt of each Material Subsidiary will at no time
exceed 65% of the Consolidated Total Capitalization of such Material
Subsidiary.
SECTION 5.8. Minimum Net Worth. Consolidated Net Worth will at no
time be less than an amount equal to the sum of (a) $570,000,000 plus (b) 50%
of Consolidated Net Income for each fiscal quarter of the Borrower ending after
the date hereof and at or prior to such time (but only if such Consolidated Net
Income for such fiscal quarter is a positive amount) plus (c) for any issuance
of securities resulting in a reduction of the MLP pursuant to Section 5.7(a),
an amount equal to 80% of the increase in Consolidated Net Worth resulting from
such issuance of securities, if at such time the Borrower's senior unsecured
long-term debt is not rated at least Baa2 by Moody's and BBB by S&P.
SECTION 5.9. Minimum Interest Coverage Ratio. At any time at which
the Borrower's senior unsecured long-term debt is not rated at least Baa3 by
Moody's and BBB- by S&P, the Interest Coverage Ratio will not be less than (i)
2.25:1, if such time is prior to March 31, 1999, and (ii) 2.75:1, if such time
is on or after March 31, 1999.
SECTION 5.10. Negative Pledge. Neither the Borrower nor any
Subsidiary will create, assume or suffer to exist any Lien on any asset now
owned or hereafter acquired by it, except:
(a) any Liens deemed to exist on the date of this Agreement under the
Purchase Agreement;
(b) Liens on cash and cash equivalents securing the Substitute Note,
as contemplated by the Reimbursement Agreement;
<PAGE> 37
(c) Liens on assets of any Person existing at the time such Person
becomes a Subsidiary and not created in contemplation of such event;
(d) Liens arising in the ordinary course of its business which (i)
do not secure Debt or Derivatives Obligations, (ii) do not secure any
obligation in an amount exceeding $150,000,000 and (iii) do not in the
aggregate materially detract from the value of its assets or materially impair
the use thereof in the operation of its business;
(e) Liens on cash and cash equivalents securing Derivatives
Obligations, provided that the aggregate amount of cash and cash equivalents
subject to such Liens may at no time exceed $75,000,000;
(f) statutory or common law Liens of or upon deposits of cash in
favor of banks or other depository institutions; and
(g) Liens not otherwise permitted by the foregoing clauses of this
Section securing Debt in an aggregate principal or face amount at any date not
to exceed 10% of Consolidated Net Worth of the Borrower.
SECTION 5.11. Consolidations, Mergers and Sales of Assets. The
Borrower will not (i) consolidate or merge with or into any other Person or
(ii) sell, lease or otherwise transfer, directly or indirectly, all or
substantially all of its assets to any other Person, unless:
(i) immediately after giving effect to the transaction, no Default
shall have occurred and be continuing; and
(ii) except in the case of a merger in which the Borrower is the
surviving corporation:
(x) the Person formed by or surviving such transaction, in
the case of a consolidation or merger, and the transferee, in
the case of a transfer, assumes all obligations of the Borrower
hereunder and under the Notes;
(y) the Person formed by or surviving such transaction, in
the case of a consolidation or merger, and the transferee, in
the case of a transfer, is organized under the laws of the
United States or any state thereof; and
(z) the Borrower has delivered to the Administrative Agent
an officer's certificate and opinion of counsel, each stating
that such consolidation, merger, or transfer and such assumption
comply with the provisions hereof.
No such sale, lease or other transfer of assets shall have the effect of
releasing the Borrower (or any successor that shall have become such in the
manner prescribed in this Section) from its liability under this Agreement and
the Notes.
SECTION 5.12. Use of Proceeds. The proceeds of the Loans made under
this Agreement will be used by the Borrower for general corporate purposes.
None
<PAGE> 38
of such proceeds will be used, directly or indirectly, for the purpose, whether
immediate, incidental or ultimate, of buying or carrying any "margin stock"
within the meaning of Regulation U.
SECTION 5.13. Transactions with Affiliates. The Borrower will not
participate in any material transaction with an affiliate (other than a
Subsidiary) unless such transaction is in the ordinary course of its business
and on terms no less advantageous to the Borrower than could be obtained in
such a transaction with an unaffiliated party.
ARTICLE 6
DEFAULTS
SECTION 6.1. Events of Default. If one or more of the following
events ("Events of Default") shall have occurred and be continuing:
(a) the Borrower shall fail to pay when due any principal of any
Loan or shall fail to pay within three Domestic Business Days of the due date
thereof any interest on any Loan, any fees or any other amount payable
hereunder;
(b) the Borrower shall fail to observe or perform any covenant
contained in Sections 5.7 to 5.13, inclusive;
(c) the Borrower shall fail to observe or perform any covenant or
agreement contained in this Agreement (other than those covered by clause (a)
or (b) above) for 10 days after notice thereof has been given to the Borrower
by the Administrative Agent at the request of any Bank;
(d) any representation, warranty, certification or statement made by
the Borrower in this Agreement or in any certificate, financial statement or
other document delivered pursuant to this Agreement shall prove to have been
incorrect in any material respect when made (or deemed made);
(e) the Borrower or any Subsidiary shall fail to make any payment in
respect of any Material Financial Obligations when due or within any applicable
grace period; provided, however, that if any such failure is cured by the
Borrower or such Subsidiary or is waived by the requisite percentage of holders
of such Material Financial Obligations entitled to so waive, then the Event of
Default under this Agreement by reason of such failure shall be deemed to have
been cured;
(f) any event or condition shall occur which results in the
acceleration of the maturity of any Material Debt or enables (or, with the
giving of notice or lapse of time or both, would enable) the holder of such
Debt or any Person acting on such holder's behalf to accelerate the maturity
thereof; provided, however, that if any such acceleration is rescinded, or any
such event or condition is cured by the Borrower or any Subsidiary or is waived
by the requisite percentage of holders of such Material Debt entitled to so
waive, then the Event of Default under this Agreement by reason of such
acceleration, event or condition shall be deemed to have been cured;
(g) the Borrower or any Material Subsidiary shall commence a
voluntary
<PAGE> 39
case or other proceeding seeking liquidation, reorganization or other relief
with respect to itself or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment
for the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate action to authorize any of the
foregoing;
(h) an involuntary case or other proceeding shall be commenced
against the Borrower or any Material Subsidiary seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, and such
involuntary case or other proceeding shall remain undismissed and unstayed for
a period of 60 days; or an order for relief shall be entered against the
Borrower or any Material Subsidiary under the federal bankruptcy laws as now or
hereafter in effect;
(i) any member of the ERISA Group shall fail to pay when due an
amount which it shall have become liable to pay under Title IV of ERISA; or
notice of intent to terminate a Plan shall be filed under Title IV of ERISA by
any member of the ERISA Group, any plan administrator or any combination of the
foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to
terminate, to impose liability (other than for premiums under Section 4007 of
ERISA) in respect of, or to cause a trustee to be appointed to administer any
Plan; or a condition shall exist by reason of which the PBGC would be entitled
to obtain a decree adjudicating that any Plan must be terminated; or there
shall occur a complete or partial withdrawal from, or a default, within the
meaning of Section 4219(c)(5) of ERISA, with respect to, one or more
Multiemployer Plans which could cause one or more members of the ERISA Group to
incur a current payment obligation; and in each of the foregoing instances such
condition (i) could reasonably be expected to materially adversely affect the
business, consolidated financial position or consolidated results of operations
of the Borrower and its Consolidated Subsidiaries, considered as a whole, and
(ii) shall continue for 10 days after notice thereof has been given to the
Borrower by the Administrative Agent at the request of any Bank;
(j) a judgment or judgments for the payment of money (not paid or
fully covered by insurance or indemnification) in excess of $60,000,000 in the
aggregate shall be rendered against the Borrower or any Material Subsidiary and
such judgment or judgments are not, within 30 days after entry thereof, bonded,
discharged or stayed pending appeal, or are not discharged within 30 days after
the expiration of such stay; or
(k) any person or group of persons (within the meaning of Section 13
or 14 of the Securities Exchange Act of 1934, as amended) shall have acquired
beneficial ownership (within the meaning of Rule 13d-3 promulgated by the
Securities and Exchange Commission under said Act) of 30% or more of the
outstanding shares of common stock of the Borrower; or, during any period of
twelve consecutive calendar months, individuals who were directors of the
Borrower on the first day of such period shall cease to constitute a majority
of
<PAGE> 40
the board of directors of the Borrower; then, and in every such event, the
Administrative Agent shall (i) if requested by Banks having more than 50% in
aggregate amount of the Commitments, by notice to the Borrower terminate the
Commitments and they shall thereupon terminate, and (ii) if requested by Banks
holding Notes evidencing more than 50% in aggregate principal amount of the
Loans, by notice to the Borrower declare the Notes (together with accrued
interest thereon) to be, and the Notes shall thereupon become, immediately due
and payable without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Borrower; provided that in the case of
any of the Events of Default specified in clause (g) or (h) above with respect
to the Borrower, without any notice to the Borrower or any other act by the
Administrative Agent or the Banks, the Commitments shall thereupon terminate
and the Notes (together with accrued interest thereon) shall become immediately
due and payable without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by the Borrower.
SECTION 6.2. Notice of Default. The Administrative Agent shall give
notice to the Borrower under Section 6.1(c) or 6.1(i) promptly upon being
requested to do so by any Bank and shall thereupon notify all the Banks
thereof.
ARTICLE 7
THE AGENTS
SECTION 7.1. Appointment and Authorization. Each Bank irrevocably
appoints and authorizes the Administrative Agent to take such action as agent
on its behalf and to exercise such powers under this Agreement and the Notes as
are delegated to the Administrative Agent by the terms hereof or thereof,
together with all such powers as are reasonably incidental thereto.
SECTION 7.2. Administrative Agent and Affiliates. Morgan Guaranty
Trust Company of New York shall have the same rights and powers under this
Agreement as any other Bank and may exercise or refrain from exercising the
same as though it were not the Administrative Agent, and Morgan Guaranty Trust
Company of New York and its affiliates may accept deposits from, lend money to,
and generally engage in any kind of business with the Borrower or any
Subsidiary or affiliate of the Borrower as if it were not the Administrative
Agent hereunder.
SECTION 7.3. Action by Administrative Agent. The obligations of the
Administrative Agent hereunder are only those expressly set forth herein.
Without limiting the generality of the foregoing, the Administrative Agent
shall not be required to take any action with respect to any Default, except as
expressly provided in Article 6.
SECTION 7.4. Consultation with Experts. The Administrative Agent may
consult with legal counsel (who may be counsel for the Borrower), independent
public accountants and other experts selected by it and shall not be liable for
any action taken or omitted to be taken by it in good faith in accordance with
the advice of such counsel, accountants or experts.
SECTION 7.5. Liability of Administrative Agent. Neither the
Administrative Agent nor any of its affiliates nor any of their respective
<PAGE> 41
directors, officers, agents or employees shall be liable for any action taken
or not taken by it in connection herewith (i) with the consent or at the
request of the Required Banks or (ii) in the absence of its own gross
negligence or willful misconduct. Neither the Administrative Agent nor any of
its affiliates nor any of their respective directors, officers, agents or
employees shall be responsible for or have any duty to ascertain, inquire into
or verify (i) any statement, warranty or representation made in connection with
this Agreement or any borrowing hereunder; (ii) the performance or observance
of any of the covenants or agreements of the Borrower; (iii) the satisfaction
of any condition specified in Article 3, except receipt of items required to be
delivered to the Administrative Agent; or (iv) the validity, effectiveness or
genuineness of this Agreement, the Notes or any other instrument or writing
furnished in connection herewith. The Administrative Agent shall not incur any
liability by acting in reliance upon any notice, consent, certificate,
statement, or other writing (which may be a bank wire, telex, facsimile
transmission or similar writing) believed by it to be genuine or to be signed
by the proper party or parties. Without limiting the generality of the
foregoing, the use of the term "agent" in this Agreement with reference to the
Administrative Agent is not intended to connote any fiduciary or other implied
(or express) obligations arising under agency doctrine of any applicable law.
Instead, such term is used merely as a matter of market custom and is intended
to create or reflect only an administrative relationship between independent
contracting parties.
SECTION 7.6. Indemnification. Each Bank shall, ratably in accordance
with its Commitment, indemnify any Agent, its affiliates and their respective
directors, officers, agents and employees (to the extent not reimbursed by the
Borrower) against any cost, expense (including counsel fees and disbursements),
claim, demand, action, loss or liability (except such as result from such
indemnitees' gross negligence or willful misconduct) that such indemnitees may
suffer or incur in connection with this Agreement or any action taken or
omitted by such indemnitees hereunder.
SECTION 7.7. Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon any Agent or any other Bank, and based
on such documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Bank also
acknowledges that it will, independently and without reliance upon any Agent or
any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking any action under this Agreement.
SECTION 7.8. Successor Administrative Agent. The Administrative Agent
may resign at any time by giving notice thereof to the Banks and the Borrower.
Upon any such resignation, the Required Banks shall have the right to appoint a
successor Administrative Agent, with the consent of the Borrower, which shall
not be unreasonably withheld. If no successor Administrative Agent shall have
been so appointed by the Required Banks, and shall have accepted such
appointment, within 30 days after the retiring Administrative Agent gives
notice of resignation, then the retiring Administrative Agent may, on behalf of
the Banks, appoint a successor Administrative Agent, which shall be a
commercial bank organized or licensed under the laws of the United States of
America or of any State thereof and having a combined capital and surplus of at
least $500,000,000. Upon the acceptance of its appointment as Administrative
Agent hereunder by a successor Administrative Agent, such successor
Administrative
<PAGE> 42
Agent shall thereupon succeed to and become vested with all the rights and
duties of the retiring Administrative Agent, and the retiring Administrative
Agent shall be discharged from its duties and obligations hereunder. After any
retiring Administrative Agent's resignation hereunder as Administrative Agent,
the provisions of this Article shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Administrative Agent.
SECTION 7.9. Agents' Fees. The Borrower shall pay to the
Administrative Agent for the account of the Agents fees in the amounts and at
the times previously agreed upon between the Borrower and the Agents.
SECTION 7.10. Other Agents. Nothing contained in this Agreement
shall be construed to impose any obligation or duty whatsoever on any
Syndication Agent, in its capacity as such an Agent.
ARTICLE 8
CHANGE IN CIRCUMSTANCES
SECTION 8.1. Basis for Determining Interest Rate Inadequate or
Unfair. If on or prior to the first day of any Interest Period for any Fixed
Rate Borrowing:
(a) the Administrative Agent is advised by the
Reference Banks that deposits in dollars (in the applicable
amounts) are not being offered to the Reference Banks in the
relevant market for such Interest Period, or
(b) in the case of a Committed Borrowing, Banks
having 50% or more of the aggregate amount of the Commitments
advise the Administrative Agent that the Adjusted CD Rate or
the London Interbank Offered Rate, as the case may be, as
determined by the Administrative Agent will not adequately and
fairly reflect the cost to such Banks of funding their CD
Loans or Euro-Dollar Loans, as the case may be, for such
Interest Period,
the Administrative Agent shall forthwith give notice thereof to the Borrower
and the Banks, whereupon until the Administrative Agent notifies the Borrower
that the circumstances giving rise to such suspension no longer exist, the
obligations of the Banks to make CD Loans or Euro-Dollar Loans, as the case may
be, shall be suspended. Unless the Borrower notifies the Administrative Agent
at least two Domestic Business Days before the date of any Fixed Rate Borrowing
for which a Notice of Borrowing has previously been given that it elects not to
borrow on such date, (i) if such Fixed Rate Borrowing is a Committed Borrowing,
such Borrowing shall instead be made as a Base Rate Borrowing and (ii) if such
Fixed Rate Borrowing is a Money Market LIBOR Borrowing, the Money Market LIBOR
Loans comprising such Borrowing shall bear interest for each day from and
including the first day to but excluding the last day of the Interest Period
applicable thereto at the Base Rate for such day.
SECTION 8.2. Illegality. If, on or after the date of this Agreement,
the adoption of any applicable law, rule or regulation, or any change in any
applicable law, rule or regulation, or any change in the interpretation or
administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance
<PAGE> 43
by any Bank (or its Euro-Dollar Lending Office) with any request or directive
(whether or not having the force of law) of any such authority, central bank or
comparable agency shall make it unlawful or impossible for any Bank (or its
Euro-Dollar Lending Office) to make, maintain or fund its Euro-Dollar Loans and
such Bank shall so notify the Administrative Agent, the Administrative Agent
shall forthwith give notice thereof to the other Banks and the Borrower,
whereupon until such Bank notifies the Borrower and the Administrative Agent
that the circumstances giving rise to such suspension no longer exist, the
obligation of such Bank to make Euro-Dollar Loans shall be suspended. Before
giving any notice to the Administrative Agent pursuant to this Section, such
Bank shall designate a different Euro-Dollar Lending Office if such designation
will avoid the need for giving such notice and will not, in the judgment of
such Bank, be otherwise disadvantageous to such Bank. If such Bank shall
determine that it may not lawfully continue to maintain and fund any of its
outstanding Euro-Dollar Loans to maturity and shall so specify in such notice,
the Borrower shall immediately prepay in full the then outstanding principal
amount of each such Euro-Dollar Loan, together with accrued interest thereon.
Concurrently with prepaying each such Euro-Dollar Loan, the Borrower shall
borrow a Base Rate Loan in an equal principal amount from such Bank (on which
interest and principal shall be payable contemporaneously with the related
Euro-Dollar Loans of the other Banks), and such Bank shall make such a Base
Rate Loan.
SECTION 8.3. Increased Cost and Reduced Return. (a) If on or after
(x) the date hereof, in the case of any Committed Loan or any obligation to
make Committed Loans or (y) the date of the related Money Market Quote, in the
case of any Money Market Loan, the adoption of any applicable law, rule or
regulation, or any change in any applicable law, rule or regulation, or any
change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Bank (or its Applicable Lending
Office) with any request or directive (whether or not having the force of law)
of any such authority, central bank or comparable agency shall impose, modify
or deem applicable any reserve (including, without limitation, any such
requirement imposed by the Board of Governors of the Federal Reserve System,
but excluding (i) with respect to any CD Loan any such requirement included in
an applicable Domestic Reserve Percentage and (ii) with respect to any
Euro-Dollar Loan any such requirement with respect to which such Bank is
entitled to compensation during the relevant Interest Period under Section
2.15), special deposit, insurance assessment (excluding, with respect to any CD
Loan, any such requirement reflected in an applicable Assessment Rate) or
similar requirement against assets of, deposits with or for the account of, or
credit extended by, any Bank (or its Applicable Lending Office) or shall impose
on any Bank (or its Applicable Lending Office) or on the United States market
for certificates of deposit or the London interbank market any other condition
affecting its Fixed Rate Loans, its Note or its obligation to make Fixed Rate
Loans and the result of any of the foregoing is to increase the cost to such
Bank (or its Applicable Lending Office) of making or maintaining any Fixed Rate
Loan, or to reduce the amount of any sum received or receivable by such Bank
(or its Applicable Lending Office) under this Agreement or under its Note with
respect thereto, by an amount deemed by such Bank to be material, then, within
15 days after demand by such Bank (with a copy to the Administrative Agent),
the Borrower shall pay to such Bank such additional amount or amounts as will
compensate such Bank for such increased cost or reduction.
<PAGE> 44
(b) If any Bank shall have determined that, after the date hereof,
the adoption of any applicable law, rule or regulation regarding capital
adequacy, or any change in any such law, rule or regulation, or any change in
the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency (including any determination by any such authority, central
bank or comparable agency that, for purposes of capital adequacy requirements,
the Commitments hereunder do not constitute commitments with an original
maturity of one year or less), has or would have the effect of reducing the
rate of return on capital of such Bank (or its Parent) as a consequence of such
Bank's obligations hereunder to a level below that which such Bank (or its
Parent) could have achieved but for such adoption, change, request or directive
(taking into consideration its policies with respect to capital adequacy) by an
amount deemed by such Bank to be material, then from time to time, within 15
days after demand by such Bank (with a copy to the Administrative Agent), the
Borrower shall pay to such Bank such additional amount or amounts as will
compensate such Bank (or its Parent) for such reduction.
(c) Each Bank will promptly notify the Borrower and the
Administrative Agent of any event of which it has knowledge, occurring after
the date hereof, which will entitle such Bank to compensation pursuant to this
Section and will designate a different Applicable Lending Office if such
designation will avoid the need for, or reduce the amount of, such compensation
and will not, in the judgment of such Bank, be otherwise disadvantageous to
such Bank. A certificate of any Bank claiming compensation under this Section
and setting forth in reasonable detail the additional amount or amounts to be
paid to it hereunder shall be conclusive in the absence of manifest error. In
determining such amount, such Bank may use any reasonable averaging and
attribution methods. Notwithstanding the foregoing subsections (a) and (b) of
this Section 8.3, the Borrower shall only be obligated to compensate any Bank
for any amount arising or accruing during (i) any time or period commencing not
more than 90 days prior to the date on which such Bank notifies the
Administrative Agent and the Borrower that it proposes to demand such
compensation and identifies to the Administrative Agent and the Borrower the
statute, regulation or other basis upon which the claimed compensation is or
will be based and (ii) any time or period during which, because of the
retroactive application of such statute, regulation or other such basis, such
Bank did not know that such amount would arise or accrue.
SECTION 8.4. Taxes. (a) For purposes of this Section 8.4, the
following terms have the following meanings:
"Taxes" means any and all present or future taxes, duties, levies,
imposts, deductions, charges or withholdings with respect to any payment by the
Borrower pursuant to this Agreement or under any Note, and all liabilities with
respect thereto, excluding (i) in the case of each Bank and the Administrative
Agent, taxes imposed on its income, and franchise or similar taxes imposed on
it, by a jurisdiction under the laws of which such Bank or the Administrative
Agent (as the case may be) is organized or in which its principal executive
office is located or, in the case of each Bank, in which its Applicable Lending
Office is located and (ii) in the case of each Bank, any United States
withholding tax imposed on such payments but only to the extent that such Bank
<PAGE> 45
is subject to United States withholding tax at the time such Bank first becomes
a party to this Agreement.
"Other Taxes" means any present or future stamp or documentary taxes
and any other excise or property taxes, or similar charges or levies, which
arise from any payment made pursuant to this Agreement or under any Note or
from the execution or delivery of, or otherwise with respect to, this Agreement
or any Note.
(b) Any and all payments by the Borrower to or for the account of
any Bank or the Administrative Agent hereunder or under any Note shall be made
without deduction for any Taxes or Other Taxes; provided that, if the Borrower
shall be required by law to deduct any Taxes or Other Taxes from any such
payments, (i) the sum payable shall be increased as necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section 8.4) such Bank or the Administrative Agent (as
the case may be) receives an amount equal to the sum it would have received had
no such deductions been made, (ii) the Borrower shall make such deductions,
(iii) the Borrower shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law and (iv) the
Borrower shall furnish to the Administrative Agent, at its address referred to
in Section 9.1, the original or a certified copy of a receipt evidencing
payment thereof.
(c) The Borrower agrees to indemnify each Bank and the
Administrative Agent for the full amount of Taxes or Other Taxes (including,
without limitation, any Taxes or Other Taxes imposed or asserted by any
jurisdiction on amounts payable under this Section 8.4) paid by such Bank or
the Administrative Agent (as the case may be) and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto.
This indemnification shall be paid within 15 days after such Bank or the
Administrative Agent (as the case may be) makes demand therefor.
(d) Each Bank organized under the laws of a jurisdiction outside the
United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Bank listed on the signature pages hereof and on
or prior to the date on which it becomes a Bank in the case of each other Bank,
and from time to time thereafter if requested in writing by the Borrower (but
only so long as such Bank remains lawfully able to do so), shall provide the
Borrower with Internal Revenue Service form 1001 or 4224, as appropriate, or
any successor form prescribed by the Internal Revenue Service, certifying that
such Bank is entitled to benefits under an income tax treaty to which the
United States is a party which exempts the Bank from United States withholding
tax or reduces the rate of withholding tax on payments of interest for the
account of such Bank or certifying that the income receivable pursuant to this
Agreement is effectively connected with the conduct of a trade or business in
the United States.
(e) For any period with respect to which a Bank has failed to
provide the Borrower with the appropriate form pursuant to Section 8.4(d)
(unless such failure is due to a change in treaty, law or regulation occurring
subsequent to the date on which such form originally was required to be
provided), such Bank shall not be entitled to indemnification under Section
8.4(b) or (c) with respect to Taxes imposed by the United States; provided that
if a Bank, which is
<PAGE> 46
otherwise exempt from or subject to a reduced rate of withholding tax, becomes
subject to Taxes because of its failure to deliver a form required hereunder,
the Borrower, at such Bank's expense, shall take such steps as such Bank shall
reasonably request to assist such Bank to recover such Taxes.
(f) If the Borrower is required to pay additional amounts to or for
the account of any Bank pursuant to this Section 8.4, then such Bank will
change the jurisdiction of its Applicable Lending Office if, in the judgment of
such Bank, such change (i) will eliminate or reduce any such additional payment
which may thereafter accrue and (ii) is not otherwise disadvantageous to such
Bank.
SECTION 8.5. Base Rate Loans Substituted for Affected Fixed Rate
Loans. If (i) the obligation of any Bank to make Euro-Dollar Loans has been
suspended pursuant to Section 8.2 or (ii) any Bank has demanded compensation
under Section 8.3 or 8.4 with respect to its CD Loans or Euro-Dollar Loans and
the Borrower shall, by at least five Euro-Dollar Business Days' prior notice to
such Bank through the Administrative Agent, have elected that the provisions of
this Section shall apply to such Bank, then, unless and until such Bank
notifies the Borrower that the circumstances giving rise to such suspension or
demand for compensation no longer exist:
(a) all Loans which would otherwise be made by such Bank as CD Loans
or Euro-Dollar Loans, as the case may be, shall be made instead as Base Rate
Loans (on which interest and principal shall be payable contemporaneously with
the related Fixed Rate Loans of the other Banks), and
(b) after each of its CD Loans or Euro-Dollar Loans, as the case may
be, has been repaid, all payments of principal which would otherwise be applied
to repay such Fixed Rate Loans shall be applied to repay its Base Rate Loans
instead.
SECTION 8.6. Substitution of Bank. If (i) the obligation of any Bank
to make Euro-Dollar Loans has been suspended pursuant to Section 8.2 or (ii)
any Bank has demanded compensation under Section 8.3 or 8.4, the Borrower shall
have the right, with the assistance of the Administrative Agent, to seek a
mutually satisfactory substitute bank or banks (which may be one or more of the
Banks) to purchase the Note and assume the Commitment of such Bank.
ARTICLE 9
MISCELLANEOUS
SECTION 9.1. Notices. All notices, requests and other communications
to any party hereunder shall be in writing (including bank wire, telex,
facsimile transmission or similar writing) and shall be given to such party:
(x) in the case of the Borrower or the Administrative Agent, at its address,
facsimile number or telex number set forth on the signature pages hereof, (y)
in the case of any Bank, at its address, facsimile number or telex number set
forth in its Administrative Questionnaire or (z) in the case of any party, such
other address, facsimile number or telex number as such party may hereafter
specify for the purpose by notice to the Administrative Agent and the Borrower.
Each such notice, request or other communication shall be effective (i) if
given by
<PAGE> 47
telex, when such telex is transmitted to the telex number specified in this
Section and the appropriate answerback is received, (ii) if given by facsimile
transmission, when transmitted to the facsimile number specified in this
Section and confirmation of receipt is received or (iii) if given by any other
means, when delivered at the address specified in this Section; provided that
notices to the Administrative Agent under Article 2 or Article 8 shall not be
effective until received.
SECTION 9.2. No Waivers. No failure or delay by the Administrative
Agent or any Bank in exercising any right, power or privilege hereunder or
under any Note shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 9.3. Expenses; Indemnification. (a) The Borrower shall pay
(i) all reasonable out-of-pocket expenses of the Administrative Agent,
including fees and disbursements of Davis Polk & Wardwell, special counsel for
the Agents, in connection with the preparation and administration of this
Agreement, any waiver or consent hereunder or any amendment hereof or any
Default or alleged Default hereunder and (ii) if an Event of Default occurs,
all out-of-pocket expenses incurred by each Agent and Bank, including (without
duplication) the fees and disbursements of outside counsel and the allocated
cost of inside counsel, in connection with such Event of Default and
collection, bankruptcy, insolvency and other enforcement proceedings resulting
therefrom.
(b) The Borrower agrees to indemnify each Agent and Bank, their
respective affiliates and the respective directors, officers, agents and
employees of the foregoing (each an "Indemnitee") and hold each Indemnitee
harmless from and against any and all liabilities, losses, damages, costs and
expenses of any kind, including, without limitation, the reasonable fees and
disbursements of counsel, which may be incurred by such Indemnitee in
connection with any investigative, administrative or judicial proceeding
(whether or not such Indemnitee shall be designated a party thereto) brought or
threatened relating to or arising out of (i) any actual or proposed use of
proceeds of Loans hereunder or (ii) any actual or alleged Default under this
Agreement or any actual or alleged untruth or inaccuracy of any representation
or warranty made by the Borrower in or in connection with this Agreement;
provided that no Indemnitee shall have the right to be indemnified hereunder
for such Indemnitee's own gross negligence or willful misconduct as finally
determined by a court of competent jurisdiction.
SECTION 9.4. Sharing of Set-offs. Each Bank agrees that if it shall,
by exercising any right of set-off or counterclaim or otherwise, receive
payment of a proportion of the aggregate amount of principal and interest due
with respect to any Note held by it which is greater than the proportion
received by any other Bank in respect of the aggregate amount of principal and
interest due with respect to any Note held by such other Bank, the Bank
receiving such proportionately greater payment shall purchase such
participations in the Notes held by the other Banks, and such other adjustments
shall be made, as may be required so that all such payments of principal and
interest with respect to the Notes held by the Banks shall be shared by the
Banks pro rata; provided that nothing in this Section shall impair the right of
any Bank to exercise any right of set-off or counterclaim it may have and to
apply the amount subject to such
<PAGE> 48
exercise to the payment of indebtedness of the Borrower other than its
indebtedness hereunder. The Borrower agrees, to the fullest extent it may
effectively do so under applicable law, that any holder of a participation in a
Note, whether or not acquired pursuant to the foregoing arrangements, may
exercise rights of set-off or counterclaim and other rights with respect to
such participation as fully as if such holder of a participation were a direct
creditor of the Borrower in the amount of such participation.
SECTION 9.5. Amendments and Waivers. Any provision of this Agreement
or the Notes may be amended or waived if, but only if, such amendment or waiver
is in writing and is signed by the Borrower and the Required Banks (and, if the
rights or duties of any Agent are affected thereby, by such Agent); provided
that no such amendment or waiver shall, unless signed by all the Banks, (i)
increase or decrease the Commitment of any Bank (except for a ratable decrease
in the Commitments of all Banks) or subject any Bank to any additional
obligation, (ii) reduce the principal of or rate of interest on any Loan or any
fees hereunder, (iii) postpone the date fixed for any payment of principal of
or interest on any Loan or any fees hereunder or for termination of any
Commitment or (iv) change the percentage of the Commitments or of the aggregate
unpaid principal amount of the Notes, or the number of Banks, which shall be
required for the Banks or any of them to take any action under this Section or
any other provision of this Agreement.
SECTION 9.6. Successors and Assigns. (a) The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that the Borrower may not
assign or otherwise transfer any of its rights under this Agreement without the
prior written consent of all Banks.
(b) Any Bank may at any time grant to one or more banks or other
institutions (each a "Participant") participating interests in its Commitment
or any or all of its Loans. In the event of any such grant by a Bank of a
participating interest to a Participant, whether or not upon notice to the
Borrower and the Administrative Agent, such Bank shall remain responsible for
the performance of its obligations hereunder, and the Borrower and the
Administrative Agent shall continue to deal solely and directly with such Bank
in connection with such Bank's rights and obligations under this Agreement. Any
agreement pursuant to which any Bank may grant such a participating interest
shall provide that such Bank shall retain the sole right and responsibility to
enforce the obligations of the Borrower hereunder including, without
limitation, the right to approve any amendment, modification or waiver of any
provision of this Agreement; provided that such participation agreement may
provide that such Bank will not agree to any modification, amendment or waiver
of this Agreement described in clause (i), (ii) or (iii) of Section 9.5 without
the consent of the Participant. The Borrower agrees that each Participant
shall, to the extent provided in its participation agreement, be entitled to
the benefits of Article 8 with respect to its participating interest. An
assignment or other transfer which is not permitted by subsection (c) or (d)
below shall be given effect for purposes of this Agreement only to the extent
of a participating interest granted in accordance with this subsection (b).
(c) Any Bank may at any time assign to one or more banks or other
institutions (each an "Assignee") all, or a proportionate part (equivalent to
an initial Commitment of not less than $10,000,000) of all, of its rights and
<PAGE> 49
obligations under this Agreement and the Notes, and such Assignee shall assume
such rights and obligations, pursuant to an Assignment and Assumption Agreement
in substantially the form of Exhibit G hereto executed by such Assignee and
such transferor Bank, with (and subject to) the subscribed consent of the
Borrower, which shall not be unreasonably withheld, and the Administrative
Agent; provided that if an Assignee is an affiliate of such transferor Bank or
was a Bank immediately prior to such assignment, no such consent shall be
required; and provided further that such assignment may, but need not, include
rights of the transferor Bank in respect of outstanding Money Market Loans.
Upon execution and delivery of such instrument and payment by such Assignee to
such transferor Bank of an amount equal to the purchase price agreed between
such transferor Bank and such Assignee, such Assignee shall be a Bank party to
this Agreement and shall have all the rights and obligations of a Bank with a
Commitment as set forth in such instrument of assumption, and the transferor
Bank shall be released from its obligations hereunder to a corresponding
extent, and no further consent or action by any party shall be required. Upon
the consummation of any assignment pursuant to this subsection (c), the
transferor Bank, the Administrative Agent and the Borrower shall make
appropriate arrangements so that, if required, a new Note is issued to the
Assignee. In connection with any such assignment, the transferor Bank shall pay
to the Administrative Agent an administrative fee for processing such
assignment in the amount of $2,500. If the Assignee is not incorporated under
the laws of the United States of America or a state thereof, it shall deliver
to the Borrower and the Administrative Agent certification as to exemption from
deduction or withholding of any United States federal income taxes in
accordance with Section 8.4.
(d) Any Bank may at any time assign all or any portion of its rights
under this Agreement and its Note to a Federal Reserve Bank. No such assignment
shall release the transferor Bank from its obligations hereunder.
(e) No Assignee, Participant or other transferee of any Bank's
rights shall be entitled to receive any greater payment under Section 8.3 or
8.4 than such Bank would have been entitled to receive with respect to the
rights transferred, unless such transfer is made with the Borrower's prior
written consent or by reason of the provisions of Section 8.2, 8.3 or 8.4
requiring such Bank to designate a different Applicable Lending Office under
certain circumstances or at a time when the circumstances giving rise to such
greater payment did not exist.
SECTION 9.7. Collateral. Each of the Banks represents to each Agent
and each of the other Banks that it in good faith is not relying upon any
"margin stock" (as defined in Regulation U) as collateral in the extension or
maintenance of the credit provided for in this Agreement.
SECTION 9.8. Governing Law; Submission to Jurisdiction. This
Agreement and each Note shall be governed by and construed in accordance with
the laws of the State of New York. The Borrower hereby submits to the
nonexclusive jurisdiction of the United States District Court for the Southern
District of New York and of any New York State court sitting in New York City
having subject matter jurisdiction for purposes of all legal proceedings
arising out of or relating to this Agreement or the transactions contemplated
hereby. The Borrower irrevocably waives, to the fullest extent permitted by
law, any objection which it may now or hereafter have to the laying of the
venue of any such proceeding brought in such a court and any claim that any
such proceeding brought in such a
<PAGE> 50
court has been brought in an inconvenient forum.
SECTION 9.9. Counterparts; Integration. This Agreement may be signed
in any number of counterparts, each of which shall be an original, with the
same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement constitutes the entire agreement and understanding
among the parties hereto and supersedes any and all prior agreements and
understandings, oral or written, relating to the subject matter hereof except
the obligations of the Borrower to pay fees and expenses and to assist in the
syndication process as specified in the respective commitment letters and fee
letters heretofore entered into between the Borrower and the Agents.
SECTION 9.10. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE
ADMINISTRATIVE AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT
TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 9.11. Existing Credit Agreement. On the Effective Date and
simultaneously with the receipt by the Administrative Agent of the required
documents pursuant to Section 3.1, the Borrower hereby gives notice to Morgan
Guaranty Trust Company of New York, as agent, under Section 2.9 of the Existing
Credit Agreement referred to in clause (x) of Section 3.1 of the termination of
the Commitments (as defined herein) and the Banks hereby waive the requirement
that prior notice of such termination be given as therein provided.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
K N ENERGY, INC.
By /s/ Clyde E. McKenzie
----------------------------------
Title: Vice President & Chief
Financial Officer
370 Van Gordon Street
Lakewood, CO 80228-8304
Attention: Chief Financial Officer
Facsimile number: (303) 914-4542
Commitments
$200,000,000.01 MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By /s/ John Kowalczuk
------------------------------
Title: Vice President
<PAGE> 51
$133,333,333.33 BANK OF AMERICA NT & SA
By /s/ J. Stephen Mernick
------------------------------
Title: Senior Vice President
$133,333,333.33 THE CHASE MANHATTAN BANK
By /s/ Mary Jo Woodford
------------------------------
Title: Vice President
$133,333,333.33 NATIONSBANK, N.A.
By /s/ David Rubenking
------------------------------
Title: Senior Vice President
- ---------------------------
Total Commitments
$600,000,000
============
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Administrative Agent
By /s/ John Kowalczuk
--------------------------------
Title: Vice President
60 Wall Street
New York, New York 10260-0060
Attention: John Kowalczuk
Telex number: 177615
Facsimile number: 212-648-5014
<PAGE> 52
PRICING SCHEDULE
The "Euro-Dollar Margin", "CD Margin" and "Facility Fee Rate" for any
day are the respective percentages set forth below in the applicable row under
the column corresponding to the Status that exists on such day:
(TABLE)
(CAPTION)
<TABLE>
Level Level Level Level Level Level
Status I II III IV V VI
------ ----- ----- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Euro-Dollar Margin
Utilization less than 50% 0.230% 0.320% 0.390% 0.5625% 0.750% 1.125%
Utilization more than or
equal to 50% 0.355% 0.445% 0.515% 0.6875% 0.875% 1.250%
CD Margin
Utilization less than 50% 0.355% 0.445% 0.515% 0.6875% 0.875% 1.250%
Utilization more than or
equal to 50% 0.480% 0.570% 0.640% 0.8125% 1.000% 1.375%
Facility Fee Rate 0.070% 0.080% 0.110% 0.1875% 0.250% 0.375%
</TABLE>
For purposes of this Schedule, the following terms have the following
meanings:
"Level I Status" exists at any date if, at such date, the Borrower's
senior unsecured long-term debt is rated BBB+ or higher by S&P and Baa1 or
higher by Moody's.
"Level II Status" exists at any date if, at such date, (i) the
Borrower's senior unsecured long-term debt is rated BBB or higher by S&P and
Baa2 or higher by Moody's and (ii) Level I Status does not exist.
"Level III Status" exists at any date if, at such date, (i) the
Borrower's senior unsecured long-term debt is rated BBB- or higher by S&P and
Baa3 or higher by Moody's and (ii) neither Level I Status nor Level II Status
exists.
"Level IV Status" exists at any date if, at such date, (i) the
Borrower's senior unsecured long-term debt is rated BB+ or higher by S&P and
Ba1 or higher by Moody's and (ii) none of Level I Status, Level II Status and
Level III Status exists.
"Level V Status" exists at any date if, at such date, (i) the
Borrower's senior unsecured long-term debt is rated BB or higher by S&P and Ba2
or higher by Moody's and (ii) none of Level I Status, Level II Status, Level
III
<PAGE> 53
"Level VI Status" exists at any date if, at such date, no other
Status exists.
"Status" refers to the determination of which of Level I Status,
Level II Status, Level III Status, Level IV Status, Level V Status or Level VI
Status exists at any date.
"Utilization" means, at any date, the percentage equivalent of a
fraction (i) the numerator of which is the aggregate outstanding principal
amount of the Loans at such date and (ii) the denominator of which is the
aggregate amount of the Commitments at such date. If for any reason any Loans
remain outstanding following termination of the Commitments, Utilization shall
be deemed to be in excess of 50%.
The credit ratings to be utilized for purposes of this Schedule are
those assigned to the senior unsecured long-term debt securities of the
Borrower without third-party credit enhancement, and any rating assigned to any
other debt security of the Borrower shall be disregarded. The rating in effect
at any date is that in effect at the close of business on such date.
<PAGE> 54
EXHIBIT A
NOTE
New York, New York
, 199_
For value received, K N Energy, Inc., a Kansas corporation (the
"Borrower"), promises to pay to the order of (the "Bank"), for the account of
its Applicable Lending Office, the unpaid principal amount of each Loan made by
the Bank to the Borrower pursuant to the Credit Agreement referred to below on
the last day of the Interest Period relating to such Loan. The Borrower
promises to pay interest on the unpaid principal amount of each such Loan on
the dates and at the rate or rates provided for in the Credit Agreement. All
such payments of principal and interest shall be made in lawful money of the
United States in Federal or other immediately available funds at the office of
Morgan Guaranty Trust Company of New York, 60 Wall Street, New York, New York.
All Loans made by the Bank, the respective types and maturities
thereof and all repayments of the principal thereof shall be recorded by the
Bank and, if the Bank so elects in connection with any transfer or enforcement
hereof, appropriate notations to evidence the foregoing information with
respect to each such Loan then outstanding may be endorsed by the Bank on the
schedule attached hereto, or on a continuation of such schedule attached to and
made a part hereof; provided that the failure of the Bank to make any such
recordation or endorsement shall not affect the obligations of the Borrower
hereunder or under the Credit Agreement.
This note is one of the Notes referred to in the 364-Day Credit
Agreement dated as of January 30, 1998 among the Borrower, the banks listed on
the signature pages thereof and Morgan Guaranty Trust Company of New York, as
Administrative Agent (as the same may be amended from time to time, the "Credit
Agreement"). Terms defined in the Credit Agreement are used herein with the
same meanings. Reference is made to the Credit Agreement for provisions for the
prepayment hereof and the acceleration of the maturity hereof.
K N ENERGY, INC.
By
------------------------------
Title:
<PAGE> 55
NOTE (cont'd)
LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Amount of
Amount of Type of Principal Maturity Notation
Date Loan Loan Repaid Date Made By
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
<PAGE> 56
EXHIBIT B
Form of Money Market Quote Request
[Date]
To: Morgan Guaranty Trust Company of New York
(the "Administrative Agent")
From: K N Energy, Inc.
Re: 364-Day Credit Agreement (the "Credit Agreement") dated as of January
30, 1998 among the Borrower, the Banks listed on the signature pages
thereof and the Administrative Agent
We hereby give notice pursuant to Section 2.3 of the Credit Agreement
that we request Money Market Quotes for the following proposed Money Market
Borrowing(s):
Date of Borrowing: __________________
Principal Amount* Interest Period**
$
Such Money Market Quotes should offer a Money Market [Margin]
[Absolute Rate]. [The applicable base rate is the London Interbank Offered
Rate.]
- --------
*Amount must be $5,000,000 or a larger multiple of $1,000,000.
**Not less than one month and not more than nine months (LIBOR Auction) or
not less than seven days and not more than 360 days (Absolute Rate Auction),
subject to the provisions of the definition of Interest Period.
Terms used herein have the meanings assigned to them in the Credit
Agreement.
K N ENERGY, INC.
By
------------------------------
Title:
<PAGE> 57
EXHIBIT C
Form of Invitation for Money Market Quotes
To: [Name of Bank]
Re: Invitation for Money Market Quotes to K N Energy, Inc. (the
"Borrower")
Pursuant to Section 2.3 of the 364-Day Credit Agreement dated as of
January 30, 1998 among the Borrower, the Banks parties thereto and the
undersigned, as Administrative Agent, we are pleased on behalf of the Borrower
to invite you to submit Money Market Quotes to the Borrower for the following
proposed Money Market Borrowing(s):
Date of Borrowing: __________________
Principal Amount Interest Period
$
Such Money Market Quotes should offer a Money Market [Margin]
[Absolute Rate]. [The applicable base rate is the London Interbank Offered
Rate.]
Please respond to this invitation by no later than [2:00 P.M.]
[9:30 A.M.] (New York City time) on [date].
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By
------------------------------
Authorized Officer
<PAGE> 58
EXHIBIT D
Form of Money Market Quote
To: Morgan Guaranty Trust Company of New York, as Administrative Agent
Re: Money Market Quote to K N Energy, Inc. (the "Borrower")
In response to your invitation on behalf of the Borrower dated
_____________, 19__, we hereby make the following Money Market Quote on the
following terms:
1. Quoting Bank:
---------------------------------
2. Person to contact at Quoting Bank:
-----------------------------
3. Date of Borrowing: *
--------------------
4. We hereby offer to make Money Market Loan(s) in the
following principal amounts, for the following Interest
Periods and at the following rates:
Principal Interest Money Market
- ----------------------
* As specified in the related Invitation.
<PAGE> 59
<TABLE>
<CAPTION>
Amount** Period*** [Margin****] [Absolute Rate*****]
<S> <C> <C> <C>
$
$
</TABLE>
[Provided, that the aggregate principal amount of Money Market Loans
for which the above offers may be accepted shall not exceed
$____________.]**
We understand and agree that the offer(s) set forth above, subject to
the satisfaction of the applicable conditions set forth in the 364-Day Credit
Agreement dated as of January 30, 1998 among the Borrower, the Banks listed on
the signature pages thereof and yourselves, as Administrative Agent,
irrevocably obligates us to make the Money Market Loan(s) for which any
offer(s) are accepted, in whole or in part.
Very truly yours,
[NAME OF BANK]
Dated: By
---------------------- --------------------------------
Authorized Officer
- ----------------------
** Principal amount bid for each Interest Period may not exceed principal
amount requested. Specify aggregate limitation if the sum of the individual
offers exceeds the amount the Bank is willing to lend. Bids must be made for
$5,000,000 or a larger multiple of $1,000,000.
*** Not less than one month and not more than nine months or not less than
seven days and not more than 360 days, as specified in the related Invitation.
No more than five bids are permitted for each Interest Period.
**** Margin over or under the London Interbank Offered Rate determined for the
applicable Interest Period. Specify percentage (to the nearest 1/10,000th of
1%) and specify whether "PLUS" or "MINUS".
***** Specify rate of interest per annum (to the nearest 1/10,000th of 1%).
<PAGE> 60
EXHIBIT E-1
OPINION OF
SPECIAL COUNSEL FOR THE BORROWER
To the Banks and the Administrative Agent
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Administrative Agent
60 Wall Street
New York, New York 10260
Dear Sirs:
We have acted as special counsel for K N Energy, Inc. (the
"Borrower") in connection with the 364-Day Credit Agreement (the "Credit
Agreement") dated as of January 30, 1998 among the Borrower, the banks listed
on the signature pages thereof and Morgan Guaranty Trust Company of New York,
as Administrative Agent. Terms defined in the Credit Agreement are used herein
as therein defined. This opinion is being rendered to you at the request of
our client pursuant to Section 3.1(c) of the Credit Agreement.
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments and have conducted such
other investigations of fact and law as we have deemed necessary or advisable
for purposes of this opinion.
Upon the basis of the foregoing, we are of the opinion that:
1. The execution, delivery and performance by the Borrower of the
Credit Agreement and the Notes require no action by or in respect of, or filing
with, any governmental body, agency or official of the State of Texas or the
United States of America (other than filings of the Credit Agreement and the
Notes with the Securities and Exchange Commission pursuant to the reporting
requirements of the Securities and Exchange Act of 1934) and do not contravene,
or constitute a default under, any provision of applicable law or regulation of
the State of Texas or the United States of America, or of the articles of
incorporation or by-laws of the Borrower.
2. The Credit Agreement constitutes a valid and binding agreement of
the Borrower and each Note constitutes a valid and binding obligation of the
Borrower, in each case enforceable against the Borrower in accordance with its
terms, except as the same may be limited by bankruptcy, insolvency or similar
laws affecting creditors' rights generally and by general principles of equity.
We are members of the Bar of the State of Texas and the foregoing
opinion is limited to the laws of the State of Texas, the State of New York and
the federal laws of the United States of America. In giving the foregoing
opinion, we express no opinion as to the effect (if any) of any law of any
jurisdiction in which any Bank is located which limits the rate of interest
that such Bank may charge or collect. Insofar as the foregoing opinion involves
matters governed by the laws of the State of Kansas (which matters do not in
our view include the non-contravention opinion in paragraph 1), we have relied,
without independent investigation, upon the opinion of Polsinelli, White,
Vardeman & Shalton, delivered to you pursuant to Section 3.1(c) of the Credit
Agreement.
<PAGE> 61
This opinion is rendered solely to you and any Assignee or
Participant in connection with the above matter. This opinion may not be relied
upon by you or any Assignee or Participant for any other purpose or relied upon
by any other person without our prior written consent.
Very truly yours,
<PAGE> 62
EXHIBIT E-2
OPINION OF
KANSAS COUNSEL FOR THE BORROWER
To the Banks and the Administrative Agent
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Administrative Agent
60 Wall Street
New York, New York 10260
Dear Sirs:
We have acted as counsel in the State of Kansas for K N Energy, Inc.
(the "Borrower") in connection with the 364-Day Credit Agreement (the "Credit
Agreement") dated as of January 30, 1998 among the Borrower, the banks listed
on the signature pages thereof and Morgan Guaranty Trust Company of New York,
as Administrative Agent. Terms defined in the Credit Agreement are used herein
as therein defined. This opinion is being rendered to you at the request of our
client pursuant to Section 3.1(c) of the Credit Agreement.
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments and have conducted such
other investigations of fact and law as we have deemed necessary or advisable
for purposes of this opinion.
Upon the basis of the foregoing, we are of the opinion that:
1. The Borrower is a corporation duly incorporated, validly existing
and in good standing under the laws of Kansas, and has all corporate powers
required to carry on its business as now conducted.
2. The execution, delivery and performance by the Borrower of the
Credit Agreement and the Notes are within the Borrower's corporate powers, have
been duly authorized by all necessary corporate action, require no action by or
in respect of, or filing with, any governmental body, agency or official of the
State of Kansas and do not contravene, or constitute a default under, any
<PAGE> 63
provision of applicable law or regulation of the State of Kansas.
We are members of the Bar of the State of Kansas and the foregoing
opinion is limited to the laws of the State of Kansas.
This opinion is rendered solely to you and any Assignee or
Participant in connection with the above matter. This opinion may not be relied
upon by you or any Assignee or Participant for any other purpose or relied upon
by any other person without our prior written consent.
Very truly yours,
<PAGE> 64
EXHIBIT E-3
OPINION OF
GENERAL COUNSEL OF THE BORROWER
To the Banks and the Administrative Agent
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Administrative Agent
60 Wall Street
New York, New York 10260
Dear Sirs:
I am General Counsel of K N Energy, Inc. (the "Borrower"), and I have
represented the Borrower in connection with the 364-Day Credit Agreement (the
"Credit Agreement") dated as of January 30, 1998 among the Borrower, the banks
listed on the signature pages thereof and Morgan Guaranty Trust Company of New
York, as Administrative Agent. Terms defined in the Credit Agreement are used
herein as therein defined. This opinion is being rendered to you at the request
of my client pursuant to Section 3.1(c) of the Credit Agreement.
I have examined originals or copies, certified or otherwise
identified to my satisfaction, of such documents, corporate records,
certificates of public officials and other instruments and have conducted such
other investigations of fact and law as I have deemed necessary or advisable
for purposes of this opinion.
Upon the basis of the foregoing, I am of the opinion that:
1. The Borrower has all material governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted.
2. The execution, delivery and performance by the Borrower of the
Credit Agreement and the Notes require no action by or in respect of, or filing
with, any governmental body, agency or official of the State of Colorado or, to
the best of my knowledge, any other jurisdiction (other than filings of the
<PAGE> 65
Credit Agreement and the Notes with the Securities and Exchange Commission
pursuant to the reporting requirements of the Securities Exchange Act of 1934)
and do not contravene, or constitute a default under, any provision of
applicable law or regulation of the State of Colorado or, to the best of my
knowledge, any other jurisdiction or of any agreement, judgment, injunction,
order, decree or other instrument binding upon the Borrower or any of its
Subsidiaries or result in the creation or imposition of any, Lien on any asset
of the Borrower or any of its Subsidiaries.
3. There is no action, suit or proceeding pending against, or to the
best of my knowledge threatened against or affecting, the Borrower or any of
its Subsidiaries before any court or arbitrator or any governmental body,
agency or official, in which there is a reasonable possibility of an adverse
decision which could materially adversely affect the business, consolidated
financial position or consolidated results of operations of the Borrower and
its Consolidated Subsidiaries, considered as a whole, or which in any manner
draws into question the validity of the Credit Agreement or the Notes.
4. Each of the Borrower's corporate Material Subsidiaries is a
corporation validly existing and in good standing under the laws of its
jurisdiction of incorporation, and has all corporate powers and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted.
I am a member of the Bar of the State of Colorado and the foregoing
opinion is limited to the laws of the State of Colorado and the General
Corporation Law of the State of Delaware. Insofar as paragraph 2 above
addresses the laws of other jurisdictions, I have relied upon my familiarity
with advice given by counsel admitted to practice in those jurisdictions, in
connection with this and other transactions.
This opinion is rendered solely to you and any Assignee or
Participant in connection with the above matter. This opinion may not be relied
upon by you or any Assignee or Participant for any other purpose or relied upon
by any other person without our prior written consent.
Very truly yours,
<PAGE> 66
EXHIBIT F
OPINION OF
DAVIS POLK & WARDWELL, SPECIAL COUNSEL
FOR THE AGENTS
To the Banks and the Administrative Agent
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Administrative Agent
60 Wall Street
New York, New York 10260
Dear Sirs:
We have participated in the preparation of the 364-Day Credit
Agreement (the "Credit Agreement") dated as of January 30, 1998 among K N
Energy, Inc., a Kansas corporation (the "Borrower"), the banks listed on the
signature pages thereof (the "Banks") and Morgan Guaranty Trust Company of New
York, as Administrative Agent (the "Administrative Agent"), and have acted as
special counsel for the Agents for the purpose of rendering this opinion
pursuant to Section 3.1(c) of the Credit Agreement. Terms defined in the Credit
Agreement are used herein as therein defined.
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments and have conducted such
other investigations of fact and law as we have deemed necessary or advisable
for purposes of this opinion.
Upon the basis of the foregoing, we are of the opinion that the
Credit Agreement constitutes a valid and binding agreement of the Borrower and
each Note constitutes a valid and binding obligation of the Borrower, in each
case enforceable in accordance with its terms, except as the same may be
limited by bankruptcy, insolvency or similar laws affecting creditors' rights
generally and by general principles of equity.
We are members of the Bar of the State of New York and the foregoing
opinion is limited to the laws of the State of New York and the federal laws of
the United States of America. In giving the foregoing opinion, we express no
opinion as to the effect (if any) of any law of any jurisdiction (except the
State of New York) in which any Bank is located which limits the rate of
interest that such Bank may charge or collect. Insofar as the foregoing opinion
involves matters governed by the laws of Kansas, we have relied, without
independent investigation, upon the opinion of Polsinelli, White, Vardeman &
Shalton, delivered to you pursuant to Section 3.1(c) of the Credit Agreement.
This opinion is rendered solely to you in connection with the above
matter. This opinion may not be relied upon by you for any other purpose or
relied upon by any other person without our prior written consent.
Very truly yours,
<PAGE> 67
EXHIBIT G
ASSIGNMENT AND ASSUMPTION AGREEMENT
AGREEMENT dated as of _________, 19__ among [ASSIGNOR] (the
"Assignor"), [ASSIGNEE] (the "Assignee"),
K N ENERGY, INC. (the "Borrower") and MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Administrative Agent (the "Administrative Agent").
W I T N E S S E T H
WHEREAS, this Assignment and Assumption Agreement (the "Agreement")
relates to the 364-Day Credit Agreement dated as of January 30, 1998 among the
Borrower, the Assignor and the other Banks party thereto, as Banks, and the
Administrative Agent (the "Credit Agreement");
WHEREAS, as provided under the Credit Agreement, the Assignor has a
Commitment to make Loans to the Borrower in an aggregate principal amount at
any time outstanding not to exceed $__________;
WHEREAS, Committed Loans made to the Borrower by the Assignor under
the Credit Agreement in the aggregate principal amount of $__________ are
outstanding at the date hereof; and
WHEREAS, the Assignor proposes to assign to the Assignee all of the
rights of the Assignor under the Credit Agreement in respect of a portion of
its Commitment thereunder in an amount equal to $__________ (the "Assigned
Amount"), together with a corresponding portion of its outstanding Committed
Loans, and the Assignee proposes to accept assignment of such rights and assume
the corresponding obligations from the Assignor on such terms;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, the parties hereto agree as follows:
SECTION 1. Definitions. All capitalized terms not otherwise defined
herein shall have the respective meanings set forth in the Credit Agreement.
SECTION 2. Assignment. The Assignor hereby assigns and sells to the
Assignee all of the rights of the Assignor under the Credit Agreement to the
extent of the Assigned Amount, and the Assignee hereby accepts such assignment
from the Assignor and assumes all of the obligations of the Assignor under the
Credit Agreement to the extent of the Assigned Amount, including the purchase
from the Assignor of the corresponding portion of the principal amount of the
Committed Loans made by the Assignor outstanding at the date hereof. Upon the
execution and delivery hereof by the Assignor, the Assignee[, the Borrower and
the Administrative Agent] and the payment of the amounts specified in Section 3
required to be paid on the date hereof (i) the Assignee shall, as of the date
hereof, succeed to the rights and be obligated to perform the obligations of a
Bank under the Credit Agreement with a Commitment in an amount equal to the
Assigned Amount, and (ii) the Commitment of the Assignor shall, as of the date
hereof, be reduced by a like amount and the Assignor released from its
obligations under the Credit Agreement to the extent such obligations have been
assumed by the Assignee. The assignment provided for herein shall be without
recourse to the Assignor.
SECTION 3. Payments. As consideration for the assignment and sale
contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the
<PAGE> 68
date hereof in Federal funds the amount heretofore agreed between them.* [It is
understood that commitment and/or facility fees accrued to the date hereof are
for the account of the Assignor and such fees accruing from and including the
date hereof are for the account of the Assignee.] Each of the Assignor and the
Assignee hereby agrees that if it receives any amount under the Credit
Agreement which is for the account of the other party hereto, it shall receive
the same for the account of such other party to the extent of such other
party's interest therein and shall promptly pay the same to such other party.
SECTION 4. Consent of the Borrower and the Administrative Agent. This
Agreement is conditioned upon the consent of the Borrower and the
Administrative Agent pursuant to Section 9.6(c) of the Credit Agreement. The
execution of this Agreement by the Borrower and the Administrative Agent is
evidence of this consent. Pursuant to Section 9.6(c) the Borrower agrees to
execute and deliver a Note payable to the order of the Assignee to evidence the
assignment and assumption provided for herein.
SECTION 5. Non-Reliance on Assignor. The Assignor makes no
representation or warranty in connection with, and shall have no responsibility
with respect to, the solvency, financial condition, or statements of the
Borrower, or the validity and enforceability of the obligations of the Borrower
in respect of the Credit Agreement or any Note. The Assignee acknowledges that
it has, independently and without reliance on the Assignor, and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement and will continue to be
responsible for making its own independent appraisal of the business, affairs
and financial condition of the Borrower.
SECTION 6. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 7. Counterparts. This Agreement may be signed in any number
of counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
- --------
*Amount should combine principal together with accrued interest and
breakage compensation, if any, to be paid by the Assignee, net of any portion
of any upfront fee to be paid by the Assignor to the Assignee. It may be
preferable in an appropriate case to specify these amounts generically or by
formula rather than as a fixed sum.
<PAGE> 69
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their duly authorized officers as of the date first
above written.
[ASSIGNOR]
By
-------------------------------
Title:
[ASSIGNEE]
By
--------------------------------
Title:
K N ENERGY, INC.
By
--------------------------------
Title:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Administrative
Agent
By
---------------------------------
Title:
<PAGE> 1
CONFORMED COPY
$400,000,000
FIVE-YEAR CREDIT AGREEMENT
dated as of
January 30, 1998
among
K N Energy, Inc.,
The Banks Listed Herein,
and
Morgan Guaranty Trust Company of New York,
as Administrative Agent
----------------
J. P. Morgan Securities Inc.,
BancAmerica Robertson Stephens,
Chase Securities Inc.
and
NationsBanc Montgomery Securities LLC,
Syndication Agents
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1
Definitions
Section 1.1. Definitions.............................................1
Section 1.2. Accounting Terms and Determinations....................15
Section 1.3. Types of Borrowings....................................16
ARTICLE 2
The Credits
Section 2.1. Commitments to Lend....................................16
Section 2.2. Notice of Committed Borrowing..........................16
Section 2.3. Money Market Borrowings................................17
Section 2.4. Notice to Banks; Funding of Loans......................21
Section 2.5. Notes..................................................22
Section 2.6. Maturity of Loans......................................23
Section 2.7. Interest Rates.........................................23
Section 2.8. Fees...................................................26
Section 2.9. Optional Termination or Reduction of Commitments.......27
Section 2.10. Scheduled Termination of Commitments...................27
Section 2.11. Optional Prepayments...................................27
Section 2.12. General Provisions as to Payments......................28
Section 2.13. Funding Losses.........................................29
Section 2.14. Computation of Interest and Fees.......................29
Section 2.15. Regulation D Compensation..............................29
Section 2.16. Letters of Credit......................................30
ARTICLE 3
Conditions
Section 3.1. Effectiveness..........................................33
Section 3.2. Borrowings and Issuances of Letters of Credit..........34
ARTICLE 4
Representations and Warranties
Section 4.1. Corporate Existence and Power..........................35
Section 4.2. Corporate and Governmental Authorization; No
Contravention..........................................35
Section 4.3. Binding Effect.........................................36
Section 4.4. Financial Information..................................36
Section 4.5. Litigation.............................................37
Section 4.6. Compliance with ERISA..................................37
Section 4.7. Environmental Matters..................................37
Section 4.8. Taxes..................................................38
Section 4.9. Subsidiaries...........................................38
Section 4.10. Not an Investment Company..............................38
Section 4.11. Full Disclosure........................................38
Section 4.12. MidCon Acquisition.....................................38
ARTICLE 5
Covenants
Section 5.1. Information............................................39
Section 5.2. Payment of Obligations.................................41
Section 5.3. Maintenance of Property; Insurance.....................41
Section 5.4. Conduct of Business and Maintenance of Existence.......42
Section 5.5. Compliance with Laws...................................42
Section 5.6. Inspection of Property, Books and Records..............42
Section 5.7. Debt...................................................43
Section 5.8. Minimum Net Worth......................................43
Section 5.9. Minimum Interest Coverage Ratio........................43
Section 5.10. Negative Pledge........................................44
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 5.11. Consolidations, Mergers and Sales of Assets............44
Section 5.12. Use of Proceeds........................................45
Section 5.13. Transactions with Affiliates...........................45
ARTICLE 6
Defaults
Section 6.1. Events of Default......................................45
Section 6.2. Notice of Default......................................48
Section 6.3. Cash Cover.............................................48
ARTICLE 7
The Agents
Section 7.1. Appointment and Authorization..........................49
Section 7.2. Administrative Agent and Affiliates....................49
Section 7.3. Action by Administrative Agent.........................49
Section 7.4. Consultation with Experts..............................49
Section 7.5. Liability of Administrative Agent......................49
Section 7.6. Indemnification........................................50
Section 7.7. Credit Decision........................................50
Section 7.8. Successor Administrative Agent.........................50
Section 7.9. Agents' Fees...........................................51
Section 7.10. Other Agents...........................................51
ARTICLE 8
Change in Circumstances
Section 8.1. Basis for Determining Interest Rate Inadequate
or Unfair..............................................51
Section 8.2. Illegality.............................................52
Section 8.3. Increased Cost and Reduced Return......................52
Section 8.4. Taxes..................................................54
Section 8.5. Base Rate Loans Substituted for Affected Fixed
Rate Loans.............................................56
Section 8.6. Substitution of Bank...................................56
ARTICLE 9
Miscellaneous
Section 9.1. Notices................................................57
Section 9.2. No Waivers.............................................57
Section 9.3. Expenses; Indemnification..............................57
Section 9.4. Sharing of Set-offs....................................58
Section 9.5. Amendments and Waivers.................................58
Section 9.6. Successors and Assigns.................................59
Section 9.7. Collateral.............................................60
Section 9.8. Governing Law; Submission to Jurisdiction..............60
Section 9.9. Counterparts; Integration..............................61
Section 9.10. WAIVER OF JURY TRIAL...................................61
Section 9.11. Existing Credit Agreement..............................61
</TABLE>
<PAGE> 4
PRICING SCHEDULE
EXHIBIT A - NOTE
EXHIBIT B - MONEY MARKET QUOTE REQUEST
EXHIBIT C - INVITATION FOR MONEY MARKET QUOTES
EXHIBIT D - MONEY MARKET QUOTE
EXHIBIT E-1 - OPINION OF SPECIAL COUNSEL FOR THE BORROWER
EXHIBIT E-2 - OPINION OF KANSAS COUNSEL FOR THE BORROWER
EXHIBIT E-3 - OPINION OF GENERAL COUNSEL OF THE BORROWER
EXHIBIT F - OPINION OF DAVIS POLK & WARDWELL, SPECIAL COUNSEL FOR THE
AGENTS
EXHIBIT G - ASSIGNMENT AND ASSUMPTION AGREEMENT
<PAGE> 5
FIVE-YEAR CREDIT AGREEMENT
AGREEMENT dated as of January 30, 1998 among K N ENERGY, INC.,
the BANKS listed on the signature pages hereof and MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Administrative Agent.
W I T N E S S E T H:
WHEREAS, the Borrower, desires to replace the Amended and
Restated Credit Agreement dated as of March 7, 1997 (the "Existing Credit
Agreement"), among the Borrower, certain banks and Morgan Guaranty Trust Company
of New York, as agent, by entering into this Agreement; and
WHEREAS, the Banks agree to do so.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
Definitions
Section 1.1. Definitions. The following terms, as used herein, have the
following meanings:
"Absolute Rate Auction" means a solicitation of Money Market
Quotes setting forth Money Market Absolute Rates pursuant to Section 2.3.
"Acquisition" means the purchase of MidCon Corp. by the Borrower
from Occidental Petroleum Corporation pursuant to the Stock Purchase Agreement.
"Adjusted CD Rate" has the meaning set forth in Section 2.7(b).
"Administrative Agent" means Morgan Guaranty Trust Company of New
York in its capacity as administrative agent for the Banks under this Agreement,
and its successors in such capacity.
"Administrative Questionnaire" means, with respect to each Bank,
an administrative questionnaire in the form prepared by the Administrative Agent
and submitted to the Administrative Agent (with a copy to the Borrower) duly
completed by such Bank.
"Affiliate" means (i) any Person that directly, or indirectly
through one or more intermediaries, controls the Borrower (a "Controlling
Person") or (ii) any Person (other than the Borrower or a Subsidiary) which is
controlled by or is under common control with a Controlling Person. As used
herein, the term "control" means possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
<PAGE> 6
"Agent" means each of the Administrative Agent and the
Syndication Agents, and "Agents" means any combination of them, as the context
may require.
"Applicable Lending Office" means, with respect to any Bank, (i)
in the case of its Domestic Loans, its Domestic Lending Office, (ii) in the case
of its Euro-Dollar Loans, its Euro-Dollar Lending Office and (iii) in the case
of its Money Market Loans, its Money Market Lending Office.
"Assessment Rate" has the meaning set forth in Section 2.7(b).
"Assignee" has the meaning set forth in Section 9.6(c).
"Bank" means each bank listed on the signature pages hereof, each
Assignee which becomes a Bank pursuant to Section 9.6(c), and their respective
successors.
"Base Rate" means, for any day, a rate per annum equal to the
higher of (i) the Prime Rate for such day or (ii) the sum of 1/2 of 1% plus the
Federal Funds Rate for such day.
"Base Rate Loan" means a Committed Loan to be made by a Bank as a
Base Rate Loan in accordance with the applicable Notice of Committed Borrowing
or pursuant to Article 8.
"Benefit Arrangement" means at any time an employee benefit plan
within the meaning of Section 3(3) of ERISA which is not a Plan or a
Multiemployer Plan and which is maintained or otherwise contributed to by any
member of the ERISA Group.
"Borrower" means K N Energy, Inc., a Kansas corporation, and its
successors.
"Borrower's 1996 Form 10-K" means the Borrower's annual report on
Form 10-K for 1996, as filed with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934.
"Borrower's Latest Form 10-Q" means the Borrower's quarterly
report on Form 10-Q for the quarter ended September 30, 1997, as filed with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934.
"Borrowing" has the meaning set forth in Section 1.3.
"CD Base Rate" has the meaning set forth in Section 2.7(b).
<PAGE> 7
"CD Loan" means a Committed Loan to be made by a Bank as a CD
Loan in accordance with the applicable Notice of Committed Borrowing.
"CD Margin" has the meaning set forth in Section 2.7(b).
"CD Reference Banks" means NationsBank, N.A., The Chase
Manhattan Bank and Morgan Guaranty Trust Company of New York.
"Commitment" means, with respect to each Bank, the amount set
forth opposite the name of such Bank on the signature pages of this Agreement,
as such amount may be reduced from time to time pursuant to Sections 2.9 and
2.10.
"Committed Loan" means a loan made by a Bank pursuant to Section
2.1.
"Consolidated Assets" means the total amount of assets appearing
on the consolidated balance sheet of the Borrower and its Consolidated
Subsidiaries, prepared in accordance with generally accepted accounting
principles as of the date of the most recent regularly prepared consolidated
financial statements prior to the taking of any action for the purposes of which
the determination is being made.
"Consolidated Debt" of any Person means at any date the sum
(without duplication) of (i) the Debt of such Person and its Consolidated
Subsidiaries, determined on a consolidated basis as of such date plus (ii) the
excess (if any) of the Trust Preferred Securities of such Person over 10% of the
Consolidated Total Capitalization of such Person at such date minus (iii) the
portion of the Substitute Note collateralized as contemplated by Section 5.10(b)
hereof.
"Consolidated EBITDA" means, for any period, Consolidated Net
Income for such period plus, to the extent deducted in determining Consolidated
Net Income for such period, the aggregate amount of (i) Consolidated Interest
Expense, (ii) income tax expense and (iii) depreciation and amortization
expense.
"Consolidated Interest Expense" means, for any period, the
interest expense of the Borrower and its Consolidated Subsidiaries, determined
on a consolidated basis for such period.
"Consolidated Subsidiary" of any Person means at any date any
Subsidiary or other entity the accounts of which would be consolidated with
those of such Person in its consolidated financial statements if such statements
were prepared as of such date.
<PAGE> 8
"Consolidated Net Income" means, for any period, the net income
of the Borrower and its Consolidated Subsidiaries before extraordinary items,
determined on a consolidated basis for such period.
"Consolidated Net Worth" of any Person means at any date the sum
(without duplication) of (i) the consolidated stockholders' equity of such
Person and its Consolidated Subsidiaries, determined as of such date plus (ii)
the Mandatorily Convertible Preferred Stock of such Person plus (iii) the Trust
Preferred Securities of such Person; provided that the amount of Trust Preferred
Securities added pursuant to this clause (iii) shall not exceed 10% of
Consolidated Total Capitalization of such Person at such date.
"Consolidated Total Capitalization" of any Person means at any
date the sum of Consolidated Debt of such Person and Consolidated Net Worth of
such Person, each determined as of such date.
"Credit Event" means a Borrowing or an issuance of a Letter of
Credit.
"Debt" of any Person means at any date, without duplication, (i)
all obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable or deferred employee and director
compensation arising in the ordinary course of business, (iv) all obligations of
such Person as lessee which are capitalized in accordance with generally
accepted accounting principles, (v) all non-contingent obligations (and, for
purposes of Section 5.11 and the definitions of Material Debt and Material
Financial Obligations, all contingent obligations) of such Person to reimburse
any bank or other Person in respect of amounts paid under a letter of credit or
similar instrument, (vi) all Debt secured by a Lien on any asset of such Person,
whether or not such Debt is otherwise an obligation of such Person, and (vii)
all Debt of others Guaranteed by such Person.
"Default" means any condition or event which constitutes an Event
of Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Derivatives Obligations" of any Person means all obligations of
such Person in respect of any rate swap transaction, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap,
equity or equity index option, bond option, interest rate option, foreign
exchange transaction, cap transaction, floor transaction, collar transaction,
currency swap transaction, cross-currency rate swap transaction, currency option
or any other similar transaction (including any option with respect to any of
the foregoing transactions) or any combination of the foregoing transactions.
<PAGE> 9
"Domestic Business Day" means any day except a Saturday, Sunday
or other day on which commercial banks in New York City are authorized by law to
close.
"Domestic Lending Office" means, as to each Bank, its office
located at its address set forth in its Administrative Questionnaire (or
identified in its Administrative Questionnaire as its Domestic Lending Office)
or such other office as such Bank may hereafter designate as its Domestic
Lending Office by notice to the Borrower and the Administrative Agent; provided
that any Bank may so designate separate Domestic Lending Offices for its Base
Rate Loans, on the one hand, and its CD Loans, on the other hand, in which case
all references herein to the Domestic Lending Office of such Bank shall be
deemed to refer to either or both of such offices, as the context may require.
"Domestic Loans" means CD Loans or Base Rate Loans or both.
"Domestic Reserve Percentage" has the meaning set forth in
Section 2.7(b).
"Effective Date" means the date this Agreement becomes effective
in accordance with Section 3.1.
"Environmental Laws" means any and all federal, state, local and
foreign statutes, laws, judicial decisions, regulations, ordinances, rules,
judgments, orders, decrees, plans, injunctions, permits, concessions, grants,
franchises, licenses, agreements and other governmental restrictions relating to
the environment, the effect of the environment on human health or to emissions,
discharges or releases of pollutants, contaminants, Hazardous Substances or
wastes into the environment including, without limitation, ambient air, surface
water, ground water, or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, Hazardous Substances or wastes or the
clean-up or other remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, or any successor statute.
"ERISA Group" means the Borrower, any Subsidiary and all members
of a controlled group of corporations and all trades or businesses (whether or
not incorporated) under common control which, together with the Borrower or any
Subsidiary, are treated as a single employer under Section 414 of the Internal
Revenue Code.
"Euro-Dollar Business Day" means any Domestic Business Day on
which commercial banks are open for international business (including dealings
in dollar deposits) in London.
<PAGE> 10
"Euro-Dollar Lending Office" means, as to each Bank, its office,
branch or affiliate located at its address set forth in its Administrative
Questionnaire (or identified in its Administrative Questionnaire as its
Euro-Dollar Lending Office) or such other office, branch or affiliate of such
Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice
to the Borrower and the Administrative Agent.
"Euro-Dollar Loan" means a Committed Loan to be made by a Bank as
a Euro-Dollar Loan in accordance with the applicable Notice of Committed
Borrowing.
"Euro-Dollar Margin" has the meaning set forth in Section
2.7(c).
"Euro-Dollar Reference Banks" means the principal London offices
(for determinations of a London Interbank Offered Rate) or domestic offices (for
determinations of an Interbank Offered Rate) of NationsBank, N.A., The Chase
Manhattan Bank and Morgan Guaranty Trust Company of New York.
"Euro-Dollar Reserve Percentage" means for any day that
percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for determining the maximum reserve requirement for a member bank of
the Federal Reserve System in New York City with deposits exceeding five billion
dollars in respect of "Eurocurrency liabilities" (or in respect of any other
category of liabilities which includes deposits by reference to which the
interest rate on Euro-Dollar Loans is determined or any category of extensions
of credit or other assets which includes loans by a non-United States office of
any Bank to United States residents).
"Event of Default" has the meaning set forth in Section 6.1.
"Federal Funds Rate" means, for any day, the rate per annum
(rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Domestic
Business Day next succeeding such day, provided that (i) if such day is not a
Domestic Business Day, the Federal Funds Rate for such day shall be such rate on
such transactions on the next preceding Domestic Business Day as so published on
the next succeeding Domestic Business Day, and (ii) if no such rate is so
published on such next succeeding Domestic Business Day, the Federal Funds Rate
for such day shall be the average rate quoted to Morgan Guaranty Trust Company
of New York on such day on such transactions as determined by the Administrative
Agent.
"Fixed Rate Loans" means CD Loans or Euro-Dollar Loans or Money
Market Loans (excluding Money Market LIBOR Loans bearing interest at the Base
Rate pursuant to Section 8.1(a)) or any combination of the foregoing.
<PAGE> 11
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or other obligation (whether arising by virtue of
partnership arrangements, by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in any
other manner the obligee of such Debt or other obligation of the payment thereof
or to protect such obligee against loss in respect thereof (in whole or in
part), provided that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Hazardous Substances" means any toxic, radioactive, caustic or
otherwise hazardous substance, including petroleum, its derivatives, by-products
and other hydrocarbons, or any substance having any constituent elements
displaying any of the foregoing characteristics.
"Indemnitee" has the meaning set forth in Section 9.3(b).
"Interest Coverage Ratio" means, at any date, the ratio of
Consolidated EBITDA to Consolidated Interest Expense for the period of four
consecutive fiscal quarters most recently ended on or before such date.
"Interest Period" means: (1) with respect to each Euro-Dollar
Borrowing, the period commencing on the date of such Borrowing and ending one,
two, three or six months thereafter, as the Borrower may elect in the applicable
Notice of Borrowing; except that with respect to any Borrowing occurring prior
to the Syndication Date, (i) any such Borrowing occurring prior to February 23,
1998 shall have an Interest Period ending on February 23, 1998 and (ii) any such
Borrowing on or after February 23, 1998 shall have an Interest Period ending one
week thereafter; provided that:
(a) any Interest Period which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another
calendar month, in which case such Interest Period shall end on the next
preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar
Business Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall, subject to clause (c) below, end on the last Euro-Dollar Business Day of
a calendar month; and
(c) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date;
<PAGE> 12
(2) with respect to each CD Borrowing, the period commencing on
the date of such Borrowing and ending 30, 60, 90 or 180 days thereafter, as the
Borrower may elect in the applicable Notice of Borrowing; provided that:
(a) any Interest Period (other than an Interest Period
determined pursuant to clause (b) below) which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day; and
(b) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date;
(3) with respect to each Base Rate Borrowing, the period
commencing on the date of such Borrowing and ending 30 days thereafter; provided
that:
(a) any Interest Period (other than an Interest Period
determined pursuant to clause (b) below) which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the next
succeeding Euro-Dollar Business Day; and
(b) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date;
(4) with respect to each Money Market LIBOR Borrowing, the period
commencing on the date of such Borrowing and ending such whole number of months
thereafter (but not more than nine months) as the Borrower may elect in
accordance with Section 2.3; provided that:
(a) any Interest Period which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another
calendar month, in which case such Interest Period shall end on the next
preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar
Business Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall, subject to clause (c) below, end on the last Euro-Dollar Business Day of
a calendar month; and
(c) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date;
(5) with respect to each Money Market Absolute Rate Borrowing,
the period commencing on the date of such Borrowing and ending such number of
days thereafter (but not less than seven days nor more than 360 days) as the
Borrower may elect in accordance with Section 2.3; provided that:
<PAGE> 13
(a) any Interest Period which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day; and
(b) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.
"Internal Revenue Code" means the Internal Revenue Code of 1986,
as amended, or any successor statute.
"Investment" means any investment in any Person, whether by means
of share purchase, capital contribution, loan, time deposit or otherwise.
"Issuing Bank" means Morgan Guaranty Trust Company of New York
and any other Bank that may agree with the Borrower in writing to issue letters
of credit hereunder, in each case as issuer of a Letter of Credit hereunder. The
Borrower shall promptly notify the Administrative Agent of any additional
Issuing Banks.
"LC Fee Rate" means a rate per annum equal to the Euro-Dollar
Margin.
"Letter of Credit" means a letter of credit issued or to be
issued hereunder by an Issuing Bank in accordance with Section 2.16.
"Letter of Credit Commitment" means the lesser of (x)
$100,000,000 and (y) the aggregate amount of the Commitments.
"Letter of Credit Liabilities" means, for any Bank and at any
time, such Bank's ratable participation in the sum of (x) the amounts then owing
by the Borrower in respect of amounts drawn under Letters of Credit and (y) the
aggregate amount then available for drawing under all Letters of Credit.
"LIBOR Auction" means a solicitation of Money Market Quotes
setting forth Money Market Margins based on the London Interbank Offered Rate
pursuant to Section 2.3.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind, or any other type
of preferential arrangement that has the practical effect of creating a security
interest, in respect of such asset. For the purposes of this Agreement, the
Borrower or any Subsidiary shall be deemed to own subject to a Lien any asset
which it has acquired or holds subject to the interest of a vendor or lessor
under any conditional sale agreement, capital lease or other title retention
agreement relating to such asset.
"Loan" means a Domestic Loan or a Euro-Dollar Loan or a Money
Market Loan and "Loans" means Domestic Loans or Euro-Dollar Loans or Money
Market Loans or any combination of the foregoing.
<PAGE> 14
"London Interbank Offered Rate" has the meaning set forth in
Section 2.7(c).
"Mandatorily Convertible Preferred Stock", means, with respect to
the Borrower, preferred securities of a Subsidiary which are (i) mandatorily
convertible into common equity securities of the Borrower within approximately
three years of their date of issuance, (ii) issued in conjunction with, and
pledged to secure, an obligation to purchase common equity securities of the
Borrower within approximately three years for an equal amount or (iii) otherwise
structured in a manner satisfactory to the Administrative Agent so as to ensure
the issuance of incremental common equity securities of the Borrower in a
substantially equal amount within approximately three years.
"Material Debt" means Debt (other than (i) the Notes and (ii)
Debt owing to the Borrower or a Subsidiary) of the Borrower and/or one or more
of its Subsidiaries, arising in one or more related or unrelated transactions,
in an aggregate principal or face amount exceeding $75,000,000.
"Material Financial Obligations" means a principal or face amount
of Debt (other than (i) the Notes and (ii) Debt owing to the Borrower or a
Subsidiary) and/or payment obligations in respect of Derivatives Obligations of
the Borrower and/or one or more of its Subsidiaries, arising in one or more
related or unrelated transactions, exceeding in the aggregate $125,000,000.
"Material Subsidiary" means any Subsidiary the consolidated
assets of which constitute 10% or more of Consolidated Assets.
"Money Market Absolute Rate" has the meaning set forth in
Section 2.3(d).
"Money Market Absolute Rate Loan" means a loan to be made by a
Bank pursuant to an Absolute Rate Auction.
"Money Market Lending Office" means, as to each Bank, its
Domestic Lending Office or such other office, branch or affiliate of such Bank
as it may hereafter designate as its Money Market Lending Office by notice to
the Borrower and the Administrative Agent; provided that any Bank may from time
to time by notice to the Borrower and the Administrative Agent designate
separate Money Market Lending Offices for its Money Market LIBOR Loans, on the
one hand, and its Money Market Absolute Rate Loans, on the other hand, in which
case all references herein to the Money Market Lending Office of such Bank shall
be deemed to refer to either or both of such offices, as the context may
require.
"Money Market LIBOR Loan" means a loan to be made by a Bank
pursuant to a LIBOR Auction (including such a loan bearing interest at the Base
Rate pursuant to Section 8.1(a)).
"Money Market Loan" means a Money Market LIBOR Loan or a Money
Market Absolute Rate Loan.
<PAGE> 15
"Money Market Margin" has the meaning set forth in Section
2.3(d).
"Money Market Quote" means an offer by a Bank to make a Money
Market Loan in accordance with Section 2.3.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means at any time an employee pension
benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any
member of the ERISA Group is then making or accruing an obligation to make
contributions or has within the preceding five plan years made contributions,
including for these purposes any Person which ceased to be a member of the ERISA
Group during such five year period.
"Notes" means promissory notes of the Borrower, substantially in
the form of Exhibit A hereto, evidencing the obligation of the Borrower to repay
the Loans, and "Note" means any one of such promissory notes issued hereunder.
"Notice of Borrowing" means a Notice of Committed Borrowing (as
defined in Section 2.2) or a Notice of Money Market Borrowing (as defined in
Section 2.3(f)).
"Notice of Issuance" has the meaning set forth in Section
2.16(b).
"Parent" means, with respect to any Bank, any Person
controlling such Bank.
"Participant" has the meaning set forth in Section 9.6(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
"Plan" means at any time an employee pension benefit plan (other
than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to
the minimum funding standards under Section 412 of the Internal Revenue Code and
either (i) is maintained, or contributed to, by any member of the ERISA Group
for employees of any member of the ERISA Group or (ii) has at any time within
the preceding five years been maintained, or contributed to, by any Person which
was at such time a member of the ERISA Group for employees of any Person which
was at such time a member of the ERISA Group.
<PAGE> 16
"Purchase Agreement" means the Purchase and Sale Agreement dated
as of January 28, 1994, among K N Gas Supply Services, Inc., the Borrower, Bank
of America National Trust and Savings Association, as the initial Purchaser (as
defined therein), and Bank of America National Trust and Savings Association, as
agent for the Purchasers.
"Pricing Schedule" means the Schedule attached hereto
identified as such.
"Prime Rate" means the rate of interest publicly announced by
Morgan Guaranty Trust Company of New York in New York City from time to time as
its Prime Rate.
"Reference Banks" means the CD Reference Banks or the Euro-Dollar
Reference Banks, as the context may require, and "Reference Bank" means any one
of such Reference Banks.
"Refunding Borrowing" means a Committed Borrowing which, after
application of the proceeds thereof, results in no net increase in the
outstanding principal amount of Committed Loans made by any Bank.
"Regulation U" means Regulation U of the Board of Governors of
the Federal Reserve System, as in effect from time to time.
"Reimbursement Agreement" means the Reimbursement Agreement dated
as of January 30, 1998, among the Borrower, the banks parties thereto and Morgan
Guaranty Trust Company as the administrative agent, as amended and in effect
from time to time.
"Required Banks" means at any time Banks having at least 66 2/3 %
of the aggregate amount of the Commitments or, if the Commitments shall have
been terminated, holding Notes evidencing at least 66 2/3% of the aggregate
unpaid principal amount of the Loans and the aggregate amount of Letter of
Credit Liabilities.
"Revolving Credit Period" means the period from and including the
Effective Date to but not including the Termination Date.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc.
"Stock Purchase Agreement" means the Stock Purchase Agreement
dated as of December 18, 1997, between Occidental Petroleum Corporation, a
Delaware corporation, and the Borrower as amended and in effect from time to
time; provided that any such amendment from the form thereof heretofore
furnished to each of the Banks which could reasonably be expected to materially
adversely affect the business, consolidated financial position or consolidated
results of operations of the Borrower and its Consolidated Subsidiaries,
considered as a whole, shall be effective for purposes of references thereto in
this Agreement only if such amendment shall have received the written consent of
the Required Banks (which shall not be unreasonably withheld).
<PAGE> 17
"Subsidiary" means, as to any Person, any corporation or other
entity of which securities or other ownership interests having ordinary voting
power to elect a majority of the board of directors or other persons performing
similar functions are at the time directly or indirectly owned by such Person;
unless otherwise specified, "Subsidiary" means a Subsidiary of the Borrower.
"Substitute Note" means the Substitute Note (as defined in the
Stock Purchase Agreement) issued by the Borrower to Occidental Petroleum
Corporation in connection with the Acquisition.
"Syndication Agent" means either J.P. Morgan Securities Inc.,
BancAmerica Robertson Stephens, Chase Securities Inc. or NationsBanc
Montgomery Securities LLC in its capacity as a syndication agent in respect of
this Agreement, and "Syndication Agents" means all of them.
"Syndication Date" means the earlier of (i) March 31, 1998 and
(ii) the first date subsequent to the date hereof on which the Commitments of
the Banks listed on the signature pages hereof shall have been reduced to an
amount less than 75% of the aggregate amount of the Commitments by reason of the
completion of primary syndication.
"Termination Date" means January 30, 2003, or, if such day is not
a Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day.
"Trust Preferred Securities" means, with respect to the Borrower,
mandatorily redeemable capital trust securities of trusts which are Subsidiaries
and the subordinated debentures of the Borrower in which the proceeds of the
issuance of such capital trust securities are invested, including, without
limitation, (i) the 8.56% Series B Capital Trust Pass-through Securities of K N
Capital Trust I and (ii) the capital trust securities of K N Capital Trust II
anticipated to be issued after the Effective Date.
"Unfunded Liabilities" means, with respect to any Plan at any
time, the amount (if any) by which (i) the value of all benefit liabilities
under such Plan, determined on a plan termination basis using the assumptions
prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the
fair market value of all Plan assets allocable to such liabilities under Title
IV of ERISA (excluding any accrued but unpaid contributions), all determined as
of the then most recent valuation date for such Plan, but only to the extent
that such excess represents a potential liability of a member of the ERISA Group
to the PBGC or any other Person under Title IV of ERISA.
"United States" means the United States of America, including the
States and the District of Columbia, but excluding its territories and
possessions.
"Wholly-Owned Consolidated Subsidiary" of any Person means any
Consolidated Subsidiary all of the shares of capital stock or other ownership
interests of which (except directors' qualifying shares) are at the time
directly or indirectly owned by such Person.
<PAGE> 18
Section 1.2. Accounting Terms and Determinations. Unless
otherwise specified herein, all accounting terms used herein shall be
interpreted, all accounting determinations hereunder shall be made, and all
financial statements required to be delivered hereunder shall be prepared in
accordance with generally accepted accounting principles as in effect from time
to time, applied on a basis consistent (except for changes concurred in by the
Borrower's independent public accountants) with the most recent audited
consolidated financial statements of the Borrower and its Consolidated
Subsidiaries delivered to the Banks; provided that, if the Borrower notifies the
Administrative Agent that the Borrower wishes to amend any covenant in Article 5
to eliminate the effect of any change in generally accepted accounting
principles on the operation of such covenant (or if the Administrative Agent
notifies the Borrower that the Required Banks wish to amend Article 5 for such
purpose), then the Borrower's compliance with such covenant shall be determined
on the basis of generally accepted accounting principles in effect immediately
before the relevant change in generally accepted accounting principles became
effective, until either such notice is withdrawn or such covenant is amended in
a manner satisfactory to the Borrower and the Required Banks.
Section 1.3. Types of Borrowings. The term "Borrowing" denotes
the aggregation of Loans of one or more Banks to be made to the Borrower
pursuant to Article 2 on a single date and for a single Interest Period.
Borrowings are classified for purposes of this Agreement either by reference to
the pricing of Loans comprising such Borrowing (e.g., a "Euro-Dollar Borrowing"
is a Borrowing comprised of Euro-Dollar Loans) or by reference to the provisions
of Article 2 under which participation therein is determined (i.e., a "Committed
Borrowing" is a Borrowing under Section 2.1 in which all Banks participate in
proportion to their Commitments, while a "Money Market Borrowing" is a Borrowing
under Section 2.3 in which the Bank participants are determined on the basis of
their bids in accordance therewith).
ARTICLE 2
The Credits
Section 2.1. Commitments to Lend. During the Revolving Credit
Period each Bank severally agrees, on the terms and conditions set forth in this
Agreement, to make loans to the Borrower pursuant to this Section from time to
time in amounts such that the sum of the aggregate principal amount of Committed
Loans by such Bank at any one time outstanding plus the Letter of Credit
Liabilities of such Bank at such time shall not exceed the amount of its
Commitment. Each Borrowing under this Section shall be in an aggregate principal
amount of $5,000,000 or any larger multiple of $1,000,000 (except that any such
Borrowing may be in the aggregate amount available in accordance with Section
3.2(e)) and shall be made from the several Banks ratably in proportion to their
respective Commitments. Within the foregoing limits, the Borrower may borrow
under this Section, repay, or to the extent permitted by Section 2.11, prepay
Loans and reborrow at any time during the Revolving Credit Period under this
Section.
<PAGE> 19
Section 2.2. Notice of Committed Borrowing. The Borrower shall
give the Administrative Agent notice (a "Notice of Committed Borrowing") not
later than 10:30 A.M. (New York City time) on (x) the date of each Base Rate
Borrowing, (y) the second Domestic Business Day before each CD Borrowing and (z)
the third Euro-Dollar Business Day before each Euro-Dollar Borrowing, except if
the Euro-Dollar Borrowing is at the Interbank Offered Rate, then upon the date
of each such borrowing, specifying:
(a) the date of such Borrowing, which shall be a Domestic Business
Day in the case of a Domestic Borrowing or a Euro-Dollar Business Day in the
case of a Euro-Dollar Borrowing,
(b) the aggregate amount of such Borrowing,
(c) whether the Loans comprising such Borrowing are to be CD Loans,
Base Rate Loans or Euro-Dollar Loans, and
(d) in the case of a Fixed Rate Borrowing, the duration of the
Interest Period applicable thereto, subject to the provisions of the definition
of Interest Period.
Section 2.3. Money Market Borrowings. (a) The Money Market
Option. In addition to Committed Borrowings pursuant to Section 2.1, the
Borrower may, as set forth in this Section, request the Banks during the
Revolving Credit Period to make offers to make Money Market Loans to the
Borrower. The Banks may, but shall have no obligation to, make such offers and
the Borrower may, but shall have no obligation to, accept any such offers in the
manner set forth in this Section.
(b) Money Market Quote Request. When the Borrower wishes to request
offers to make Money Market Loans under this Section, it shall transmit to the
Administrative Agent by telex or facsimile transmission a Money Market Quote
Request substantially in the form of Exhibit B hereto so as to be received not
later than 10:30 A.M. (New York City time) on (x) the fifth Euro-Dollar Business
Day prior to the date of Borrowing proposed therein, in the case of a LIBOR
Auction or (y) the Domestic Business Day next preceding the date of Borrowing
proposed therein, in the case of an Absolute Rate Auction (or, in either case,
such other time or date as the Borrower and the Administrative Agent shall have
mutually agreed and shall have notified to the Banks not later than the date of
the Money Market Quote Request for the first LIBOR Auction or Absolute Rate
Auction for which such change is to be effective) specifying:
(i) the proposed date of Borrowing, which shall be a
Euro-Dollar Business Day in the case of a LIBOR Auction or a Domestic
Business Day in the case of an Absolute Rate Auction,
(ii) the aggregate amount of such Borrowing, which
shall be $5,000,000 or a larger multiple of $1,000,000,
<PAGE> 20
(iii) the duration of the Interest Period applicable
thereto, subject to the provisions of the definition of Interest
Period, and
(iv) whether the Money Market Quotes requested are to
set forth a Money Market Margin or a Money Market Absolute Rate.
The Borrower may request offers to make Money Market Loans for
more than one Interest Period in a single Money Market Quote Request. No Money
Market Quote Request shall be given within five Euro-Dollar Business Days (or
such other number of days as the Borrower and the Administrative Agent may
agree) of any other Money Market Quote Request.
(c) Invitation for Money Market Quotes. Promptly upon receipt of a
Money Market Quote Request, the Administrative Agent shall send to the Banks by
telex or facsimile transmission an Invitation for Money Market Quotes
substantially in the form of Exhibit C hereto, which shall constitute an
invitation by the Borrower to each Bank to submit Money Market Quotes offering
to make the Money Market Loans to which such Money Market Quote Request relates
in accordance with this Section.
(d) Submission and Contents of Money Market Quotes. (i) Each Bank may
submit a Money Market Quote containing an offer or offers to make Money Market
Loans in response to any Invitation for Money Market Quotes. Each Money Market
Quote must comply with the requirements of this subsection (d) and must be
submitted to the Administrative Agent by telex or facsimile transmission at its
offices specified in or pursuant to Section 9.1 not later than (x) 2:00 P.M.
(New York City time) on the fourth Euro-Dollar Business Day prior to the
proposed date of Borrowing, in the case of a LIBOR Auction or (y) 9:30 A.M. (New
York City time) on the proposed date of Borrowing, in the case of an Absolute
Rate Auction (or, in either case, such other time or date as the Borrower and
the Administrative Agent shall have mutually agreed and shall have notified to
the Banks not later than the date of the Money Market Quote Request for the
first LIBOR Auction or Absolute Rate Auction for which such change is to be
effective); provided that Money Market Quotes submitted by the Administrative
Agent (or any affiliate of the Administrative Agent) in the capacity of a Bank
may be submitted, and may only be submitted, if the Administrative Agent or such
affiliate notifies the Borrower of the terms of the offer or offers contained
therein not later than (x) one hour prior to the deadline for the other Banks,
in the case of a LIBOR Auction or (y) 15 minutes prior to the deadline for the
other Banks, in the case of an Absolute Rate Auction. Subject to Articles 3 and
6, any Money Market Quote so made shall be irrevocable except with the written
consent of the Administrative Agent given on the instructions of the Borrower.
<PAGE> 21
(ii) Each Money Market Quote shall be in
substantially the form of Exhibit D hereto and shall in any case
specify:
(A) the proposed date of Borrowing,
(B) the principal amount of the Money Market
Loan for which each such offer is being made, which
principal amount (w) may be greater than or less than
the Commitment of the quoting Bank, (x) must be
$5,000,000 or a larger multiple of $1,000,000, (y)
may not exceed the principal amount of Money Market
Loans for which offers were requested and (z) may be
subject to an aggregate limitation as to the
principal amount of Money Market Loans for which
offers being made by such quoting Bank may be
accepted,
(C) in the case of a LIBOR Auction, the margin
above or below the applicable London Interbank
Offered Rate (the "Money Market Margin") offered for
each such Money Market Loan, expressed as a
percentage (specified to the nearest 1/10,000th of
1%) to be added to or subtracted from such base rate,
(D) in the case of an Absolute Rate Auction,
the rate of interest per annum (specified to the
nearest 1/10,000th of 1%) (the "Money Market Absolute
Rate") offered for each such Money Market Loan, and
(E) the identity of the quoting Bank.
A Money Market Quote may set forth up to five separate offers by
the quoting Bank with respect to each Interest Period specified in the related
Invitation for Money Market Quotes.
(iii) Any Money Market Quote shall be disregarded if
it:
(A) is not substantially in conformity with
Exhibit D hereto or does not specify all of the
information required by subsection (d)(ii);
(B) contains qualifying, conditional or
similar language;
<PAGE> 22
(C) proposes terms other than or in addition
to those set forth in the applicable Invitation for
Money Market Quotes; or
(D) arrives after the time set forth in
subsection (d)(i).
(e) Notice to Borrower. The Administrative Agent shall promptly
notify the Borrower of the terms (x) of any Money Market Quote submitted by a
Bank that is in accordance with subsection (d) and (y) of any Money Market Quote
that amends, modifies or is otherwise inconsistent with a previous Money Market
Quote submitted by such Bank with respect to the same Money Market Quote
Request. Any such subsequent Money Market Quote shall be disregarded by the
Administrative Agent unless such subsequent Money Market Quote is submitted
solely to correct a manifest error in such former Money Market Quote. The
Administrative Agent's notice to the Borrower shall specify (A) the aggregate
principal amount of Money Market Loans for which offers have been received for
each Interest Period specified in the related Money Market Quote Request, (B)
the respective principal amounts and Money Market Margins or Money Market
Absolute Rates, as the case may be, so offered and (C) if applicable,
limitations on the aggregate principal amount of Money Market Loans for which
offers in any single Money Market Quote may be accepted.
(f) Acceptance and Notice by Borrower. Not later than 10:30 A.M.
(New York City time) on (x) the third Euro-Dollar Business Day prior to the
proposed date of Borrowing, in the case of a LIBOR Auction or (y) the proposed
date of Borrowing, in the case of an Absolute Rate Auction (or, in either case,
such other time or date as the Borrower and the Administrative Agent shall have
mutually agreed and shall have notified to the Banks not later than the date of
the Money Market Quote Request for the first LIBOR Auction or Absolute Rate
Auction for which such change is to be effective), the Borrower shall notify the
Administrative Agent of its acceptance or non-acceptance of the offers so
notified to it pursuant to subsection (e). In the case of acceptance, such
notice (a "Notice of Money Market Borrowing") shall specify the aggregate
principal amount of offers for each Interest Period that are accepted. The
Borrower may accept any Money Market Quote in whole or in part; provided that:
(i) the aggregate principal amount of each Money
Market Borrowing may not exceed the applicable amount set forth in
the related Money Market Quote Request,
(ii) the principal amount of each Money Market
Borrowing must be $5,000,000 or a larger multiple of $1,000,000,
(iii) acceptance of offers may only be made on the
basis of ascending Money Market Margins or Money Market Absolute
Rates, as the case may be, and
<PAGE> 23
(iv) the Borrower may not accept any offer that is
described in subsection (d)(iii) or that otherwise fails to comply
with the requirements of this Agreement.
(g) Allocation by Administrative Agent. If offers are made by two or
more Banks with the same Money Market Margins or Money Market Absolute Rates, as
the case may be, for a greater aggregate principal amount than the amount in
respect of which such offers are accepted for the related Interest Period, the
principal amount of Money Market Loans in respect of which such offers are
accepted shall be allocated by the Administrative Agent among such Banks as
nearly as possible (in multiples of $1,000,000, as the Administrative Agent may
deem appropriate) in proportion to the aggregate principal amounts of such
offers. Determinations by the Administrative Agent of the amounts of Money
Market Loans shall be conclusive in the absence of manifest error.
Section 2.4. Notice to Banks; Funding of Loans. (a) Upon receipt
of a Notice of Borrowing, the Administrative Agent shall promptly notify each
Bank of the contents thereof and of such Bank's share (if any) of such Borrowing
and such Notice of Borrowing shall not thereafter be revocable by the Borrower.
(b) Not later than 12:00 Noon (New York City time) on the date of
each Borrowing, each Bank participating therein shall (except as provided in
subsection (c) of this Section) make available its share of such Borrowing, in
Federal or other funds immediately available in New York City, to the
Administrative Agent at its address referred to in Section 9.1. Unless the
Administrative Agent determines that any applicable condition specified in
Article 3 has not been satisfied, the Administrative Agent will make the funds
so received from the Banks available to the Borrower at the Administrative
Agent's aforesaid address.
(c) If any Bank makes a new Loan hereunder on a day on which the
Borrower is to repay all or any part of an outstanding Loan from such Bank, such
Bank shall apply the proceeds of its new Loan to make such repayment and only an
amount equal to the difference (if any) between the amount being borrowed and
the amount being repaid shall be made available by such Bank to the
Administrative Agent as provided in subsection (b) of this Section, or remitted
by the Borrower to the Administrative Agent as provided in Section 2.12, as the
case may be.
(d) Unless the Administrative Agent shall have received notice from a
Bank prior to the date of any Borrowing that such Bank will not make available
to the Administrative Agent such Bank's share of such Borrowing, the
Administrative Agent may assume that such Bank has made such share available to
the Administrative Agent on the date of such Borrowing in accordance with
subsections (b) and (c) of this Section 2.4 and the Administrative Agent may, in
reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent that such Bank shall not have so made
such share available to the Administrative Agent, such Bank and the Borrower
severally agree to repay to the Administrative Agent forthwith on demand such
corresponding amount together with interest thereon, for each day from the date
such amount Administrative Agent, at (i) in the case of the
<PAGE> 24
Borrower, a rate per annum equal to the higher of the Federal Funds Rate and the
interest rate applicable thereto pursuant to Section 2.7 and (ii) in the case of
such Bank, the Federal Funds Rate. If such Bank shall repay to the
Administrative Agent such corresponding amount, such amount so repaid shall
constitute such Bank's Loan included in such Borrowing for purposes of this
Agreement.
Section 2.5. Notes. (a) The Loans of each Bank shall be evidenced
by a single Note payable to the order of such Bank for the account of its
Applicable Lending Office in an amount equal to the aggregate unpaid principal
amount of such Bank's Loans.
(b) Each Bank may, by notice to the Borrower and the Administrative
Agent, request that its Loans of a particular type be evidenced by a separate
Note in an amount equal to the aggregate unpaid principal amount of such Loans.
Each such Note shall be in substantially the form of Exhibit A hereto with
appropriate modifications to reflect the fact that it evidences solely Loans of
the relevant type. Each reference in this Agreement to the "Note" of such Bank
shall be deemed to refer to and include any or all of such Notes, as the context
may require.
(c) Upon receipt of each Bank's Note pursuant to Section 3.1(b), the
Administrative Agent shall forward such Note to such Bank. Each Bank shall
record the date, amount, type and maturity of each Loan made by it and the date
and amount of each payment of principal made by the Borrower with respect
thereto, and may, if such Bank so elects in connection with any transfer or
enforcement of its Note, endorse on the schedule forming a part thereof
appropriate notations to evidence the foregoing information with respect to each
such Loan then outstanding; provided that the failure of any Bank to make any
such recordation or endorsement shall not affect the obligations of the Borrower
hereunder or under the Notes. Each Bank is hereby irrevocably authorized by the
Borrower so to endorse its Note and to attach to and make a part of its Note a
continuation of any such schedule as and when required.
Section 2.6. Maturity of Loans. Each Loan included in any
Borrowing shall mature, and the principal amount thereof shall be due and
payable, on the last day of the Interest Period applicable to such Borrowing.
Section 2.7. Interest Rates. (a) Each Base Rate Loan shall bear
interest on the outstanding principal amount thereof, for each day from the date
such Loan is made until it becomes due, at a rate per annum equal to the Base
Rate for such day. Such interest shall be payable for each Interest Period on
the last day thereof. Any overdue principal of or interest on any Base Rate Loan
shall bear interest, payable on demand, for each day until paid at a rate per
annum equal to the sum of 2% plus the rate otherwise applicable to Base Rate
Loans for such day.
(b) Each CD Loan shall bear interest on the outstanding principal
amount thereof, for each day during the Interest Period applicable thereto, at a
rate per annum equal to the sum of the CD Margin for such day plus the Adjusted
CD Rate applicable to such Interest Period; provided that if any CD Loan shall,
as a result of clause (2)(b) of the definition of Interest Period,
<PAGE> 25
have an Interest Period of less than 30 days, such CD Loan shall bear interest
during such Interest Period at the rate applicable to Base Rate Loans during
such period. Such interest shall be payable for each Interest Period on the last
day thereof and, if such Interest Period is longer than 90 days, at intervals of
90 days after the first day thereof. Any overdue principal of or interest on any
CD Loan shall bear interest, payable on demand, for each day until paid at a
rate per annum equal to the sum of 2% plus the higher of (i) the sum of the CD
Margin for such day plus the Adjusted CD Rate applicable to the Interest Period
for such Loan and (ii) the rate applicable to Base Rate Loans for such day.
"CD Margin" means a rate per annum determined in accordance with
the Pricing Schedule.
The "Adjusted CD Rate" applicable to any Interest Period means a
rate per annum determined pursuant to the following formula:
<TABLE>
<S> <C> <C>
[ CDBR ]*
ACDR = [ ---------- ] + AR
[ 1.00 - DRP ]
ACDR = Adjusted CD Rate
CDBR = CD Base Rate
DRP = Domestic Reserve Percentage
AR = Assessment Rate
</TABLE>
----------
* The amount in brackets being rounded upward, if
necessary, to the next higher 1/100 of 1%
The "CD Base Rate" applicable to any Interest Period is the rate
of interest determined by the Administrative Agent to be the average (rounded
upward, if necessary, to the next higher 1/100 of 1%) of the prevailing rates
per annum bid at 10:00 A.M. (New York City time) (or as soon thereafter as
practicable) on the first day of such Interest Period by two or more New York
certificate of deposit dealers of recognized standing for the purchase at face
value from each CD Reference Bank of its certificates of deposit in an amount
comparable to the principal amount of the CD Loan of such CD Reference Bank to
which such Interest Period applies and having a maturity comparable to such
Interest Period.
"Domestic Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement (including without limitation any
basic, supplemental or emergency reserves) for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of new non-personal time deposits in dollars in New York City having a
maturity comparable to the related Interest Period and in an amount of $100,000
or more. The Adjusted CD Rate shall be adjusted automatically on and as of the
effective date of any change in the Domestic Reserve Percentage.
<PAGE> 26
"Assessment Rate" means for any day the annual assessment rate in
effect on such day which is payable by a member of the Bank Insurance Fund
classified as adequately capitalized and within supervisory subgroup "A" (or a
comparable successor assessment risk classification) within the meaning of 12
C.F.R. Section 327.4(a) (or any successor provision) to the Federal Deposit
Insurance Corporation (or any successor) for such Corporation's (or such
successor's) insuring time deposits at offices of such institution in the United
States. The Adjusted CD Rate shall be adjusted automatically on and as of the
effective date of any change in the Assessment Rate.
(c) Each Euro-Dollar Loan shall bear interest on the outstanding
principal amount thereof, for each day during the Interest Period applicable
thereto, at a rate per annum equal to the sum of the Euro-Dollar Margin for such
day plus the London Interbank Offered Rate applicable to such Interest Period;
provided that each Euro-Dollar Loan made prior to the Syndication Date having an
Interest Period of one week shall bear interest on the outstanding principal
thereof, for each day during such Interest Period, at a rate per annum equal to
the sum of the Euro-Dollar Margin for such day plus the Interbank Offered Rate
applicable to such Interest Period. Such interest shall be payable for each
Interest Period on the last day thereof and, if such Interest Period is longer
than three months, at intervals of three months after the first day thereof.
"Euro-Dollar Margin" means a rate per annum determined in
accordance with the Pricing Schedule.
The "London Interbank Offered Rate" applicable to any Interest
Period means the average (rounded upward, if necessary, to the next higher 1/16
of 1%) of the respective rates per annum at which deposits in dollars are
offered to each of the Euro-Dollar Reference Banks in the London interbank
market at approximately 11:00 A.M. (London time) two Euro-Dollar Business Days
before the first day of such Interest Period in an amount approximately equal to
the principal amount of the Euro-Dollar Loan of such Euro-Dollar Reference Bank
to which such Interest Period is to apply and for a period of time comparable to
such Interest Period.
The "Interbank Offered Rate" applicable to any Interest Period
means the average (rounded upward, if necessary, to the next higher 1/16 of 1%)
of the respective rates per annum at which deposits in dollars are offered to
each of the Reference Banks in the New York interbank market at approximately
12:00 Noon (New York City time) on the first day of such Interest Period in an
amount approximately equal to the principal amount of the Euro-Dollar Loan of
such Reference Bank to which such Interest Period is to apply and for a period
of time comparable to such Interest Period.
(d) Any overdue principal of or interest on any Euro-Dollar Loan
shall bear interest, payable on demand, for each day until paid at a rate per
annum equal to the higher of (i) the sum of 2% plus the Euro-Dollar Margin for
such day plus the London Interbank Offered Rate applicable to the Interest
Period for such Loan and (ii) the sum of 2% plus the Euro-Dollar Margin for such
day plus the quotient obtained (rounded upward, if necessary, to the next higher
1/100 of 1%) by dividing (x) the average (rounded upward, if necessary, to the
next higher 1/16 of 1%) of the respective rates per annum at which one
<PAGE> 27
day (or, if such amount due remains unpaid more than three Euro-Dollar Business
Days, then for such other period of time not longer than six months as the
Administrative Agent may select) deposits in dollars in an amount approximately
equal to such overdue payment due to each of the Euro-Dollar Reference Banks are
offered to such Euro-Dollar Reference Bank in the London interbank market for
the applicable period determined as provided above by (y) 1.00 minus the
Euro-Dollar Reserve Percentage (or, if the circumstances described in clause (a)
or (b) of Section 8.1 shall exist, at a rate per annum equal to the sum of 2%
plus the rate applicable to Base Rate Loans for such day).
(e) Subject to Section 8.1(a), each Money Market LIBOR Loan shall
bear interest on the outstanding principal amount thereof, for the Interest
Period applicable thereto, at a rate per annum equal to the sum of the London
Interbank Offered Rate for such Interest Period (determined in accordance with
Section 2.7(c) as if the related Money Market LIBOR Borrowing were a Committed
Euro-Dollar Borrowing) plus (or minus) the Money Market Margin quoted by the
Bank making such Loan in accordance with Section 2.3. Each Money Market Absolute
Rate Loan shall bear interest on the outstanding principal amount thereof, for
the Interest Period applicable thereto, at a rate per annum equal to the Money
Market Absolute Rate quoted by the Bank making such Loan in accordance with
Section 2.3. Such interest shall be payable for each Interest Period on the last
day thereof and, if such Interest Period is longer than three months, at
intervals of three months after the first day thereof. Any overdue principal of
or interest on any Money Market Loan shall bear interest, payable on demand, for
each day until paid at a rate per annum equal to the sum of 2% plus the Base
Rate for such day.
(f) The Administrative Agent shall determine each interest rate
applicable to the Loans hereunder. The Administrative Agent shall give prompt
notice to the Borrower and the participating Banks of each rate of interest so
determined, and its determination thereof shall be conclusive in the absence of
manifest error.
(g) Each Reference Bank agrees to use its best efforts to furnish
quotations to the Administrative Agent as contemplated by this Section. If any
Reference Bank does not furnish a timely quotation, the Administrative Agent
shall determine the relevant interest rate on the basis of the quotation or
quotations furnished by the remaining Reference Bank or Banks or, if none of
such quotations is available on a timely basis, the provisions of Section 8.1
shall apply.
Section 2.8. Fees. (a) The Borrower shall pay to the
Administrative Agent for the account of the Banks ratably a facility fee at the
Facility Fee Rate (determined daily in accordance with the Pricing Schedule).
Such facility fee shall accrue (i) from and including the Effective Date to but
excluding the Termination Date (or earlier date of termination of the
Commitments in their entirety), on the daily aggregate amount of the Commitments
(whether used or unused) and (ii) from and including the Termination Date or
such earlier date of termination to but excluding the date the Loans and the
Letter of Credit Liabilities shall be repaid in their entirety, on the sum of
the daily aggregate outstanding principal amount of the Loans and the daily
aggregate Letter of Credit Liabilities.
<PAGE> 28
(b) The Borrower shall pay to the Administrative Agent (i) for the
account of the Banks ratably a Letter of Credit fee accruing daily on the
aggregate amount then available for drawing under all Letters of Credit at the
LC Fee Rate and (ii) for the account of each Issuing Bank a Letter of Credit
fronting fee accruing daily on the aggregate amount then available for drawing
under all Letters of Credit issued by such Issuing Bank at a rate per annum as
determined from time to time by the Borrower and such Issuing Bank.
(c) Accrued fees under this Section shall be payable quarterly in
arrears on each March 31, June 30, September 30 and December 31 and upon the
date of termination of the Commitments in their entirety (and, if later, the
date the Loans and Letter of Credit Liabilities shall be repaid in their
entirety).
Section 2.9. Optional Termination or Reduction of Commitments.
During the Revolving Credit Period, the Borrower may, upon at least three
Domestic Business Days' notice to the Administrative Agent, (i) terminate the
Commitments at any time, if no Loans or Letter of Credit Liabilities are
outstanding at such time or (ii) ratably reduce from time to time by an
aggregate amount of $10,000,000 or any larger multiple of $1,000,000, the
aggregate amount of the Commitments in excess of the sum of the aggregate
outstanding principal amount of the Loans and the aggregate Letter of Credit
Liabilities. Promptly after receiving a notice pursuant to this subsection, the
Administrative Agent shall notify each Bank of the contents thereof.
Section 2.10. Scheduled Termination of Commitments. The
Commitments shall terminate on the Termination Date, and any Loans then
outstanding (together with accrued interest thereon) shall be due and payable on
such date.
Section 2.11. Optional Prepayments. (a) The Borrower may, upon at
least one Domestic Business Day's notice by 11:00 A.M. (New York City time) to
the Administrative Agent, prepay any Base Rate Borrowing (or any Money Market
Borrowing bearing interest at the Base Rate pursuant to Section 8.1(a)) in whole
at any time, or from time to time in part in amounts aggregating $5,000,000 or
any larger multiple of $1,000,000, by paying the principal amount to be prepaid
together with accrued interest thereon to the date of prepayment. Each such
optional prepayment shall be applied to prepay ratably the Base Rate Loans of
the several Banks included in such Borrowing.
(b) Subject to Section 2.13, the Borrower may, upon at least three
Domestic Business Days' notice to the Administrative Agent, prepay any CD
Borrowing or upon at least three Euro-Dollar Business Days' notice to the
Administrative Agent prepay any Euro-Dollar Borrowing, in each case in whole at
any time, or from time to time in part in amounts aggregating $5,000,000 or any
larger multiple of $1,000,000, by paying the principal amount to be prepaid
together with accrued interest thereon to the date of prepayment. Each such
optional prepayment shall be applied to prepay ratably the Loans of the several
Banks included in such Borrowing.
<PAGE> 29
(c) Except as provided in Section 2.11(a), the Borrower may not
prepay all or any portion of the principal amount of any Money Market Loan prior
to the maturity thereof.
(d) Upon receipt of a notice of prepayment pursuant to this Section,
the Administrative Agent shall promptly notify each Bank of the contents thereof
and of such Bank's ratable share (if any) of such prepayment and such notice
shall not thereafter be revocable by the Borrower.
Section 2.12. General Provisions as to Payments. (a) The Borrower
shall make each payment of principal of, and interest on, the Loans, of Letter
of Credit Liabilities and of fees hereunder, without any set-off or
counterclaim, not later than 12:00 Noon (New York City time) on the date when
due, in Federal or other funds immediately available in New York City, to the
Administrative Agent at its address referred to in Section 9.1. The
Administrative Agent will promptly distribute to each Bank its ratable share of
each such payment received by the Administrative Agent for the account of the
Banks. Whenever any payment of principal of, or interest on, the Domestic Loans,
of Letter of Credit Liabilities or of fees shall be due on a day which is not a
Domestic Business Day, the date for payment thereof shall be extended to the
next succeeding Domestic Business Day. Whenever any payment of principal of, or
interest on, the Euro-Dollar Loans shall be due on a day which is not a
Euro-Dollar Business Day, the date for payment thereof shall be extended to the
next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day
falls in another calendar month, in which case the date for payment thereof
shall be the next preceding Euro-Dollar Business Day. Whenever any payment of
principal of, or interest on, the Money Market Loans shall be due on a day which
is not a Euro-Dollar Business Day, the date for payment thereof shall be
extended to the next succeeding Euro-Dollar Business Day. If the date for any
payment of principal is extended by operation of law or otherwise, interest
thereon shall be payable for such extended time.
(b) Unless the Administrative Agent shall have received notice from
the Borrower prior to the date on which any payment is due to the Banks
hereunder that the Borrower will not make such payment in full, the
Administrative Agent may assume that the Borrower has made such payment in full
to the Administrative Agent on such date and the Administrative Agent may, in
reliance upon such assumption, cause to be distributed to each Bank on such due
date an amount equal to the amount then due such Bank. If and to the extent that
the Borrower shall not have so made such payment, each Bank shall repay to the
Administrative Agent forthwith on demand such amount distributed to such Bank
together with interest thereon, for each day from the date such amount is
distributed to such Bank until the date such Bank repays such amount to the
Administrative Agent, at the Federal Funds Rate.
Section 2.13. Funding Losses. If the Borrower makes any payment
of principal with respect to any Fixed Rate Loan (pursuant to Article 2, 6 or 8
or otherwise) on any day other than the last day of the Interest Period
applicable thereto, or the last day of an applicable period fixed pursuant to
Section 2.7(d), or if the Borrower fails to borrow or prepay any Fixed Rate
Loans after notice has been given to any Bank in accordance with Section 2.4(a)
or 2.11(d), the Borrower shall reimburse each Bank within 15 days after demand
for any resulting loss or expense incurred by it (or by an
<PAGE> 30
existing or prospective Participant in the related Loan), including (without
limitation) any loss incurred in obtaining, liquidating or employing deposits
from third parties, but excluding loss of margin for the period after any such
payment or failure to borrow or prepay, provided that such Bank shall have
delivered to the Borrower a certificate setting forth in reasonable detail the
amount of such loss or expense, which certificate shall be conclusive in the
absence of manifest error.
Section 2.14. Computation of Interest and Fees. Interest based on
the Prime Rate hereunder shall be computed on the basis of a year of 365 days
(or 366 days in a leap year) and paid for the actual number of days elapsed
(including the first day but excluding the last day). All other interest and
fees shall be computed on the basis of a year of 360 days and paid for the
actual number of days elapsed (including the first day but excluding the last
day).
Section 2.15. Regulation D Compensation. For so long as any Bank
maintains reserves against "Eurocurrency liabilities" (or any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions of credit or other
assets which includes loans by a non-United States office of such Bank to United
States residents), and as a result the cost to such Bank (or its Euro-Dollar
Lending Office) of making or maintaining its Euro-Dollar Loans is increased,
then such Bank may require the Borrower to pay, contemporaneously with each
payment of interest on the Euro-Dollar Loans, additional interest on the related
Euro-Dollar Loan of such Bank at a rate per annum up to but not exceeding the
excess of (i) (A) the applicable London Interbank Offered Rate divided by (B)
one minus the Euro-Dollar Reserve Percentage over (ii) the applicable London
Interbank Offered Rate. Any Bank wishing to require payment of such additional
interest (x) shall so notify the Borrower and the Administrative Agent, in which
case such additional interest on the Euro-Dollar Loans of such Bank shall be
payable to such Bank at the place indicated in such notice with respect to each
Interest Period commencing at least three Euro-Dollar Business Days after the
giving of such notice and (y) shall furnish to the Borrower at least five
Euro-Dollar Business Days prior to each date on which interest is payable on the
Euro-Dollar Loans an officer's certificate setting forth the amount to which
such Bank is then entitled under this Section (which shall be consistent with
such Bank's good faith estimate of the level at which the related reserves are
maintained by it). Each such certificate shall be accompanied by such
information as the Borrower may reasonably request as to the computation set
forth therein.
Section 2.16. Letters of Credit. (a) Subject to the terms and
conditions hereof, each Issuing Bank agrees to issue Letters of Credit hereunder
from time to time before the tenth day before the Termination Date upon the
request of the Borrower; provided that, immediately after each Letter of Credit
is issued, (i) the aggregate amount of the Letter of Credit Liabilities shall
not exceed the Letter of Credit Commitment and (ii) the aggregate amount of the
Letter of Credit Liabilities plus the aggregate outstanding amount of all Loans
shall not exceed the aggregate amount of the Commitments. Upon the date of
issuance by an Issuing Bank of a Letter of Credit, the Issuing Bank shall be
deemed, without further action by any party hereto, to have sold to each Bank,
and each Bank shall be deemed, without
<PAGE> 31
further action by any party hereto, to have purchased from the Issuing Bank, a
participation in such Letter of Credit and the related Letter of Credit
Liabilities in the proportion their respective Commitments bear to the aggregate
Commitments. Each Letter of Credit shall have a stated amount not less than
$5,000,000.
(b) The Borrower shall give the Issuing Bank notice at least five
Domestic Business Days prior to the requested issuance of a Letter of Credit
specifying the date such Letter of Credit is to be issued, and describing the
terms of such Letter of Credit and the nature of the transactions to be
supported thereby (such notice, including any such notice given in connection
with the extension of a Letter of Credit, a "Notice of Issuance"). Upon receipt
of a Notice of Issuance, the Issuing Bank shall promptly notify the
Administrative Agent, and the Administrative Agent shall promptly notify each
Bank of the contents thereof and of the amount of such Bank's participation in
such Letter of Credit. The issuance by the Issuing Bank of each Letter of Credit
shall, in addition to the conditions precedent set forth in Article 3, be
subject to the conditions precedent that such Letter of Credit shall be in such
form and contain such terms as shall be reasonably satisfactory to the Issuing
Bank and that the Borrower shall have executed and delivered such other
instruments and agreements relating to such Letter of Credit as the Issuing Bank
shall have reasonably requested. The Borrower shall also pay to the Issuing Bank
for its own account issuance, drawing, amendment and extension charges in the
amounts and at the times agreed between the Borrower and the Issuing Bank. The
extension or renewal of any Letter of Credit shall be deemed to be an issuance
of such Letter of Credit, and if any Letter of Credit contains a provision
pursuant to which it is deemed to be extended unless notice of termination is
given by the Issuing Bank, the Issuing Bank shall timely give such notice of
termination unless it has theretofore timely received a Notice of Issuance and
the other conditions to issuance of a Letter of Credit have also theretofore
been met with respect to such extension. No Letter of Credit shall have a term
extending or be so extendible beyond the fifth Domestic Business Day preceding
the Termination Date.
(c) Upon receipt from the beneficiary of any Letter of Credit of any
notice of a drawing under such Letter of Credit, the Issuing Bank shall notify
the Administrative Agent and the Administrative Agent shall promptly notify the
Borrower and each other Bank as to the amount to be paid as a result of such
demand or drawing and the payment date. The Borrower shall be irrevocably and
unconditionally obligated forthwith to reimburse the Issuing Bank for any
amounts paid by the Issuing Bank upon any drawing under any Letter of Credit,
without presentment, demand, protest or other formalities of any kind. All such
amounts paid by the Issuing Bank and remaining unpaid by the Borrower shall bear
interest, payable on demand, for each day until paid at a rate per annum equal
to the sum of 2% plus the rate applicable to Base Rate Loans for such day. In
addition, each Bank will pay to the Administrative Agent, for the account of the
Issuing Bank, immediately upon the Issuing Bank's demand at any time during the
period commencing after such drawing until reimbursement therefor in full by the
Borrower, an amount equal to such Bank's ratable share of such drawing (in
proportion to its participation therein), together with interest on such amount
for each day from the date of the Issuing Bank's demand for such payment (or, if
such demand is made after 12:00 Noon (New York City time) on such date, from the
next succeeding
<PAGE> 32
Domestic Business Day) to the date of payment by such Bank of such amount at a
rate of interest per annum equal to the Federal Funds Rate. The Issuing Bank
will pay to each Bank ratably all amounts received from the Borrower for
application in payment of its reimbursement obligations in respect of any Letter
of Credit, but only to the extent such Bank has made payment to the Issuing Bank
in respect of such Letter of Credit pursuant hereto.
(d) The obligations of the Borrower and each Bank under subsection
(c) above shall be absolute, unconditional and irrevocable, and shall be
performed strictly in accordance with the terms of this Agreement, under all
circumstances whatsoever, including without limitation the following
circumstances:
(i) any lack of validity or enforceability of this
Agreement or any Letter of Credit or any document related hereto or
thereto;
(ii) any amendment, waiver of or any consent to
departure from all or any of the provisions of this Agreement, any
Letter of Credit or any document related hereto or thereto;
(iii) the use which may be made of the Letter of
Credit by, or any act or omission of, a beneficiary of a Letter of
Credit (or any Person for whom the beneficiary may be acting);
(iv) the existence of any claim, set-off, defense or
other rights that the Borrower may have at any time against a
beneficiary of a Letter of Credit (or any Person for whom the
beneficiary may be acting), the Banks (including the Issuing Bank) or
any other Person, whether in connection with this Agreement or the
Letter of Credit or any document related hereto or thereto or any
unrelated transaction;
(v) any statement or any other document presented
under a Letter of Credit proving to be forged, fraudulent or invalid
in any respect or any statement therein being untrue or inaccurate in
any respect whatsoever;
(vi) payment under a Letter of Credit to the
beneficiary of such Letter of Credit against presentation to the
Issuing Bank of a draft or certificate that does not comply with the
terms of the Letter of Credit; or
(vii) any other act or omission to act or delay of any
kind by any Bank (including the Issuing Bank), the Administrative
Agent or any other Person or any other event or circumstance
whatsoever that might, but for the provisions of this subsection
(vii), constitute a legal or equitable discharge of the Borrower's or
the Bank's obligations hereunder.
<PAGE> 33
(e) The Borrower hereby indemnifies and holds harmless each Bank
(including each Issuing Bank) and the Administrative Agent from and against any
and all claims, damages, losses, liabilities, costs or expenses which such Bank
or the Administrative Agent may incur (including, without limitation, any
claims, damages, losses, liabilities, costs or expenses which the Issuing Bank
may incur by reason of or in connection with the failure of any other Bank to
fulfill or comply with its obligations to such Issuing Bank hereunder (but
nothing herein contained shall affect any rights the Borrower may have against
such defaulting Bank)), and none of the Banks (including an Issuing Bank) nor
the Administrative Agent nor any of their officers or directors or employees or
agents shall be liable or responsible, by reason of or in connection with the
execution and delivery or transfer of or payment or failure to pay under any
Letter of Credit, including without limitation any of the circumstances
enumerated in subsection (d) above, as well as (i) any error, omission,
interruption or delay in transmission or delivery of any messages, by mail,
cable, telegraph, telex or otherwise, (ii) any error in interpretation of
technical terms, (iii) any loss or delay in the transmission of any document
required in order to make a drawing under a Letter of Credit, (iv) any
consequences arising from causes beyond the control of an Issuing Bank,
including without limitation any government acts, or any other circumstances
whatsoever in making or failing to make payment under such Letter of Credit;
provided that the Borrower shall not be required to indemnify any Issuing Bank
for any claims, damages, losses, liabilities, costs or expenses, and the
Borrower shall have a claim for direct (but not consequential) damage suffered
by it, to the extent found by a court of competent jurisdiction to have been
caused by (x) the gross negligence or willful misconduct of such Issuing Bank in
determining whether a request presented under any Letter of Credit complied with
the terms of such Letter of Credit or (y) such Issuing Bank's failure to pay
under any Letter of Credit after the presentation to it of a request strictly
complying with the terms and conditions of such Letter of Credit. Nothing in
this subsection (e) is intended to limit the obligations of the Borrower under
Section 2.16(c) of this Agreement. To the extent the Borrower is obligated to
but does not indemnify an Issuing Bank as required by this subsection, the Banks
agree to do so ratably in accordance with their Commitments.
ARTICLE 3
Conditions
Section 3.1. Effectiveness. This Agreement shall become effective
upon (x) termination of the Commitments (as defined in the Existing Credit
Agreement referred to below in this clause (x)) under the Existing Credit
Agreement dated as of March 7, 1997 among the Borrower, the banks listed therein
and Morgan Guaranty Trust Company of New York, as agent, and payment in full of
all amounts owing thereunder to any of such banks or such agent and (y) receipt
by the Administrative Agent of the following documents, each dated the Effective
Date unless otherwise indicated:
(a) counterparts hereof signed by each of the parties hereto (or, in
the case of any party as to which an executed counterpart shall not have been
received, receipt by the Administrative Agent in form satisfactory to it of
telegraphic, telex, facsimile or other written confirmation from such party of
execution of a counterpart hereof by such party);
<PAGE> 34
(b) a duly executed Note for the account of each Bank dated on or
before the Effective Date complying with the provisions of Section 2.5;
(c) opinions of Simpson Thacher & Bartlett, special counsel for the
Borrower, Polsinelli, White, Vardeman & Shalton, Kansas counsel for the
Borrower, and Martha B. Wyrsch, General Counsel of the Borrower, substantially
in the respective forms of Exhibits E-1, E-2 and E-3 hereto and covering such
additional matters relating to the transactions contemplated hereby as the
Required Banks may reasonably request;
(d) an opinion of Davis Polk & Wardwell, special counsel for the
Administrative Agent, substantially in the form of Exhibit F hereto and covering
such additional matters relating to the transactions contemplated hereby as the
Required Banks may reasonably request; and
(e) all documents the Administrative Agent may reasonably request
relating to the existence of the Borrower, the corporate authority for and the
validity of this Agreement and the Notes, and any other matters relevant hereto,
all in form and substance satisfactory to the Administrative Agent.
The Administrative Agent shall promptly notify the Borrower and each Bank of the
effectiveness of this Agreement, and such notice shall be conclusive and binding
on all parties hereto.
Section 3.2. Borrowings and Issuances of Letters of Credit. The
obligation of any Bank to make a Loan on the occasion of any Borrowing and the
obligation of an Issuing Bank to issue (or renew or extend the term of) any
Letter of Credit is subject to the satisfaction of the following conditions:
(a) the fact that the Closing Date shall have occurred on or prior to
March 31, 1998;
(b) in the case of the first Credit Event, the fact that prior to or
substantially simultaneously with such Credit Event, the Borrower shall have
consummated the Acquisition in accordance with the Stock Purchase Agreement
without waiver of any material condition specified therein;
(c) in the case of the first Borrowing, the fact that the Borrower
shall have paid or shall concurrently pay all fees then due and payable to the
Administrative Agent for the account of any Agent or Bank, as previously agreed;
(d) receipt by the Administrative Agent of a Notice of Borrowing as
required by Section 2.2 or 2.3, as the case may be;
(e) the fact that, immediately after such Credit Event, the sum of
the aggregate outstanding principal amount of the Loans and the aggregate amount
of Letter of Credit Liabilities will not exceed the aggregate amount of the
Commitments;
(f) the fact that, immediately before and after such Credit Event, no
Default shall have occurred and be continuing;
<PAGE> 35
(g) the fact that the representations and warranties of the Borrower
contained in this Agreement (except, (i) in the case of Credit Events subsequent
to the first Credit Event, the representation and warranty set forth in Section
4.12 and (ii) in the case of a Refunding Borrowing, the representations and
warranties set forth in Sections 4.4(c), 4.5 and 4.7 as to any matter which has
theretofore been disclosed in writing by the Borrower to the Banks) shall be
true on and as of the date of such Credit Event; and
(h) in the case of an issuance of a Letter of Credit, the fact that,
immediately after such issuance of a Letter of Credit, the aggregate amount of
the Letter of Credit Liabilities shall not exceed the Letter of Credit
Commitment.
Each Credit Event hereunder shall be deemed to be a representation and warranty
by the Borrower on the date of such Credit Event as to the facts specified in
clauses (b) and (c) (in the case of the first Credit Event) and (e), (f), (g)
and (h) of this Section.
ARTICLE 4
Representations and Warranties
The Borrower represents and warrants that:
Section 4.1. Corporate Existence and Power. The Borrower is a
corporation duly incorporated, validly existing and in good standing under the
laws of Kansas, and has all corporate powers and all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted.
Section 4.2. Corporate and Governmental Authorization; No
Contravention. The execution, delivery and performance by the Borrower of this
Agreement and the Notes are within the Borrower's corporate powers, have been
duly authorized by all necessary corporate action, require no action by or in
respect of, or filing with, any governmental body, agency or official (other
than filings of this Agreement and the Notes with the Securities and Exchange
Commission pursuant to the reporting requirements of the Securities Exchange Act
of 1934) and do not contravene, or constitute a default under, any provision of
applicable law or regulation or of the articles of incorporation or by-laws of
the Borrower or of any agreement, judgment, injunction, order, decree or other
instrument binding upon the Borrower or any of its Subsidiaries or result in the
creation or imposition of any Lien on any asset of the Borrower or any of its
Subsidiaries.
Section 4.3. Binding Effect. This Agreement constitutes a valid
and binding agreement of the Borrower and each Note, when executed and delivered
in accordance with this Agreement, will constitute a valid and binding
obligation of the Borrower, in each case enforceable in accordance with its
terms.
<PAGE> 36
Section 4.4. Financial Information. (a) The consolidated balance
sheet of the Borrower and its Consolidated Subsidiaries as of December 31, 1996
and the related consolidated statements of income, cash flows and common
stockholders' equity for the fiscal year then ended, reported on by Arthur
Andersen LLP and set forth in the Borrower's 1996 Form 10-K, a copy of which has
been delivered to each of the Banks, fairly present, in conformity with
generally accepted accounting principles, the consolidated financial position of
the Borrower and its Consolidated Subsidiaries as of such date and their
consolidated results of operations and cash flows for such fiscal year.
(b) The unaudited consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries as of September 30, 1997 and the related unaudited
consolidated statements of income and cash flows for the nine months then ended,
set forth in the Borrower's Latest Form 10-Q, a copy of which has been delivered
to each of the Banks, fairly present, in conformity with generally accepted
accounting principles applied on a basis consistent with the financial
statements referred to in subsection (a) of this Section, the consolidated
financial position of the Borrower and its Consolidated Subsidiaries as of such
date and their consolidated results of operations and cash flows for such
nine-month period (subject to normal year-end adjustments).
(c) Since September 30, 1997 there has been no material adverse
change in the business, financial position, results of operations or prospects
of the Borrower and its Consolidated Subsidiaries, considered as a whole.
Section 4.5. Litigation. Except as disclosed in the most recent
Annual Report on Form 10-K delivered by the Borrower to the Banks, there is no
action, suit or proceeding pending against, or to the knowledge of the Borrower
threatened against or affecting, the Borrower or any of its Subsidiaries before
any court or arbitrator or any governmental body, agency or official in which
there is a reasonable possibility of an adverse decision which would materially
adversely affect the business, consolidated financial position or consolidated
results of operations of the Borrower and its Consolidated Subsidiaries,
considered as a whole, or which in any manner draws into question the validity
of this Agreement or the Notes.
Section 4.6. Compliance with ERISA. Each member of the ERISA
Group has fulfilled its obligations under the minimum funding standards of ERISA
and the Internal Revenue Code with respect to each Plan and is in compliance in
all material respects with the presently applicable provisions of ERISA and the
Internal Revenue Code with respect to each Plan. No member of the ERISA Group
has (i) sought a waiver of the minimum funding standard under Section 412 of the
Internal Revenue Code in respect of any Plan, (ii) failed to make any
contribution or payment to any Plan or Multiemployer Plan or in respect of any
Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement,
which has resulted or could result in the imposition of a Lien or the posting of
a bond or other security under ERISA or the Internal Revenue Code or (iii)
incurred any liability under Title IV of ERISA other than a liability to the
PBGC for premiums under Section 4007 of ERISA, which waiver, failure or
liability could reasonably be expected to materially adversely affect the
business, consolidated financial position or consolidated results of operations
of the Borrower and its Consolidated Subsidiaries, considered as a whole.
<PAGE> 37
Section 4.7. Environmental Matters. In the ordinary course of its
business, the Borrower conducts an ongoing review of the effect of Environmental
Laws on the business, operations and properties of the Borrower and its
Subsidiaries, in the course of which it identifies and evaluates associated
liabilities and costs (including, without limitation, any capital or operating
expenditures required for clean-up or closure of properties presently or
previously owned, any capital or operating expenditures required to achieve or
maintain compliance with environmental protection standards imposed by law or as
a condition of any license, permit or contract, any related constraints on
operating activities, including any periodic or permanent shutdown of any
facility or reduction in the level of or change in the nature of operations
conducted thereat, any costs or liabilities in connection with off-site disposal
of wastes or Hazardous Substances, and any actual or potential liabilities to
third parties, including employees, and any related costs and expenses). On the
basis of this review, the Borrower has reasonably concluded that such associated
liabilities and costs, including the costs of compliance with Environmental
Laws, are unlikely to have a material adverse effect on the business, financial
condition, results of operations or prospects of the Borrower and its
Consolidated Subsidiaries, considered as a whole.
Section 4.8. Taxes. The Borrower and its Subsidiaries have filed
all United States Federal income tax returns and all other material tax returns
which are required to be filed by them and have paid all taxes shown to be due
on such returns or pursuant to any assessment received by the Borrower or any
Subsidiary to the extent that such taxes have become due and before they have
become delinquent, except such taxes as are being contested in good faith by
appropriate proceedings for which adequate reserves have been established in
accordance with generally accepted accounting principles.
Section 4.9. Subsidiaries. Each of the Borrower's corporate
Material Subsidiaries is a corporation duly incorporated, validly existing and
in good standing under the laws of its jurisdiction of incorporation, and has
all corporate powers and all material governmental licenses, authorizations,
consents and approvals required to carry on its business as now conducted.
Section 4.10. Not an Investment Company. The Borrower is not
an "investment company" or controlled by an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
Section 4.11. Full Disclosure. All information heretofore
furnished by the Borrower to any Agent or any Bank for purposes of or in
connection with this Agreement or any transaction contemplated hereby is, and
all such information hereafter furnished by the Borrower to any Agent or any
Bank will be, true and accurate in all material respects on the date as of which
such information is stated or certified. The Borrower has disclosed to the Banks
in writing any and all facts peculiar to the business of the Company or any of
its Subsidiaries which materially and adversely affect or may affect (to the
extent the Borrower can now reasonably foresee), the business, operations or
financial condition of the Borrower and its Consolidated Subsidiaries, taken as
a whole, or the ability of the Borrower to perform its obligations under this
Agreement.
<PAGE> 38
Section 4.12. MidCon Acquisition. The representations and
warranties of all parties contained in the Stock Purchase Agreement will be true
and correct on and as of the date of the first Borrowing under this Agreement
except to the extent that the failure of the same to be true and correct could
not reasonably be expected to materially adversely affect the business,
consolidated financial position or consolidated results of operations of the
Borrower and its Consolidated Subsidiaries, considered as a whole.
ARTICLE 5
Covenants
The Borrower agrees that, so long as any Bank has any Commitment
hereunder or any Letter of Credit Liability or any amount payable under any Note
remains unpaid:
Section 5.1. Information. The Borrower will deliver to each
of the Banks:
(a) as soon as available and in any event within 90 days after the
end of each fiscal year of the Borrower, a consolidated balance sheet of the
Borrower and its Consolidated Subsidiaries as of the end of such fiscal year and
the related consolidated statements of income, cash flows and common
stockholder's equity for such fiscal year, setting forth in each case in
comparative form the figures for the previous fiscal year, all audited by Arthur
Andersen LLP or other independent public accountants of nationally recognized
standing; provided, however, that delivery pursuant to clause (g) below of
copies of the Annual Report on Form 10-K (without exhibits) of the Borrower for
such fiscal year filed with the Securities and Exchange Commission shall be
deemed to satisfy the requirements of this clause (a);
(b) as soon as available and in any event within 45 days after the
end of each of the first three quarters of each fiscal year of the Borrower, a
consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as
of the end of such quarter and the related consolidated statements of income and
cash flows for such quarter (in the case of such statements of income) and for
the portion of the Borrower's fiscal year ended at the end of such quarter,
setting forth in the case of such income and cash flows in comparative form the
figures for the corresponding quarter (in the case of such statements of income)
and the corresponding portion of the Borrower's previous fiscal year, all
certified (subject to normal year-end adjustments) as to fairness of
presentation, generally accepted accounting principles and consistency by an
authorized financial or accounting officer of the Borrower; provided, however,
that delivery pursuant to clause (g) below of copies of the Quarterly Report on
Form 10-Q (without exhibits) of the Borrower for such quarter filed with the
Securities and Exchange Commission shall be deemed to satisfy the requirements
of this clause (b);
(c) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, a certificate of an
authorized financial or accounting officer of the Borrower (i) setting forth in
reasonable detail the calculations required to establish whether the Borrower
<PAGE> 39
was in compliance with the requirements of Section 5.7 and, if applicable,
Sections 5.08 and 5.09 on the date of such financial statements and (ii) stating
whether any Default exists on the date of such certificate and, if any Default
then exists, setting forth the details thereof and the action which the Borrower
is taking or proposes to take with respect thereto;
(d) simultaneously with the delivery of each set of financial
statements referred to in clause (a) above, a statement of the firm of
independent public accountants which reported on such statements (i) whether
anything has come to their attention to cause them to believe that any Default
existed on the date of such statements and (ii) confirming the calculations set
forth in the officer's certificate delivered simultaneously therewith pursuant
to clause (c) above; provided, however, that such accountants shall not be
liable to anyone by reason of their failure to obtain knowledge of any Default
which would not be disclosed in the course of an audit conducted in accordance
with generally accepted auditing standards;
(e) within five Domestic Business Days after any officer of the
Borrower obtains knowledge of any Default, if such Default is then continuing, a
certificate of the chief financial officer or the chief accounting officer of
the Borrower setting forth the details thereof and the action which the Borrower
is taking or proposes to take with respect thereto;
(f) promptly upon the mailing thereof to the public shareholders of
the Borrower generally, copies of all financial statements, reports and proxy
statements so mailed;
(g) promptly upon the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration statements on
Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their
equivalents, in each case without exhibits) which the Borrower shall have filed
with the Securities and Exchange Commission;
(h) if and when any member of the ERISA Group (i) gives or is
required to give notice to the PBGC of any "reportable event" (as defined in
Section 4043 of ERISA) (other than such event as to which the 30-day notice
requirement is waived or which is triggered by the Acquisition) with respect to
any Plan which might constitute grounds for a termination of such Plan under
Title IV of ERISA, or knows that the plan administrator of any Plan has given or
is required to give notice of any such reportable event, a copy of the notice of
such reportable event given or required to be given to the PBGC; (ii) receives
notice of complete or partial withdrawal liability under Title IV of ERISA or
notice that any Multiemployer Plan is in reorganization, is insolvent or has
been terminated, a copy of such notice; (iii) receives notice from the PBGC
under Title IV of ERISA of an intent to terminate, impose liability (other than
for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to
administer any Plan, a copy of such notice; (iv) applies for a waiver of the
minimum funding standard under Section 412 of the Internal Revenue Code, a copy
of such application; (v) gives notice of intent to terminate any Plan under
Section 4041(c) of ERISA, a copy of such notice and other information filed with
the PBGC; (vi) gives notice of withdrawal from any Plan pursuant to Section 4063
of ERISA, a copy of such notice; or (vii) fails to make any payment or
contribution to any Plan or Multiemployer Plan
<PAGE> 40
or in respect of any Benefit Arrangement or makes any amendment to any Plan or
Benefit Arrangement which has resulted or could result in the imposition of a
Lien or the posting of a bond or other security, a certificate of the chief
financial officer or the chief accounting officer of the Borrower setting forth
details as to such occurrence and action, if any, which the Borrower or
applicable member of the ERISA Group is required or proposes to take; and
(i) from time to time such additional information regarding the
financial position or business of the Borrower and its Subsidiaries as the
Administrative Agent, at the request of any Bank, may reasonably request.
Section 5.2. Payment of Obligations. The Borrower will pay and
discharge, and will cause each Subsidiary to pay and discharge, at or before
maturity, all their respective material obligations and liabilities, including,
without limitation, tax liabilities, except where the same may be contested in
good faith by appropriate proceedings, and will maintain, and will cause each
Subsidiary to maintain, in accordance with generally accepted accounting
principles, appropriate reserves for the accrual of any of the same.
Section 5.3. Maintenance of Property; Insurance. (a) The Borrower
will keep, and will cause each Subsidiary to keep, all property useful and
necessary in its business in good working order and condition, ordinary wear and
tear excepted.
(b) The Borrower will maintain or cause to be maintained with, in the
good faith judgment of the Borrower, financially sound and reputable insurers,
or through self-insurance, insurance with respect to its properties and business
and the properties and businesses of its Subsidiaries against loss or damage of
the kinds customarily insured against by corporations of established reputation
engaged in the same or similar business and similarly situated, of such types
and in such amounts as are customarily carried under similar circumstances by
such other corporations. Such insurance may include self-insurance or be subject
to co-insurance, deductibility or similar clauses which, in effect, result in
self-insurance of certain losses, provided that such self-insurance is in accord
with the approved practices of corporations similarly situated and adequate
insurance reserves are maintained in connection with such self-insurance, and,
notwithstanding the foregoing provisions of this Section 5.3 the Borrower or any
Subsidiary may effect workers' compensation or similar insurance in respect of
operations in any state or other jurisdiction either through an insurance fund
operated by such state or other jurisdiction or by causing to be maintained a
system or systems of self-insurance in accord with applicable laws.
Section 5.4. Conduct of Business and Maintenance of Existence.
The Borrower will continue, and will cause each Material Subsidiary to continue,
to engage in business of the same general type as now conducted by the Borrower
and its Subsidiaries, and will preserve, renew and keep in full force and
effect, and will cause each Subsidiary to preserve, renew and keep in full force
and effect their respective corporate existence and their respective rights,
privileges and franchises necessary or desirable in the normal conduct of
business; provided that nothing in this Section 5.4 shall prohibit (i) the
merger of a Subsidiary into the Borrower or the merger or consolidation of a
Subsidiary with or into another Person if the corporation
<PAGE> 41
surviving such consolidation or merger is a Subsidiary and if, in each case,
after giving effect thereto, no Default shall have occurred and be continuing,
(ii) the sale or other disposition (whether by merger or otherwise) of the
capital stock or assets of any Subsidiary, if such transaction complies with the
provisions of Section 5.11 or (iii) the termination of the corporate existence
of any Subsidiary if the Borrower in good faith determines that such termination
is in the best interest of the Borrower and is not materially disadvantageous to
the Banks.
Section 5.5. Compliance with Laws. The Borrower will comply, and
cause each Subsidiary to comply, in all respects with all applicable laws,
ordinances, rules, regulations, and requirements of governmental authorities
(including, without limitation, Environmental Laws and ERISA and the rules and
regulations thereunder) except (i) where the necessity of compliance therewith
is contested in good faith by appropriate proceedings or (ii) where failure to
comply could not reasonably be expected to materially adversely affect the
business, consolidated financial position or consolidated results of operations
of the Borrower and its Consolidated Subsidiaries, considered as a whole.
Section 5.6. Inspection of Property, Books and Records. The
Borrower will keep, and will cause each Subsidiary to keep, proper books of
record and account in which full, true and correct entries, as required by
generally accepted accounting principles, shall be made of all dealings and
transactions in relation to its business and activities; and will permit, and
will cause each Subsidiary to permit, representatives of any Bank at such Bank's
expense to visit and inspect any of their respective properties, to examine and
make abstracts from any of their respective books and records (subject to
compliance with confidentiality agreements, copyrights and the like) and to
discuss their respective affairs, finances and accounts with their respective
officers, employees and independent public accountants, all at such reasonable
times and as often as may reasonably be desired.
Section 5.7. Debt. (a) Consolidated Debt of the Borrower will at
no time exceed the MLP of Consolidated Total Capitalization. "MLP" means Maximum
Leverage Percentage, which is 87.00%, subject to adjustment from time to time
after the date hereof as follows: (a) upon the issuance of Trust Preferred
Securities in the amount of $300,000,000, the MLP will be reduced by 5.25%; (b)
upon issuance of common equity securities in the amount of $500,000,000, the MLP
will be reduced by 8.75%; and (c) upon issuance of Mandatorily Convertible
Preferred Stock in the amount of $400,000,000, the MLP will be reduced by 6.00%.
In the event of issuance of securities of the type described above in an amount
different from that specified, the consequent reduction of the MLP will be
adjusted on a pro rata basis; provided that in the event of issuance of Trust
Preferred Securities in an amount greater than the indicated amount, there will
not be an additional reduction in the MLP to the extent that the Trust Preferred
Securities exceed 10% of the Consolidated Total Capitalization of the Borrower.
Upon issuance of all securities of the types described above, the MLP will at
all times thereafter be 67.00%.
(b) Total Debt of all Consolidated Subsidiaries (excluding Debt of a
Consolidated Subsidiary of the Borrower to the Borrower or to another
Consolidated Subsidiary of the Borrower) will at no time exceed 10% of
Consolidated Debt of the Borrower.
<PAGE> 42
(c) Consolidated Debt of each Material Subsidiary will at no time
exceed 65% of the Consolidated Total Capitalization of such Material Subsidiary.
Section 5.8. Minimum Net Worth. Consolidated Net Worth will at no
time be less than an amount equal to the sum of (a) $570,000,000 plus (b) 50% of
Consolidated Net Income for each fiscal quarter of the Borrower ending after the
date hereof and at or prior to such time (but only if such Consolidated Net
Income for such fiscal quarter is a positive amount) plus (c) for any issuance
of securities resulting in a reduction of the MLP pursuant to Section 5.07(a),
an amount equal to 80% of the increase in Consolidated Net Worth resulting from
such issuance of securities, if at such time the Borrower's senior unsecured
long-term debt is not rated at least Baa2 by Moody's and BBB by S&P.
Section 5.9. Minimum Interest Coverage Ratio. At any time at
which the Borrower's senior unsecured long-term debt is not rated at least Baa3
by Moody's and BBB- by S&P, the Interest Coverage Ratio will not be less than
(i) 2.25:1, if such time is prior to March 31, 1999, and (ii) 2.75:1, if such
time is on or after March 31, 1999.
Section 5.10. Negative Pledge. Neither the Borrower nor any
Subsidiary will create, assume or suffer to exist any Lien on any asset now
owned or hereafter acquired by it, except:
(a) any Liens deemed to exist on the date of this Agreement
under the Purchase Agreement;
(b) Liens on cash and cash equivalents securing the Substitute Note,
as contemplated by the Reimbursement Agreement;
(c) Liens on assets of any Person existing at the time such Person
becomes a Subsidiary and not created in contemplation of such event;
(d) Liens arising in the ordinary course of its business which (i) do
not secure Debt or Derivatives Obligations, (ii) do not secure any obligation in
an amount exceeding $150,000,000 and (iii) do not in the aggregate materially
detract from the value of its assets or materially impair the use thereof in the
operation of its business;
(e) Liens on cash and cash equivalents securing Derivatives
Obligations, provided that the aggregate amount of cash and cash equivalents
subject to such Liens may at no time exceed $75,000,000;
(f) statutory or common law Liens of or upon deposits of cash in
favor of banks or other depository institutions; and
(g) Liens not otherwise permitted by the foregoing clauses of this
Section securing Debt in an aggregate principal or face amount at any date not
to exceed 10% of Consolidated Net Worth of the Borrower.
<PAGE> 43
Section 5.11. Consolidations, Mergers and Sales of Assets. The
Borrower will not (i) consolidate or merge with or into any other Person or (ii)
sell, lease or otherwise transfer, directly or indirectly, all or substantially
all of its assets to any other Person, unless:
(i) immediately after giving effect to the
transaction, no Default shall have occurred and be continuing; and
(ii) except in the case of a merger in which the
Borrower is the surviving corporation:
(x) the Person formed by or surviving such
transaction, in the case of a consolidation or merger, and the
transferee, in the case of a transfer, assumes all obligations of the
Borrower hereunder and under the Notes;
(y) the Person formed by or surviving such
transaction, in the case of a consolidation or merger, and the
transferee, in the case of a transfer, is organized under the laws of
the United States or any state thereof; and
(z) the Borrower has delivered to the Administrative
Agent an officer's certificate and opinion of counsel, each stating
that such consolidation, merger, or transfer and such assumption
comply with the provisions hereof.
No such sale, lease or other transfer of assets shall have the effect of
releasing the Borrower (or any successor that shall have become such in the
manner prescribed in this Section) from its liability under this Agreement and
the Notes.
Section 5.12. Use of Proceeds. The proceeds of the Loans made
under this Agreement will be used by the Borrower for general corporate
purposes. None of such proceeds will be used, directly or indirectly, for the
purpose, whether immediate, incidental or ultimate, of buying or carrying any
"margin stock" within the meaning of Regulation U.
Section 5.13. Transactions with Affiliates. The Borrower will not
participate in any material transaction with an affiliate (other than a
Subsidiary) unless such transaction is in the ordinary course of its business
and on terms no less advantageous to the Borrower than could be obtained in such
a transaction with an unaffiliated party.
ARTICLE 6
Defaults
Section 6.1. Events of Default. If one or more of the
following events ("Events of Default") shall have occurred and be continuing:
<PAGE> 44
(a) the Borrower shall fail to reimburse any drawing under any Letter
of Credit when required hereunder or to pay when due any principal of any Loan
or shall fail to pay within three Domestic Business Days of the due date thereof
any interest on any Loan, any fees or any other amount payable hereunder;
(b) the Borrower shall fail to observe or perform any covenant
contained in Sections 5.7 to 5.13, inclusive;
(c) the Borrower shall fail to observe or perform any covenant or
agreement contained in this Agreement (other than those covered by clause (a) or
(b) above) for 10 days after notice thereof has been given to the Borrower by
the Administrative Agent at the request of any Bank;
(d) any representation, warranty, certification or statement made by
the Borrower in this Agreement or in any certificate, financial statement or
other document delivered pursuant to this Agreement shall prove to have been
incorrect in any material respect when made (or deemed made);
(e) the Borrower or any Subsidiary shall fail to make any payment in
respect of any Material Financial Obligations when due or within any applicable
grace period; provided, however, that if any such failure is cured by the
Borrower or such Subsidiary or is waived by the requisite percentage of holders
of such Material Financial Obligations entitled to so waive, then the Event of
Default under this Agreement by reason of such failure shall be deemed to have
been cured;
(f) any event or condition shall occur which results in the
acceleration of the maturity of any Material Debt or enables (or, with the
giving of notice or lapse of time or both, would enable) the holder of such Debt
or any Person acting on such holder's behalf to accelerate the maturity thereof;
provided, however, that if any such acceleration is rescinded, or any such event
or condition is cured by the Borrower or any Subsidiary or is waived by the
requisite percentage of holders of such Material Debt entitled to so waive, then
the Event of Default under this Agreement by reason of such acceleration, event
or condition shall be deemed to have been cured;
(g) the Borrower or any Material Subsidiary shall commence a
voluntary case or other proceeding seeking liquidation, reorganization or other
relief with respect to itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate action to authorize any of the
foregoing;
(h) an involuntary case or other proceeding shall be commenced
against the Borrower or any Material Subsidiary seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
<PAGE> 45
similar official of it or any substantial part of its property, and such
involuntary case or other proceeding shall remain undismissed and unstayed for a
period of 60 days; or an order for relief shall be entered against the Borrower
or any Material Subsidiary under the federal bankruptcy laws as now or hereafter
in effect;
(i) any member of the ERISA Group shall fail to pay when due an
amount which it shall have become liable to pay under Title IV of ERISA; or
notice of intent to terminate a Plan shall be filed under Title IV of ERISA by
any member of the ERISA Group, any plan administrator or any combination of the
foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to
terminate, to impose liability (other than for premiums under Section 4007 of
ERISA) in respect of, or to cause a trustee to be appointed to administer any
Plan; or a condition shall exist by reason of which the PBGC would be entitled
to obtain a decree adjudicating that any Plan must be terminated; or there shall
occur a complete or partial withdrawal from, or a default, within the meaning of
Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans
which could cause one or more members of the ERISA Group to incur a current
payment obligation; and in each of the foregoing instances such condition (i)
could reasonably be expected to materially adversely affect the business,
consolidated financial position or consolidated results of operations of the
Borrower and its Consolidated Subsidiaries, considered as a whole, and (ii)
shall continue for 10 days after notice thereof has been given to the Borrower
by the Administrative Agent at the request of any Bank;
(j) a judgment or judgments for the payment of money (not paid or
fully covered by insurance or indemnification) in excess of $60,000,000 in the
aggregate shall be rendered against the Borrower or any Material Subsidiary and
such judgment or judgments are not, within 30 days after entry thereof, bonded,
discharged or stayed pending appeal, or are not discharged within 30 days after
the expiration of such stay; or
(k) any person or group of persons (within the meaning of Section 13
or 14 of the Securities Exchange Act of 1934, as amended) shall have acquired
beneficial ownership (within the meaning of Rule 13d-3 promulgated by the
Securities and Exchange Commission under said Act) of 30% or more of the
outstanding shares of common stock of the Borrower; or, during any period of
twelve consecutive calendar months, individuals who were directors of the
Borrower on the first day of such period shall cease to constitute a majority of
the board of directors of the Borrower; then, and in every such event, the
Administrative Agent shall (i) if requested by Banks having more than 50% in
aggregate amount of the Commitments, by notice to the Borrower terminate the
Commitments and they shall thereupon terminate, and (ii) if requested by Banks
holding Notes evidencing more than 50% in aggregate principal amount of the
Loans, by notice to the Borrower declare the Notes (together with accrued
interest thereon) to be, and the Notes shall thereupon become, immediately due
and payable without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Borrower; provided that in the case of any
of the Events of Default specified in clause (g) or (h) above with respect to
the Borrower, without any notice to the Borrower or any other act by the
Administrative Agent or the Banks, the Commitments shall thereupon terminate and
the Notes (together with accrued interest thereon) shall become immediately due
and payable without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Borrower.
<PAGE> 46
Section 6.2. Notice of Default. The Administrative Agent shall
give notice to the Borrower under Section 6.1(c) or 6.1(i) promptly upon being
requested to do so by any Bank and shall thereupon notify all the Banks thereof.
Section 6.3. Cash Cover. The Borrower agrees, in addition to the
provisions of Section 6.01 hereof, that upon the occurrence and during the
continuance of any Event of Default, it shall, if requested by the
Administrative Agent upon the instruction of the Banks having more than 50% in
the aggregate amount of the Commitments (or, if the Commitments shall have been
terminated, holding more than 50% of the Letter of Credit Liabilities),
forthwith pay to the Administrative Agent an amount in immediately available
funds (which funds shall be held as collateral pursuant to arrangements
satisfactory to the Administrative Agent) equal to the aggregate amount
available for drawing under all Letters of Credit then outstanding at such time,
provided that, upon the occurrence of any Event of Default specified in Section
6.01(g) or (h) with respect to the Borrower, the Borrower shall pay such amount
forthwith without any notice or demand or any other act by the Administrative
Agent or the Banks.
ARTICLE 7
The Agents
Section 7.1. Appointment and Authorization. Each Bank irrevocably
appoints and authorizes the Administrative Agent to take such action as agent on
its behalf and to exercise such powers under this Agreement and the Notes as are
delegated to the Administrative Agent by the terms hereof or thereof, together
with all such powers as are reasonably incidental thereto.
Section 7.2. Administrative Agent and Affiliates. Morgan Guaranty
Trust Company of New York shall have the same rights and powers under this
Agreement as any other Bank and may exercise or refrain from exercising the same
as though it were not the Administrative Agent, and Morgan Guaranty Trust
Company of New York and its affiliates may accept deposits from, lend money to,
and generally engage in any kind of business with the Borrower or any Subsidiary
or affiliate of the Borrower as if it were not the Administrative Agent
hereunder.
<PAGE> 47
Section 7.3. Action by Administrative Agent. The obligations of
the Administrative Agent hereunder are only those expressly set forth herein.
Without limiting the generality of the foregoing, the Administrative Agent shall
not be required to take any action with respect to any Default, except as
expressly provided in Article 6.
Section 7.4. Consultation with Experts. The Administrative Agent
may consult with legal counsel (who may be counsel for the Borrower),
independent public accountants and other experts selected by it and shall not be
liable for any action taken or omitted to be taken by it in good faith in
accordance with the advice of such counsel, accountants or experts.
Section 7.5. Liability of Administrative Agent. Neither the
Administrative Agent nor any of its affiliates nor any of their respective
directors, officers, agents or employees shall be liable for any action taken or
not taken by it in connection herewith (i) with the consent or at the request of
the Required Banks or (ii) in the absence of its own gross negligence or willful
misconduct. Neither the Administrative Agent nor any of its affiliates nor any
of their respective directors, officers, agents or employees shall be
responsible for or have any duty to ascertain, inquire into or verify (i) any
statement, warranty or representation made in connection with this Agreement or
any borrowing hereunder; (ii) the performance or observance of any of the
covenants or agreements of the Borrower; (iii) the satisfaction of any condition
specified in Article 3, except receipt of items required to be delivered to the
Administrative Agent; or (iv) the validity, effectiveness or genuineness of this
Agreement, the Notes or any other instrument or writing furnished in connection
herewith. The Administrative Agent shall not incur any liability by acting in
reliance upon any notice, consent, certificate, statement, or other writing
(which may be a bank wire, telex, facsimile transmission or similar writing)
believed by it to be genuine or to be signed by the proper party or parties.
Without limiting the generality of the foregoing, the use of the term "agent" in
this Agreement with reference to the Administrative Agent is not intended to
connote any fiduciary or other implied (or express) obligations arising under
agency doctrine of any applicable law. Instead, such term is used merely as a
matter of market custom and is intended to create or reflect only an
administrative relationship between independent contracting parties.
Section 7.6. Indemnification. Each Bank shall, ratably in
accordance with its Commitment, indemnify any Agent, its affiliates and their
respective directors, officers, agents and employees (to the extent not
reimbursed by the Borrower) against any cost, expense (including counsel fees
and disbursements), claim, demand, action, loss or liability (except such as
result from such indemnitees' gross negligence or willful misconduct) that such
indemnitees may suffer or incur in connection with this Agreement or any action
taken or omitted by such indemnitees hereunder.
Section 7.7. Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon any Agent or any other Bank, and based
on such documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Bank also
acknowledges that it will, independently and without reliance upon any Agent or
any other Bank, and based on such documents and information as it shall
<PAGE> 48
deem appropriate at the time, continue to make its own credit decisions in
taking or not taking any action under this Agreement.
Section 7.8. Successor Administrative Agent. The Administrative
Agent may resign at any time by giving notice thereof to the Banks and the
Borrower. Upon any such resignation, the Required Banks shall have the right to
appoint a successor Administrative Agent, with the consent of the Borrower,
which shall not be unreasonably withheld. If no successor Administrative Agent
shall have been so appointed by the Required Banks, and shall have accepted such
appointment, within 30 days after the retiring Administrative Agent gives notice
of resignation, then the retiring Administrative Agent may, on behalf of the
Banks, appoint a successor Administrative Agent, which shall be a commercial
bank organized or licensed under the laws of the United States of America or of
any State thereof and having a combined capital and surplus of at least
$500,000,000. Upon the acceptance of its appointment as Administrative Agent
hereunder by a successor Administrative Agent, such successor Administrative
Agent shall thereupon succeed to and become vested with all the rights and
duties of the retiring Administrative Agent, and the retiring Administrative
Agent shall be discharged from its duties and obligations hereunder. After any
retiring Administrative Agent's resignation hereunder as Administrative Agent,
the provisions of this Article shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Administrative Agent.
Section 7.9. Agents' Fees. The Borrower shall pay to the
Administrative Agent for the account of the Agents fees in the amounts and at
the times previously agreed upon between the Borrower and the Agents.
Section 7.10. Other Agents. Nothing contained in this
Agreement shall be construed to impose any obligation or duty whatsoever on any
Syndication Agent, in its capacity as such an Agent.
ARTICLE 8
Change in Circumstances
Section 8.1. Basis for Determining Interest Rate Inadequate or
Unfair. If on or prior to the first day of any Interest Period for any Fixed
Rate Borrowing:
(a) the Administrative Agent is advised by the
Reference Banks that deposits in dollars (in the applicable amounts) are not
being offered to the Reference Banks in the relevant market for such Interest
Period, or
(b) in the case of a Committed Borrowing, Banks having
50% or more of the aggregate amount of the Commitments advise the Administrative
Agent that the Adjusted CD Rate or the London Interbank Offered Rate, as the
case may be, as determined by the Administrative Agent will not adequately and
fairly reflect the cost to such Banks of funding their CD Loans or Euro-Dollar
Loans, as the case may be, for such Interest Period,
<PAGE> 49
the Administrative Agent shall forthwith give notice thereof to the Borrower and
the Banks, whereupon until the Administrative Agent notifies the Borrower that
the circumstances giving rise to such suspension no longer exist, the
obligations of the Banks to make CD Loans or Euro-Dollar Loans, as the case may
be, shall be suspended. Unless the Borrower notifies the Administrative Agent at
least two Domestic Business Days before the date of any Fixed Rate Borrowing for
which a Notice of Borrowing has previously been given that it elects not to
borrow on such date, (i) if such Fixed Rate Borrowing is a Committed Borrowing,
such Borrowing shall instead be made as a Base Rate Borrowing and (ii) if such
Fixed Rate Borrowing is a Money Market LIBOR Borrowing, the Money Market LIBOR
Loans comprising such Borrowing shall bear interest for each day from and
including the first day to but excluding the last day of the Interest Period
applicable thereto at the Base Rate for such day.
Section 8.2. Illegality. If, on or after the date of this
Agreement, the adoption of any applicable law, rule or regulation, or any change
in any applicable law, rule or regulation, or any change in the interpretation
or administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by any Bank (or its Euro-Dollar Lending Office) with any request or
directive (whether or not having the force of law) of any such authority,
central bank or comparable agency shall make it unlawful or impossible for any
Bank (or its Euro-Dollar Lending Office) to make, maintain or fund its
Euro-Dollar Loans and such Bank shall so notify the Administrative Agent, the
Administrative Agent shall forthwith give notice thereof to the other Banks and
the Borrower, whereupon until such Bank notifies the Borrower and the
Administrative Agent that the circumstances giving rise to such suspension no
longer exist, the obligation of such Bank to make Euro-Dollar Loans shall be
suspended. Before giving any notice to the Administrative Agent pursuant to this
Section, such Bank shall designate a different Euro-Dollar Lending Office if
such designation will avoid the need for giving such notice and will not, in the
judgment of such Bank, be otherwise disadvantageous to such Bank. If such Bank
shall determine that it may not lawfully continue to maintain and fund any of
its outstanding Euro-Dollar Loans to maturity and shall so specify in such
notice, the Borrower shall immediately prepay in full the then outstanding
principal amount of each such Euro-Dollar Loan, together with accrued interest
thereon. Concurrently with prepaying each such Euro-Dollar Loan, the Borrower
shall borrow a Base Rate Loan in an equal principal amount from such Bank (on
which interest and principal shall be payable contemporaneously with the related
Euro-Dollar Loans of the other Banks), and such Bank shall make such a Base Rate
Loan.
Section 8.3. Increased Cost and Reduced Return. (a) If on or
after (x) the date hereof, in the case of any Committed Loan or Letter of Credit
or any obligation to make Committed Loans or issue or participate in any Letter
of Credit or (y) the date of the related Money Market Quote, in the case of any
Money Market Loan, the adoption of any applicable law, rule or regulation, or
any change in any applicable law, rule or regulation, or any change in the
interpretation or administration thereof by any governmental
<PAGE> 50
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Bank (or its Applicable Lending
Office) with any request or directive (whether or not having the force of law)
of any such authority, central bank or comparable agency shall impose, modify or
deem applicable any reserve (including, without limitation, any such requirement
imposed by the Board of Governors of the Federal Reserve System, but excluding
(i) with respect to any CD Loan any such requirement included in an applicable
Domestic Reserve Percentage and (ii) with respect to any Euro-Dollar Loan any
such requirement with respect to which such Bank is entitled to compensation
during the relevant Interest Period under Section 2.15), special deposit,
insurance assessment (excluding, with respect to any CD Loan, any such
requirement reflected in an applicable Assessment Rate) or similar requirement
against assets of, deposits with or for the account of, or credit extended by,
any Bank (or its Applicable Lending Office) or shall impose on any Bank (or its
Applicable Lending Office) or on the United States market for certificates of
deposit or the London interbank market any other condition affecting its Fixed
Rate Loans, its Note or its participation in any Letter of Credit or its
obligation to make Fixed Rate Loans or issue or participate in Letters of Credit
and the result of any of the foregoing is to increase the cost to such Bank (or
its Applicable Lending Office) of making or maintaining any Fixed Rate Loan or
of issuing or participating in any Letter of Credit, or to reduce the amount of
any sum received or receivable by such Bank (or its Applicable Lending Office)
under this Agreement or under its Note with respect thereto, by an amount deemed
by such Bank to be material, then, within 15 days after demand by such Bank
(with a copy to the Administrative Agent), the Borrower shall pay to such Bank
such additional amount or amounts as will compensate such Bank for such
increased cost or reduction.
(b) If any Bank shall have determined that, after the date hereof,
the adoption of any applicable law, rule or regulation regarding capital
adequacy, or any change in any such law, rule or regulation, or any change in
the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on capital of such Bank (or its Parent) as a consequence of such Bank's
obligations hereunder to a level below that which such Bank (or its Parent)
could have achieved but for such adoption, change, request or directive (taking
into consideration its policies with respect to capital adequacy) by an amount
deemed by such Bank to be material, then from time to time, within 15 days after
demand by such Bank (with a copy to the Administrative Agent), the Borrower
shall pay to such Bank such additional amount or amounts as will compensate such
Bank (or its Parent) for such reduction.
(c) Each Bank will promptly notify the Borrower and the
Administrative Agent of any event of which it has knowledge, occurring after the
date hereof, which will entitle such Bank to compensation pursuant to this
Section and will designate a different Applicable Lending Office if such
designation will avoid the need for, or reduce the amount of, such compensation
and will not, in the judgment of such Bank, be otherwise disadvantageous to such
Bank. A certificate of any Bank claiming compensation under this Section and
setting forth in reasonable detail the additional
<PAGE> 51
amount or amounts to be paid to it hereunder shall be conclusive in the absence
of manifest error. In determining such amount, such Bank may use any reasonable
averaging and attribution methods. Notwithstanding the foregoing subsections (a)
and (b) of this Section 8.3, the Borrower shall only be obligated to compensate
any Bank for any amount arising or accruing during (i) any time or period
commencing not more than 90 days prior to the date on which such Bank notifies
the Administrative Agent and the Borrower that it proposes to demand such
compensation and identifies to the Administrative Agent and the Borrower the
statute, regulation or other basis upon which the claimed compensation is or
will be based and (ii) any time or period during which, because of the
retroactive application of such statute, regulation or other such basis, such
Bank did not know that such amount would arise or accrue.
Section 8.4. Taxes. (a) For purposes of this Section 8.4, the
following terms have the following meanings:
"Taxes" means any and all present or future taxes, duties,
levies, imposts, deductions, charges or withholdings with respect to any payment
by the Borrower pursuant to this Agreement or under any Note or Letter of
Credit, and all liabilities with respect thereto, excluding (i) in the case of
each Bank and the Administrative Agent, taxes imposed on its income, and
franchise or similar taxes imposed on it, by a jurisdiction under the laws of
which such Bank or the Administrative Agent (as the case may be) is organized or
in which its principal executive office is located or, in the case of each Bank,
in which its Applicable Lending Office is located and (ii) in the case of each
Bank, any United States withholding tax imposed on such payments but only to the
extent that such Bank is subject to United States withholding tax at the time
such Bank first becomes a party to this Agreement.
"Other Taxes" means any present or future stamp or documentary
taxes and any other excise or property taxes, or similar charges or levies,
which arise from any payment made pursuant to this Agreement or under any Note
or Letter of Credit or from the execution or delivery of, or otherwise with
respect to, this Agreement or any Note or Letter of Credit.
(b) Any and all payments by the Borrower to or for the account of any
Bank or the Administrative Agent hereunder or under any Note shall be made
without deduction for any Taxes or Other Taxes; provided that, if the Borrower
shall be required by law to deduct any Taxes or Other Taxes from any such
payments, (i) the sum payable shall be increased as necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section 8.4) such Bank or the Administrative Agent (as
the case may be) receives an amount equal to the sum it would have received had
no such deductions been made, (ii) the Borrower shall make such deductions,
(iii) the Borrower shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law and (iv) the
Borrower shall furnish to the Administrative Agent, at its address referred to
in Section 9.1, the original or a certified copy of a receipt evidencing payment
thereof.
(c) The Borrower agrees to indemnify each Bank and the Administrative
Agent for the full amount of Taxes or Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed or asserted by any
<PAGE> 52
jurisdiction on amounts payable under this Section 8.4) paid by such Bank or the
Administrative Agent (as the case may be) and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto.
This indemnification shall be paid within 15 days after such Bank or the
Administrative Agent (as the case may be) makes demand therefor.
(d) Each Bank organized under the laws of a jurisdiction outside the
United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Bank listed on the signature pages hereof and on
or prior to the date on which it becomes a Bank in the case of each other Bank,
and from time to time thereafter if requested in writing by the Borrower (but
only so long as such Bank remains lawfully able to do so), shall provide the
Borrower with Internal Revenue Service form 1001 or 4224, as appropriate, or any
successor form prescribed by the Internal Revenue Service, certifying that such
Bank is entitled to benefits under an income tax treaty to which the United
States is a party which exempts the Bank from United States withholding tax or
reduces the rate of withholding tax on payments of interest for the account of
such Bank or certifying that the income receivable pursuant to this Agreement is
effectively connected with the conduct of a trade or business in the United
States.
(e) For any period with respect to which a Bank has failed to provide
the Borrower with the appropriate form pursuant to Section 8.4(d) (unless such
failure is due to a change in treaty, law or regulation occurring subsequent to
the date on which such form originally was required to be provided), such Bank
shall not be entitled to indemnification under Section 8.4(b) or (c) with
respect to Taxes imposed by the United States; provided that if a Bank, which is
otherwise exempt from or subject to a reduced rate of withholding tax, becomes
subject to Taxes because of its failure to deliver a form required hereunder,
the Borrower, at such Bank's expense, shall take such steps as such Bank shall
reasonably request to assist such Bank to recover such Taxes.
(f) If the Borrower is required to pay additional amounts to or for
the account of any Bank pursuant to this Section 8.4, then such Bank will change
the jurisdiction of its Applicable Lending Office if, in the judgment of such
Bank, such change (i) will eliminate or reduce any such additional payment which
may thereafter accrue and (ii) is not otherwise disadvantageous to such Bank.
Section 8.5. Base Rate Loans Substituted for Affected Fixed Rate
Loans. If (i) the obligation of any Bank to make Euro-Dollar Loans has been
suspended pursuant to Section 8.2 or (ii) any Bank has demanded compensation
under Section 8.3 or 8.4 with respect to its CD Loans or Euro-Dollar Loans and
the Borrower shall, by at least five Euro-Dollar Business Days' prior notice to
such Bank through the Administrative Agent, have elected that the provisions of
this Section shall apply to such Bank, then, unless and until such Bank notifies
the Borrower that the circumstances giving rise to such suspension or demand for
compensation no longer exist:
(a) all Loans which would otherwise be made by such Bank as CD Loans
or Euro-Dollar Loans, as the case may be, shall be made instead as Base Rate
Loans (on which interest and principal shall be payable contemporaneously with
the related Fixed Rate Loans of the other Banks), and
<PAGE> 53
(b) after each of its CD Loans or Euro-Dollar Loans, as the case may
be, has been repaid, all payments of principal which would otherwise be applied
to repay such Fixed Rate Loans shall be applied to repay its Base Rate Loans
instead.
Section 8.6. Substitution of Bank. If (i) the obligation of any
Bank to make Euro-Dollar Loans has been suspended pursuant to Section 8.2 or
(ii) any Bank has demanded compensation under Section 8.3 or 8.4, the Borrower
shall have the right, with the assistance of the Administrative Agent, to seek a
mutually satisfactory substitute bank or banks (which may be one or more of the
Banks) to purchase the Note and assume the Commitment of such Bank.
ARTICLE 9
Miscellaneous
Section 9.1. Notices. All notices, requests and other
communications to any party hereunder shall be in writing (including bank wire,
telex, facsimile transmission or similar writing) and shall be given to such
party: (x) in the case of the Borrower or the Administrative Agent, at its
address, facsimile number or telex number set forth on the signature pages
hereof, (y) in the case of any Bank, at its address, facsimile number or telex
number set forth in its Administrative Questionnaire or (z) in the case of any
party, such other address, facsimile number or telex number as such party may
hereafter specify for the purpose by notice to the Administrative Agent and the
Borrower. Each such notice, request or other communication shall be effective
(i) if given by telex, when such telex is transmitted to the telex number
specified in this Section and the appropriate answerback is received, (ii) if
given by facsimile transmission, when transmitted to the facsimile number
specified in this Section and confirmation of receipt is received or (iii) if
given by any other means, when delivered at the address specified in this
Section; provided that notices to the Administrative Agent under Article 2 or
Article 8 shall not be effective until received.
Section 9.2. No Waivers. No failure or delay by the
Administrative Agent or any Bank in exercising any right, power or privilege
hereunder or under any Note shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
Section 9.3. Expenses; Indemnification. (a) The Borrower shall
pay (i) all reasonable out-of-pocket expenses of the Administrative Agent,
including fees and disbursements of Davis Polk & Wardwell, special counsel for
the Agents, in connection with the preparation and administration of this
Agreement, any waiver or consent hereunder or any amendment hereof or any
Default or alleged Default hereunder and (ii) if an Event of Default occurs, all
out-of-pocket expenses incurred by each Agent and Bank, including (without
duplication) the fees and disbursements of outside counsel and the allocated
cost of inside counsel, in connection with such Event of Default and collection,
bankruptcy, insolvency and other enforcement proceedings resulting therefrom.
<PAGE> 54
(b) The Borrower agrees to indemnify each Agent and Bank, their
respective affiliates and the respective directors, officers, agents and
employees of the foregoing (each an "Indemnitee") and hold each Indemnitee
harmless from and against any and all liabilities, losses, damages, costs and
expenses of any kind, including, without limitation, the reasonable fees and
disbursements of counsel, which may be incurred by such Indemnitee in connection
with any investigative, administrative or judicial proceeding (whether or not
such Indemnitee shall be designated a party thereto) brought or threatened
relating to or arising out of (i) any actual or proposed use of proceeds of
Loans hereunder or (ii) any actual or alleged Default under this Agreement or
any actual or alleged untruth or inaccuracy of any representation or warranty
made by the Borrower in or in connection with this Agreement; provided that no
Indemnitee shall have the right to be indemnified hereunder for such
Indemnitee's own gross negligence or willful misconduct as finally determined by
a court of competent jurisdiction.
Section 9.4. Sharing of Set-offs. Each Bank agrees that if it
shall, by exercising any right of set-off or counterclaim or otherwise, receive
payment of a proportion of the aggregate amount of principal and interest due
with respect to its Loans and Letter of Credit Liabilities which is greater than
the proportion received by any other Bank in respect of the aggregate amount of
principal and interest due with respect to the Loans and Letter of Credit
Liabilities of such other Bank, the Bank receiving such proportionately greater
payment shall purchase such participations in the Loans and Letter of Credit
Liabilities of the other Banks, and such other adjustments shall be made, as may
be required so that all such payments of principal and interest with respect to
the Loans and Letter of Credit Liabilities shall be shared by the Banks pro
rata; provided that nothing in this Section shall impair the right of any Bank
to exercise any right of set-off or counterclaim it may have and to apply the
amount subject to such exercise to the payment of indebtedness of the Borrower
other than its indebtedness hereunder. The Borrower agrees, to the fullest
extent it may effectively do so under applicable law, that any holder of a
participation in a Loan and Letter of Credit Liability, whether or not acquired
pursuant to the foregoing arrangements, may exercise rights of set-off or
counterclaim and other rights with respect to such participation as fully as if
such holder of a participation were a direct creditor of the Borrower in the
amount of such participation.
Section 9.5. Amendments and Waivers. Any provision of this
Agreement or the Notes may be amended or waived if, but only if, such amendment
or waiver is in writing and is signed by the Borrower and the Required Banks
(and, if the rights or duties of any Agent or any Issuing Bank are affected
thereby, by it); provided that no such amendment or waiver shall, unless signed
by all the Banks, (i) increase or decrease the Commitment of any Bank (except
for a ratable decrease in the Commitments of all Banks) or subject any Bank to
any additional obligation, (ii) reduce the principal of or rate of interest on
any Loan or Letter of Credit Liability or any fees hereunder, (iii) postpone the
date fixed for any payment of principal of or interest on any Loan or the amount
to be reimbursed in respect of any Letter of Credit or interest thereon or any
fees hereunder or for termination of any Commitments or (iv) change the
percentage of the Commitments or of the
<PAGE> 55
aggregate unpaid principal amount of the Loans and/or Letter of Credit
Liabilities, or the number of Banks, which shall be required for the Banks or
any of them to take any action under this Section or any other provision of this
Agreement.
Section 9.6. Successors and Assigns. (a) The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that the Borrower may not
assign or otherwise transfer any of its rights under this Agreement without the
prior written consent of all Banks.
(b) Any Bank may at any time grant to one or more banks or other
institutions (each a "Participant") participating interests in its Commitment or
any or all of its Loans. In the event of any such grant by a Bank of a
participating interest to a Participant, whether or not upon notice to the
Borrower and the Administrative Agent, such Bank shall remain responsible for
the performance of its obligations hereunder, and the Borrower, the Issuing
Banks and the Administrative Agent shall continue to deal solely and directly
with such Bank in connection with such Bank's rights and obligations under this
Agreement. Any agreement pursuant to which any Bank may grant such a
participating interest shall provide that such Bank shall retain the sole right
and responsibility to enforce the obligations of the Borrower hereunder
including, without limitation, the right to approve any amendment, modification
or waiver of any provision of this Agreement; provided that such participation
agreement may provide that such Bank will not agree to any modification,
amendment or waiver of this Agreement described in clause (i), (ii) or (iii) of
Section 9.5 without the consent of the Participant. The Borrower agrees that
each Participant shall, to the extent provided in its participation agreement,
be entitled to the benefits of Article 8 with respect to its participating
interest. An assignment or other transfer which is not permitted by subsection
(c) or (d) below shall be given effect for purposes of this Agreement only to
the extent of a participating interest granted in accordance with this
subsection (b).
(c) Any Bank may at any time assign to one or more banks or other
institutions (each an "Assignee") all, or a proportionate part (equivalent to an
initial Commitment of not less than $10,000,000) of all, of its rights and
obligations under this Agreement and the Notes, and such Assignee shall assume
such rights and obligations, pursuant to an Assignment and Assumption Agreement
in substantially the form of Exhibit G hereto executed by such Assignee and such
transferor Bank, with (and subject to) the subscribed consent of the Borrower,
which shall not be unreasonably withheld, the Issuing Banks and the
Administrative Agent; provided that if an Assignee is an affiliate of such
transferor Bank or was a Bank immediately prior to such assignment, no such
consent shall be required; and provided further that such assignment may, but
need not, include rights of the transferor Bank in respect of outstanding Money
Market Loans. Upon execution and delivery of such instrument and payment by such
Assignee to such transferor Bank of an amount equal to the purchase price agreed
between such transferor Bank and such Assignee, such Assignee shall be a Bank
party to this Agreement and shall have all the rights and obligations of a Bank
with a Commitment as set forth in such instrument of assumption, and the
transferor Bank shall be released from its obligations hereunder to a
corresponding extent, and no further consent or action by any party shall be
required. Upon the consummation of any
<PAGE> 56
assignment pursuant to this subsection (c), the transferor Bank, the
Administrative Agent and the Borrower shall make appropriate arrangements so
that, if required, a new Note is issued to the Assignee. In connection with any
such assignment, the transferor Bank shall pay to the Administrative Agent an
administrative fee for processing such assignment in the amount of $2,500. If
the Assignee is not incorporated under the laws of the United States of America
or a state thereof, it shall deliver to the Borrower and the Administrative
Agent certification as to exemption from deduction or withholding of any United
States federal income taxes in accordance with Section 8.4.
(d) Any Bank may at any time assign all or any portion of its rights
under this Agreement and its Note to a Federal Reserve Bank. No such assignment
shall release the transferor Bank from its obligations hereunder.
(e) No Assignee, Participant or other transferee of any Bank's rights
shall be entitled to receive any greater payment under Section 8.3 or 8.4 than
such Bank would have been entitled to receive with respect to the rights
transferred, unless such transfer is made with the Borrower's prior written
consent or by reason of the provisions of Section 8.2, 8.3 or 8.4 requiring such
Bank to designate a different Applicable Lending Office under certain
circumstances or at a time when the circumstances giving rise to such greater
payment did not exist.
Section 9.7. Collateral. Each of the Banks represents to each
Agent and each of the other Banks that it in good faith is not relying upon any
"margin stock" (as defined in Regulation U) as collateral in the extension or
maintenance of the credit provided for in this Agreement.
Section 9.8. Governing Law; Submission to Jurisdiction. This
Agreement and each Note shall be governed by and construed in accordance with
the laws of the State of New York. The Borrower hereby submits to the
nonexclusive jurisdiction of the United States District Court for the Southern
District of New York and of any New York State court sitting in New York City
having subject matter jurisdiction for purposes of all legal proceedings arising
out of or relating to this Agreement or the transactions contemplated hereby.
The Borrower irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of the venue of any
such proceeding brought in such a court and any claim that any such proceeding
brought in such a court has been brought in an inconvenient forum.
Section 9.9. Counterparts; Integration. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement constitutes the entire agreement and understanding
among the parties hereto and supersedes any and all prior agreements and
understandings, oral or written, relating to the subject matter hereof except
the obligations of the Borrower to pay fees and expenses and to assist in the
syndication process as specified in the respective commitment letters and fee
letters heretofore entered into between the Borrower and the Agents.
<PAGE> 57
Section 9.10. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE
ADMINISTRATIVE AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT
TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 9.11. Existing Credit Agreement. On the Effective
Date and simultaneously with the receipt by the Administrative Agent of the
required documents pursuant to Section 3.1, the Borrower hereby gives notice to
Morgan Guaranty Trust Company of New York, as agent, under Section 2.9 of the
Existing Credit Agreement referred to in clause (x) of Section 3.1 of the
termination of the Commitments (as defined herein) and the Banks hereby waive
the requirement that prior notice of such termination be given as therein
provided.
<PAGE> 58
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed by their respective authorized officers as of the day and
year first above written.
K N ENERGY, INC.
By /s/ Clyde E. McKenzie
--------------------------------------
Title: Vice President & Chief
Financial Officer
370 Van Gordon Street
Lakewood, CO 80228-8304
Attention: Chief Financial Officer
Facsimile number: (303) 914-4542
Commitments
- -----------
$133,333,333.33 MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By /s/ John Kowalczuk
--------------------------------------
Title: Vice President
$88,888,888.89 BANK OF AMERICA NT & SA
By /s/ J. Stephen Mernick
--------------------------------------
Title: Senior Vice President
$88,888,888.89 THE CHASE MANHATTAN BANK
By /s/ Mary Jo Woodford
--------------------------------------
Title: Vice President
<PAGE> 59
$88,888,888.89 NATIONSBANK, N.A.
By /s/ David C. Rubenking
--------------------------------------
Title: Senior Vice President
- ---------------------
Total Commitments
$400,000,000
============
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Administrative Agent
By /s/ John Kowalczuk
--------------------------------------
Title: Vice President
60 Wall Street
New York, New York 10260-0060
Attention: John Kowalczuk
Telex number: 177615
Facsimile number: 212-648-5014
<PAGE> 60
PRICING SCHEDULE
The "Euro-Dollar Margin", "CD Margin" and "Facility Fee Rate" for
any day are the respective percentages set forth below in the applicable row
under the column corresponding to the Status that exists on such day:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Level Level Level Level Level Level
Status I II III IV V VI
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Euro-Dollar Margin
Utilization < 50% 0.200% 0.275% 0.325% 0.500% 0.625% 1.000%
Utilization > 50% 0.325% 0.400% 0.450% 0.625% 0.750% 1.125%
-
- --------------------------------------------------------------------------
CD Margin
Utilization < 50% 0.325% 0.400% 0.450% 0.625% 0.750% 1.125%
Utilization > 50% 0.450% 0.525% 0.575% 0.750% 0.875% 1.250%
-
- --------------------------------------------------------------------------
Facility Fee Rate 0.100% 0.125% 0.175% 0.250% 0.375% 0.500%
- --------------------------------------------------------------------------
</TABLE>
For purposes of this Schedule, the following terms have the
following meanings:
"Level I Status" exists at any date if, at such date, the
Borrower's senior unsecured long-term debt is rated BBB+ or higher by S&P and
Baa1 or higher by Moody's.
"Level II Status" exists at any date if, at such date, (i) the
Borrower's senior unsecured long-term debt is rated BBB or higher by S&P and
Baa2 or higher by Moody's and (ii) Level I Status does not exist.
"Level III Status" exists at any date if, at such date, (i) the
Borrower's senior unsecured long-term debt is rated BBB- or higher by S&P and
Baa3 or higher by Moody's and (ii) neither Level I Status nor Level II Status
exists.
"Level IV Status" exists at any date if, at such date, (i) the
Borrower's senior unsecured long-term debt is rated BB+ or higher by S&P and Ba1
or higher by Moody's and (ii) none of Level I Status, Level II Status and Level
III Status exists.
"Level V Status" exists at any date if, at such date, (i) the
Borrower's senior unsecured long-term debt is rated BB or higher by S&P and Ba2
or higher by Moody's and (ii) none of Level I Status, Level II Status, Level III
Status and Level IV Status exists.
"Level VI Status" exists at any date if, at such date, no other
Status exists.
"Status" refers to the determination of which of Level I Status,
Level II Status, Level III Status, Level IV Status, Level V Status or Level VI
Status exists at any date.
<PAGE> 61
"Utilization" means, at any date, the percentage equivalent of a
fraction (i) the numerator of which is the sum of the aggregate outstanding
principal amount of the Loans and the aggregate Letter of Credit Liabilities at
such date and (ii) the denominator of which is the aggregate amount of the
Commitments at such date. If for any reason any Loans remain outstanding
following termination of the Commitments, Utilization shall be deemed to be in
excess of 50%.
The credit ratings to be utilized for purposes of this Schedule
are those assigned to the senior unsecured long-term debt securities of the
Borrower without third-party credit enhancement, and any rating assigned to any
other debt security of the Borrower shall be disregarded. The rating in effect
at any date is that in effect at the close of business on such date.
<PAGE> 62
EXHIBIT A
NOTE
New York, New York
, 199_
For value received, K N Energy, Inc., a Kansas corporation (the
"Borrower"), promises to pay to the order of (the "Bank"), for the account of
its Applicable Lending Office, the unpaid principal amount of each Loan made by
the Bank to the Borrower pursuant to the Credit Agreement referred to below on
the last day of the Interest Period relating to such Loan. The Borrower promises
to pay interest on the unpaid principal amount of each such Loan on the dates
and at the rate or rates provided for in the Credit Agreement. All such payments
of principal and interest shall be made in lawful money of the United States in
Federal or other immediately available funds at the office of Morgan Guaranty
Trust Company of New York, 60 Wall Street, New York, New York.
All Loans made by the Bank, the respective types and maturities thereof
and all repayments of the principal thereof shall be recorded by the Bank and,
if the Bank so elects in connection with any transfer or enforcement hereof,
appropriate notations to evidence the foregoing information with respect to each
such Loan then outstanding may be endorsed by the Bank on the schedule attached
hereto, or on a continuation of such schedule attached to and made a part
hereof; provided that the failure of the Bank to make any such recordation or
endorsement shall not affect the obligations of the Borrower hereunder or under
the Credit Agreement.
This note is one of the Notes referred to in the Five-Year Credit
Agreement dated as of January 30, 1998 among the Borrower, the banks listed on
the signature pages thereof and Morgan Guaranty Trust Company of New York, as
Administrative Agent (as the same may be amended from time to time, the "Credit
Agreement"). Terms defined in the Credit Agreement are used herein with the same
meanings. Reference is made to the Credit Agreement for provisions for the
prepayment hereof and the acceleration of the maturity hereof.
K N ENERGY, INC.
By
--------------------------------------
Title:
<PAGE> 63
Note (cont'd)
LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
Amount of
Amount of Type of Principal Maturity Notation
Date Loan Loan Repaid Date Made By
- ------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
</TABLE>
<PAGE> 64
EXHIBIT B
Form of Money Market Quote Request
[Date]
To: Morgan Guaranty Trust Company of New York
(the "Administrative Agent")
From: K N Energy, Inc.
Re: Five-Year Credit Agreement (the "Credit Agreement") dated as of
January 30, 1998 among the Borrower, the Banks listed on the
signature pages thereof and the Administrative Agent
We hereby give notice pursuant to Section 2.3 of the Credit Agreement
that we request Money Market Quotes for the following proposed Money Market
Borrowing(s):
Date of Borrowing: __________________
Principal Amount* Interest Period**
$
Such Money Market Quotes should offer a Money Market [Margin] [Absolute
Rate]. [The applicable base rate is the London Interbank Offered Rate.]
- ------------
* Amount must be $5,000,000 or a larger multiple of $1,000,000.
** Not less than one month and not more than nine months (LIBOR Auction)
or not less than seven days and not more than 360 days (Absolute Rate Auction),
subject to the provisions of the definition of Interest Period.
Terms used herein have the meanings assigned to them in the Credit Agreement.
K N ENERGY, INC.
By
-----------------------------------
Title:
<PAGE> 65
EXHIBIT C
Form of Invitation for Money Market Quotes
To: [Name of Bank]
Re: Invitation for Money Market Quotes to K N Energy, Inc. (the "Borrower")
Pursuant to Section 2.03 of the Five-Year Credit Agreement dated as of
January 30, 1998 among the Borrower, the Banks parties thereto and the
undersigned, as Administrative Agent, we are pleased on behalf of the Borrower
to invite you to submit Money Market Quotes to the Borrower for the following
proposed Money Market Borrowing(s):
Date of Borrowing: __________________
Principal Amount Interest Period
$
Such Money Market Quotes should offer a Money Market [Margin] [Absolute
Rate]. [The applicable base rate is the London Interbank Offered Rate.]
Please respond to this invitation by no later than [2:00 P.M.] [9:30
A.M.] (New York City time) on [date].
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By
------------------------------------
Authorized Officer
<PAGE> 66
EXHIBIT D
Form of Money Market Quote
To: Morgan Guaranty Trust Company of New York, as Administrative Agent
Re: Money Market Quote to K N Energy, Inc. (the "Borrower")
In response to your invitation on behalf of the Borrower dated
_____________, 19__, we hereby make the following Money Market Quote on the
following terms:
1. Quoting Bank: ________________________________
2. Person to contact at Quoting Bank:
-----------------------------
3. Date of Borrowing: ____________________*
4. We hereby offer to make Money Market Loan(s) in the following
principal amounts, for the following Interest Periods and at the
following rates:
Principal Interest Money Market
- ----------------
* As specified in the related Invitation.
<PAGE> 67
Amount** Period*** [Margin****] [Absolute Rate*****]
$
$
[Provided, that the aggregate principal amount of Money Market Loans
for which the above offers may be accepted shall not exceed
$____________.]**
We understand and agree that the offer(s) set forth above, subject to
the satisfaction of the applicable conditions set forth in the Five-Year Credit
Agreement dated as of January 30, 1998 among the Borrower, the Banks listed on
the signature pages thereof and yourselves, as Administrative Agent, irrevocably
obligates us to make the Money Market Loan(s) for which any offer(s) are
accepted, in whole or in part.
Very truly yours,
[NAME OF BANK]
Dated: By
----------------------------------------
Authorized Officer
- ------------
** Principal amount bid for each Interest Period may not exceed principal
amount requested. Specify aggregate limitation if the sum of the individual
offers exceeds the amount the Bank is willing to lend. Bids must be made for
$5,000,000 or a larger multiple of $1,000,000.
*** Not less than one month and not more than nine months or not less than seven
days and not more than 360 days, as specified in the related Invitation. No more
than five bids are permitted for each Interest Period.
**** Margin over or under the London Interbank Offered Rate determined for the
applicable Interest Period. Specify percentage (to the nearest 1/10,000th of 1%)
and specify whether "PLUS" or "MINUS".
***** Specify rate of interest per annum (to the nearest 1/10,000th of 1%).
<PAGE> 68
EXHIBIT E-1
OPINION OF
SPECIAL COUNSEL FOR THE BORROWER
To the Banks and the Administrative Agent
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Administrative Agent
60 Wall Street
New York, New York 10260
Dear Sirs:
We have acted as special counsel for K N Energy, Inc. (the "Borrower")
in connection with the Five-Year Credit Agreement (the "Credit Agreement") dated
as of January 30, 1998 among the Borrower, the banks listed on the signature
pages thereof and Morgan Guaranty Trust Company of New York, as Administrative
Agent. Terms defined in the Credit Agreement are used herein as therein defined.
This opinion is being rendered to you at the request of our client pursuant to
Section 3.1(c) of the Credit Agreement.
We have examined originals or copies, certified or otherwise identified
to our satisfaction, of such documents, corporate records, certificates of
public officials and other instruments and have conducted such other
investigations of fact and law as we have deemed necessary or advisable for
purposes of this opinion.
Upon the basis of the foregoing, we are of the opinion that:
1. The execution, delivery and performance by the Borrower of the
Credit Agreement and the Notes require no action by or in respect of, or filing
with, any governmental body, agency or official of the State of Texas or the
United States of America (other than filings of the Credit Agreement and the
Notes with the Securities and Exchange Commission pursuant to the reporting
requirements of the Securities and Exchange Act of 1934) and do not contravene,
or constitute a default under, any provision of applicable law or
<PAGE> 69
regulation of the State of Texas or the United States of America, or of the
articles of incorporation or by-laws of the Borrower.
2. The Credit Agreement constitutes a valid and binding agreement of
the Borrower and each Note constitutes a valid and binding obligation of the
Borrower, in each case enforceable against the Borrower in accordance with its
terms, except as the same may be limited by bankruptcy, insolvency or similar
laws affecting creditors' rights generally and by general principles of equity.
We are members of the Bar of the State of Texas and the foregoing
opinion is limited to the laws of the State of Texas, the State of New York and
the federal laws of the United States of America. In giving the foregoing
opinion, we express no opinion as to the effect (if any) of any law of any
jurisdiction in which any Bank is located which limits the rate of interest that
such Bank may charge or collect. Insofar as the foregoing opinion involves
matters governed by the laws of the State of Kansas (which matters do not in our
view include the non-contravention opinion in paragraph 1), we have relied,
without independent investigation, upon the opinion of Polsinelli, White,
Vardeman & Shalton, delivered to you pursuant to Section 3.1(c) of the Credit
Agreement.
This opinion is rendered solely to you and any Assignee or Participant
in connection with the above matter. This opinion may not be relied upon by you
or any Assignee or Participant for any other purpose or relied upon by any other
person without our prior written consent.
Very truly yours,
<PAGE> 70
EXHIBIT E-2
OPINION OF
KANSAS COUNSEL FOR THE BORROWER
To the Banks and the Administrative Agent
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Administrative Agent
60 Wall Street
New York, New York 10260
Dear Sirs:
We have acted as counsel in the State of Kansas for K N Energy, Inc.
(the "Borrower") in connection with the Five-Year Credit Agreement (the "Credit
Agreement") dated as of January 30, 1998 among the Borrower, the banks listed on
the signature pages thereof and Morgan Guaranty Trust Company of New York, as
Administrative Agent. Terms defined in the Credit Agreement are used herein as
therein defined. This opinion is being rendered to you at the request of our
client pursuant to Section 3.1(c) of the Credit Agreement.
We have examined originals or copies, certified or otherwise identified
to our satisfaction, of such documents, corporate records, certificates of
public officials and other instruments and have conducted such other
investigations of fact and law as we have deemed necessary or advisable for
purposes of this opinion.
<PAGE> 71
Upon the basis of the foregoing, we are of the opinion that:
1. The Borrower is a corporation duly incorporated, validly existing
and in good standing under the laws of Kansas, and has all corporate powers
required to carry on its business as now conducted.
2. The execution, delivery and performance by the Borrower of the
Credit Agreement and the Notes are within the Borrower's corporate powers, have
been duly authorized by all necessary corporate action, require no action by or
in respect of, or filing with, any governmental body, agency or official of the
State of Kansas and do not contravene, or constitute a default under, any
provision of applicable law or regulation of the State of Kansas.
We are members of the Bar of the State of Kansas and the foregoing
opinion is limited to the laws of the State of Kansas.
This opinion is rendered solely to you and any Assignee or Participant
in connection with the above matter. This opinion may not be relied upon by you
or any Assignee or Participant for any other purpose or relied upon by any other
person without our prior written consent.
Very truly yours,
<PAGE> 72
EXHIBIT E-3
OPINION OF
GENERAL COUNSEL OF THE BORROWER
To the Banks and the Administrative Agent
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Administrative Agent
60 Wall Street
New York, New York 10260
Dear Sirs:
I am General Counsel of K N Energy, Inc. (the "Borrower"), and I have
represented the Borrower in connection with the Five-Year Credit Agreement (the
"Credit Agreement") dated as of January 30, 1998 among the Borrower, the banks
listed on the signature pages thereof and Morgan Guaranty Trust Company of New
York, as Administrative Agent. Terms defined in the Credit Agreement are used
herein as therein defined. This opinion is being rendered to you at the request
of my client pursuant to Section 3.1(c) of the Credit Agreement.
I have examined originals or copies, certified or otherwise identified
to my satisfaction, of such documents, corporate records, certificates of public
officials and other instruments and have conducted such other investigations of
fact and law as I have deemed necessary or advisable for purposes of this
opinion.
<PAGE> 73
Upon the basis of the foregoing, I am of the opinion that:
1. The Borrower has all material governmental licenses, authorizations,
consents and approvals required to carry on its business as now conducted.
2. The execution, delivery and performance by the Borrower of the
Credit Agreement and the Notes require no action by or in respect of, or filing
with, any governmental body, agency or official of the State of Colorado or, to
the best of my knowledge, any other jurisdiction (other than filings of the
Credit Agreement and the Notes with the Securities and Exchange Commission
pursuant to the reporting requirements of the Securities Exchange Act of 1934)
and do not contravene, or constitute a default under, any provision of
applicable law or regulation of the State of Colorado or, to the best of my
knowledge, any other jurisdiction or of any agreement, judgment, injunction,
order, decree or other instrument binding upon the Borrower or any of its
Subsidiaries or result in the creation or imposition of any, Lien on any asset
of the Borrower or any of its Subsidiaries.
3. There is no action, suit or proceeding pending against, or to the
best of my knowledge threatened against or affecting, the Borrower or any of its
Subsidiaries before any court or arbitrator or any governmental body, agency or
official, in which there is a reasonable possibility of an adverse decision
which could materially adversely affect the business, consolidated financial
position or consolidated results of operations of the Borrower and its
Consolidated Subsidiaries, considered as a whole, or which in any manner draws
into question the validity of the Credit Agreement or the Notes.
4. Each of the Borrower's corporate Material Subsidiaries is a
corporation validly existing and in good standing under the laws of its
jurisdiction of incorporation, and has all corporate powers and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted.
I am a member of the Bar of the State of Colorado and the foregoing
opinion is limited to the laws of the State of Colorado and the General
Corporation Law of the State of Delaware. Insofar as paragraph 2 above addresses
the laws of other jurisdictions, I have relied upon my familiarity with advice
given by counsel admitted to practice in those jurisdictions, in connection with
this and other transactions.
This opinion is rendered solely to you and any Assignee or Participant
in connection with the above matter. This opinion may not be relied upon by you
or any Assignee or Participant for any other purpose or relied upon by any other
person without our prior written consent.
Very truly yours,
<PAGE> 74
EXHIBIT F
OPINION OF
DAVIS POLK & WARDWELL, SPECIAL COUNSEL
FOR THE AGENTS
To the Banks and the Administrative Agent
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Administrative Agent
60 Wall Street
New York, New York 10260
Dear Sirs:
We have participated in the preparation of the Five-Year Credit
Agreement (the "Credit Agreement") dated as of January 30, 1998 among K N
Energy, Inc., a Kansas corporation (the "Borrower"), the banks listed on the
signature pages thereof (the "Banks") and Morgan Guaranty Trust Company of New
York, as Administrative Agent (the "Administrative Agent"), and have acted as
special counsel for the Agents for the purpose of rendering this opinion
pursuant to Section 3.1(c) of the Credit Agreement. Terms defined in the Credit
Agreement are used herein as therein defined.
We have examined originals or copies, certified or otherwise identified
to our satisfaction, of such documents, corporate records, certificates of
public officials and other instruments and have conducted such other
investigations of fact and law as we have deemed necessary or advisable for
purposes of this opinion.
Upon the basis of the foregoing, we are of the opinion that the Credit
Agreement constitutes a valid and binding agreement of the Borrower and each
Note constitutes a valid and binding obligation of the Borrower, in each case
enforceable in accordance with its terms, except as the same may be limited by
bankruptcy, insolvency or similar laws affecting creditors' rights generally and
by general principles of equity.
We are members of the Bar of the State of New York and the foregoing
opinion is limited to the laws of the State of New York and the federal laws of
the United States of America. In giving the foregoing opinion, we express no
opinion as to the effect (if any) of any law of any jurisdiction (except the
State of New York) in which any Bank is located which limits the rate of
interest that such Bank may charge or collect. Insofar as the foregoing opinion
involves matters governed by the laws of Kansas, we have relied, without
independent investigation, upon the opinion of Polsinelli, White, Vardeman &
Shalton, delivered to you pursuant to Section 3.1(c) of the Credit Agreement.
<PAGE> 75
This opinion is rendered solely to you in connection with the above
matter. This opinion may not be relied upon by you for any other purpose or
relied upon by any other person without our prior written consent.
Very truly yours,
<PAGE> 76
A EXHIBIT G
ASSIGNMENT AND ASSUMPTION AGREEMENT
AGREEMENT dated as of _________, 19__ among [ASSIGNOR] (the
"Assignor"), [ASSIGNEE] (the "Assignee"),
K N ENERGY, INC. (the "Borrower") and MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, as Issuing Bank and Administrative Agent (the "Administrative Agent").
W I T N E S S E T H
WHEREAS, this Assignment and Assumption Agreement (the "Agreement")
relates to the Five-Year Credit Agreement dated as of January 30, 1998 among the
Borrower, the Assignor and the other Banks party thereto, as Banks, and the
Administrative Agent (the "Credit Agreement");
WHEREAS, as provided under the Credit Agreement, the Assignor has a
Commitment to make Loans to the Borrower and participate in Letters of Credit in
an aggregate principal amount at any time outstanding not to exceed
$_________________;
WHEREAS, Committed Loans made to the Borrower by the Assignor under the
Credit Agreement in the aggregate principal amount of $__________ are
outstanding at the date hereof;
WHEREAS, Letters of Credit with a total amount available for drawing
thereunder of $_____________are outstanding at the date hereof; and
WHEREAS, the Assignor proposes to assign to the Assignee all of the
rights of the Assignor under the Credit Agreement in respect of a portion of its
Commitment thereunder in an amount equal to $__________ (the "Assigned Amount"),
together with a corresponding portion of its outstanding Committed Loans and
Letter of Credit Liabilities, and the Assignee proposes to accept assignment of
such rights and assume the corresponding obligations from the Assignor on such
terms;
<PAGE> 77
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, the parties hereto agree as follows:
SECTION 1. Definitions. All capitalized terms not otherwise defined
herein shall have the respective meanings set forth in the Credit Agreement.
SECTION 2. Assignment. The Assignor hereby assigns and sells to the
Assignee all of the rights of the Assignor under the Credit Agreement to the
extent of the Assigned Amount, and the Assignee hereby accepts such assignment
from the Assignor and assumes all of the obligations of the Assignor under the
Credit Agreement to the extent of the Assigned Amount, including the purchase
from the Assignor of the corresponding portion of the principal amount of the
Committed Loans made by, and Letter of Credit Liabilities of, the Assignor
outstanding at the date hereof. Upon the execution and delivery hereof by the
Assignor, the Assignee[, the Borrower, the Issuing Bank(s) and the
Administrative Agent] and the payment of the amounts specified in Section 3
required to be paid on the date hereof (i) the Assignee shall, as of the date
hereof, succeed to the rights and be obligated to perform the obligations of a
Bank under the Credit Agreement with a Commitment in an amount equal to the
Assigned Amount, and (ii) the Commitment of the Assignor shall, as of the date
hereof, be reduced by a like amount and the Assignor released from its
obligations under the Credit Agreement to the extent such obligations have been
assumed by the Assignee. The assignment provided for herein shall be without
recourse to the Assignor.
SECTION 3. Payments. As consideration for the assignment and sale
contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the
date hereof in Federal funds the amount heretofore agreed between them.(*) [It
is understood that commitment and/or facility fees accrued to the date hereof
are for the account of the Assignor and such fees accruing from and including
the date hereof are for the account of the Assignee.] Each of the Assignor and
the Assignee hereby agrees that if it receives any amount under the Credit
Agreement which is for the account of the other party hereto, it shall receive
the same for the account of such other party to the extent of such other party's
interest therein and shall promptly pay the same to such other party.
- ------------
(*) Amount should combine principal together with accrued interest and breakage
compensation, if any, to be paid by Assignee, net of any portion of any upfront
fee to be paid by the Assignor to the Assignee. It may be preferable in an
appropriate case to specify these amounts generically or by formula rather than
as a fixed sum.
<PAGE> 78
SECTION 4. Consent of the Borrower and the Administrative Agent. This
Agreement is conditioned upon the consent of the Borrower, the Administrative
Agent and the Issuing Bank(s) pursuant to Section 9.6(c) of the Credit
Agreement. The execution of this Agreement by the Borrower, the Administrative
Agent and the Issuing Bank(s) is evidence of this consent. Pursuant to Section
9.6(c) the Borrower agrees to execute and deliver a Note payable to the order of
the Assignee to evidence the assignment and assumption provided for herein.
SECTION 5. Non-Reliance on Assignor. The Assignor makes no
representation or warranty in connection with, and shall have no responsibility
with respect to, the solvency, financial condition, or statements of the
Borrower, or the validity and enforceability of the obligations of the Borrower
in respect of the Credit Agreement or any Note or Letter of Credit. The Assignee
acknowledges that it has, independently and without reliance on the Assignor,
and based on such documents and information as it has deemed appropriate, made
its own credit analysis and decision to enter into this Agreement and will
continue to be responsible for making its own independent appraisal of the
business, affairs and financial condition of the Borrower.
SECTION 6. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 7. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
<PAGE> 79
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their duly authorized officers as of the date first
above written.
[ASSIGNOR]
By
--------------------------------------
Title:
[ASSIGNEE]
By
--------------------------------------
Title:
K N ENERGY, INC.
By
--------------------------------------
Title:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Issuing Bank
and as Administrative Agent
By
--------------------------------------
Title:
<PAGE> 1
CONFORMED COPY
$2,100,000,000
364-DAY CREDIT AGREEMENT
dated as of
January 30, 1998
among
K N Energy, Inc.,
The Banks Listed Herein,
and
Morgan Guaranty Trust Company of New York,
as Administrative Agent
------------
J. P. Morgan Securities Inc.,
BancAmerica Robertson Stephens,
Chase Securities Inc.
and
NationsBanc Montgomery Securities LLC,
Syndication Agents
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1
Definitions
Section 1.01. Definitions........................................... 1
Section 1.02. Accounting Terms and Determinations................... 13
Section 1.03. Types of Borrowings................................... 13
ARTICLE 2
The Credits
Section 2.01. Commitments to Lend................................... 13
Section 2.02. Notice of Borrowing................................... 14
Section 2.03. Notice to Banks; Funding of Loans..................... 14
Section 2.04. Notes................................................. 15
Section 2.05. Maturity of Loans..................................... 16
Section 2.06. Interest Rates........................................ 16
Section 2.07. Fees.................................................. 19
Section 2.08. Optional Termination or Reduction of Commitments...... 19
Section 2.09. Scheduled Termination of Commitments.................. 20
Section 2.10. Optional Prepayments.................................. 20
Section 2.11. General Provisions as to Payments..................... 20
Section 2.12. Funding Losses........................................ 21
Section 2.13. Computation of Interest and Fees...................... 21
Section 2.14. Regulation D Compensation............................. 21
Section 2.15. Mandatary Prepayments................................. 22
ARTICLE 3
Conditions
Section 3.01. Effectiveness......................................... 23
Section 3.02. Borrowings............................................ 24
ARTICLE 4
Representations and Warranties
Section 4.01. Corporate Existence and Power......................... 25
Section 4.02. Corporate and Governmental Authorization; No
Contravention........................................ 25
Section 4.03. Binding Effect........................................ 26
Section 4.04. Financial Information................................. 26
Section 4.05. Litigation............................................ 26
Section 4.06. Compliance with ERISA................................. 26
Section 4.07. Environmental Matters................................. 27
Section 4.08. Taxes................................................. 27
Section 4.09. Subsidiaries.......................................... 28
Section 4.10. Not an Investment Company............................. 28
Section 4.11. Full Disclosure....................................... 28
Section 4.12. MidCon Acquisition.................................... 28
ARTICLE 5
Covenants
Section 5.01. Information........................................... 28
Section 5.02. Payment of Obligations................................ 31
Section 5.03. Maintenance of Property; Insurance.................... 31
Section 5.04. Conduct of Business and Maintenance of Existence...... 31
Section 5.05. Compliance with Laws.................................. 32
Section 5.06. Inspection of Property, Books and Records............. 32
Section 5.07. Debt.................................................. 32
Section 5.08. Minimum Net Worth..................................... 33
Section 5.09. Minimum Interest Coverage Ratio....................... 33
Section 5.10. Negative Pledge....................................... 33
Section 5.11. Consolidations, Mergers and Sales of Assets........... 34
Section 5.12. Use of Proceeds....................................... 35
Section 5.13. Transactions with Affiliates.......................... 35
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE 6
Defaults
Section 6.01. Events of Default..................................... 35
Section 6.02. Notice of Default..................................... 38
ARTICLE 7
The Agents
Section 7.01. Appointment and Authorization......................... 38
Section 7.02. Administrative Agent and Affiliates................... 38
Section 7.03. Action by Administrative Agent........................ 38
Section 7.04. Consultation with Experts............................. 38
Section 7.05. Liability of Administrative Agent..................... 39
Section 7.06. Indemnification....................................... 39
Section 7.07. Credit Decision....................................... 39
Section 7.08. Successor Administrative Agent........................ 40
Section 7.09. Agents' Fees.......................................... 40
Section 7.10. Other Agents.......................................... 40
ARTICLE 8
Change in Circumstances
Section 8.01. Basis for Determining Interest Rate Inadequate or
Unfair............................................... 40
Section 8.02. Illegality............................................ 41
Section 8.03. Increased Cost and Reduced Return..................... 42
Section 8.04. Taxes................................................. 43
Section 8.05. Base Rate Loans Substituted for Affected Fixed Rate
Loans................................................ 45
Section 8.06. Substitution of Bank.................................. 45
ARTICLE 9
Miscellaneous
Section 9.01. Notices............................................... 46
Section 9.02. No Waivers............................................ 46
Section 9.03. Expenses; Indemnification............................. 46
Section 9.04. Sharing of Set-offs................................... 47
Section 9.05. Amendments and Waivers................................ 47
Section 9.06. Successors and Assigns................................ 48
Section 9.07. Collateral............................................ 49
Section 9.08. Governing Law; Submission to Jurisdiction............. 49
Section 9.09. Counterparts; Integration............................. 50
Section 9.10. WAIVER OF JURY TRIAL.................................. 50
</TABLE>
<PAGE> 4
PRICING SCHEDULE
EXHIBIT A - NOTE
EXHIBIT B - OPINION OF SPECIAL COUNSEL FOR THE BORROWER
EXHIBIT C - OPINION OF KANSAS COUNSEL FOR THE BORROWER
EXHIBIT D - OPINION OF GENERAL COUNSEL OF THE BORROWER
EXHIBIT E - OPINION OF DAVIS POLK & WARDWELL, SPECIAL COUNSEL FOR THE AGENTS
EXHIBIT F - ASSIGNMENT AND ASSUMPTION AGREEMENT
<PAGE> 5
364-DAY CREDIT AGREEMENT
AGREEMENT dated as of January 30, 1998 among K N ENERGY, INC.,
the BANKS listed on the signature pages hereof and MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, as Administrative Agent.
The parties hereto agree as follows:
ARTICLE 1
Definitions
Section 1.1. Definitions. The following terms, as used
herein, have the following meanings:
"Acquisition" means the purchase of MidCon Corp. by the
Borrower from Occidental Petroleum Corporation pursuant to the Stock Purchase
Agreement.
"Adjusted CD Rate" has the meaning set forth in Section 2.6(b).
"Administrative Agent" means Morgan Guaranty Trust Company of
New York in its capacity as administrative agent for the Banks under this
Agreement, and its successors in such capacity.
"Administrative Questionnaire" means, with respect to each
Bank, an administrative questionnaire in the form prepared by the
Administrative Agent and submitted to the Administrative Agent (with a copy to
the Borrower) duly completed by such Bank.
"Affiliate" means (i) any Person that directly, or indirectly
through one or more intermediaries, controls the Borrower (a "Controlling
Person") or (ii) any Person (other than the Borrower or a Subsidiary) which is
controlled by or is under common control with a Controlling Person. As used
herein, the term "control" means possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
"Agent" means each of the Administrative Agent and the
Syndication Agents, and "Agents" means any combination of them, as the context
may require.
"Applicable Lending Office" means, with respect to any Bank,
(i) in the case of its Domestic Loans, its Domestic Lending Office and (ii) in
the case of its Euro-Dollar Loans, its Euro-Dollar Lending Office.
<PAGE> 6
"Assessment Rate" has the meaning set forth in Section 2.6(b).
"Assignee" has the meaning set forth in Section 9.6(c).
"Bank" means each bank listed on the signature pages hereof,
each Assignee which becomes a Bank pursuant to Section 9.6(c), and their
respective successors.
"Base Rate" means, for any day, a rate per annum equal to the
higher of (i) the Prime Rate for such day or (ii) the sum of 1/2 of 1% plus the
Federal Funds Rate for such day.
"Base Rate Loan" means a Loan to be made by a Bank as a Base
Rate Loan in accordance with the applicable Notice of Borrowing or pursuant to
Article 8.
"Benefit Arrangement" means at any time an employee benefit
plan within the meaning of Section 3(3) of ERISA which is not a Plan or a
Multiemployer Plan and which is maintained or otherwise contributed to by any
member of the ERISA Group.
"Borrower" means K N Energy, Inc., a Kansas corporation, and
its successors.
"Borrower's 1996 Form 10-K" means the Borrower's annual report
on Form 10-K for 1996, as filed with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934.
"Borrower's Latest Form 10-Q" means the Borrower's quarterly
report on Form 10-Q for the quarter ended September 30, 1997, as filed with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934.
"Borrowing" has the meaning set forth in Section 1.3.
"CD Base Rate" has the meaning set forth in Section 2.6(b).
"CD Loan" means a Loan to be made by a Bank as a CD Loan in
accordance with the applicable Notice of Borrowing.
"CD Margin" has the meaning set forth in Section 2.6(b).
"CD Reference Banks" means NationsBank, N.A., The Chase
Manhattan Bank and Morgan Guaranty Trust Company of New York.
"Commitment" means, with respect to each Bank, the amount set
forth opposite the name of such Bank on the signature pages of this Agreement,
as such amount may be reduced from time to time pursuant to Sections 2.8, 2.9
and 2.15.
"Consolidated Assets" means the total amount of assets
appearing on the consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries, prepared in accordance with generally accepted
<PAGE> 7
accounting principles as of the date of the most recent regularly prepared
consolidated financial statements prior to the taking of any action for the
purposes of which the determination is being made.
"Consolidated Debt" of any Person means at any date the sum
(without duplication) of (i) the Debt of such Person and its Consolidated
Subsidiaries, determined on a consolidated basis as of such date plus (ii) the
excess (if any) of the Trust Preferred Securities of such Person over 10% of
the Consolidated Total Capitalization of such Person at such date minus (iii)
the portion of the Substitute Note collateralized as contemplated by Section
5.10(b) hereof.
"Consolidated EBITDA" means, for any period, Consolidated Net
Income for such period plus, to the extent deducted in determining Consolidated
Net Income for such period, the aggregate amount of (i) Consolidated Interest
Expense, (ii) income tax expense and (iii) depreciation and amortization
expense.
"Consolidated Interest Expense" means, for any period, the
interest expense of the Borrower and its Consolidated Subsidiaries, determined
on a consolidated basis for such period.
"Consolidated Subsidiary" of any Person means at any date any
Subsidiary or other entity the accounts of which would be consolidated with
those of such Person in its consolidated financial statements if such
statements were prepared as of such date.
"Consolidated Net Income" means, for any period, the net income
of the Borrower and its Consolidated Subsidiaries before extraordinary items,
determined on a consolidated basis for such period.
"Consolidated Net Worth" of any Person means at any date the
sum (without duplication) of (i) the consolidated stockholders' equity of such
Person and its Consolidated Subsidiaries, determined as of such date plus (ii)
the Mandatorily Convertible Preferred Stock of such Person plus (iii) the Trust
Preferred Securities of such Person; provided that the amount of Trust
Preferred Securities added pursuant to this clause (iii) shall not exceed 10%
of Consolidated Total Capitalization of such Person at such date.
"Consolidated Total Capitalization" of any Person means at any
date the sum of Consolidated Debt of such Person and Consolidated Net Worth of
such Person, each determined as of such date.
"Debt" of any Person means at any date, without duplication,
(i) all obligations of such Person for borrowed money, (ii) all obligations of
such Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all obligations of such Person to pay the deferred purchase price of
property or services, except trade accounts payable or deferred employee and
director compensation arising in the ordinary course of business, (iv) all
obligations of such Person as lessee which are capitalized in accordance with
generally accepted accounting principles, (v) all non-contingent obligations
(and, for purposes of Section 5.11 and the definitions of Material Debt and
Material Financial Obligations, all contingent obligations) of such Person to
reimburse any bank or other Person in respect of amounts paid under a letter
<PAGE> 8
of credit or similar instrument, (vi) all Debt secured by a Lien on any asset
of such Person, whether or not such Debt is otherwise an obligation of such
Person, and (vii) all Debt of others Guaranteed by such Person.
"Default" means any condition or event which constitutes an
Event of Default or which with the giving of notice or lapse of time or both
would, unless cured or waived, become an Event of Default.
"Derivatives Obligations" of any Person means all obligations
of such Person in respect of any rate swap transaction, basis swap, forward
rate transaction, commodity swap, commodity option, equity or equity index
swap, equity or equity index option, bond option, interest rate option, foreign
exchange transaction, cap transaction, floor transaction, collar transaction,
currency swap transaction, cross-currency rate swap transaction, currency
option or any other similar transaction (including any option with respect to
any of the foregoing transactions) or any combination of the foregoing
transactions.
"Domestic Business Day" means any day except a Saturday, Sunday
or other day on which commercial banks in New York City are authorized by law
to close.
"Domestic Lending Office" means, as to each Bank, its office
located at its address set forth in its Administrative Questionnaire (or
identified in its Administrative Questionnaire as its Domestic Lending Office)
or such other office as such Bank may hereafter designate as its Domestic
Lending Office by notice to the Borrower and the Administrative Agent; provided
that any Bank may so designate separate Domestic Lending Offices for its Base
Rate Loans, on the one hand, and its CD Loans, on the other hand, in which case
all references herein to the Domestic Lending Office of such Bank shall be
deemed to refer to either or both of such offices, as the context may require.
"Domestic Loans" means CD Loans or Base Rate Loans or both.
"Domestic Reserve Percentage" has the meaning set forth in
Section 2.6(b).
"Effective Date" means the date this Agreement becomes
effective in accordance with Section 3.1.
"Environmental Laws" means any and all federal, state, local
and foreign statutes, laws, judicial decisions, regulations, ordinances, rules,
judgments, orders, decrees, plans, injunctions, permits, concessions, grants,
franchises, licenses, agreements and other governmental restrictions relating
to the environment, the effect of the environment on human health or to
emissions, discharges or releases of pollutants, contaminants, Hazardous
Substances or wastes into the environment including, without limitation,
ambient air, surface water, ground water, or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, Hazardous Substances or
wastes or the clean-up or other remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of
<PAGE> 9
1974, as amended, or any successor statute.
"ERISA Group" means the Borrower, any Subsidiary and all
members of a controlled group of corporations and all trades or businesses
(whether or not incorporated) under common control which, together with the
Borrower or any Subsidiary, are treated as a single employer under Section 414
of the Internal Revenue Code.
"Euro-Dollar Business Day" means any Domestic Business Day on
which commercial banks are open for international business (including dealings
in dollar deposits) in London.
"Euro-Dollar Lending Office" means, as to each Bank, its
office, branch or affiliate located at its address set forth in its
Administrative Questionnaire (or identified in its Administrative Questionnaire
as its Euro-Dollar Lending Office) or such other office, branch or affiliate of
such Bank as it may hereafter designate as its Euro-Dollar Lending Office by
notice to the Borrower and the Administrative Agent.
"Euro-Dollar Loan" means a Committed Loan to be made by a Bank
as a Euro-Dollar Loan in accordance with the applicable Notice of Committed
Borrowing.
"Euro-Dollar Margin" has the meaning set forth in Section
2.6(c).
"Euro-Dollar Reference Banks" means the principal London
offices (for determinations of a London Interbank Offered Rate) or domestic
offices (for determinations of an Interbank Offered Rate) of NationsBank, N.A.,
The Chase Manhattan Bank and Morgan Guaranty Trust Company of New York.
"Euro-Dollar Reserve Percentage" means for any day that
percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for determining the maximum reserve requirement for a member bank of
the Federal Reserve System in New York City with deposits exceeding five
billion dollars in respect of "Eurocurrency liabilities" (or in respect of any
other category of liabilities which includes deposits by reference to which the
interest rate on Euro-Dollar Loans is determined or any category of extensions
of credit or other assets which includes loans by a non-United States office of
any Bank to United States residents).
"Event of Default" has the meaning set forth in Section 6.1.
"Federal Funds Rate" means, for any day, the rate per annum
(rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Domestic
Business Day next succeeding such day, provided that (i) if such day is not a
Domestic Business Day, the Federal Funds Rate for such day shall be such rate
on such transactions on the next preceding Domestic Business Day as so
published on the next succeeding Domestic Business Day, and (ii) if no such
rate is so published on such next succeeding Domestic Business Day, the
<PAGE> 10
Federal Funds Rate for such day shall be the average rate quoted to Morgan
Guaranty Trust Company of New York on such day on such transactions as
determined by the Administrative Agent.
"Fixed Rate Loans" means CD Loans or Euro-Dollar Loans or any
combination of the foregoing.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or other obligation (whether arising by virtue of
partnership arrangements, by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in
any other manner the obligee of such Debt or other obligation of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part), provided that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Hazardous Substances" means any toxic, radioactive, caustic or
otherwise hazardous substance, including petroleum, its derivatives,
by-products and other hydrocarbons, or any substance having any constituent
elements displaying any of the foregoing characteristics.
"Indemnitee" has the meaning set forth in Section 9.3(b).
"Interest Coverage Ratio" means, at any date, the ratio of
Consolidated EBITDA to Consolidated Interest Expense for the period of four
consecutive fiscal quarters most recently ended on or before such date.
"Interest Period" means: (1) with respect to each Euro-Dollar
Borrowing, the period commencing on the date of such Borrowing and ending one,
two, three or six months thereafter, as the Borrower may elect in the
applicable Notice of Borrowing; except that with respect to any Borrowing
occurring prior to the Syndication Date, (i) any such Borrowing occurring prior
to February 23, 1998 shall have an Interest Period ending on February 23, 1998
and (ii) any such Borrowing on or after February 23, 1998 shall have an
Interest Period ending one week thereafter; provided that:
(a) any Interest Period which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the next
succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls
in another calendar month, in which case such Interest Period shall end on the
next preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last
Euro-Dollar Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such Interest
Period) shall, subject to clause (c) below, end on the last Euro-Dollar
Business Day of a calendar month; and
<PAGE> 11
(c) any Interest Period which would otherwise end after
the Termination Date shall end on the Termination Date;
(2) with respect to each CD Borrowing, the period commencing on
the date of such Borrowing and ending 30, 60, 90 or 180 days thereafter, as the
Borrower may elect in the applicable Notice of Borrowing; provided that:
(a) any Interest Period (other than an Interest Period
determined pursuant to clause (b) below) which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the next
succeeding Euro-Dollar Business Day; and
(b) any Interest Period which would otherwise end after
the Termination Date shall end on the Termination Date; and
(3) with respect to each Base Rate Borrowing, the period
commencing on the date of such Borrowing and ending 30 days thereafter;
provided that:
(a) any Interest Period (other than an Interest Period
determined pursuant to clause (b) below) which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the next
succeeding Euro-Dollar Business Day; and
(b) any Interest Period which would otherwise end after
the Termination Date shall end on the Termination Date.
"Internal Revenue Code" means the Internal Revenue Code of
1986, as amended, or any successor statute.
"Investment" means any investment in any Person, whether by
means of share purchase, capital contribution, loan, time deposit or otherwise.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind, or any other type
of preferential arrangement that has the practical effect of creating a
security interest, in respect of such asset. For the purposes of this
Agreement, the Borrower or any Subsidiary shall be deemed to own subject to a
Lien any asset which it has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement relating to such asset.
"Loan" means a loan made by a Bank pursuant to Section 2.1.
"London Interbank Offered Rate" has the meaning set forth in
Section 2.6(c).
"Mandatorily Convertible Preferred Stock", means, with respect
to the Borrower, preferred securities of a Subsidiary which are (i) mandatorily
convertible into common equity securities of the Borrower within approximately
three years of their date of issuance, (ii) issued in conjunction with, and
pledged to secure, an obligation to purchase common equity securities of the
Borrower within approximately three years for an equal amount or (iii)
otherwise structured in a manner satisfactory to the Administrative Agent so
<PAGE> 12
as to ensure the issuance of incremental common equity securities of the
Borrower in a substantially equal amount within approximately three years.
"Material Debt" means Debt (other than (i) the Notes and (ii)
Debt owing to the Borrower or a Subsidiary) of the Borrower and/or one or more
of its Subsidiaries, arising in one or more related or unrelated transactions,
in an aggregate principal or face amount exceeding $75,000,000.
"Material Financial Obligations" means a principal or face
amount of Debt (other than (i) the Notes and (ii) Debt owing to the Borrower or
a Subsidiary) and/or payment obligations in respect of Derivatives Obligations
of the Borrower and/or one or more of its Subsidiaries, arising in one or more
related or unrelated transactions, exceeding in the aggregate $125,000,000.
"Material Subsidiary" means any Subsidiary the consolidated
assets of which constitute 10% or more of Consolidated Assets.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means at any time an employee pension
benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any
member of the ERISA Group is then making or accruing an obligation to make
contributions or has within the preceding five plan years made contributions,
including for these purposes any Person which ceased to be a member of the
ERISA Group during such five year period.
"Notes" means promissory notes of the Borrower, substantially
in the form of Exhibit A hereto, evidencing the obligation of the Borrower to
repay the Loans, and "Note" means any one of such promissory notes issued
hereunder.
"Notice of Borrowing" has the meaning set forth in Section
2.02.
"Parent" means, with respect to any Bank, any Person
controlling such Bank.
"Participant" has the meaning set forth in Section 9.6(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"Plan" means at any time an employee pension benefit plan
(other than a Multiemployer Plan) which is covered by Title IV of ERISA or
subject to the minimum funding standards under Section 412 of the Internal
Revenue Code and either (i) is maintained, or contributed to, by any member of
the ERISA Group for employees of any member of the ERISA Group or (ii) has at
any time within the preceding five years been maintained, or contributed to, by
any Person which was at such time a member of the ERISA Group for employees of
any Person which was at such time a member of the ERISA Group.
<PAGE> 13
"Purchase Agreement" means the Purchase and Sale Agreement
dated as of January 28, 1994, among K N Gas Supply Services, Inc., the
Borrower, Bank of America National Trust and Savings Association, as the
initial Purchaser (as defined therein), and Bank of America National Trust and
Savings Association, as agent for the Purchasers.
"Pricing Schedule" means the Schedule attached hereto
identified as such.
"Prime Rate" means the rate of interest publicly announced by
Morgan Guaranty Trust Company of New York in New York City from time to time as
its Prime Rate.
"Reference Banks" means the CD Reference Banks or the
Euro-Dollar Reference Banks, as the context may require, and "Reference Bank"
means any one of such Reference Banks.
"Refunding Borrowing" means a Borrowing which, after
application of the proceeds thereof, results in no net increase in the
outstanding principal amount of Loans made by any Bank.
"Regulation U" means Regulation U of the Board of Governors of
the Federal Reserve System, as in effect from time to time.
"Reimbursement Agreement" means the Reimbursement Agreement
dated as of January 30, 1998, among the Borrower, the banks parties thereto and
Morgan Guaranty Trust Company as the administrative agent, as amended and in
effect from time to time.
"Required Banks" means at any time Banks having at least 66 2/3
% of the aggregate amount of the Commitments or, if the Commitments shall have
been terminated, holding Notes evidencing at least 66 2/3% of the aggregate
unpaid principal amount of the Loans.
"Revolving Credit Period" means the period from and including
the Effective Date to but not including the Termination Date.
"S&P" means Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies, Inc.
"Stock Purchase Agreement" means the Stock Purchase Agreement
dated as of December 18, 1997, between Occidental Petroleum Corporation, a
Delaware corporation, and the Borrower as amended and in effect from time to
time; provided that any such amendment from the form thereof heretofore
furnished to each of the Banks which could reasonably be expected to materially
adversely affect the business, consolidated financial position or consolidated
results of operations of the Borrower and its Consolidated Subsidiaries,
considered as a whole, shall be effective for purposes of references thereto in
this Agreement only if such amendment shall have received the written consent
of the Required Banks (which shall not be unreasonably withheld).
"Subsidiary" means, as to any Person, any corporation or other
<PAGE> 14
entity of which securities or other ownership interests having ordinary voting
power to elect a majority of the board of directors or other persons performing
similar functions are at the time directly or indirectly owned by such Person;
unless otherwise specified, "Subsidiary" means a Subsidiary of the Borrower.
"Substitute Note" means the Substitute Note (as defined in the
Stock Purchase Agreement) issued by the Borrower to Occidental Petroleum
Corporation in connection with the Acquisition.
"Syndication Agent" means either J.P. Morgan Securities Inc.,
BancAmerica Robertson Stephens, Chase Securities Inc. or NationsBanc Montgomery
Securities LLC in its capacity as a syndication agent in respect of this
Agreement, and "Syndication Agents" means all of them.
"Syndication Date" means the earlier of (i) March 31, 1998 and
(ii) the first date subsequent to the date hereof on which the Commitments of
the Banks listed on the signature pages hereof shall have been reduced to an
amount less than 75% of the aggregate amount of the Commitments by reason of
the completion of primary syndication.
"Termination Date" means January 29, 1999, or, if such day is
not a Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day.
"Trust Preferred Securities" means, with respect to the
Borrower, mandatorily redeemable capital trust securities of trusts which are
Subsidiaries and the subordinated debentures of the Borrower in which the
proceeds of the issuance of such capital trust securities are invested,
including, without limitation, (i) the 8.56% Series B Capital Trust
Pass-through Securities of K N Capital Trust I and (ii) the capital trust
securities of K N Capital Trust II anticipated to be issued after the Effective
Date.
"Unfunded Liabilities" means, with respect to any Plan at any
time, the amount (if any) by which (i) the value of all benefit liabilities
under such Plan, determined on a plan termination basis using the assumptions
prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the
fair market value of all Plan assets allocable to such liabilities under Title
IV of ERISA (excluding any accrued but unpaid contributions), all determined as
of the then most recent valuation date for such Plan, but only to the extent
that such excess represents a potential liability of a member of the ERISA
Group to the PBGC or any other Person under Title IV of ERISA.
"United States" means the United States of America, including
the States and the District of Columbia, but excluding its territories and
possessions.
"Wholly-Owned Consolidated Subsidiary" of any Person means any
Consolidated Subsidiary all of the shares of capital stock or other ownership
interests of which (except directors' qualifying shares) are at the time
directly or indirectly owned by such Person.
Section 1.2. Accounting Terms and Determinations. Unless
otherwise specified herein, all accounting terms used herein shall be
interpreted, all accounting determinations hereunder shall be made, and all
<PAGE> 15
financial statements required to be delivered hereunder shall be prepared in
accordance with generally accepted accounting principles as in effect from time
to time, applied on a basis consistent (except for changes concurred in by the
Borrower's independent public accountants) with the most recent audited
consolidated financial statements of the Borrower and its Consolidated
Subsidiaries delivered to the Banks; provided that, if the Borrower notifies
the Administrative Agent that the Borrower wishes to amend any covenant in
Article 5 to eliminate the effect of any change in generally accepted
accounting principles on the operation of such covenant (or if the
Administrative Agent notifies the Borrower that the Required Banks wish to
amend Article 5 for such purpose), then the Borrower's compliance with such
covenant shall be determined on the basis of generally accepted accounting
principles in effect immediately before the relevant change in generally
accepted accounting principles became effective, until either such notice is
withdrawn or such covenant is amended in a manner satisfactory to the Borrower
and the Required Banks.
Section 1.3. Types of Borrowings. The term "Borrowing"
denotes the aggregation of Loans of one or more Banks to be made to the
Borrower pursuant to Article 2 on a single date and for a single Interest
Period. Borrowings are classified for purposes of this Agreement by reference
to the pricing of Loans comprising such Borrowing (e.g., a "Euro-Dollar
Borrowing" is a Borrowing comprised of Euro-Dollar Loans).
ARTICLE 2
The Credits
Section 2.1. Commitments to Lend. During the Revolving Credit
Period each Bank severally agrees, on the terms and conditions set forth in
this Agreement, to make loans to the Borrower pursuant to this Section from
time to time in amounts such that the aggregate principal amount of Loans by
such Bank at any one time outstanding shall not exceed the amount of its
Commitment. Each Borrowing under this Section shall be in an aggregate
principal amount of $5,000,000 or any larger multiple of $1,000,000 (except
that any such Borrowing may be in the aggregate amount available in accordance
with Section 3.2(e)) and shall be made from the several Banks ratably in
proportion to their respective Commitments. Within the foregoing limits, the
Borrower may borrow under this Section, repay, or to the extent permitted by
Section 2.10, prepay Loans and reborrow at any time during the Revolving Credit
Period under this Section.
Section 2.2. Notice of Borrowing. The Borrower shall give the
Administrative Agent notice (a "Notice of Borrowing") not later than 10:30 A.M.
(New York City time) on (x) the date of each Base Rate Borrowing, (y) the
second Domestic Business Day before each CD Borrowing and (z) the third
Euro-Dollar Business Day before each Euro-Dollar Borrowing, except if the
Euro-Dollar Borrowing is at the Interbank Offered Rate, then upon the date of
each such borrowing, specifying:
(a) the date of such Borrowing, which shall be a Domestic Business
Day in the case of a Domestic Borrowing or a Euro-Dollar Business Day in the
case of a Euro-Dollar Borrowing,
<PAGE> 16
(b) the aggregate amount of such Borrowing,
(c) whether the Loans comprising such Borrowing are to be CD
Loans, Base Rate Loans or Euro-Dollar Loans, and
(d) in the case of a Fixed Rate Borrowing, the duration of the
Interest Period applicable thereto, subject to the provisions of the definition
of Interest Period.
Section 2.3. Notice to Banks; Funding of Loans. (a) Upon
receipt of a Notice of Borrowing, the Administrative Agent shall promptly
notify each Bank of the contents thereof and of such Bank's share of such
Borrowing and such Notice of Borrowing shall not thereafter be revocable by the
Borrower.
(b) Not later than 12:00 Noon (New York City time) on the date of
each Borrowing, each Bank shall (except as provided in subsection (c) of this
Section) make available its share of such Borrowing, in Federal or other funds
immediately available in New York City, to the Administrative Agent at its
address referred to in Section 9.1. Unless the Administrative Agent determines
that any applicable condition specified in Article 3 has not been satisfied,
the Administrative Agent will make the funds so received from the Banks
available to the Borrower at the Administrative Agent's aforesaid address.
(c) If any Bank makes a new Loan hereunder on a day on which the
Borrower is to repay all or any part of an outstanding Loan from such Bank,
such Bank shall apply the proceeds of its new Loan to make such repayment and
only an amount equal to the difference (if any) between the amount being
borrowed and the amount being repaid shall be made available by such Bank to
the Administrative Agent as provided in subsection (b) of this Section, or
remitted by the Borrower to the Administrative Agent as provided in Section
2.11, as the case may be.
(d) Unless the Administrative Agent shall have received notice
from a Bank prior to the date of any Borrowing that such Bank will not make
available to the Administrative Agent such Bank's share of such Borrowing, the
Administrative Agent may assume that such Bank has made such share available to
the Administrative Agent on the date of such Borrowing in accordance with
subsections (b) and (c) of this Section 2.3 and the Administrative Agent may,
in reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent that such Bank shall not have so
made such share available to the Administrative Agent, such Bank and the
Borrower severally agree to repay to the Administrative Agent forthwith on
demand such corresponding amount together with interest thereon, for each day
from the date such amount Administrative Agent, at (i) in the case of the
Borrower, a rate per annum equal to the higher of the Federal Funds Rate and
the interest rate applicable thereto pursuant to Section 2.6 and (ii) in the
case of such Bank, the Federal Funds Rate. If such Bank shall repay to the
Administrative Agent such corresponding amount, such amount so repaid shall
constitute such Bank's Loan included in such Borrowing for purposes of this
Agreement.
Section 2.4. Notes. (a) The Loans of each Bank shall be
<PAGE> 17
evidenced by a single Note payable to the order of such Bank for the account of
its Applicable Lending Office in an amount equal to the aggregate unpaid
principal amount of such Bank's Loans.
(b) Each Bank may, by notice to the Borrower and the
Administrative Agent, request that its Loans of a particular type be evidenced
by a separate Note in an amount equal to the aggregate unpaid principal amount
of such Loans. Each such Note shall be in substantially the form of Exhibit A
hereto with appropriate modifications to reflect the fact that it evidences
solely Loans of the relevant type. Each reference in this Agreement to the
"Note" of such Bank shall be deemed to refer to and include any or all of such
Notes, as the context may require.
(c) Upon receipt of each Bank's Note pursuant to Section 3.1(b),
the Administrative Agent shall forward such Note to such Bank. Each Bank shall
record the date, amount, type and maturity of each Loan made by it and the date
and amount of each payment of principal made by the Borrower with respect
thereto, and may, if such Bank so elects in connection with any transfer or
enforcement of its Note, endorse on the schedule forming a part thereof
appropriate notations to evidence the foregoing information with respect to
each such Loan then outstanding; provided that the failure of any Bank to make
any such recordation or endorsement shall not affect the obligations of the
Borrower hereunder or under the Notes. Each Bank is hereby irrevocably
authorized by the Borrower so to endorse its Note and to attach to and make a
part of its Note a continuation of any such schedule as and when required.
Section 2.5. Maturity of Loans. Each Loan included in any
Borrowing shall mature, and the principal amount thereof shall be due and
payable, on the last day of the Interest Period applicable to such Borrowing.
Section 2.6. Interest Rates. (a) Each Base Rate Loan shall
bear interest on the outstanding principal amount thereof, for each day from
the date such Loan is made until it becomes due, at a rate per annum equal to
the Base Rate for such day. Such interest shall be payable for each Interest
Period on the last day thereof. Any overdue principal of or interest on any
Base Rate Loan shall bear interest, payable on demand, for each day until paid
at a rate per annum equal to the sum of 2% plus the rate otherwise applicable
to Base Rate Loans for such day.
(b) Each CD Loan shall bear interest on the outstanding principal
amount thereof, for each day during the Interest Period applicable thereto, at
a rate per annum equal to the sum of the CD Margin for such day plus the
Adjusted CD Rate applicable to such Interest Period; provided that if any CD
Loan shall, as a result of clause (2)(b) of the definition of Interest Period,
have an Interest Period of less than 30 days, such CD Loan shall bear interest
during such Interest Period at the rate applicable to Base Rate Loans during
such period. Such interest shall be payable for each Interest Period on the
last day thereof and, if such Interest Period is longer than 90 days, at
intervals of 90 days after the first day thereof. Any overdue principal of or
interest on any CD Loan shall bear interest, payable on demand, for each day
until paid at a rate per annum equal to the sum of 2% plus the higher of (i)
the sum of the CD Margin for such day plus the Adjusted CD Rate applicable to
the Interest Period for such Loan and (ii) the rate applicable to Base Rate
Loans for such day.
<PAGE> 18
"CD Margin" means a rate per annum determined in accordance
with the Pricing Schedule.
The "Adjusted CD Rate" applicable to any Interest Period means
a rate per annum determined pursuant to the following formula:
[ CDBR ]*
ACDR = [ ------ ] + AR
[ 1.00 - DRP ]
ACDR = Adjusted CD Rate
CDBR = CD Base Rate
DRP = Domestic Reserve Percentage
AR = Assessment Rate
__________
* The amount in brackets being rounded upward, if
necessary, to the next higher 1/100 of 1%
The "CD Base Rate" applicable to any Interest Period is the
rate of interest determined by the Administrative Agent to be the average
(rounded upward, if necessary, to the next higher 1/100 of 1%) of the
prevailing rates per annum bid at 10:00 A.M. (New York City time) (or as soon
thereafter as practicable) on the first day of such Interest Period by two or
more New York certificate of deposit dealers of recognized standing for the
purchase at face value from each CD Reference Bank of its certificates of
deposit in an amount comparable to the principal amount of the CD Loan of such
CD Reference Bank to which such Interest Period applies and having a maturity
comparable to such Interest Period.
"Domestic Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement (including without limitation any
basic, supplemental or emergency reserves) for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of new non-personal time deposits in dollars in New York City having a
maturity comparable to the related Interest Period and in an amount of $100,000
or more. The Adjusted CD Rate shall be adjusted automatically on and as of the
effective date of any change in the Domestic Reserve Percentage.
"Assessment Rate" means for any day the annual assessment rate
in effect on such day which is payable by a member of the Bank Insurance Fund
classified as adequately capitalized and within supervisory subgroup "A" (or a
comparable successor assessment risk classification) within the meaning of 12
C.F.R. Section 327.4(a) (or any successor provision) to the Federal Deposit
Insurance Corporation (or any successor) for such Corporation's (or such
successor's) insuring time deposits at offices of such institution in the
United States. The Adjusted CD Rate shall be adjusted automatically on and as
of the effective date of any change in the Assessment Rate.
(c) Each Euro-Dollar Loan shall bear interest on the outstanding
principal amount thereof, for each day during the Interest Period applicable
thereto, at a rate per annum equal to the sum of the Euro-Dollar Margin for
<PAGE> 19
such day plus the London Interbank Offered Rate applicable to such Interest
Period; provided that each Euro-Dollar Loan made prior to the Syndication Date
having an Interest Period of one week shall bear interest on the outstanding
principal thereof, for each day during such Interest Period, at a rate per
annum equal to the sum of the Euro-Dollar Margin for such day plus the
Interbank Offered Rate applicable to such Interest Period. Such interest shall
be payable for each Interest Period on the last day thereof and, if such
Interest Period is longer than three months, at intervals of three months after
the first day thereof.
"Euro-Dollar Margin" means a rate per annum determined in
accordance with the Pricing Schedule.
The "London Interbank Offered Rate" applicable to any Interest
Period means the average (rounded upward, if necessary, to the next higher 1/16
of 1%) of the respective rates per annum at which deposits in dollars are
offered to each of the Euro-Dollar Reference Banks in the London interbank
market at approximately 11:00 A.M. (London time) two Euro-Dollar Business Days
before the first day of such Interest Period in an amount approximately equal
to the principal amount of the Euro-Dollar Loan of such Euro-Dollar Reference
Bank to which such Interest Period is to apply and for a period of time
comparable to such Interest Period.
The "Interbank Offered Rate" applicable to any Interest Period
means the average (rounded upward, if necessary, to the next higher 1/16 of 1%)
of the respective rates per annum at which deposits in dollars are offered to
each of the Reference Banks in the New York interbank market at approximately
12:00 Noon (New York City time) on the first day of such Interest Period in an
amount approximately equal to the principal amount of the Euro-Dollar Loan of
such Reference Bank to which such Interest Period is to apply and for a period
of time comparable to such Interest Period.
(d) Any overdue principal of or interest on any Euro-Dollar Loan
shall bear interest, payable on demand, for each day until paid at a rate per
annum equal to the higher of (i) the sum of 2% plus the Euro-Dollar Margin for
such day plus the London Interbank Offered Rate applicable to the Interest
Period for such Loan and (ii) the sum of 2% plus the Euro-Dollar Margin for
such day plus the quotient obtained (rounded upward, if necessary, to the next
higher 1/100 of 1%) by dividing (x) the average (rounded upward, if necessary,
to the next higher 1/16 of 1%) of the respective rates per annum at which one
day (or, if such amount due remains unpaid more than three Euro-Dollar Business
Days, then for such other period of time not longer than six months as the
Administrative Agent may select) deposits in dollars in an amount approximately
equal to such overdue payment due to each of the Euro-Dollar Reference Banks
are offered to such Euro-Dollar Reference Bank in the London interbank market
for the applicable period determined as provided above by (y) 1.00 minus the
Euro-Dollar Reserve Percentage (or, if the circumstances described in clause
(a) or (b) of Section 8.1 shall exist, at a rate per annum equal to the sum of
2% plus the rate applicable to Base Rate Loans for such day).
(e) The Administrative Agent shall determine each interest rate
applicable to the Loans hereunder. The Administrative Agent shall give prompt
notice to the Borrower and the Banks of each rate of interest so determined,
<PAGE> 20
and its determination thereof shall be conclusive in the absence of manifest
error.
(f) Each Reference Bank agrees to use its best efforts to furnish
quotations to the Administrative Agent as contemplated by this Section. If any
Reference Bank does not furnish a timely quotation, the Administrative Agent
shall determine the relevant interest rate on the basis of the quotation or
quotations furnished by the remaining Reference Bank or Banks or, if none of
such quotations is available on a timely basis, the provisions of Section 8.1
shall apply.
Section 2.7. Fees. The Borrower shall pay to the
Administrative Agent for the account of the Banks ratably a facility fee at the
Facility Fee Rate (determined daily in accordance with the Pricing Schedule).
Such facility fee shall accrue (i) from and including the Effective Date to but
excluding the Termination Date (or earlier date of termination of the
Commitments in their entirety), on the daily aggregate amount of the
Commitments (whether used or unused) and (ii) from and including the
Termination Date or such earlier date of termination to but excluding the date
the Loans shall be repaid in their entirety, on the daily aggregate outstanding
principal amount of the Loans. Accrued fees under this Section shall be
payable quarterly in arrears on each March 31, June 30, September 30 and
December 31 and upon the date of termination of the Commitments in their
entirety (and, if later, the date the Loans shall be repaid in their entirety).
Section 2.8. Optional Termination or Reduction of Commitments.
During the Revolving Credit Period, the Borrower may, upon at least three
Domestic Business Days' notice to the Administrative Agent, (i) terminate the
Commitments at any time, if no Loans are outstanding at such time or (ii)
ratably reduce from time to time by an aggregate amount of $10,000,000 or any
larger multiple of $1,000,000, the aggregate amount of the Commitments in
excess of the aggregate outstanding principal amount of the Loans. Promptly
after receiving a notice pursuant to this subsection, the Administrative Agent
shall notify each Bank of the contents thereof.
Section 2.9. Scheduled Termination of Commitments. The
Commitments shall terminate on the Termination Date, and any Loans then
outstanding (together with accrued interest thereon) shall be due and payable
on such date.
Section 2.10. Optional Prepayments. (a) The Borrower may,
upon at least one Domestic Business Day's notice by 11:00 A.M. (New York City
time) to the Administrative Agent, prepay any Base Rate Borrowing in whole at
any time, or from time to time in part in amounts aggregating $5,000,000 or any
larger multiple of $1,000,000, by paying the principal amount to be prepaid
together with accrued interest thereon to the date of prepayment. Each such
optional prepayment shall be applied to prepay ratably the Base Rate Loans of
the several Banks included in such Borrowing.
(b) Subject to Section 2.12, the Borrower may, upon at least three
Domestic Business Days' notice to the Administrative Agent, prepay any CD
Borrowing or upon at least three Euro-Dollar Business Days' notice to the
Administrative Agent prepay any Euro-Dollar Borrowing, in each case in whole
<PAGE> 21
at any time, or from time to time in part in amounts aggregating $5,000,000 or
any larger multiple of $1,000,000, by paying the principal amount to be prepaid
together with accrued interest thereon to the date of prepayment. Each such
optional prepayment shall be applied to prepay ratably the Loans of the several
Banks included in such Borrowing.
(c) Upon receipt of a notice of prepayment pursuant to this
Section, the Administrative Agent shall promptly notify each Bank of the
contents thereof and of such Bank's ratable share of such prepayment and such
notice shall not thereafter be revocable by the Borrower.
Section 2.11. General Provisions as to Payments. (a) The
Borrower shall make each payment of principal of, and interest on, the Loans
and of fees hereunder, without any set-off or counterclaim, not later than
12:00 Noon (New York City time) on the date when due, in Federal or other funds
immediately available in New York City, to the Administrative Agent at its
address referred to in Section 9.1. The Administrative Agent will promptly
distribute to each Bank its ratable share of each such payment received by the
Administrative Agent for the account of the Banks. Whenever any payment of
principal of, or interest on, the Domestic Loans or of fees shall be due on a
day which is not a Domestic Business Day, the date for payment thereof shall be
extended to the next succeeding Domestic Business Day. Whenever any payment of
principal of, or interest on, the Euro-Dollar Loans shall be due on a day which
is not a Euro-Dollar Business Day, the date for payment thereof shall be
extended to the next succeeding Euro-Dollar Business Day unless such
Euro-Dollar Business Day falls in another calendar month, in which case the
date for payment thereof shall be the next preceding Euro-Dollar Business Day.
If the date for any payment of principal is extended by operation of law or
otherwise, interest thereon shall be payable for such extended time.
(b) Unless the Administrative Agent shall have received notice
from the Borrower prior to the date on which any payment is due to the Banks
hereunder that the Borrower will not make such payment in full, the
Administrative Agent may assume that the Borrower has made such payment in full
to the Administrative Agent on such date and the Administrative Agent may, in
reliance upon such assumption, cause to be distributed to each Bank on such due
date an amount equal to the amount then due such Bank. If and to the extent
that the Borrower shall not have so made such payment, each Bank shall repay to
the Administrative Agent forthwith on demand such amount distributed to such
Bank together with interest thereon, for each day from the date such amount is
distributed to such Bank until the date such Bank repays such amount to the
Administrative Agent, at the Federal Funds Rate.
Section 2.12. Funding Losses. If the Borrower makes any
payment of principal with respect to any Fixed Rate Loan (pursuant to Article
2, 6 or 8 or otherwise) on any day other than the last day of the Interest
Period applicable thereto, or the last day of an applicable period fixed
pursuant to Section 2.6(d), or if the Borrower fails to borrow or prepay any
Fixed Rate Loans after notice has been given to any Bank in accordance with
Section 2.3(a) or 2.10(c), the Borrower shall reimburse each Bank within 15
days after demand for any resulting loss or expense incurred by it (or by an
existing or prospective Participant in the related Loan), including (without
limitation) any loss incurred in obtaining, liquidating or employing deposits
from third parties, but excluding loss of margin for the period after any such
<PAGE> 22
payment or failure to borrow or prepay, provided that such Bank shall have
delivered to the Borrower a certificate setting forth in reasonable detail the
amount of such loss or expense, which certificate shall be conclusive in the
absence of manifest error.
Section 2.13. Computation of Interest and Fees. Interest
based on the Prime Rate hereunder shall be computed on the basis of a year of
365 days (or 366 days in a leap year) and paid for the actual number of days
elapsed (including the first day but excluding the last day). All other
interest and fees shall be computed on the basis of a year of 360 days and paid
for the actual number of days elapsed (including the first day but excluding
the last day).
Section 2.14. Regulation D Compensation. For so long as any
Bank maintains reserves against "Eurocurrency liabilities" (or any other
category of liabilities which includes deposits by reference to which the
interest rate on Euro-Dollar Loans is determined or any category of extensions
of credit or other assets which includes loans by a non-United States office of
such Bank to United States residents), and as a result the cost to such Bank
(or its Euro-Dollar Lending Office) of making or maintaining its Euro-Dollar
Loans is increased, then such Bank may require the Borrower to pay,
contemporaneously with each payment of interest on the Euro-Dollar Loans,
additional interest on the related Euro-Dollar Loan of such Bank at a rate per
annum up to but not exceeding the excess of (i) (A) the applicable London
Interbank Offered Rate divided by (B) one minus the Euro-Dollar Reserve
Percentage over (ii) the applicable London Interbank Offered Rate. Any Bank
wishing to require payment of such additional interest (x) shall so notify the
Borrower and the Administrative Agent, in which case such additional interest
on the Euro-Dollar Loans of such Bank shall be payable to such Bank at the
place indicated in such notice with respect to each Interest Period commencing
at least three Euro-Dollar Business Days after the giving of such notice and
(y) shall furnish to the Borrower at least five Euro-Dollar Business Days prior
to each date on which interest is payable on the Euro-Dollar Loans an officer's
certificate setting forth the amount to which such Bank is then entitled under
this Section (which shall be consistent with such Bank's good faith estimate of
the level at which the related reserves are maintained by it). Each such
certificate shall be accompanied by such information as the Borrower may
reasonably request as to the computation set forth therein.
Section 2.15. Mandatory Prepayments. (a) If the Borrower or
any of its Subsidiaries issues debt or equity securities prior to the
Termination Date (other than (w) equity securities issued in consideration for
the acquisition of any assets (including, without limitation, any equity
interests of any other Person), (x) equity securities issued to the Borrower or
any of its Subsidiaries, (y) directors' qualifying shares and (z) equity
securities issued in the ordinary course of business in connection with now or
hereafter existing employee stock purchase plans and other employee
compensation arrangements and dividend reinvestment plans), the Borrower shall
apply the net cash proceeds thereof until such amount has been fully applied
either (I) to the collateralization of the Substitute Note so as to cause an
equivalent reduction in the aggregate Letter of Credit Amount under and as
defined in the Reimbursement Agreement (or, if the Letter of Credit shall not
have been issued, the aggregate amount of the Commitments thereunder), until
such Letter of Credit Amount (or the aggregate amount of the Commitments) has
<PAGE> 23
been reduced to zero; or (II) to the prepayment of outstanding Loans under this
Agreement, and simultaneously to the reduction of the aggregate Commitments
hereunder, until such Loans and Commitments have been reduced to zero, or to a
combination of (I) and (II) as the Borrower may elect. Each such reduction and
payment or prepayment shall occur within five Euro-Dollar Business Days of the
receipt by the Borrower or any of its Subsidiaries of such net cash proceeds,
provided that
(i) if such net cash proceeds are less than $10,000,000,
such prepayment shall be effective upon receipt of proceeds such that,
together with all other such amounts not previously applied, the net cash
proceeds are equal to at least $20,000,000; and
(ii) if any prepayment would otherwise require prepayment of
Fixed Rate Loans or portions thereof prior to the last day of the then
current Interest Period, then such prepayment shall, unless the
Administrative Agent otherwise notifies the Borrower upon the instructions
of the Required Banks, be deferred to the last day of such Interest
Period.
The Borrower shall give the Administrative Agent at least five Euro-Dollar
Business Days' notice of each payment or prepayment required to be made
pursuant to this subsection (a).
(b) Each reduction of Commitments and prepayment of Loans under
this Agreement shall be applied ratably to the respective Commitments and Loans
of all Banks. Each payment of principal of the Loans shall be made together
with interest accrued and unpaid on the amount repaid to the date of payment.
ARTICLE 3
Conditions
Section 3.1. Effectiveness. This Agreement shall become
effective upon receipt by the Administrative Agent of the following documents,
each dated the Effective Date unless otherwise indicated:
(a) counterparts hereof signed by each of the parties hereto (or,
in the case of any party as to which an executed counterpart shall not have
been received, receipt by the Administrative Agent in form satisfactory to it
of telegraphic, telex, facsimile or other written confirmation from such party
of execution of a counterpart hereof by such party);
(b) a duly executed Note for the account of each Bank dated on or
before the Effective Date complying with the provisions of Section 2.4;
(c) opinions of Simpson Thacher & Bartlett, special counsel for
the Borrower, Polsinelli, White, Vardeman & Shalton, Kansas counsel for the
Borrower, and Martha B. Wyrsch, General Counsel of the Borrower, substantially
in the respective forms of Exhibits B, C and D hereto and covering such
additional matters relating to the transactions contemplated hereby as the
Required Banks may reasonably request;
<PAGE> 24
(d) an opinion of Davis Polk & Wardwell, special counsel for the
Administrative Agent, substantially in the form of Exhibit E hereto and
covering such additional matters relating to the transactions contemplated
hereby as the Required Banks may reasonably request; and
(e) all documents the Administrative Agent may reasonably request
relating to the existence of the Borrower, the corporate authority for and the
validity of this Agreement and the Notes, and any other matters relevant
hereto, all in form and substance satisfactory to the Administrative Agent.
The Administrative Agent shall promptly notify the Borrower and each Bank of
the effectiveness of this Agreement, and such notice shall be conclusive and
binding on all parties hereto.
Section 3.2. Borrowings. The obligation of any Bank to make a
Loan on the occasion of any Borrowing is subject to the satisfaction of the
following conditions:
(a) the fact that the Closing Date shall have occurred on or prior
to March 31, 1998;
(b) in the case of the first Borrowing, the fact that prior to or
substantially simultaneously with such Borrowing, the Borrower shall have
consummated the Acquisition in accordance with the Stock Purchase Agreement
without waiver of any material condition specified therein;
(c) in the case of the first Borrowing, the fact that the Borrower
shall have paid or shall concurrently pay all fees then due and payable to the
Administrative Agent for the account of any Agent or Bank, as previously
agreed;
(d) receipt by the Administrative Agent of a Notice of Borrowing
as required by Section 2.2;
(e) the fact that, immediately after such Borrowing, the aggregate
outstanding principal amount of the Loans will not exceed the aggregate amount
of the Commitments;
(f) the fact that, immediately before and after such Borrowing, no
Default shall have occurred and be continuing; and
(g) the fact that the representations and warranties of the
Borrower contained in this Agreement (except (i) in the case of Borrowings
subsequent to the first Borrowing, the representation and warranty set forth in
Section 4.12 and (ii) in the case of a Refunding Borrowing, the representations
and warranties set forth in Sections 4.4(c), 4.5 and 4.7 as to any matter which
has theretofore been disclosed in writing by the Borrower to the Banks) shall
be true on and as of the date of such Borrowing.
Each Borrowing hereunder shall be deemed to be a representation
and warranty by the Borrower on the date of such Borrowing as to the facts
specified in clauses (b) and (c) (in the case of the first Borrowing) and (e),
(f) and (g) of this Section.
<PAGE> 25
ARTICLE 4
Representations and Warranties
The Borrower represents and warrants that:
Section 4.1. Corporate Existence and Power. The Borrower is a
corporation duly incorporated, validly existing and in good standing under the
laws of Kansas, and has all corporate powers and all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted.
Section 4.2. Corporate and Governmental Authorization; No
Contravention. The execution, delivery and performance by the Borrower of this
Agreement and the Notes are within the Borrower's corporate powers, have been
duly authorized by all necessary corporate action, require no action by or in
respect of, or filing with, any governmental body, agency or official (other
than filings of this Agreement and the Notes with the Securities and Exchange
Commission pursuant to the reporting requirements of the Securities Exchange
Act of 1934) and do not contravene, or constitute a default under, any
provision of applicable law or regulation or of the articles of incorporation
or by-laws of the Borrower or of any agreement, judgment, injunction, order,
decree or other instrument binding upon the Borrower or any of its Subsidiaries
or result in the creation or imposition of any Lien on any asset of the
Borrower or any of its Subsidiaries.
Section 4.3. Binding Effect. This Agreement constitutes a
valid and binding agreement of the Borrower and each Note, when executed and
delivered in accordance with this Agreement, will constitute a valid and
binding obligation of the Borrower, in each case enforceable in accordance with
its terms.
Section 4.4. Financial Information. (a) The consolidated
balance sheet of the Borrower and its Consolidated Subsidiaries as of December
31, 1996 and the related consolidated statements of income, cash flows and
common stockholders' equity for the fiscal year then ended, reported on by
Arthur Andersen LLP and set forth in the Borrower's 1996 Form 10-K, a copy of
which has been delivered to each of the Banks, fairly present, in conformity
with generally accepted accounting principles, the consolidated financial
position of the Borrower and its Consolidated Subsidiaries as of such date and
their consolidated results of operations and cash flows for such fiscal year.
(b) The unaudited consolidated balance sheet of the Borrower and
its Consolidated Subsidiaries as of September 30, 1997 and the related
unaudited consolidated statements of income and cash flows for the nine months
then ended, set forth in the Borrower's Latest Form 10-Q, a copy of which has
been delivered to each of the Banks, fairly present, in conformity with
generally accepted accounting principles applied on a basis consistent with the
financial statements referred to in subsection (a) of this Section, the
consolidated financial position of the Borrower and its Consolidated
Subsidiaries as of such date and their consolidated results of operations and
cash flows for such nine-month period (subject to normal year-end adjustments).
(c) Since September 30, 1997 there has been no material adverse
<PAGE> 26
change in the business, financial position, results of operations or prospects
of the Borrower and its Consolidated Subsidiaries, considered as a whole.
Section 4.5. Litigation. Except as disclosed in the most
recent Annual Report on Form 10-K delivered by the Borrower to the Banks, there
is no action, suit or proceeding pending against, or to the knowledge of the
Borrower threatened against or affecting, the Borrower or any of its
Subsidiaries before any court or arbitrator or any governmental body, agency or
official in which there is a reasonable possibility of an adverse decision which
would materially adversely affect the business, consolidated financial position
or consolidated results of operations of the Borrower and its Consolidated
Subsidiaries, considered as a whole, or which in any manner draws into question
the validity of this Agreement or the Notes.
Section 4.6. Compliance with ERISA. Each member of the ERISA
Group has fulfilled its obligations under the minimum funding standards of ERISA
and the Internal Revenue Code with respect to each Plan and is in compliance in
all material respects with the presently applicable provisions of ERISA and the
Internal Revenue Code with respect to each Plan. No member of the ERISA Group
has (i) sought a waiver of the minimum funding standard under Section 412 of the
Internal Revenue Code in respect of any Plan, (ii) failed to make any
contribution or payment to any Plan or Multiemployer Plan or in respect of any
Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement,
which has resulted or could result in the imposition of a Lien or the posting of
a bond or other security under ERISA or the Internal Revenue Code or (iii)
incurred any liability under Title IV of ERISA other than a liability to the
PBGC for premiums under Section 4007 of ERISA, which waiver, failure or
liability could reasonably be expected to materially adversely affect the
business, consolidated financial position or consolidated results of operations
of the Borrower and its Consolidated Subsidiaries, considered as a whole.
Section 4.7. Environmental Matters. In the ordinary course of
its business, the Borrower conducts an ongoing review of the effect of
Environmental Laws on the business, operations and properties of the Borrower
and its Subsidiaries, in the course of which it identifies and evaluates
associated liabilities and costs (including, without limitation, any capital or
operating expenditures required for clean-up or closure of properties presently
or previously owned, any capital or operating expenditures required to achieve
or maintain compliance with environmental protection standards imposed by law or
as a condition of any license, permit or contract, any related constraints on
operating activities, including any periodic or permanent shutdown of any
facility or reduction in the level of or change in the nature of operations
conducted thereat, any costs or liabilities in connection with off-site disposal
of wastes or Hazardous Substances, and any actual or potential liabilities to
third parties, including employees, and any related costs and expenses). On
the basis of this review, the Borrower has reasonably concluded that such
associated liabilities and costs, including the costs of compliance with
Environmental Laws, are unlikely to have a material adverse effect on the
business, financial condition, results of operations or prospects of the
Borrower and its Consolidated Subsidiaries, considered as a whole.
<PAGE> 27
Section 4.8. Taxes. The Borrower and its Subsidiaries have
filed all United States Federal income tax returns and all other material tax
returns which are required to be filed by them and have paid all taxes shown to
be due on such returns or pursuant to any assessment received by the Borrower or
any Subsidiary to the extent that such taxes have become due and before they
have become delinquent, except such taxes as are being contested in good faith
by appropriate proceedings for which adequate reserves have been established in
accordance with generally accepted accounting principles.
Section 4.9. Subsidiaries. Each of the Borrower's corporate
Material Subsidiaries is a corporation duly incorporated, validly existing and
in good standing under the laws of its jurisdiction of incorporation, and has
all corporate powers and all material governmental licenses, authorizations,
consents and approvals required to carry on its business as now conducted.
Section 4.10. Not an Investment Company. The Borrower is not
an "investment company" or controlled by an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
Section 4.11. Full Disclosure. All information heretofore
furnished by the Borrower to any Agent or any Bank for purposes of or in
connection with this Agreement or any transaction contemplated hereby is, and
all such information hereafter furnished by the Borrower to any Agent or any
Bank will be, true and accurate in all material respects on the date as of
which such information is stated or certified. The Borrower has disclosed to
the Banks in writing any and all facts peculiar to the business of the Company
or any of its Subsidiaries which materially and adversely affect or may affect
(to the extent the Borrower can now reasonably foresee), the business,
operations or financial condition of the Borrower and its Consolidated
Subsidiaries, taken as a whole, or the ability of the Borrower to perform its
obligations under this Agreement.
Section 4.12. MidCon Acquisition. The representations and
warranties of all parties contained in the Stock Purchase Agreement will be
true and correct on and as of the date of the first Borrowing under this
Agreement except to the extent that the failure of the same to be true and
correct could not reasonably be expected to materially adversely affect the
business, consolidated financial position or consolidated results of operations
of the Borrower and its Consolidated Subsidiaries, considered as a whole.
ARTICLE 5
Covenants
The Borrower agrees that, so long as any Bank has any
Commitment hereunder or any amount payable under any Note remains unpaid:
Section 5.1. Information. The Borrower will deliver to each
of the Banks:
(a) as soon as available and in any event within 90 days after the
end of each fiscal year of the Borrower, a consolidated balance sheet of the
Borrower and its Consolidated Subsidiaries as of the end of such fiscal year
and the related consolidated statements of income, cash flows and common
stockholder's equity for such fiscal year, setting forth in each case in
<PAGE> 28
comparative form the figures for the previous fiscal year, all audited by
Arthur Andersen LLP or other independent public accountants of nationally
recognized standing; provided, however, that delivery pursuant to clause (g)
below of copies of the Annual Report on Form 10-K (without exhibits) of the
Borrower for such fiscal year filed with the Securities and Exchange Commission
shall be deemed to satisfy the requirements of this clause (a);
(b) as soon as available and in any event within 45 days after the
end of each of the first three quarters of each fiscal year of the Borrower, a
consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as
of the end of such quarter and the related consolidated statements of income
and cash flows for such quarter (in the case of such statements of income) and
for the portion of the Borrower's fiscal year ended at the end of such quarter,
setting forth in the case of such income and cash flows in comparative form the
figures for the corresponding quarter (in the case of such statements of
income) and the corresponding portion of the Borrower's previous fiscal year,
all certified (subject to normal year-end adjustments) as to fairness of
presentation, generally accepted accounting principles and consistency by an
authorized financial or accounting officer of the Borrower; provided, however,
that delivery pursuant to clause (g) below of copies of the Quarterly Report on
Form 10-Q (without exhibits) of the Borrower for such quarter filed with the
Securities and Exchange Commission shall be deemed to satisfy the requirements
of this clause (b);
(c) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, a certificate of an
authorized financial or accounting officer of the Borrower (i) setting forth in
reasonable detail the calculations required to establish whether the Borrower
was in compliance with the requirements of Section 5.7 and, if applicable,
Sections 5.08 and 5.09 on the date of such financial statements and (ii)
stating whether any Default exists on the date of such certificate and, if any
Default then exists, setting forth the details thereof and the action which the
Borrower is taking or proposes to take with respect thereto;
(d) simultaneously with the delivery of each set of financial
statements referred to in clause (a) above, a statement of the firm of
independent public accountants which reported on such statements (i) whether
anything has come to their attention to cause them to believe that any Default
existed on the date of such statements and (ii) confirming the calculations set
forth in the officer's certificate delivered simultaneously therewith pursuant
to clause (c) above; provided, however, that such accountants shall not be
liable to anyone by reason of their failure to obtain knowledge of any Default
which would not be disclosed in the course of an audit conducted in accordance
with generally accepted auditing standards;
(e) within five Domestic Business Days after any officer of the
Borrower obtains knowledge of any Default, if such Default is then continuing,
a certificate of the chief financial officer or the chief accounting officer of
the Borrower setting forth the details thereof and the action which the
Borrower is taking or proposes to take with respect thereto;
(f) promptly upon the mailing thereof to the public shareholders
of the Borrower generally, copies of all financial statements, reports and
proxy statements so mailed;
<PAGE> 29
(g) promptly upon the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration statements on
Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their
equivalents, in each case without exhibits) which the Borrower shall have filed
with the Securities and Exchange Commission;
(h) if and when any member of the ERISA Group (i) gives or is
required to give notice to the PBGC of any "reportable event" (as defined in
Section 4043 of ERISA) (other than such event as to which the 30-day notice
requirement is waived or which is triggered by the Acquisition) with respect to
any Plan which might constitute grounds for a termination of such Plan under
Title IV of ERISA, or knows that the plan administrator of any Plan has given
or is required to give notice of any such reportable event, a copy of the
notice of such reportable event given or required to be given to the PBGC; (ii)
receives notice of complete or partial withdrawal liability under Title IV of
ERISA or notice that any Multiemployer Plan is in reorganization, is insolvent
or has been terminated, a copy of such notice; (iii) receives notice from the
PBGC under Title IV of ERISA of an intent to terminate, impose liability (other
than for premiums under Section 4007 of ERISA) in respect of, or appoint a
trustee to administer any Plan, a copy of such notice; (iv) applies for a
waiver of the minimum funding standard under Section 412 of the Internal
Revenue Code, a copy of such application; (v) gives notice of intent to
terminate any Plan under Section 4041(c) of ERISA, a copy of such notice and
other information filed with the PBGC; (vi) gives notice of withdrawal from any
Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (vii) fails
to make any payment or contribution to any Plan or Multiemployer Plan or in
respect of any Benefit Arrangement or makes any amendment to any Plan or
Benefit Arrangement which has resulted or could result in the imposition of a
Lien or the posting of a bond or other security, a certificate of the chief
financial officer or the chief accounting officer of the Borrower setting forth
details as to such occurrence and action, if any, which the Borrower or
applicable member of the ERISA Group is required or proposes to take; and
(i) from time to time such additional information regarding the
financial position or business of the Borrower and its Subsidiaries as the
Administrative Agent, at the request of any Bank, may reasonably request.
Section 5.2. Payment of Obligations. The Borrower will pay
and discharge, and will cause each Subsidiary to pay and discharge, at or
before maturity, all their respective material obligations and liabilities,
including, without limitation, tax liabilities, except where the same may be
contested in good faith by appropriate proceedings, and will maintain, and will
cause each Subsidiary to maintain, in accordance with generally accepted
accounting principles, appropriate reserves for the accrual of any of the same.
Section 5.3. Maintenance of Property; Insurance. (a) The
Borrower will keep, and will cause each Subsidiary to keep, all property useful
and necessary in its business in good working order and condition, ordinary
wear and tear excepted.
(b) The Borrower will maintain or cause to be maintained with, in
the good faith judgment of the Borrower, financially sound and reputable
insurers, or through self-insurance, insurance with respect to its properties
<PAGE> 30
and business and the properties and businesses of its Subsidiaries against loss
or damage of the kinds customarily insured against by corporations of
established reputation engaged in the same or similar business and similarly
situated, of such types and in such amounts as are customarily carried under
similar circumstances by such other corporations. Such insurance may include
self-insurance or be subject to co-insurance, deductibility or similar clauses
which, in effect, result in self-insurance of certain losses, provided that
such self-insurance is in accord with the approved practices of corporations
similarly situated and adequate insurance reserves are maintained in connection
with such self-insurance, and, notwithstanding the foregoing provisions of this
Section 5.3 the Borrower or any Subsidiary may effect workers' compensation or
similar insurance in respect of operations in any state or other jurisdiction
either through an insurance fund operated by such state or other jurisdiction
or by causing to be maintained a system or systems of self-insurance in accord
with applicable laws.
Section 5.4. Conduct of Business and Maintenance of Existence.
The Borrower will continue, and will cause each Material Subsidiary to
continue, to engage in business of the same general type as now conducted by
the Borrower and its Subsidiaries, and will preserve, renew and keep in full
force and effect, and will cause each Subsidiary to preserve, renew and keep in
full force and effect their respective corporate existence and their respective
rights, privileges and franchises necessary or desirable in the normal conduct
of business; provided that nothing in this Section 5.4 shall prohibit (i) the
merger of a Subsidiary into the Borrower or the merger or consolidation of a
Subsidiary with or into another Person if the corporation surviving such
consolidation or merger is a Subsidiary and if, in each case, after giving
effect thereto, no Default shall have occurred and be continuing, (ii) the sale
or other disposition (whether by merger or otherwise) of the capital stock or
assets of any Subsidiary, if such transaction complies with the provisions of
Section 5.11 or (iii) the termination of the corporate existence of any
Subsidiary if the Borrower in good faith determines that such termination is in
the best interest of the Borrower and is not materially disadvantageous to the
Banks.
Section 5.5. Compliance with Laws. The Borrower will comply,
and cause each Subsidiary to comply, in all respects with all applicable laws,
ordinances, rules, regulations, and requirements of governmental authorities
(including, without limitation, Environmental Laws and ERISA and the rules and
regulations thereunder) except (i) where the necessity of compliance therewith
is contested in good faith by appropriate proceedings or (ii) where failure to
comply could not reasonably be expected to materially adversely affect the
business, consolidated financial position or consolidated results of operations
of the Borrower and its Consolidated Subsidiaries, considered as a whole.
Section 5.6. Inspection of Property, Books and Records. The
Borrower will keep, and will cause each Subsidiary to keep, proper books of
record and account in which full, true and correct entries, as required by
generally accepted accounting principles, shall be made of all dealings and
transactions in relation to its business and activities; and will permit, and
will cause each Subsidiary to permit, representatives of any Bank at such
Bank's expense to visit and inspect any of their respective properties, to
examine and make abstracts from any of their respective books and records
<PAGE> 31
(subject to compliance with confidentiality agreements, copyrights and the
like) and to discuss their respective affairs, finances and accounts with their
respective officers, employees and independent public accountants, all at such
reasonable times and as often as may reasonably be desired.
Section 5.7. Debt. (a) Consolidated Debt of the Borrower
will at no time exceed the MLP of Consolidated Total Capitalization. "MLP"
means Maximum Leverage Percentage, which is 87.00%, subject to adjustment from
time to time after the date hereof as follows: (a) upon the issuance of Trust
Preferred Securities in the amount of $300,000,000, the MLP will be reduced by
5.25%; (b) upon issuance of common equity securities in the amount of
$500,000,000, the MLP will be reduced by 8.75%; and (c) upon issuance of
Mandatorily Convertible Preferred Stock in the amount of $400,000,000, the MLP
will be reduced by 6.00%. In the event of issuance of securities of the type
described above in an amount different from that specified, the consequent
reduction of the MLP will be adjusted on a pro rata basis; provided that in the
event of issuance of Trust Preferred Securities in an amount greater than the
indicated amount, there will not be an additional reduction in the MLP to the
extent that the Trust Preferred Securities exceed 10% of the Consolidated Total
Capitalization of the Borrower. Upon issuance of all securities of the types
described above, the MLP will at all times thereafter be 67.00%.
(b) Total Debt of all Consolidated Subsidiaries (excluding Debt of
a Consolidated Subsidiary of the Borrower to the Borrower or to another
Consolidated Subsidiary of the Borrower) will at no time exceed 10% of
Consolidated Debt of the Borrower.
(c) Consolidated Debt of each Material Subsidiary will at no time
exceed 65% of the Consolidated Total Capitalization of such Material
Subsidiary.
Section 5.8. Minimum Net Worth. Consolidated Net Worth will
at no time be less than an amount equal to the sum of (a) $570,000,000 plus (b)
50% of Consolidated Net Income for each fiscal quarter of the Borrower ending
after the date hereof and at or prior to such time (but only if such
Consolidated Net Income for such fiscal quarter is a positive amount) plus (c)
for any issuance of securities resulting in a reduction of the MLP pursuant to
Section 5.07(a), an amount equal to 80% of the increase in Consolidated Net
Worth resulting from such issuance of securities, if at such time the
Borrower's senior unsecured long-term debt is not rated at least Baa2 by
Moody's and BBB by S&P.
Section 5.9. Minimum Interest Coverage Ratio. At any time at
which the Borrower's senior unsecured long-term debt is not rated at least Baa3
by Moody's and BBB- by S&P, the Interest Coverage Ratio will not be less than
(i) 2.25:1, if such time is prior to March 31, 1999, and (ii) 2.75:1, if such
time is on or after March 31, 1999.
Section 5.10. Negative Pledge. Neither the Borrower nor any
Subsidiary will create, assume or suffer to exist any Lien on any asset now
owned or hereafter acquired by it, except:
(a) any Liens deemed to exist on the date of this Agreement under
the Purchase Agreement;
<PAGE> 32
(b) Liens on cash and cash equivalents securing the Substitute
Note, as contemplated by the Reimbursement Agreement;
(c) Liens on assets of any Person existing at the time such Person
becomes a Subsidiary and not created in contemplation of such event;
(d) Liens arising in the ordinary course of its business which (i)
do not secure Debt or Derivatives Obligations, (ii) do not secure any
obligation in an amount exceeding $150,000,000 and (iii) do not in the
aggregate materially detract from the value of its assets or materially impair
the use thereof in the operation of its business;
(e) Liens on cash and cash equivalents securing Derivatives
Obligations, provided that the aggregate amount of cash and cash equivalents
subject to such Liens may at no time exceed $75,000,000;
(f) statutory or common law Liens of or upon deposits of cash in
favor of banks or other depository institutions; and
(g) Liens not otherwise permitted by the foregoing clauses of this
Section securing Debt in an aggregate principal or face amount at any date not
to exceed 10% of Consolidated Net Worth of the Borrower.
Section 5.11. Consolidations, Mergers and Sales of Assets.
The Borrower will not (i) consolidate or merge with or into any other Person or
(ii) sell, lease or otherwise transfer, directly or indirectly, all or
substantially all of its assets to any other Person, unless:
(i) immediately after giving effect to the transaction, no
Default shall have occurred and be continuing; and
(ii) except in the case of a merger in which the Borrower is
the surviving corporation:
(x) the Person formed by or surviving such transaction, in
the case of a consolidation or merger, and the transferee, in
the case of a transfer, assumes all obligations of the Borrower
hereunder and under the Notes;
(y) the Person formed by or surviving such transaction, in
the case of a consolidation or merger, and the transferee, in
the case of a transfer, is organized under the laws of the
United States or any state thereof; and
(z) the Borrower has delivered to the Administrative Agent
an officer's certificate and opinion of counsel, each stating
that such consolidation, merger, or transfer and such
assumption comply with the provisions hereof.
No such sale, lease or other transfer of assets shall have the effect of
releasing the Borrower (or any successor that shall have become such in the
manner prescribed in this Section) from its liability under this Agreement and
the Notes.
<PAGE> 33
Section 5.12. Use of Proceeds. The proceeds of the Loans made
under this Agreement will be used by the Borrower for general corporate
purposes. None of such proceeds will be used, directly or indirectly, for the
purpose, whether immediate, incidental or ultimate, of buying or carrying any
"margin stock" within the meaning of Regulation U.
Section 5.13. Transactions with Affiliates. The Borrower will
not participate in any material transaction with an affiliate (other than a
Subsidiary) unless such transaction is in the ordinary course of its business
and on terms no less advantageous to the Borrower than could be obtained in
such a transaction with an unaffiliated party.
ARTICLE 6
Defaults
Section 6.1. Events of Default. If one or more of the
following events ("Events of Default") shall have occurred and be continuing:
(a) the Borrower shall fail to pay when due any principal of any
Loan or shall fail to pay within three Domestic Business Days of the due date
thereof any interest on any Loan, any fees or any other amount payable
hereunder;
(b) the Borrower shall fail to observe or perform any covenant
contained in Sections 5.7 to 5.13, inclusive;
(c) the Borrower shall fail to observe or perform any covenant or
agreement contained in this Agreement (other than those covered by clause (a)
or (b) above) for 10 days after notice thereof has been given to the Borrower
by the Administrative Agent at the request of any Bank;
(d) any representation, warranty, certification or statement made
by the Borrower in this Agreement or in any certificate, financial statement or
other document delivered pursuant to this Agreement shall prove to have been
incorrect in any material respect when made (or deemed made);
(e) the Borrower or any Subsidiary shall fail to make any payment
in respect of any Material Financial Obligations when due or within any
applicable grace period; provided, however, that if any such failure is cured
by the Borrower or such Subsidiary or is waived by the requisite percentage of
holders of such Material Financial Obligations entitled to so waive, then the
Event of Default under this Agreement by reason of such failure shall be deemed
to have been cured;
(f) any event or condition shall occur which results in the
acceleration of the maturity of any Material Debt or enables (or, with the
giving of notice or lapse of time or both, would enable) the holder of such
Debt or any Person acting on such holder's behalf to accelerate the maturity
thereof; provided, however, that if any such acceleration is rescinded, or any
such event or condition is cured by the Borrower or any Subsidiary or is waived
by the requisite percentage of holders of such Material Debt entitled to
<PAGE> 34
so waive, then the Event of Default under this Agreement by reason of such
acceleration, event or condition shall be deemed to have been cured;
(g) the Borrower or any Material Subsidiary shall commence a
voluntary case or other proceeding seeking liquidation, reorganization or other
relief with respect to itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment
for the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate action to authorize any of the
foregoing;
(h) an involuntary case or other proceeding shall be commenced
against the Borrower or any Material Subsidiary seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, and such
involuntary case or other proceeding shall remain undismissed and unstayed for
a period of 60 days; or an order for relief shall be entered against the
Borrower or any Material Subsidiary under the federal bankruptcy laws as now or
hereafter in effect;
(i) any member of the ERISA Group shall fail to pay when due an
amount which it shall have become liable to pay under Title IV of ERISA; or
notice of intent to terminate a Plan shall be filed under Title IV of ERISA by
any member of the ERISA Group, any plan administrator or any combination of the
foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to
terminate, to impose liability (other than for premiums under Section 4007 of
ERISA) in respect of, or to cause a trustee to be appointed to administer any
Plan; or a condition shall exist by reason of which the PBGC would be entitled
to obtain a decree adjudicating that any Plan must be terminated; or there
shall occur a complete or partial withdrawal from, or a default, within the
meaning of Section 4219(c)(5) of ERISA, with respect to, one or more
Multiemployer Plans which could cause one or more members of the ERISA Group to
incur a current payment obligation; and in each of the foregoing instances such
condition (i) could reasonably be expected to materially adversely affect the
business, consolidated financial position or consolidated results of operations
of the Borrower and its Consolidated Subsidiaries, considered as a whole, and
(ii) shall continue for 10 days after notice thereof has been given to the
Borrower by the Administrative Agent at the request of any Bank;
(j) a judgment or judgments for the payment of money (not paid or
fully covered by insurance or indemnification) in excess of $60,000,000 in the
aggregate shall be rendered against the Borrower or any Material Subsidiary and
such judgment or judgments are not, within 30 days after entry thereof, bonded,
discharged or stayed pending appeal, or are not discharged within 30 days after
the expiration of such stay; or
(k) any person or group of persons (within the meaning of Section
13 or 14 of the Securities Exchange Act of 1934, as amended) shall have
<PAGE> 35
acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by
the Securities and Exchange Commission under said Act) of 30% or more of the
outstanding shares of common stock of the Borrower; or, during any period of
twelve consecutive calendar months, individuals who were directors of the
Borrower on the first day of such period shall cease to constitute a majority
of the board of directors of the Borrower;
then, and in every such event, the Administrative Agent shall (i) if requested
by Banks having more than 50% in aggregate amount of the Commitments, by notice
to the Borrower terminate the Commitments and they shall thereupon terminate,
and (ii) if requested by Banks holding Notes evidencing more than 50% in
aggregate principal amount of the Loans, by notice to the Borrower declare the
Notes (together with accrued interest thereon) to be, and the Notes shall
thereupon become, immediately due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby waived by the
Borrower; provided that in the case of any of the Events of Default specified
in clause (g) or (h) above with respect to the Borrower, without any notice to
the Borrower or any other act by the Administrative Agent or the Banks, the
Commitments shall thereupon terminate and the Notes (together with accrued
interest thereon) shall become immediately due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
the Borrower.
Section 6.2. Notice of Default. The Administrative Agent
shall give notice to the Borrower under Section 6.1(c) or 6.1(i) promptly upon
being requested to do so by any Bank and shall thereupon notify all the Banks
thereof.
ARTICLE 7
The Agents
Section 7.1. Appointment and Authorization. Each Bank
irrevocably appoints and authorizes the Administrative Agent to take such
action as agent on its behalf and to exercise such powers under this Agreement
and the Notes as are delegated to the Administrative Agent by the terms hereof
or thereof, together with all such powers as are reasonably incidental thereto.
Section 7.2. Administrative Agent and Affiliates. Morgan
Guaranty Trust Company of New York shall have the same rights and powers under
this Agreement as any other Bank and may exercise or refrain from exercising
the same as though it were not the Administrative Agent, and Morgan Guaranty
Trust Company of New York and its affiliates may accept deposits from, lend
money to, and generally engage in any kind of business with the Borrower or any
Subsidiary or affiliate of the Borrower as if it were not the Administrative
Agent hereunder.
Section 7.3. Action by Administrative Agent. The obligations
of the Administrative Agent hereunder are only those expressly set forth
herein. Without limiting the generality of the foregoing, the Administrative
Agent shall not be required to take any action with respect to any Default,
except as expressly provided in Article 6.
<PAGE> 36
Section 7.4. Consultation with Experts. The Administrative
Agent may consult with legal counsel (who may be counsel for the Borrower),
independent public accountants and other experts selected by it and shall not
be liable for any action taken or omitted to be taken by it in good faith in
accordance with the advice of such counsel, accountants or experts.
Section 7.5. Liability of Administrative Agent. Neither the
Administrative Agent nor any of its affiliates nor any of their respective
directors, officers, agents or employees shall be liable for any action taken
or not taken by it in connection herewith (i) with the consent or at the
request of the Required Banks or (ii) in the absence of its own gross
negligence or willful misconduct. Neither the Administrative Agent nor any of
its affiliates nor any of their respective directors, officers, agents or
employees shall be responsible for or have any duty to ascertain, inquire into
or verify (i) any statement, warranty or representation made in connection with
this Agreement or any borrowing hereunder; (ii) the performance or observance
of any of the covenants or agreements of the Borrower; (iii) the satisfaction
of any condition specified in Article 3, except receipt of items required to be
delivered to the Administrative Agent; or (iv) the validity, effectiveness or
genuineness of this Agreement, the Notes or any other instrument or writing
furnished in connection herewith. The Administrative Agent shall not incur any
liability by acting in reliance upon any notice, consent, certificate,
statement, or other writing (which may be a bank wire, telex, facsimile
transmission or similar writing) believed by it to be genuine or to be signed
by the proper party or parties. Without limiting the generality of the
foregoing, the use of the term "agent" in this Agreement with reference to the
Administrative Agent is not intended to connote any fiduciary or other implied
(or express) obligations arising under agency doctrine of any applicable law.
Instead, such term is used merely as a matter of market custom and is intended
to create or reflect only an administrative relationship between independent
contracting parties.
Section 7.6. Indemnification. Each Bank shall, ratably in
accordance with its Commitment, indemnify any Agent, its affiliates and their
respective directors, officers, agents and employees (to the extent not
reimbursed by the Borrower) against any cost, expense (including counsel fees
and disbursements), claim, demand, action, loss or liability (except such as
result from such indemnitees' gross negligence or willful misconduct) that such
indemnitees may suffer or incur in connection with this Agreement or any action
taken or omitted by such indemnitees hereunder.
Section 7.7. Credit Decision. Each Bank acknowledges that it
has, independently and without reliance upon any Agent or any other Bank, and
based on such documents and information as it has deemed appropriate, made its
own credit analysis and decision to enter into this Agreement. Each Bank also
acknowledges that it will, independently and without reliance upon any Agent or
any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking any action under this Agreement.
Section 7.8. Successor Administrative Agent. The
Administrative Agent may resign at any time by giving notice thereof to the
Banks and the Borrower. Upon any such resignation, the Required Banks shall
have the right to appoint a successor Administrative Agent, with the consent
<PAGE> 37
of the Borrower, which shall not be unreasonably withheld. If no successor
Administrative Agent shall have been so appointed by the Required Banks, and
shall have accepted such appointment, within 30 days after the retiring
Administrative Agent gives notice of resignation, then the retiring
Administrative Agent may, on behalf of the Banks, appoint a successor
Administrative Agent, which shall be a commercial bank organized or licensed
under the laws of the United States of America or of any State thereof and
having a combined capital and surplus of at least $500,000,000. Upon the
acceptance of its appointment as Administrative Agent hereunder by a successor
Administrative Agent, such successor Administrative Agent shall thereupon
succeed to and become vested with all the rights and duties of the retiring
Administrative Agent, and the retiring Administrative Agent shall be discharged
from its duties and obligations hereunder. After any retiring Administrative
Agent's resignation hereunder as Administrative Agent, the provisions of this
Article shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Administrative Agent.
Section 7.9. Agents' Fees. The Borrower shall pay to the
Administrative Agent for the account of the Agents fees in the amounts and at
the times previously agreed upon between the Borrower and the Agents.
Section 7.10. Other Agents. Nothing contained in this
Agreement shall be construed to impose any obligation or duty whatsoever on any
Syndication Agent, in its capacity as such an Agent.
ARTICLE 8
Change in Circumstances
Section 8.1. Basis for Determining Interest Rate Inadequate or
Unfair. If on or prior to the first day of any Interest Period for any Fixed
Rate Borrowing:
(a) the Administrative Agent is advised by the Reference
Banks that deposits in dollars (in the applicable amounts) are
not being offered to the Reference Banks in the relevant market
for such Interest Period, or
(b) Banks having 50% or more of the aggregate amount of the
Commitments advise the Administrative Agent that the Adjusted
CD Rate or the London Interbank Offered Rate, as the case may
be, as determined by the Administrative Agent will not
adequately and fairly reflect the cost to such Banks of funding
their CD Loans or Euro-Dollar Loans, as the case may be, for
such Interest Period,
the Administrative Agent shall forthwith give notice thereof to the Borrower
and the Banks, whereupon until the Administrative Agent notifies the Borrower
that the circumstances giving rise to such suspension no longer exist, the
obligations of the Banks to make CD Loans or Euro-Dollar Loans, as the case may
be, shall be suspended. Unless the Borrower notifies the Administrative Agent
at least two Domestic Business Days before the date of any Fixed Rate Borrowing
for which a Notice of Borrowing has previously been given that it elects not to
borrow on such date, such Borrowing shall instead be made as a
<PAGE> 38
Base Rate Borrowing.
Section 8.2. Illegality. If, on or after the date of this
Agreement, the adoption of any applicable law, rule or regulation, or any
change in any applicable law, rule or regulation, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by any Bank (or its Euro-Dollar Lending Office) with any
request or directive (whether or not having the force of law) of any such
authority, central bank or comparable agency shall make it unlawful or
impossible for any Bank (or its Euro-Dollar Lending Office) to make, maintain
or fund its Euro-Dollar Loans and such Bank shall so notify the Administrative
Agent, the Administrative Agent shall forthwith give notice thereof to the
other Banks and the Borrower, whereupon until such Bank notifies the Borrower
and the Administrative Agent that the circumstances giving rise to such
suspension no longer exist, the obligation of such Bank to make Euro-Dollar
Loans shall be suspended. Before giving any notice to the Administrative Agent
pursuant to this Section, such Bank shall designate a different Euro-Dollar
Lending Office if such designation will avoid the need for giving such notice
and will not, in the judgment of such Bank, be otherwise disadvantageous to
such Bank. If such Bank shall determine that it may not lawfully continue to
maintain and fund any of its outstanding Euro-Dollar Loans to maturity and
shall so specify in such notice, the Borrower shall immediately prepay in full
the then outstanding principal amount of each such Euro-Dollar Loan, together
with accrued interest thereon. Concurrently with prepaying each such
Euro-Dollar Loan, the Borrower shall borrow a Base Rate Loan in an equal
principal amount from such Bank (on which interest and principal shall be
payable contemporaneously with the related Euro-Dollar Loans of the other
Banks), and such Bank shall make such a Base Rate Loan.
Section 8.3. Increased Cost and Reduced Return. (a) If on or
after the date hereof, the adoption of any applicable law, rule or regulation,
or any change in any applicable law, rule or regulation, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by any Bank (or its Applicable Lending Office) with any
request or directive (whether or not having the force of law) of any such
authority, central bank or comparable agency shall impose, modify or deem
applicable any reserve (including, without limitation, any such requirement
imposed by the Board of Governors of the Federal Reserve System, but excluding
(i) with respect to any CD Loan any such requirement included in an applicable
Domestic Reserve Percentage and (ii) with respect to any Euro-Dollar Loan any
such requirement with respect to which such Bank is entitled to compensation
during the relevant Interest Period under Section 2.15), special deposit,
insurance assessment (excluding, with respect to any CD Loan, any such
requirement reflected in an applicable Assessment Rate) or similar requirement
against assets of, deposits with or for the account of, or credit extended by,
any Bank (or its Applicable Lending Office) or shall impose on any Bank (or its
Applicable Lending Office) or on the United States market for certificates of
deposit or the London interbank market any other condition affecting its Fixed
Rate Loans, its Note or its obligation to make Fixed Rate Loans and the result
of any of the foregoing is to increase the cost to such Bank (or its Applicable
Lending Office) of making or maintaining any Fixed Rate Loan, or to
<PAGE> 39
reduce the amount of any sum received or receivable by such Bank (or its
Applicable Lending Office) under this Agreement or under its Note with respect
thereto, by an amount deemed by such Bank to be material, then, within 15 days
after demand by such Bank (with a copy to the Administrative Agent), the
Borrower shall pay to such Bank such additional amount or amounts as will
compensate such Bank for such increased cost or reduction.
(b) If any Bank shall have determined that, after the date hereof,
the adoption of any applicable law, rule or regulation regarding capital
adequacy, or any change in any such law, rule or regulation, or any change in
the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency (including any determination by any such authority, central
bank or comparable agency that, for purposes of capital adequacy requirements,
the Commitments hereunder do not constitute commitments with an original
maturity of one year or less), has or would have the effect of reducing the
rate of return on capital of such Bank (or its Parent) as a consequence of such
Bank's obligations hereunder to a level below that which such Bank (or its
Parent) could have achieved but for such adoption, change, request or directive
(taking into consideration its policies with respect to capital adequacy) by an
amount deemed by such Bank to be material, then from time to time, within 15
days after demand by such Bank (with a copy to the Administrative Agent), the
Borrower shall pay to such Bank such additional amount or amounts as will
compensate such Bank (or its Parent) for such reduction.
(c) Each Bank will promptly notify the Borrower and the
Administrative Agent of any event of which it has knowledge, occurring after
the date hereof, which will entitle such Bank to compensation pursuant to this
Section and will designate a different Applicable Lending Office if such
designation will avoid the need for, or reduce the amount of, such compensation
and will not, in the judgment of such Bank, be otherwise disadvantageous to
such Bank. A certificate of any Bank claiming compensation under this Section
and setting forth in reasonable detail the additional amount or amounts to be
paid to it hereunder shall be conclusive in the absence of manifest error. In
determining such amount, such Bank may use any reasonable averaging and
attribution methods. Notwithstanding the foregoing subsections (a) and (b) of
this Section 8.3, the Borrower shall only be obligated to compensate any Bank
for any amount arising or accruing during (i) any time or period commencing not
more than 90 days prior to the date on which such Bank notifies the
Administrative Agent and the Borrower that it proposes to demand such
compensation and identifies to the Administrative Agent and the Borrower the
statute, regulation or other basis upon which the claimed compensation is or
will be based and (ii) any time or period during which, because of the
retroactive application of such statute, regulation or other such basis, such
Bank did not know that such amount would arise or accrue.
Section 8.4. Taxes. (a) For purposes of this Section 8.4, the
following terms have the following meanings:
"Taxes" means any and all present or future taxes, duties,
levies, imposts, deductions, charges or withholdings with respect to any
<PAGE> 40
payment by the Borrower pursuant to this Agreement or under any Note, and all
liabilities with respect thereto, excluding (i) in the case of each Bank and
the Administrative Agent, taxes imposed on its income, and franchise or similar
taxes imposed on it, by a jurisdiction under the laws of which such Bank or the
Administrative Agent (as the case may be) is organized or in which its
principal executive office is located or, in the case of each Bank, in which
its Applicable Lending Office is located and (ii) in the case of each Bank, any
United States withholding tax imposed on such payments but only to the extent
that such Bank is subject to United States withholding tax at the time such
Bank first becomes a party to this Agreement.
"Other Taxes" means any present or future stamp or documentary
taxes and any other excise or property taxes, or similar charges or levies,
which arise from any payment made pursuant to this Agreement or under any Note
or from the execution or delivery of, or otherwise with respect to, this
Agreement or any Note.
(b) Any and all payments by the Borrower to or for the account of
any Bank or the Administrative Agent hereunder or under any Note shall be made
without deduction for any Taxes or Other Taxes; provided that, if the Borrower
shall be required by law to deduct any Taxes or Other Taxes from any such
payments, (i) the sum payable shall be increased as necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section 8.4) such Bank or the Administrative Agent (as
the case may be) receives an amount equal to the sum it would have received had
no such deductions been made, (ii) the Borrower shall make such deductions,
(iii) the Borrower shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law and (iv) the
Borrower shall furnish to the Administrative Agent, at its address referred to
in Section 9.1, the original or a certified copy of a receipt evidencing
payment thereof.
(c) The Borrower agrees to indemnify each Bank and the
Administrative Agent for the full amount of Taxes or Other Taxes (including,
without limitation, any Taxes or Other Taxes imposed or asserted by any
jurisdiction on amounts payable under this Section 8.4) paid by such Bank or
the Administrative Agent (as the case may be) and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto.
This indemnification shall be paid within 15 days after such Bank or the
Administrative Agent (as the case may be) makes demand therefor.
(d) Each Bank organized under the laws of a jurisdiction outside
the United States, on or prior to the date of its execution and delivery of
this Agreement in the case of each Bank listed on the signature pages hereof
and on or prior to the date on which it becomes a Bank in the case of each
other Bank, and from time to time thereafter if requested in writing by the
Borrower (but only so long as such Bank remains lawfully able to do so), shall
provide the Borrower with Internal Revenue Service form 1001 or 4224, as
appropriate, or any successor form prescribed by the Internal Revenue Service,
certifying that such Bank is entitled to benefits under an income tax treaty to
which the United States is a party which exempts the Bank from United States
withholding tax or reduces the rate of withholding tax on payments of interest
for the account of such Bank or certifying that the income receivable pursuant
to this Agreement is effectively connected with the conduct of a trade or
<PAGE> 41
business in the United States.
(e) For any period with respect to which a Bank has failed to
provide the Borrower with the appropriate form pursuant to Section 8.4(d)
(unless such failure is due to a change in treaty, law or regulation occurring
subsequent to the date on which such form originally was required to be
provided), such Bank shall not be entitled to indemnification under Section
8.4(b) or (c) with respect to Taxes imposed by the United States; provided that
if a Bank, which is otherwise exempt from or subject to a reduced rate of
withholding tax, becomes subject to Taxes because of its failure to deliver a
form required hereunder, the Borrower, at such Bank's expense, shall take such
steps as such Bank shall reasonably request to assist such Bank to recover such
Taxes.
(f) If the Borrower is required to pay additional amounts to or
for the account of any Bank pursuant to this Section 8.4, then such Bank will
change the jurisdiction of its Applicable Lending Office if, in the judgment of
such Bank, such change (i) will eliminate or reduce any such additional payment
which may thereafter accrue and (ii) is not otherwise disadvantageous to such
Bank.
Section 8.5. Base Rate Loans Substituted for Affected Fixed
Rate Loans. If (i) the obligation of any Bank to make Euro-Dollar Loans has
been suspended pursuant to Section 8.2 or (ii) any Bank has demanded
compensation under Section 8.3 or 8.4 with respect to its CD Loans or
Euro-Dollar Loans and the Borrower shall, by at least five Euro-Dollar Business
Days' prior notice to such Bank through the Administrative Agent, have elected
that the provisions of this Section shall apply to such Bank, then, unless and
until such Bank notifies the Borrower that the circumstances giving rise to
such suspension or demand for compensation no longer exist:
(a) all Loans which would otherwise be made by such Bank as CD
Loans or Euro-Dollar Loans, as the case may be, shall be made instead as Base
Rate Loans (on which interest and principal shall be payable contemporaneously
with the related Fixed Rate Loans of the other Banks), and
(b) after each of its CD Loans or Euro-Dollar Loans, as the case
may be, has been repaid, all payments of principal which would otherwise be
applied to repay such Fixed Rate Loans shall be applied to repay its Base Rate
Loans instead.
Section 8.6. Substitution of Bank. If (i) the obligation of
any Bank to make Euro-Dollar Loans has been suspended pursuant to Section 8.2
or (ii) any Bank has demanded compensation under Section 8.3 or 8.4, the
Borrower shall have the right, with the assistance of the Administrative Agent,
to seek a mutually satisfactory substitute bank or banks (which may be one or
more of the Banks) to purchase the Note and assume the Commitment of such Bank.
<PAGE> 42
ARTICLE 9
Miscellaneous
Section 9.1. Notices. All notices, requests and other
communications to any party hereunder shall be in writing (including bank wire,
telex, facsimile transmission or similar writing) and shall be given to such
party: (x) in the case of the Borrower or the Administrative Agent, at its
address, facsimile number or telex number set forth on the signature pages
hereof, (y) in the case of any Bank, at its address, facsimile number or telex
number set forth in its Administrative Questionnaire or (z) in the case of any
party, such other address, facsimile number or telex number as such party may
hereafter specify for the purpose by notice to the Administrative Agent and the
Borrower. Each such notice, request or other communication shall be effective
(i) if given by telex, when such telex is transmitted to the telex number
specified in this Section and the appropriate answerback is received, (ii) if
given by facsimile transmission, when transmitted to the facsimile number
specified in this Section and confirmation of receipt is received or (iii) if
given by any other means, when delivered at the address specified in this
Section; provided that notices to the Administrative Agent under Article 2 or
Article 8 shall not be effective until received.
Section 9.2. No Waivers. No failure or delay by the
Administrative Agent or any Bank in exercising any right, power or privilege
hereunder or under any Note shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
Section 9.3. Expenses; Indemnification. (a) The Borrower
shall pay (i) all reasonable out-of-pocket expenses of the Administrative
Agent, including fees and disbursements of Davis Polk & Wardwell, special
counsel for the Agents, in connection with the preparation and administration
of this Agreement, any waiver or consent hereunder or any amendment hereof or
any Default or alleged Default hereunder and (ii) if an Event of Default
occurs, all out-of-pocket expenses incurred by each Agent and Bank, including
(without duplication) the fees and disbursements of outside counsel and the
allocated cost of inside counsel, in connection with such Event of Default and
collection, bankruptcy, insolvency and other enforcement proceedings resulting
therefrom.
(b) The Borrower agrees to indemnify each Agent and Bank, their
respective affiliates and the respective directors, officers, agents and
employees of the foregoing (each an "Indemnitee") and hold each Indemnitee
harmless from and against any and all liabilities, losses, damages, costs and
expenses of any kind, including, without limitation, the reasonable fees and
disbursements of counsel, which may be incurred by such Indemnitee in
connection with any investigative, administrative or judicial proceeding
(whether or not such Indemnitee shall be designated a party thereto) brought or
threatened relating to or arising out of (i) any actual or proposed use of
proceeds of Loans hereunder or (ii) any actual or alleged Default under this
Agreement or any actual or alleged untruth or inaccuracy of any representation
or warranty made by the Borrower in or in connection with this Agreement;
provided that no Indemnitee shall have the right to be indemnified hereunder
for such Indemnitee's own gross negligence or willful misconduct as finally
determined by a court of competent jurisdiction.
<PAGE> 43
Section 9.4. Sharing of Set-offs. Each Bank agrees that if it
shall, by exercising any right of set- off or counterclaim or otherwise,
receive payment of a proportion of the aggregate amount of principal and
interest due with respect to any Note held by it which is greater than the
proportion received by any other Bank in respect of the aggregate amount of
principal and interest due with respect to any Note held by such other Bank,
the Bank receiving such proportionately greater payment shall purchase such
participations in the Notes held by the other Banks, and such other adjustments
shall be made, as may be required so that all such payments of principal and
interest with respect to the Notes held by the Banks shall be shared by the
Banks pro rata; provided that nothing in this Section shall impair the right of
any Bank to exercise any right of set-off or counterclaim it may have and to
apply the amount subject to such exercise to the payment of indebtedness of the
Borrower other than its indebtedness hereunder. The Borrower agrees, to the
fullest extent it may effectively do so under applicable law, that any holder
of a participation in a Note, whether or not acquired pursuant to the foregoing
arrangements, may exercise rights of set-off or counterclaim and other rights
with respect to such participation as fully as if such holder of a
participation were a direct creditor of the Borrower in the amount of such
participation.
Section 9.5. Amendments and Waivers. Any provision of this
Agreement or the Notes may be amended or waived if, but only if, such amendment
or waiver is in writing and is signed by the Borrower and the Required Banks
(and, if the rights or duties of any Agent are affected thereby, by such
Agent); provided that no such amendment or waiver shall, unless signed by all
the Banks, (i) increase or decrease the Commitment of any Bank (except for a
ratable decrease in the Commitments of all Banks) or subject any Bank to any
additional obligation, (ii) reduce the principal of or rate of interest on any
Loan or any fees hereunder, (iii) postpone the date fixed for any payment of
principal of or interest on any Loan or any fees hereunder or for termination
of any Commitment or (iv) change the percentage of the Commitments or of the
aggregate unpaid principal amount of the Notes, or the number of Banks, which
shall be required for the Banks or any of them to take any action under this
Section or any other provision of this Agreement.
Section 9.6. Successors and Assigns. (a) The provisions of
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns, except that the Borrower
may not assign or otherwise transfer any of its rights under this Agreement
without the prior written consent of all Banks.
(b) Any Bank may at any time grant to one or more banks or other
institutions (each a "Participant") participating interests in its Commitment
or any or all of its Loans. In the event of any such grant by a Bank of a
participating interest to a Participant, whether or not upon notice to the
Borrower and the Administrative Agent, such Bank shall remain responsible for
the performance of its obligations hereunder, and the Borrower and the
Administrative Agent shall continue to deal solely and directly with such Bank
in connection with such Bank's rights and obligations under this Agreement.
Any agreement pursuant to which any Bank may grant such a participating
interest shall provide that such Bank shall retain the sole right and
responsibility to enforce the obligations of the Borrower hereunder including,
without limitation, the right to approve any amendment, modification or waiver
of any provision of this Agreement; provided that such participation agreement
<PAGE> 44
may provide that such Bank will not agree to any modification, amendment or
waiver of this Agreement described in clause (i), (ii) or (iii) of Section 9.5
without the consent of the Participant. The Borrower agrees that each
Participant shall, to the extent provided in its participation agreement, be
entitled to the benefits of Article 8 with respect to its participating
interest. An assignment or other transfer which is not permitted by subsection
(c) or (d) below shall be given effect for purposes of this Agreement only to
the extent of a participating interest granted in accordance with this
subsection (b).
(c) Any Bank may at any time assign to one or more banks or other
institutions (each an "Assignee") all, or a proportionate part (equivalent to
an initial Commitment of not less than $10,000,000) of all, of its rights and
obligations under this Agreement and the Notes, and such Assignee shall assume
such rights and obligations, pursuant to an Assignment and Assumption Agreement
in substantially the form of Exhibit F hereto executed by such Assignee and
such transferor Bank, with (and subject to) the subscribed consent of the
Borrower, which shall not be unreasonably withheld, and the Administrative
Agent; provided that if an Assignee is an affiliate of such transferor Bank or
was a Bank immediately prior to such assignment, no such consent shall be
required. Upon execution and delivery of such instrument and payment by such
Assignee to such transferor Bank of an amount equal to the purchase price
agreed between such transferor Bank and such Assignee, such Assignee shall be a
Bank party to this Agreement and shall have all the rights and obligations of a
Bank with a Commitment as set forth in such instrument of assumption, and the
transferor Bank shall be released from its obligations hereunder to a
corresponding extent, and no further consent or action by any party shall be
required. Upon the consummation of any assignment pursuant to this subsection
(c), the transferor Bank, the Administrative Agent and the Borrower shall make
appropriate arrangements so that, if required, a new Note is issued to the
Assignee. In connection with any such assignment, the transferor Bank shall
pay to the Administrative Agent an administrative fee for processing such
assignment in the amount of $2,500. If the Assignee is not incorporated under
the laws of the United States of America or a state thereof, it shall deliver
to the Borrower and the Administrative Agent certification as to exemption from
deduction or withholding of any United States federal income taxes in
accordance with Section 8.4.
(d) Any Bank may at any time assign all or any portion of its
rights under this Agreement and its Note to a Federal Reserve Bank. No such
assignment shall release the transferor Bank from its obligations hereunder.
(e) No Assignee, Participant or other transferee of any Bank's
rights shall be entitled to receive any greater payment under Section 8.3 or
8.4 than such Bank would have been entitled to receive with respect to the
rights transferred, unless such transfer is made with the Borrower's prior
written consent or by reason of the provisions of Section 8.2, 8.3 or 8.4
requiring such Bank to designate a different Applicable Lending Office under
certain circumstances or at a time when the circumstances giving rise to such
greater payment did not exist.
Section 9.7. Collateral. Each of the Banks represents to each
Agent and each of the other Banks that it in good faith is not relying upon any
"margin stock" (as defined in Regulation U) as collateral in the extension or
<PAGE> 45
maintenance of the credit provided for in this Agreement.
Section 9.8. Governing Law; Submission to Jurisdiction. This
Agreement and each Note shall be governed by and construed in accordance with
the laws of the State of New York. The Borrower hereby submits to the
nonexclusive jurisdiction of the United States District Court for the Southern
District of New York and of any New York State court sitting in New York City
having subject matter jurisdiction for purposes of all legal proceedings
arising out of or relating to this Agreement or the transactions contemplated
hereby. The Borrower irrevocably waives, to the fullest extent permitted by
law, any objection which it may now or hereafter have to the laying of the
venue of any such proceeding brought in such a court and any claim that any
such proceeding brought in such a court has been brought in an inconvenient
forum.
Section 9.9. Counterparts; Integration. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement constitutes the entire agreement and understanding
among the parties hereto and supersedes any and all prior agreements and
understandings, oral or written, relating to the subject matter hereof except
the obligations of the Borrower to pay fees and expenses and to assist in the
syndication process as specified in the respective commitment letters and fee
letters heretofore entered into between the Borrower and the Agents.
Section 9.10. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE
ADMINISTRATIVE AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT
TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
<PAGE> 46
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
K N ENERGY, INC.
By /s/ Clyde E. McKenzie
-------------------------------------
Title: Vice President & Chief
Financial Officer
370 Van Gordon Street
Lakewood, CO 80228-8304
Attention: Chief Financial Officer
Facsimile number: (303) 914-4542
Commitments
- -----------
$699,999,999.99 MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By /s/ John Kowalczuk
-------------------------------------
Title: Vice President
<PAGE> 47
$466,666,666.67 BANK OF AMERICA NT & SA
By /s/ J. Stephen Mernick
-------------------------------------
Title: Senior Vice President
$466,666,666.67 THE CHASE MANHATTAN BANK
By /s/ Mary Jo Woodford
-------------------------------------
Title: Vice President
$466,666,666.67 NATIONSBANK, N.A.
By /s/ David C. Rubenking
-------------------------------------
Title: Senior Vice President
Total Commitments
$2,100,000,000
- --------------
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Administrative Agent
By /s/ John Kowalczuk
-------------------------------------
Title: Vice President
60 Wall Street
New York, New York 10260-0060
Attention: John Kowalczuk
Telex number: 177615
Facsimile number: 212-648-5014
<PAGE> 48
PRICING SCHEDULE
The "Euro-Dollar Margin", "CD Margin" and "Facility Fee Rate"
for any day are the respective percentages set forth below in the applicable
row under the column corresponding to the Status that exists on such day:
<TABLE>
<CAPTION>
===========================================================================
Level Level Level Level Level Level
Status I II III IV V VI
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Euro-Dollar Margin
Utilization < 50% 0.230% 0.320% 0.390% 0.5625% 0.750% 1.125%
Utilization > 50% 0.355% 0.445% 0.515% 0.6875% 0.875% 1.250%
-
- ---------------------------------------------------------------------------
CD Margin
Utilization < 50% 0.355% 0.445% 0.515% 0.6875% 0.875% 1.250%
Utilization > 50% 0.480% 0.570% 0.640% 0.8125% 1.000% 1.375%
-
- ---------------------------------------------------------------------------
Facility Fee Rate 0.070% 0.080% 0.110% 0.1875% 0.250% 0.375%
===========================================================================
</TABLE>
For purposes of this Schedule, the following terms have the
following meanings:
"Level I Status" exists at any date if, at such date, the
Borrower's senior unsecured long-term debt is rated BBB+ or higher by S&P and
Baa1 or higher by Moody's.
"Level II Status" exists at any date if, at such date, (i) the
Borrower's senior unsecured long-term debt is rated BBB or higher by S&P and
Baa2 or higher by Moody's and (ii) Level I Status does not exist.
"Level III Status" exists at any date if, at such date, (i) the
Borrower's senior unsecured long-term debt is rated BBB- or higher by S&P and
Baa3 or higher by Moody's and (ii) neither Level I Status nor Level II Status
exists.
"Level IV Status" exists at any date if, at such date, (i) the
Borrower's senior unsecured long-term debt is rated BB+ or higher by S&P and
<PAGE> 49
Ba1 or higher by Moody's and (ii) none of Level I Status, Level II Status and
Level III Status exists.
"Level V Status" exists at any date if, at such date, (i) the
Borrower's senior unsecured long-term debt is rated BB or higher by S&P and Ba2
or higher by Moody's and (ii) none of Level I Status, Level II Status, Level
III Status and Level IV Status exists.
"Level VI Status" exists at any date if, at such date, no other
Status exists.
"Status" refers to the determination of which of Level I
Status, Level II Status, Level III Status, Level IV Status, Level V Status or
Level VI Status exists at any date.
"Utilization" means, at any date, the percentage equivalent of
a fraction (i) the numerator of which is the aggregate outstanding principal
amount of the Loans at such date and (ii) the denominator of which is the
aggregate amount of the Commitments at such date. If for any reason any Loans
remain outstanding following termination of the Commitments, Utilization shall
be deemed to be in excess of 50%.
The credit ratings to be utilized for purposes of this Schedule
are those assigned to the senior unsecured long-term debt securities of the
Borrower without third-party credit enhancement, and any rating assigned to any
other debt security of the Borrower shall be disregarded. The rating in effect
at any date is that in effect at the close of business on such date.
<PAGE> 50
EXHIBIT A
NOTE
New York, New York
, 199_
For value received, K N Energy, Inc., a Kansas corporation (the
"Borrower"), promises to pay to the order of (the "Bank"), for the account of
its Applicable Lending Office, the unpaid principal amount of each Loan made by
the Bank to the Borrower pursuant to the Credit Agreement referred to below on
the last day of the Interest Period relating to such Loan. The Borrower
promises to pay interest on the unpaid principal amount of each such Loan on
the dates and at the rate or rates provided for in the Credit Agreement. All
such payments of principal and interest shall be made in lawful money of the
United States in Federal or other immediately available funds at the office of
Morgan Guaranty Trust Company of New York, 60 Wall Street, New York, New York.
All Loans made by the Bank, the respective types and maturities
thereof and all repayments of the principal thereof shall be recorded by the
Bank and, if the Bank so elects in connection with any transfer or enforcement
hereof, appropriate notations to evidence the foregoing information with
respect to each such Loan then outstanding may be endorsed by the Bank on the
schedule attached hereto, or on a continuation of such schedule attached to and
made a part hereof; provided that the failure of the Bank to make any such
recordation or endorsement shall not affect the obligations of the Borrower
hereunder or under the Credit Agreement.
This note is one of the Notes referred to in the 364-Day Credit
Agreement dated as of January 30, 1998 among the Borrower, the banks listed on
the signature pages thereof and Morgan Guaranty Trust Company of New York, as
Administrative Agent (as the same may be amended from time to time, the "Credit
Agreement"). Terms defined in the Credit Agreement are used herein with the
same meanings. Reference is made to the Credit Agreement for provisions for
the prepayment hereof and the acceleration of the maturity hereof.
K N ENERGY, INC.
By
------------------------------------
Title:
<PAGE> 51
Note (cont'd)
LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Amount of
Amount of Type of Principal Maturity Notation
Date Loan Loan Repaid Date Made By
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
<PAGE> 52
EXHIBIT B
OPINION OF
SPECIAL COUNSEL FOR THE BORROWER
To the Banks and the Administrative Agent
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Administrative Agent
60 Wall Street
New York, New York 10260
Dear Sirs:
We have acted as special counsel for K N Energy, Inc. (the
"Borrower") in connection with the 364-Day Credit Agreement (the "Credit
Agreement") dated as of January 30, 1998 among the Borrower, the banks listed
on the signature pages thereof and Morgan Guaranty Trust Company of New York,
as Administrative Agent. Terms defined in the Credit Agreement are used herein
as therein defined. This opinion is being rendered to you at the request of
our client pursuant to Section 3.1(c) of the Credit Agreement.
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments and have conducted such
other investigations of fact and law as we have deemed necessary or advisable
for purposes of this opinion.
Upon the basis of the foregoing, we are of the opinion that:
1. The execution, delivery and performance by the Borrower of
the Credit Agreement and the Notes require no action by or in respect of, or
filing with, any governmental body, agency or official of the State of Texas or
the United States of America (other than filings of the Credit Agreement and
the Notes with the Securities and Exchange Commission pursuant to the reporting
requirements of the Securities and Exchange Act of 1934) and do not contravene,
or constitute a default under, any provision of applicable law or regulation of
the State of Texas or the United States of America, or of the articles of
incorporation or by-laws of the Borrower.
<PAGE> 53
2. The Credit Agreement constitutes a valid and binding
agreement of the Borrower and each Note constitutes a valid and binding
obligation of the Borrower, in each case enforceable against the Borrower in
accordance with its terms, except as the same may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights generally and by general
principles of equity.
We are members of the Bar of the State of Texas and the
foregoing opinion is limited to the laws of the State of Texas, the State of
New York and the federal laws of the United States of America. In giving the
foregoing opinion, we express no opinion as to the effect (if any) of any law
of any jurisdiction in which any Bank is located which limits the rate of
interest that such Bank may charge or collect. Insofar as the foregoing
opinion involves matters governed by the laws of the State of Kansas (which
matters do not in our view include the non-contravention opinion in paragraph
1), we have relied, without independent investigation, upon the opinion of
Polsinelli, White, Vardeman & Shalton, delivered to you pursuant to Section
3.1(c) of the Credit Agreement.
This opinion is rendered solely to you and any Assignee or
Participant in connection with the above matter. This opinion may not be
relied upon by you or any Assignee or Participant for any other purpose or
relied upon by any other person without our prior written consent.
Very truly yours,
<PAGE> 54
EXHIBIT C
OPINION OF
KANSAS COUNSEL FOR THE BORROWER
To the Banks and the Administrative Agent
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Administrative Agent
60 Wall Street
New York, New York 10260
Dear Sirs:
We have acted as counsel in the State of Kansas for K N Energy,
Inc. (the "Borrower") in connection with the 364-Day Credit Agreement (the
"Credit Agreement") dated as of January 30, 1998 among the Borrower, the banks
listed on the signature pages thereof and Morgan Guaranty Trust Company of New
York, as Administrative Agent. Terms defined in the Credit Agreement are used
herein as therein defined. This opinion is being rendered to you at the
request of our client pursuant to Section 3.1(c) of the Credit Agreement.
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments and have conducted such
other investigations of fact and law as we have deemed necessary or advisable
for purposes of this opinion.
Upon the basis of the foregoing, we are of the opinion that:
1. The Borrower is a corporation duly incorporated, validly
existing and in good standing under the laws of Kansas, and has all corporate
powers required to carry on its business as now conducted.
2. The execution, delivery and performance by the Borrower of
the Credit Agreement and the Notes are within the Borrower's corporate powers,
have been duly authorized by all necessary corporate action, require no action
by or in respect of, or filing with, any governmental body, agency or official
of the State of Kansas and do not contravene, or constitute a default under,
any provision of applicable law or regulation of the State of Kansas.
We are members of the Bar of the State of Kansas and the
foregoing opinion is limited to the laws of the State of Kansas.
This opinion is rendered solely to you and any Assignee or
Participant in connection with the above matter. This opinion may not be
relied upon by you or any Assignee or Participant for any other purpose or
relied upon by any other person without our prior written consent.
Very truly yours,
<PAGE> 55
EXHIBIT D
OPINION OF
GENERAL COUNSEL OF THE BORROWER
To the Banks and the Administrative Agent
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Administrative Agent
60 Wall Street
New York, New York 10260
Dear Sirs:
I am General Counsel of K N Energy, Inc. (the "Borrower"), and
I have represented the Borrower in connection with the 364-Day Credit Agreement
(the "Credit Agreement") dated as of January 30, 1998 among the Borrower, the
banks listed on the signature pages thereof and Morgan Guaranty Trust Company
of New York, as Administrative Agent. Terms defined in the Credit Agreement
are used herein as therein defined. This opinion is being rendered to you at
the request of my client pursuant to Section 3.1(c) of the Credit Agreement.
I have examined originals or copies, certified or otherwise
identified to my satisfaction, of such documents, corporate records,
certificates of public officials and other instruments and have conducted such
other investigations of fact and law as I have deemed necessary or advisable
for purposes of this opinion.
Upon the basis of the foregoing, I am of the opinion that:
1. The Borrower has all material governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted.
2. The execution, delivery and performance by the Borrower of
the Credit Agreement and the Notes require no action by or in respect of, or
filing with, any governmental body, agency or official of the State of Colorado
or, to the best of my knowledge, any other jurisdiction (other than filings of
the Credit Agreement and the Notes with the Securities and Exchange Commission
pursuant to the reporting requirements of the Securities Exchange Act of 1934)
and do not contravene, or constitute a default under, any provision of
applicable law or regulation of the State of Colorado or, to the best of my
knowledge, any other jurisdiction or of any agreement, judgment, injunction,
order, decree or other instrument binding upon the Borrower or any of its
Subsidiaries or result in the creation or imposition of any, Lien on any asset
of the Borrower or any of its Subsidiaries.
<PAGE> 56
3. There is no action, suit or proceeding pending against, or
to the best of my knowledge threatened against or affecting, the Borrower or
any of its Subsidiaries before any court or arbitrator or any governmental
body, agency or official, in which there is a reasonable possibility of an
adverse decision which could materially adversely affect the business,
consolidated financial position or consolidated results of operations of the
Borrower and its Consolidated Subsidiaries, considered as a whole, or which in
any manner draws into question the validity of the Credit Agreement or the
Notes.
4. Each of the Borrower's corporate Material Subsidiaries is a
corporation validly existing and in good standing under the laws of its
jurisdiction of incorporation, and has all corporate powers and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted.
I am a member of the Bar of the State of Colorado and the
foregoing opinion is limited to the laws of the State of Colorado and the
General Corporation Law of the State of Delaware. Insofar as paragraph 2 above
addresses the laws of other jurisdictions, I have relied upon my familiarity
with advice given by counsel admitted to practice in those jurisdictions, in
connection with this and other transactions.
This opinion is rendered solely to you and any Assignee or
Participant in connection with the above matter. This opinion may not be
relied upon by you or any Assignee or Participant for any other purpose or
relied upon by any other person without our prior written consent.
Very truly yours,
<PAGE> 57
EXHIBIT E
OPINION OF
DAVIS POLK & WARDWELL, SPECIAL COUNSEL
FOR THE AGENTS
To the Banks and the Administrative Agent
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Administrative Agent
60 Wall Street
New York, New York 10260
Dear Sirs:
We have participated in the preparation of the 364-Day Credit
Agreement (the "Credit Agreement") dated as of January 30, 1998 among K N
Energy, Inc., a Kansas corporation (the "Borrower"), the banks listed on the
signature pages thereof (the "Banks") and Morgan Guaranty Trust Company of New
York, as Administrative Agent (the "Administrative Agent"), and have acted as
special counsel for the Agents for the purpose of rendering this opinion
pursuant to Section 3.1(c) of the Credit Agreement. Terms defined in the
Credit Agreement are used herein as therein defined.
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments and have conducted such
other investigations of fact and law as we have deemed necessary or advisable
for purposes of this opinion.
Upon the basis of the foregoing, we are of the opinion that the
Credit Agreement constitutes a valid and binding agreement of the Borrower and
each Note constitutes a valid and binding obligation of the Borrower, in each
case enforceable in accordance with its terms, except as the same may be
limited by bankruptcy, insolvency or similar laws affecting creditors' rights
generally and by general principles of equity.
We are members of the Bar of the State of New York and the
foregoing opinion is limited to the laws of the State of New York and the
federal laws of the United States of America. In giving the foregoing opinion,
we express no opinion as to the effect (if any) of any law of any jurisdiction
(except the State of New York) in which any Bank is located which limits the
rate of interest that such Bank may charge or collect. Insofar as the
foregoing opinion involves matters governed by the laws of Kansas, we have
relied, without independent investigation, upon the opinion of Polsinelli,
White, Vardeman & Shalton, delivered to you pursuant to Section 3.1(c) of the
Credit Agreement.
This opinion is rendered solely to you in connection with the
above matter. This opinion may not be relied upon by you for any other purpose
or relied upon by any other person without our prior written consent.
Very truly yours,
<PAGE> 58
EXHIBIT F
ASSIGNMENT AND ASSUMPTION AGREEMENT
AGREEMENT dated as of _________, 19__ among [ASSIGNOR] (the
"Assignor"), [ASSIGNEE] (the "Assignee"),
K N ENERGY, INC. (the "Borrower") and MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, as Administrative Agent (the "Administrative Agent").
W I T N E S S E T H
WHEREAS, this Assignment and Assumption Agreement (the
"Agreement") relates to the 364-Day Credit Agreement dated as of January 30,
1998 among the Borrower, the Assignor and the other Banks party thereto, as
Banks, and the Administrative Agent (the "Credit Agreement");
WHEREAS, as provided under the Credit Agreement, the Assignor
has a Commitment to make Loans to the Borrower in an aggregate principal amount
at any time outstanding not to exceed $__________;
WHEREAS, Committed Loans made to the Borrower by the Assignor
under the Credit Agreement in the aggregate principal amount of $__________ are
outstanding at the date hereof; and
WHEREAS, the Assignor proposes to assign to the Assignee all of
the rights of the Assignor under the Credit Agreement in respect of a portion
of its Commitment thereunder in an amount equal to $__________ (the "Assigned
Amount"), together with a corresponding portion of its outstanding Committed
Loans, and the Assignee proposes to accept assignment of such rights and assume
the corresponding obligations from the Assignor on such terms;
NOW, THEREFORE, in consideration of the foregoing and the
mutual agreements contained herein, the parties hereto agree as follows:
SECTION 1. Definitions. All capitalized terms not otherwise
defined herein shall have the respective meanings set forth in the Credit
Agreement.
SECTION 2. Assignment. The Assignor hereby assigns and sells
to the Assignee all of the rights of the Assignor under the Credit Agreement to
the extent of the Assigned Amount, and the Assignee hereby accepts such
assignment from the Assignor and assumes all of the obligations of the Assignor
under the Credit Agreement to the extent of the Assigned Amount, including the
<PAGE> 59
purchase from the Assignor of the corresponding portion of the principal amount
of the Committed Loans made by the Assignor outstanding at the date hereof.
Upon the execution and delivery hereof by the Assignor, the Assignee[, the
Borrower and the Administrative Agent] and the payment of the amounts specified
in Section 3 required to be paid on the date hereof (i) the Assignee shall, as
of the date hereof, succeed to the rights and be obligated to perform the
obligations of a Bank under the Credit Agreement with a Commitment in an amount
equal to the Assigned Amount, and (ii) the Commitment of the Assignor shall, as
of the date hereof, be reduced by a like amount and the Assignor released from
its obligations under the Credit Agreement to the extent such obligations have
been assumed by the Assignee. The assignment provided for herein shall be
without recourse to the Assignor.
SECTION 3. Payments. As consideration for the assignment and
sale contemplated in Section 2 hereof, the Assignee shall pay to the Assignor
on the date hereof in Federal funds the amount heretofore agreed between
them.(*) [It is understood that commitment and/or facility fees accrued to the
date hereof are for the account of the Assignor and such fees accruing from and
including the date hereof are for the account of the Assignee.] Each of the
Assignor and the Assignee hereby agrees that if it receives any amount under
the Credit Agreement which is for the account of the other party hereto, it
shall receive the same for the account of such other party to the extent of
such other party's interest therein and shall promptly pay the same to such
other party.
- ----------
*Amount should combine principal together with accrued interest and
breakage compensation, if any, to be paid by the Assignee, net of any portion
of any upfront fee to be paid by the Assignor to the Assignee. It may be
preferable in an appropriate case to specify these amounts generically or by
formula rather than as a fixed sum.
<PAGE> 60
SECTION 4. Consent of the Borrower and the Administrative
Agent. This Agreement is conditioned upon the consent of the Borrower and the
Administrative Agent pursuant to Section 9.6(c) of the Credit Agreement. The
execution of this Agreement by the Borrower and the Administrative Agent is
evidence of this consent. Pursuant to Section 9.6(c) the Borrower agrees to
execute and deliver a Note payable to the order of the Assignee to evidence the
assignment and assumption provided for herein.
SECTION 5. Non-Reliance on Assignor. The Assignor makes no
representation or warranty in connection with, and shall have no responsibility
with respect to, the solvency, financial condition, or statements of the
Borrower, or the validity and enforceability of the obligations of the Borrower
in respect of the Credit Agreement or any Note. The Assignee acknowledges that
it has, independently and without reliance on the Assignor, and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement and will continue to be
responsible for making its own independent appraisal of the business, affairs
and financial condition of the Borrower.
SECTION 6. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York.
SECTION 7. Counterparts. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
<PAGE> 61
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed and delivered by their duly authorized officers as of the date
first above written.
[ASSIGNOR]
By
-----------------------------------
Title:
[ASSIGNEE]
By
-----------------------------------
Title:
K N ENERGY, INC.
By
-----------------------------------
Title:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Administrative
Agent
By
-----------------------------------
Title:
<PAGE> 1
CONFORMED COPY
$1,394,846,122
REIMBURSEMENT AGREEMENT
dated as of
January 30, 1998
among
K N Energy, Inc.,
The Banks Listed Herein,
and
Morgan Guaranty Trust Company of New York,
as Administrative Agent
----------------------
J. P. Morgan Securities Inc.,
BancAmerica Robertson Stephens,
Chase Securities Inc.
and
NationsBanc Montgomery Securities LLC,
Syndication Agents
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 1
DEFINITIONS
SECTION 1.1. Definitions.................................................... 1
SECTION 1.2. Accounting Terms and Determinations............................ 10
ARTICLE 2
THE LETTER OF CREDIT
SECTION 2.1. Issuance of the Letter of Credit............................... 10
SECTION 2.2. Drawings under the Letter of Credit............................ 11
SECTION 2.3. Reimbursement Obligation....................................... 11
SECTION 2.4. Fees........................................................... 11
SECTION 2.5. General Provisions as to Payments.............................. 12
SECTION 2.6. Obligations.................................................... 12
SECTION 2.7. Indemnification................................................ 13
SECTION 2.8. Mandatory Reductions........................................... 14
</TABLE>
<PAGE> 3
<TABLE>
ARTICLE 3
CONDITIONS
<S> <C> <C>
SECTION 3.1. Effectiveness.................................................. 15
SECTION 3.2. Borrowings and Issuances of Letters of Credit.................. 16
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
SECTION 4.1. Corporate Existence and Power.................................. 17
SECTION 4.2. Corporate and Governmental Authorization; No
Contravention.............................................. 17
SECTION 4.3. Binding Effect................................................. 17
SECTION 4.4. Financial Information.......................................... 17
SECTION 4.5. Litigation..................................................... 18
SECTION 4.6. Compliance with ERISA.......................................... 18
SECTION 4.7. Environmental Matters.......................................... 18
SECTION 4.8. Taxes.......................................................... 19
SECTION 4.9. Subsidiaries................................................... 19
SECTION 4.10. Not an Investment Company...................................... 19
SECTION 4.11. Full Disclosure................................................ 19
SECTION 4.12. MidCon Acquisition............................................. 20
</TABLE>
<PAGE> 4
<TABLE>
ARTICLE 5
COVENANTS
<S> <C> <C>
SECTION 5.1. Information.................................................... 20
SECTION 5.2. Payment of Obligations......................................... 22
SECTION 5.3. Maintenance of Property; Insurance............................. 22
SECTION 5.4. Conduct of Business and Maintenance of Existence............... 23
SECTION 5.5. Compliance with Laws........................................... 23
SECTION 5.6. Inspection of Property, Books and Records...................... 24
SECTION 5.7. Debt........................................................... 24
SECTION 5.8. Minimum Net Worth.............................................. 25
SECTION 5.9. Minimum Interest Coverage Ratio................................ 25
SECTION 5.10. Negative Pledge................................................ 25
SECTION 5.11. Consolidations, Mergers and Sales of Assets.................... 26
SECTION 5.12. Transactions with Affiliates................................... 26
ARTICLE 6
DEFAULTS
SECTION 6.1. Events of Default............................................... 27
</TABLE>
<PAGE> 5
<TABLE>
ARTICLE 7
THE AGENTS
<S> <C> <C>
SECTION 7.1. Appointment and Authorization.................................. 29
SECTION 7.2. Administrative Agent and Affiliates............................ 29
SECTION 7.3. Action by Administrative Agent................................. 30
SECTION 7.4. Consultation with Experts...................................... 30
SECTION 7.5. Liability of Administrative Agent.............................. 30
SECTION 7.6. Indemnification................................................ 30
SECTION 7.7. Credit Decision................................................ 31
SECTION 7.8. Successor Administrative Agent................................. 31
SECTION 7.9. Agents' Fees................................................... 31
SECTION 7.10. Other Agents................................................... 31
ARTICLE 8
CHANGE IN CIRCUMSTANCES
SECTION 8.1. Increased Cost and Reduced Return.............................. 32
SECTION 8.2. Taxes.......................................................... 33
</TABLE>
<PAGE> 6
<TABLE>
ARTICLE 9
MISCELLANEOUS
<S> <C> <C>
SECTION 9.1. Notices........................................................ 35
SECTION 9.2. No Waivers..................................................... 35
SECTION 9.3. Expenses; Indemnification...................................... 35
SECTION 9.4. Sharing of Set-offs............................................ 36
SECTION 9.5. Amendments and Waivers......................................... 37
SECTION 9.6. Successors and Assigns......................................... 37
SECTION 9.7. Collateral..................................................... 38
SECTION 9.8. Governing Law; Submission to Jurisdiction...................... 38
SECTION 9.9. Counterparts; Integration...................................... 38
SECTION 9.10. WAIVER OF JURY TRIAL........................................... 38
SECTION 9.11. Obligations Several............................................ 38
</TABLE>
<PAGE> 7
PRICING SCHEDULE
EXHIBIT A - LETTER OF CREDIT
EXHIBIT B - BENEFICIARY UNDERTAKING
EXHIBIT C - OPINION OF SPECIAL COUNSEL FOR THE BORROWER
EXHIBIT D - OPINION OF KANSAS COUNSEL FOR THE BORROWER
EXHIBIT E - OPINION OF GENERAL COUNSEL OF THE BORROWER
EXHIBIT F - OPINION OF DAVIS POLK & WARDWELL, SPECIAL
COUNSEL FOR THE AGENTS
<PAGE> 8
REIMBURSEMENT AGREEMENT
AGREEMENT dated as of January 30, 1998 among K N ENERGY, INC., the
BANKS listed on the signature pages hereof and MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, as Administrative Agent.
The parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1. Definitions. The following terms, as used herein, have
the following meanings:
"Acquisition" means the purchase of MidCon Corp. by the Borrower from
Occidental Petroleum Corporation pursuant to the Stock Purchase Agreement.
"Acquisition Revolver" means the $2,100,000,000 Credit Agreement of
even date herewith among the Borrower, the banks parties thereto and Morgan
Guaranty Trust Company of New York, as amended and in effect from time to time.
"Administrative Agent" means Morgan Guaranty Trust Company of New York
in its capacity as administrative agent for the Banks under this Agreement, and
its successors in such capacity.
<PAGE> 9
"Administrative Questionnaire" means, with respect to each Bank, an
administrative questionnaire in the form prepared by the Administrative Agent
and submitted to the Administrative Agent (with a copy to the Borrower) duly
completed by such Bank.
"Affiliate" means (i) any Person that directly, or indirectly through
one or more intermediaries, controls the Borrower (a "Controlling Person") or
(ii) any Person (other than the Borrower or a Subsidiary) which is controlled by
or is under common control with a Controlling Person. As used herein, the term
"control" means possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of a Person, whether through
the ownership of voting securities, by contract or otherwise.
"Agent" means each of the Administrative Agent and the Syndication
Agents, and "Agents" means any combination of them, as the context may require.
"Bank" means each bank listed on the signature pages hereof and their
respective successors.
"Base Rate" means, for any day, a rate per annum equal to the higher
of (i) the Prime Rate for such day or (ii) the sum of 1/2 of 1% plus the Federal
Funds Rate for such day.
<PAGE> 10
"Beneficiary" means Occidental Petroleum Corporation, as Beneficiary
under the Letter of Credit or any transferee thereof as provided in the Letter
of Credit.
"Benefit Arrangement" means at any time an employee benefit plan
within the meaning of Section 3(3) of ERISA which is not a Plan or a
Multiemployer Plan and which is maintained or otherwise contributed to by any
member of the ERISA Group.
"Borrower" means K N Energy, Inc., a Kansas corporation, and its
successors.
"Borrower's 1996 Form 10-K" means the Borrower's annual report on Form
10-K for 1996, as filed with the Securities and Exchange Commission pursuant to
the Securities Exchange Act of 1934.
"Borrower's Latest Form 10-Q" means the Borrower's quarterly report on
Form 10-Q for the quarter ended September 30, 1997, as filed with the Securities
and Exchange Commission pursuant to the Securities Exchange Act of 1934.
"Commitment" means, for any Bank, the several obligation of such Bank
to issue the Letter of Credit to the extent of such Bank's Commitment Percentage
of $1,394,846,122, as such amount may be reduced from time to time in accordance
with Section 2.8(b).
<PAGE> 11
"Commitment Percentage" means, for any Bank, the Commitment Percentage
specified for such Bank in paragraph 3 of the Letter of Credit.
"Consolidated Assets" means the total amount of assets appearing on
the consolidated balance sheet of the Borrower and its Consolidated
Subsidiaries, prepared in accordance with generally accepted accounting
principles as of the date of the most recent regularly prepared consolidated
financial statements prior to the taking of any action for the purposes of which
the determination is being made.
"Consolidated Debt" of any Person means at any date the sum (without
duplication) of (i) the Debt of such Person and its Consolidated Subsidiaries,
determined on a consolidated basis as of such date plus (ii) the excess (if any)
of the Trust Preferred Securities of such Person over 10% of the Consolidated
Total Capitalization of such Person at such date minus (iii) the portion of the
Substitute Note collateralized as contemplated by Section 5.10(b) hereof.
"Consolidated EBITDA" means, for any period, Consolidated Net Income
for such period plus, to the extent deducted in determining Consolidated Net
Income for such period, the aggregate amount of (i) Consolidated Interest
Expense, (ii) income tax expense and (iii) depreciation and amortization
expense.
"Consolidated Interest Expense" means, for any period, the interest
expense of the Borrower and its Consolidated Subsidiaries, determined on a
consolidated basis for such period.
<PAGE> 12
"Consolidated Subsidiary" of any Person means at any date any
Subsidiary or other entity the accounts of which would be consolidated with
those of such Person in its consolidated financial statements if such statements
were prepared as of such date.
"Consolidated Net Income" means, for any period, the net income of the
Borrower and its Consolidated Subsidiaries before extraordinary items,
determined on a consolidated basis for such period.
"Consolidated Net Worth" of any Person means at any date the sum
(without duplication) of (i) the consolidated stockholders' equity of such
Person and its Consolidated Subsidiaries, determined as of such date plus (ii)
the Mandatorily Convertible Preferred Stock of such Person plus (iii) the Trust
Preferred Securities of such Person; provided that the amount of Trust Preferred
Securities added pursuant to this clause (iii) shall not exceed 10% of
Consolidated Total Capitalization of such Person at such date.
"Consolidated Total Capitalization" of any Person means at any date
the sum of Consolidated Debt of such Person and Consolidated Net Worth of such
Person, each determined as of such date.
"Date of Issuance" means the date of issuance of the Letter of Credit.
<PAGE> 13
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable or deferred employee and director
compensation arising in the ordinary course of business, (iv) all obligations of
such Person as lessee which are capitalized in accordance with generally
accepted accounting principles, (v) all non-contingent obligations (and, for
purposes of Section 5.11 and the definitions of Material Debt and Material
Financial Obligations, all contingent obligations) of such Person to reimburse
any bank or other Person in respect of amounts paid under a letter of credit or
similar instrument, (vi) all Debt secured by a Lien on any asset of such Person,
whether or not such Debt is otherwise an obligation of such Person, and (vii)
all Debt of others Guaranteed by such Person.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Derivatives Obligations" of any Person means all obligations of such
Person in respect of any rate swap transaction, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap,
equity or equity index option, bond option, interest rate option, foreign
exchange transaction, cap transaction, floor transaction, collar transaction,
currency swap transaction, cross-currency rate swap transaction, currency option
or any other similar transaction (including any option with respect to any of
the foregoing transactions) or any combination of the foregoing transactions.
<PAGE> 14
"Domestic Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in New York City are authorized by law to
close.
"Expiration Date" has the meaning set forth in the Letter of Credit.
"Effective Date" means the date this Agreement becomes effective in
accordance with Section 3.01.
"Environmental Laws" means any and all federal, state, local and
foreign statutes, laws, judicial decisions, regulations, ordinances, rules,
judgments, orders, decrees, plans, injunctions, permits, concessions, grants,
franchises, licenses, agreements and other governmental restrictions relating to
the environment, the effect of the environment on human health or to emissions,
discharges or releases of pollutants, contaminants, Hazardous Substances or
wastes into the environment including, without limitation, ambient air, surface
water, ground water, or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, Hazardous Substances or wastes or the
clean-up or other remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
<PAGE> 15
"ERISA Group" means the Borrower, any Subsidiary and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Borrower or any
Subsidiary, are treated as a single employer under Section 414 of the Internal
Revenue Code.
"Event of Default" has the meaning set forth in Section 6.1.
"Facility Office" means, as to each Bank, its office located at its
address set forth in its Administrative Questionnaire (or identified in its
Administrative Questionnaire as its Facility Office) or such other office as
such Bank may hereafter designate as its Facility Office by notice to the
Borrower and the Administrative Agent.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Domestic Business Day
next succeeding such day, provided that (i) if such day is not a Domestic
Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Domestic Business Day as so published on the
next succeeding Domestic Business Day, and (ii) if no such rate is so published
on such next succeeding Domestic Business Day, the Federal Funds Rate for such
day shall be the average rate quoted to Morgan Guaranty Trust Company of New
York on such day on such transactions as determined by the Administrative Agent.
<PAGE> 16
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or other obligation (whether arising by virtue of
partnership arrangements, by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in any
other manner the obligee of such Debt or other obligation of the payment thereof
or to protect such obligee against loss in respect thereof (in whole or in
part), provided that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Hazardous Substances" means any toxic, radioactive, caustic or
otherwise hazardous substance, including petroleum, its derivatives, by-products
and other hydrocarbons, or any substance having any constituent elements
displaying any of the foregoing characteristics.
"Indemnitee" has the meaning set forth in Section 9.3(b).
"Interest Coverage Ratio" means, at any date, the ratio of
Consolidated EBITDA to Consolidated Interest Expense for the period of four
consecutive fiscal quarters most recently ended on or before such date.
<PAGE> 17
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, or any successor statute.
"Investment" means any investment in any Person, whether by means of
share purchase, capital contribution, loan, time deposit or otherwise.
"Letter of Credit" means a Letter of Credit to be issued hereunder by
the Banks severally and not jointly, which shall be in the form of Exhibit A and
dated the Date of Issuance, as the same may be amended from time to time in
accordance with the terms thereof. Exhibit A, for purposes of illustration, is
completed as if the Date of Issuance were January 30, 1998.
"Letter of Credit Amount" has the meaning set forth in the Letter of
Credit.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind, or any other type of
preferential arrangement that has the practical effect of creating a security
interest, in respect of such asset. For the purposes of this Agreement, the
Borrower or any Subsidiary shall be deemed to own subject to a Lien any asset
which it has acquired or holds subject to the interest of a vendor or lessor
under any conditional sale agreement, capital lease or other title retention
agreement relating to such asset.
"Mandatorily Convertible Preferred Stock", means, with respect to the
Borrower, preferred securities of a Subsidiary which are (i) mandatorily
convertible into common equity securities of the Borrower within approximately
<PAGE> 18
three years of their date of issuance, (ii) issued in conjunction with, and
pledged to secure, an obligation to purchase common equity securities of the
Borrower within approximately three years for an equal amount or (iii) otherwise
structured in a manner satisfactory to the Administrative Agent so as to ensure
the issuance of incremental common equity securities of the Borrower in a
substantially equal amount within approximately three years.
"Material Debt" means Debt (other than (i) the Notes and (ii) Debt
owing to the Borrower or a Subsidiary) of the Borrower and/or one or more of its
Subsidiaries, arising in one or more related or unrelated transactions, in an
aggregate principal or face amount exceeding $75,000,000.
"Material Financial Obligations" means a principal or face amount of
Debt (other than (i) the Notes and (ii) Debt owing to the Borrower or a
Subsidiary) and/or payment obligations in respect of Derivatives Obligations of
the Borrower and/or one or more of its Subsidiaries, arising in one or more
related or unrelated transactions, exceeding in the aggregate $125,000,000.
"Material Subsidiary" means any Subsidiary the consolidated assets of
which constitute 10% or more of Consolidated Assets.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means at any time an employee pension benefit
plan within the meaning of Section 4001(a)(3) of ERISA to which any member of
the
<PAGE> 19
ERISA Group is then making or accruing an obligation to make contributions or
has within the preceding five plan years made contributions, including for these
purposes any Person which ceased to be a member of the ERISA Group during such
five year period.
"Parent" means, with respect to any Bank, any Person controlling such
Bank.
"Participant" has the meaning set forth in Section 9.6(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
"Plan" means at any time an employee pension benefit plan (other than
a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Internal Revenue Code and
either (i) is maintained, or contributed to, by any member of the ERISA Group
for employees of any member of the ERISA Group or (ii) has at any time within
the preceding five years been maintained, or contributed to, by any Person which
was at such time a member of the ERISA Group for employees of any Person which
was at such time a member of the ERISA Group.
"Purchase Agreement" means the Purchase and Sale Agreement dated as of
January 28, 1994, among K N Gas Supply Services, Inc., the Borrower, Bank of
<PAGE> 20
America National Trust and Savings Association, as the initial Purchaser (as
defined therein), and Bank of America National Trust and Savings Association, as
agent for the Purchasers.
"Pricing Schedule" means the Schedule attached hereto identified as
such.
"Prime Rate" means the rate of interest publicly announced by Morgan
Guaranty Trust Company of New York in New York City from time to time as its
Prime Rate.
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"Reimbursable Amount" has the meaning set forth in Section 2.3.
"Required Banks" means at any time Banks having Commitment Percentages
aggregating at least 66 2/3 %.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc.
"Stock Purchase Agreement" means the Stock Purchase Agreement dated as
of December 18, 1997, between Occidental Petroleum Corporation, a Delaware
corporation, and the Borrower as amended and in effect from time to time;
<PAGE> 21
provided that any such amendment from the form thereof heretofore furnished to
each of the Banks which could reasonably be expected to materially adversely
affect the business, consolidated financial position or consolidated results of
operations of the Borrower and its Consolidated Subsidiaries, considered as a
whole, shall be effective for purposes of references thereto in this Agreement
only if such amendment shall have received the written consent of the Required
Banks (which shall not be unreasonably withheld).
"Subsidiary" means, as to any Person, any corporation or other entity
of which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by such Person; unless
otherwise specified, "Subsidiary" means a Subsidiary of the Borrower.
"Substitute Note" means the Substitute Note (as defined in the Stock
Purchase Agreement) issued by the Borrower to Occidental Petroleum Corporation
in connection with the Acquisition.
"Syndication Agent" means either J.P. Morgan Securities Inc.,
BancAmerica Robertson Stephens, Chase Securities Inc. or NationsBanc
Montgomery Securities LLC in its capacity as a syndication agent in respect of
this Agreement, and "Syndication Agents" means all of them.
"Termination Date" means (i) March 31, 1998, if the Letter of Credit
shall not have been issued on or prior to such date, or (ii) the first date
after the Date of Issuance on which there are no Reimbursable Amounts and no
Undrawn Amounts, in all other cases.
<PAGE> 22
"Trust Preferred Securities" means, with respect to the Borrower,
mandatorily redeemable capital trust securities of trusts which are Subsidiaries
and the subordinated debentures of the Borrower in which the proceeds of the
issuance of such capital trust securities are invested, including, without
limitation, (i) the 8.56% Series B Capital Trust Pass-through Securities of K N
Capital Trust I and (ii) the capital trust securities of K N Capital Trust II
anticipated to be issued after the Effective Date.
"Undrawn Amount" means, for any Bank, the amount equal to the product
of such Bank's Commitment Percentage and the Letter of Credit Amount.
"Unfunded Liabilities" means, with respect to any Plan at any time,
the amount (if any) by which (i) the value of all benefit liabilities under such
Plan, determined on a plan termination basis using the assumptions prescribed by
the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market
value of all Plan assets allocable to such liabilities under Title IV of ERISA
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.
"United States" means the United States of America, including the
States and the District of Columbia, but excluding its territories and
possessions.
<PAGE> 23
"Wholly-Owned Consolidated Subsidiary" of any Person means any
Consolidated Subsidiary all of the shares of capital stock or other ownership
interests of which (except directors' qualifying shares) are at the time
directly or indirectly owned by such Person.
SECTION 1.2. Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with
generally accepted accounting principles as in effect from time to time, applied
on a basis consistent (except for changes concurred in by the Borrower's
independent public accountants) with the most recent audited consolidated
financial statements of the Borrower and its Consolidated Subsidiaries delivered
to the Banks; provided that, if the Borrower notifies the Administrative Agent
that the Borrower wishes to amend any covenant in Article 5 to eliminate the
effect of any change in generally accepted accounting principles on the
operation of such covenant (or if the Administrative Agent notifies the Borrower
that the Required Banks wish to amend Article 5 for such purpose), then the
Borrower's compliance with such covenant shall be determined on the basis of
generally accepted accounting principles in effect immediately before the
relevant change in generally accepted accounting principles became effective,
until either such notice is withdrawn or such covenant is amended in a manner
satisfactory to the Borrower and the Required Banks.
<PAGE> 24
ARTICLE 2
THE LETTER OF CREDIT
SECTION 2.1. Issuance of the Letter of Credit. Subject to the terms
and conditions hereof, the Banks severally agree to issue the Letter of Credit
to the Beneficiary on a date, not later than March 31, 1998, and in an initial
Letter of Credit Amount, not greater than $1,394,846,122, specified by the
Borrower by at least three Domestic Business Days' notice to the Administrative
Agent. The Administrative Agent shall promptly notify each Bank of the Date of
Issuance so specified by the Borrower.
SECTION 2.2. Drawings under the Letter of Credit. (a) Upon receipt
from the Beneficiary of a demand for payment under the Letter of Credit, the
Administrative Agent shall determine in accordance with the terms and conditions
of the Letter of Credit whether such demand for payment should be honored.
(b) If the Administrative Agent determines that a demand for payment
by the Beneficiary should be honored in accordance with the terms and conditions
set forth in the Letter of Credit, the Administrative Agent shall promptly
notify the Borrower and each Bank as to the aggregate amount to be paid as a
result of such demand and shall promptly notify each Bank as to its share of
such amount. Each Bank shall make available to the Beneficiary through the
Administrative Agent its share of the amount so demanded in accordance with the
terms of the Letter of Credit.
SECTION 2.3. Reimbursement Obligation. If any Bank pays any portion of
any draft presented under the Letter of Credit, the Borrower agrees to pay to
<PAGE> 25
such Bank on the date of such payment ("Reimbursement Due Date") an amount equal
to the amount paid by such Bank under the Letter of Credit ("Reimbursable
Amount"). If any Reimbursable Amount is not paid on or before the relevant
Reimbursement Due Date, the overdue amount shall bear interest until paid as
provided in Section 2.5(c).
SECTION 2.4. Fees. (a) The Borrower shall pay to the Administrative
Agent, for the account of the Banks ratably in proportion to their Commitment
Percentages, a facility fee at the Facility Fee Rate (determined daily in
accordance with the Pricing Schedule) on (i) to but not including the earlier of
the Termination Date and the Date of Issuance, the aggregate amount of the
Commitments and (ii) on and after the Date of Issuance, the sum of the aggregate
Undrawn Amounts of the Banks and the aggregate Reimbursable Amounts of the
Banks. Such facility fee shall accrue from and including the date of this
Agreement to but excluding the Termination Date and shall be payable in arrears
on each March 31, June 30, September 30 and December 31, and on the Termination
Date.
(b) The Borrower shall pay to the Administrative Agent, for the
account of the Banks ratably in proportion to their Commitment Percentages, a
letter of credit fee at the Letter of Credit Fee Rate (determined daily in
accordance with the Pricing Schedule) on the aggregate Undrawn Amounts of the
Banks. Such letter of credit fee shall accrue from and including the Date of
Issuance to and including the Expiration Date and shall be payable in arrears on
each March 31, June 30, September 30 and December 31, and on the Expiration
Date.
<PAGE> 26
(c) All fees payable hereunder shall be computed on the basis of a
year of 360 days and paid for the actual number of days elapsed (including the
first day but excluding the last day (or, if such last day is the Expiration
Date, including the last day)).
SECTION 2.5. General Provisions as to Payments. (a) All payments to be
made by the Borrower under this Agreement shall be made not later than 12:00
Noon (New York City time) on the date when due, in Federal or other funds
immediately available in New York City, to the Administrative Agent at its
address referred to in Section 9.1 for the account of the party entitled
thereto. The Administrative Agent shall promptly distribute to each of the Banks
its ratable share of each such payment received by the Administrative Agent for
the account of the Banks.
(b) Whenever any payment shall be due on a day which is not a
Domestic Business Day, the date for payment thereof shall be extended to the
next succeeding Domestic Business Day. If the date for any payment of a
Reimbursable Amount is extended by operation of law or otherwise, interest
thereon shall be payable for such extended time.
(c) All Reimbursable Amounts not repaid by the Borrower on the
Reimbursement Due Date shall bear interest, payable on demand, for each day
until paid at a rate per annum equal to the sum of 2% plus the Base Rate for
such day. Such interest shall be computed on the basis of a year of 365 days (or
366 days in a leap year) and paid for the actual number of days elapsed
(including the first day but excluding the last day).
<PAGE> 27
(d) Unless the Administrative Agent shall have received notice from
the Borrower prior to the date on which any payment is due to the Banks pursuant
to Section 2.3 or Section 2.4 that the Borrower will not make such payment in
full, the Administrative Agent may assume that the Borrower has made such
payment in full to the Administrative Agent on such date and the Administrative
Agent may, in reliance upon such assumption, cause to be distributed to each
Bank on such due date an amount equal to the amount then due such Bank. If and
to the extent that the Borrower shall not have so made such payment, each Bank
shall repay to the Administrative Agent forthwith on demand such amount
distributed to such Bank together with interest thereon, for each day from the
date such amount is distributed to such Bank until the date such Bank repays
such amount to the Administrative Agent, at the Federal Funds Rate.
SECTION 2.6. Obligations. The obligations of the Borrower under this
Agreement shall be absolute, unconditional and irrevocable, and shall be
performed strictly in accordance with the terms of this Agreement, under all
circumstances whatsoever, including without limitation the following
circumstances:
(a) any lack of validity or enforceability of this Agreement or the
Letter of Credit or any document related hereto or thereto;
(b) any amendment or waiver of or any consent to departure from all
or any of the provisions of this Agreement, the Letter of Credit or
any document related hereto or thereto;
(c) the existence of any claim, set-off, defense or other rights that
the Borrower may have at any time against the Beneficiary (or any
<PAGE> 28
Person for whom the Beneficiary may be acting), the Banks or any other
Person, whether in connection with this Agreement or the Letter of
Credit or any document related hereto or thereto or any unrelated
transactions;
(d) any statement or any other document presented under the Letter of
Credit proving to be forged, fraudulent or invalid in any respect or
any statement therein being untrue or inaccurate in any respect
whatsoever;
(e) payment by any Bank under the Letter of Credit to the Beneficiary
of such Letter of Credit against presentation to the Administrative
Agent of a draft or certificate that does not comply with the terms of
the Letter of Credit; or
(f) any other act or omission to act or delay of any kind by any
Bank, the Administrative Agent or any other Person or any other event
or circumstance whatsoever that might, but for the provisions of this
subsection (f), constitute a legal or equitable discharge of the
Borrower's obligations.
Nothing in this Agreement and no failure by the Borrower to perform any of its
obligations hereunder shall affect the several obligations of the Banks under
the Letter of Credit.
SECTION 2.7. Indemnification. The Borrower hereby indemnifies and
holds harmless each Bank and the Administrative Agent from and against any and
all
<PAGE> 29
claims, damages, losses, liabilities, costs or expenses which such Bank or the
Administrative Agent may incur, and none of the Banks nor the Administrative
Agent nor any of their officers or directors or employees or agents shall be
liable or responsible, by reason of or in connection with the execution and
delivery or transfer of or payment or failure to pay under the Letter of Credit,
including without limitation any of the circumstances enumerated in Section 2.6
above, as well as (i) any error, omission, interruption or delay in transmission
or delivery of any messages, by mail, cable, telegraph, telex or otherwise, (ii)
any error in interpretation of technical terms, (iii) any loss or delay in the
transmission of any document required in order to make a drawing under the
Letter of Credit, (iv) any consequences arising from causes beyond the control
of a Bank, including without limitation any government acts, or any other
circumstances whatsoever in making or failing to make payment under the Letter
of Credit; provided that the Borrower shall not be required to indemnify any
Bank for any claims, damages, losses, liabilities, costs or expenses, and the
Borrower shall have a claim against the indicated party for direct (but not
consequential) damage suffered by it, to the extent found by a court of
competent jurisdiction to have been caused by (x) the gross negligence or
willful misconduct of the Administrative Agent in determining whether a request
presented under the Letter of Credit complied with the terms of the Letter of
Credit or (y) a Bank's failure to pay under the Letter of Credit after receipt
of notice from the Administrative Agent of the presentation to it of a request
strictly complying with the terms and conditions of the Letter of Credit.
Nothing in this Section 2.7 is intended to limit the obligations of the Borrower
under Section 2.3 of this Agreement. To the extent the Borrower is obligated to
but does not indemnify the Administrative Agent as required by this Section, the
Banks agree to do so ratably in accordance with their Commitment Percentages.
<PAGE> 30
SECTION 2.8. Mandatory Reductions. (a) If the Borrower or any of its
Subsidiaries issues debt or equity securities prior to January 29, 1999 (other
than (w) equity securities issued in consideration for the acquisition of any
assets (including, without limitation, any equity interests of any other
Person), (x) equity securities issued to the Borrower or any of its
Subsidiaries, (y) directors' qualifying shares and (z) equity securities issued
in the ordinary course of business in connection with now or hereafter existing
employee stock purchase plans and other employee compensation arrangements and
dividend reinvestment plans), the Borrower shall apply the net cash proceeds
thereof until such amount has been fully applied either (I) to the
collateralization of the Substitute Note so as to cause an equivalent reduction
in the aggregate Letter of Credit Amount (or, if the Letter of Credit shall not
have been issued, the aggregate Commitments) until the Letter of Credit Amount
(or Commitments) has been reduced to zero; or (II) to the prepayment of
outstanding Loans under the Acquisition Revolver, and simultaneously to the
reduction of the aggregate Commitments thereunder, until such Loans and
Commitments have been reduced to zero, or to a combination of (I) and (II) as
the Borrower may elect. Each such reduction and payment or prepayment shall
occur within five Euro-Dollar Business Days of the receipt by the Borrower or
any of its Subsidiaries of such net cash proceeds, provided that if such net
cash proceeds are less than $10,000,000, such reduction and payment or
prepayment shall be effective upon receipt of proceeds such that, together with
all other such amounts not previously applied, the net cash proceeds are equal
to at least $20,000,000. The Borrower shall give the Administrative Agent at
least five Euro-Dollar Business Days' notice of each application required to be
made pursuant to this subsection (a).
<PAGE> 31
(b) If, prior to the Date of Issuance, collateral is pledged to
secure the Substitute Note, the aggregate amount of the Commitments shall be
reduced in the same manner as the Letter of Credit Amount would have been
reduced had such collateral been pledged on or after the Date of Issuance. Each
reduction of Commitments under this Agreement shall be applied ratably to the
respective Commitments of all Banks.
ARTICLE 3
CONDITIONS
SECTION 3.01. Effectiveness. This Agreement shall become effective
upon receipt by the Administrative Agent of the following documents, each dated
the Effective Date unless otherwise indicated:
(a) counterparts hereof signed by each of the parties hereto (or, in
the case of any party as to which an executed counterpart shall not have been
received, receipt by the Administrative Agent in form satisfactory to it of
telegraphic, telex, facsimile or other written confirmation from such party of
execution of a counterpart hereof by such party);
(b) a letter from Occidental Petroleum Corporation to the Agent
substantially in the form of Exhibit B hereto and evidencing the obligation of
Occidental Petroleum Corporation to accept a substitute Letter of Credit to be
issued on the Syndication Date;
<PAGE> 32
(c) opinions of Simpson Thacher & Bartlett, special counsel for the
Borrower, Polsinelli, White, Vardeman & Shalton, Kansas counsel for the
Borrower, and Martha B. Wyrsch, General Counsel of the Borrower, substantially
in the respective forms of Exhibits C, D and E hereto and covering such
additional matters relating to the transactions contemplated hereby as the
Required Banks may reasonably request;
(d) an opinion of Davis Polk & Wardwell, special counsel for the
Administrative Agent, substantially in the form of Exhibit F hereto and covering
such additional matters relating to the transactions contemplated hereby as the
Required Banks may reasonably request; and
(e) all documents the Administrative Agent may reasonably request
relating to the existence of the Borrower, the corporate authority for and the
validity of this Agreement and any other matters relevant hereto, all in form
and substance satisfactory to the Administrative Agent.
The Administrative Agent shall promptly notify the Borrower and each Bank of
the effectiveness of this Agreement, and such notice shall be conclusive and
binding on all parties hereto.
SECTION 3.2. Issuances of Letter of Credit. The obligation of any Bank
to issue the Letter of Credit is subject to the satisfaction of the following
conditions:
(a) the fact that the Closing Date shall have occurred on or prior to
March 31, 1998;
<PAGE> 33
(b) the fact that prior to or substantially simultaneously with such
issuance, the Borrower shall have consummated the Acquisition in accordance with
the Stock Purchase Agreement without waiver of any material condition specified
therein;
(c) the fact that the Borrower shall have paid or shall concurrently
pay all fees then due and payable to the Administrative Agent for the account of
any Agent or Bank, as previously agreed;
(d) receipt by the Administrative Agent of notice as required by
Section 2.1;
(e) the fact that, immediately before and after such issuance no
Default shall have occurred and be continuing; and
(f) the fact that the representations and warranties of the Borrower
contained in this Agreement shall be true on and as of the date of such
issuance;
The issuance of the Letter of Credit hereunder shall be deemed to be a
representation and warranty by the Borrower on the date of such issuance as to
the facts specified in clauses (b), (c), (e) and (f) of this Section.
<PAGE> 34
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
SECTION 4.1. Corporate Existence and Power. The Borrower is a
corporation duly incorporated, validly existing and in good standing under the
laws of Kansas, and has all corporate powers and all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted.
SECTION 4.2. Corporate and Governmental Authorization; No
Contravention. The execution, delivery and performance by the Borrower of this
Agreement are within the Borrower's corporate powers, have been duly authorized
by all necessary corporate action, require no action by or in respect of, or
filing with, any governmental body, agency or official (other than filing of
this Agreement with the Securities and Exchange Commission pursuant to the
reporting requirements of the Securities Exchange Act of 1934) and do not
contravene, or constitute a default under, any provision of applicable law or
regulation or of the articles of incorporation or by-laws of the Borrower or of
any agreement, judgment, injunction, order, decree or other instrument binding
upon the Borrower or any of its Subsidiaries or result in the creation or
imposition of any Lien on any asset of the Borrower or any of its Subsidiaries.
SECTION 4.3. Binding Effect. This Agreement constitutes a valid and
binding agreement of the Borrower enforceable in accordance with its terms.
<PAGE> 35
SECTION 4.4. Financial Information. (a) The consolidated balance sheet
of the Borrower and its Consolidated Subsidiaries as of December 31, 1996 and
the related consolidated statements of income, cash flows and common
stockholders' equity for the fiscal year then ended, reported on by Arthur
Andersen LLP and set forth in the Borrower's 1996 Form 10-K, a copy of which has
been delivered to each of the Banks, fairly present, in conformity with
generally accepted accounting principles, the consolidated financial position of
the Borrower and its Consolidated Subsidiaries as of such date and their
consolidated results of operations and cash flows for such fiscal year.
(b) The unaudited consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries as of September 30, 1997 and the related unaudited
consolidated statements of income and cash flows for the nine months then ended,
set forth in the Borrower's Latest Form 10-Q, a copy of which has been delivered
to each of the Banks, fairly present, in conformity with generally accepted
accounting principles applied on a basis consistent with the financial
statements referred to in subsection (a) of this Section, the consolidated
financial position of the Borrower and its Consolidated Subsidiaries as of such
date and their consolidated results of operations and cash flows for such
nine-month period (subject to normal year-end adjustments).
(c) Since September 30, 1997 there has been no material adverse
change in the business, financial position, results of operations or prospects
of the Borrower and its Consolidated Subsidiaries, considered as a whole.
SECTION 4.5. Litigation. Except as disclosed in the most recent Annual
Report on Form 10-K delivered by the Borrower to the Banks, there is no action,
<PAGE> 36
suit or proceeding pending against, or to the knowledge of the Borrower
threatened against or affecting, the Borrower or any of its Subsidiaries before
any court or arbitrator or any governmental body, agency or official in which
there is a reasonable possibility of an adverse decision which would materially
adversely affect the business, consolidated financial position or consolidated
results of operations of the Borrower and its Consolidated Subsidiaries,
considered as a whole, or which in any manner draws into question the validity
of this Agreement.
SECTION 4.6. Compliance with ERISA. Each member of the ERISA Group has
fulfilled its obligations under the minimum funding standards of ERISA and the
Internal Revenue Code with respect to each Plan and is in compliance in all
material respects with the presently applicable provisions of ERISA and the
Internal Revenue Code with respect to each Plan. No member of the ERISA Group
has (i) sought a waiver of the minimum funding standard under Section 412 of the
Internal Revenue Code in respect of any Plan, (ii) failed to make any
contribution or payment to any Plan or Multiemployer Plan or in respect of any
Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement,
which has resulted or could result in the imposition of a Lien or the posting of
a bond or other security under ERISA or the Internal Revenue Code or (iii)
incurred any liability under Title IV of ERISA other than a liability to the
PBGC for premiums under Section 4007 of ERISA, which waiver, failure or
liability could reasonably be expected to materially adversely affect the
business, consolidated financial position or consolidated results of operations
of the Borrower and its Consolidated Subsidiaries, considered as a whole.
<PAGE> 37
SECTION 4.7. Environmental Matters. In the ordinary course of its
business, the Borrower conducts an ongoing review of the effect of Environmental
Laws on the business, operations and properties of the Borrower and its
Subsidiaries, in the course of which it identifies and evaluates associated
liabilities and costs (including, without limitation, any capital or operating
expenditures required for clean-up or closure of properties presently or
previously owned, any capital or operating expenditures required to achieve or
maintain compliance with environmental protection standards imposed by law or as
a condition of any license, permit or contract, any related constraints on
operating activities, including any periodic or permanent shutdown of any
facility or reduction in the level of or change in the nature of operations
conducted thereat, any costs or liabilities in connection with off-site disposal
of wastes or Hazardous Substances, and any actual or potential liabilities to
third parties, including employees, and any related costs and expenses). On the
basis of this review, the Borrower has reasonably concluded that such associated
liabilities and costs, including the costs of compliance with Environmental
Laws, are unlikely to have a material adverse effect on the business, financial
condition, results of operations or prospects of the Borrower and its
Consolidated Subsidiaries, considered as a whole.
SECTION 4.8. Taxes. The Borrower and its Subsidiaries have filed all
United States Federal income tax returns and all other material tax returns
which are required to be filed by them and have paid all taxes shown to be due
on such returns or pursuant to any assessment received by the Borrower or any
Subsidiary to the extent that such taxes have become due and before they have
become delinquent, except such taxes as are being contested in good faith by
<PAGE> 38
appropriate proceedings for which adequate reserves have been established in
accordance with generally accepted accounting principles.
SECTION 4.9. Subsidiaries. Each of the Borrower's corporate Material
Subsidiaries is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation, and has all
corporate powers and all material governmental licenses, authorizations,
consents and approvals required to carry on its business as now conducted.
SECTION 4.10. Not an Investment Company. The Borrower is not an
"investment company" or controlled by an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
SECTION 4.11. Full Disclosure. All information heretofore furnished by
the Borrower to any Agent or any Bank for purposes of or in connection with this
Agreement or any transaction contemplated hereby is, and all such information
hereafter furnished by the Borrower to any Agent or any Bank will be, true and
accurate in all material respects on the date as of which such information is
stated or certified. The Borrower has disclosed to the Banks in writing any and
all facts peculiar to the business of the Company or any of its Subsidiaries
which materially and adversely affect or may affect (to the extent the Borrower
can now reasonably foresee), the business, operations or financial condition of
the Borrower and its Consolidated Subsidiaries, taken as a whole, or the ability
of the Borrower to perform its obligations under this Agreement.
SECTION 4.12. MidCon Acquisition. The representations and warranties
of all parties contained in the Stock Purchase Agreement will be true and
correct
<PAGE> 39
on and as of the date of the first Borrowing under this Agreement except to the
extent that the failure of the same to be true and correct could not reasonably
be expected to materially adversely affect the business, consolidated financial
position or consolidated results of operations of the Borrower and its
Consolidated Subsidiaries, considered as a whole.
ARTICLE 5
COVENANTS
The Borrower agrees that, so long as any Bank has any Commitment
hereunder or any Undrawn Amount or any Reimbursable Amount payable under any
Note remains unpaid:
SECTION 5.1. Information. The Borrower will deliver to each of the
Banks:
(a) as soon as available and in any event within 90 days after the
end of each fiscal year of the Borrower, a consolidated balance sheet of the
Borrower and its Consolidated Subsidiaries as of the end of such fiscal year and
the related consolidated statements of income, cash flows and common
stockholder's equity for such fiscal year, setting forth in each case in
comparative form the figures for the previous fiscal year, all audited by Arthur
Andersen LLP or other independent public accountants of nationally recognized
standing; provided, however, that delivery pursuant to clause (g) below of
copies of the Annual Report on Form 10- K (without exhibits) of the Borrower for
such fiscal year filed with the Securities and Exchange Commission shall be
deemed to satisfy the requirements of this clause (a);
<PAGE> 40
(b) as soon as available and in any event within 45 days after the
end of each of the first three quarters of each fiscal year of the Borrower, a
consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as
of the end of such quarter and the related consolidated statements of income and
cash flows for such quarter (in the case of such statements of income) and for
the portion of the Borrower's fiscal year ended at the end of such quarter,
setting forth in the case of such income and cash flows in comparative form the
figures for the corresponding quarter (in the case of such statements of income)
and the corresponding portion of the Borrower's previous fiscal year, all
certified (subject to normal year-end adjustments) as to fairness of
presentation, generally accepted accounting principles and consistency by an
authorized financial or accounting officer of the Borrower; provided, however,
that delivery pursuant to clause (g) below of copies of the Quarterly Report on
Form 10-Q (without exhibits) of the Borrower for such quarter filed with the
Securities and Exchange Commission shall be deemed to satisfy the requirements
of this clause (b);
(c) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, a certificate of an
authorized financial or accounting officer of the Borrower (i) setting forth in
reasonable detail the calculations required to establish whether the Borrower
was in compliance with the requirements of Section 5.7 and, if applicable,
Sections 5.8 and 5.9 on the date of such financial statements and (ii) stating
whether any Default exists on the date of such certificate and, if any Default
then exists, setting forth the details thereof and the action which the Borrower
is taking or proposes to take with respect thereto;
<PAGE> 41
(d) simultaneously with the delivery of each set of financial
statements referred to in clause (a) above, a statement of the firm of
independent public accountants which reported on such statements (i) whether
anything has come to their attention to cause them to believe that any Default
existed on the date of such statements and (ii) confirming the calculations set
forth in the officer's certificate delivered simultaneously therewith pursuant
to clause (c) above; provided, however, that such accountants shall not be
liable to anyone by reason of their failure to obtain knowledge of any Default
which would not be disclosed in the course of an audit conducted in accordance
with generally accepted auditing standards;
(e) within five Domestic Business Days after any officer of the
Borrower obtains knowledge of any Default, if such Default is then continuing, a
certificate of the chief financial officer or the chief accounting officer of
the Borrower setting forth the details thereof and the action which the Borrower
is taking or proposes to take with respect thereto;
(f) promptly upon the mailing thereof to the public shareholders of
the Borrower generally, copies of all financial statements, reports and proxy
statements so mailed;
(g) promptly upon the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration statements on
Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their
equivalents, in each case without exhibits) which the Borrower shall have filed
with the Securities and Exchange Commission;
<PAGE> 42
(h) if and when any member of the ERISA Group (i) gives or is
required to give notice to the PBGC of any "reportable event" (as defined in
Section 4043 of ERISA) (other than such event as to which the 30-day notice
requirement is waived or which is triggered by the Acquisition) with respect to
any Plan which might constitute grounds for a termination of such Plan under
Title IV of ERISA, or knows that the plan administrator of any Plan has given or
is required to give notice of any such reportable event, a copy of the notice of
such reportable event given or required to be given to the PBGC; (ii) receives
notice of complete or partial withdrawal liability under Title IV of ERISA or
notice that any Multiemployer Plan is in reorganization, is insolvent or has
been terminated, a copy of such notice; (iii) receives notice from the PBGC
under Title IV of ERISA of an intent to terminate, impose liability (other than
for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to
administer any Plan, a copy of such notice; (iv) applies for a waiver of the
minimum funding standard under Section 412 of the Internal Revenue Code, a copy
of such application; (v) gives notice of intent to terminate any Plan under
Section 4041(c) of ERISA, a copy of such notice and other information filed with
the PBGC; (vi) gives notice of withdrawal from any Plan pursuant to Section 4063
of ERISA, a copy of such notice; or (vii) fails to make any payment or
contribution to any Plan or Multiemployer Plan or in respect of any Benefit
Arrangement or makes any amendment to any Plan or Benefit Arrangement which has
resulted or could result in the imposition of a Lien or the posting of a bond or
other security, a certificate of the chief financial officer or the chief
accounting officer of the Borrower setting forth details as to such occurrence
and action, if any, which the Borrower or applicable member of the ERISA Group
is required or proposes to take; and
<PAGE> 43
(i) from time to time such additional information regarding the
financial position or business of the Borrower and its Subsidiaries as the
Administrative Agent, at the request of any Bank, may reasonably request.
SECTION 5.2. Payment of Obligations. The Borrower will pay and
discharge, and will cause each Subsidiary to pay and discharge, at or before
maturity, all their respective material obligations and liabilities, including,
without limitation, tax liabilities, except where the same may be contested in
good faith by appropriate proceedings, and will maintain, and will cause each
Subsidiary to maintain, in accordance with generally accepted accounting
principles, appropriate reserves for the accrual of any of the same.
SECTION 5.3. Maintenance of Property; Insurance. (a) The Borrower will
keep, and will cause each Subsidiary to keep, all property useful and necessary
in its business in good working order and condition, ordinary wear and tear
excepted.
(b) The Borrower will maintain or cause to be maintained with, in the
good faith judgment of the Borrower, financially sound and reputable insurers,
or through self-insurance, insurance with respect to its properties and business
and the properties and businesses of its Subsidiaries against loss or damage of
the kinds customarily insured against by corporations of established reputation
engaged in the same or similar business and similarly situated, of such types
and in such amounts as are customarily carried under similar circumstances by
such other corporations. Such insurance may include self-insurance or be subject
to co-insurance, deductibility or similar clauses which, in effect, result in
self-insurance of certain losses, provided that such self-insurance is in accord
with the approved practices of corporations similarly situated and adequate
<PAGE> 44
insurance reserves are maintained in connection with such self-insurance, and,
notwithstanding the foregoing provisions of this Section 5.3 the Borrower or any
Subsidiary may effect workers' compensation or similar insurance in respect of
operations in any state or other jurisdiction either through an insurance fund
operated by such state or other jurisdiction or by causing to be maintained a
system or systems of self-insurance in accord with applicable laws.
SECTION 5.4. Conduct of Business and Maintenance of Existence. The
Borrower will continue, and will cause each Material Subsidiary to continue, to
engage in business of the same general type as now conducted by the Borrower and
its Subsidiaries, and will preserve, renew and keep in full force and effect,
and will cause each Subsidiary to preserve, renew and keep in full force and
effect their respective corporate existence and their respective rights,
privileges and franchises necessary or desirable in the normal conduct of
business; provided that nothing in this Section 5.4 shall prohibit (i) the
merger of a Subsidiary into the Borrower or the merger or consolidation of a
Subsidiary with or into another Person if the corporation surviving such
consolidation or merger is a Subsidiary and if, in each case, after giving
effect thereto, no Default shall have occurred and be continuing, (ii) the sale
or other disposition (whether by merger or otherwise) of the capital stock or
assets of any Subsidiary, if such transaction complies with the provisions of
Section 5.11 or (iii) the termination of the corporate existence of any
Subsidiary if the Borrower in good faith determines that such termination is in
the best interest of the Borrower and is not materially disadvantageous to the
Banks.
<PAGE> 45
SECTION 5.5. Compliance with Laws. The Borrower will comply, and cause
each Subsidiary to comply, in all respects with all applicable laws, ordinances,
rules, regulations, and requirements of governmental authorities (including,
without limitation, Environmental Laws and ERISA and the rules and regulations
thereunder) except (i) where the necessity of compliance therewith is contested
in good faith by appropriate proceedings or (ii) where failure to comply could
not reasonably be expected to materially adversely affect the business,
consolidated financial position or consolidated results of operations of the
Borrower and its Consolidated Subsidiaries, considered as a whole.
SECTION 5.6. Inspection of Property, Books and Records. The Borrower
will keep, and will cause each Subsidiary to keep, proper books of record and
account in which full, true and correct entries, as required by generally
accepted accounting principles, shall be made of all dealings and transactions
in relation to its business and activities; and will permit, and will cause each
Subsidiary to permit, representatives of any Bank at such Bank's expense to
visit and inspect any of their respective properties, to examine and make
abstracts from any of their respective books and records (subject to compliance
with confidentiality agreements, copyrights and the like) and to discuss their
respective affairs, finances and accounts with their respective officers,
employees and independent public accountants, all at such reasonable times and
as often as may reasonably be desired.
SECTION 5.7. Debt. (a) Consolidated Debt of the Borrower will at no
time exceed the MLP of Consolidated Total Capitalization. "MLP" means Maximum
Leverage Percentage, which is 87.00%, subject to adjustment from time to time
<PAGE> 46
after the date hereof as follows: (a) upon the issuance of Trust Preferred
Securities in the amount of $300,000,000, the MLP will be reduced by 5.25%; (b)
upon issuance of common equity securities in the amount of $500,000,000, the MLP
will be reduced by 8.75%; and (c) upon issuance of Mandatorily Convertible
Preferred Stock in the amount of $400,000,000, the MLP will be reduced by 6.00%.
In the event of issuance of securities of the type described above in an amount
different from that specified, the consequent reduction of the MLP will be
adjusted on a pro rata basis; provided that in the event of issuance of Trust
Preferred Securities or Mandatorily Convertible Preferred Stock in an amount
greater than the indicated amount, there will not be an additional reduction in
the MLP to the extent that the Trust Preferred Securities exceed 10% of the
Consolidated Total Capitalization of the Borrower. Upon issuance of all
securities of the types and in the amounts described above, the MLP will at all
times thereafter be 67.00%.
(b) Total Debt of all Consolidated Subsidiaries (excluding Debt of a
Consolidated Subsidiary of the Borrower to the Borrower or to another
Consolidated Subsidiary of the Borrower) will at no time exceed 10% of
Consolidated Debt of the Borrower.
(c) Consolidated Debt of each Material Subsidiary will at no time
exceed 65% of the Consolidated Total Capitalization of such Material Subsidiary.
SECTION 5.8. Minimum Net Worth. Consolidated Net Worth will at no time
be less than an amount equal to the sum of (a) $570,000,000 plus (b) 50% of
Consolidated Net Income for each fiscal quarter of the Borrower ending after the
date hereof and at or prior to such time (but only if such Consolidated Net
<PAGE> 47
Income for such fiscal quarter is a positive amount) plus (c) for any issuance
of securities resulting in a reduction of the MLP pursuant to Section 5.7(a), an
amount equal to 80% of the increase in Consolidated Net Worth resulting from
such issuance of securities, if at such time the Borrower's senior unsecured
long-term debt is not rated at least Baa2 by Moody's and BBB by S&P.
SECTION 5.9. Minimum Interest Coverage Ratio. At any time at which the
Borrower's senior unsecured long-term debt is not rated at least Baa3 by Moody's
and BBB- by S&P, the Interest Coverage Ratio will not be less than (i) 2.25:1,
if such time is prior to March 31, 1999, and (ii) 2.75:1, if such time is on or
after March 31, 1999.
SECTION 5.10. Negative Pledge. Neither the Borrower nor any Subsidiary
will create, assume or suffer to exist any Lien on any asset now owned or
hereafter acquired by it, except:
(a) any Liens deemed to exist on the date of this Agreement under the
Purchase Agreement;
(b) Liens on cash and cash equivalents securing the Substitute Note,
as contemplated by Section 2.8;
(c) Liens on assets of any Person existing at the time such Person
becomes a Subsidiary and not created in contemplation of such event;
(d) Liens arising in the ordinary course of its business which (i) do
not secure Debt or Derivatives Obligations, (ii) do not secure any obligation in
an amount exceeding $150,000,000 and (iii) do not in the aggregate materially
detract from the value of its assets or materially impair the use thereof in the
operation of its business;
<PAGE> 48
(e) Liens on cash and cash equivalents securing Derivatives
Obligations, provided that the aggregate amount of cash and cash equivalents
subject to such Liens may at no time exceed $75,000,000;
(f) statutory or common law Liens of or upon deposits of cash in
favor of banks or other depository institutions; and
(g) Liens not otherwise permitted by the foregoing clauses of this
Section securing Debt in an aggregate principal or face amount at any date not
to exceed 10% of Consolidated Net Worth of the Borrower.
SECTION 5.11. Consolidations, Mergers and Sales of Assets. The
Borrower will not (i) consolidate or merge with or into any other Person or (ii)
sell, lease or otherwise transfer, directly or indirectly, all or substantially
all of its assets to any other Person, unless:
(i) immediately after giving effect to the transaction, no Default
shall have occurred and be continuing; and
(ii) except in the case of a merger in which the Borrower is the
surviving corporation:
(x) the Person formed by or surviving such transaction, in
the case of a consolidation or merger, and the transferee, in the
case of a transfer, assumes all obligations of the Borrower
hereunder;
<PAGE> 49
(y) the Person formed by or surviving such transaction, in
the case of a consolidation or merger, and the transferee, in the
case of a transfer, is organized under the laws of the United
States or any state thereof; and
(z) the Borrower has delivered to the Administrative Agent
an officer's certificate and opinion of counsel, each stating
that such consolidation, merger, or transfer and such assumption
comply with the provisions hereof.
No such sale, lease or other transfer of assets shall have the effect of
releasing the Borrower (or any successor that shall have become such in the
manner prescribed in this Section) from its liability under this Agreement.
SECTION 5.12. Transactions with Affiliates. The Borrower will not
participate in any material transaction with an affiliate (other than a
Subsidiary) unless such transaction is in the ordinary course of its business
and on terms no less advantageous to the Borrower than could be obtained in such
a transaction with an unaffiliated party.
ARTICLE 6
DEFAULTS
SECTION 6.1. Events of Default. If one or more of the following events
("Events of Default") shall have occurred and be continuing:
<PAGE> 50
(a) the Borrower shall fail to reimburse any drawing under the Letter
of Credit when required hereunder or shall fail to pay within three Domestic
Business Days of the due date thereof any interest, any fees or any other amount
payable hereunder;
(b) the Borrower shall fail to observe or perform any covenant
contained in Sections 5.7 to 5.12, inclusive;
(c) the Borrower shall fail to observe or perform any covenant or
agreement contained in this Agreement (other than those covered by clause (a) or
(b) above) for 10 days after notice thereof has been given to the Borrower by
the Administrative Agent at the request of any Bank;
(d) any representation, warranty, certification or statement made by
the Borrower in this Agreement or in any certificate, financial statement or
other document delivered pursuant to this Agreement shall prove to have been
incorrect in any material respect when made (or deemed made);
(e) the Borrower or any Subsidiary shall fail to make any payment in
respect of any Material Financial Obligations when due or within any applicable
grace period; provided, however, that if any such failure is cured by the
Borrower or such Subsidiary or is waived by the requisite percentage of holders
of such Material Financial Obligations entitled to so waive, then the Event of
Default under this Agreement by reason of such failure shall be deemed to have
been cured;
<PAGE> 51
(f) any event or condition shall occur which results in the
acceleration of the maturity of any Material Debt or enables (or, with the
giving of notice or lapse of time or both, would enable) the holder of such Debt
or any Person acting on such holder's behalf to accelerate the maturity thereof;
provided, however, that if any such acceleration is rescinded, or any such event
or condition is cured by the Borrower or any Subsidiary or is waived by the
requisite percentage of holders of such Material Debt entitled to so waive, then
the Event of Default under this Agreement by reason of such acceleration, event
or condition shall be deemed to have been cured;
(g) the Borrower or any Material Subsidiary shall commence a
voluntary case or other proceeding seeking liquidation, reorganization or other
relief with respect to itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate action to authorize any of the
foregoing;
(h) an involuntary case or other proceeding shall be commenced
against the Borrower or any Material Subsidiary seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any
<PAGE> 52
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of 60 days; or an order for
relief shall be entered against the Borrower or any Material Subsidiary under
the federal bankruptcy laws as now or hereafter in effect;
(i) any member of the ERISA Group shall fail to pay when due an
amount which it shall have become liable to pay under Title IV of ERISA; or
notice of intent to terminate a Plan shall be filed under Title IV of ERISA by
any member of the ERISA Group, any plan administrator or any combination of the
foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to
terminate, to impose liability (other than for premiums under Section 4007 of
ERISA) in respect of, or to cause a trustee to be appointed to administer any
Plan; or a condition shall exist by reason of which the PBGC would be entitled
to obtain a decree adjudicating that any Plan must be terminated; or there shall
occur a complete or partial withdrawal from, or a default, within the meaning of
Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans
which could cause one or more members of the ERISA Group to incur a current
payment obligation; and in each of the foregoing instances such condition (i)
could reasonably be expected to materially adversely affect the business,
consolidated financial position or consolidated results of operations of the
Borrower and its Consolidated Subsidiaries, considered as a whole, and (ii)
shall continue for 10 days after notice thereof has been given to the Borrower
by the Administrative Agent at the request of any Bank;
(j) a judgment or judgments for the payment of money (not paid or
fully covered by insurance or indemnification) in excess of $60,000,000 in the
aggregate shall be rendered against the Borrower or any Material Subsidiary and
<PAGE> 53
such judgment or judgments are not, within 30 days after entry thereof, bonded,
discharged or stayed pending appeal, or are not discharged within 30 days after
the expiration of such stay; or
(k) any person or group of persons (within the meaning of Section 13
or 14 of the Securities Exchange Act of 1934, as amended) shall have acquired
beneficial ownership (within the meaning of Rule 13d-3 promulgated by the
Securities and Exchange Commission under said Act) of 30% or more of the
outstanding shares of common stock of the Borrower; or, during any period of
twelve consecutive calendar months, individuals who were directors of the
Borrower on the first day of such period shall cease to constitute a majority of
the board of directors of the Borrower;
then, and in every such event, the Borrower shall, if requested by the
Administrative Agent upon the instruction of the Banks having Commitment
Percentages aggregating more than 50%, forthwith pay to the Administrative Agent
an amount in immediately available funds (which funds shall be held as
collateral pursuant to arrangements satisfactory to the Administrative Agent)
equal to the Letter of Credit Amount at such time, provided that, upon the
occurrence of any Event of Default specified in Section 6.1(g) or (h) with
respect to the Borrower, the Borrower shall pay such amount forthwith without
any notice or demand or any other act by the Administrative Agent or the Banks.
ARTICLE 7
THE AGENTS
SECTION 7.1. Appointment and Authorization. Each Bank irrevocably
appoints and authorizes the Administrative Agent to take such action as agent on
its behalf and to exercise such powers under this Agreement and the Letter of
Credit as are delegated to the Administrative Agent by the terms hereof or
thereof, together with all such powers as are reasonably incidental thereto.
<PAGE> 54
SECTION 7.2. Administrative Agent and Affiliates. Morgan Guaranty
Trust Company of New York shall have the same rights and powers under this
Agreement and the Letter of Credit as any other Bank and may exercise or refrain
from exercising the same as though it were not the Administrative Agent, and
Morgan Guaranty Trust Company of New York and its affiliates may accept deposits
from, lend money to, and generally engage in any kind of business with the
Borrower or any Subsidiary or affiliate of the Borrower as if it were not the
Administrative Agent hereunder.
SECTION 7.3. Action by Administrative Agent. The obligations of the
Administrative Agent hereunder are only those expressly set forth herein.
Without limiting the generality of the foregoing, the Administrative Agent shall
not be required to take any action with respect to any Default, except as
expressly provided in Article 6.
SECTION 7.4. Consultation with Experts. The Administrative Agent may
consult with legal counsel (who may be counsel for the Borrower), independent
public accountants and other experts selected by it and shall not be liable for
any action taken or omitted to be taken by it in good faith in accordance with
the advice of such counsel, accountants or experts.
SECTION 7.5. Liability of Administrative Agent. Neither the
Administrative Agent nor any of its affiliates nor any of their respective
directors, officers, agents or employees shall be liable for any action taken or
not taken by it in connection herewith (i) with the consent or at the request of
the Required Banks or (ii) in the absence of its own gross negligence or willful
misconduct. Neither the Administrative Agent nor any of its affiliates nor any
of their respective directors, officers, agents or employees shall be
responsible for or have any duty to ascertain, inquire into or verify (i) any
<PAGE> 55
statement, warranty or representation made in connection with this Agreement,
the issuance of the Letter of Credit hereunder or any drawing thereunder; (ii)
the performance or observance of any of the covenants or agreements of the
Borrower; (iii) the satisfaction of any condition specified in Article 3, except
receipt of items required to be delivered to the Administrative Agent; or (iv)
the validity, effectiveness or genuineness of this Agreement, the Letter of
Credit or any other instrument or writing furnished in connection herewith. The
Administrative Agent shall not incur any liability by acting in reliance upon
any notice, consent, certificate, statement, or other writing (which may be a
bank wire, telex, facsimile transmission or similar writing) believed by it to
be genuine or to be signed by the proper party or parties. Without limiting the
generality of the foregoing, the use of the term "agent" in this Agreement with
reference to the Administrative Agent is not intended to connote any fiduciary
or other implied (or express) obligations arising under agency doctrine of any
applicable law. Instead, such term is used merely as a matter of market custom
and is intended to create or reflect only an administrative relationship between
independent contracting parties.
SECTION 7.6. Indemnification. Each Bank shall, ratably in accordance
with its Commitment Percentage, indemnify any Agent, its affiliates and their
respective directors, officers, agents and employees (to the extent not
reimbursed by the Borrower) against any cost, expense (including counsel fees
and disbursements), claim, demand, action, loss or liability (except such as
result from such indemnitees' gross negligence or willful misconduct) that such
indemnitees may suffer or incur in connection with this Agreement or any action
taken or omitted by such indemnitees hereunder.
<PAGE> 56
SECTION 7.7. Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon any Agent or any other Bank, and based
on such documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Bank also
acknowledges that it will, independently and without reliance upon any Agent or
any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking any action under this Agreement.
SECTION 7.8. Successor Administrative Agent. The Administrative Agent
may resign at any time by giving notice thereof to the Banks and the Borrower.
Upon any such resignation, the Required Banks shall have the right to appoint a
successor Administrative Agent, with the consent of the Borrower, which shall
not be unreasonably withheld. If no successor Administrative Agent shall have
been so appointed by the Required Banks, and shall have accepted such
appointment, within 30 days after the retiring Administrative Agent gives notice
of resignation, then the retiring Administrative Agent may, on behalf of the
Banks, appoint a successor Administrative Agent, which shall be a commercial
bank organized or licensed under the laws of the United States of America or of
any State thereof and having a combined capital and surplus of at least
$500,000,000. Upon the acceptance of its appointment as Administrative Agent
hereunder by a successor Administrative Agent, such successor Administrative
Agent shall thereupon succeed to and become vested with all the rights and
duties of the retiring Administrative Agent, and the retiring Administrative
Agent shall be discharged from its duties and obligations hereunder. After any
retiring Administrative Agent's resignation hereunder as Administrative Agent,
the provisions of this Article shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Administrative Agent.
<PAGE> 57
SECTION 7.9. Agents' Fees. The Borrower shall pay to the
Administrative Agent for the account of the Agents fees in the amounts and at
the times previously agreed upon between the Borrower and the Agents.
SECTION 7.10. Other Agents. Nothing contained in this Agreement
shall be construed to impose any obligation or duty whatsoever on any
Syndication Agent, in its capacity as such an Agent.
ARTICLE 8
CHANGE IN CIRCUMSTANCES
SECTION 8.1. Increased Cost and Reduced Return. (a) If on or after the
date hereof, the adoption of any applicable law, rule or regulation, or any
change in any applicable law, rule or regulation, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by any Bank (or its Facility Office) with any request or
directive (whether or not having the force of law) of any such authority,
central bank or comparable agency shall impose, modify or deem applicable any
reserve (including, without limitation, any such requirement imposed by the
Board of Governors of the Federal Reserve System), special deposit, insurance
assessment or similar requirement against assets of, deposits with or for the
account of, or credit extended by, any Bank (or its Facility Office) or shall
impose on any Bank (or its Facility Office) any other condition affecting the
Letter of Credit or its obligation to issue the Letter of Credit and the result
of any of the foregoing is to increase the cost to such Bank (or its Facility
Office) of issuing or maintaining the Letter of Credit, or to reduce the amount
of any sum received or receivable by such Bank (or its Facility Office) under
this Agreement with respect thereto, by an amount deemed by such Bank to be
material, then, within 15 days after demand by such Bank (with a copy to the
Administrative Agent), the Borrower shall pay to such Bank such additional
amount or amounts as will compensate such Bank for such increased cost or
reduction.
<PAGE> 58
(b) If any Bank shall have determined that, after the date hereof,
the adoption of any applicable law, rule or regulation regarding capital
adequacy, or any change in any such law, rule or regulation, or any change in
the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on capital of such Bank (or its Parent) as a consequence of such Bank's
obligations hereunder to a level below that which such Bank (or its Parent)
could have achieved but for such adoption, change, request or directive (taking
into consideration its policies with respect to capital adequacy) by an amount
deemed by such Bank to be material, then from time to time, within 15 days after
demand by such Bank (with a copy to the Administrative Agent), the Borrower
shall pay to such Bank such additional amount or amounts as will compensate such
Bank (or its Parent) for such reduction.
(c) Each Bank will promptly notify the Borrower and the
Administrative Agent of any event of which it has knowledge, occurring after the
date hereof, which will entitle such Bank to compensation pursuant to this
Section and will designate a different Facility Office if such designation will
avoid the need for, or reduce the amount of, such compensation and will not, in
the judgment of such Bank, be otherwise disadvantageous to such Bank. A
certificate of any Bank claiming compensation under this Section and setting
forth in reasonable detail the additional amount or amounts to be paid to it
hereunder shall be conclusive in the absence of manifest error. In determining
such amount, such Bank may use any reasonable averaging and attribution methods.
Notwithstanding the foregoing subsections (a) and (b) of this Section 8.1, the
Borrower shall only be
<PAGE> 59
obligated to compensate any Bank for any amount arising or accruing during (i)
any time or period commencing not more than 90 days prior to the date on which
such Bank notifies the Administrative Agent and the Borrower that it proposes to
demand such compensation and identifies to the Administrative Agent and the
Borrower the statute, regulation or other basis upon which the claimed
compensation is or will be based and (ii) any time or period during which,
because of the retroactive application of such statute, regulation or other such
basis, such Bank did not know that such amount would arise or accrue.
SECTION 8.2. Taxes. (a) For purposes of this Section 8.2, the
following terms have the following meanings:
"Taxes" means any and all present or future taxes, duties, levies,
imposts, deductions, charges or withholdings with respect to any payment by the
Borrower pursuant to this Agreement or the Letter of Credit, and all liabilities
with respect thereto, excluding (i) in the case of each Bank and the
Administrative Agent, taxes imposed on its income, and franchise or similar
taxes imposed on it, by a jurisdiction under the laws of which such Bank or the
Administrative Agent (as the case may be) is organized or in which its principal
executive office is located or, in the case of each Bank, in which its Facility
Office is located and (ii) in the case of each Bank, any United States
withholding tax imposed on such payments but only to the extent that such Bank
is subject to United States withholding tax at the time such Bank first becomes
a party to this Agreement.
"Other Taxes" means any present or future stamp or documentary taxes
and any other excise or property taxes, or similar charges or levies, which
arise from any payment made pursuant to this Agreement or the Letter of Credit
or from the execution or delivery of, or otherwise with respect to, this
Agreement or the Letter of Credit.
<PAGE> 60
(b) Any and all payments by the Borrower to or for the account of any
Bank or the Administrative Agent hereunder shall be made without deduction for
any Taxes or Other Taxes; provided that, if the Borrower shall be required by
law to deduct any Taxes or Other Taxes from any such payments, (i) the sum
payable shall be increased as necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 8.2) such Bank or the Administrative Agent (as the case may be)
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions, (iii) the
Borrower shall pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable law and (iv) the Borrower shall
furnish to the Administrative Agent, at its address referred to in Section 9.1,
the original or a certified copy of a receipt evidencing payment thereof.
(c) The Borrower agrees to indemnify each Bank and the Administrative
Agent for the full amount of Taxes or Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on
amounts payable under this Section 8.2) paid by such Bank or the Administrative
Agent (as the case may be) and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto. This indemnification shall
be paid within 15 days after such Bank or the Administrative Agent (as the case
may be) makes demand therefor.
(d) Each Bank organized under the laws of a jurisdiction outside the
United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Bank listed on the signature pages hereof and on
or prior to the date on which it becomes a Bank in the case of each other Bank,
<PAGE> 61
and from time to time thereafter if requested in writing by the Borrower (but
only so long as such Bank remains lawfully able to do so), shall provide the
Borrower with Internal Revenue Service form 1001 or 4224, as appropriate, or any
successor form prescribed by the Internal Revenue Service, certifying that such
Bank is entitled to benefits under an income tax treaty to which the United
States is a party which exempts the Bank from United States withholding tax or
reduces the rate of withholding tax on payments of interest for the account of
such Bank or certifying that the income receivable pursuant to this Agreement is
effectively connected with the conduct of a trade or business in the United
States.
(e) For any period with respect to which a Bank has failed to provide
the Borrower with the appropriate form pursuant to Section 8.2(d) (unless such
failure is due to a change in treaty, law or regulation occurring subsequent to
the date on which such form originally was required to be provided), such Bank
shall not be entitled to indemnification under Section 8.2(b) or (c) with
respect to Taxes imposed by the United States; provided that if a Bank, which is
otherwise exempt from or subject to a reduced rate of withholding tax, becomes
subject to Taxes because of its failure to deliver a form required hereunder,
the Borrower, at such Bank's expense, shall take such steps as such Bank shall
reasonably request to assist such Bank to recover such Taxes.
(f) If the Borrower is required to pay additional amounts to or for
the account of any Bank pursuant to this Section 8.2, then such Bank will change
the jurisdiction of its Facility Office if, in the judgment of such Bank, such
change (i) will eliminate or reduce any such additional payment which may
thereafter accrue and (ii) is not otherwise disadvantageous to such Bank.
<PAGE> 62
ARTICLE 9
MISCELLANEOUS
SECTION 9.1. Notices. All notices, requests and other communications
to any party hereunder shall be in writing (including bank wire, telex,
facsimile transmission or similar writing) and shall be given to such party: (x)
in the case of the Borrower or the Administrative Agent, at its address,
facsimile number or telex number set forth on the signature pages hereof, (y) in
the case of any Bank, at its address, facsimile number or telex number set forth
in its Administrative Questionnaire or (z) in the case of any party, such other
address, facsimile number or telex number as such party may hereafter specify
for the purpose by notice to the Administrative Agent and the Borrower. Each
such notice, request or other communication shall be effective (i) if given by
telex, when such telex is transmitted to the telex number specified in this
Section and the appropriate answerback is received, (ii) if given by facsimile
transmission, when transmitted to the facsimile number specified in this Section
and confirmation of receipt is received or (iii) if given by any other means,
when delivered at the address specified in this Section; provided that notices
to the Administrative Agent under Article 2 or Article 8 shall not be effective
until received.
SECTION 9.2. No Waivers. No failure or delay by the Administrative
Agent or any Bank in exercising any right, power or privilege hereunder or under
the Letter of Credit shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
<PAGE> 63
SECTION 9.3. Expenses; Indemnification. (a) The Borrower shall pay (i)
all reasonable out-of-pocket expenses of the Administrative Agent, including
fees and disbursements of Davis Polk & Wardwell, special counsel for the Agents,
in connection with the preparation and administration of this Agreement, any
waiver or consent hereunder or any amendment hereof or any Default or alleged
Default hereunder and (ii) if an Event of Default occurs, all out-of-pocket
expenses incurred by each Agent and Bank, including (without duplication) the
fees and disbursements of outside counsel and the allocated cost of inside
counsel, in connection with such Event of Default and collection, bankruptcy,
insolvency and other enforcement proceedings resulting therefrom.
(b) The Borrower agrees to indemnify each Agent and Bank, their
respective affiliates and the respective directors, officers, agents and
employees of the foregoing (each an "Indemnitee") and hold each Indemnitee
harmless from and against any and all liabilities, losses, damages, costs and
expenses of any kind, including, without limitation, the reasonable fees and
disbursements of counsel, which may be incurred by such Indemnitee in connection
with any investigative, administrative or judicial proceeding (whether or not
such Indemnitee shall be designated a party thereto) brought or threatened
relating to or arising out of (i) any actual or proposed use of the Letter of
Credit hereunder or (ii) any actual or alleged Default under this Agreement or
any actual or alleged untruth or inaccuracy of any representation or warranty
made by the Borrower in or in connection with this Agreement; provided that no
Indemnitee shall have the right to be indemnified hereunder for such
Indemnitee's own gross negligence or willful misconduct as finally determined by
a court of competent jurisdiction.
<PAGE> 64
SECTION 9.4. Sharing of Set-offs. Each Bank agrees that if it shall,
by exercising any right of set-off or counterclaim or otherwise, receive payment
of a proportion of the aggregate amount of principal and interest due with
respect to its Reimbursable Amounts which is greater than the proportion
received by any other Bank in respect of the aggregate amount of principal and
interest due with respect to the Reimbursable Amounts of such other Bank, the
Bank receiving such proportionately greater payment shall purchase such
participations in the Reimbursable Amounts of the other Banks, and such other
adjustments shall be made, as may be required so that all such payments of
principal and interest with respect to the Reimbursable Amounts shall be shared
by the Banks pro rata; provided that nothing in this Section shall impair the
right of any Bank to exercise any right of set-off or counterclaim it may have
and to apply the amount subject to such exercise to the payment of indebtedness
of the Borrower other than its indebtedness hereunder. The Borrower agrees, to
the fullest extent it may effectively do so under applicable law, that any
holder of a participation in a Reimbursable Amount, whether or not acquired
pursuant to the foregoing arrangements, may exercise rights of set-off or
counterclaim and other rights with respect to such participation as fully as if
such holder of a participation were a direct creditor of the Borrower in the
amount of such participation.
SECTION 9.5. Amendments and Waivers. Any provision of this Agreement
may be amended or waived if, but only if, such amendment or waiver is in writing
and is signed by the Borrower and the Required Banks (and, if the rights or
duties of any Agent are affected thereby, by it); provided that no such
amendment or waiver shall, unless signed by all the Banks, (i) increase or
decrease the Commitment or Commitment Percentage of any Bank (except for a
ratable decrease in the Commitments of all Banks) or subject any Bank to any
additional obligation, (ii) reduce the principal of or rate of interest on any
Reimbursable Amount or any fees hereunder, (iii) postpone the date for any
<PAGE> 65
payment of principal of or interest on any Reimbursable Amount or any fees
hereunder or for termination of any Commitments or (iv) change the aggregate
Commitment Percentages, or the number of Banks, which shall be required for the
Banks or any of them to take any action under this Section or any other
provision of this Agreement.
SECTION 9.6. Successors and Assigns. (a) The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that the Borrower may not
assign or otherwise transfer any of its rights under this Agreement without the
prior written consent of all Banks.
(b) Any Bank may at any time grant to one or more banks or other
institutions (each a "Participant") participating interests in its Commitment or
its obligations under the Letter of Credit. In the event of any such grant by a
Bank of a participating interest to a Participant, whether or not upon notice to
the Borrower and the Administrative Agent, such Bank shall remain responsible
for the performance of its obligations hereunder and under the Letter of Credit,
and the Borrower and the Administrative Agent shall continue to deal solely and
directly with such Bank in connection with such Bank's rights and obligations
under this Agreement and under the Letter of Credit. Any agreement pursuant to
which any Bank may grant such a participating interest shall provide that such
Bank shall retain the sole right and responsibility to enforce the obligations
of the Borrower hereunder including, without limitation, the right to approve
any amendment, modification or waiver of any provision of this Agreement;
provided that such participation agreement may provide that such Bank will not
agree to any modification, amendment or waiver of this Agreement described in
clause (i), (ii) or (iii) of Section 9.5 without the consent of the Participant.
The Borrower agrees that each Participant shall, to the extent provided in its
participation agreement, be entitled to the benefits of Article 8 with respect
to its participating interest.
<PAGE> 66
(c) No Participant or other transferee of any Bank's rights shall be
entitled to receive any greater payment under Section 8.1 or 8.2 than such Bank
would have been entitled to receive with respect to the rights transferred,
unless such transfer is made with the Borrower's prior written consent or by
reason of the provisions of Section 8.1 or 8.2 requiring such Bank to designate
a different Facility Office under certain circumstances or at a time when the
circumstances giving rise to such greater payment did not exist.
SECTION 9.7. Collateral. Each of the Banks represents to each Agent
and each of the other Banks that it in good faith is not relying upon any
"margin stock" (as defined in Regulation U) as collateral in the extension or
maintenance of the credit provided for in this Agreement.
SECTION 9.8. Governing Law; Submission to Jurisdiction. This Agreement
shall be governed by and construed in accordance with the laws of the State of
New York. The Borrower hereby submits to the nonexclusive jurisdiction of the
United States District Court for the Southern District of New York and of any
New York State court sitting in New York City having subject matter jurisdiction
for purposes of all legal proceedings arising out of or relating to this
Agreement or the transactions contemplated hereby. The Borrower irrevocably
waives, to the fullest extent permitted by law, any objection which it may now
or hereafter have to the laying of the venue of any such proceeding brought in
such a court and any claim that any such proceeding brought in such a court has
been brought in an inconvenient forum.
SECTION 9.9. Counterparts; Integration. This Agreement may be signed
in any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement constitutes the entire agreement and understanding among the
parties hereto and supersedes any and all prior agreements and understandings,
oral or written, relating to the subject matter hereof except the obligations of
the Borrower to pay fees and expenses and to assist in the syndication process
as specified in the respective commitment letters and fee letters heretofore
entered into between the Borrower and the Agents.
<PAGE> 67
SECTION 9.10. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE
ADMINISTRATIVE AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT
TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 9.11. Obligations Several. The obligations of each Bank
hereunder and under the Letter of Credit are several but not joint. Failure of
any Bank to carry out its obligations hereunder and under the Letter of Credit
shall not relieve any other Bank, the Administrative Agent or the Borrower of
any of their respective obligations hereunder. Neither the Administrative Agent
nor any Bank shall be responsible for the obligations of any other party
hereunder.
<PAGE> 68
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
K N ENERGY, INC.
By /s/ Clyde E. McKenzie
----------------------------------
Title: Vice President & Chief
Financial Officer
370 Van Gordon Street
Lakewood, CO 80228-8304
Attention: Chief Financial Officer
Facsimile number: (303) 914-4542
Commitment Percentages
33.34% MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By /s/ John Kowalczuk
-----------------------------------
Title: Vice President
22.22% BANK OF AMERICA NT & SA
By /s/ J. Stephen Mern
-----------------------------------
Title: Senior Vice President
<PAGE> 69
22.22% THE CHASE MANHATTAN BANK
By /s/ Mary Jo Woodford
-----------------------------------
Title: Vice President
22.22% NATIONSBANK, N.A.
By /s/ David C. Rubenking
-----------------------------------
Title: Senior Vice President
- ---------------------------
Total
100%
====
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Administrative Agent
By /s/ John Kowalczuk
-----------------------------------
Title: Vice President
60 Wall Street
New York, New York 10260-0060
Attention: John Kowalczuk
Telex number: 177615
Facsimile number: 212-648-5014
<PAGE> 70
PRICING SCHEDULE
The "Euro-Dollar Margin", "CD Margin" and "Facility Fee Rate" for any
day are the respective percentages set forth below in the applicable row under
the column corresponding to the Status that exists on such day:
<TABLE>
<CAPTION>
Level Level Level Level Level Level
Status I II III IV V VI
<S> <C> <C> <C> <C> <C> <C>
Letter of Credit 0.355% 0.445% 0.515% 0.6875% 0.875% 1.250%
Fee Rate
Facility Fee Rate 0.070% 0.080% 0.110% 0.1875% 0.250% 0.375%
</TABLE>
For purposes of this Schedule, the following terms have the following
meanings:
"Level I Status" exists at any date if, at such date, the Borrower's
senior unsecured long-term debt is rated BBB+ or higher by S&P and Baa1 or
higher by Moody's.
"Level II Status" exists at any date if, at such date, (i) the
Borrower's senior unsecured long-term debt is rated BBB or higher by S&P and
Baa2 or higher by Moody's and (ii) Level I Status does not exist.
<PAGE> 71
"Level III Status" exists at any date if, at such date, (i) the
Borrower's senior unsecured long-term debt is rated BBB- or higher by S&P and
Baa3 or higher by Moody's and (ii) neither Level I Status nor Level II Status
exists.
"Level IV Status" exists at any date if, at such date, (i) the
Borrower's senior unsecured long-term debt is rated BB+ or higher by S&P and Ba1
or higher by Moody's and (ii) none of Level I Status, Level II Status and Level
III Status exists.
"Level V Status" exists at any date if, at such date, (i) the
Borrower's senior unsecured long-term debt is rated BB or higher by S&P and Ba2
or higher by Moody's and (ii) none of Level I Status, Level II Status, Level III
Status and Level IV Status exists.
"Level VI Status" exists at any date if, at such date, no other Status
exists.
"Status" refers to the determination of which of Level I Status, Level
II Status, Level III Status, Level IV Status, Level V Status or Level VI Status
exists at any date.
The credit ratings to be utilized for purposes of this Schedule are
those assigned to the senior unsecured long-term debt securities of the Borrower
without third-party credit enhancement, and any rating assigned to any other
debt security of the Borrower shall be disregarded. The rating in effect at any
date is that in effect at the close of business on such date.
<PAGE> 72
EXHIBIT A
IRREVOCABLE STANDBY LETTER OF CREDIT
January 30, 1998
[Letter of Credit Nos.] [Several Banks]
Ladies and Gentlemen:
1. By order of our customer, K N Energy, Inc. ("K N"), we, the banks
listed in paragraph 3 below (each a "Bank" and collectively the "Banks"), hereby
establish (severally in our respective Commitment Percentages specified in
paragraph 3 below) this Irrevocable Standby Letter of Credit ("Letter of
Credit") in favor of Occidental Petroleum Corporation ("Occidental"), a Delaware
corporation, and its permitted transferees ("you" or the "Beneficiary") in the
aggregate amount of US $1,394,846,122 (One Billion, Three Hundred Ninety Four
Million, Eight Hundred Forty-Six Thousand, One Hundred Twenty-Two United States
Dollars) (as such amount may be reduced from time to time in accordance with
paragraph 2 below, the "Letter of Credit Amount") in order to assure payment of
principal of the promissory note of even date herewith executed by K N in favor
of Occidental in the same principal amount ("Substitute Note").
<PAGE> 73
2. If so agreed by the Beneficiary, K N may from time to time
pledge collateral to secure payment of the Substitute Note. In accordance with
any such agreement, upon any such pledge, K N and the Beneficiary will jointly
notify the Administrative Agent thereof and specify the amount by which the
Letter of Credit Amount is to be reduced as a result of such pledge. Upon the
date of receipt by the Administrative Agent from the Beneficiary of any such
notice purporting to be signed by an authorized officer of each of K N and the
Beneficiary, the Letter of Credit Amount shall be permanently reduced by the
amount specified therein.
3. Each Bank shall be severally responsible for its following
commitment percentage ("Commitment Percentage") of the drawing hereunder:
<TABLE>
<CAPTION>
Bank Commitment Percentage
---- ---------------------
<S> <C>
Morgan Guaranty Trust Company of New York 33.34%
Bank of America NT & SA 22.22%
The Chase Manhattan Bank 22.22%
NationsBank 22.22%
Total 100%
</TABLE>
The obligations of the Banks under this Letter of Credit are several and no Bank
shall be liable for the failure of any other Bank to perform its
<PAGE> 74
obligations hereunder. Morgan Guaranty Trust Company of New York, as
Administrative Agent for the Banks ("Administrative Agent"), shall have no
liability for the failure of any Bank to perform its obligations hereunder.
4. Funds are available to you under this Letter of Credit in a
single drawing against your draft, in an amount up to but not exceeding the
Letter of Credit Amount, presented at (or by facsimile transmission to) the
office of the Administrative Agent specified in paragraph 8 below or at its
offices at 500 Stanton-Christiania Road, Newark, DE 19713-2107, Attention:
Letter of Credit Services Department. Such draft must be in the form of Annex 1
hereto, with blanks appropriately completed, and must be accompanied by a
certificate of one who purports to be an authorized officer of the Beneficiary
in the form of Annex 2 hereto, with blanks appropriately completed. No other
documents or instruments shall be required for drawing under this Letter of
Credit.
5. This Letter of Credit shall be transferable by the Beneficiary
only to a transferee (including a pledgee) of the Substitute Note upon delivery
to the Administrative Agent of a transfer notice in the form of Annex 3 hereto,
with blanks appropriately completed, by certified mail, return receipt
requested, or hand delivery at the office of the Administrative Agent referred
to in paragraph 8 below. Upon such delivery, we shall promptly transfer the same
to your transferee or, if so requested by your transferee, issue upon surrender
of this Letter of Credit a Letter of Credit to your transferee with provisions
therein consistent with this Letter of Credit.
<PAGE> 75
6. This Letter of Credit shall expire at 3:00 P.M. (New York City
time) on January 19, 1999 ("Expiration Date"), it being understood that such
expiration shall not affect the obligations of the Administrative Agent and each
Bank hereunder in respect of any drawing duly made on or prior to the Expiration
Date.
7. If the Administrative Agent receives from you the items described
in paragraph 4 above by 3:00 P.M. (New York City time) on a domestic business
day on or before the Expiration Date, each Bank will unconditionally honor the
same in the amount of its Commitment Percentage (as specified in paragraph 3
above) by remitting such amount, in immediately available funds, to the
Administrative Agent at its office at 60 Wall Street, New York, New York 10260,
for your account, no later than the date one domestic business day after receipt
by the Administrative Agent of such items, and the Administrative Agent shall
pay the total amount so received by it to you on the same day by wire transfer
of immediately available funds to The Chase Manhattan Bank, New York, for credit
to Occidental Petroleum Corporation account number 144-0-34496, or to such other
account or accounts as you may specify in writing to the Administrative Agent.
The term "domestic business day" means any day except a Saturday, Sunday or
other day on which commercial banks in New York City are authorized by law to
close.
8. All communications regarding this Letter of Credit shall be
addressed to Morgan Guaranty Trust Company of New York, c/o J.P. Morgan
Services, Inc., Attention: Letter of Credit Services Department, 500 Stanton
Christiana Road, Newark, DE 19713-2107 (facsimile number (302) 634-1838 or (302)
634-1839) and shall reference this Letter of Credit. All such
<PAGE> 76
communications shall be effective when received by the Administrative Agent at
the above address (whether by mail delivery, facsimile or otherwise). The
Administrative Agent agrees to notify K N (by facsimile transmission) when it
receives the items required pursuant to paragraph 4 above. Such notice shall be
addressed to: K N Energy, Inc., 370 Van Gordon St., Lakewood, CO 80228-8304,
Attention: Treasurer (facsimile number (303) 763-3155).
9. This Letter of Credit sets forth in full the terms of our several
undertakings, and such undertakings shall not in any way be modified by
reference to any document, instrument, or agreement referred to herein. This
Letter of Credit may be amended if, but only if, such amendment is in writing
and is signed by the Beneficiary, the Administrative Agent and each Bank, with
the written consent of K N. This Letter of Credit may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
10. This Letter of Credit is subject to the Uniform Customs and
Practice for Documentary Credits (1993 Revision), International Chamber of
Commerce Publication No. 500 ("Uniform Customs"), as the same exists on the date
of issuance of this Letter of Credit. Notwithstanding Section 48(g) of the
Uniform Customs, this Letter of Credit my be successively transferred. This
Letter of Credit shall be deemed to be a contract made under the laws of the
State of New York and shall, as to matters not governed by the Uniform Customs,
be governed by and construed in accordance with the laws of the State of New
York.
Very truly yours,
[AUTHORIZED BANK SIGNATURES]
<PAGE> 77
ANNEX 1 TO
LETTER OF CREDIT
[FORM OF DRAFT]
U.S. $ [aggregate amount] , 19
------------
[Names of Banks]
[c/o Administrative Agent, name & address]
Pay to the order of [Beneficiary] the aggregate amount of U.S.
$_______ ([insert amount in words] United States Dollars).
Drawn under the Irrevocable Standby Letter of Credit, Nos.
__________ dated __________ (the "Letter of Credit"). All terms defined in
the Letter of Credit have the same meanings as used herein.
The portion of said aggregate amount being drawn on each Bank is
the amount of this draft multiplied by such Bank's Commitment Percentage set
forth in paragraph 3 of the Letter of Credit.
[BENEFICIARY]
By:___________________________
[Name and Title]
<PAGE> 78
ANNEX 2 TO
LETTER OF CREDIT
OFFICER'S CERTIFICATE
In [his/her] capacity as [a duly authorized officer] of [Name of
Beneficiary] (the "Beneficiary"), the undersigned hereby certifies as follows:
K N Energy, Inc. ("K N") is in default of its payment obligations
under the promissory note dated January 30, 1998 and executed by K N in favor of
Occidental Petroleum Corporation in the original principal amount of
$1,394,846,122 (the "Substitute Note"). The Beneficiary is entitled
to draw under the Irrevocable Standby Letter of Credit Nos._________________
which supports payment of principal of the Substitute Note in the aggregate
amount of the draft which accompanies this Certificate. The undersigned officer
is duly authorized to deliver this Certificate on behalf of the Beneficiary.
Promptly after the draft which accompanies this Certificate is honored, the
Beneficiary will deliver the original Letter of Credit to Morgan Guaranty Trust
Company of New York, at its address specified in the Letter of Credit.
IN WITNESS WHEREOF the undersigned has hereunto set [his/her] name this ___ day
of [Month], [Year].
-----------------------------
Title:
<PAGE> 79
ANNEX 3 TO
LETTER OF CREDIT
TRANSFER NOTICE
[Date]
TO: [Names of Banks]
[c/o Administrative Agent, name & address]
The undersigned is the Beneficiary of your Irrevocable Standby
Letter of Credit Nos._________ dated __________ ("Letter of Credit"). All terms
defined in the Letter of Credit have the same meanings as used herein.
The undersigned has transferred to _______________ ("Transferee")
the undersigned's rights with respect to the Substitute Note and the Transferee
shall hereafter be the Beneficiary under the Letter of Credit. The Letter of
Credit is returned herewith and in accordance therewith we ask that you issue a
new irrevocable letter of credit in favor of the Transferee with provisions
consistent with the Letter of Credit.
[Name of Beneficiary]
By
--------------------------
Name:
Title:
<PAGE> 80
EXHIBIT B
FORM OF BENEFICIARY UNDERTAKING
, 1998
------------
Morgan Guaranty Trust Company
of New York, as Administrative Agent
60 Wall Street
New York, NY 10260
Ladies and Gentlemen:
We refer to the Reimbursement Agreement dated as of the date
hereof (the "Reimbursement Agreement") among K N Energy, Inc., the banks listed
on the signature pages thereof and Morgan Guaranty Trust Company of New York, as
Administrative Agent, pursuant to which we understand that the Irrevocable
Standby Letter of Credit Nos._______________ (the "Letter of Credit") has been
issued to us as Beneficiary.
We understand that the parties to the Reimbursement Agreement
intend to syndicate more broadly the participations of the banks thereunder, and
upon completion of such broader syndication, to tender to us a substitute
Irrevocable Standby Letter of Credit in form and substance identical to the
Letter of Credit issued today, but reflecting the identities and relative
participations (which shall aggregate 100%) of the banks at the conclusion of
such syndication.
We hereby agree that, upon tender to us of such a substitute
Irrevocable Standby Letter of Credit, we will surrender for cancellation the
Irrevocable Standby Letter of Credit previously issued to us; provided that the
banks signatories to such substitute Irrevocable Standby Letter of Credit are
all either included in the list attached as Annex A hereto or otherwise
reasonably satisfactory to us.
Very truly yours,
OCCIDENTAL PETROLEUM
CORPORATION
By
-----------------------------
Title:
<PAGE> 81
ANNEX A TO EXHIBIT B
ABN AMRO BANK N.V.
Arab Banking Corporation
Banca Commerciale Italiana
Banca di Roma
Bank of America National Trust & Savings Association
Bank of Montreal
Bank of Nova Scotia
Bank of Tokyo-Mitsubishi, Ltd.
Banque Francais Du Commerce Exterieur
Banque Nationale de Paris
Banque Paribas
Barclays Bank PLC
Bayerische Vereinsbank
Caisse Nationale de Credit Agricole
Cariplo-Cassa di Risparmio delle Provincie
Chase Manhattan Bank
Christiana Bank
CIBC Inc.
Citibank
Colorado National
Commerzbank AG
Credit Lyonnais
Credit Suisse
Den Norske Bank ASA
Deutsche Morgan Grenfell Inc.
DG Bank
Dresdner Bank AG
First Chicago NBD Corporation
First Union National Bank
Fleet Bank
Fleet National Bank
Key Bank National Association
Kredietbank N.V.
Lloyds Bank PLC
Mellon Bank, N.A.
Natexis Banque
NationsBank, N.A.
Norwest Bank Minnesota
PNC Bank, N.A.
Royal Bank of Canada
Sanwa Bank Ltd.
Societe Generale
SunTrust Bank, Atlanta
SunTrust Banks, Central Florida NA
The Bank of New York
The Bank of Nova Scotia
The Fuji Bank, Limited
The Industrial Bank of Japan, Ltd.
The Long-Term Credit Bank of Japan, Ltd.
The Northern Trust Company
The Sumitomo Bank, Limited
The Toronto Dominion Bank
U.S. Bank
Union Bank of California
Union Bank of Switzerland, Houston Agency
Wachovia Bank of Georgia, N.A.
Wells Fargo
Westdeutsche Landesbank
<PAGE> 82
EXHIBIT C
OPINION OF
SPECIAL COUNSEL FOR THE BORROWER
To the Banks and the Administrative Agent
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Administrative Agent
60 Wall Street
New York, New York 10260
Dear Sirs:
We have acted as special counsel for K N Energy, Inc. (the "Borrower")
in connection with the Reimbursement Agreement (the "Reimbursement Agreement")
dated as of January 30, 1998 among the Borrower, the banks listed on the
signature pages thereof and Morgan Guaranty Trust Company of New York, as
Administrative Agent. Terms defined in the Reimbursement Agreement are used
herein as therein defined. This opinion is being rendered to you at the request
of our client pursuant to Section 3.01(c) of the Reimbursement Agreement.
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments and have conducted such
other investigations of fact and law as we have deemed necessary or advisable
for purposes of this opinion.
Upon the basis of the foregoing, we are of the opinion that:
1. The execution, delivery and performance by the Borrower of the
Reimbursement Agreement and the Letter of Credit require no action by or in
respect of, or filing with, any governmental body, agency or official of the
State of Texas or the United States of America (other than filings of the
Reimbursement Agreement and the Letter of Credit with the Securities and
Exchange Commission pursuant to the reporting requirements of the Securities and
Exchange Act of 1934) and do not contravene, or constitute a default under, any
provision of applicable law or regulation of the State of Texas or the United
States of America, or of the articles of incorporation or by-laws of the
Borrower.
<PAGE> 83
2. The Reimbursement Agreement constitutes a valid and binding
agreement of the Borrower and each Note constitutes a valid and binding
obligation of the Borrower, in each case enforceable against the Borrower in
accordance with its terms, except as the same may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights generally and by general
principles of equity.
We are members of the Bar of the State of Texas and the foregoing
opinion is limited to the laws of the State of Texas, the State of New York and
the federal laws of the United States of America. In giving the foregoing
opinion, we express no opinion as to the effect (if any) of any law of any
jurisdiction in which any Bank is located which limits the rate of interest that
such Bank may charge or collect. Insofar as the foregoing opinion involves
matters governed by the laws of the State of Kansas (which matters do not in our
view include the non-contravention opinion in paragraph 1), we have relied,
without independent investigation, upon the opinion of Polsinelli, White,
Vardeman & Shalton, delivered to you pursuant to Section 3.01(c) of the
Reimbursement Agreement.
This opinion is rendered solely to you and any Assignee or Participant
in connection with the above matter. This opinion may not be relied upon by you
or any Assignee or Participant for any other purpose or relied upon by any other
person without our prior written consent.
Very truly yours,
<PAGE> 84
EXHIBIT D
OPINION OF
KANSAS COUNSEL FOR THE BORROWER
To the Banks and the Administrative Agent
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Administrative Agent
60 Wall Street
New York, New York 10260
Dear Sirs:
We have acted as counsel in the State of Kansas for K N Energy, Inc.
(the "Borrower") in connection with the Reimbursement Agreement (the
"Reimbursement Agreement") dated as of January 30, 1998 among the Borrower, the
banks listed on the signature pages thereof and Morgan Guaranty Trust Company of
New York, as Administrative Agent. Terms defined in the Reimbursement Agreement
are used herein as therein defined. This opinion is being rendered to you at the
request of our client pursuant to Section 3.01(c) of the Reimbursement
Agreement.
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments and have conducted such
other investigations of fact and law as we have deemed necessary or advisable
for purposes of this opinion.
Upon the basis of the foregoing, we are of the opinion that:
1. The Borrower is a corporation duly incorporated, validly existing
and in good standing under the laws of Kansas, and has all corporate powers
required to carry on its business as now conducted.
2. The execution, delivery and performance by the Borrower of the
Reimbursement Agreement and the Letter of Credit are within the Borrower's
<PAGE> 85
corporate powers, have been duly authorized by all necessary corporate action,
require no action by or in respect of, or filing with, any governmental body,
agency or official of the State of Kansas and do not contravene, or constitute a
default under, any provision of applicable law or regulation of the State of
Kansas.
We are members of the Bar of the State of Kansas and the foregoing
opinion is limited to the laws of the State of Kansas.
This opinion is rendered solely to you and any Assignee or Participant
in connection with the above matter. This opinion may not be relied upon by you
or any Assignee or Participant for any other purpose or relied upon by any other
person without our prior written consent.
Very truly yours,
<PAGE> 86
EXHIBIT E
OPINION OF
GENERAL COUNSEL OF THE BORROWER
To the Banks and the Administrative Agent
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Administrative Agent
60 Wall Street
New York, New York 10260
Dear Sirs:
I am General Counsel of K N Energy, Inc. (the "Borrower"), and I have
represented the Borrower in connection with the Reimbursement Agreement (the
"Reimbursement Agreement") dated as of January 30, 1998 among the Borrower, the
banks listed on the signature pages thereof and Morgan Guaranty Trust Company of
New York, as Administrative Agent. Terms defined in the Reimbursement Agreement
are used herein as therein defined. This opinion is being rendered to you at the
request of my client pursuant to Section 3.01(c) of the Reimbursement Agreement.
I have examined originals or copies, certified or otherwise identified
to my satisfaction, of such documents, corporate records, certificates of public
officials and other instruments and have conducted such other investigations of
fact and law as I have deemed necessary or advisable for purposes of this
opinion.
Upon the basis of the foregoing, I am of the opinion that:
1. The Borrower has all material governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted.
2. The execution, delivery and performance by the Borrower of the
Reimbursement Agreement and the Letter of Credit require no action by or in
<PAGE> 87
respect of, or filing with, any governmental body, agency or official of the
State of Colorado or, to the best of my knowledge, any other jurisdiction (other
than filings of the Reimbursement Agreement and the Letter of Credit with the
Securities and Exchange Commission pursuant to the reporting requirements of the
Securities Exchange Act of 1934) and do not contravene, or constitute a default
under, any provision of applicable law or regulation of the State of Colorado
or, to the best of my knowledge, any other jurisdiction or of any agreement,
judgment, injunction, order, decree or other instrument binding upon the
Borrower or any of its Subsidiaries or result in the creation or imposition of
any, Lien on any asset of the Borrower or any of its Subsidiaries.
3. There is no action, suit or proceeding pending against, or to the
best of my knowledge threatened against or affecting, the Borrower or any of its
Subsidiaries before any court or arbitrator or any governmental body, agency or
official, in which there is a reasonable possibility of an adverse decision
which could materially adversely affect the business, consolidated financial
position or consolidated results of operations of the Borrower and its
Consolidated Subsidiaries, considered as a whole, or which in any manner draws
into question the validity of the Reimbursement Agreement or the Letter of
Credit.
4. Each of the Borrower's corporate Material Subsidiaries is a
corporation validly existing and in good standing under the laws of its
jurisdiction of incorporation, and has all corporate powers and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted.
I am a member of the Bar of the State of Colorado and the foregoing
opinion is limited to the laws of the State of Colorado and the General
Corporation Law of the State of Delaware. Insofar as paragraph 2 above addresses
the laws of other jurisdictions, I have relied upon my familiarity with advice
given by counsel admitted to practice in those jurisdictions, in connection with
this and other transactions.
This opinion is rendered solely to you and any Assignee or Participant
in connection with the above matter. This opinion may not be relied upon by you
or any Assignee or Participant for any other purpose or relied upon by any other
person without our prior written consent.
Very truly yours,
<PAGE> 88
EXHIBIT F
OPINION OF
DAVIS POLK & WARDWELL, SPECIAL COUNSEL
FOR THE AGENTS
To the Banks and the Administrative Agent
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Administrative Agent
60 Wall Street
New York, New York 10260
Dear Sirs:
We have participated in the preparation of the Reimbursement Agreement
(the "Reimbursement Agreement") dated as of January 30, 1998 among K N Energy,
Inc., a Kansas corporation (the "Borrower"), the banks listed on the signature
pages thereof (the "Banks") and Morgan Guaranty Trust Company of New York, as
Administrative Agent (the "Administrative Agent"), and have acted as special
counsel for the Agents for the purpose of rendering this opinion pursuant to
Section 3.01(c) of the Reimbursement Agreement. Terms defined in the
Reimbursement Agreement are used herein as therein defined.
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments and have conducted such
other investigations of fact and law as we have deemed necessary or advisable
for purposes of this opinion.
Upon the basis of the foregoing, we are of the opinion that the
Reimbursement Agreement constitutes a valid and binding agreement of the
Borrower and each Note constitutes a valid and binding obligation of the
Borrower, in each case enforceable in accordance with its terms, except as the
same may be limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally and by general principles of equity.
We are members of the Bar of the State of New York and the foregoing
opinion is limited to the laws of the State of New York and the federal laws of
the United States of America. In giving the foregoing opinion, we express no
opinion as to the effect (if any) of any law of any jurisdiction (except the
State of New York) in which any Bank is located which limits the rate of
interest that such Bank may charge or collect. Insofar as the foregoing opinion
involves matters governed by the laws of Kansas, we have relied, without
independent investigation, upon the opinion of Polsinelli, White, Vardeman &
Shalton, delivered to you pursuant to Section 3.1(c) of the Reimbursement
Agreement.
This opinion is rendered solely to you in connection with the above
matter. This opinion may not be relied upon by you for any other purpose or
relied upon by any other person without our prior written consent.
Very truly yours,
<PAGE> 1
INTRASTATE
PIPELINE SYSTEM LEASE
THIS INTRASTATE PIPELINE SYSTEM LEASE (this "Lease"), is entered into of as
9:05 a.m. Eastern Standard Time on December 31, 1996 (the "Effective Time"), by
MidCon Texas Pipeline, L.P., a Delaware limited partnership ("Lessor"), and
MidCon Texas Pipeline Operator, Inc., a Delaware corporation ("Lessee").
SECTION 1. LEASE AND LEASED PROPERTY.
(a) Lessor, in consideration of the rents and agreements herein to be
performed by Lessee, leases and rents to Lessee, and Lessee hereby leases and
rents from Lessor, the easements, rights-of-way, surface leases, fee property,
permits, pipelines, compressors, equipment, fixtures, improvements and other
property (real and personal) used or useful in connection with Lessor's
intrastate pipeline and gas gathering system located in the State of Texas (the
"Pipeline System"), including without limitation the property described in
Exhibit A hereto and located in the State of Texas, together with all rights
and appurtenances thereto (collectively, the "Leased Property"), subject to the
terms and provisions of this Lease.
(b) There may exist certain prohibitions against the lease of certain of
the Leased Property without the prior written consent of third parties (other
than consents of administerial nature which are normally granted in the
ordinary course of business), which, if not satisfied, may result in a breach
thereof by Lessor. Notwithstanding anything in this Lease to the contrary, this
Lease shall be deemed ineffective with respect to any property interests
described in Exhibit A hereto burdened by such a restriction if such
restriction is unsatisfied (such property being hereafter referred to as the
"Unleased Property"). Lessor shall exercise reasonable efforts to cure any
prior consent requirements with respect to such Unleased Property and,
effective upon the satisfaction of such requirements, such Unleased Property
shall be deemed a part of the Leased Property without any further action on the
part of Lessor. With respect to any Unleased Property during and after the
exercise by Lessor of its reasonable efforts to cure any prior consent
requirements, Lessee shall operate the Unleased Property on Lessor's behalf in
connection with Lessee's use, operation and maintenance of the Leased Property
and, Lessee, in consideration of the use and benefit of the Leased Property,
shall pay all costs, expenses and liabilities attributable to the Unleased
Property and shall perform all covenants (including, without limitation, any
covenants of indemnity) set forth in this Lease with respect to such Unleased
Property as if such Unleased Property constituted part of the Leased Property
hereunder.
SECTION 2. TERM. Unless sooner terminated as herein provided, this Lease
shall be for a term of thirty (30) years, commencing as of the Effective Time,
and expiring thirty (30) years thereafter on December 31, 2026 (the "Term").
Unless this Lease is sooner terminated as provided herein, Lessor and Lessee
agree to commence negotiations for a new lease of the Leased Property at least
three months prior to the expiration of the Term, with the rent under any such
new lease to be not less than the then fair market rental of the Leased Property
and containing such other terms and conditions as are mutually acceptable to the
parties in their discretion (it being understood by the
<PAGE> 2
parties that no party hereunder shall be obligated to enter into a new lease
upon terms and conditions which are not satisfactory to such party in its sole
discretion).
SECTION 3. PURPOSE. Lessee shall use the Leased Property only for the
gathering, compression, treatment, receipt, delivery, processing, transportation
and exchange of natural gas and its constituents, liquefiable hydrocarbons and
liquid hydrocarbons; provided in each case that the material transported (i)
shall be in compliance with all laws, rules and regulations and prudent industry
practice applicable to the Pipeline System and in compliance with the terms of
the instruments (including without limitation, easements, rights-of-way and
permits) to which the Leased Property is subject and (ii) will not subject
Lessor to any further regulation or consent. Except to the extent currently
subject thereto as of the date hereof and notwithstanding anything herein to the
contrary, Lessee shall do nothing to subject the Leased Property to regulation
by the Federal Energy Regulatory Commission to any extent greater than the
Leased Property is currently regulated without the prior written consent of
Lessor (which consent can be withheld in its sole discretion). Lessee shall not
use, occupy, or permit to be used or occupied, the Leased Property for any
purpose that is illegal, that would make void or voidable any insurance relating
to the Leased Property, or that would constitute a public or private nuisance.
SECTION 4. RENT.
(a) Lessee shall pay Lessor, without notice, demand, abatement, deduction or
offset, rent as follows:
(i) $2,500,000.00 per month for each month during the year 1997;
(ii) $1,666,667.00 per month for each month during the years 1998,
1999, 2000 and 2001;
(iii) $3,333,333.00 per month for each month during the years 2002,
2003, 2004 and 2005; and
(iv) $2,500,000.00 per month for each month during the remaining
Term of this Lease.
Such rent shall be payable on the first business day of each month, in advance,
commencing on January 1, 1997, and continuing throughout the remaining Term of
this Lease.
(b) All other payments to be paid by Lessee to third parties as provided for
under this Lease shall constitute rent payable hereunder and, in the event of
nonpayment by Lessee of any such other payments when due according to the terms
of this Lease, Lessor shall have the same rights and remedies in respect thereto
as Lessor may have in respect to any default of rent payable by Lessee under
this Lease.
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<PAGE> 3
(c) NO HAPPENING, EVENT, OCCURRENCE, OR SITUATION DURING THE TERM OF THE
LEASE, WHETHER FORESEEN OR UNFORESEEN, SHALL RELIEVE LESSEE FROM ITS OBLIGATIONS
HEREUNDER TO PAY ANY RENT, OR ENTITLE LESSEE TO AN ABATEMENT OF ANY RENT, AND
LESSEE WAIVES ANY RIGHTS NOW OR HEREAFTER CONFERRED UPON IT BY STATUTE,
PROCLAMATION, DECREE, ORDER, OR OTHERWISE, TO ANY ABATEMENT, DIMINUTION,
REDUCTION, OFFSET, OR SUSPENSION OF ANY RENT BECAUSE OF ANY HAPPENING, EVENT,
OCCURRENCE, OR SITUATION WHATSOEVER.
SECTION 5. NET LEASE. This Lease is, and shall be deemed and construed to
be, a net lease. Lessee shall pay to Lessor, net throughout the term of this
Lease, the rent and other payments, if any, hereunder, without abatement,
deduction, or offset, and free of any Taxes (as defined below) that Lessee is
obligated to pay pursuant to the provisions of Section 6 hereof and of all
costs, expenses, and obligations with respect to the Leased Property. Under no
circumstances or conditions, whether now existing or hereafter arising, shall
Lessor be expected or required to make any payment of any kind whatsoever or be
under any other obligation or liability hereunder or with respect to the Leased
Property.
SECTION 6. TAXES AND ASSESSMENTS.
(a) Lessee shall pay, or cause to be paid, all ad valorem taxes, personal
property taxes and all other taxes (other than income or franchise taxes of
Lessor based on net income) and assessments, use and occupancy taxes, transit
taxes, water and sewer charges, excises, levies, license and permit fees and all
other similar charges, if any, that are levied, assessed or imposed upon or
become due and payable after the date of this Lease in connection with, or a
lien upon, the Leased Property, and any fixtures or facilities placed thereon by
Lessee, or any equipment used in connection with the Leased Property and all
rentals or receipts therefrom, and all taxes of any nature that are imposed in
substitution for or in lieu of the foregoing (collectively, the "Taxes").
(b) Lessee shall pay, or cause to be paid, all Taxes directly to the taxing
authority, and upon request by Lessor, Lessee shall provide to Lessor evidence
of such payment in a form satisfactory to Lessor. Such payment and, to the
extent requested by Lessor, delivery of evidence thereof shall be completed
prior to the date on which any such Taxes would become delinquent, subject to
Section 6(d) below.
(c) The certificate, advice, bill or statement issued or given by the
appropriate officials authorized or designated by law to issue or give the same
or to receive payment of the existence, payment, nonpayment or amount of such
Taxes shall be prima facie evidence of the existence, payment, nonpayment or
amount of such Taxes.
(d) Lessee may contest the validity or amount of any Taxes, provided that
Lessee shall diligently and reasonably contest the validity or amount of such
Taxes by means of appropriate procedures, and in the event of such contest,
Lessee may defer the payment thereof during the
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<PAGE> 4
pendency of such contest. Lessee shall give prompt written notice to Lessor of
any contest by Lessee of the validity or amount of Taxes and such notice shall
contain a detailed description of such contest.
(e) Lessee, at its sole cost and expense, may endeavor at any time or times
to obtain a lowering of the assessed valuation upon any of the Leased Property
for the purpose of reducing Taxes thereon. In such event, Lessor will offer no
objection, and, at the request of Lessee, will cooperate with Lessee, but
without expense to Lessor, in effecting such a reduction. Lessee shall be
authorized to collect any tax refund payable as a result of any proceedings
Lessee may institute for that purpose, and any such tax refund shall be the
property of Lessee to the extent to which it may be based on a payment by
Lessee, subject however to apportionment between Lessor and Lessee with respect
to Taxes paid or contributed by Lessor in the year in which this Lease begins
and ends, after offsetting from such refunds the costs and expenses, including
reasonable attorney fees incurred in connection with obtaining such refund.
(f) Lessor shall not be required to join in any action or proceeding
referred to in Section 6(d) or Section 6(e) hereof unless required by law, or by
any rule or regulation, in order to make such action or proceeding effective, in
which event any such action or proceeding may be taken by Lessee in the name of,
but without expense to, Lessor. Lessee shall defend, indemnify and save Lessor,
its partners, directors, officers, shareholders, employees, agents, successors
and assigns (collectively, the "Lessor Indemnified Parties") harmless from all
liabilities, costs, expenses, claims, losses or damages by reason of, resulting
from, or relating to any such action or proceeding.
(g) During the Term of this Lease, Lessee alone may claim depreciation or
cost recovery of the Alterations (as hereinafter defined), the Additional
Property (as hereinafter defined), the repairs, replacements and maintenance of
the Leased Property and all equipment, fixtures and machinery therein contained
or contained on, below or above the Leased Property for all taxation purposes to
the extent that it may legally be entitled to make such claim.
SECTION 7. MAINTENANCE, REPAIRS AND UTILITIES.
(a) Lessor shall not be required to furnish any services or facilities of
any nature whatsoever or to make any repairs or alterations in and to the Leased
Property. Lessee hereby assumes the full and sole responsibility for the
condition, construction, operation, repair, replacement, maintenance and
management of the Leased Property. LESSEE HEREBY WAIVES ANY AND ALL RIGHTS,
WHETHER CONFERRED BY STATUTE OR OTHERWISE, TO MAKE ANY REPAIRS, REPLACEMENTS,
ALTERATIONS OR IMPROVEMENTS AT THE EXPENSE OF LESSOR, OR TO OBTAIN DAMAGES OR
REDUCTIONS OR ABATEMENTS OF ANY RENT OR OTHER SUMS PAYABLE HEREUNDER.
(b) Subject to the provisions of Section 7(e) hereof, Lessee, at its sole
cost and expense, shall maintain the Leased Property in good condition and order
capable for use in the business for which it was used immediately prior to this
Lease, and Lessee shall make all repairs to the Leased Property, structural and
nonstructural and foreseen and unforeseen. Lessee shall not do, permit or
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<PAGE> 5
suffer any waste, damages, disfigurement, or injury to or upon the Leased
Property or any part thereof.
(c) During the Term of this Lease, Lessee, at its sole cost and expense,
shall obtain and maintain, in all material respects, all governmental and
private authorizations, consents and permits for it to lease, operate, and
maintain the Leased Property. During the Term of this Lease, Lessee shall pay
and perform each and every obligation of Lessor under any easement, right of
way, surface lease, permit, contract or other instrument leased to Lessee
hereunder or creating or encumbering any interest leased to Lessee hereunder.
(d) Lessee shall be responsible for, and shall pay all charges and fees in
connection with, all utility services necessary for Lessee's use of the Leased
Property, including but not limited to all gas, electricity, power, water,
telephone and other communication services, and any and all other utilities or
similar services used in connection with Lessee's use and possession of the
Leased Property.
(e) Notwithstanding any provision in this Lease to the contrary, Lessee
shall be permitted to abandon any part of the Leased Property or dispose of any
portion of the Leased Property that, in each case (i) has a fair market value of
less than $100,000 with respect to such abandoned or disposed Leased Property
and is not necessary to operate and maintain the Pipeline System, or (ii)
connects to a well that is no longer capable of producing in paying quantities.
Lessee shall be entitled to retain the proceeds, if any, received with respect
to property abandoned or otherwise disposed of pursuant to the authorization
provided in the preceding sentence. Lessee shall also be permitted to abandon
any portion of the Leased Property upon obtaining the prior written consent of
Lessor (which consent shall not be unreasonably withheld). Lessee shall be
responsible for, and pay all costs and expenses of abandoning or otherwise
disposing of any portion of the Leased Premises in accordance with this Section.
(f) Except as provided in Section 7(e) hereof, Lessee shall have no right to
remove, or permit to be removed, any of the fixtures, improvements or
Alterations from the Leased Property or any Additional Property except to the
extent such fixtures, improvements or Alterations are replaced by Lessee with
improvements or Alterations of like or better quality.
SECTION 8. CONDITION OF THE LEASED PROPERTY AND COMPLIANCE WITH LAWS.
(a) Lessee has inspected the Leased Property and has investigated its uses
and non-uses and the title thereto, and LESSEE ACCEPTS THE SAME "AS IS, WHERE
IS" WITH ALL FAULTS AND WITHOUT ANY REPRESENTATION OR WARRANTY, EXPRESS, IMPLIED
OR STATUTORY, BY LESSOR AS TO THE TITLE TO THE LEASED PROPERTY, THE NATURE,
CONDITION (INCLUDING, WITHOUT LIMITATION, THE ENVIRON-MENTAL CONDITION) OR
USABILITY THEREOF, AND LESSEE HEREBY RELEASES AND WAIVES ANY AND ALL CLAIMS,
DEMANDS, LOSSES, LIABILITIES, DAMAGES, COSTS OR EXPENSES OF ANY KIND OR NATURE
(INCLUDING ATTORNEYS' FEES AND COURT COSTS), INCLUDING DAMAGES FOR PERSONAL
-5-
<PAGE> 6
INJURY OR DEATH OR PROPERTY LOSS (COLLECTIVELY "LOSSES"), ARISING OUT OF OR
RELATED TO THE FOREGOING, EVEN IF SUCH LOSSES ARISE OUT OF OR ARE RELATED TO (OR
ALLEGEDLY ARISE OUT OF OR ARE RELATED TO) THE SOLE, JOINT OR CONCURRENT
NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OF ANY LESSOR INDEMNIFIED PARTY.
(b) At its own cost and expense, Lessee shall comply in all material
respects with all present and future laws, acts, rules, requirements, orders,
directions, ordinances and/or regulations of any federal, state, municipal or
other public department, bureau, office, court or other authority ("Governmental
Authorities") pertaining to the use, operation, possession, maintenance,
condition and abandonment of the Leased Property or any part thereof, whether or
not such laws, acts, rules, requirements, orders, directions, ordinances and/or
regulations require the making of structural alterations or the use or
application of portions of the Leased Property for compliance therewith or
interfere with the use and enjoyment of the Leased Property and Lessee,
notwithstanding any other provision to the contrary herein, shall perform such
acts as are reasonably necessary to so comply, and shall defend (with counsel
reasonably approved by Lessor), indemnify, and hold the Lessor Indemnified
Parties harmless from all Losses, fines, penalties, and claims for damages of
every kind and nature arising out of any failure to comply with any such laws,
acts, rules, requirements, orders, directions, ordinances and/or regulations;
the intention of the parties being with respect thereto that, during the Term of
this Lease, Lessee shall discharge and perform all the obligations of Lessor, as
well as all the obligations of Lessee, arising as aforesaid, and save the Lessor
Indemnified Parties harmless therefrom, so that at all times the rental of the
Leased Property shall be net to Lessor without deductions or expenses on account
of any such laws, acts, rules, requirements, orders, directions, ordinances
and/or regulations. The indemnity in this Section 8(b) shall survive the
termination or expiration of this Lease.
SECTION 9. INSURANCE.
(a) Property and Public Liability. Lessee will, upon delivery of the Leased
Property to Lessor and at all times during the term of the Lease, at its own
expense, carry and maintain or cause to be carried and maintained (i) property
insurance with respect to the Leased Property, and (ii) public liability
insurance (including contractual liability and nongradual pollution liability
coverage), and auto liability insurance, with respect to bodily injury and
property damage, in each case with such deductibles, in such amounts (but not
less than $50,000,000 million for property insurance and $100,000,000 million
for public liability insurance), against such risks and with such insurance
companies reasonably satisfactory to Lessor, as is carried by corporations
similar to Lessee, provided that Lessee may, with Lessor's written consent
(which consent shall not be unreasonably withheld), self-insure in a manner and
to the extent such self-insurance is consistent with the self-insurance
practices of such other corporations.
(b) Liability Policy Provisions. The policy or policies of public liability
insurance carried in accordance with subsection (a) hereof shall to the extent
such provisions are available at commercially reasonable rates (i) require at
least 30 days prior written notice to Lessor of cancellation, lapse, expiration
or adverse change to reduce the coverage thereof, (ii) (A) cover the
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<PAGE> 7
Lessor Indemnified Parties as additional insureds or (B) provide that in the
event that any additional insured is named in a certificate of insurance issued
in connection with such policy, the policy will be deemed to have been endorsed
accordingly, (iii) provide that such insurance is primary with respect to any
other insurance carried by or available to Lessor, (iv) provide that the insurer
shall waive any right of subrogation and any setoff, counterclaim, or other
deduction, whether by attachment or otherwise, against Lessor, and (v) contain a
cross-liability clause providing for coverage of Lessee and Lessor as if
separate policies had been issued to each of them.
(c) Property Policy Provisions. The policy or policies of property insurance
carried in accordance with subsection (a) hereof shall to the extent such
provisions are available at commercially reasonable rates (i) require at least
30 days' written notice to Lessor of cancellation, lapse, expiration or adverse
change to reduce the coverage thereof, (ii) (A) cover the Lessor Indemnified
Parties as additional insureds or (B) provide that in the extent that any
additional insured is named in a certificate of insurance issued in connection
with such policy, the policy will be deemed to have been endorsed accordingly,
(iii) provide that, in respect of the interest of Lessor in such policies, the
insurance shall not be invalidated by any action or inaction by Lessee or its
affiliates (other than a failure of Lessee to pay premiums or other sums owing
to the insurer), (iv) insure Lessor regardless of any breach or violation of any
warranty, declaration or condition contained in such policies (or in the
application therefor or in any other document submitted to the insurer in
connection therewith), (v) provide that such insurance is primary with respect
to any other insurance carried by or available to Lessor, and (vi) provide that
the insurer shall waive any right of subrogation and any setoff, counterclaim,
or other deduction, whether by attachment or otherwise, against Lessor.
(d) Employer's Liability. Lessee shall, at its own expense, insure or
self-insure statutory worker's compensation and employer's liability, with
limits and deductibles in such amounts as is carried by corporations similar to
Lessee, covering all persons employed by Lessee in connection with or relating
to the Leased Property. Any policy covering this insurance shall be endorsed to
provide for all states coverage, voluntary compensation and occupational
disease.
(e) Certificates. On or prior to the date Lessee takes delivery of the
Leased Property, and thereafter on or prior to the 30th day preceding the
expiration of any policy maintained pursuant to this Section 9, Lessee shall
deliver to Lessor certificates of insurance issued by the insurers under the
policies required pursuant to this Section 9 or, if unavailable, other evidence
of the insurance maintained pursuant to this Section 9 reasonably satisfactory
to Lessor.
(f) Performance by the Lessor. In the event that Lessee shall fail to
maintain insurance as herein provided, Lessor may at its option, but without
obligation, provide such insurance and, in such event, Lessee shall, upon demand
from time to time, reimburse Lessor for the cost thereof, together with such
interest on such cost at the LIBOR Rate (as hereinafter defined) plus 3.25% per
annum computed from the date of payment of such cost to the date of
reimbursement. Lessor shall give Lessee prompt written notice of any such
insurance. The term "LIBOR Rate" shall mean, for any period, the one month
London Interbank Offered Rate as reported in The Wall Street Journal for the
last business day of the prior month on which day the London interbank market
was open for dealings.
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(g) Separate Insurance. Nothing in this Section 9 shall be construed to
prohibit Lessor from insuring at its own expense any portion of Leased Property
or its interest therein, and any insurance so maintained shall not provide for
or result in a reduction of the coverage or the amounts payable under any of the
insurance required to be maintained by Lessee under this Section 9.
SECTION 10. LIABILITY, INDEMNITY, AND WAIVER OF SUBROGATION.
(a) Indemnity. Lessee shall indemnify, defend and hold the Lessor
Indemnified Parties harmless from all Losses resulting or arising from, or
relating to, (i) the use or possession of the Leased Property, Alterations or
Additional Property by Lessee, (ii) any act, omission, or neglect of Lessee or
Lessee's partners, directors, officers, shareholders, employees, agents,
invitees or guests, or any parties contracting with Lessee or (iii) any breach
of this Lease by Lessee: IT BEING UNDERSTOOD AND AGREED THAT THIS CONTRACTUAL
OBLIGATION OF INDEMNIFICATION SHALL EXTEND TO AND APPLY TO ALL LOSSES BASED UPON
OR ALLEGEDLY BASED UPON THE SOLE, JOINT OR CONCURRENT NEGLIGENCE OR OTHER FAULT
OF ANY LESSOR INDEMNIFIED PARTY (INCLUDING LIABILITY BASED ON THEORIES OF STRICT
LIABILITY) OR FROM THE PRESENCE OF HAZARDOUS MATERIALS UPON THE LEASED PROPERTY.
Lessor shall not be liable to Lessee or to Lessee's partners, directors,
officers, shareholders, employees, agents, invitees, guests or contractors, and
Lessee hereby releases and waives all claims against the Lessor Indemnified
Parties for any Losses resulting from or relating to the use and possession of
the Leased Property and any Alterations and/or Additional Property, including
Losses for: (i) bodily injury, death, or property damage; (ii) business
interruption, loss of profits or other direct or consequential damages
occasioned by any cause, including the design, construction or condition of the
Leased Property and/or the Alterations and the Additional Property; (iii) the
wrongful acts or omissions of any other person; (iv) force majeure events; and
(v) any damage, loss or injury caused by a defect in the Leased Property, the
Alterations and/or the Additional Property, or caused by electricity, gas, oil,
fire or any cause whatsoever in, on, or about the Leased Property, the
Alterations or the Additional Property, or any part thereof, WHETHER OR NOT ANY
OF THE EVENTS LISTED IN THIS PROVISION ARE CAUSED BY THE SOLE, JOINT OR
CONCURRENT NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OF ANY LESSOR INDEMNIFIED
PARTY OR THE PRESENCE OF HAZARDOUS MATERIALS UPON THE LEASED PROPERTY. The
provisions of this Section 10 shall survive the termination of this Lease for
any reason.
(b) Subrogation. Anything in this Lease to the contrary notwithstanding,
Lessee hereby waives any and all rights of recovery, claims, actions, or causes
of action against any of the Lessor Indemnified Parties for any Losses that may
occur to the Leased Property, Alterations or Additional Property, or to persons,
or any part thereof, or any personal property of Lessee therein, by reason of
fire, the elements, or any other cause which Lessee is required to insure
against under the terms of the policies of insurance that Lessee is required to
provide hereunder, REGARDLESS OF CAUSE OR ORIGIN, INCLUDING THE SOLE, JOINT OR
CONCURRENT NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OF ANY LESSOR INDEMNIFIED
PARTY, and Lessee covenants that no insurer shall hold any right of subrogation
against any Lessor Indemnified Party under any policies required hereunder.
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(c) Stock Purchase Agreement. Notwithstanding anything herein to the
contrary, the terms and provisions of this Lease shall not operate to modify or
affect the representations and warranties made by Occidental Petroleum
Corporation ("OPC"), or the remedies for a breach of said representations and
warranties, set forth in that certain Stock Purchase Agreement dated November
20, 1996, between OPC and MidCon Corp. ESOP Trust.
SECTION 11. FIRE AND OTHER CASUALTY DAMAGE. If any of the Leased Property or
if Alterations currently existing or installed by Lessee upon the Leased
Property are partially or totally destroyed or damaged by fire or other
casualty, then unless otherwise agreed by Lessor in writing, Lessee shall (and
Lessee shall use all insurance proceeds to) repair and restore such Leased
Property and such Alterations, as soon as reasonably practicable, to
substantially the same condition as existed immediately prior to such
destruction or damage. Lessor and Lessee agree that there shall be no reduction
or abatement in rent or other amounts payable by Lessee hereunder on account of
any destruction of the Leased Property due to casualties. If Lessor agrees in
writing, Lessee need not repair and restore such Leased Property and/or
Alterations. In such case, all insurance proceeds attributable to such Leased
Property and/or Alterations shall be paid to Lessor.
SECTION 12. EMINENT DOMAIN. If all or any part of the Leased Property shall
be taken by condemnation (which term, as used in this Section 12, shall include
any conveyance of avoidance or settlement of eminent domain, condemnation or
other similar proceedings), then unless otherwise agreed by Lessor in writing,
Lessee shall (and Lessee shall use all proceeds from such condemnation to)
relocate and rebuild any portion of the Leased Property so taken in order to
operate and maintain the Pipeline System as was previously operated and
maintained prior to such taking. Lessor and Lessee agree that there shall be no
reduction or abatement in rent or other amounts payable by Lessee hereunder on
account of any taking of the Leased Property by condemnation. If Lessor agrees
in writing that Lessee need not relocate and rebuild such Leased Property, then
all proceeds payable on account of such condemnation shall be paid to Lessor. If
Lessee is required to relocate and rebuild any portion of the Leased Property
taken by condemnation in accordance with the terms of this Section 12, then
Lessor shall pay to Lessee all proceeds received by Lessor on account of such
condemnation.
SECTION 13. LIENS.
(a) Lessor shall not be liable for any labor or materials furnished or to be
furnished to Lessee upon credit, and no mechanics' or other lien, for any such
labor or materials, shall attach to or affect the interest of Lessor in and to
the Leased Property. Except for the Permitted Liens (as hereinafter defined),
Lessee shall not encumber all or any part of the Leased Property nor shall
Lessee suffer or permit any mechanic's, materialmen's, attachment, execution or
other liens or stop notices to attach to or be filed against the Leased
Property, Lessee's leasehold interest or the rents, issues and profits of the
Leased Property or against Lessor for any work or improvement upon the Leased
Property (collectively, the "Non-Permitted Liens"). Whenever and as often as any
such Non-Permitted Lien shall have been filed against the Leased Property,
whether or not based upon any action or interest of Lessee, Lessee shall
immediately take such action by bonding, or making such deposit or payment as
will remove or satisfy such lien; provided, however, that Lessee shall have the
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right to contest, with due diligence, the validity or amount of any such lien if
Lessee shall provide such a bond or other deposit as may be required by law or
by Lessor or to protect against enforcement of such lien. The term "Permitted
Liens" as used in this Lease shall mean easements, liens and other encumbrances
which do not materially reduce the value of the affected portion of the Leased
Property or which do not secure any debt of Lessee or its affiliates, agents,
representatives or permitted assigns for borrowed money.
(b) Nothing in this Lease shall be deemed or construed in any way as
constituting the consent or request of Lessor, express or implied, by inference
or otherwise, to any contractor, subcontractor, laborer or materialman, for the
performance of any labor or the furnishing of any materials for any improvement,
repair or replacement of any portion of the Leased Property nor as giving Lessee
any right, power or authority to contract for or permit, on Lessor's behalf or
as to Lessor's interest, the rendering of any services or the furnishing of any
materials. Lessor shall have no responsibility to Lessee, its contractors,
subcontractors, suppliers, materialmen, workmen or other persons, firms or
corporations who engage in or participate in any construction upon the Leased
Property unless Lessor shall expressly undertake such obligation by an agreement
in writing signed by Lessor and made between Lessor and Lessee, its contractors,
subcontractors, suppliers, materialmen, workmen, or other persons, firms or
corporations.
SECTION 14. CONSTRUCTION AND/OR ADDITIONS OF ADDITIONAL PROPERTY AND
ALTERATIONS. Lessor acknowledges that Lessee may desire to add Additional
Property or to construct Alterations to the Leased Property.
(a) In connection with the construction by or on behalf of Lessee of
any Alteration, the following shall be applicable:
(i) Lessee shall notify Lessor in writing prior to commencing
construction of any Alteration and, if requested by Lessor, shall
provide Lessor a copy of designs, plans and specifications (the
"Plans") for such Alteration. Lessor may within 14 days of receipt of
written notification or receipt of the Plans requested reasonably
object in writing to such Alteration. If Lessor so objects, Lessee
shall revise the Plans to satisfy Lessor's objections.
(ii) Upon Lessor's request, Lessee shall furnish to Lessor copies
of any contract which Lessee intends to enter into in connection with
the construction of any Alteration. Any such contract shall contain a
covenant by all contractors and subcontractors to indemnify and hold
the Lessor Indemnified Parties harmless from and against all Losses
caused by, arising out of or relating to such contractors' or
subcontractors' work in connection with the Leased Property, EVEN IF
SUCH LOSSES ARE CAUSED BY OR RELATE TO OR ARE ALLEGEDLY CAUSED BY OR
RELATE TO, THE SOLE, JOINT AND CONCURRENT NEGLIGENT ACTS OR OMISSIONS
OR STRICT LIABILITY OF ANY LESSOR INDEMNIFIED PARTY.
(iii) No construction of any Alteration shall be undertaken by
Lessee until Lessee shall have procured and paid for, so far as the
same may be required, all permits and
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authorizations of all Governmental Authorities having jurisdiction.
Lessor shall join in the application for such permits or authorizations
whenever such action is necessary, but without any liability or expense
to Lessor. In no event shall any such permit or authorizations (a)
materially impair or limit in any way the current use of the Leased
Property or use of any adjoining property to the Leased Property and
(b) impair or limit in any way the future use of the Leased Property
or use of any adjoining property to the Leased Property.
(iv) Any Alteration, when completed, and any Additional Property
used with the Leased Property, shall be of such character as not to
reduce the value, rentability or usefulness of the affected portion of
the Leased Property or conflict with the purposes for which Lessee is
permitted to use the Leased Property.
(v) During the progress of the construction of any Alteration,
Lessor may inspect the Leased Property and all work and materials as
rendered and installed during such construction.
(vi) Any Alteration shall be constructed by Lessee in a good and
workmanlike manner and in compliance with all applicable permits and
authorizations and with all other laws, ordinances, orders, rules,
regulations and requirements of all Governmental Authorities.
(vii) The cost of all work in connection with the construction of
any Alteration shall be promptly paid by Lessee, and Lessee shall at
all times keep the Leased Property free and clear of all liens,
including liens for labor and materials supplied or claimed to have
been supplied to the Leased Property. Within not more than three (3)
month following the completion of any Alteration, Lessee shall deliver
to Lessor proof to the reasonable satisfaction of Lessor that the
Leased Property and any such improvement are free from any and all
liens, charges, and claims, whether or not of record, and whether
voluntary or involuntary, for the payment of money, and that every such
lien, charge and claim relating to the construction of any Alteration
has been fully paid or discharged; provided, however, that Lessee shall
have the right to reasonably contest, with due diligence, the validity
or amount of any such lien, charge or claim by means of appropriate
procedures. Lessee shall give prompt written notice to Lessor of any
such contest, and such notice shall contain a detailed description of
such contest.
(viii) Lessee shall not construct any Alteration without prior
written notification to Lessor and consent by Lessee, which consent may
not be unreasonably withheld.
(b) The term "Alteration" as used in this Lease shall mean any structural
alteration in any manner of any fixtures, improvements or building included in
the Leased Property (provided that such term shall not include any repairs to
the Leased Property or any replacements to the Leased Property due to casualty
or condemnation). The term "Additional Property" shall mean any new improvement
or fixture placed upon or under any Leased Property by Lessee or any real
property (including easements, rights-of-way, surface leases, permits and other
real property interests) acquired by the Lessee in connection with the use,
operation, maintenance or extension of the Pipeline System
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(excluding (i) office space or leases and (ii) any new pipeline system,
gathering system or compression, processing or treatment plant constructed or
acquired by or on behalf of Lessee or its affiliates that is not located upon
the Leased Property (except to the extent necessary to connect to an existing
portion of the Pipeline System) if (A) such new pipeline system or facilities
are capable of being operated independently of the Pipeline System, (B) the
Pipeline System is capable of being operated independently of such new pipeline
system or facilities and (c) such new pipeline system or facilities were not
constructed with the purpose of causing a diminution in the economic value of
any portion of the Pipeline System to which it is connected).
(c) Title to all Additional Property and Alterations shall be and remain in
Lessee during the Term of this Lease. Lessee shall not permit, without Lessor's
written consent, title to any Additional Property to be taken or held by any
other person (including, without limitation, Lessee's affiliates) without the
prior written consent of Lessor (which can be withheld in its sole discretion).
Upon expiration or termination of this Lease, title to all Additional Property
and Alterations and, subject to Section 15(c) hereof, title to all personal
property of Lessee then situated on the Leased Property shall automatically vest
in Lessor, free and clear of all claims and encumbrances, and Lessee shall have
no further claim thereto (and Lessee hereby grants, conveys and assigns any and
all such Additional Property, Alterations and personal property to Lessor,
effective as of the expiration or termination of this Lease). Notwithstanding
the foregoing, to the extent that any such Alterations are separate in title
from the Leased Property, they shall continue to have the character of real
property, and in no event shall Lessee's ownership thereof and its leasehold
estate in the Leased Property be separately conveyed.
(d) All Alterations and Additional Property shall be used for the same
purposes as the Leased Property and shall be treated, used and maintained in the
same manner as the Leased Property is required to be treated, used and
maintained under this Lease. Lessee's rights, obligations and responsibilities
hereunder with respect to the Leased Property (including, without limitation,
the indemnification provisions hereof) shall also apply in all respects to any
Alteration and any Additional Property.
SECTION 15. CERTAIN EVENTS UPON TERMINATION.
(a) Contemporaneously with the expiration or earlier termination of this
Lease, Lessee shall immediately deliver to Lessor the following;
(i) Such documents, assignments, instruments and conveyances as
Lessor may request to terminate all of Lessee's right, title and
interest in and to the Leased Property, to transfer title to any
Additional Property or Alterations, and to transfer any agreements
relative to any Leased Property, Additional Property or Alterations.
(ii) An assignment of Lessee's interest as sublessor in all
permitted subleases and all contracts relating to the Leased Property,
including Lessee's agreement that Lessor shall not be obligated for any
prior default of Lessee under such subleases or contracts.
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(iii) All books, records, construction plans, surveys, permits and
other documents in possession of Lessee relating to and necessary or
convenient for the operation of the Leased Property.
(iv) An amount equal to the accrued but unpaid Taxes, and insurance
premiums with respect to the Leased Property, prorated to the date of
termination.
All documents required to be delivered by Lessee to Lessor hereunder shall
be in form reasonably satisfactory to Lessor. It is the intention of the parties
that upon the termination of this Lease, whether by natural expiration or
otherwise, Lessor shall, at its option, succeed to a going enterprise and a
fully operable pipeline system, complete with the real and personal property
with which it was being operated by Lessee.
(b) Upon the expiration or earlier termination of this Lease, Lessee shall
peaceably quit and surrender the Leased Property to Lessor. Lessee shall leave
the Leased Property in good, operable condition and repair, reasonable wear and
tear excepted. Lessee shall deliver the Leased Property to Lessor free of all
liens and encumbrances created or suffered by Lessee (except the lien of real
estate taxes and assessments not then due and any encumbrances expressly
approved by Lessor in advance in writing).
(c) Notwithstanding anything herein to the contrary, upon expiration of the
term of this Lease, Lessor may, at its option and by written agreement, permit
or direct Lessee to remove any of its personal property from the Leased
Property, and Lessee shall remove the same upon such permission or direction.
Any personal property of Lessee which shall remain on the Leased Property after
expiration of the term of this Lease for ten (10) days after request by Lessor
for removal, may, at the option of Lessor, be deemed to have been abandoned and
may be retained by Lessor as its property or be disposed without accountability,
in such manner as Lessor may see fit, and if the cost of any removal exceeds any
proceeds from the sale thereof, such costs shall be paid by Lessee to Lessor.
SECTION 16. ASSIGNMENT AND SUBLEASE.
(a) Without the prior written consent of Lessor, which consent may be
withheld in Lessor's sole discretion, Lessee shall not transfer or assign this
Lease or sublease the Leased Property or, subject to Sections 7(e) and 19(c),
any part thereof (whether by operation of law or otherwise) or grant any
concession or license within the Leased Property, and any attempt to do any of
the foregoing without Lessor's consent shall be void.
(b) Notwithstanding any consent by Lessor under this Section 16, the
undersigned Lessee will remain jointly and severally liable (along with each
approved assignee or subtenant, who shall automatically become liable for all
obligations of Lessee hereunder), and Lessor shall be permitted to enforce the
provisions of this instrument directly against the undersigned Lessee and/or any
assignee or sublessee without proceeding in any way against any other entity.
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(c) Any consent by Lessor to a particular assignment, sublease or other
event specified in Section 16(a) hereof shall not constitute Lessor's consent to
any other or subsequent assignment, sublease, or other event specified in
Section 16(a) hereof.
(d) Lessor shall have the right to transfer and assign, in whole or in part,
by operation of law, or otherwise, its rights and obligations hereunder without
any liability to Lessee and Lessee shall attorn to any party to which Lessor
transfers the Leased Property; provided, however, that upon any such assignment,
the assignee shall assume all obligations of Lessor hereunder with respect to
such rights assigned, such assignment shall be permitted by applicable law and
such assignment shall not in any way impair the Lessee's right or ability to
lease and operate the Leased Properties or to otherwise utilize the Leased
Properties in the manner permitted by this Lease.
SECTION 17. LESSEE'S DEFAULT. Lessor shall have the right to terminate this
Lease or to terminate Lessee's right of possession without terminating this
Lease in the event that any of the following events or conditions occur or exist
(each an "Event of Default" and any event or condition that, upon notice, lapse
of time or both would constitute an Event of Default being referred to as a
"Default"):
(a) any rent payable in accordance with this Lease is not paid (i) within
ten (10) days after the due date thereof, if Lessee and Guarantor (as
hereinafter defined) are not wholly owned direct or indirect subsidiaries of OPC
or (ii) within the longer of ten (10) days after the due date thereof or two
days after Lessor gives Lessee written notice that such rent has not been paid,
if Lessee and Guarantor are wholly owned direct or indirect subsidiaries of OPC;
(b) Lessee fails to correct or cure a breach of any covenant or agreement of
Lessee contained in this Lease, except with respect to nonpayment of rent,
within thirty (30) days after Lessor has notified Lessee in writing of any such
breach thereof; provided that, to the extent Lessee has commenced diligent and
reasonable efforts to effect a cure of such breach during such thirty day
period, such thirty day period shall be extended for so long as Lessee continues
to pursue such cure with reasonable and diligent efforts (but in no event longer
than a period of one year from the date of such notice); so long as such
extension would not cause or result in a material adverse effect or consequence
to any portion of the Leased Property;
(c) Lessee vacates or abandons any portion of the Leased Property (unless
permitted pursuant to Section 7(e) hereof);
(d) MidCon Corp. (such entity or its permitted successors or assigns being
hereinafter referred to as "Guarantor") fails to correct or cure a breach of any
covenant or agreement of Guarantor contained in the Guaranty of even date
herewith by Guarantor for the benefit of Lessor (the "Guaranty"), except with
respect to nonpayment of the sum of the Agreed Amount (as defined therein) and
Base Amount (as defined therein), within thirty (30) days after Lessor has
notified Guarantor in writing of any such breach thereof;
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(e) any breach of any representations or warranties made by Lessee herein or
Guarantor in the Guaranty or in any certificate or statement delivered pursuant
hereto or thereto shall prove to have been false or misleading in any material
respect on the date as of which made or deemed made;
(f) (i) a default (as principal or guarantor) by either the Lessee or
Guarantor in payment when due of any principal or interest under any instrument
evidencing indebtedness for borrowed money or of any rental on any lease or a
revolving credit agreement (in each case, whether now existing or hereafter
created), or (ii) the occurrence of an event of default (with respect to the
Lessee or Guarantor) as defined in any mortgage, indenture or instrument under
which there may be issued, or by which there may be secured or evidenced, any
indebtedness for borrowed money of, or guaranteed by, the Lessee or Guarantor
(whether such indebtedness now exists or is hereafter created) and the
occurrence of such event of default causes such indebtedness to become due and
payable prior to its stated maturity or due date and has not been duly waived in
writing; provided that no default under this subsection (f) shall be deemed to
exist as a result of a default or event of default (as described in clause (i)
or clause (ii) above) in respect of any such indebtedness if the principal of
and interest on such indebtedness, when added to the principal of and interest
on all other such indebtedness then in default or the subject of such an event
of default (exclusive of indebtedness under subsection (a)) above, does not
exceed $10,000,000;
(g) a decree, judgment, or order by a court of competent jurisdiction is
entered adjudging Lessee, any Material Entity (as hereinafter defined) or
Guarantor as bankrupt or insolvent, or ordering relief against Lessee, any
Material Entity, or Guarantor in response to the commencement of an involuntary
bankruptcy case, or approving as properly filed a petition seeking
reorganization or liquidation of Lessee, any Material Entity, or Guarantor under
any bankruptcy or similar law; or a decree or order of a court of competent
jurisdiction over the appointment of a receiver, liquidator, trustee, or
assignee in bankruptcy or insolvency of Lessee, any Material Entity, or
Guarantor or of the property of Lessee, any Material Entity, or Guarantor, or
for the winding up or liquidation of the affairs of any of them is entered;
(h) any of Lessee, any Material Entity, or Guarantor institutes voluntary
bankruptcy proceedings, or consents to the filing of a bankruptcy proceeding
against it, or files a petition or answer or consent seeking reorganization or
liquidation under any bankruptcy or similar law or similar statute, or consents
to the filing of any such petition, or consents to the appointment of a
custodian, receiver, liquidator, trustee, sequestrator, assignee or similar
official in bankruptcy or insolvency of it or any of its assets or property, or
makes a general assignment for the benefit of creditors, or admits in writing
its inability to pay its debts generally as they become due, or within the
meaning of Title 11, U.S. Code, or any similar Federal, state or foreign law for
the relief of debtors, becomes insolvent, fails generally to pay its debts as
they become due, or takes any corporate action in furtherance of or to
facilitate, conditionally or otherwise, any of the foregoing; or
(i) one or more judgments or decrees in an aggregate amount of $5,000,000 or
more is entered by a court or courts of competent jurisdiction against Lessee or
the Subsidiaries (as defined in the Guaranty) of Guarantor or Guarantor (other
than any judgment as to which, and only to the extent, a reputable insurance
company has acknowledged coverage of such claim in writing) and (i)
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any such judgments or decrees is not stayed, discharged, paid, bonded or vacated
within 30 days or (ii) enforcement proceedings are commenced by any creditor on
any such judgments or decrees;
provided, however, that for so long as Guarantor and Lessee are wholly owned
direct or indirect subsidiaries of OPC, then no event or condition described in
Section 17(b) or 17(d) shall constitute a Default or Event of Default hereunder
if such event or condition was caused by OPC or the prevention of such event or
condition was solely within OPC's control without unreasonable effort or
expense. The term "Material Entity" shall mean (i) Guarantor, (ii) any Material
Subsidiary (as defined in the Guaranty), or (iii) any two or more Subsidiaries
(as defined in the Guaranty) (A) which two or more Subsidiaries own, in the
aggregate but not individually, 5% or more of Consolidated Total Assets (as
defined in the Guaranty) as of the end of the most recently completed fiscal
year of Guarantor and (B) with respect to the event or events specified where
the term "Material Entity" is used herein, such event or events affects each
such Subsidiary with the same consecutive six month period.
SECTION 18. REMEDIES.
(a) Upon the occurrence of any of such Events of Default, Lessor shall
have the option to pursue any one or more of the following remedies without any
notice or demand whatsoever to Lessee:
(1) terminate this Lease, in which event Lessee shall immediately
surrender the Leased Property to Lessor, and if Lessee fails to do so,
Lessor may, without prejudice to any other remedy which it may have for
possession or arrearage in rent, enter upon and take possession of all
or any portion of the Leased Property and expel or remove Lessee and
any other person who may be occupying such Leased Property or any part
thereof, by force if necessary, without being liable for prosecution or
any claims of damages therefor and relet the Leased Property and
receive the rent therefor;
(2) enter upon and take possession of the Leased Property, expel or
remove Lessee and any other person who may be occupying the same or any
part thereof, by force if necessary, without being liable for
prosecution or any claim for damages therefor, and relet the Leased
Property and receive the rent therefor;
(3) enter upon the Leased Property, by force if necessary, without
being liable for prosecution or any claim for damages therefor, and do
whatever Lessee is obligated to do under the terms of this Lease; and,
Lessee agrees to reimburse Lessor on demand for any expenses which
Lessor may incur in thus effecting compliance with Lessee's obligations
under this Lease, and Lessee further agrees that Lessor shall not be
liable for any damages resulting to the Lessee from such action,
whether caused by the negligence of Lessor or otherwise;
(4) enforce specific performance of Lessee's obligations under this
Lease; and/or
(5) pursue any other remedy permitted at law or in equity.
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Lessee hereby acknowledges that late payment by Lessee to Lessor of rent due
hereunder will cause Lessor to incur costs not contemplated by this Lease, the
exact amount of which will be extremely difficult to ascertain. Accordingly, if
any installment of rent due from Lessee shall not be received by Lessor or
Lessor's designee within ten (10) days after said amount is due, then Lessee
shall pay to Lessor a late charge equal to the LIBOR Rate plus 3.25% per annum
of such overdue amount. The parties hereby agree that such late charge
represents a fair and reasonable estimate of the cost Lessor will incur by
reason of late payment by Lessee. Acceptance of such late charge by Lessor shall
in no event constitute a waiver of Lessee's default with respect to such overdue
amount, nor prevent Lessor from exercising any of its other rights and remedies.
(b) Exercise by Lessor of any one or more remedies hereunder granted or
otherwise available shall not be deemed to be an acceptance by Lessor of
surrender of the Leased Property by Lessee, whether by agreement or by operation
of law, it being understood that such surrender can be effected only by the
written agreement of Lessor and Lessee. No such alteration of security devices
and no removal or other exercise of dominion by Lessor over the property of
Lessee or others at the Leased Property shall be deemed unauthorized or
constitute a conversion, Lessee hereby consenting, after any event of default,
to the aforesaid exercise of dominion over Lessee's property within the Leased
Property. All claims for damages by reason of re-entry and/or repossession
and/or alteration of security devices are hereby waived by Lessee, as are all
claims for damages by reason of any distress warrant, forcible detainer
proceedings, sequestration proceedings or other legal process. Lessee agrees
that any re-entry by Lessor may be pursuant to judgment obtained in forcible
detainer proceedings or other legal proceedings or without the necessity for any
legal proceedings, as Lessor may elect, and Lessor shall not be liable in
trespass or otherwise.
(c) In the event of termination or repossession of any of the Leased
Property for a default by Lessee hereunder, Lessor shall not have any obligation
to relet or to attempt to relet the Leased Property.
(d) If Lessee should fail to make any payment or cure any default hereunder
within the time herein permitted, Lessor, without being under any obligation to
do so and without thereby waiving such default, may make such payment and/or
remedy such default for the account of Lessee (and enter the Leased Property for
such purpose), and thereupon Lessee shall be obligated, and hereby agrees, to
pay Lessor upon demand, all costs, expenses and disbursements (including
reasonable attorney's fees) incurred by Lessor in taking such remedial action.
(e) In the event that Lessor shall have taken possession of the Leased
Property pursuant to the authority herein granted, then Lessor shall have the
right to keep in place and use all of the fixtures and equipment at the Leased
Property, including that which is owned by or leased to Lessee at all times
prior to any foreclosure thereon by Lessor or repossession thereof by any Lessor
thereof or third party having a lien thereon. The rights of Lessor herein stated
shall be in addition to any and all other rights which Lessor has or may
hereafter have at law or in equity, and Lessee stipulates and agrees that the
rights herein granted Lessor are commercially reasonable.
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<PAGE> 18
SECTION 19. IMPAIRMENT OF LESSOR'S TITLE.
(a) Nothing in this Lease contained or any action or inaction by Lessor
shall be deemed or construed to mean that Lessor has granted to Lessee any
right, power or permission to do any act or to make any agreement which may
create, give rise to, or be the foundation for, any right, title, interest,
lien, charge or other encumbrance upon the estate of Lessor in the Leased
Property, except as otherwise provided in (c) below.
(b) In amplification and not in limitation of the foregoing, Lessee shall
not permit any portion of the Leased Property to be used by any person or
persons, as such, at any time or times during the Term of this Lease, in such
manner as might reasonably tend to impair Lessor's title to or interest in the
Leased Property or any portion thereof (including, without limitation, any
portion thereof acquired through eminent domain), or in such manner as might
reasonably make possible a claim or claims of adverse use, adverse possession,
prescription, dedication, or other similar claims of, in, to or with respect to
the Leased Property or any part thereof. Lessee, at its sole cost and expense,
shall also take all other necessary steps to ensure and protect Lessor's title
to the Leased Property, subject to Lessee's interest therein created by this
Lease.
(c) Portions of or interests in the Leased Property, as of the date hereof,
are subject to certain agreements that may require the owner of the Leased
Property to transfer such portions of or interests in the Leased Property to
third parties, including without limitation the following agreements:
(i) Ownership and Operating Agreement dated April 1, 1993, between MidCon
Texas Pipeline Corp. and Valero Transmission L.P.; and
(ii) Ownership and Operating Agreement dated January 10, 1996, between
MidCon Texas Pipeline Corp. and TransAmerica Gas Transmission
Corporation.
Upon the valid exercise by any such third party of its rights under an
agreement existing as of the date hereof to acquire any portion of or interests
in the Leased Property, Lessor and Lessee agree to transfer all of their
respective rights in such portion of or interests in such Leased Property to the
extent covered by any such agreement, and this Lease shall terminate as to such
portion of or interests in such Leased Property so transferred as of the date of
such transfer.
SECTION 20. LESSOR'S LIEN. To secure the payment of all rent due and to
become due hereunder and the faithful performance of all of the other covenants
of this Lease required by Lessee to be performed, Lessee hereby grants to Lessor
a lien on and security interest in and to all property, chattels or goods which
may be placed in the Leased Property and also upon all proceeds of any insurance
which may accrue to Lessee by reason of damage to or destruction of any such
property. All exemption laws are hereby waived by Lessee. This lien and security
interest are given in addition to any statutory lien(s) of Lessor and shall be
cumulative thereto. This lien and security interest may be foreclosed with or
without court proceedings, by public or private sale, with or without notice and
Lessor shall have the right to become purchaser, upon being the highest bidder
at such sale. This
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<PAGE> 19
Lease is intended as, and constitutes, a security agreement, and Lessor shall
have all the rights, titles, liens and interests in and to all property,
chattels or goods placed in the Leased Property which are granted a secured
party, as that term is defined under the Uniform Commercial Code. Upon request
of Lessor, Lessee agrees to execute financing statements relating to the
aforesaid security interest or Lessor may file this Lease or a copy hereof as a
financing statement.
SECTION 21. LIMITATION OF LIABILITY. The term "Lessor" as used in this Lease
insofar as the obligations on the part of Lessor are concerned, shall be limited
to and include only the owner at the time in question of the Leased Property.
Notwithstanding any provisions of this Lease to the contrary, Lessee hereby
agrees that no personal or corporate liability of any kind or character
whatsoever now attaches, or at any time hereafter under any condition shall
attach to Lessor, or its partners or shareholders, as applicable, for payment of
any amount payable under this Lease or for the performance of any obligation
under this Lease. The liability of Lessor with respect to such obligations shall
be exclusively limited to Lessor's interest in and to the Leased Property.
Should Lessor fail to pay any sum required hereunder or fail to perform any
obligation required to be performed by Lessor hereunder, then any judicial
proceeding against Lessor shall be limited to Lessor's right and interest in and
to the Leased Property and any improvement comprising a part thereof, and no
attachment, execution, or other writ shall be sought, issued, or levied upon any
assets, property or funds of Lessor, or its partners or shareholders, as
applicable, other than Lessor's interest in and to the Leased Property. In the
event of any transfer or transfers of title to the Leased Property, the Lessor
named (and any successor thereto) shall be automatically freed and relieved,
from and after the date of such transfer or conveyance, of all obligations on
the part of Lessor contained in this Lease thereafter incurred.
SECTION 22. NON-WAIVER. Neither acceptance of rent by Lessor nor failure by
Lessor to complain of any default of Lessee shall constitute a waiver of
Lessor's rights hereunder. Waiver by Lessor of any default by Lessee shall not
constitute a waiver of any other or subsequent default. No act or omission by
Lessor or its agents shall be deemed to be the acceptance of a surrender of the
Leased Property, and the Leased Property may not be surrendered unless such
surrender is accepted by Lessor in writing.
SECTION 23. HOLDING OVER. Upon the expiration or termination of the term of
this Lease, Lessee shall peaceably surrender the Leased Property, any
Alterations and any Additional Property to Lessor, and Lessor shall have the
right to re-enter and resume and/or take possession of the Leased Property, any
Alterations, and any Additional Property. If Lessee should remain in possession
of the same after the termination of this Lease, then Lessee shall be a
tenant-at-sufferance, subject to all the provisions of this Lease applicable
during its Term, except that Lessee shall be liable for rental equal to (i) 300%
of the monthly rent payable pursuant to Section 4(a)(iv) hereof, and (ii) the
rent payable pursuant to Section 4(b) hereof, prorated on a per diem basis
(which rental Lessee agree, binds and obligates itself to pay to Lessor upon
demand for each and every day that Lessee remains in partial or total possession
of the Leased Property). Such holding over shall not extend the Term hereof, and
Lessee shall be liable to Lessor for all damages (consequential or otherwise)
sustained by Lessor resulting from Lessee's failure to timely surrender the
Leased Property.
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<PAGE> 20
SECTION 24. LESSOR'S ENTRY. Lessor may enter in and upon the Leased Property
from time to time to inspect same, to show same to prospective purchasers and
for any other purpose, provided that such entry shall be made only during
reasonable business hours and in a manner so as not to unreasonably interfere
with Lessee's use of the Leased Property.
SECTION 25. NOTICES. All notices required or permitted hereunder shall be in
writing and may be given or served by depositing such notice with the United
States postal service, certified mail with return receipt requested, postage
prepaid, or by delivering same in person, addressed as follows:
To Lessor: c/o MidCon Texas Gas Partners, Inc.
10889 Wilshire Blvd.
Los Angeles, CA 90024
Attn: Vice President and Secretary
To Lessee: 3200 Southwest Freeway
Houston, TX 77027-7523
Attn: President
Notices so mailed shall be effective from and after two (2) business days after
being so mailed. Notices given in any other manner shall be effective only if
and when actually delivered at the address of the addressee.
SECTION 26. SURVIVAL. Any representation, warranty, covenant or agreement
contained herein which contemplates performance after the expiration or
termination of this Lease and all covenants of indemnity set forth in this Lease
shall be deemed to survive the expiration or any termination of this Lease. TO
THE FULL EXTENT ALLOWED BY LAW, LESSOR DISCLAIMS ALL REPRESENTATIONS OR
WARRANTIES TO LESSEE OF ANY KIND, WHETHER EXPRESS OR IMPLIED, INCLUDING WITHOUT
LIMITATION, AS TO TITLE, HABITABILITY, CONDITION OF THE LEASED PROPERTY
(INCLUDING, WITHOUT LIMITATION, SUITABILITY FOR A PARTICULAR PURPOSE OR
COMMERCIAL USE) AND PROVISION OF SERVICES.
SECTION 27. SUCCESSORS AND ASSIGNS. Subject to the provisions of Section 16
hereof, the provisions hereof shall be binding upon and inure to the benefit of
the parties hereto and their respective heirs, legal representatives,
successors, and assigns.
SECTION 28. ENTIRE AGREEMENT AND MODIFICATION. This Lease constitutes the
entire agreement between Lessor and Lessee and may be modified or amended only
by a written document duly executed by both Lessor and Lessee.
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<PAGE> 21
SECTION 29. TERMINOLOGY. The captions herein are for convenience only and
shall not modify or effect the provisions hereof. Wherever used herein, each
gender shall include each other gender, the singular shall include the plural,
and the plural shall include the singular.
SECTION 30. GOVERNING LAW, SUBMISSION TO JURISDICTION AND SEVERABILITY. This
Lease shall be governed by and construed in accordance with the laws of the
State of Texas. Any dispute relating to, arising out of, or connected with this
Lease shall be filed and maintained in the State or Federal Courts located in
Houston, Harris County, Texas. If any clause or provision of this Lease is
illegal, invalid, or unenforceable, under present or future laws effective
during the Term, then it is the intention of the parties hereto that the
remainder of this Lease shall not be affected thereby, and it is also the
intention of both parties that in lieu of each clause or provision that is
illegal, invalid or unenforceable, there be added as part of this Lease a clause
or provision as similar in terms to such illegal, invalid or unenforceable
clause or provision as may be possible and be legal, valid and enforceable.
SECTION 31. RELATIONSHIP OF PARTIES. It is the intention of the parties
hereto to create the relationship of Lessor and Lessee, and no other
relationship whatsoever is hereby created. Nothing in this Lease shall be
construed to make the parties hereto partners or joint venturers.
SECTION 32. RECORDING. Lessor and Lessee shall, at the request of the other,
promptly execute an instrument in recordable form constituting a memorandum of
this Lease which may be filed for record in the records of any county where the
Pipeline System is located.
SECTION 33. APPROVALS AND CONSENTS. Whenever the approval or consent of
Lessor is required or requested hereunder, such approval or consent may be
granted or withheld in Lessor's sole discretion unless expressly provided herein
to the contrary.
WITNESS THE EXECUTION HEREOF, as of the date first set forth hereinabove.
LESSOR
MIDCON TEXAS PIPELINE, L.P.
BY ITS GENERAL PARTNER
MIDCON GAS PARTNERS, INC.
By:
--------------------------------
John W. Alden,
Vice President and Secretary
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<PAGE> 22
LESSEE
MIDCON TEXAS PIPELINE OPERATOR, INC.
By:
----------------------------------------
Richard W. FitzGerald,
Vice President
STATE OF TEXAS )
)
COUNTY OF HARRIS )
The forgoing instrument was acknowledged before me on this the ____ day of
December, 1996, by John W. Alden, Vice President and Secretary of MidCon Texas
Gas Partners, Inc., General Partner of MidCon Texas Pipeline, L.P., on behalf of
said corporation and limited partnership.
-------------------------------------------
(S E A L) Notary Public in and for the State of Texas
STATE OF TEXAS )
)
COUNTY OF HARRIS )
The forgoing instrument was acknowledged before me on this the ____ day of
December, 1996, by Richard W. FitzGerald, Vice President of MidCon Texas
Pipeline Operator, Inc., on behalf of such corporation.
-------------------------------------------
(S E A L) Notary Public in and for the State of Texas
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<PAGE> 23
EXHIBIT A
[DESCRIPTION OF LEASED PROPERTY TO BE PROVIDED
BY MIDCON. INCLUDE DESCRIPTION OF "FACILITIES AGREEMENT," IF NEEDED.]
<PAGE> 1
AMENDMENT NUMBER ONE
TO
INTRASTATE
PIPELINE SYSTEM LEASE
THIS AMENDMENT NUMBER ONE TO INTRASTATE PIPELINE SYSTEM LEASE (this
"Amendment"), is entered into of as 11:59 p.m. Central Standard Time on January
31, 1998 (the "Effective Time"), by MidCon Texas Pipeline, L.P., a Delaware
limited partnership ("Lessor"), and MidCon Texas Pipeline Operator, Inc., a
Delaware corporation ("Lessee").
WHEREAS, Lessor and Lessee entered into the Intrastate Pipeline System
Lease, dated December 31, 1996 (as heretofore amended, supplemented or
otherwise modified prior to the date hereof, the "Original Lease");
WHEREAS, Lessor is a limited partnership comprised of corporate
partners, each of which partner is either directly or indirectly a wholly-owned
subsidiary of Occidental Petroleum Corporation, a Delaware corporation ("OPC");
WHEREAS, Lessee is a wholly-owned subsidiary of MidCon Gas Services
Corp., a Delaware corporation ("MidCon Gas"), and MidCon Gas is a wholly-owned
subsidiary of MidCon Corp., a Delaware corporation ("MidCon");
<PAGE> 2
WHEREAS, pursuant to that certain Stock Purchase Agreement, dated as
of December 18, 1997 (the "Stock Purchase Agreement"), by and between OPC and
KN Energy, Inc., a Kansas corporation (the "Buyer"), OPC and the Buyer have
agreed (i) that the Buyer shall buy and that OPC shall sell all of the stock of
MidCon such that MidCon will become, on the date hereof, a wholly-owned
subsidiary of the Buyer and (ii) that the Original Lease shall be amended as
more fully set forth in the Stock Purchase Agreement; and Lessor and Lessee are
willing, upon and subject to the terms and conditions hereof, so to amend the
Original Lease (as so amended, "Lease");
NOW, THEREFORE, in consideration of the mutual agreements herein set
forth, the parties hereto hereby agree that as of the Effective Time of this
Amendment the Original Lease shall be amended as follows:
PARAGRAPH 1. Purpose
Section 3 shall be deleted in its entirety and the following shall be
substituted therefor:
"Section 3. Purpose. Lessee shall use the Leased Property
only for the gathering, compression, treatment, receipt, delivery, processing,
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<PAGE> 3
transportation and exchange of natural gas and its constituents, liquefiable
hydrocarbons and liquid hydrocarbons; provided in each case that Lessee
warrants that (i) Lessee shall be in compliance with all present and future
laws, acts, rules, requirements, orders, ordinances and regulations of any
Governmental Authorities which are applicable to the Pipeline System
("Applicable Laws") and prudent industry practice applicable to the Pipeline
System and in compliance with the terms of the instruments (including, without
limitation, easements, rights-of-way and permits) to which the Leased Property
is subject and (ii) Lessee will not subject Lessor to any further regulation or
consent, unless such further regulation or consent is caused by a change in
Applicable Laws. Except to the extent currently subject thereto, as of the
date hereof and notwithstanding anything herein to the contrary, Lessee shall
do nothing to subject the Leased Property to regulation by the Federal Energy
Regulatory Commission to any extent greater than the Leased Property is
currently regulated without the prior written consent of Lessor (which consent
can be withheld in its sole discretion, except no consent is required if such
additional regulation is caused by a change in Applicable Laws). Lessee shall
not use, occupy, or permit to be used or occupied, the Leased Property for any
purpose that is illegal, that would make void or voidable any insurance
relating to the Leased Property, or that would constitute a public or private
nuisance."
- 3 -
<PAGE> 4
PARAGRAPH 2. Payment of Rent
The last sentence of Section 4(a) shall be deleted in its entirety and
the following shall be substituted therefor:
"Such rent shall be payable on the first business day of each
month, in advance, throughout the remainder of the Term by wire transfer of
immediately available funds to a bank account of Lessor (designated from time
to time in writing to Lessee not later than three business days prior to the
date of payment)."
PARAGRAPH 3. Abandonment of Portions of the Leased Property
Section 7(e) shall be deleted in its entirety and the following shall
be substituted therefor:
"(e) Notwithstanding any provision in this Lease to the contrary,
Lessee shall be permitted to abandon any part of the Leased Property or dispose
of any portion of the Leased Property that, in each case (i) has a fair market
value of less than $100,000 with respect to such abandoned or disposed Leased
Property and is not necessary to operate and maintain the Pipeline System in a
safe and reliable manner as then being operated by Lessee with no reduction in
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<PAGE> 5
throughput capability and in compliance in all respects with Applicable Laws,
or (ii) has a fair market value of less than $500,000 with respect to such
abandoned and disposed Leased Property if such portion has either been damaged
or condemned and is not necessary to operate and maintain the Pipeline System
in a safe and reliable manner as then being operated by Lessee with no
reduction in throughput capability and in compliance in all respects with
Applicable Laws, or (iii) connects to a well that is no longer capable of
producing in paying quantities. Lessee shall be entitled to retain the
proceeds, if any, received with respect to property abandoned or otherwise
disposed of pursuant to the authorization provided in the preceding sentence.
Lessee shall also be permitted to abandon any portion of the Leased Property
upon obtaining the prior written consent of Lessor (which consent shall not be
unreasonably withheld). Lessee shall be responsible for, and pay all costs and
expenses of abandoning or otherwise disposing of any portion of the Leased
Premises in accordance with this Section. Lessee shall provide an annual
report in writing to Lessor describing all portions of the Leased Properties
which have been abandoned or disposed of by Lessee."
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<PAGE> 6
PARAGRAPH 4. Indemnification
Section 10(c) shall be deleted in its entirety and Sections 10(c)
through 10(g) as follows shall be substituted therefor:
"(c) Notwithstanding anything in this Lease to the contrary,
including, but not limited to, this Section 10, Lessor shall indemnify and save
Lessee and its partners, directors, officers, shareholders, employees, agents,
successors, and assigns (collectively, the "Lessee Indemnified Parties")
harmless from any and all liability, cost, expense, claim, loss or damage
("Loss") by reason of, resulting from or relating to any action taken by
Lessor's employees or representatives while physically present on the Leased
Property after the Effective Time of this Amendment which action constitutes
gross negligence or willful misconduct."
"(d) Except as provided in Section 10(b) and upon payment of all
amounts due by Lessee to a Lessor Indemnified Party, Lessee, without further
act, shall be subrogated to any and all claims or rights held by such Lessor
Indemnified Party to recover from a third party (which is not any of the Lessor
Indemnified Parties or any Person controlling, controlled by or under common
control with any of the Lessor Indemnified Parties) for the amounts paid by
Lessee to such Lessor Indemnified Party. Such Lessor Indemnified Party shall
- 6 -
<PAGE> 7
cooperate with Lessee and give such further assurances as are necessary or
advisable to enable Lessee to pursue such claims (to the extent such claim is
not in excess of the amount Lessee has paid to such Lessor Indemnified Party in
respect of such amount), at Lessee's expense."
"(e) With respect to any amount that Lessee is requested by a
Lessor Indemnified Party to pay by reason of this Section 10, such Lessor
Indemnified Party shall, if so requested by Lessee and prior to any payment,
submit such additional information to Lessee as Lessee may reasonably request
properly to substantiate the requested payment. In the case of any Loss
indemnified by Lessee hereunder which is covered by a policy of insurance
maintained by Lessee pursuant to Section 9 of the Lease, each Lessor
Indemnified Party agrees to use reasonable efforts to cooperate, at Lessee's
expense, with the insurers in the exercise of their rights to investigate,
defend or compromise such Loss as may be reasonably required to retain the
benefits of such insurance with respect to such Loss by providing reasonably
requested information (provided that the recipient of such information has
agreed in writing to hold all such information confidential under such
recipient's established procedures for the safeguarding of confidential
information)."
- 7 -
<PAGE> 8
"(f) In case any action, suit or proceeding ("Proceeding") shall be
commenced or any written threat or assertion of a claim is received that could
give rise to a Loss indemnified against under this Section 10, the affected
Lessor Indemnified Party or Lessee Indemnified Party, as the case may be (the
"Indemnified Party"), shall notify the Party which is to provide the indemnity
(the "Indemnitor") (but the failure to do so shall not relieve the Indemnitor
of its obligation to indemnify the Indemnified Party; provided, however, that
nothing herein shall affect the Indemnitor's right to bring a separate action
for damages to the extent that the Indemnitor is materially prejudiced as a
result of such failure), and the Indemnitor shall be entitled, at its expense,
acting through counsel selected by Indemnitor and reasonably acceptable to the
Indemnified Party, to participate in, and, to the extent that Indemnitor
desires, to assume and control the defense of such Proceeding, provided,
however, that the Indemnitor shall not be entitled to assume and control the
defense of any Proceeding unless the Indemnitor has acknowledged in writing to
the Indemnified Party its obligation to indemnify the Indemnified Party for any
Loss resulting from a settlement of or adverse determination of such
Proceeding; and provided further, however, that the Indemnitor shall not be
entitled to assume and control the defense of any such Proceeding in any one of
the following circumstances: (i) in the case where Lessee is the Indemnitor, if
an Event of Default has occurred and is continuing, (ii) if the Indemnified
Party notifies the Indemnitor that it has determined, on advice of counsel,
that defense of such Proceeding by the
- 8 -
<PAGE> 9
Indemnitor would involve a conflict of interest between the Indemnitor and the
Indemnified Party, (iii) if such Proceeding involves a material risk of the
sale, forfeiture or loss of the Leased Property or any substantial part thereof
or substantial interest therein, (iv) if such Proceeding entails any risk of
criminal liability of the Indemnified Party or (v) if there is a reasonable
likelihood that such Proceeding will be adversely determined and the Indemnitor
has not demonstrated to the reasonable satisfaction of the Indemnified Party
its ability to pay any Loss arising as a result thereof (taking into
consideration any applicable insurance coverage). In the event that the
Indemnitor shall have assumed control of the defense of any Proceeding as
provided above, the Indemnified Party shall cooperate with the Indemnitor in
such defense and shall be entitled, at its expense, acting through counsel
reasonably acceptable to Indemnitor, to participate in any such Proceeding. In
any event, the Indemnitor shall not have any right to settle any such
Proceeding or other claim in any manner or on any basis that involves the
imposition of any liability or obligation on any Indemnified Party (other than
a monetary liability that is fully discharged by the Indemnitor) without the
prior written consent of such Indemnified Party. Nothing contained in this
Section 10 shall be deemed to require an Indemnified Party to contest any Loss
or to assume responsibility for, or control of, any Proceeding with respect
thereto. Each Indemnified Party shall, at the expense of the Indemnitor, use
its good faith efforts to supply the Indemnitor with such information and
documents reasonably requested by the Indemnitor as are necessary or advisable
for the
- 9 -
<PAGE> 10
Indemnitor to participate in or defend any Proceeding or to respond to any
other claim to the extent permitted by this Section 10. If any Indemnified
Party enters into any settlement or other compromise with respect to any Loss
without the prior written consent of the Indemnitor (which consent shall not be
unreasonably withheld or delayed, and shall not be required in the case of
Lessee as the Indemnitor if an Event of Default has occurred and is continuing
at the time of such settlement or compromise), or does not permit the
Indemnitor to participate in or defend a Proceeding or other claim that the
Indemnitor is entitled to participate in or defend hereunder, then the
Indemnified Party shall be deemed to have waived its right to be indemnified
under this Section 10 with respect thereto."
"(g) So long as no Event of Default has occurred and is continuing
in the case of Lessee as the Indemnitor, if an Indemnified Party obtains a
refund of all or any part of any Loss paid, reimbursed or otherwise indemnified
by Indemnitor hereunder, such Indemnified Party shall pay to the Indemnitor the
amount so refunded, including any interest thereon actually received from the
party from whom such refund was obtained, net of any taxes payable by (except
to the extent such tax is off-set by reason of the re-payment to the Indemnitor
contemplated by this Section 10(g)) such Indemnified Party in respect of the
receipt or accrual of such refund or interest (but not an amount in excess of
the
- 10 -
<PAGE> 11
amount the Indemnitor has paid to such Indemnified Party in respect of such
Loss). If an Event of Default has occurred and is continuing in the case of
Lessee as the Indemnitor, any such amount so refunded shall be (i) held by such
Indemnified Party as security for the obligations of Lessee under this Lease,
(ii) at the option of Lessor, may be applied against Lessee's obligations under
this Lease, and (iii) at such time thereafter as no Event of Default shall be
continuing, shall be promptly paid to the extent not theretofore applied
against such obligations."
PARAGRAPH 5. Alterations and Additions
Section 14(c) shall be deleted in its entirety and the following shall
be substituted therefor:
"(c) Title to all Additional Property and Alterations shall be and
remain in Lessee during the Term of this Lease. Lessee shall not permit,
without Lessor's written consent, title to any Additional Property to be taken
or held by any other Person (including, without limitation, Lessee's
affiliates) without the prior written consent of Lessor (which can be withheld
in its sole discretion). Upon expiration or termination of this Lease, (i)
title to all Essential Additional
- 11 -
<PAGE> 12
Property and to all Alterations shall automatically vest in Lessor, free and
clear of all claims and encumbrances, and Lessee shall have no further claim
thereto (and Lessee hereby grants, conveys and assigns any and all such
Essential Additional Property and any and all such Alterations to Lessor,
effective as of the expiration or termination of this Lease) and (ii) Lessee
shall continue to have title to any and all Additional Property which is not
Essential Additional Property. Notwithstanding the foregoing, to the extent
that any such Alterations are separate in title from the Leased Property, they
shall continue to have the character of real property, and in no event shall
Lessee's ownership thereof and its leasehold estate in the Leased Property be
separately conveyed.
"Essential Additional Property" shall mean Additional Property which
is necessary to operate and maintain the Pipeline System in a safe and reliable
manner as then being operated by Lessee with no reduction in throughput
capability and in compliance in all respects with Applicable Laws."
Section 15(a)(i) shall be modified to substitute "Essential Additional
Property" for "Additional Property" wherever it appears.
Section 15(c) shall be modified by the deletion of the first sentence
thereof in its entirety and the following shall be substituted therefor:
- 12 -
<PAGE> 13
"Notwithstanding anything herein to the contrary, upon
expiration of the Term of this Lease, provided there is no Default or Event of
Default, Lessee shall be entitled to remove from the Leased Property any of the
Additional Property and any other property of Lessee (which is not Leased
Property), that does not constitute an Essential Additional Property or an
Alteration."
PARAGRAPH 6. Assignment and Sublease
Section 16 "Assignment and Sublease" shall be deleted in its entirety
and the following shall be substituted therefor:
"Section 16. Assignment and Sublease
"(a) Except as set forth in Sections 16(d) and 16(e) hereof,
without the prior written consent of Lessor, which consent can be withheld in
Lessor's sole discretion, Lessee shall not transfer or assign this Lease or
sublease the Leased Property or, subject to Sections 7(e) and 19(c), any part
thereof (whether by operation of law or otherwise) or grant any concession or
license within the
- 13 -
<PAGE> 14
Leased Property, and any attempt to do any of the foregoing without Lessor's
consent shall be void."
"(b) Notwithstanding any consent by Lessor under Sections 16(a) and
16(e), the undersigned Lessee will remain jointly and severally liable (along
with each assignee or subtenant approved pursuant to Sections 16(a) and 16(e),
who shall automatically become liable for all obligations of Lessee hereunder),
and Lessor shall be permitted to enforce the provisions of this instrument
directly against the undersigned Lessee and/or any such approved assignee or
sublessee without proceeding in any way against any other entity."
"(c) Any consent by Lessor to a particular assignment, sublease or
other event specified in Sections 16(a) and 16(e) hereof shall not constitute
Lessor's consent to any other or subsequent assignment, sublease or other event
specified in Sections 16(a) and 16(e) hereof."
"(d) So long as no Default or Event of Default has occurred and is
continuing, Lessee and any Permitted Assignee (each, acting in the capacity of
an assignor of rights under this Section 16(d), an "Assignor") may at any time
and from time to time during the Term assign, at Lessee's expense, to any
Permitted Assignee all (but not less than all) of such Assignor's rights and
obligations under this Lease. Upon such execution, delivery to Lessor, and, if
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<PAGE> 15
necessary, recording of an Acceptable Assignment and Assumption Agreement (as
defined below) from and after the effective date determined pursuant to such
Acceptable Assignment and Assumption Agreement, (i) the assignee thereunder
shall be a party hereto and shall have the rights and obligations of Lessee
hereunder and the term "Lessee" shall mean such successor Permitted Assignee,
(ii) such Assignor shall be released from its obligations under this Lease,
including its obligations for the payment of rent, and shall cease to be a
party hereto and (iii) in the case of the first such assignment hereunder, the
Buyer will be released from its obligations under the Buyer's Guaranty, as
amended, supplemented or otherwise modified from time to time, including its
obligations for the payment of rent and, in the case of any other assignment
hereunder, any guarantor of the relevant Assignor shall be released from its
obligations under its guaranty of this Lease, including its obligations for the
payment of rent."
"Acceptable Assignment and Assumption Agreement" shall mean an
assignment and assumption agreement which meets all of the following criteria
(i) is in form and substance reasonably satisfactory to Lessor; (ii) assigns
such Assignor's interest and pursuant to which such Permitted Assignee assumes
all of such Assignor's obligations hereunder (including the obligations to pay
all rent when due hereunder and all rent owing by the Assignor or any previous
Assignor to Lessor); and (iii) either (A) contains covenants similar in form
and
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<PAGE> 16
substance to the Buyer's Pipeline Covenants or (B) is supported by an absolute
and unconditional guaranty (from a guarantor of such Permitted Assignee as
contemplated in the definition of "Permitted Assignee") in form and substance
reasonably satisfactory to Lessor, and which contains covenants similar in form
and substance to the Buyer's Pipeline Covenants as defined below (it being
understood and agreed that after an assignment pursuant to this Section 16(d)
from Lessee to a Person unaffiliated with Lessee and the Buyer, any covenants
required in successive Acceptable Assignment and Assumption Agreements or
guarantees in support thereof pursuant to clause (d)(iii) above shall be
covenants that are similar in form and substance to the Buyer's Pipeline
Covenants).
"Buyer Guarantor" shall mean the Buyer, or its permitted successor or
assigns.
"Buyer's Guaranty" shall mean the Guaranty and Agreement for the
benefit of Lessor executed by the Buyer on the date hereof all in the form of
Exhibit B hereto.
"Buyer Pipeline Covenants" shall mean the covenants in Section 10 in
the Buyer's Guaranty and the covenants incorporated by reference in Section 11
of the Buyer's Guaranty as applicable from time to time.
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<PAGE> 17
"Permitted Assignee" means either:
(a) any Person fifty percent (50%) or more of whose voting
securities are owned, directly or indirectly, by Lessee or the Buyer or
(b) any Person
(1) which is not an affiliate of Lessee or the
Buyer,
(2) which either
(A) has a tangible net worth of not less than
$100,000,000, or
(B) is not a Person meeting the criteria set
forth in clause (b)(2)(A) of this definition but which provides an absolute and
unconditional guaranty of its obligations under the Lease (including covenants
that are similar in form and substance to the Buyer's Pipeline covenants
defined above) from a Person meeting the criteria set forth in clause (b)(2)(A)
of this definition and
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<PAGE> 18
(3)(A) whose long-term senior unsecured
indebtedness is rated not less than Baa2 (or its equivalent) by at least two
Rating Agencies,
(B) which is not a Person meeting the
criteria set forth in clause (b)(3)(A) of this definition but which provides an
absolute and unconditional guaranty of its obligations (including covenants
that are similar in form and substance to the Buyer's Pipeline covenants
defined above) under the Lease from a Person meeting the criteria set forth in
clause (b)(3)(A) of this definition, or
(C) which satisfies the minimum financial
criteria then in effect to obtain the rating referred to in clause (b)(3)(A) of
this definition, in the reasonable opinion of Lessor."
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization
or government or any agency or political subdivision thereof.
"Rating Agencies" means any of Standard & Poor's Ratings Services,
Moody's Investors Service, Inc. and Duff & Phelps Credit Rating Co.
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<PAGE> 19
"(e) Subleasing. So long as no Default or Event of Default has
occurred and is continuing, Lessee may, with the prior written consent of
Lessor, (which consent will not be unreasonably withheld) sublease the Leased
Property, or any portion thereof which can be operated independently of the
remainder of the Pipeline System and the remainder of the Pipeline System can
be operated in a safe and reliable manner in compliance in all respects with
Applicable Laws, to any Person for a period not extending beyond the Term;
provided, that in the case of any such sublease (A) the subleasing of the
Leased Property or any portion thereof, to such sublessee shall not result in a
violation of Applicable Laws on the part of Lessor, (B) the rights of the
sublessee thereunder are made expressly subject and subordinate to all the
terms of this Lease and terminate upon the termination of this Lease, (C) such
transfer of possession does not operate to relieve Lessee of any of its
obligations hereunder, and (D) prior to entering into such sublease, if the
sublessee thereunder is responsible for providing insurance for the Leased
Property, or a portion thereof, as the case may be, Lessee has furnished to
Lessor a certificate of an independent insurance broker with respect to any
policies of insurance required by Section 9 to be in effect upon commencement
of such sublease. In the case of any such sublease, Lessee shall remain
primarily liable hereunder for the performance of all the terms of this Lease
as if such transfer had not occurred and all the terms and conditions of this
Lease shall remain in full force and effect. Lessee will promptly notify
Lessor of its entry into any sublease and
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<PAGE> 20
will provide Lessor the name of the sublessee and a list of the property
subleased with the location at which they will be located and will provide
Lessor promptly upon request copies of any such sublease.
"(f) Lessor shall have the right to transfer or assign, in whole or
in part, by operation of law, or otherwise, its rights and obligations
hereunder without any liability to Lessee and Lessee shall attorn to any party
to which Lessor transfers the Leased Property; provided, however, that upon any
such assignment, the assignee shall assume all obligations of Lessor hereunder
with respect to such rights assigned, such assignment shall be permitted by
Applicable Laws and such assignment shall not in any way impair the Lessee's
right or ability to lease and operate the Leased Properties or to otherwise
utilize the Leased Properties in the manner permitted by this Lease"; provided
however, that (a) Lessor shall provide Lessee written notification of Lessor's
intent to assign or transfer the Lease not less than thirty (30) days in
advance of the execution by Lessor of any binding commitment to assign or
transfer this Lease and (b) if Lessor proposes to transfer or assign its rights
and obligations under this Lease in accordance with this Section 16(f) at any
time on or before January 31, 2008 and the Person to whom the assignment or
transfer shall be made is the owner or operator of, or a Person controlling an
owner or operator of, a natural gas pipeline system delivering more than 250
million cubic feet per day (based on an annual average) of natural gas to the
area in the vicinity of the
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<PAGE> 21
City of Houston, Lessor shall obtain the written consent of Lessee, which
consent shall not be unreasonably withheld or delayed."
PARAGRAPH 7. Lessee's Default
Section 17 shall be deleted in its entirety and the following
substituted therefor:
Section 17. Lessee's Default. Lessor shall have the right to
terminate this Lease or to terminate Lessee's right of possession without
terminating this Lease in the event that any of the following events or
conditions occur or exist (each an "Event of Default" and any event or
condition that, upon notice, lapse of time or both would constitute an Event of
Default being referred to as a "Default"):
(a) any rent payable in accordance with this Lease is not paid
within ten (10) days after the due date thereof;
(b) Lessee fails to correct or cure a breach of any covenant or
agreement of Lessee contained in this Lease, except with respect to nonpayment
of rent, within thirty (30) days after Lessor has notified Lessee in writing of
any such breach thereof; provided, however, that, to the extent Lessee
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<PAGE> 22
has commenced diligent and reasonable efforts to effect a cure of such breach
during such thirty day period, such thirty day period shall be extended for so
long as Lessee continues to pursue such cure with reasonable and diligent
efforts so long as such extension would not cause or result in a material
adverse effect or consequence to any portion of the Leased Property;
"(c) Lessee vacates or abandons any portion of the Leased Property
(unless permitted pursuant to Section 7(e) hereof);
"(d) If the Guaranty and Agreement dated December 31, 1996 for the
benefit of Lessor (the "MidCon Guaranty") issued by MidCon Corp. ("MidCon
Guarantor") is still in effect and the MidCon Guarantor fails to correct or
cure a breach of any covenant or agreement of MidCon Guarantor contained in the
MidCon Guaranty, within thirty (30) days after Lessor has notified MidCon
Guarantor in writing of any such breach thereof; provided, however, that, to
the extent MidCon Guarantor has commenced diligent and reasonable efforts to
effect a cure of such breach of any covenant or agreement of MidCon Guarantor,
other than a breach of any of the covenants in Sections 10 and 11 of the MidCon
Guaranty, during such thirty day period, such thirty day period shall be
extended for so long as MidCon Guarantor continues to pursue such cure with
reasonable and diligent efforts so long as such extension would not cause or
result in a material adverse effect or consequence to any portion of the Leased
Property;
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<PAGE> 23
and provided, further, however, there shall be (i) no Event of Default with
respect to nonpayment of the sum of the Agreed Amount (as defined therein) and
Base Amount (as defined therein) and (ii) no Event of Default under Section
11.8 of the MidCon Guaranty, as long as MidCon Guarantor's Consolidated
Adjusted Tangible Net Worth (as defined in the MidCon Guaranty) exceeds the sum
of (a) $1.5 billion and (b) 25% of MidCon Guarantor's cumulative consolidated
after tax net income subsequent to December 31, 1996.
"(e) If the Buyer's Guaranty shall be in effect and the Buyer
Guarantor fails to correct or cure a breach of any covenant or agreement of the
Buyer Guarantor contained in the Buyer's Guaranty except with respect to
non-payment of the sum of the Agreed Amount (as defined therein) and the Base
Amount (as defined therein) within thirty (30) days after Lessor has notified
the Buyer Guarantor in writing of any such breach thereof; provided, however,
that, to the extent Buyer Guarantor has commenced diligent and reasonable
efforts to effect a cure of such breach of any covenant or agreement of Buyer
Guarantor, other than a breach of any of the Buyer Pipeline Covenants, during
such thirty day period, such thirty day period shall be extended for so long as
Lessee continues to pursue such cure with reasonable and diligent efforts, so
long as such extension would not cause or result in a material adverse effect
or consequence to any portion of the Leased Property. For purposes of this
Section 17, (i) "Guarantor" shall mean the "MidCon Guarantor" until the Buyer
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<PAGE> 24
Guaranty becomes effective and the MidCon Guaranty is released pursuant to
Section 34 and thereafter the Buyer Guarantor, and (ii) "Guaranty" shall mean
the MidCon Guaranty until the Buyer's Guaranty becomes effective and the MidCon
Guaranty is released pursuant to Section 34 and thereafter the Buyer's
Guaranty.
"(f) any representation or warranty made by Lessee herein, or made
by any Guarantor, in the respective Guaranty or in any certificate or statement
delivered pursuant hereto or thereto shall prove to have been false or
misleading in any material respect on the date as of which made or deemed made;
"(g) (i) a default (as principal or guarantor) by either Lessee or
any Guarantor in payment when due of any principal or interest under any
instrument evidencing indebtedness for borrowed money or of any rental on any
lease or a revolving credit agreement (in each case, whether now existing or
hereafter created), or (ii) the occurrence of an event of default (with respect
to Lessee or any Guarantor) as defined in any mortgage, indenture or instrument
under which there may be issued, or by which there may be secured or evidenced,
any indebtedness for borrowed money of, or guaranteed by, Lessee or any
Guarantor (whether such indebtedness now exists or is hereafter created) and
the occurrence of such event of default causes such indebtedness to become
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<PAGE> 25
due and payable prior to its stated maturity or due date and has not been duly
waived in writing; provided, however, that no default under this subsection (g)
shall be deemed to exist as a result of a default or event of default (as
described in clause (i) or clause (ii) above) in respect of any such
indebtedness if the principal of and interest on such indebtedness, when added
to the principal of and interest on all other such indebtedness then in default
or the subject of such an event of default (exclusive of indebtedness under
subsection (a) above), does not exceed $75,000,000;
"(h) a decree, judgment or order by a court of competent
jurisdiction is entered adjudging Lessee, any Material Entity (as hereinafter
defined) or any Guarantor as bankrupt or insolvent, or ordering relief against
Lessee, any Material Entity or any Guarantor in response to the commencement of
an involuntary bankruptcy case, or approving as properly filed a petition
seeking reorganization or liquidation of Lessee, any Material Entity or any
Guarantor under any bankruptcy or similar law; or a decree or order of a court
of competent jurisdiction over the appointment of a receiver, liquidator,
trustee or assignee in bankruptcy or insolvency of Lessee, any Material Entity
or any Guarantor or of the property of Lessee, any Material Entity or any
Guarantor, or for the winding up or liquidation of the affairs of any of them
is entered;
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<PAGE> 26
"(i) any of Lessee, any Material Entity, or any Guarantor (i)
institutes voluntary bankruptcy proceedings, or consents to the filing of a
bankruptcy proceeding against it, or files a petition or answer or consent
seeking reorganization or liquidation under any bankruptcy or similar law or
similar statute, or consents to the filing of any such petition, (ii) consents
to the appointment of a custodian, receiver, liquidator, trustee, sequestrator,
assignee or similar official in bankruptcy or insolvency of it or any of its
assets or property, (iii) makes a general assignment for the benefit of
creditors, (iv) admits in writing its inability to pay its debts generally as
they become due, (v) within the meaning of Title 11, U.S. Code, or any similar
Federal, state or foreign law for the relief of debtors, becomes insolvent,
(vi) fails generally to pay its debts as they become due, or (vii) takes any
corporate action in furtherance of or to facilitate, conditionally or
otherwise, any of the foregoing; or
"(j) one or more judgments or decrees in an aggregate amount of
$60,000,000 or more is entered by a court or courts of competent jurisdiction
against Lessee or any Guarantor (other than any judgment as to which, and only
to the extent, a reputable insurance company has acknowledged coverage of such
claim in writing) and (i) any such judgments or decrees is not stayed,
discharged, paid, bonded or vacated within thirty (30) days or (ii) enforcement
proceedings are commenced by any creditor on any such judgments or decrees;
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<PAGE> 27
"The term "Material Entity" shall mean (i) Buyer Guarantor, or (ii) any of its
Subsidiaries which Subsidiaries own directly or indirectly, in the aggregate,
10% or more of consolidated total assets as set forth on the Buyer Guarantor's
audited consolidated financial statements as of the end of the most recently
completed fiscal year of the Buyer Guarantor."
PARAGRAPH 8. Notice
In Section 25, substitute the following for the address of Lessee:
If to Guarantor, as follows:
KN Energy, Inc.
370 Van Gordon
P.O. Box 281304
Lakewood, Colorado 80228-8304
Telephone: (303) 989-1740
Fax: (303) 763-3115
Attn: Vice President and Treasurer
PARAGRAPH 9. Guaranty
A new Section 34 shall be added to the Original Lease as follows:
"Section 34. Guaranty. MidCon provided the MidCon Guaranty with
regard to Lessee's performance of the Original Lease. The MidCon Guaranty
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<PAGE> 28
shall be in full force and effect upon the execution of this Amendment.
However, the Buyer has executed and delivered to Lessor the Buyer's Guaranty.
The Buyer's Guaranty shall become effective at such time as either (i) the
Buyer's Maximum Leveraged Percentage (as defined in Section 5.07 of the Buyer
Guarantor's Credit Agreement) applicable pursuant to Section 11(b)(i) of the
Buyer's Guaranty is reduced to sixty-seven percent (67%) in accordance with
that Section or (ii) the Lessor shall, at its option, elect by written notice
to Guarantor to make this Guaranty effective. In either case, Lessor agrees to
release the MidCon Guaranty.
PARAGRAPH 10. Options to Purchase and Purchase Upon Event of Loss
A new Section 35 shall be added to the Original Lease as follows:
Section 35. Options to Purchase and Event of Loss
In consideration of the Buyer Guarantor acquiring all the capital
stock of MidCon from OPC and providing the Buyer's Guaranty to Lessor, Lessor
hereby grants Lessee the option to purchase the Leased Property as set forth in
this Section 35. Each option to purchase the Leased Property and the
procedure for purchase upon an Event of Loss set forth in Section 35(b) shall
be subject to the condition that no Default or Event of Default shall have
occurred and be
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<PAGE> 29
continuing either at the date that notice of such election, or Notice of Event
of Loss, is given by Lessee or at the date that Lessee would purchase the
Leased Property.
(a) Option to Purchase at End of Term. Lessee is hereby granted the
option to purchase all (but no less than all) of the Leased Property upon the
expiration of the Term, as defined in Section 2, at a price equal to the Fair
Market Value of the Leased Property, as defined in Section 35(d). In order to
exercise this Option to Purchase, Lessee must give Lessor written notice of its
intent to exercise its option to purchase no later than fifteen (15) months
before the expiration of the Term.
(b) Purchase Upon Event of Loss.
Upon the occurrence of an Event of Loss with respect to the Leased
Property, Lessee shall promptly (and in any event within the earlier of thirty
(30) days after the occurrence of such Event of Loss and five days after a
responsible officer of Lessee obtains knowledge thereof) notify Lessor of such
Event of Loss. If the Option Price (as defined below) has been determined as
of such dates, on (i) the earlier of (A) the Determination Date next following
the date of receipt by Lessee of insurance proceeds in respect of such Event of
Loss or (B) the latest Determination Date that occurs on or before the date one
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<PAGE> 30
hundred eighty (180) days following the occurrence of such Event of Loss (or,
in each case under clause (A) and (B) above, such later Determination Date
immediately succeeding the date on which the Option Price is determined) or
(ii) in the event of condemnation, the next Determination Date following the
final condemnation award, Lessee shall pay to Lessor an amount equal to the
Option Price of the Leased Property, computed as of such Determination Date,
plus any rent payable on such date (it being understood and agreed that Lessee
shall continue to be obligated to pay all rent due on or prior to the
Determination Date on which such Option Price is due (notwithstanding the
occurrence of such Event of Loss)). Notwithstanding Sections 11 and 12, Lessee
shall not be obligated to replace the Leased Property upon the occurrence of an
Event of Loss. Upon payment by Lessee of the Option Price for the Leased
Property following an Event of Loss, together with all rent then due hereunder
(including, without limitation, all rent due on any date occurring on or prior
to the Determination Date on which such Option Price payment is due), (i) all
obligations of Lessee hereunder to pay rent in respect of the Leased Property,
and the Term, shall terminate and (ii) Lessor shall transfer to, or at the
direction of, Lessee, if applicable, the proceeds received by Lessor in the
event of condemnation from the relevant government authority as a result of the
condemnation as well as the remainder of the Leased Property. LESSEE'S
INDEMNIFICATION OBLIGATION AS DESCRIBED IN SECTION 10(A) SHALL BE IN FULL FORCE
AND EFFECT IF AN EVENT OF LOSS OCCURS.
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<PAGE> 31
"Determination Date" means the first day of each month during the Term
that is not a Saturday, Sunday, legal holiday or a day on which banking
institutions are authorized or required by law or other government actions to
close in New York City.
"Event of Loss", with respect to the Leased Property, means any of the
following events: (i) the loss of all or Substantially All of the Leased
Property or of the use thereof, due to the destruction of the Leased Property
through fire or other casualty; (ii) damage to the Leased Property which
renders all or Substantially All (as defined below) of the Leased Property
permanently unfit for normal use for any reason whatsoever; (iii) any event
that results in a total loss or constructive total loss of all or Substantially
All of the Leased Property or an insurance settlement with respect to the
Leased Property on the basis of such a total loss; (iv) the condemnation,
confiscation or seizure of all or Substantially All of the Leased Property by
any governmental authority or purported governmental authority; or (v) the
requisition of use by any governmental authority or purported governmental
authority which shall have resulted in the loss of possession of all or
Substantially All of the Leased Property by Lessee and such loss of possession
which shall have continued beyond the earlier of the balance of the Term and
one hundred eighty (180) consecutive days, unless waived by Lessor. In
determining if "Substantially All" of the Leased Property is
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<PAGE> 32
impacted as noted above, the impacted Leased Property must have a depreciated
value on Lessor's books for financial accounting purposes of eighty percent
(80%) or more of the depreciated value of the entire Leased Property on
Lessor's books for financial accounting purposes.
"Option Price", shall mean, with respect to the Leased Property, an
amount that, as of a given date, is equal to the higher of (i) the aggregate of
the nondiscounted value of all the rentals to be paid to Lessor pursuant to
Section 4 of the Lease during the remainder of the Term following such date or
(ii) the Fair Market Value of the Leased Property (before any Event of Loss,
if applicable) determined, as of such date, as provided in Section 35(d).
(c) Early Buyout Option. On and after February 1, 2008, Lessee
may purchase all (but not less than all) of the Leased Property on the purchase
date specified by Lessee for a price equal to the Option Price as of such date.
Upon payment by Lessee of the Option Price for the Leased Property pursuant to
this Section 35(c), together with all rent for the Leased Property then due
hereunder, all obligations of Lessee hereunder to pay rent for the Leased
Property, and the Term, shall terminate.
Not earlier than twenty-four (24) months and not later than fifteen
(15) months prior to the date specified for the purchase of the Leased
Property,
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<PAGE> 33
Lessee shall give Lessor notice (the "Fifteen Month Notice") of its election to
exercise the Early Buyout Purchase Option and the Business Day on which Lessee
intends to complete the purchase.
(d) In the event of the exercise of any of the options to purchase
or the purchase upon an Event of Loss in this Section 35, the following terms
and conditions shall apply:
(i) the "Fair Market Value" of the Leased Property shall
be determined by agreement between Lessor and Lessee or, if Lessor and Lessee
are unable to agree on a Fair Market Value by one hundred and eighty (180) days
either before the end of the Term or before the earlier date Lessee intends to
make the purchase under Sections 35(b) or 35(c), the Fair Market Value of the
Leased Property shall be determined by a team of three appointed appraisers
each having appropriate industry experience to make such valuation, with one
appraiser to be selected by Lessor, one appraiser to be selected by Lessee, and
the third appraiser to be selected by the first two appraisers. The
determination of Fair Market Value shall be the value agreed upon by at least
two of the appraisers and, if no such agreement is reached, then the average of
the two highest values determined by the appraisers.
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<PAGE> 34
(ii) LESSEE SHALL ACCEPT THE LEASED PROPERTY "AS IS,
WHERE IS," WITH ALL FAULTS AND WITHOUT ANY REPRESENTATION OR WARRANTY, EXPRESS,
IMPLIED OR STATUTORY, BY LESSOR AS TO THE TITLE TO THE LEASED PROPERTY, THE
NATURE, CONDITION (INCLUDING, WITHOUT LIMITATION, THE ENVIRONMENTAL CONDITION)
OR USABILITY THEREOF. LESSEE HEREBY RELEASES AND WAIVES ANY AND ALL CLAIMS,
DEMANDS, LOSSES, LIABILITIES, DAMAGES COSTS, OR EXPENSES OF ANY KIND OR NATURE
(INCLUDING ATTORNEYS' FEES AND COURT COSTS), INCLUDING DAMAGES FOR PERSONAL
INJURY OR DEATH OR PROPERTY LOSS (COLLECTIVELY, "LOSSES"), ARISING OUT OF OR
RELATED TO THE FOREGOING, EVEN IF SUCH LOSSES ARISE OUT OF OR ARE RELATED TO
(OR ALLEGEDLY ARISE OUT OF OR ARE RELATED TO ) THE SOLE, JOINT OR CONCURRENT
NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OF LESSOR OR ANY LESSOR INDEMNIFIED
PARTY.
Lessor shall transfer title in and to all of the Leased Property to or
at the direction of Lessee, and shall furnish to or at the direction of Lessee,
at the expense of Lessee, one or more bills of sale and deeds, in form and
substance reasonably satisfactory to Lessee, evidencing such transfer all in
accordance with the foregoing paragraph.
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<PAGE> 35
(iii) Lessee agrees to obtain all consents and approvals
for the transfer of the Leased Property and to pay all transfer taxes or other
assessments for the transfer of the Leased Property and all costs arising from
the transfer.
PARAGRAPH 11. Lessor's Covenants, Representation and Warranties
Section 36 shall be added to the Original Lease as follows:
"Section 36. Lessor's Covenants, Representations and Warranties.
"(a) Representations and Warranties of Lessor. Lessor represents
and warrants to Lessee that:
(i) Lessor is a limited partnership duly organized,
validly existing and in good standing under the laws of Delaware and has the
power and authority and the legal right to own and operate its property, to
lease the property it operates and to conduct the business in which it is
currently engaged;
(ii) Lessor has the power and authority and the legal
right to execute and deliver, and to perform its obligations under, this Lease,
and
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<PAGE> 36
has taken all necessary action to authorize its execution, delivery and
performance of this Lease; and
(iii) This Lease constitutes a legal, valid and binding
obligation of Lessor enforceable in accordance with its terms, except as may be
affected by (i) bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting the enforcement of
creditors' rights generally and (ii) general equitable principles, including
the implied covenant of good faith and fair dealing."
"(b) Covenants of Lessor. Lessor covenants and agrees with Lessee
as follows:
(i) Lessor Liens. Lessor warrants, agrees and covenants
that it will not, directly or indirectly, create, incur, assume or suffer to
exist, and, at its expense (without any right of indemnity under this Lease),
shall promptly take such action as may be necessary duly to discharge a lien,
mortgage, deed of trust, encumbrance, pledge, charge, lease, easement,
servitude or security interest of any kind (collectively, "Lien") against any
portion of the Leased Property (i) in favor of any taxing authority by reason
of the nonpayment by Lessor (or any affiliate thereof) of any tax or assessment
(other than Taxes relating to the Leased Property for which Lessee is
responsible hereunder and
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<PAGE> 37
other than taxes being diligently contested by appropriate proceedings) imposed
on Lessor or (ii) that results from any act of, or failure to act by, or in
connection with claims against, Lessor (or any affiliate thereof from and after
the Effective Date), unrelated to its ownership of, or interest in, such
portion of the Leased Property or the transactions contemplated by this Lease
(other than Liens arising in the ordinary course of Lessor's business which are
diligently being contested by Lessor and which will not subject the Leased
Property to forfeiture). In any event, Lessee's obligation under this Lease to
take action to remove or satisfy Non-Permitted Liens pursuant to Section 13(a)
shall remain in full force and effect."
"(ii) Quiet Enjoyment. Subject to Lessor's rights to
terminate this Lease, or take possession of the Leased Property under Section
17, and subject to all other rights of Lessor described in the Lease,
including, but not limited to, Sections 1, 3, 4, 5, 8, 10, 14, 18, 19, 20, 24
and 26, Lessor warrants, agrees and covenants that, unless a Default or an
Event of Default shall have occurred and be continuing, Lessor, any Person
acting by, through or under Lessor or deriving its rights from Lessor, and any
successor or assign of Lessor or any such Person, shall, during the Term take
no action inconsistent with the right of Lessee, its successor and permitted
assigns to peaceably and quietly have, hold, use and enjoy possession of the
Leased Property or any portion thereof as provided herein. Nothing in this
Section shall negate or limit the
- 37 -
<PAGE> 38
rights granted to Lessor, or the obligations of Lessee, under this Lease as
amended under Section 28."
PARAGRAPH 12.
Except as specifically modified by this Amendment, the other terms and
conditions of the Original Lease as modified or waived only by agreements in
writing signed by both Lessor and Lessee shall remain in full force and effect
as provided in Section 28.
WITNESS THE EXECUTION HEREOF, as of the date first set forth
hereinabove.
LESSOR
MIDCON TEXAS PIPELINE, L.P.
BY ITS GENERAL PARTNER
MIDCON GAS PARTNERS, INC.
By:
-----------------------------
Name: David C. Yen
Title: Vice President & Treasurer
LESSEE
MIDCON TEXAS PIPELINE
OPERATOR, INC.
By:
-----------------------------
Name: David C. Yen
Title: Vice President & Treasurer
- 38 -
<PAGE> 39
STATE OF CALIFORNIA )
) S.S.
COUNTY OF LOS ANGELES )
On January 30, 1998, before me, Sharon C. Fierro, the undersigned
notary public, personally appeared David C. Yen, personally known to me to be
the person whose name is subscribed to the within instrument and acknowledged
to me that he executed the same in his authorized capacity, and that by his
signature on the instrument, the entities upon behalf of which he signed,
executed the instrument.
WITNESS my hand and official seal.
- -------------------------------------
Notary Public in and for the State of
California
[Notarial Seal]
- 39 -
<PAGE> 40
CONSENT AND ACKNOWLEDGMENT
The undersigned Guarantor, by its signature hereto, acknowledges and
agrees to the terms and conditions of that certain Amendment Number One to
Intrastate Pipeline System Lease entered into by and between MidCon Texas
Pipeline, L.P. (Lessor) and MidCon Texas Pipeline Operator, Inc. (Lessee) as
of 11:59 p.m. Central Standard Time on January 31, 1998 (the "Amendment"). The
undersigned acknowledges and reaffirms its obligations owing under the Guaranty
and Agreement dated December 31, 1996 for the benefit of Lessor (defined in
Paragraph 7 of the Amendment as the "MidCon Guaranty") and agrees that such
Guaranty shall remain in full force and effect. Although the undersigned
Guarantor has been informed by the Lessor of the matters set forth in the
Amendment, and the undersigned has acknowledged and agreed to same, the
undersigned understands and agrees that the Lessor has no duty to notify
Guarantor or to seek Guarantor's acknowledgment or agreement, and nothing
contained herein shall create such a duty as to any transactions or amendments
hereafter.
Capitalized terms not otherwise defined herein shall have the meanings
assigned to such terms in the Intrastate Pipeline System Lease as modified by
the Amendment.
January 30, 1998
MIDCON CORP.
By:
--------------------------------
Name: David C. Yen
Title: Vice President & Treasurer
- 40 -
<PAGE> 1
EXHIBIT 12
K N ENERGY, INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Earnings:
Income From Continuing Operations
per Statements of Income $ 77,497 $ 63,819 $ 52,522 $ 15,321 $ 30,869
Add:
Interest and Debt Expense 51,248 37,760 34,316 32,009 31,478
Income Taxes 35,661 35,897 29,050 9,500 18,599
Portion of Rents Representative
of the Interest Factor 12,473 7,417 5,082 3,492 2,863
Less:
Undistributed Earnings of less than 50%
Owned Unconsolidated Subsidiaries 3,875 -- -- -- --
-------- -------- -------- -------- --------
Income as Adjusted $173,004 $144,893 $120,970 $ 60,322 $ 83,809
======== ======== ======== ======== ========
Fixed Charges:
Interest and Debt Expense per
Statements of Income
(Includes Amortization of Debt
Discount, Premium and Expense) $ 43,495 $ 35,933 $ 34,211 $ 31,815 $ 30,909
Add:
Interest Capitalized 7,753 1,827 105 338 965
Portion of Rents Representative
of the Interest Factor 12,473 7,417 5,082 3,492 2,863
Preferred Stock Dividends of
Subsidiary -- -- -- -- 69
-------- -------- -------- -------- --------
Fixed Charges $ 63,721 $ 45,177 $ 39,398 $ 35,645 $ 34,806
======== ======== ======== ======== ========
Ratio of Earnings to Fixed Charges 2.72 3.21 3.07 1.69 2.41
======== ======== ======== ======== ========
</TABLE>
<PAGE> 1
EXHIBIT 13
K N ENERGY, INC.
1997 ANNUAL REPORT TO SHAREHOLDERS
Interested persons may receive a copy of the Company's 1997 Annual Report to
Shareholders without charge by forwarding a written request to: K N Energy,
Inc., Investor Relations Department, P. O. Box 281304, Lakewood, Colorado
80228-8304.
<PAGE> 1
EXHIBIT 21
K N ENERGY, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
NAME OF COMPANY STATE OF INCORPORATION
- --------------- ----------------------
<S> <C>
AOG Gas Transmission Company, L.P......................................................................... Texas
AOG Holdings, Inc. ....................................................................................... Delaware
American Gas Storage, L.P. ............................................................................... Texas
American Gathering, L.P. ................................................................................. Texas
American Oil & Gas Corporation............................................................................ Delaware
American Pipeline Company ................................................................................ Delaware
American Processing, L.P. ................................................................................ Texas
Caprock Pipeline Company ................................................................................. Delaware
Compressor Pump & Engine Machine, Inc. ................................................................... Wyoming
en*able, LLC*............................................................................................. Delaware
Gas Natural del Noroeste, S.A. de C.V. ................................................................... Mexico
K N Energy International, Inc. ........................................................................... Delaware
K N Energy de Mexico, S.A. de C.V. ....................................................................... Mexico
K N Field Services, Inc. ................................................................................. Colorado
K N Finance Company ...................................................................................... Colorado
K N Gas Gathering, Inc.................................................................................... Colorado
K N Gas Supply Services, Inc. ............................................................................ Colorado
K N Interstate Gas Transmission Co. ...................................................................... Colorado
K N Marketing, L.P. ...................................................................................... Texas
K N Natural Gas, Inc. .................................................................................... Colorado
K N Processing, Inc. ..................................................................................... Delaware
K N Services, Inc. ....................................................................................... Colorado
K N Trading, Inc. .................................................................................... Delaware
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
K N TransColorado, Inc. .................................................................................. Colorado
K N Wattenberg Transmission Limited Liability Company..................................................... Colorado
K N WesTex Gas Service Company............................................................................ Texas
mc(2) Inc.* .............................................................................................. Delaware
MCN Gulf Processing Corp.* ............................................................................... Delaware
MCN Overseas Inc.* ....................................................................................... Delaware
MCN Properties Corp.* .................................................................................... Delaware
MGS Marketing Corp.* ..................................................................................... Delaware
MidCon Corp.* ............................................................................................ Delaware
MidCon Business Services Corp.* .......................................................................... Delaware
MidCon Dehydration Corp.* ................................................................................ Delaware
MidCon Development Corp.* ................................................................................ Delaware
MidCon Exploration Company* .............................................................................. Illinois
MidCon Gas Natural de Mexico, S.A. de C.V.* .............................................................. Mexico
MidCon Gas Products Corp.* ............................................................................... Delaware
MidCon Gas Products of New Mexico Corp.* ................................................................. Delaware
MidCon Gas Services Corp.* ............................................................................... Delaware
MidCon Management Corp.* ................................................................................. Delaware
MidCon Marketing Corp.* .................................................................................. Delaware
MidCon Mexico Pipeline Corp.* ............................................................................ Delaware
MidCon NGL Corp.* ........................................................................................ Delaware
MidCon NGV Corp.* ........................................................................................ Delaware
MidCon Razorback Pipeline Corp.* ......................................................................... Delaware
MidCon Texas Gas Limited, Inc.* .......................................................................... Delaware
MidCon Texas Gas Services Corp.* ......................................................................... Delaware
MidCon Texas Pipeline Operator, Inc.* .................................................................... Delaware
MidTex Pipeline Company* ................................................................................. Delaware
NALOCO, Inc.* ............................................................................................ Delaware
NATOCO, Inc.* ............................................................................................ Delaware
Natural Gas Pipeline Company of America* ................................................................. Delaware
NGPL-Canyon Compression Co.* ............................................................................. Delaware
NGPL Independence Pipeline Company* ...................................................................... Delaware
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
NGPL Offshore Company* ................................................................................... Delaware
NGPL-Overthrust Inc.* .................................................................................... Delaware
NGPL-TIPCO, Inc.* ........................................................................................ Delaware
NGPL-Trailblazer Inc.* ................................................................................... Delaware
Northern Gas Company. .................................................................................... Wyoming
Occidental Energy Development Corp.* ..................................................................... Delaware
Palo Duro Pipeline Company, Inc.* ........................................................................ Delaware
Panola/Rusk Gatherers .................................................................................... Texas
Red River Pipeline, L.P. ................................................................................. Texas
Rocky Mountain Natural Gas Company........................................................................ Colorado
Slurco Corporation ....................................................................................... Colorado
TCP Gathering Co. ........................................................................................ Colorado
United Texas Transmission Company* ....................................................................... Delaware
Westar Transmission Company............................................................................... Delaware
Wildhorse Energy Partners, LLC............................................................................ Delaware
</TABLE>
All of the subsidiaries named above are included in the consolidated financial
statements of the Registrant included herein, except those marked with an
asterisk.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in (i) Registration Statements on Form S-16, File Nos. 2-51894,
2-55664, 2-63470 and 2-75654; (ii) Registration Statements on Form S-8, File
Nos. 2-77752, 33-10747, 33-24934, 33-33018, 33-54403, 33-54443, 33-54555,
333-08059 and 333-08087; and (iii) Registration Statements on Form S-3, Files
Nos. 2-84910, 33-26314, 33-23880, 33-42698, 33-44871, 33-45091, 33-46999,
33-54317, 33-69432, 333-04385, 333-40869 and 333-44421 of our report dated
February 3, 1998, on the consolidated financial statements of K N Energy, Inc.
and subsidiaries for the year ended December 31, 1997 included in this Form
10-K.
/s/ Arthur Andersen LLP
Denver, Colorado
March 5, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 22,741
<SECURITIES> 0
<RECEIVABLES> 409,937
<ALLOWANCES> 0
<INVENTORY> 47,034
<CURRENT-ASSETS> 576,530
<PP&E> 1,971,601
<DEPRECIATION> 550,626
<TOTAL-ASSETS> 2,305,805
<CURRENT-LIABILITIES> 796,811
<BONDS> 553,816
0
7,000
<COMMON> 160,123
<OTHER-SE> 446,009
<TOTAL-LIABILITY-AND-EQUITY> 2,305,805
<SALES> 2,145,118
<TOTAL-REVENUES> 2,145,118
<CGS> 1,724,671
<TOTAL-COSTS> 2,002,869
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,495
<INCOME-PRETAX> 113,158
<INCOME-TAX> 35,661
<INCOME-CONTINUING> 77,497
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 77,497
<EPS-PRIMARY> 2.48
<EPS-DILUTED> 2.45
</TABLE>
<PAGE> 1
EXHIBIT 99
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in Registration Statements on Form S-3, File Nos. 333-04385,
333-40869 and 333-44421, of our report dated January 23, 1998 on MidCon Corp.'s
consolidated financial statements for the year ended December 31, 1997, included
in the K N Energy, Inc. Form 8-K/A dated February 12, 1998, and to all
references to our Firm included in these Registration Statements.
/s/ Arthur Andersen LLP
Chicago, Illinois
March 5, 1998
