UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
------------------------------
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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KINDER MORGAN, INC.
- -----------------------------------------------------------------
(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
incorporation or organization) Identification No.)
1301 McKinney, Suite 3400,
Houston, Texas 77010
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(Address of principal executive offices) (Zip Code)
(713) 844-9500
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(Registrant's telephone number, including area code)
K N ENERGY, INC., 370 Van Gordon Street, P.O. Box 281304,
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Lakewood, Colorado, 80228-8304
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(Former name, former address and former fiscal year, if changed
since last report)
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common stock, $5 par value; authorized 150,000,000 shares;
- -----------------------------------------------------------------
outstanding 112,559,793 shares as of October 22, 1999.
- ------------------------------------------------------
<PAGE> 2 Form 10-Q
KINDER MORGAN, INC. (FORMERLY K N ENERGY, INC.) AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
Contents
PART I.FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) Page Number
-----------
Consolidated Balance Sheets............................ 3 & 4
Consolidated Statements of Income...................... 5
Consolidated Statements of Cash Flows.................. 6
Notes to Consolidated Financial Statements............. 7 - 19
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 20 - 33
Item 3. Quantitative and Qualitative Disclosures About
Market Risk............................................ 33
PART II OTHER INFORMATION
Item 1. Legal Proceedings....................................... 34
Item 2. Changes in Securities and Use of Proceeds............... 34
Item 4. Submission of Matters to a Vote of Security Holders..... 35
Item 5 Other Information....................................... 35 & 36
Item 6. Exhibits and Reports on Form 8-K........................ 36 & 37
SIGNATURE......................................................... 38
<PAGE> 3 Form 10-Q
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS (Unaudited)
Kinder Morgan, Inc. (Formerly K N Energy, Inc.) and Subsidiaries
(Dollars in Thousands)
<TABLE>
<CAPTION>
September 30 December 31
1999 1998
------------- -------------
<S> <C> <C>
ASSETS:
Current Assets:
Cash and Cash Equivalents $ 22,459 $ 21,955
Restricted Deposits 7,461 9,096
U.S. Government Securities - 1,092,415
Accounts Receivable 660,988 693,044
Inventories 134,209 144,831
Gas Imbalances 84,477 85,349
Other 51,265 46,812
---------- ----------
960,859 2,093,502
---------- ----------
Investments 257,570 252,543
---------- ----------
Property, Plant and Equipment 7,767,790 7,767,332
Less Accumulated Depreciation and Amortization 880,768 744,156
---------- ----------
6,887,022 7,023,176
---------- ----------
Deferred Charges and Other Assets 246,690 242,991
---------- ----------
Total Assets $8,352,141 $9,612,212
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 4 Form 10-Q
CONSOLIDATED BALANCE SHEETS (Unaudited)
Kinder Morgan, Inc. (Formerly K N Energy, Inc.) and Subsidiaries
(Dollars in Thousands)
<TABLE>
<CAPTION>
September 30 December 31
1999 1998
------------- -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Current Maturities of Long-term Debt $ 7,167 $ 10,167
Notes Payable 578,700 297,000
Substitute Note - 1,394,846
Accounts Payable 543,811 489,414
Accrued Taxes 28,474 18,914
Gas Imbalances 68,925 74,857
Payable for Purchase of Thermo Companies 43,762 86,799
Other 201,385 247,465
---------- ----------
1,472,224 2,619,462
---------- ----------
Other Liabilities and Deferred Credits:
Deferred Income Taxes 1,696,908 1,699,072
Other 321,354 431,565
---------- ----------
2,018,262 2,130,637
---------- ----------
Long-term Debt 3,298,484 3,300,025
---------- ----------
KMI-Obligated Mandatorily Redeemable Preferred
Capital Trust Securities of Subsidiary Trusts
Holding Solely Debentures of KMI 275,000 275,000
---------- ----------
Minority Interests in Equity of Subsidiaries 64,213 63,267
---------- ----------
Stockholders' Equity:
Preferred Stock, Class A, 0 and 70,000 Shares
Outstanding - 7,000
---------- ----------
Common Stock-
Authorized - 150,000,000 Shares, Par
Value $5 Per Share
Outstanding - 70,893,517 and 68,597,308
Shares, Respectively,
After Deducting 73,936 and 48,598 Shares
Held in Treasury 354,837 343,230
Additional Paid-in Capital 731,199 694,223
Retained Earnings 141,663 193,925
Other (3,741) (14,557)
---------- ----------
Total Common Stockholders' Equity 1,223,958 1,216,821
---------- ----------
Total Stockholders' Equity 1,223,958 1,223,821
---------- ----------
Total Liabilities and Stockholders' Equity $8,352,141 $9,612,212
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 5 Form 10-Q
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Kinder Morgan, Inc. (Formerly K N Energy, Inc.) and Subsidiaries
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------------------ ------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating Revenues:
Upstream Gathering and Processing $ 187,668 $ 156,674 $ 485,364 $ 447,084
Midstream Sales, Transportation and Storage 445,116 414,717 1,177,494 1,089,397
Downstream Retail and Marketing 1,136,678 656,629 2,740,341 2,112,923
Intersegment Eliminations (310,773) (181,803) (699,181) (384,341)
---------- ---------- ---------- ----------
Total Operating Revenues 1,458,689 1,046,217 3,704,018 3,265,063
---------- ---------- ---------- ----------
Operating Costs and Expenses:
Gas Purchases and Other Costs of Sales 1,233,615 792,289 2,995,953 2,526,966
Operations and Maintenance 70,072 60,659 199,963 190,354
General and Administrative 32,039 31,977 103,799 92,769
Depreciation and Amortization 40,990 52,999 147,993 142,198
Taxes, Other Than Income Taxes 13,611 14,449 41,274 39,736
Merger-related and Severance Costs 10,962 - 10,962 5,763
---------- ---------- ---------- ----------
Total Operating Costs and Expenses 1,401,289 952,373 3,499,944 2,997,786
---------- ---------- ---------- ----------
Operating Income 57,400 93,844 204,074 267,277
---------- ---------- ---------- ----------
Other Income and (Deductions):
Interest Expense, Net (69,734) (64,507) (210,505) (178,340)
Minority Interests (5,636) (4,394) (16,789) (11,390)
Other, Net 15,202 14,861 36,607 28,032
---------- ---------- ---------- ----------
Total Other Income and (Deductions) (60,168) (54,040) (190,687) (161,698)
---------- ---------- ---------- ----------
Income (Loss) from Continuing Operations
Before Income Taxes (2,768) 39,804 13,387 105,579
Income Taxes (Benefit) (1,079) 14,730 5,221 39,067
---------- ---------- ---------- ----------
Income (Loss) from Continuing Operations (1,689) 25,074 8,166 66,512
---------- ---------- ---------- ----------
Discontinued Operations, Net of Tax (Note 6):
Loss from Discontinued Operations (1,350) (599) (6,491) (2,840)
Loss on Disposal of Discontinued Operations (11,479) - (11,479) -
---------- ---------- ---------- ----------
Total Loss from Discontinued Operations (12,829) (599) (17,970) (2,840)
---------- ---------- ---------- ----------
Net Income (Loss) (14,518) 24,475 (9,804) 63,672
Less - Preferred Stock Dividends - 88 129 263
Less - Premium Paid on Preferred Stock
Redemption - - 350 -
---------- ---------- ---------- ----------
Earnings (Loss) Available For Common Stock $ (14,518) $ 24,387 $ (10,283) $ 63,409
========== ========== ========== ==========
Number of Shares Used in Computing
Basic Earnings Per Common Share 70,914 67,493 70,363 62,534
========== ========== ========== ==========
Basic Earnings (Loss) Per Common Share:
Continuing Operations $ (0.02) $ 0.37 $ 0.11 $ 1.06
Discontinued Operations $ (0.02) $ (0.01) $ (0.09) $ (0.05)
Disposal of Discontinued Operations $ (0.16) $ - $ (0.17) $ -
---------- ---------- ---------- ----------
Total Basic Earnings (Loss) Per Common Share $ (0.20) $ 0.36 $ (0.15) $ 1.01
========== ========== ========== ==========
Number of Shares Used in Computing
Diluted Earnings Per Common Share 70,914 67,991 70,441 63,225
========== ========== ========== ==========
Diluted Earnings (Loss) Per Common Share:
Continuing Operations $ (0.02) $ 0.37 $ 0.11 $ 1.05
Discontinued Operations $ (0.02) $ (0.01) $ (0.09) $ (0.05)
Disposal of Discontinued Operations $ (0.16) $ - $ (0.17) $ -
---------- ---------- ---------- ----------
Total Diluted Earnings (Loss) Per Common Share $ (0.20) $ 0.36 $ (0.15) $ 1.00
========== ========== ========== ==========
Dividends Per Common Share $ 0.20 $ 0.19 $ 0.60 $ 0.56
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 6 Form 10-Q
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Kinder Morgan, Inc. (Formerly K N Energy, Inc.) and Subsidiaries
Increase (Decrease) in Cash and Cash Equivalents
(In Thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
----------------------------------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from Continuing Operations $ 8,166 $ 66,512
Adjustments to Reconcile Income from Continuing
Operations to Net Cash Flows from Operating Activities:
Depreciation and Amortization, Excluding Amortization
of Gas Plant Acquisition Adjustment 78,915 71,137
Deferred Income Taxes (1,607) 13,867
Deferred Purchased Gas Costs 5,799 13,151
Net Gains on Sales of Facilities (30,942) (18,424)
Proceeds from Buyout of Contractual Gas Purchase
Obligations - 27,500
Change in Gas in Underground Storage 12,437 (69,478)
Changes in Other Working Capital Items (Note 9) 61,177 (57,160)
Changes in Deferred Revenues (10,520) 14,567
Other, Net 12,769 (49,732)
---------- ----------
Net Cash Flows From Continuing Operations 136,194 11,940
Net Cash Flows From Discontinued Operations (12,647) (8,845)
---------- ----------
NET CASH FLOWS FROM OPERATING ACTIVITIES 123,547 3,095
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (84,126) (205,320)
Cash Paid for Acquisition of MidCon, Net of Cash
Acquired - (2,181,954)
Other Acquisitions (39,810) (15,327)
Investments - Continuing Operations (40,643) (9,248)
Investments - Discontinued Operations (6,088) (9,900)
Sale of U.S. Government Securities 1,092,415 1,093,591
Purchase of U.S. Government Securities - (2,182,192)
Purchase of U.S. Government Securities as Collateral
for Thermo Purchase Obligation - (34,028)
Proceeds from Sale of Tom Brown, Inc. Preferred Stock 28,650 -
Proceeds from Sales of Other Assets 89,562 28,795
---------- ----------
NET CASH FLOWS PROVIDED BY (USED IN) INVESTING
ACTIVITIES 1,039,960 (3,515,583)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term Debt, Net (1,113,146) 425,812
Long-term Debt - Issued - 2,350,000
Long-term Debt - Retired (5,167) (23,627)
Common Stock Issued in Public Offering - 650,000
Other Common Stock Issued 5,590 11,694
Mandatorily Redeemable Trust Securities Issued - 175,000
Preferred Stock Redeemed (7,350) -
Treasury Stock Acquired (309) (580)
Cash Dividends, Common and Preferred (42,458) (37,903)
Minority Interests, Net 934 16,844
PEPS Contract Fees (1,097) -
Securities Issuance Costs - (52,142)
---------- ----------
NET CASH FLOWS (USED IN) PROVIDED BY FINANCING
ACTIVITIES (1,163,003) 3,515,098
========== ==========
Net Increase in Cash and Cash Equivalents 504 2,610
Cash and Cash Equivalents at Beginning of Period 21,955 22,471
---------- ----------
Cash and Cash Equivalents at End of Period $ 22,459 $ 25,081
========== ==========
</TABLE>
For supplemental cash flow information, see Note 9.
The accompanying notes are an integral part of these statements.
<PAGE> 7 Form 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. General
-------
Effective with K N Energy, Inc.'s acquisition of Kinder Morgan,
Inc., a Delaware corporation ("Kinder Morgan Delaware"), K N
Energy, Inc. changed its name to Kinder Morgan, Inc. As used
herein, "Kinder Morgan", "KMI" or the "Company" refers to Kinder
Morgan, Inc. (a Kansas corporation and formerly K N Energy, Inc.)
and its consolidated subsidiaries unless the context otherwise
requires (see Note 2). In the opinion of Management, all
adjustments necessary for a fair presentation of the results for
the unaudited interim periods have been made. Except as
explicitly noted, these adjustments consist solely of normal
recurring accruals. Certain prior period amounts have been
reclassified to conform to the current presentation.
2. Business Combinations
---------------------
On July 8, 1999, K N Energy, Inc. announced the signing of an
agreement and plan of merger to acquire Kinder Morgan Delaware,
the sole stockholder of the general partner of Kinder Morgan
Energy Partners, L. P. ("KMEP"). KMEP is the nation's largest
pipeline master limited partnership. It owns and operates one of
the largest product pipeline systems in the United States,
serving customers in sixteen states with more than 5,000 miles of
pipeline and over twenty associated terminals. KMEP also
operates 24 bulk terminal facilities which transload over 40
million tons of coal, petroleum coke and other products annually.
In addition, KMEP owns 51 percent of Plantation Pipe Line Company
and 20 percent of Shell CO2 Company, Ltd.
This merger was completed on October 7, 1999. Pursuant to the
terms of the merger agreement, K N Energy, Inc. issued
approximately 41.5 million shares of its common stock in exchange
for all of the outstanding shares of Kinder Morgan Delaware.
On October 7, 1999, the Company issued 200,000 shares of its common
stock to Petrie Parkman (the "Petrie Shares") pursuant to the terms
of the engagement letter between Petrie Parkman and the Company
dated as of June 24, 1999, as amended as of August 20, 1999, in
consideration for Petrie Parkman's advisory services rendered in
connection with the acquisition of Kinder Morgan Delaware. The
issuance of the Petrie Shares was exempt from registration under
Section 4(2) of the Securities Act of 1933, as amended.
Upon closing of the transaction, Richard D. Kinder, Chairman and
Chief Executive Officer of Kinder Morgan Delaware, was named
Chairman and Chief Executive Officer of the Company, which was
renamed Kinder Morgan, Inc. This merger will be recorded as a
purchase for accounting purposes, with the Company's general and
limited partnership interests in KMEP reported as an investment
in the statement of financial position.
On February 22, 1999, Sempra Energy ("Sempra") and the Company
announced that their respective boards of directors had
unanimously approved a definitive agreement under which Sempra
and the Company would combine in a stock-and-cash transaction
valued in the aggregate at $6.0 billion. On June 21, 1999,
Sempra and the Company announced that they had mutually agreed to
terminate the merger agreement. Sempra reimbursed the Company
$5.95 million for expenses incurred in connection with the
proposed merger.
During the third quarter of 1998, the Company completed its
acquisition of interests in four independent power plants in
Colorado from the Denver-based Thermo Companies ("Thermo"),
representing approximately 380 megawatts of electric generation
capacity and access to approximately 130 Bcf of natural gas
reserves. These generating facilities are located in Ft. Lupton,
Colorado (272 megawatts) and Greeley, Colorado (108 megawatts)
and sell their power output to Public Service Company of Colorado
under long-term agreements. Payments for these interests are
being made over a two-year period, with the initial payment of
689,810 shares
<PAGE> 8 Form 10-Q
(1,034,715 shares adjusted for the December 1998
three-for-two stock split) of the Company's common stock having
been made on October 21, 1998. Additional payments were made on
January 4, 1999, consisting of 833,623 shares of the Company's
common stock and $15 million in cash, and on April 20, 1999,
consisting of 1,232,286 shares of the Company's common stock and
$20 million in cash. The remaining payment, due in 2000, is
expected to be made in a combination of cash and common stock as
agreed to by the Company and Thermo, with the default mix being
50 percent stock and 50 percent cash. This transaction was
accounted for as a purchase.
On January 30, 1998, pursuant to a definitive stock purchase
agreement (the "MidCon Agreement"), the Company acquired all of
the outstanding shares of capital stock of MidCon Corp.
("MidCon") from Occidental Petroleum Corporation ("Occidental")
for $2.1 billion in cash and the assumption of a $1.4 billion
note (the "Substitute Note"), at which time MidCon became a
wholly owned subsidiary of K N Energy, Inc. (the "Acquisition").
The Substitute Note bore interest at 5.798% and was required to
be collateralized by U.S. government securities, letters of
credit or a combination thereof. The Substitute Note was paid in
full on January 4, 1999. In conjunction with the Acquisition,
the Company also assumed MidCon's obligation to lease the MidCon
Texas intrastate pipeline system under a 30-year operating lease,
requiring average annual lease payments of approximately $30
million. The Acquisition was initially financed through a
combination of credit agreements (see Note 11).
The Acquisition was accounted for as a purchase for accounting
purposes and, accordingly, the MidCon assets acquired and
liabilities assumed were recorded at their respective estimated
fair market values as of the acquisition date. The allocation of
purchase price resulted in the recognition of a gas plant
acquisition adjustment of approximately $3.9 billion, principally
representing the excess of the assigned fair market value of the
assets of Natural Gas Pipeline Company of America ("NGPL"), a
wholly owned subsidiary of MidCon, over the historical cost for
ratemaking purposes. This gas plant acquisition adjustment, none
of which is currently being recognized for rate-making purposes,
is being amortized over 55 years (see Note 4), approximately the
estimated remaining useful life of NGPL's interstate pipeline
system. For the three months ended September 30, 1999 and 1998,
$14.6 million and $26.7 million of such amortization,
respectively, was charged to expense. For the nine months ended
September 30, 1999 and 1998, $69.1 million and $71.1 million,
respectively, was charged to expense. The assets, liabilities
and results of operations of MidCon are included with those of
the Company beginning with the January 30, 1998 acquisition date.
For the nine months ended September 30, 1998, operating revenues,
net income, diluted earnings per common share and number of
shares used in computing diluted earnings per share, on a pro
forma basis to reflect the acquisition of MidCon, were $3,519.3
million, $67.6 million, $1.07 and 63.225 million, respectively.
3. Merger-related and Severance Costs
----------------------------------
In anticipation of the completion of the transaction with Kinder
Morgan Delaware, during the third quarter the Company terminated
the employment of a number of its officers and certain other
employees. In conjunction with these terminations, the Company
agreed to provide certain severance benefits and incurred certain
legal and other associated costs. These amounts, totaling
approximately $11.0 million pre-tax ($6.7 million after tax or
$0.09 per diluted share) are included in the accompanying interim
Consolidated Statements of Income under the caption "Merger-
related and Severance Costs" for the three months and nine months
ended September 30, 1999. The $5.8 million pre-tax ($3.6 million
after tax or $0.06 per diluted share) included under the same
caption for the nine months ended September 30, 1998 represents
costs associated with the Company's January 30, 1998 acquisition
of MidCon Corp. For additional information on these business
combinations, see Note 2.
<PAGE> 9 Form 10-Q
In addition, the Company has notified a number of additional
employees that their employment will be terminated as a result of
cost saving initiatives implemented following the closing of the
Kinder Morgan Delaware transaction. The substantial majority of
these employees will be terminated during 1999, with the
remainder during early 2000. A significant amount of severance
and associated costs for these employees will be recorded during
the fourth quarter of 1999.
4. Change in Accounting Estimate
-----------------------------
Pursuant to a revised study of the useful lives of the underlying
assets by an independent third party, in July 1999, the Company
changed the depreciation rates associated with the gas plant
acquisition adjustment recorded in conjunction with the
acquisition of MidCon Corp. This change had the effect of
decreasing "Depreciation and Amortization" by approximately $12.4
million and increasing "Income from Continuing Operations" and
"Net Income" for the quarter and nine months ended September 30,
1999 by approximately $7.6 million or $0.11 per diluted share.
5. Investments and Sales
---------------------
On September 30, 1999, the Company sold its interests in Stingray
Pipeline Company, L.L.C., an offshore pipeline that gathers
natural gas, and West Cameron Dehydration Company, L.L.C., which
dehydrates natural gas for shippers on the Stingray Pipeline.
The Company received approximately $24 million in cash from the
sale and recorded a pre-tax gain of $11.4 million (approximately
$6.9 million after tax or $0.10 per diluted share). With this
sale, the Company completed its divestiture of its major offshore
interests.
On September 3, 1999, the Company sold 1,000,000 shares of Tom
Brown, Inc. preferred stock for approximately $29 million in
cash, realizing a pre-tax gain of $2.2 million (approximately
$1.3 million after tax or $0.02 per diluted share). The
preferred stock was originally issued to the Company in 1996 as
part of Tom Brown, Inc.'s acquisition of K N Production Company.
The preferred stock was convertible into 1,666,000 shares of Tom
Brown, Inc. common stock, and paid dividends quarterly at an
annual rate of $1.75 per share. The Company retained ownership
of approximately 918,000 shares of Tom Brown, Inc. common stock.
In September 1999, Thunder Creek Gas Services, LLC, a joint
venture owned 25 percent by the Company and 75 percent by Devon
Energy Corporation, placed into service a 126-mile-long-trunkline
natural gas gathering system extending from Glenrock, Wyoming to
approximately 12 miles north of Gillette, Wyoming. The trunkline
has an initial capacity of 450 million cubic feet of natural gas
per day. The gathering system is located in the Powder River
Basin of northeast Wyoming and is expected to be fully
operational before year-end 1999, after installation of a carbon
dioxide removal plant. The expected total cost of the system is
approximately $100 million.
On June 30, 1999, the Company sold its interests in the HIOS and
UTOS offshore pipeline systems and related laterals to Leviathan
Gas Pipeline Partners, L. P. The Company received approximately
$51 million in cash in conjunction with the sale and recorded a
pre-tax gain of $17.5 million (approximately $10.7 million after
tax or $0.15 per diluted share).
In May 1999, the Company announced plans to build the Horizon
Pipeline, a 129-mile-long natural gas pipeline from Joliet,
Illinois, to Hales Corners, Wisconsin. Construction is expected
to be completed by the fall of 2001. The estimated cost of the
project is $150 million to $250 million, depending on shipper
response and design capacity, which is expected to be from 630
million cubic feet up to 1.2 billion cubic feet per day. The
Company plans to jointly own the pipeline with one or more other
partners. An open season closed in June 1999 with
<PAGE> 10 Form 10-Q
service requests from shippers of more than 800 MMcf of natural
gas per day, including 300 MMcf per day from Nicor Gas. The project
is expected to be funded through a combination of non-recourse debt
securities and equity contributions.
On March 31, 1999, the TransColorado Gas Transmission Company
("TransColorado"), an enterprise jointly owned by the Company and
Questar Corp., placed in service a 280-mile-long natural gas
pipeline, which includes two compressor stations and extends from
near Rangely, Colorado, to its southern terminus at the Blanco Hub
near Aztec, New Mexico. The pipeline has a design transmission capacity
of approximately 300 million cubic feet of natural gas per day. On
October 14, 1998, TransColorado entered into a $200 million
revolving credit agreement with a group of commercial banks. The
Company provides a corporate guarantee for one-half of all
amounts borrowed under the agreement.
In September 1998, the Company sold certain of its microwave
towers and associated land and equipment to American Tower Corp.
for $14.6 million. The sale resulted in a pre-tax gain of $10.9
million ($6.7 million after tax or $0.10 per diluted share) that
is included in the accompanying interim Consolidated Statements
of Income under the caption "Other, Net."
In March 1998, the Company sold its Kansas retail natural gas
distribution properties, located in 58 Kansas communities and
serving approximately 30,000 residential, commercial and
industrial customers, to Midwest Energy, Inc., a customer-owned
cooperative based in Hays, Kansas. The Company received
approximately $24 million in cash in conjunction with the sale
and recorded a pre-tax gain of approximately $8.5 million
(approximately $5.2 million after tax or $0.08 per diluted
share). Concurrently with the sale, the Company received $27.5
million in cash in exchange for the release of the purchaser from
certain contractual gas purchase obligations, which amount will
be amortized as an offset to gas purchases over a period of years
as the associated volumes are sold.
6. Discontinued Operations
-----------------------
During the third quarter, the Company adopted a plan to
discontinue the direct marketing of non-energy products and
services (principally under the "Simple Choice" brand), which
activities had been carried on largely through the Company's
en*able joint venture with PacifiCorp. In accordance with the
provisions of Accounting Principles Board Opinion No. 30,
"Reporting the Results of Operations -- Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions," ("APB 30"),
the Company has segregated the results of operations of this line
of business for all periods presented and reported such results
(net of associated tax benefit of $0.9 million and $0.4 million
for the three months ended September 30, 1999 and 1998,
respectively, and $4.1 million and $1.7 million for the nine
months ended September 30, 1999 and 1998, respectively) as
"Discontinued Operations, Net of Tax" in the accompanying interim
Consolidated Statements of Income. The Company intends to
discontinue the operations of en*able and sell en*able's interest
in Orcom Solutions, a wholly owned subsidiary of en*able.
The principal assets of this discontinued line of business
remaining as of September 30, 1999 consisted of an investment in
en*able and an indirect investment in Orcom Solutions (a provider
of custom software and outsource billing solutions for
utilities). The expected loss (net of tax benefit of $7.3
million) from disposal of this business, including both the
expected losses from the sale of assets and the estimated
operating losses until the disposal is completed (currently
expected no later than the first quarter of 2000), are reported
in the accompanying interim Consolidated Statements of Income as
"Loss on Disposal of Discontinued Operations, Net of Tax." This
estimated loss is subject to uncertainty with respect to the
proceeds to be received from the
<PAGE> 11 Form 10-Q
sale of assets (among other factors) and, accordingly, the actual
loss may differ materially from the estimate. In accordance with
the provisions of APB 30, any such difference will be recognized
in the period in which it is identified, and classified in the same
manner as the original estimated loss.
Additionally, the Company previously announced its intention to
dispose of certain other non-core assets. Following the
acquisition by merger of Kinder Morgan Delaware in early October
1999 (see Note 2), the Company has both identified additional assets
for potential disposition including, most recently, its commodity
marketing business, and continued to develop plans for accomplishing
these potential divestitures. For at least the substantial majority of
all non-core businesses identified for disposition, the Company
currently expects that, during the fourth quarter, it will meet
the APB 30 requirements for a "measurement date," requiring that
the Company (i) reclassify the results of operations for such
assets to discontinued operations for all periods presented and
(ii) record an estimate of the losses expected to the projected
disposal date and the loss (if any) expected upon disposition.
In addition, as discussed in the Company's 1999 second quarter
report on Form 10-Q, certain other assets may be required to be
written down as a result of becoming subject to the provisions of
Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of." While the ultimate effect of these matters
cannot yet be determined with a high degree of accuracy due to,
among other factors, (i) uncertainty as to the form of
disposition and the proceeds to be generated therefrom and (ii)
the fact that projected losses on disposal are estimated and
recognized while projected gains are recognized only when
realized, the Company currently expects that a significant fourth-
quarter loss will be recorded.
7. Accounts Receivable Sales Facility
----------------------------------
In September 1999, certain wholly owned subsidiaries
("Originators") of the Company entered into a five-year agreement
to sell all of their accounts receivable, on a revolving basis,
to KN Receivables Corporation ("KNRC"), a wholly owned subsidiary of
the Company. KNRC was formed prior to the execution of that
receivables agreement for the purpose of buying and selling
accounts receivable and has been determined to be bankruptcy
remote. Also in September 1999, KNRC entered into a five-year
agreement with a financial institution whereby KNRC can sell, on
a revolving basis, an undivided percentage ownership interest in
certain eligible accounts receivable, as defined, up to a maximum
of $150 million. This transaction is accounted for as a sale of
receivables in accordance with Statement of Financial Accounting
Standards No. 125, "Accounting for Transfer and Servicing of
Financial Assets and Extinguishment of Liabilities." Accordingly,
the Company's accompanying interim Consolidated Balance Sheet
reflects the portion of receivables transferred to the financial
institution as a reduction of Accounts Receivable. Gains and
losses from the sale of these receivables are included in "Other,
Net" in the accompanying interim Consolidated Statements of Income.
The Company receives compensation for servicing that is approximately
equal to the amount an independent servicer would receive.
Accordingly, no servicing assets or liabilities have been
recorded. The full amount of the allowance for possible losses
has been retained by KNRC. The fair value of this recourse
liability approximated the allocated allowance for doubtful
accounts given the short-term nature of the transferred
receivables.
The Company received $150 million in proceeds from the sale of
receivables on September 30, 1999. The proceeds were
subsequently used to retire outstanding notes payable of Kinder
Morgan Delaware at the time of its acquisition by the Company.
The net effect of the loss associated with the sale of
receivables was not material to the Company's 1999 operating
results for the quarter or nine months ended September 30, 1999.
Cash flows associated with this program are included with
"Accounts Receivable" under "Cash Flows from Operating
Activities" in the accompanying interim Statements of
Consolidated Cash Flows.
<PAGE> 12 Form 10-Q
8. Stock Option Program
--------------------
On October 8, 1999, the Company's Board of Directors approved the
creation of the Kinder Morgan, Inc. All Employee Stock Option
Program, a broadly based non-qualified stock option program for all
regular full-time employees. However, no options were allocated
to Richard Kinder and William Morgan. Of the 5.5 million non-
qualified stock options available for grant under the program, on
October 8, 1999, grants totaling approximately 4.7 million stock
options, all priced at $23.8125 per share, the closing price of
the Company's common stock on October 8, 1999, were awarded. These
options vest in 25 percent increments on the anniversary of the grant
over a four-year period from the date of grant. All options
granted under the program have a 10-year life, and must be granted
at the fair market value of the Company's common stock at the
close of trading on the date of grant.
On October 8, 1999, the Company's Board of Directors approved the
granting of 12,500 options to each non-employee director of the
Company under the 1992 Stock Option Plan for Non-Employee
Directors. All of the options vest in six months and have an
exercise price of $23.8125 per share, the closing price of the
Company's common stock on October 8, 1999.
9. Supplemental Cash Flow Information
----------------------------------
<TABLE>
<CAPTION>
Nine Months Ended
September 30
----------------------------------
1999 1998
---- ----
<S> <C> <C>
(In Thousands)
CHANGES IN OTHER WORKING CAPITAL ITEMS
(Net of Effects of Acquisitions and Sales)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Accounts Receivable $ (12,889) 1 $ 184,721
Materials and Supplies Inventory 4,318 (13,783)
Other Current Assets (2,250) (7,720)
Accounts Payable 98,849 (235,512)
Other Current Liabilities (26,851) 15,134
--------- ---------
$ 61,177 $ (57,160)
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash Paid During the Period for:
Interest, Net of Amount Capitalized $ 250,598 $ 184,855
========= =========
Distributions on Preferred Capital Trust Securities $ 10,956 $ 4,280
========= =========
Income Taxes $ 5,449 $ 37,877
========= =========
1 Reflects the impact of the Company's receivable sale program,
see Note 7.
</TABLE>
The Company considers all highly liquid investments purchased
with an original maturity of three months or less to be cash
equivalents. "Other, Net," presented as a component of "Net Cash
Flows from Operating Activities" in the accompanying interim
Consolidated Statements of Cash Flows includes, among other
things, the amortization of the gas plant acquisition adjustment
recorded in conjunction with the acquisition of MidCon (see Note
2), equity in undistributed earnings of unconsolidated
subsidiaries and joint ventures and other non-cash charges and
credits to income.
In the third quarter of 1998, the Company purchased interests in
four independent power plants in Colorado from the Thermo
Companies. Payments for this purchase were made in October 1998
with the Company's common stock and in January and April 1999
with a combination of cash and the Company's common stock. The
remaining payment is expected to be made with a combination of
cash and the Company's common stock.
<PAGE> 13 Form 10-Q
A portion of the Company's January 1998 acquisition of MidCon was
financed through the assumption of a note. For additional
information on these transactions, see Note 2.
10. Business Segments
-----------------
The Company has segregated its activities into three business
segments, "Upstream", "Midstream" and "Downstream", based on
where in the value stream such activities are conducted. In
general, these segments are also differentiated by the nature of
their processes, their principal suppliers, and their target
markets and customers. The Company's Upstream operations consist of
(i) natural gas gathering, (ii) natural gas processing and (iii)
natural gas liquids ("NGLs") extraction and marketing; Midstream
operations consist of transportation, storage and bundled sales
transactions for the Company's interstate and intrastate
pipelines; Downstream operations principally consist of energy
marketing, regulated natural gas distribution and electric power
generation and sales. The Company expects that, as a result of
its fourth-quarter 1999 acquisition by merger of Kinder Morgan Delaware
and its currently developing plans for disposition of certain
non-core businesses (see Note 6), its future segment reporting
will be revised.
The accounting policies applied in the generation of segment
information are generally the same as those described in the
summary of significant accounting policies in the Company's
Report on Form 10-K for the year ended December 31, 1998. In
general, items below the "Operating Income" line are either not
allocated to business segments or are not considered by
Management in its evaluation of business segment performance. In
addition, certain items included in operating income (such as
general and administrative, merger-related and severance costs
incurred) are not allocated to individual business segments.
With adjustment for these items, the Company currently evaluates
business segment performance primarily based on operating income
in relation to the level of capital employed. In general,
intersegment sales are accounted for at market prices, while
asset transfers are made at either market value or, in some
instances, book value. The following table excludes the
operations of en*able, which have been accounted for as
discontinued operations (see Note 6).
<PAGE> 14 Form 10-Q
<TABLE>
<CAPTION>
Three Months Ended September 30, 1999
--------------------------------------------------------------------
Upstream Midstream Downstream Other Consolidated
-------- --------- ---------- ----- ------------
<C> <C> <C> <C> <C> <C>
(In Millions)
Revenues from External Customers $ 166.3 $ 401.3 $ 891.1 $1,458.7
Intersegment Revenues $ 21.4 $ 43.8 $ 245.6 310.8
Operating Income (Loss)
Before Corporate Expenses $ 14.7 $ 87.8 $ (2.1) 100.4
General and Administrative Expenses (32.0)
Merger-related and Severance Costs (11.0)
Other Income and (Deductions) (60.2)
--------
Loss from Continuing Operations
Before Income Taxes $ (2.8)
========
Total Assets at September 30, 1999 $ 749.6 $6,400.3 $1,172.3 $ 29.9 (1) $8,352.1
Three Months Ended September 30, 1998
--------------------------------------------------------------------
Upstream Midstream Downstream Other Consolidated
-------- --------- ---------- ----- ------------
(In Millions)
Revenues from External Customers $ 120.7 $ 339.5 $ 586.0 $1,046.2
Intersegment Revenues $ 36.0 $ 75.2 $ 70.6 181.8
Operating Income Before Corporate
Expenses $ 2.4 $ 105.9 $ 17.5 125.8
General and Administrative Expenses (32.0)
Other Income and (Deductions) (54.0)
--------
Income from Continuing Operations
Before Income Taxes $ 39.8
========
Nine Months Ended September 30, 1999
--------------------------------------------------------------------
Upstream Midstream Downstream Other Consolidated
-------- --------- ---------- ----- ------------
(In Millions)
Revenues from External Customers $ 412.1 $ 1,024.4 $ 2,267.5 $3,704.0
Intersegment Revenues $ 73.3 $ 153.1 $ 472.8 699.2
Operating Income Before Corporate
Expenses $ 24.7 $ 281.0 $ 13.2 318.9
General and Administrative Expenses (103.8)
Merger-related and Severance Costs (11.0)
Other Income and (Deductions) (190.7)
--------
Income from Continuing Operations
Before Income Taxes $ 13.4
========
Nine Months Ended September 30, 1998
--------------------------------------------------------------------
Upstream Midstream Downstream Other Consolidated
-------- --------- ---------- ----- ------------
(In Millions)
Revenues from External Customers $ 365.7 $ 872.9 $ 2,026.5 $3,265.1
Intersegment Revenues $ 81.4 $ 216.5 $ 86.4 384.3
Operating Income Before Corporate
Expenses $ 5.5 $ 309.6 $ 50.7 365.8
General and Administrative Expenses (92.7)
Merger-related and Severance Costs (5.8)
Other Income and (Deductions) (161.7)
--------
Income from Continuing Operations
Before Income Taxes $ 105.6
========
(1) Corporate assets represent cash and restricted deposits.
</TABLE>
<PAGE> 15 Form 10-Q
11. Financing
---------
The total amount of funds required by the Company to complete the
acquisition of MidCon, pay related fees and expenses and to repay
borrowings under the Company's existing credit facility was
approximately $2.5 billion, financed through borrowings under
credit agreements dated January 30, 1998 (the "Bank Facility")
among the Company, Morgan Guaranty Trust Company of New York and
a syndicate of other lenders. A working capital facility
replaced the revolving credit agreement previously in place (the
"Pre-Acquisition Facility"). An acquisition facility was also
part of the overall Bank Facility structure. See Note 7(A) of
Notes to Consolidated Financial Statements on pages 42-43 of the
Company's Annual Report on Form 10-K for the year ended December
31, 1998, for additional information regarding the Bank Facility
and the Pre-Acquisition Facility. In addition to the working
capital and acquisition components of the Bank Facility described
preceding, the Company assumed a short-term note for $1.4 billion
due January 1999 (the "Substitute Note") which, pursuant to the
MidCon Agreement, was initially collateralized by letters of
credit issued under a commitment for that purpose within the Bank
Facility. The acquisition facility was repaid in its entirety
and canceled on March 10, 1998. The Substitute Note was repaid on
January 4, 1999. On January 5, 1999, the Company canceled the
remaining letters of credit used to collateralize the Substitute
Note.
In March 1998, the Company received net proceeds of approximately
$624.6 million from a public offering of 12.5 million shares
(18.75 million shares after adjustment for the December 1998
three-for-two stock split) of its common stock and approximately
$2.34 billion from the concurrent public offerings of senior debt
securities of varying maturities with principal totaling $2.35
billion. The net proceeds from these offerings were used to
refinance borrowings under the Bank Facility and to purchase U.S.
government securities to replace a portion of the letters of
credit that collateralized the Substitute Note.
In April 1998, the Company sold $175 million of 7.63% Capital
Trust Securities (the "Capital Securities") maturing on April 15,
2028, in an underwritten public offering. The sale was effected
through a wholly owned business trust, K N Capital Trust III.
The Company used the net proceeds from the offering to purchase
U.S. government securities to replace a portion of the letters of
credit that collateralized the Substitute Note.
In November 1998, the Company completed an underwritten public
offering of $400 million of three-year senior notes (the "Senior
Notes") bearing an interest rate of 6.45 percent. The net
proceeds of approximately $397.4 million were used to retire a
portion of the Company's then-outstanding short-term borrowings.
Concurrently with the Senior Notes offering, the Company sold
$460 million principal amount of premium equity participating
security units ("PEPS") in an underwritten public offering. The
PEPS essentially are contracts (i) requiring the holders to
purchase the Company's common stock at the end of a three-year
period coinciding with the maturity of the Senior Notes and (ii)
providing for payment of a contract fee of 2.375 percent to the
PEPS holders by the Company during the three-year period. The
net cash proceeds from the sale of the PEPS, together with
additional funds provided by the Company, were used to purchase
U.S. treasury securities on behalf of the PEPS owners. For a
description of the accounting for these securities, see Note 7(B)
of Notes to Consolidated Financial Statements on pages 51-53 of
the Company's 1998 Annual Report on Form 10-K.
12. Preferred Stock
---------------
On April 13, 1999, the Company sent notices to holders of its
Class A $5.00 Cumulative Preferred Stock, of its intent to
redeem these shares on May 14, 1999. Holders of 70,000 preferred
shares were advised that on April 13, 1999, funds were deposited
with the First National Bank of Chicago to pay the redemption
price of $105 per share plus accrued but unpaid dividends. Under
the terms of the Company's Articles of Incorporation,
<PAGE> 16 Form 10-Q
upon deposit of funds to pay the redemption price, all rights of
the preferred stockholders ceased and terminated except the right
to receive the redemption price upon surrender of their stock
certificates.
13. Common Stock Split and Dividend Action
--------------------------------------
On November 9, 1998, the Board of Directors of the Company (the
"Board") approved a 7.1 percent increase in the quarterly
dividend and a three-for-two split of the Company's common stock.
The quarterly dividend was declared at $0.30 per common share, an
increase from $0.28 per common share. Giving effect to the stock
split, the quarterly dividend is currently $0.20 per common
share. However, as previously announced, the Board (prior to
the acquisition by merger of Kinder Morgan Delaware) has
recommended to the post-merger Board that the dividend be
decreased to $0.05 per quarter. The stock split was distributed
and the increase in dividend was paid concurrently on December
31, 1998, to shareholders of record at the close of business on
December 15, 1998. The par value of the stock did not change.
Weighted-average shares outstanding and all per share amounts
(except as otherwise noted) in the accompanying interim
consolidated financial statements and these notes have been
restated to reflect the stock split.
14. Regulatory Matters
-------------------
On January 23, 1998, K N Interstate Gas Transmission Co. ("KNI"),
a wholly owned subsidiary of Kinder Morgan, filed a general rate
case with the Federal Energy Regulatory Commission ("FERC")
requesting a $30.2 million increase in annual revenues. As a
result of the FERC's action, KNI was allowed to place its rates
into effect on August 1, 1998, subject to refund, and provisions
for refund have been recorded based on expected ultimate
resolution. By a subsequent order, the FERC required KNI to
remove costs associated with the Pony Express project and to
refund the associated dollars. The interim refund, associated
with the ordered removal of the Pony Express facilities' costs
from KNI's rates, amounts to approximately $13 million, and has
yet to be refunded. KNI has filed for rehearing of the FERC's
orders that addressed Pony Express. As a result of a settlement
conference held on October, 27, 1999, KNI has filed a
comprehensive Stipulation and Agreement on November 3, 1999,
which, if approved by the FERC, will resolve this
proceeding.
On December 29, 1998, Rocky Mountain Natural Gas Company
("RMNG"), a wholly owned subsidiary of Kinder Morgan, received a
"show cause" order from the Colorado Public Utilities Commission
(the "Commission"). RMNG has reached settlement on the issue,
and a Stipulation and Agreement memorializing the settlement with
the Staff of the Commission and the Office of Consumer Counsel
has been filed and approved. As part of this settlement, RMNG
agreed to reduce its sales and transportation rates effective
June 1, 1999. The settled rate reduction is anticipated to
reduce RMNG's annual revenues by approximately $0.9 million per
year.
15. Comprehensive Income
--------------------
Statement of Financial Accounting Standards No. 130, "Reporting of
Comprehensive Income," effective for fiscal years beginning after
December 15, 1997, requires that enterprises report a total for
comprehensive income. Currently, the only difference between
"net income" and "comprehensive income" for the Company is the
unrealized gain or loss on its investment in available-for-sale
securities which is recorded directly to stockholders' equity.
For the quarters ended September 30, 1999 and 1998, the
respective unrealized after-tax investment loss was $(0.5)
million and $(3.8) million, resulting in comprehensive income
(loss) of $(15.0) million and $20.7 million, respectively. For
the nine month periods ended September 30, 1999 and 1998, the
unrealized after-tax investment gain (loss) was $2.5 million and
$(4.0) million, resulting in comprehensive income (loss) of
$(7.3) million and $59.6 million, respectively.
<PAGE> 17 Form 10-Q
16. Accounting for Derivative Instruments and Hedging Activities
------------------------------------------------------------
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" (the
"Statement"). The Statement establishes accounting and reporting
standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability
measured at its fair value. The Statement requires that changes
in the derivatives' fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. If
the derivatives meet these criteria, the Statement allows a
derivative's gains and losses to offset related results on the
hedged item in the income statement, and requires that a company
formally designate a derivative as a hedge and document and
assess the effectiveness of derivatives associated with
transactions that receive hedge accounting.
The Statement, as amended by Statement of Financial Accounting
Standards No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133," is effective for fiscal years beginning after
June 15, 2000. A company may also implement the Statement as of
the beginning of any fiscal quarter after issuance (that is,
fiscal quarters beginning June 16, 1999 and thereafter). The
Statement cannot be applied retroactively. The Statement must be
applied to (i) derivative instruments and (ii) all applicable
derivative instruments embedded in hybrid contracts or, at the
company's election, only those derivatives embedded in hybrid
contracts that were issued, acquired, or substantively modified
after either January 1, 1998 or January 1, 1999. The Company has
not yet quantified the impacts of adopting the Statement on its
financial position or results of operations and has not
determined the timing of or method of adoption of the Statement.
17. Interest Expense, Net
---------------------
"Interest Expense, Net" as presented in the accompanying interim
Consolidated Statements of Income is net of (i) the debt
component of the allowance for funds used during construction
("AFUDC - Interest") and (ii) interest income related to
government securities associated with the acquisition of MidCon
("Interest Income"), as shown in the following table.
Three Months Ended Nine Months Ended
September 30 September 30
------------------ ------------------
(In Millions)
1999 1998 1999 1998
---- ---- ---- ----
AFUDC - Interest $ 0.8 $ 2.6 $ 1.2 $ 4.3
Interest Income $ - $15.8 $ 0.5 $31.7
As discussed in Note 2, in conjunction with the January 30, 1998,
acquisition of MidCon Corp., the Company was required by the
MidCon Agreement to assume the $1.4 billion Substitute Note and
to collateralize the Substitute Note with bank letters of credit,
a portfolio of U.S. government securities or a combination of the
two. As a result, the Company had interest income associated
with the issuance of the Substitute Note, which has been reported
together with the related interest expense as described
preceding.
18. Equity in Earnings of Equity Method Investments
-----------------------------------------------
Equity in earnings (losses) of investments accounted for under
the equity method totaling $1.3 million and $6.6 million for the
three months ended September 30, 1999 and 1998, and $11.9 million
and $17.8 million for the nine months ended September 30, 1999
and 1998, respectively, are included in operating revenues
(within the
<PAGE> 18 Form 10-Q
appropriate business segment) in the accompanying interim
Consolidated Statements of Income and in the segment data
contained in Note 10.
19. Accounts Receivable
The caption "Accounts Receivable" in the accompanying interim
Consolidated Balance Sheets is presented net of allowances for
doubtful accounts of $12.5 million at September 30, 1999, and
$10.8 million at December 31, 1998 and, at September 30, 1999, is
net of receivables sold (see Note 7).
20. Earnings Per Share
Basic earnings or loss from continuing operations per common
share is computed, as applicable, using earnings after reduction
for preferred stock dividends and premiums paid on preferred
stock redemptions. The number of shares used in basic earnings
per share calculations is the actual weighted average shares
outstanding for each period presented. Diluted earnings per
share calculations, in addition to the earnings and shares
utilized in computing basic earnings per share, give effect to
the assumed exercise of options (utilizing the treasury stock
method) to the extent that such exercise has a dilutive effect on
the calculation. The calculation of diluted earnings per share
excludes potential share issuances which would be anti-dilutive
for the periods presented, including (i) options for which the
exercise price exceeds the average market price during the period
and (ii) shares which will be issuable upon maturity of the
Company's outstanding premium equity participating securities
(see Note 11).
21. Environmental and Legal Matters
(A) Environmental Matters
On June 17, 1999, the EPA published in the Federal Register a
final rule to limit emissions of hazardous air pollutants
("HAPs") from oil and natural gas production as well as from
natural gas transmission and storage facilities. This is a
Maximum Achievable Control Technology ("MACT") standard, and is
mandated under section 112 of the 1990 Amendments to the Clean
Air Act. The MACT standard requires that the affected facilities
reduce emissions of HAPs by 95 percent. This new standard will
require the Company to achieve this reduction either by process
modifications or by installing new emissions control technology.
The MACT standard will affect the Company and its competitors in
a like manner. The rule allows most affected sources three years
from the publication date to come into compliance. The Company
is conducting a detailed analysis of the final rule to determine
its overall effect. While additional capital costs are likely to
result from this rule, the Company believes that the rule will
not have a material adverse effect on the Company's business,
financial position or results of operations.
See Note 4(A) of Notes to Consolidated Financial Statements on
pages 46-47 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1998, for additional information regarding
environmental matters.
(B) Legal Matters
On July 26, 1996, the Company and RMNG, along with over 70 other
natural gas companies, were served by Jack J. Grynberg, acting on
behalf of the Government of the United States, with a Civil False
Claims Act lawsuit filed in Washington, D.C. alleging
mismeasurement of the heating content and volume of natural gas
on Federal and Native American land resulting in underpayment of
royalties to the federal government. The
<PAGE> 19 Form 10-Q
Company and the other named companies filed a motion to dismiss
the lawsuit on grounds of improper joinder and lack of jurisdiction.
The motion was granted in 1997. Mr. Grynberg appealed the dismissal
of the action based on improper joinder, and the D.C. Court of Appeals
affirmed the joinder decision in October 1998. Mr. Grynberg has
now filed over 70 new cases against over 350 defendants in nine
separate Federal Courts. The action against the Company,
modified somewhat from his original action, was filed in Federal
District Court, District of Colorado, and the Company was served
in this action on May 25, 1999. The Department of Justice
decided not to intervene in these cases in support of Grynberg's
complaint. On October 21, 1999, the Panel on the Multi-District
Litigation consolidated all of these cases in the Federal
District Court of Wyoming.
On September 23, 1999, a complaint styled as the First Amended
Class Action Petition regarding "Quinque Operating Company, et al.
v. Gas Pipelines, et al.," Case No. 99-C-30, Stevens County
District Court, Kansas, was filed. The complaint names over 200
natural gas companies including the Company, K N Interstate Gas
Transmission Co., K N Natural Gas, Inc., MidCon Corporation,
MidCon Gas Services Corporation, MidCon Marketing Corporation,
MidCon Texas Pipeline Operator, Inc., Natural Gas Pipeline
Company of America, Northern Gas Company, Rocky Mountain Natural
Gas Company, TCP Gathering Company, and Westar Transmission Co.
The complaint contains allegations of mismeasurement of the
heating content and volume of natural gas on non-Federal and non-
Native American lands similar to the allegations contained in the
above-referenced False Claim Act lawsuit dealing with Federal and
Native American land. On September 24, 1999, Defendant Northern
Natural Gas Company filed a Notice of Removal to the United
States District Court for the District of Kansas, Case No. 99-
1390-MLB. Subsequently, Defendants notified the Panel on Multi-
District Litigation of the existence of this case and requested
that it be consolidated as a "tag-a-long" action with the above-
referenced False Claim Act case in Wyoming.
The Company believes it has meritorious defenses to all lawsuits
and legal proceeds 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 business,
financial position or results of operations.
See Note 4(B) of Notes to Consolidated Financial Statements on
pages 47-48 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1998, for additional information regarding
legal matters.
<PAGE> 20 Form 10-Q
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
- -------
The following discussion should be read in conjunction with (i)
the accompanying interim Consolidated Financial Statements and
related Notes and (ii) the Consolidated Financial Statements,
related Notes and Management's Discussion and Analysis of
Financial Condition and Results of Operations included in the
Company's 1998 Report on Form 10-K. Due to the seasonal
variation in energy demand, among other factors, the interim
results which follow may not be indicative of the results to be
expected for an entire year. As discussed in Notes 2 and 5 of
Notes to the accompanying interim Consolidated Financial
Statements, the Company has engaged in acquisition and
divestiture transactions (and may engage in additional such
transactions) which may affect the comparison of results of
operations between periods. All per share amounts following
reflect the impact of the December 31, 1998, three-for-two common
stock split.
Certain information contained herein may 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, state and international
regulatory developments, the timing and extent of changes in
commodity prices for oil, natural gas, natural gas liquids
("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,
weather-related factors, the Company's success in implementing
the Year 2000 Plan described elsewhere herein, the effectiveness
of the Year 2000 Plan and the Year 2000 readiness of vendors and
suppliers and conditions of capital markets and equity markets
during the periods covered by the forward-looking statements.
All of these factors are difficult to predict and many are beyond
the Company's control.
On July 8, 1999, the Company announced the signing of an
agreement and plan of merger to acquire Kinder Morgan Delaware.
On October 7, 1999, this merger was completed. Pursuant to the
terms of the merger agreement, the Company issued approximately
41.5 million shares of common stock in return for all of the
outstanding shares of Kinder Morgan Delaware. On October 7,
1999, the Company issued 200,000 shares of common stock, par
value of $5.00 per share, of the Company to Petrie Parkman
(the ("Petrie Shares") pursuant to the terms of the engagement
letter between Petrie Parkman and the Company dated as of June
24, 1999, as amended as of August 20, 1999, in consideration
for Petrie Parkman's advisory services rendered in connection
with the acquisition of Kinder Morgan Delaware. The issuance of
the Petrie Shares was exempt from registration under Section
4(2) of the Securities Act of 1933, as amended. Upon
closing of the transaction, Richard D. Kinder, Chairman
and Chief Executive Officer of Kinder Morgan Delaware, was
named Chairman and Chief Executive Officer of the Company, and the
Company was renamed Kinder Morgan, Inc. (see Note 2 of Notes to
the accompanying interim Consolidated Financial Statements). In
conjunction with the merger, the Company has announced plans
intended to increase profitability and decrease leverage, see
"Plan for the Combined Kinder Morgan" elsewhere herein and Note 6
of Notes to the accompanying interim Consolidated Financial Statements.
During the third quarter, the Company adopted a plan to
discontinue the direct marketing of non-energy products and
services (principally under the "Simple Choice" brand), which
activities had been carried on
<PAGE> 21 Form 10-Q
largely through the Company's en*able joint venture with PacifiCorp
(see Note 6 of Notes to the accompanying interim Consolidated
Financial Statements and "Discontinued Operations" elsewhere herein).
Consolidated Financial Results
- ------------------------------
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
---------------------------------- ----------------------------------
(In Millions Except Per Share Amounts)
Increase Increase
1999 1998 (Decrease) 1999 1998 (Decrease)
---- ---- ---------- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues $1,458.7 $1,046.2 $ 412.5 $3,704.0 $3,265.1 $ 438.9
Gross Margin 225.1 253.9 (28.8) 708.1 738.1 (30.0)
Operating Income 57.4 93.8 (36.4) 204.1 267.3 (63.2)
Income (Loss) From Continuing
Operations (1.7) 25.1 (26.8) 8.2 66.5 (58.3)
Loss From Discontinued
Operations,
Net of Tax (1.3) (0.6) (0.7) (6.5) (2.8) (3.7)
Loss on Disposal of
Discontinued
Operations, Net of Tax (11.5) - (11.5) (11.5) - (11.5)
Diluted Earnings (Loss) Per
Share:
Continuing Operations (0.02) 0.37 (0.39) 0.11 1.05 (0.94)
Discontinued Operations (0.02) (0.01) (0.01) (0.09) (0.05) (0.04)
Disposal of Discontinued
Operations $ (0.16) $ - $ (0.16) $ (0.17) $ - $ (0.17)
</TABLE>
In comparison to the corresponding period of 1998, the Company's
consolidated results of continuing operations for the three
months ended September 30, 1999, reflect an increase of 39.4
percent in operating revenues and a decrease of 11.3 percent in
gross margin. Additionally, 1999 results reflect decreases of
27.2 percent in operating income and 80.1 percent in income from
continuing operations, in each case before the reduction, in
1999, for merger-related and severance costs. Diluted earnings
per common share from continuing operations of $(0.02) for 1999
represented a decline of $0.39 from 1998, reflecting, in addition
to the decline in 1999 income from continuing operations, an
increase of 4.3 percent in the number of diluted shares used to
calculate earnings per share. This increase in shares was largely
due to the issuance of 3.1 million shares as partial
consideration for the purchase of interests in power plants from
the Thermo Companies (see Note 2 of Notes to the accompanying
interim Consolidated Financial Statements).
In comparison to the corresponding period of 1998, the Company's
consolidated results of continuing operations for the nine months
ended September 30, 1999, reflect an increase of 13.4 percent in
operating revenues and a decrease of 4.1 percent in gross margin.
Additionally, 1999 results reflect decreases of 21.2 percent in
operating income and 78.8 percent in income from continuing
operations, in each case before the reduction in 1999 and 1998,
for merger-related and severance costs. Diluted earnings per
common share from continuing operations for 1999 declined by 89.5
percent from 1998 reflecting, in addition to the decline in 1999
income from continuing operations, an increase of 11.4 percent in
the number of diluted shares used to calculate earnings per
share. This increase in shares was largely due to (i) the March
1998 common stock issuance associated with the acquisition of
MidCon (see Notes 2 and 11 of Notes to the accompanying interim
Consolidated Financial Statements) and (ii) the issuance of 3.1
million shares as partial consideration for the purchase of
interests in power plants from the Thermo Companies as described
preceding.
Operating income or loss for each of the Company's business
segments, as well as corporate expenses, interest expense, other
income and deductions and income taxes were affected by various
factors which are described within the corresponding individual
discussions which follow, see "Upstream Gathering and
Processing," "Midstream Sales, Transportation and Storage,"
"Downstream Retail and Marketing," "Corporate Expenses," "Other
Income and (Deductions)" and "Income Taxes on Continuing
Operations" elsewhere herein.
<PAGE> 22 Form 10-Q
Results of Continuing Operations
The Company has segregated its results of operations into
"Upstream," "Midstream" and "Downstream" components. The
Company's Upstream operations consist of (i) natural gas
gathering, (ii) natural gas processing and (iii) NGLs extraction
and marketing activities. Midstream operations consist of
transportation, storage and bundled sales transactions for the
Company's interstate and intrastate pipelines. Downstream
activities principally consist of energy marketing, regulated
natural gas distribution and electric power generation and sales.
The following segment data are before intersegment eliminations,
and exclude discontinued operations, general and administrative
expenses and severance and expenses related to the 1998 MidCon
acquisition and the acquisition of Kinder Morgan Delaware. The
Company expects that, as a result of the fourth-quarter
acquisition of Kinder Morgan Delaware and its plans for
disposition of certain non-core businesses, its future segment
reporting will be revised (see Note 10 of Notes to the
accompanying interim Consolidated Financial Statements).
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
--------------------------------- --------------------------------
(Dollars in Millions Except Per Gallon Amounts)
Increase Increase
Upstream Gathering and Processing 1999 1998 (Decrease) 1999 1998 (Decrease)
- --------------------------------- ---- ---- ---------- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues
Gas Sales $ 59.4 $ 55.4 $ 4.0 $ 171.5 $ 154.5 $ 17.0
Natural Gas Liquids Sales 91.0 67.3 23.7 208.3 193.0 15.3
Gathering and Other 37.3 34.0 3.3 105.6 99.6 6.0
------- ------- ------- ------- ------- -------
187.7 156.7 31.0 485.4 447.1 38.3
Less - Gas Purchases and Other
Costs of Sales 140.7 123.1 17.6 366.2 342.5 23.7
------- ------- ------- ------- ------- -------
Gross Margin 47.0 33.6 13.4 119.2 104.6 14.6
------- ------- ------- ------- ------- -------
Operating Expenses
Operations and Maintenance 22.7 21.0 1.7 65.7 69.9 (4.2)
Depreciation and Amortization 7.0 7.0 - 20.7 19.9 0.8
Taxes, Other Than Income Taxes 2.6 3.2 (0.6) 8.1 9.3 (1.2)
------- ------- ------- ------- ------- -------
32.3 31.2 1.1 94.5 99.1 (4.6)
------- ------- ------- ------- ------- -------
Operating Income Before Corporate
Expenses $ 14.7 $ 2.4 $ 12.3 $ 24.7 $ 5.5 $ 19.2
======= ======= ======= ======= ======= =======
Systems Throughput (Trillion Btus)
Gas Sales 23.8 30.3 (6.5) 87.5 79.8 7.7
Gathering 84.0 90.1 (6.1) 249.8 262.8 (13.0)
------- ------- ------- ------- ------- -------
107.8 120.4 (12.6) 337.3 342.6 (5.3)
======= ======= ======= ======= ======= =======
Natural Gas Liquids Sales
Sales (Million Gallons) 237.5 254.7 (17.2) 679.6 672.8 6.8
======= ======= ======= ======= ======= =======
Average Sales Price/Gallon $ 0.38 $ 0.26 $ 0.12 $ 0.31 $ 0.29 $ 0.02
======= ======= ======= ======= ======= =======
</TABLE>
Upstream's operating income before corporate expenses improved by
$12.3 million from $2.4 million for the three months ended
September 30, 1998, to $14.7 million for the third quarter of
1999. The Upstream segment was positively impacted in 1999,
relative to 1998, by (i) approximately $12 million of increased
processing margins resulting largely from higher NGLs prices,
(ii) the fact that 1998 results included operating losses
associated with gas processing facilities that were sold in the
fourth quarter of 1998 and (iii) improved 1999 basis
differentials on the Pony Express Pipeline which positively
affected joint venture marketing activities. These positive
impacts were partially offset by approximately $3 million of
increased 1999 operations, maintenance and depreciation expenses
associated with the Company's remaining gathering and processing
systems.
Upstream's operating income before corporate expenses improved by
$19.2 million from $5.5 million for the nine months ended
September 30, 1998, to $24.7 million for the first nine months of
1999. The Upstream segment was positively affected in 1999,
relative to 1998, by (i) approximately $13 million of increased
<PAGE> 23 Form 10-Q
processing margins resulting largely from higher NGLs prices,
(ii) the fact that 1998 results included operating losses
associated with gas processing facilities that were sold in the
fourth quarter of 1998 and (iii) increased 1999 gathering
revenues resulting primarily from higher rates. These positive
impacts were partially offset by approximately $1.5 million of
reduced 1999 operating income from the Company's K N Field
Services and Compressor Pump & Engine subsidiaries.
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
--------------------------------- ---------------------------------
(Dollars in Millions)
Midstream Sales, Transportation
- ------------------------------- Increase Increase
and Storage 1999 1998 (Decrease) 1999 1998 (Decrease)
----------- ---- ---- ---------- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues
Transportation and Storage $ 149.9 $ 169.8 $ (19.9) $ 475.1 $ 477.9 $ (2.8)
Gas Sales 292.6 237.9 54.7 688.7 594.1 94.6
Other 2.6 7.0 (4.4) 13.7 17.4 (3.7)
------- ------- ------- ------- ------- -------
445.1 414.7 30.4 1,177.5 1,089.4 88.1
Less - Gas Purchases and Other
Costs of Sales 276.5 218.3 58.2 637.0 541.7 95.3
------- ------- ------- ------- ------- -------
Gross Margin 168.6 196.4 (27.8) 540.5 547.7 (7.2)
------- ------- ------- ------- ------- -------
Operating Expenses
Operations and Maintenance 40.6 39.3 1.3 114.0 101.3 12.7
Depreciation and Amortization 30.7 41.8 (11.1) 116.9 111.3 5.6
Taxes, Other Than Income Taxes 9.5 9.4 0.1 28.6 25.5 3.1
------- ------- ------- ------- ------- -------
80.8 90.5 (9.7) 259.5 238.1 21.4
------- ------- ------- ------- ------- -------
Operating Income Before Corporate
Expenses $ 87.8 $ 105.9 $ (18.1) $ 281.0 $ 309.6 $ (28.6)
======= ======= ======= ======= ======= =======
Systems Throughput (Trillion Btus) 648.4 604.2 44.2 1,924.9 1,691.7 233.2
======= ======= ======= ======= ======= =======
</TABLE>
Midstream operating income before corporate expenses decreased by
$18.1 million from $105.9 million for the three months ended
September 30, 1998, to $87.8 million for the third quarter of
1999. The Midstream segment was negatively impacted in 1999,
relative to 1998, by (i) approximately $42 million of decreased
margins, primarily from the segment's interstate pipeline
systems, due to reduced per unit margins and (ii) increased
operations and maintenance expenses. The reduced margins were
largely due to decreased basis differentials resulting
principally from the two recent mild winters, including the
resultant high levels of gas in underground storage. In
addition, competitive pressures have increased in Midwest markets
due to actual or projected increased supply. These negative
impacts were partially offset by the positive impacts of (i)
approximately $19 million of increased margins attributable to
increased 1999 throughput volumes and (ii) reduced depreciation
and amortization expense, largely attributable to the change in
the amortization period for the gas plant acquisition adjustment
recorded in conjunction with the acquisition of MidCon (see Note
4 of Notes to the accompanying interim Consolidated Financial
Statements). The businesses included in this segment will be
affected in the future by, among other factors, the September 30,
1999 sale of the Company's interest in Stingray Pipeline Company
LLC (see Note 5 of Notes to the accompanying interim consolidated
financial statements) and the sale of certain NGPL transportation
capacity to Aquila Energy as announced on September 27, 1999.
Midstream operating income before corporate expenses decreased by
$28.6 million from $309.6 million for the nine months ended
September 30, 1998, to $281.0 million for the first nine months
of 1999. The Midstream segment was negatively impacted in 1999,
relative to 1998, primarily by reduced per unit margins due to
the factors described preceding. This impact was partially
offset by (i) the fact that 1999 results include nine months of
the operations of MidCon, while 1998 results include only eight
months, (ii) increased 1999 throughput and (iii) the reduction in
the 1999 depreciation and amortization rate beginning in the
third quarter as described preceding.
<PAGE> 24 Form 10-Q
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
--------------------------------- ---------------------------------
(Dollars in Millions)
Increase Increase
Downstream Retail and Marketing 1999 1998 (Decrease) 1999 1998 (Decrease)
- ------------------------------- ---- ---- ---------- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues
Gas Sales $1,114.9 $ 615.6 $ 499.3 $2,671.4 $2,042.8 $ 628.6
Transportation and Other 21.8 41.0 (19.2) 68.9 70.1 (1.2)
-------- ------- ------- -------- -------- -------
1,136.7 656.6 480.1 2,740.3 2,112.9 627.4
Less - Gas Purchases and Other
Costs of Sales 1,124.8 626.2 498.6 2,684.5 2,018.7 665.8
-------- ------- ------- -------- -------- -------
Gross Margin 11.9 30.4 (18.5) 55.8 94.2 (38.4)
-------- ------- ------- -------- -------- -------
Operating Expenses
Operations and Maintenance 9.2 6.9 2.3 27.6 27.6 -
Depreciation and Amortization 3.3 4.2 (0.9) 10.4 11.0 (0.6)
Taxes, Other Than Income Taxes 1.5 1.8 (0.3) 4.6 4.9 (0.3)
-------- ------- ------- -------- -------- -------
14.0 12.9 1.1 42.6 43.5 (0.9)
-------- ------- ------- -------- -------- -------
Operating Income (Loss) Before
Corporate Expenses $ (2.1) $ 17.5 $ (19.6) $ 13.2 $ 50.7 $ (37.5)
======= ======= ======= ======== ======== =======
Gas Sales (Trillion Btus) 438.1 325.3 112.8 1,210.2 936.7 273.5
======= ======= ======= ======== ======== =======
</TABLE>
Downstream's operating results before corporate expenses
decreased by $19.6 million from $17.5 million of income for the
three months ended September 30, 1998, to a loss of $2.1 million
for the third quarter of 1999. Downstream results were
negatively impacted in 1999, relative to 1998, by (i)
approximately $8.6 million of reduced sales and transport margins
from retail gas distribution, primarily due to the weather-
related reduction in 1999 irrigation demand, (ii) reduced 1999
per unit margins from commodity marketing resulting from lower
1999 demand for relatively high margin electric generation and
irrigation load in the Texas market areas, (iii) higher
operations and maintenance expenses related to the Nebraska
Choice Gas program and (iv) higher fuel and maintenance costs at
the Company's electric generating facilities. In April 1999,
Commodity Marketing became a principal gas supplier to Texas
intrastate affiliate pipelines, which resulted in a 35 percent
increase in third quarter 1999 sales volumes.
Downstream's operating income before corporate expenses decreased
by $37.5 million from $50.7 million for the nine months ended
September 30, 1998 to $13.2 million for the first nine months of
1999. Downstream results were negatively impacted in 1999,
relative to 1998, by (i) approximately $10 million of reduced
margins from commodity marketing, (ii) approximately $17 million
of reduced margins from retail gas sales and transportation, due
primarily to weather-related factors, lower unit margins
resulting from the Nebraska Choice Gas program and adjustments to
deferred purchased gas costs and (iii) the inclusion in 1998
earnings of (a) $5.4 million in margins from sales of storage
gas, (b) income related to the favorable resolution of certain
above market gas purchase contracts and (c) first quarter 1998
operating income from the Company's Kansas gas distribution
properties which were sold on March 31, 1998. These negative
impacts were partially offset by income from the Thermo assets in
1999 (see Note 2 of Notes to the accompanying interim
Consolidated Financial Statements). As noted above, the
significant increase in 1999 gas sales volumes reflects Commodity
Marketing's role as a gas supplier to Texas intrastate
affiliates; additionally, 1998 volumes include only eight months
of MidCon commodity marketing activity.
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
---------------------------------- ----------------------------------
(In Millions)
Increase Increase
Corporate Expenses 1999 1998 (Decrease) 1999 1998 (Decrease)
- ------------------ ---- ---- ---------- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
General and Administrative $ 32.0 $ 32.0 $ - $ 103.8 $ 92.8 $ 11.0
Merger-related and Severance Costs 11.0 - 11.0 11.0 5.8 5.2
------ ------ ------ ------- ------- ------
$ 43.0 $ 32.0 $ 11.0 $ 114.8 $ 98.6 $ 16.2
====== ====== ====== ======= ======= ======
</TABLE>
<PAGE> 25 Form 10-Q
The merger-related and severance costs in 1999 represent costs
(principally severance) related to the K N Energy, Inc.
acquisition by merger of Kinder Morgan Delaware. The merger-
related and severance costs in 1998 represent costs related to
the MidCon acquisition. See Note 2 of Notes to the accompanying
interim Consolidated Financial Statements for more information
regarding these business combinations. The increase in general
and administrative expenses for the nine months ended September
30, 1999, over the same period in 1998, was due principally to
(i) the fact that 1999 results include nine months of the
operations of MidCon, while 1998 results include only eight
months and (ii) reduced 1999 capitalization of overhead due to a
reduced level of capital spending.
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
---------------------------------- ----------------------------------
(In Millions)
Earnings Earnings
Increase Increase
Other Income and (Deductions) 1999 1998 (Decrease) 1999 1998 (Decrease)
- ----------------------------- ---- ---- ---------- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest Expense, Net $(69.8) $(64.5) $ (5.3) $(210.5) $(178.3) $(32.2)
Minority Interests (5.6) (4.4) (1.2) (16.8) (11.4) (5.4)
Other, Net 15.2 14.9 0.3 36.6 28.0 8.6
------ ------ ------ ------- ------- ------
$(60.2) $(54.0) $ (6.2) $(190.7) $(161.7) $(29.0)
====== ====== ====== ======= ======= ======
</TABLE>
The increase of $5.3 million in "Interest Expense, Net" for the
three months ended September 30, 1999, over the corresponding
period of 1998, was largely due to the cumulative impact of
reduced 1998 and 1999 cash flows from operations and associated
increases in debt levels, resulting from the depressed pricing
environment and unfavorable weather experienced during the twelve
months ended September 30, 1999, as described preceding. The
factors were partially offset by decreased capital spending and
increased proceeds from asset sales, see "Liquidity and Capital
Resources" elsewhere herein. The increase in net expense
associated with "Minority Interests" in 1999, relative to 1998,
principally reflects improved operating results from the
Company's 55 percent-owned Wildhorse joint venture. The minor
increase in "Other, Net" from 1998 to 1999 was principally due to
the net impact of (i) the September 1999 pre-tax gain of $11.4
million from the sale of the Company's interest in the Stingray
Pipeline Company, L.L.C. and West Cameron Dehydration Company,
L.L.C. and (ii) the September 1998 pre-tax gain of $10.9 million
from the Company's sale of certain microwave towers and
associated facilities.
The increase of $32.2 million in "Interest Expense, Net" for the
nine months ended September 30, 1999, over the corresponding
period of 1998, was largely due to the factors affecting the
quarters as described preceding, and to the financing associated
with the January 30, 1998 acquisition of MidCon. The increase in
net expense associated with "Minority Interests" in 1999,
relative to 1998, was principally due to dividend requirements
associated with the $175 million of Capital Trust Securities
issued in April 1998 (see Note 11 of Notes to the accompanying
interim Consolidated Financial Statements). The $8.6 million
increase in "Other, Net" from 1998 to 1999 was principally due to
the net impact of (i) the June, 1999 pre-tax gain of $17.5
million from the sale of the Company's interests in the HIOS and
UTOS offshore pipeline systems, (ii) the September, 1999 pre-tax
gain of $11.4 million from the sale of the Company's interest in
Stingray Pipeline Company, L.L.C. and West Cameron Dehydration
Company, L.L.C., (iii) the March 1998 pre-tax gain of $8.5
million from the Company's sale of its Kansas natural gas
distribution properties and (iv) the September 1998 pre-tax gain
of $10.9 million from the Company's sale of certain microwave
towers and facilities.
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
---------------------------------- ----------------------------------
(Dollars In Millions)
Income Taxes on Continuing
- -------------------------- Increase Increase
Operations 1999 1998 (Decrease) 1999 1998 (Decrease)
---------- ---- ---- ---------- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Provision (Benefit) $ (1.1) $ 14.7 $ (15.8) $ 5.2 $ 39.1 $(33.9)
====== ====== ======= ====== ====== ======
Effective Tax Rate 39.0% 37.0% 2.0% 39.0% 37.0% 2.0%
====== ====== ======= ====== ====== ======
</TABLE>
<PAGE> 26 Form 10-Q
The $15.8 million net decrease in income tax expense from
continuing operations for the three months ended September 30,
1999 from the corresponding period of 1998 is principally
attributable to the decrease in 1999 pre-tax income.
The $33.9 million net decrease in income tax expense from
continuing operations for the nine months ended September 30,
1999 from the corresponding period of 1998 reflected a decrease
of approximately $34.1 million attributable to a decrease in 1999
pre-tax income and an increase of approximately $0.2 million
attributable to a change in the effective tax rate.
Discontinued Operations
- -----------------------
During the third quarter, the Company adopted a plan to
discontinue the direct marketing of non-energy products and
services (principally under the "Simple Choice" brand), which
activities had been carried on largely through the Company's
en*able joint venture with PacifiCorp (see Note 6 of Notes to the
accompanying interim Consolidated Financial Statements). The
principal assets of this discontinued line of business remaining
as of September 30, 1999 consisted of an investment in en*able and
an indirect investment in Orcom Solutions (a provider of custom
software and outsource billing solutions for utilities and a
wholly owned subsidiary of en*able). The results of these
operations and projected costs of disposal, net of tax, have been
reported under the captions "Loss from Discontinued Operations"
and "Loss on Disposal of Discontinued Operations," respectively,
in the accompanying interim Consolidated Statements of Income.
The Company currently expects that it will record additional
charges to discontinued operations in the fourth quarter of 1999,
see Note 6 of Notes to the accompanying interim Consolidated
Financial Statements.
Liquidity and Capital Resources
- -------------------------------
The following table illustrates the sources of the Company's
invested capital. These balances reflect the incremental capital
associated with the acquisition of MidCon, including the post-
acquisition refinancings completed in 1998 (see Notes 2 and 11 of
Notes to the accompanying interim Consolidated Financial
Statements). The Company's capital structure will change
materially from that shown as of September 30, 1999, as a result
of common stock issued in conjunction with the Company's October
7, 1999 acquisition of Kinder Morgan Delaware (see Note 2 of
Notes to the accompanying Interim Consolidated Financial
Statements).
<PAGE> 27 Form 10-Q
<TABLE>
<CAPTION>
September 30 December 31
-------------------------- -----------------------------------------
(Dollars in Thousands)
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Long-Term Debt $3,298,484 $ 2,905,688 $ 3,300,025 $ 553,816 $ 423,676
Common Equity 1,223,958 1,263,544 1,216,821 606,132 519,794
Preferred Stock - 7,000 7,000 7,000 7,000
Capital Trust Securities 275,000 275,000 275,000 100,000 -
---------- ----------- ----------- ----------- -----------
Capitalization 4,797,442 4,451,232 4,798,846 1,266,948 950,470
Short-Term Debt 585,867 2,167,297 1 1,702,013 1 359,951 156,271
---------- ----------- ----------- ----------- -----------
Invested Capital $5,383,309 $ 6,618,529 $ 6,500,859 $ 1,626,899 $ 1,106,741
========== =========== =========== =========== ===========
Capitalization:
- ---------------
Long-Term Debt 68.8% 65.2% 68.8% 43.7% 44.6%
Common Equity 25.5% 28.4% 25.4% 47.8% 54.7%
Preferred Stock - 0.2% 0.1% 0.6% 0.7%
Capital Trust Securities 5.7% 6.2% 5.7% 7.9% -
Invested Capital:
- -----------------
Total Debt 72.2% 76.6% 76.9% 56.2% 52.4%
Equity, Including Capital
Trust Securities 27.8% 23.4% 23.1% 43.8% 47.6%
(1)Includes the $1,394,846 Substitute Note assumed in
conjunction with the acquisition of MidCon, which Note was repaid
in January 1999.
</TABLE>
The following discussion of cash flows should be read in
conjunction with the accompanying Consolidated Statements of Cash
Flows and related supplemental disclosures.
Net Cash Flows From Operating Activities
- ----------------------------------------
The net cash inflow from operating activities increased from $3.1
million for the nine months ended September 30, 1998, to $123.5
million for the first nine months of 1999, an increase of
$120.4 million. Excluding the impact of discontinued operations,
cash flow increased by $124.3 million, from $11.9 million in 1998
to $136.2 million in 1999. These increases are primarily
attributable to the net impact of (i) the September 1999 sale of
$150 million of accounts receivable (see Note 7 of Notes to the
accompanying Consolidated Financial Statements), (ii)
approximately $82 million of increased 1999 cash flow from
changes in levels of gas in underground storage, (iii) the
inclusion in 1998 results of $27.5 million of proceeds from the
buyout of certain contractual gas purchase obligations, (iv)
increased 1999 interest payments and (v) the decrease in 1999
earnings before non-cash charges and credits.
Net Cash Flows From Investing Activities
- ----------------------------------------
The net cash inflow from investing activities for the nine months
ended September 30, 1999, consisted principally of (i) $1.1
billion of proceeds from the sale of U.S. government securities,
which were used, together with additional short-term borrowings,
to repay the Substitute Note (see "Net Cash Flows From Financing
Activities" following), (ii) $170.7 million of net cash outflows
for capital expenditures, acquisitions and investments, (iii)
proceeds of $28.7 million from the sale of Tom Brown, Inc.
preferred stock and (iv) $89.6 million of proceeds from sales of
other assets. The net cash outflow from investing activities for
the nine months ended September 30, 1998 consisted principally of
(i) $2.2 billion in cash paid to Occidental for the purchase of
MidCon, (ii) net purchases of $1.1 billion of U.S. government
securities as collateral for the Substitute Note and as
collateral for the Thermo purchase obligation, (iii) $239.8
million of net cash outflows for capital expenditures, other
acquisitions and investments and (iv) $28.8 million of proceeds
from sales of other assets.
<PAGE> 28 Form 10-Q
On August 3, 1999, the Company announced plans to divest itself
of certain non-strategic assets. In addition, the Company
continues to evaluate its asset base for potential additional
divestitures, (see Note 6 of Notes to the accompanying interim
Consolidated Financial Statements).
Net Cash Flows From Financing Activities
- ----------------------------------------
The net cash outflow for financing activities for the nine months
ended September 30, 1999, was principally attributable to the
January 4, 1999, repayment of the Substitute Note (see Notes 2
and 11 of Notes to the accompanying interim Consolidated
Financial Statements). The note was repaid using the proceeds of
approximately $1.1 billion from the sale of U.S. government
securities which had been held as collateral, with the balance of
the funds provided by an increase in short-term borrowings. In
addition, 1999 cash flows include (i) the payment of $42.5
million of common and preferred dividends, (ii) the payment of
$7.4 million to redeem preferred stock, (iii) payments of $5.2
million for the retirement of long-term debt and (iii) receipt of
$5.6 million for common stock issued. The Company has announced
the fact that future dividends are expected to decrease, see
"Plan for the Combined Kinder Morgan" elsewhere herein.
The net cash inflow from financing activities of $3.5 billion for
the nine months ended September 30, 1998, was principally the
result of financing activities in conjunction with the purchase
of MidCon (see Notes 2 and 11 of Notes to the accompanying
interim Consolidated Financial Statements). In March 1998, the
Company issued 12.5 million shares (18.75 million shares after
adjustment for the December 1998 three-for-two stock split) of
common stock in an underwritten public offering, receiving net
proceeds of approximately $624.6 million. Also in March 1998,
the Company issued $2.35 billion principal amount of debt
securities of varying maturities and interest rates in an
underwritten public offering, receiving net proceeds of
approximately $2.34 billion. The net proceeds from these two
offerings were used to refinance borrowings under the MidCon
acquisition financing arrangements and to purchase U.S.
government securities to collateralize a portion of the
Substitute Note. In April 1998, the Company sold $175 million of
7.63% Capital Securities due April 15, 2028, in an underwritten
offering, with the net proceeds of $173.1 million used to
purchase U.S. government securities to further collateralize the
Substitute Note. In addition, 1998 results include (i) the
payment of $37.9 million of common and preferred dividends, (ii)
payments of $23.6 million to retire long-term debt, (iii) receipt
of $11.7 million for other common stock issued, and (iv) $16.8
million of minority interest contributions.
The Company's principal sources of short-term liquidity are its
revolving bank facilities totaling $1 billion. At September 30,
1999, the Company had $578.7 million of bank borrowings and
commercial paper (which is backed by the bank facilities) issued
and outstanding. The corresponding amount outstanding was $606.4
million at October 22, 1999. After inclusion of applicable
letters of credit, the remaining available borrowing capacity
under the bank facilities was $405.5 million and $377.8 million
at September 30, 1999 and October 22, 1999, respectively. As
described in the Company's Report on Form 10-K for the year ended
December 31, 1998, the Company's bank facilities and certain of
its operating lease arrangements contain covenants related to the
Company's ratio of debt to total capitalization, consolidated net
worth and debt ratings.
In addition, in September 1999, the Company established a
receivables sales facility that provides up to $150 million of
additional liquidity. In accordance with this agreement,
proceeds of $150 million were received on September 30, 1999 and
subsequently were used to retire debt obligations of Kinder
Morgan, Inc. outstanding at the time of its acquisition by the
Company (see Note 7 of Notes to the accompanying interim
Consolidated Financial Statements). In accordance with
authoritative accounting guidelines, cash flows associated with
this facility are included with "Cash flows from Operating
Activities" in the accompanying interim Consolidated Statements
of Cash Flows.
<PAGE> 29 Form 10-Q
Regulation
- ----------
On January 23, 1998, K N Interstate Gas Transmission Co. ("KNI"),
a wholly owned subsidiary of the Company, filed a general rate
case with the Federal Energy Regulatory Commission ("FERC")
requesting a $30.2 million increase in annual revenues. As a
result of the FERC's action, KNI was allowed to place its rates
into effect on August 1, 1998, subject to refund, and provisions
for refund have been recorded based on its expectation of
ultimate resolution. By a subsequent order, the FERC required
KNI to remove costs associated with the Pony Express project and
to refund the associated dollars. The interim refund, associated
with the ordered removal of the Pony Express facilities' costs
from KNI's rates, amounts to approximately $13 million, and has
yet to be refunded. KNI has filed for rehearing of the FERC's
orders that addressed Pony Express. As a result of a settlement
conference held on October, 27, 1999, KNI has filed a
comprehensive Stipulation and Agreement on November 3, 1999,
which, if approved by the FERC, will resolve this
proceeding.
On December 29, 1998, Rocky Mountain Natural Gas Company
("RMNG"), a wholly owned subsidiary of Kinder Morgan, received a
"show cause" order from the Colorado Public Utilities Commission
(the "Commission"). RMNG has reached settlement on the issue,
and a Stipulation and Agreement memorializing the settlement with
the Staff of the Commission and the Office of Consumer Counsel
has been filed and approved. As part of this settlement, RMNG
agreed to reduce its sales and transportation rates effective
June 1, 1999. The settled rate reduction is anticipated to
reduce RMNG's annual revenues by approximately $0.9 million per
year.
Environmental and Legal Matters
- -------------------------------
See Note 21 of Notes to the accompanying interim Consolidated
Financial Statements for information regarding environmental
and legal matters.
Plan for the Combined Kinder Morgan
- ------------------------------------
In conjunction with the Company's completed acquisition by merger
of Kinder Morgan Delaware, the Company has announced plans to
institute a "back to basics" strategy to improve the Company's
financial performance. As part of this strategy, the Company has
or intends to:
* Focus on and enhance utilization of core assets. The Company's
current plans contemplate that core businesses will include
interstate natural gas pipelines and associated assets,
interstate refined products pipelines, bulk terminals, retail
natural gas distribution and power development.
* Sell non-core assets to de-leverage the balance sheet. The
Company has previously reported the identification of a number of
assets for potential divestiture and the process is continuing
(see Note 6 of Notes to the accompanying interim Consolidated
Financial Statements). In total, the sale of non-strategic
assets is currently expected to reduce debt and long-term leases
by $750 million to $1 billion.
* Sell select core assets for fair value to Kinder Morgan Energy
Partners (NYSE:ENP), a publicly traded master limited
partnership. Any such assets sold must qualify for the
partnership and be accretive to distributions per unit. By
selling assets to KMEP, the Company will continue to participate
in their future growth through its general and limited partner
interests.
<PAGE> 30 Form 10-Q
* Reduce corporate overhead costs by $65 million to $70 million
annually starting in 2000. Approximately one-third of the savings
is expected to come from payroll reductions. Nearly all of the
cost cuts will occur at the corporate level as opposed to field
operations. Regulated operations and services will not be
adversely affected by the cost reductions.
* Align employee and shareholder incentives. Richard Kinder and
William Morgan, who became the two largest individual
shareholders of the merged company upon closing, are the top two
executives of the Company and receive a salary of $1 per year.
In addition, all full-time employees (other than Richard Kinder
and William Morgan) have been issued stock options under
a newly created stock option program (see Note 8 of Notes to
the accompanying interim Consolidated Financial Statements).
* Recommend to the new board of the combined company a reduction
of the dividend from $0.80 per share to $0.20 per share annually.
This measure would save nearly $70 million in cash annually that
could be used to reduce debt and fuel growth initiatives. The
Company is committed to increasing the dividend as the Company's
financial performance improves.
* Aggressively seek accretive acquisitions and expansions in core
businesses. For example, the Company will pursue power
development and retail natural gas distribution opportunities, as
well as strategic growth projects along its interstate pipeline
systems.
Readiness for Year 2000
- -----------------------
The following is a discussion of the Year 2000 problem and its
potential impact on the Company. The Securities and Exchange
Commission ("SEC") has issued specific guidelines for public
companies regarding their disclosure of the Year 2000 problem.
The guidelines require more detailed disclosure of each company's
analysis of and approach to the Year 2000 problem. As a result,
the Company is providing the following disclosure; however, the
length and detail contained in this disclosure, relative to the
other disclosures contained herein, is not an indication of the
Company's view of the relative risk of the Year 2000 problem to
the Company.
Some computers and programs, and some devices containing computer
chips ("embedded chips") store or process dates containing the
Year 2000 as "00" and they may fail to recognize the Year 2000 as
a leap year. This can result in inaccurate date-related
calculations. It is expected that once the Year 2000 arrives,
computers, computer programs and devices with embedded chips that
have not been identified, and if necessary modified to correct
this problem, may not function normally. The Company relies on a
number of automated systems to conduct its operation's and to
transact its business, as is common among large diversified
energy companies. In addition, certain of the Company's
pipelines and processing equipment and related systems contain
electric controls or other devices containing embedded chips.
These controls may also be adversely affected by this problem.
Similarly, third party vendors and servicers also have automated
systems that may be adversely affected by this problem.
In 1997, the Audit Committee of the Company's Board of Directors
(the "Audit Committee") established a Year 2000 project to
address the Year 2000 problem. In that year, the Company
established a Year 2000 Executive Steering Committee (the "Year
2000 Committee") and a Year 2000 Project Management Office (the
"Year 2000 Project Management Office"). The Year 2000 project is
an ongoing effort monitored by the Audit Committee.
<PAGE> 31 Form 10-Q
The Audit Committee has adopted a Year 2000 Plan (the "Plan") and
will oversee its implementation by receiving periodic reports
from the Year 2000 Committee and directly from management. The
Audit Committee is prepared to require management to make
additional efforts, including amending the Plan as necessary, to
fulfill the Audit Committee's goal of taking reasonable steps to
minimize injury to people, damage to property, disruption to the
Company's delivery of products and services, supporting systems
and business operations, and other risks associated with the Year
2000 problem.
The Year 2000 Committee is charged with directing the
implementation of the Plan in accordance with resolutions of the
Audit Committee and under the direction of the Company's
designated senior executives. The Year 2000 Committee oversees
the Year 2000 Project Management Office, headed by the Year 2000
Project Coordinator. The Year 2000 Committee keeps the Audit
Committee informed of the Company's progress in implementing the
Plan and of significant updates that are made to the Plan. The
Year 2000 Committee communicates the Audit Committee's directives
concerning the Plan to management and executives, and oversees
the implementation of those directives.
The Year 2000 Project Management Office works closely with the
Company's Readiness Teams comprised of members of the Company's
operating units. The teams have been organized to further
implement the Plan throughout the Company. The Project
Management Office, among other things, promotes exchange of
information about Year 2000 problems and solutions, assists in
disseminating information about the Company's policies governing
communications concerning Year 2000 issues and serves as a
conduit between the various Readiness Teams and the Year 2000
Committee.
The aim of the Plan is to take reasonable steps to prevent the
Company's mission critical functions from being impaired due to
the Year 2000 problem. "Mission critical" describes those
systems, devices, functions and external entities that are of
material importance to maintaining the Company's capacity to
deliver and account for products and services without
interruption, and to maintain the Company's supporting business
operations with no material disruption or diminution in quality.
Each of the Company's operating units is in various stages of
implementing the Plan to address the Year 2000 problem. These
efforts include:
* an inventory of systems and areas which may need to be
corrected;
* an assessment of potential problems;
* remediation and implementation, with priority given to mission
critical items;
* the testing of such systems and devices; and
* the development of contingency plans in case the Company cannot
correct the problem in time, or in the event certain facets of
the Year 2000 problem go undetected or do not manifest themselves
until after January 1, 2000.
Specifically, the Company is in the process of correcting
programmable code, replacing non-Year 2000-ready embedded chips,
installing Year 2000-ready releases of certain vendor-supplied
computer systems and, in some cases, replacing existing systems
with new internally or externally developed software in advance
of December 31, 1999.
The process of inventorying, assessing, remediating, and testing
in anticipation of the Year 2000 is necessarily an ongoing and
continuing process. As the Company learns more about the Year
2000 problem and its effects on the Company, the process of
evaluation, remediation and testing is repeated continuously.
The Company anticipates that it will be necessary to continue
this process into the Year 2000 as new problems are identified,
as well as to repeat the process for problems that can only
reasonably be identified after December 31, 1999.
<PAGE> 32 Form 10-Q
As of October 21, 1999, the Company and all of its business units
were at various points in implementation of the Plan. The
Company tracks its progress towards implementing the Plan in the
following categories: (i) internal software applications and
systems, which includes the Company's information technology
applications and programs ("IT Systems"), (ii) field systems,
which includes the various automated systems that are used to
gather, process and transport the Company's natural gas
("Automation") and measurement accounting, which includes the
Company's systems to measure the gas flow ("Measurement"), (iii)
desktop systems, which includes the internal computers utilized by
the Company's employees, and (iv) external entities, which includes
an assessment of the Company's critical vendors and suppliers and
their Year 2000 readiness ("External Entities"). The chart below
shows the dates that the Company has completed or expects to
complete, as applicable, the stages in the listed categories:
<TABLE>
<CAPTION>
Stages
----------------------------------------------------------------------------
Categories Contingency Year 2000
Inventory Assessment Remediation Testing Planning Ready
--------- ---------- ----------- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
IT Systems 12/97 4/98 10/99 10/99 9/99 11/99
Field Systems:
Automation 12/98 6/99 11/99 8/99 7/99 11/99
Measurement 12/98 3/99 10/99 8/99 7/99 10/99
Desktop 7/99 8/99 10/99 10/99 6/99 10/99
External Entities 10/98 8/99 N/A* N/A* 9/99 9/99
*Not Applicable
</TABLE>
The Company will continue to closely monitor its progress in
these categories and revise the estimated completion dates as
applicable.
For the Company's Plan to be successful, the Company must rely
for some purposes on outside contractors. There is a risk that
those contractors will not complete their work prior to the Year
2000. The Company is developing alternative ways to conduct its
business if such deadlines are not met. However, any alternative
may involve additional expense and may not be implemented in time
to avoid the Year 2000 problem. Ultimately, these alternatives
may not be successful.
The Company also relies on suppliers, business partners and other
External Entities that may or may not be addressing their own
problems associated with the Year 2000 problem. The Company has
sent out questionnaires to External Entities to determine what
steps they have taken to correct any Year 2000 problems they may
have. The Company has no control over such External Entities'
efforts, so the Company has developed contingency plans in case
such External Entities do not complete their efforts before the
Year 2000.
The contingency plans developed by the Company will address the
fact that despite the Company's good faith reasonable efforts,
the Company may not be able to remediate all of its mission
critical systems. In addition, External Entities that do
business with the Company may not be Year 2000 ready. The
Company's contingency plans call for teams of employees to be
available in the evening of December 31, 1999 and on other key
dates such as February 29, 2000, to respond rapidly to any Year
2000-related problem that occurs or affects the Company's mission
critical systems. The contingency plans call for an on-going
assessment of the Year 2000 problem following January 1, 2000 and
procedures for remediating any problems that arise.
<PAGE> 33 Form 10-Q
The Company estimates that the direct costs the Company has
incurred or will incur in 1998, 1999 and 2000 associated with
assessing, inventorying, remediating and testing internally
developed computer applications, hardware and equipment,
including embedded chip systems and third-party developed
software, to be between $5 million and $7 million. In addition,
as part of the integration of the Company's systems with the
systems of MidCon, the Company has begun modifying certain of its
computer systems for the combined company or purchasing computer
systems from third parties. These computer systems will address
the Year 2000 problem. The costs for these computer systems are
expected to be between $23 million and $25 million, the majority
of which will be capitalized.
The SEC's guidelines also require the Company to address the most
reasonably likely worst case scenarios resulting from the Year
2000 problem. As a result of the Year 2000 problem, the Company
may be faced with: failure of electrical, gas and similar
services and supplies from utilities, disruption of
telecommunications facilities, interruptions in the nation's
transportation systems, failure of a substantial number of the
Company's mission critical computer hardware and software
systems, including mission critical internal systems as well as
systems that control operational facilities such as pipeline,
electric generation, transmission and distribution systems, re-
coding errors due to the failure to fix all of the Company's
computer code, failure to discover or fix all embedded chips and
sabotage. In addition, the Company's key suppliers or customers
may experience their own Year 2000 problems in a way that
materially adversely affects the Company's ability to do business
without interruption or disruption. The Company could also face
substantial claims from customers for loss of revenues due to
service interruptions, for the Company's inability to account for
revenues, for inaccurate customer billing, or for unfulfilled
contractual obligations. The Company could face substantial
expenses from Year-2000 related litigation, for fixing problems
following the failure of mission critical systems and for
executing the contingency plans. As a result of the cumulative
impact of these events, the Company's business may be materially
adversely affected. The adverse impact of these events occurring
can not be quantified at this time.
In addition to the Plan, the Company is in the process of
developing contingency plans to address issues associated with
the reasonably likely worst case scenarios. The Company has
completed such contingency plans for field operations, and is in
the process of developing contingency plans for mission critical
systems Company-wide and expects to have such plans completed in
advance of January 1, 2000.
The Company does not believe that the direct costs associated
with the Year 2000 problem will be material to its business,
financial position or results of operations.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk
There have been no material changes in market risk exposures that
would affect the quantitative and qualitative disclosures
presented as of December 31, 1998, in the "Risk Management"
section of Management's Discussion and Analysis of Financial
Condition and Results of Operations on page 25 of the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.
<PAGE> 34 Form 10-Q
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On July 26, 1996, the Company and RMNG, along with over 70 other
natural gas companies, were served by Jack J. Grynberg, acting on
behalf of the Government of the United States, with a Civil False
Claims Act lawsuit filed in Washington, D.C. alleging
mismeasurement of the heating content and volume of natural gas
on Federal and Native American land resulting in underpayment of
royalties to the federal government. The Company and the other
named companies filed a motion to dismiss the lawsuit on grounds
of improper joinder and lack of jurisdiction. The motion was
granted in 1997. Mr. Grynberg appealed the dismissal of the
action based on improper joinder, and the D.C. Court of Appeals
affirmed the joinder decision in October 1998. Mr. Grynberg has
now filed over 70 new cases against over 350 defendants in nine
separate Federal Courts. The action against the Company,
modified somewhat from his original action, was filed in Federal
District Court, District of Colorado, and the Company was served
in this action on May 25, 1999. The Department of Justice
decided not to intervene in these cases in support of Grynberg's
complaint. On October 21, 1999, the Panel on the Multi-District
Litigation consolidated all of these cases in the Federal
District Court of Wyoming.
On September 23, 1999, a complaint styled as the First Amended
Class Action Petition regarding "Quinque Operating Company, et al.
v. Gas Pipelines, et al.," Case No. 99-C-30, Stevens County
District Court, Kansas, was filed. The complaint names over 200
natural gas companies including the Company, K N Interstate Gas
Transmission Co., K N Natural Gas, Inc., MidCon Corporation,
MidCon Gas Services Corporation, MidCon Marketing Corporation,
MidCon Texas Pipeline Operator, Inc., Natural Gas Pipeline
Company of America, Northern Gas Company, Rocky Mountain Natural
Gas Company, TCP Gathering Company, and Westar Transmission Co.
The complaint contains allegations of mismeasurement of the
heating content and volume of natural gas on non-Federal and non-
Native American lands similar to the allegations contained in the
above-referenced False Claim Act lawsuit dealing with Federal and
Native American land. On September 24, 1999, Defendant Northern
Natural Gas Company filed a Notice of Removal to the United
States District Court for the District of Kansas, Case No. 99-
1390-MLB. Subsequently, Defendants notified the Panel on Multi-
District Litigation of the existence of this case and requested
that it be consolidated as a "tag-a-long" action with the above-
referenced False Claim Act case in Wyoming.
The Company believes it has meritorious defenses to all lawsuits
and legal proceeds 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 business,
financial position or results of operations.
Item 2. Changes in Securities and Use of Proceeds
On October 7, 1999, the Company issued 200,000 shares of common
stock, par value of $5.00 per share, of the Company to Petrie
Parkman (the "Petrie Shares") pursuant to the terms of the
engagement letter between Petrie Parkman and the Company dated as
of June 24, 1999, as amended as of August 20, 1999, in
consideration for Petrie Parkman's advisory services rendered in
connection with the acquisition of Kinder Morgan Delaware. The
issuance of the Petrie Shares was exempt from registration under
Section 4(2) of the Securities Act of 1933, as amended.
<PAGE> 35 Form 10-Q
Item 4. Submission of Matters to a Vote of Security Holders
a.) The Company held a Special Meeting of Stockholders on
September 28, 1999 (the "Special Meeting").
b.) Proxies for the Special Meeting were solicited pursuant to
Regulation 14A of the Securities Exchange Act of 1934.
c.) The matters set forth below were voted on at the Special
Meeting:
(i) A proposal to approve the issuance of approximately
41,500,000 shares of Company common stock in connection with the
proposed merger pursuant to which Kinder Morgan Delaware will
become a wholly owned subsidiary of the Company, was approved and
the number of affirmative votes, negative votes and abstentions
with respect to this matter were as follows:
For: 53,280,108
Against: 488,072
Abstain: 270,964
(ii) A proposal to approve an amendment to the Company's articles
of incorporation to change the Company's name to "Kinder Morgan,
Inc.," was approved and the number of affirmative votes, negative
votes and abstentions were respect to this matter were as
follows:
For: 52,486,616
Against: 1,317,030
Abstain: 235,498
Item 5. Other Information
On October 7, 1999, the Company consummated its acquisition of
Kinder Morgan Delaware pursuant to the terms of the merger
agreement. Also, on October 7, 1999, upon the consummation of
the transactions contemplated by the merger agreement, David W.
Burkholder, Robert H. Chitwood, Howard P. Coghlan, Jordan L.
Haines and James C. Taylor resigned from the Company's Board of
Directors. In addition, upon consummation of the merger, the
Company entered into Governance Agreements with each of Richard
D. Kinder and Morgan Associates, Inc. On October 8, 1999, the
number of directors constituting the Company's Board of Directors
was set at ten and the remaining directors, in accordance with
the Governance Agreements described above, appointed Richard D.
Kinder, William V. Morgan, Fayez Sarofim and Ted A. Gardner to
fill the vacancies on the Company's Board of Directors.
On August 5, 1999, John F. Riordan resigned from the Board of
Directors.
Effective July 31, 1999, Clyde McKenzie, Chief Financial Officer,
Mort Aaronson, Chief Marketing Officer, and John DiNardo,
Executive Vice President of K N Gas Gathering, left the company
as part of a corporate reorganization.
Effective July 8, 1999, Larry D. Hall resigned his post as
Chairman and Chief Executive Officer of the Company. At that
time, Stewart Bliss, an independent member of the Company's Board
of Directors, assumed the Chairman and CEO positions on an
interim basis. Upon closing of the acquisition by merger of
Kinder Morgan Delaware, Richard D. Kinder, Chairman and CEO of
Kinder Morgan Delaware, was named Chairman
<PAGE> 36 Form 10-Q
and CEO of the Company. For more information concerning the
acquisition of Kinder Morgan Delaware, see Note 2 of Notes to the
interim Consolidated Financial Statements, included elsewhere
herein.
On June 24, 1999, Richard D. Kinder resigned from the Board of
Directors to pursue the transaction between the Company and
Kinder Morgan Delaware. On June 20, 1999, David M. Carmichael
resigned from the Company's Board of Directors to pursue another
business venture.
Item 6. Exhibits
(A) Exhibits
2.1 Agreement and Plan of Merger dated July 8,
1999, among the Company, Rockies Merger Corp. and
Kinder Morgan Delaware (incorporated by reference to
Exhibit 2.1 to the Company's Registration Statement on
Form S-4 filed on August 23, 1999 (File No.
333-85747)).
2.2 First Amendment to the Agreement and Plan of Merger
dated August 20, 1999, among the Company, Rockies
Merger Corp. and Kinder Morgan Delaware (incorporated
by reference to Exhibit 2.2 to the Company's
Registration Statement on Form S-4 filed on August 23,
1999 (File No. 333-85747)).
*3.1 Certificate of Amendment to the Restated Articles of
Incorporation of the Company as filed on October 7,
1999, with the Secretary of State of Kansas.
*3.2 Bylaws of the Company as amended to October 7, 1999.
*4.1 Amendment No. 2 to Rights Agreement of the Company
dated July 8, 1999, between the Company and First
Chicago Trust Company of New York.
10.1 Governance Agreement dated October 7, 1999, between the
Company and Richard D. Kinder (incorporated by
reference to Exhibit 99.C of the Schedule 13D filed by
Mr. Kinder on October 8, 1999).
10.2 Governance Agreement dated October 7, 1999, between the
Company and Morgan Associates, Inc. (incorporated by
reference to Exhibit 99.C of the Schedule 13D filed by
Morgan Associates, Inc. and William V. Morgan on
October 8, 1999).
10.3 Employment Agreement dated October 7, 1999, between the
Company and Richard D. Kinder (incorporated by
reference to Exhibit 99.D of the Schedule 13D filed by
Mr. Kinder on October 8, 1999).
*10.4 Receivables Purchase Agreement dated September 28,
1999, among KN Receivables Corporation, as Seller,
Falcon Asset Securitization Corporation, International
Securitization Corporation and The Financial
Institutions Party Hereto, as Investors and Bank One,
NA, as Agent.
<PAGE> 37 Form 10-Q
*10.5 Receivables Sale Agreement dated September 28, 1999,
between K N Energy, Inc., as the Originator, and other
Originators specified herein and KN Receivables
Corporation, as Buyer.
*27.1 Financial Data Schedule
* filed herewith
(B) Reports on Form 8-K
Current Report on Form 8-K dated July 14, 1999, was filed July
14, 1999, pursuant to Items 5 and 7 of that form. The following
was disclosed pursuant to Item 5 of that form:
1) K N Energy, Inc. entered into an Agreement and Plan of Merger
(the "Merger Agreement") dated as of July 8, 1999, by and among
K N Energy, Inc. and Rockies Merger Corp., a wholly owned
subsidiary of K N Energy, Inc., and Kinder Morgan Delaware.
2) Certain stockholders of Kinder Morgan Delaware entered into a
Voting Agreement (the "Voting Agreement") whereby they agreed,
among other things, to vote their shares of Kinder Morgan
Delaware common stock in favor of the merger.
3) On June 20, 1999, David M. Carmichael resigned from the
Company's Board of Directors to pursue another business venture.
On June 24, 1999, Richard D. Kinder resigned from K N Energy,
Inc.'s Board of Directors. On July 8, 1999, Larry D. Hall
resigned his post as Chairman and Chief Executive Officer of K N
Energy, Inc.
4) Stewart A. Bliss, a director of the Company, assumed the
Company Chairman and CEO positions on an interim basis. Upon
consummation of the merger, Mr. Kinder will be named Chairman and
Chief Executive Officer of the Company.
Pursuant to Item 7 of that form, the Merger Agreement, the Voting
Agreement and a joint press release of K N Energy, Inc. and
Kinder Morgan, Inc. issued July 8, 1999, announcing the merger
were filed as exhibits.
Current Report on Form 8-K dated September 15, 1999, was filed
September 15, 1999, pursuant to Item 5 and Item 7 of that form.
A press release outlining the strategies that the Company plans
to implement following the completion of the merger in which
Kinder Morgan Delaware will become a wholly owned subsidiary of
the Company was disclosed pursuant to Item 5. The press release
was attached as an exhibit pursuant to Item 7.
Current Report on Form 8-K dated September 29, 1999, was filed on
September 29, 1999, pursuant to Item 5 and Item 7 of that form.
A press release announcing that the Company's stockholders had
approved the issuance of shares of the Company's common stock in
connection with the merger of a wholly owned subsidiary of the
Company with and into Kinder Morgan Delaware and that the
Company's stockholders had approved an amendment to the Company's
Articles of Incorporation to change the Company's name to Kinder
Morgan, Inc. upon completion of the Merger was disclosed pursuant
to Item 5. The press release was attached as an exhibit pursuant
to Item 7.
<PAGE> 38 Form 10-Q
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
KINDER MORGAN, INC.
(Registrant)
November 5, 1999 /s/ Jack W. Ellis II
-----------------------------------
Jack W. Ellis II
Vice President and Controller
(On Behalf of the Registrant and as
Principal Accounting Officer)
EXHIBIT INDEX
2.1 Agreement and Plan of Merger dated July 8,
1999, among the Company, Rockies Merger Corp. and
Kinder Morgan Delaware (incorporated by
reference to Annex A-1 of the Company's
Registration Statement on Form S-4 filed on August
23, 1999 (File No. 333-85747)).
2.2 First Amendment to the Agreement and Plan of
Merger dated August 20, 1999, among the Company,
Rockies Merger Corp. and Kinder Morgan Delaware
(incorporated by reference to Exhibit 2.2 to the
Company's Registration Statement on Form S-4 filed
on August 23, 1999 (File No. 333-85747)).
*3.1 Certificate of Amendment to the Restated
Articles of Incorporation of the Company as filed
on October 7, 1999, with the Secretary of State of
Kansas.
*3.2 Bylaws of the Company as amended to October 7, 1999.
*4.1 Amendment No. 2 to Rights Agreement of the
Company dated July 8, 1999, between the Company
and First Chicago Trust Company of New York.
10.1 Governance Agreement dated October 7, 1999,
between the Company and Richard D. Kinder
(incorporated by reference to Exhibit 99.C of the
Schedule 13D filed by Mr. Kinder on October 8,
1999).
10.2 Governance Agreement dated October 7, 1999,
between the Company and Morgan Associates, Inc.
(incorporated by reference to Exhibit 99.C of the
Schedule 13D filed by Morgan Associates, Inc. and
William V. Morgan on October 8, 1999).
10.3 Employment Agreement dated October 7, 1999,
between the Company and Richard D. Kinder
(incorporated by reference to Exhibit 99.D of the
Schedule 13D filed by Mr. Kinder on October 8,
1999).
*10.4 Receivables Purchase Agreement dated September 28,
1999, among KN Receivables Corporation, as
Seller, Falcon Asset Securitization Corporation,
International Securitization Corporation and The
Financial Institutions Party Hereto, as Investors
and Bank One, NA, as Agent.
*10.5 Receivables Sale Agreement dated September 28,
1999, between K N Energy, Inc., as the Originator,
and other Originators specified herein and KN
Receivables Corporation, as Buyer.
*27.1 Financial Data Schedule
* filed herewith
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF RESTATEMENT OF
ARTICLES OF INCORPORATION
OF
K N ENERGY, INC.
The undersigned, K N Energy, Inc., a Kansas corporation (the
"Corporation"), for the purpose of amending the Certificate of
Restatement of Articles of Incorporation of the Corporation, in
accordance with the Kansas General Corporation Code, does hereby
make and execute this Certificate of Amendment of the Certificate
of Restatement of Articles of Incorporation and does hereby
certify that:
1. The amendment of the Certificate of Restatement of Articles
of Incorporation proposed by the directors and adopted by the
stockholders of the Corporation is as follows:
RESOLVED, that Article First of the Restated
Articles of Incorporation of the Corporation
be, and it hereby is, superseded and replaced
in its entirety with the following:
FIRST
The name of the Corporation shall be Kinder Morgan, Inc.
2. Such amendment has been duly adopted in accordance with the
provisions of Section 17-6602 of the Kansas Statutes Annotated.
IN WITNESS WHEREOF, this Certificate of Amendment has been
executed by the Corporation by its Chairman and Chief Executive
Officer and attested by its Assistant Secretary on the 7th day of
October, 1999.
K N ENERGY, INC.
By: /s/ Stewart A. Bliss
------------------------------------
Stewart A. Bliss
Chairman and Chief Executive
Officer
ATTEST:
/s/ Michael S. Richards
- ------------------------------
Michael S. Richards, Assistant Secretary
STATE OF COLORADO )
)ss
COUNTY OF JEFFERSON )
BE IT REMEMBERED, that on this 7TH day of October, 1999,
before me, the undersigned, a Notary Public in and for said
County and State, personally appeared Stewart A. Bliss and
Michael S. Richards, who declared that they are the Chairman and
Chief Executive Officer and Assistant Secretary, respectively, of
the corporation named in the foregoing certificate, and
acknowledged that they executed the foregoing certificate on
behalf of the corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed
my official seal the day and year last above written.
/s/ Marcia L. Keppy
-----------------------------------
Notary Public
My Commission Expires:
4/21/99
- ---------------
[SEAL]
13792 / 33919
JEPIE 704984
KINDER MORGAN, INC.
(Formerly K N Energy, Inc.)
---ooOoo---
B Y - L A W S
As Amended to October 7, 1999
Effective October 7, 1999
---ooOoo---
ARTICLE I
OFFICES
Section 1. Offices. The registered office shall be at 205
F Street in the City of Phillipsburg, County of Phillips, State
of Kansas. The Company's principal executive office shall be at
370 Van Gordon Street, Lakewood, Colorado 80228-8304 (mailing
address: Post Office Box 281304, Lakewood, Colorado 80228-8304).
Section 2. Additional Offices. The corporation may also
have offices at such other places both within and without the
State of Kansas as the Board of Directors may from time to time
determine or the business of the corporation may require.
ARTICLE II
MEETING OF STOCKHOLDERS
Section 1. Time and Place. The annual meeting of the
shareholders for the election of directors and all special
meetings of shareholders for that or for any other purpose may be
held at such time and place within or without the State of Kansas
as shall be stated in the notice of the meeting, or in a duly
executed waiver of notice thereof.
Section 2. Annual Meeting. The annual meeting of the
shareholders shall be held each year at a time to be determined
by the Board of Directors, at which meeting the shareholders
shall elect a Board of Directors, and transact such other
business as may be properly brought before the meeting.
Section 3. Special Meetings. Special meetings of the
shareholders, for any purpose or purposes, unless otherwise
prescribed by statute may be called by the Chairman of the Board,
if any, the President or the Board of Directors, and shall be
called by the President or the Secretary at the request in
writing of a majority of the directors, or at the request in
writing of shareholders owning at least fifty-one percent (51%)
in amount of the shares of the Corporation issued and outstanding
and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting.
Section 4. Notice. Written notice of the place, date and
hour of any annual or special meeting of shareholders shall be
given personally or by mail to each shareholder entitled to vote
thereat, not less than ten (10) nor more than fifty (50) days
prior to the meeting.
The notice shall state in addition, the purpose or purposes
for which the meeting is called, and by, or at whose direction it
is being issued.
Section 5. Quorum. Except as otherwise provided by the
Articles of Incorporation, the holders of a majority of the
shares of the Corporation issued and outstanding and entitled to
vote thereat, present in person or represented by proxy, shall be
necessary to and shall constitute a quorum for the transaction of
business at all meetings of the shareholders.
If, however, such quorum shall not be present or represented
at any meeting of the shareholders, the shareholders entitled to
vote thereat present in person or represented by proxy shall have
power to adjourn the meeting from time to time, but not for more
than thirty (30) days, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall
be present or represented, any business may be transacted which
might have been transacted at the meeting as originally noticed.
Section 6. Voting. At any meeting of the shareholders
every shareholder having the right to vote shall be entitled to
vote in person, or by proxy. Except as otherwise provided by law
or the Articles of Incorporation, each shareholder of record
shall be entitled, as to each proposal, to one vote for each
share of stock standing in his name on the books of the
Corporation on the date fixed as the record date for the
determination of its shareholders entitled to vote. All
elections of directors shall be by written ballot and shall be
determined by a plurality vote, and, except as otherwise provided
by law or the Articles of Incorporation, all other matters shall
be determined by vote of a majority of the shares present or
represented at such meeting and voting on such questions.
Section 7. Proxies. Every proxy must be executed in
writing by the shareholder or by his attorney-in-fact. No proxy
shall be valid after the expiration of eleven (11) months from
the date thereof, unless otherwise provided in the proxy. Every
proxy shall be revocable at the pleasure of the shareholder
executing it, except in those cases where an irrevocable proxy is
permitted by law.
Section 8. Consents. Whenever by any provision of law or
of the Articles of Incorporation, the vote of shareholders at a
meeting thereof is required or permitted to be taken in
connection with any corporate action, the meeting and vote of
shareholders may be dispensed with, if all the shareholders who
would have been entitled to vote upon the action if such meeting
were held, shall consent in writing to such corporate action
being taken.
Section 9. Presiding Officer. Meetings of the shareholders
shall be presided over by the Chairman of the Board, if any, or
if he is not present, by the President, or, if he is not present,
by a Vice President or, if neither the Chairman of the Board, the
President nor a Vice President is present, by a chairman to be
chosen at the meeting. The Secretary of the Company or, if he is
not present, an Assistant Secretary of the Company or, if neither
the Secretary nor an Assistant Secretary is present, a secretary
to be chosen at the meeting, shall act as secretary of the
meeting.
Section 10. Notice of Shareholder Business. At an annual
meeting of shareholders, only such business shall be conducted as
shall have been properly brought before the meeting (a) by or at
the direction of the Board of Directors or (b) by a shareholder
who is a shareholder of record at the time of giving such notice,
who shall be entitled to vote at such meeting and who complies
with the notice procedures set forth in this Section. For
business to be properly brought before an annual meeting by a
shareholder, the shareholder must have given timely notice
thereof in writing to the Secretary. To be timely, a
shareholder's notice must be delivered to or mailed and received
at the principal executive offices of the Corporation, not less
than 40 days prior to the meeting. A shareholder's notice to the
Secretary shall set forth as to each matter the shareholder
proposes to bring before the annual meeting (a) a brief
description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at
the annual meeting, (b) the name and address, as they appear on
the Corporation's books, of the shareholder proposing such
business, (c) the class and number of shares of the Corporation
which are beneficially owned by the shareholder, and (d) any
material interest of the shareholder in such business.
Nothwithstanding anything in these By-Laws to the contrary, no
business shall be conducted at an annual meeting except in
accordance with the procedures set forth in this Section. The
Chairman of an annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not
properly brought before the meeting and in accordance with the
provisions of this Section, and if he should so determine, he
shall so declare to the meeting and any such business not
properly brought before the meeting shall not be transacted.
Notwithstanding the foregoing provisions of this Section, a
shareholder shall also comply with all applicable requirements of
the Securities Exchange Act of 1934, as amended and the rules and
regulations thereunder with respect to the matters set forth in
this Section.
ARTICLE III
DIRECTORS
Section 1. Number and Tenure. The whole Board of Directors
of the Corporation shall consist of ten members. The directors
shall be classified with respect to the time for which they shall
severally hold office by dividing them into three classes, which
were first approved at the annual meeting of shareholders in
1975; Class I shall consist of three directors whose initial term
of office shall expire in 1994, Class II shall consist of four
directors whose initial term of office shall expire in 1995, and
Class III shall consist of three directors whose initial term of
office shall expire in 1996. Each director shall hold office
until his successor is duly elected and qualified or until his
resignation in writing has been filed with the corporation. At
each annual election, the successors of the class of directors
whose terms shall expire that year shall be elected to hold
office for a term of three years, so that the term of office of
one class of directors shall expire in each year, except where
the Board of Directors determines that a newly elected director
shall be elected by the shareholders to fill a vacancy of a
directorship created subsequent to the previous annual meeting,
such director shall be elected to hold office for the balance of
the term of the class of directors of which he is to be a member,
as determined by the Board of Directors, and until his successor
is elected and qualified.
Section 2. Vacancies. A vacancy on the Board of Directors
or a newly created directorship may be filled by a majority of
the remaining directors, though less than a quorum, or by the
sole director, by election of a new director, who at the time of
his election shall be designated as a member of one of the
classes of directors and shall hold office until the next
election of the class of which he has become a member, unless his
term of office is terminated by death, resignation, or otherwise.
Section 3. Resignation, Retirement; Removal. Any director
may resign at any time. Any director who experiences a change in
his personal or business circumstances or principal employment
shall immediately tender his resignation as a director of the
Corporation to the Executive Committee of the Board of Directors.
From and after the annual meeting of shareholders held in the
year 2000, any director who is not an employee of the Corporation
shall retire his position as a director at the annual meeting of
the shareholders of the Corporation next occurring after such
director attains the age of 72 years. The Board of Directors may
by unanimous vote of other directors then in office, remove a
director with or without cause. The shareholders entitled to
vote for the election of directors may remove a director, with
cause as provided in the Articles of Incorporation.
Section 4. Advisory Directors and Directors Emeritus. The
Board of Directors by a vote of a majority of the directors
present and entitled to vote, at any regular or special meeting
at which a quorum is present, may designate such number of
persons as it may from time to time determine, as an "Advisory
Director" or may designate a former member of the Board as a
"Director Emeritus," if such former member is willing to so
serve. Each Advisory Director and each Director Emeritus shall
serve, subject to the pleasure of the regular Board of Directors,
until the next succeeding annual meeting of the regular Board of
Directors, following the annual meeting of the stockholders, at
which such regular directors are elected, unless he shall have
resigned. Each Advisory Director and each Director Emeritus
shall be notified of all regular or special meetings of the
regular Board of Directors, shall be entitled to attend and
participate therein, but shall not be entitled to vote. Each
Advisory Director and each Director Emeritus shall be reimbursed
for any necessary expenses of attending directors' meetings.
Section 5. Nomination of Director Candidates.
(a) Eligibility to Make Nominations. Nominations of
candidates for election as directors of the Corporation at any
meeting of shareholders called for election of directors, in
whole or in part (an "Election Meeting"), may be made by the
Board of Directors or by any shareholder who is a shareholder of
record at the time of giving notice, who shall be entitled to
vote at such Election Meeting and who complies with the notice
procedures set forth in this Section.
(b) Procedure for Nominations by Shareholders.
Nominations, other than those made by the Board of Directors,
shall be made pursuant to timely notice in writing to the
Secretary. To be timely, shareholder's notice shall be delivered
to or mailed and received at the principal executive offices of
the Corporation not less than 40 days prior to the date of the
Election Meeting. Such shareholder's notice shall set forth (i)
the name, age, business address and residence address of each
nominee proposed in such notice, (ii) the principal occupation or
employment of each such nominee, (iii) the number of shares of
capital stock of the Corporation which are beneficially owned by
each such nominee and (iv) such other information concerning each
such nominee as would be required, under the rules of the SEC, in
a proxy statement soliciting proxies for the election of such
nominees. Such notice shall include a signed consent to serve as
a director of the Corporation, if elected, of each such nominee.
Such notice shall also set forth as to the shareholder giving the
notice (i) the name and address, as they appear on the Corpora
tion's books, of such shareholder and (ii) the class and number
of shares of the Corporation which are beneficially owned by such
shareholder.
(c) Meeting Procedures. No person shall be eligible for
election as a director of the Corporation unless nominated in
accordance with the procedures set forth in this Section. The
Chairman of the meeting shall, if the facts warrant, determine
and declare to the meeting that a nomination was not made in
accordance with the procedures prescribed by this Section 5, and
if he should so determine, he shall so declare to the meeting and
the defective nomination shall be disregarded.
(d) Substitution of Nominees. In the event that a person
is validly designated as a nominee to the Board and shall
thereafter become unable or unwilling to stand for election to
the Board of Directors, the Board of Directors or the shareholder
who proposed such nominee, as the case may be, may designate a
substitute nominee.
(e) Securities Exchange Act of 1934. Notwithstanding the
foregoing provisions of this Section, a shareholder shall also
comply with all applicable requirements of the Securities
Exchange Act of 1934, as amended and the rules and regulations
thereunder with respect to the matters set forth in this Section.
ARTICLE IV
MEETINGS OF THE BOARD OF DIRECTORS
Section 1. Place. The Board of Directors of the
Corporation may hold meetings, both regular and special, either
within or without the State of Kansas.
Section 2. Regular Meetings. Regular meetings of the Board
of Directors may be held without notice at such time and at such
place as shall from time to time be determined by the Board.
Section 3. Special Meetings. Special meetings of the Board
of Directors may be called by the Chairman of the Board, if any,
or by the President on two days' notice to each director, either
personally or by mail or by telegram; special meetings shall be
called by the Chairman, President or Secretary in like manner and
on like notice on the written request of two directors.
Section 4. Quorum. At all meetings of the Board of
Directors a majority of the entire Board shall be necessary to
and constitute a quorum for the transaction of business and the
act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of
Directors, except as may be otherwise specifically provided by
statute or by the Articles of Incorporation. If a quorum shall
not be present at any meeting of the Board of Directors the
directors present thereat may adjourn the meeting from time to
time until a quorum shall be present. Notice of such adjournment
shall be given to any directors who were not present and, unless
announced at the meeting, to the other directors.
Section 5. Consents. Unless otherwise restricted by the
Articles of Incorporation or these By-Laws, any action required
or permitted to be taken at any meeting of the Board of Directors
or of any committee thereof may be taken without a meeting, if
all members of the Board or of such committee as the case may be,
consent thereto in writing and such written consent is filed with
the minutes of the Board or committee. Such consents may be in
counterpart so that each member will have signed a consent, but
all members need not sign the same document.
Section 6. Compensation. Directors, as such, shall not
receive any stated salary for their services, but, by resolution
of the Board of Directors an annual fee, plus a fee and expenses
for attendance at meetings may be allowed, provided that nothing
herein contained shall be construed to preclude any director from
serving the Corporation in any other capacity and receiving
compensation therefor.
Section 7. Presiding Officer. Meetings of the Board of
Directors shall be presided over by the Chairman of the Board, if
any, or, if he is not present, by the President or, if he is not
present, by a chairman to be chosen at the meeting. The
Secretary of the Company, or, if he is not present, an Assistant
Secretary of the Company, or, if neither the Secretary nor an
Assistant Secretary is present, a secretary to be chosen at the
meeting, shall act as secretary of the meeting.
ARTICLE V
COMMITTEES OF DIRECTORS
Section 1. Designation. The Board of Directors, by
resolution adopted by a majority of the whole Board, may
designate from among its members one or more committees, each
consisting of two or more directors, each of which, to the extent
provided in such resolution, shall have and may exercise the
powers of the Board of Directors in the business and affairs of
the Corporation, and may authorize the seal of the Corporation to
be affixed to all papers which may require it.
The Board may designate one or more directors as alternate
members of any committee who may replace any absent or
disqualified member at any meeting of the committee.
Section 2. Tenure; Reports. Each such committee shall
serve at the pleasure of the Board. It shall keep minutes of its
meetings and report the same to the Board.
ARTICLE VI
EXECUTIVE COMMITTEE
Section 1. Appointment and Authority. The Board of
Directors may by resolution or resolutions passed by a majority
of the whole Board create and designate an Executive Committee
consisting of the officer who is designated as Chief Executive
Officer and two or more other directors of the Company who shall
hold office subject to the pleasure of the Board of Directors,
and the Board shall have the power at any time to remove any of
the members of the Executive Committee and to appoint to the
Committee other directors in lieu of the directors so removed.
The Chief Executive Officer shall serve as Chairman of the
Executive Committee. During the intervals between the meetings
of the Board of Directors the Executive Committee shall possess
and may exercise the powers delegated by the Board of Directors,
including the power to authorize the seal of the Company to be
affixed to all papers which may require it, to authorize the
payment of dividends, to authorize the issuance of stock, to
serve as a nominating committee for the Board of Directors and to
approve resolutions necessary for the day-to-day operations of
the Company; provided, however, that the Executive Committee
shall not have power to amend these By-Laws or to fill vacancies
on the Board of Directors or to fill vacancies in, or to change
the membership of, said Committee. The Executive Committee shall
also have and may exercise all the powers of the Board of
Directors except as aforesaid whenever a quorum of the Board
shall fail to be present at any meeting of the Board.
Section 2. Report of Action Taken. All action of the
Executive Committee shall be reported to the Board of Directors
at its meeting next succeeding such action, and shall be subject
to revision and alteration by the Board, provided that no rights
of third parties shall be affected by any such revision or
alteration. Regular minutes of the proceedings of the Executive
Committee shall be kept in a book provided for that purpose.
Section 3. Quorum and Procedure. A majority of the members
of the Executive Committee shall be necessary to constitute a
quorum, and, in every case, an affirmative vote of a majority of
the members shall be necessary for the passage of any
resolution. It shall fix its own rules of procedure and shall
meet as provided by such rules or by resolution of the Board, and
it shall also meet at the call of the Chairman or of any two
members of the Committee. Should the Executive Committee fail to
fix its own rules therefor, the provisions of these By-Laws,
pertaining to the calling of meetings and conduct of business by
the Board of Directors, shall apply as nearly as may be.
Section 4. Consent. Unless otherwise restricted by
statute, the Articles of Incorporation or these By-Laws, any
action required or permitted to be taken at any meeting of the
Executive Committee thereof may be taken without a meeting, if a
written consent thereto is signed by each member of the Executive
Committee, and such written consent is filed with the minutes of
proceedings of the Executive Committee. Such consents may be in
counterpart so that each member will have signed a consent but
all members need not sign the same document.
ARTICLE VII
NOTICES
Section 1. Form; Delivery. Notices to directors and
shareholders shall be in writing and delivered personally or
mailed to the directors or shareholders at their addresses
appearing on the books of the Corporation. Notice by mail shall
be deemed to be given at the time when the same shall be mailed.
Notice to directors may also be given by telegram.
Section 2. Waiver. Whenever any notice is required to be
given under the provisions of the statutes or of the Articles of
Incorporation or of these By-Laws, a waiver thereof in writing,
signed by the person or persons entitled to said notice, whether
before or after the time stated therein, shall be deemed
equivalent thereto. In addition, any shareholder attending a
meeting of shareholders in person or by proxy without protesting
at the beginning of the meeting the lack of notice thereof to
him, and any director attending a meeting of the Board of
Directors without protesting prior to the meeting or at its
commencement such lack of notice shall be conclusively deemed to
have waived notice of such meeting.
ARTICLE VIII
OFFICERS
Section 1. Executive Officers. The executive officers of
the Corporation shall be a President and one or more Vice
Presidents, a Secretary, a Treasurer and may include a Chairman
of the Board.
Section 2. Designation; Term of Office; Removal. All
officers shall be elected by the Board of Directors and shall
hold office for such term as may be prescribed by the Board or
until their successors are chosen and qualified or until their
resignation is filed in the office of the Secretary, whichever
first occurs. Any officer elected by the Board may be removed
with or without cause at any time by the Board.
Section 3. Authority and Duties. All officers, as between
themselves and the Corporation, shall have such authority and
perform such duties in the management of the Corporation as may
be provided in these By-Laws, or, to the extent not so provided,
by the Board of Directors.
Section 4. Compensation. The compensation of all officers
of the Corporation shall be fixed by the Board of Directors and
the compensation of agents shall either be so fixed or shall be
fixed by officers thereunto duly authorized.
Section 5. Vacancies. If an office becomes vacant for any
reason, the Board of Directors shall fill such vacancy. Any
officer so elected by the Board shall serve only until such time
as the unexpired term of his predecessor shall have expired
unless re-elected or reappointed by the Board.
Section 6. The Chairman of the Board. The Chairman of the
Board of Directors, if there be a Chairman, shall preside at all
meetings of the shareholders and directors and shall have such
other powers and duties as may from time to time be assigned by
the Board including designation as Chief Executive Officer if the
President is not so designated.
Section 7. The President. The President shall be the Chief
Executive Officer of the Corporation unless the Chairman of the
Board is so designated, in which event the President shall be
Chief Operating Officer of the Corporation. In the absence of
the Chairman of the Board, or if there be no Chairman, he shall
preside at all meetings of the shareholders and directors. The
Chief Executive Officer, whether the Chairman of the Board or the
President, shall be ex officio a member of all standing
committees, shall have general and active management and control
of the business and affairs of the Corporation subject to the
control of the Board of Directors, and shall see that all orders
and resolutions of the Board are carried into effect.
Section 8. Vice Presidents. The Vice Presidents in the
order of their seniority or in any other order determined by the
Board, shall in the absence or disability of the President,
perform the duties and exercise the powers of the President, and
shall generally assist the President and perform such other
duties as the Board of Directors or the President shall
prescribe.
Section 9. The Secretary. The Secretary shall attend all
meetings of the Board and all meetings of the shareholders and
record all votes and the minutes of all proceedings in a book to
be kept for that purpose and shall perform like duties for the
standing committees when required. He shall give, or cause to be
given, notice of all meetings of the shareholders and special
meetings of the Board of Directors, and shall perform such other
duties as may be prescribed by the Board of Directors or
President, under whose supervision he shall act. He shall keep
in safe custody the seal of the Corporation and, when authorized
by the Board, affix the same to any instrument requiring it and,
when so affixed, it shall be attested by his signature or by the
signature of the Treasurer or an Assistant Secretary or Assistant
Treasurer. He shall keep in safe custody the certificate books
and shareholder records and such other books and records as the
Board may direct and shall perform all other duties incident to
the office of the Secretary.
Section 10. Assistant Secretaries. The Assistant
Secretaries, if any, in order of their seniority or in any other
order determined by the Board shall, in the absence or disability
of the Secretary, perform the duties and exercise the powers of
the Secretary and shall perform such other duties as the Board of
Directors or the Secretary shall prescribe.
Section 11. The Treasurer. The Treasurer shall have the
custody of the corporate funds and securities and shall keep full
and accurate accounts of receipts and disbursements in books
belonging to the corporation and shall deposit all moneys and
other valuable effects in the name and to the credit of the
corporation in such depositories as may be designated by the
Board of Directors. He shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, taking
proper vouchers for such disbursements, and shall render to the
President and the Board of Directors at its regular meetings, or
when the Board of Directors so requires, an account of all his
transactions as Treasurer and of the financial condition of the
Corporation. He shall establish and execute programs for the
provision of the capital required by the Company, including
negotiating the procurement of capital and maintaining the
required financial arrangements. He shall establish and maintain
an adequate market for the Company's securities and, in
connection therewith, maintain adequate liaison with investment
bankers, financial analysts and shareholders. He shall maintain
adequate sources for the Company's current borrowings from
commercial banks and other lending institutions.
He shall maintain banking arrangements to receive, have
custody of and disburse the Company's moneys and securities. He
shall invest the Company's funds as required and establish and
coordinate policies for investment in pension and other similar
trusts.
Section 12. Assistant Treasurers. The Assistant
Treasurers, if any, in the order of their seniority or in any
other order determined by the Board, shall in the absence or
disability of the Treasurer, perform the duties and exercise the
power of the Treasurer and shall perform such other duties as the
Board of Directors or the Treasurer shall prescribe.
ARTICLE IX
CERTIFICATE OF SHARES
Section 1. Form; Signature. The certificates for shares of
the Corporation shall be in such form as shall be determined by
the Board of Directors and shall be numbered consecutively and
entered in the books of the Corporation as they are issued. Each
certificate shall exhibit the registered holder's name and the
number and class of shares, and shall be signed by the President
or a Vice President and the Treasurer or an Assistant Treasurer
or the Secretary or an Assistant Secretary, and shall bear the
seal of the Corporation or a facsimile thereof. Where any such
certificate is countersigned by a transfer agent or by a
registrar other than the Corporation, the signature of any such
officer may be a facsimile signature. In case any officer who
signed, or whose facsimile signature or signatures were placed on
any such certificate shall have ceased to be such officer before
such certificate is issued, it may nevertheless be issued by the
Corporation with the same effect as if he were such officer at
the date of issue.
Section 2. Lost Certificates. The Board of Directors may
direct a new share certificate or certificates to be issued in
place of any certificate or certificates theretofore issued by
the Corporation alleged to have been lost or destroyed, upon the
making of an affidavit of that fact by the person claiming the
certificate to be lost or destroyed. When authorizing such issue
of a new certificate or certificates, the Board of Directors may,
in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost or destroyed certificate
or certificates, or his legal representative, to give the
Corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the Corporation with
respect to the certificate alleged to have been lost or
destroyed.
Section 3. Registration of Transfer. Upon surrender to the
Corporation or any transfer agent of the Corporation of a
certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it
shall be the duty of the Corporation, or such transfer agent to
issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
Section 4. Registered Shareholders. Except as otherwise
provided by law, the Corporation shall be entitled to recognize
the exclusive right of a person registered on its books as the
owner of shares to receive dividends or other distributions, and
to vote as such owner, and to hold liable for calls a person
registered on its books as the owner of shares, and shall not be
bound to recognize any equitable or legal claim to or interest in
such share or shares on the part of any other person.
Section 5. Record Date. For the purpose of determining the
shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or to express consent to
or dissent from any proposal without a meeting, or for the
purpose of determining shareholders entitled to receive payment
of any dividend or the allotment of any rights, or for the
purpose of any other action affecting the interests of
shareholders, the Board of Directors may fix, in advance, a
record date. Such date shall not be more than sixty (60) nor
less than ten (10) days before the date of any such meeting, nor
more than sixty (60) days prior to any other action.
In each such case, except as otherwise provided by law, only
such persons as shall be shareholders of record on the date so
fixed shall be entitled to notice of, and to vote at, such
meeting and any adjournment thereof, or to express such consent
or dissent, or to receive payment of such dividend, or such
allotment of rights, or otherwise to be recognized as
shareholders for the related purpose, notwithstanding any
registration of transfer of shares on the books of the
Corporation after any such record date so fixed.
ARTICLE X
GENERAL PROVISIONS
Section 1. Dividends. Subject to the provisions of the
Articles of Incorporation, if any, dividends upon the outstanding
shares of the Corporation may be declared by the Board of
Directors at any regular or special meeting, pursuant to law and
may be paid in cash, in property, or in shares of the
Corporation.
Section 2. Reserves. Before payment of any dividends,
there may be set aside out of any funds of the Corporation
available for dividends such sum or sums as the directors from
time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the
Corporation, or for such other purpose as the directors shall
think conducive to the interest of the Corporation, and the
directors may modify or abolish any such reserve in the manner in
which it was created.
Section 3. Annual Statement. The Board of Directors shall
present at each annual meeting, and at any special meeting of the
stockholders when called for by vote of the stockholders, a full
and clear statement of the business and condition of the
corporation.
Section 4. Instruments Under Seal. All deeds, bonds,
mortgages, contracts, and other instruments requiring a seal may
be signed in the name of the Corporation by the President or by
any other officer authorized to sign such instrument by the
President or the Board of Directors.
Section 5. Checks. All checks or demands for money and
notes or other instrument evidencing indebtedness or obligation
of the Corporation shall be signed by such officer or officers or
such other person or persons as the Board of Directors may from
time to time designate.
Section 6. Fiscal Year. The fiscal year of the Corporation
shall begin on the first day of January of each year and shall
end on the thirty-first day of December following.
Section 7. Seal. The corporate seal shall have inscribed
thereon the name of the corporation and the words "Corporate
Seal, Kansas 1927." The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or
otherwise.
ARTICLE XI
AMENDMENTS
Section 1. These By-Laws may be altered or repealed at any
regular meeting of the Board of Directors, or at any special
meeting of the Board of Directors if notice of such alteration or
repeal be contained in the notice of such special meeting.
ARTICLE XII
SPECIAL MANAGEMENT PROVISIONS
Section 1. General. The provisions of this Article XII of
the By-Laws have been adopted by the Board of Directors of the
Corporation pursuant to that certain Agreement of Merger by and
between the Corporation, KNE Acquisition Corporation, a Delaware
corporation, and American Oil and Gas Corporation, a Delaware
corporation dated March 24, 1994 (the "Merger Agreement").
Capitalized terms used in this Article XII not otherwise defined
herein shall have the meaning ascribed to them in the Merger
Agreement. The provisions of this Article XII shall be effective
from and after the Effective Time notwithstanding any other
provisions of these By-Laws to the contrary. In the event of a
conflict between the provisions of this Article XII and other
provisions of the By-Laws, the provisions of this Article XII
shall control.
Section 2. Cabot Director. For so long as Cabot
Corporation shall continue to own beneficially (within the
meaning of Rule 13d-3 promulgated by the Securities and Exchange
Commission) 10% or more of the issued and outstanding voting
stock of the Corporation, Cabot Corporation shall have the right
to designate one person to serve as an advisory director of the
Corporation. In the event beneficial ownership of Cabot
Corporation of the issued and outstanding voting stock of the
Corporation falls below 10% but constitutes more than 5%, the
Board of Directors shall appoint the Cabot Corporation advisory
director as a full director, to serve the then remaining term of
a Class II director. For so long as Cabot Corporation continues
to own beneficially less than 10% but more than 5% of the issued
and outstanding voting stock of the Corporation, the Board of
Directors shall nominate a Cabot Corporation designee (provided
that such nominee is otherwise qualified as required by these By-
Laws) for election by the Corporation's stockholders as a
director. The Corporation shall at all times during which Cabot
Corporation shall beneficially own in excess 10% of the issued
and outstanding voting stock of the Corporation, maintain a
vacancy on its Board of Directors for such Cabot designee.
Section 3. Vacancies in Certain Offices. Any vacancy
arising following the Effective Time and prior to the
Corporation's Annual Meeting of Stockholders in 1996, in the
offices of the Chairman of the Board, Vice-Chairman of the Board,
President, Chief Executive Officer or Chief Operating Officer, or
on the Management Committee or the Chairman of the Management
Committee, shall be filled by the Board of Directors upon
recommendation by a Special Nominating Committee of the Board of
Directors. The Board of Directors shall by majority vote
establish a Special Nominating Committee in the event of a
vacancy in any of the foregoing positions. The Special
Nominating Committee shall consist of four directors, two of whom
shall be designated by the Board of Directors from the directors
of the Corporation who served as a director prior to the
Effective Time, and two of whom shall be designated by the
directors designated by American Oil and Gas Corporation in the
Merger Agreement.
Section 4. Continuation of Retirement Policy. The
Corporation shall continue its present retirement policy that
officers of the Corporation (including the Chairman of the Board,
Vice-Chairman of the Board, President and Chief Executive Officer
or Chief Operating Officer) shall be ineligible and cease to
serve as an officer of the Corporation as of the first of the
month coincident with or next following his or her 65th birthday.
Section 5. Super-Majority Vote. For purposes of this
Article XII, the term "Super-Majority Vote" shall mean the
affirmative vote of at least 12 of a 14-member Board of
Directors; at least 11 of a 13-member Board of Directors; at
least 10 of a 12-member Board of Directors; at least 9 of an 11-
member Board of Directors; or in all other cases, the affirmative
vote of a number of directors equal to at least 85% of the total
number of directors. A Super-Majority Vote shall be required for
the following actions to be taken by the Board of Directors; (i)
amendment, modification or revocation of any provision of this
Article XII; (ii) amendment, modification or revocation of the
current retirement policy of the Corporation; and (iii) any
increase in the number of members to serve on the Board of
Directors; provided that, no Super-Majority Vote shall be
required for any such action taken by the Board of Directors from
and after the date of the annual stockholders meeting for 1997.
I hereby certify that the foregoing are the By-Laws of K N
Energy, Inc. as the same were adopted at the meeting of the
Board of Directors on May 20, 1975, and subsequently amended at
meetings of the Board of Directors on November 20, 1975,
November 8, 1978, August 5, 1983, November 11, 1983, November 16,
1984, January 9, 1988, March 24, 1989, August 10, 1989,
January 20, 1991, November 10, 1993, June 24, 1994, July 13,
1994, April 11, 1996, February 10, 1998, March 9, 1999, and
September 2, 1999, and are still in force and effect on this 7th
day of October, 1999.
/s/Michael S. Richards
------------------------------
Michael S. Richards
Assistant Secretary
1
AMENDMENT NO. 2 TO
RIGHTS AGREEMENT
This Amendment No. 2 to Rights Agreement, dated as of July
8, 1999, by and between K N Energy, Inc., a Kansas corporation
(the "Company"), and First Chicago Trust Company of New York (the
"Rights Agent").
WHEREAS, the Board of Directors of the Company has
authorized the execution and delivery by the Company of an
Agreement and Plan of Merger, dated as of July 8, 1999, by and
among the Company, Rockies Merger Corp., a Delaware corporation
and wholly-owned subsidiary of the Company ("Merger Sub"), and
Kinder Morgan, Inc., a Delaware corporation ("Kinder Morgan"),
and in connection therewith the Board has determined in good
faith that certain amendments set forth below to the Rights
Agreement, dated as of August 21, 1995, as amended by Amendment
No. 1 thereto dated as of September 8, 1998, between the Company
and The Bank of New York, as the initial Rights Agent (the
"Rights Agreement"), are desirable and, pursuant to Section 29 of
the Rights Agreement, has duly authorized such amendments to the
Rights Agreement. A duly authorized officer of the Company has
executed and delivered this Amendment No. 2 to Rights Agreement
(the "Amendment").
WHEREAS, First Chicago Trust Company of New York has
succeeded The Bank of New York as Rights Agent.
NOW THEREFORE, for good and valuable consideration, the
parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this
Amendment, terms which are capitalized but not defined herein and
which are defined in the Rights Agreement shall have the meanings
ascribed to them in the Rights Agreement.
Section 2. Amendment to Section 1 of the Rights
Agreement. Section 1 of the Rights Agreement is hereby amended
to add the following definitions:
"Kinder Morgan" shall mean Kinder Morgan, Inc., a
Delaware corporation.
"Merger" shall mean the merger of Merger Sub with
and into Kinder Morgan pursuant to the Merger Agreement.
"Merger Agreement" shall mean the Agreement and
Plan of Merger dated as of July 8, 1999, by and among the
Company, Merger Sub and Kinder Morgan, as the same may be
amended from time to time in accordance with its terms.
"Merger Sub" shall mean Rockies Merger Corp., a
Delaware corporation and a wholly owned subsidiary of the
Company.
Section 3. Restatement of the Definition of "Acquiring
Person". The definition of "Acquiring Person" set forth in
Section 1 of the Rights Agreement is hereby deleted in its
entirety and replaced with the following definition:
"Acquiring Person" shall mean any Person who or which,
together with all Affiliates and Associates of such Person,
shall be the Beneficial Owner of 20% or more of the Voting
Shares of the Company then outstanding, but shall not
include the Company, any Subsidiary of the Company, any
employee benefit plan of the Company or of any Subsidiary of
the Company or any trustee of or fiduciary with respect to
any such plan when acting in such capacity. Notwithstanding
the foregoing, no Person shall become an "Acquiring Person"
as the result of an acquisition of Voting Shares by the
Company which, by reducing the number of shares outstanding,
increases the proportionate number of shares beneficially
owned by such Person to 20% or more of the Voting Shares of
the Company then outstanding; provided, however, that, if a
Person shall become the Beneficial Owner of 20% or more of
the Voting Shares of the Company then outstanding by reason
of share purchases by the Company and shall, after such
share purchases by the Company and at a time when such
Person is the Beneficial Owner of 20% or more of the Voting
Shares of the Company then outstanding, become the
Beneficial Owner of any additional percentage of the
outstanding Voting Shares of the Company, then such Person
shall be deemed to be an "Acquiring Person."
Notwithstanding the foregoing, (i) Cabot shall not become an
"Acquiring Person" as the result of either its right to
acquire, or its acquisition of, any Voting Shares underlying
any Warrants and (ii) neither Richard D. Kinder nor Morgan
Associates, Inc., in each case together with all Affiliates
and Associates of such Person, individually or together as a
group, shall become an "Acquiring Person" as a result of
their respective rights to acquire, or their respective
acquisition of, any Voting Shares. Notwithstanding the
foregoing, if the Board of Directors of the Company
determines in good faith that a Person who would otherwise
be an "Acquiring Person", as defined pursuant to the
foregoing provisions of this paragraph, has become such
inadvertently, and such Person divests as promptly as
practicable a sufficient number of Common Shares so that
such Person would no longer be an "Acquiring Person," as
defined pursuant to the foregoing provisions of this
paragraph, then such Person shall not be deemed to be an
"Acquiring Person" for any purposes of this Agreement.
Section 4. Addition of Section 36 of Rights Agreement.
The Rights Agreement is hereby amended to add thereto Section
36, which provides as follows:
Section 36. The Merger Agreement. Notwithstanding
anything in this Agreement to the contrary, no
Distribution Date or Shares Acquisition Date shall be
deemed to have occurred, neither Kinder Morgan nor any
of its Affiliates or Associates shall be deemed to have
become an Acquiring Person or have any obligation under
this Rights Agreement, and no holder of any Rights
Certificate shall be entitled to exercise the Rights
evidenced thereby under, or be entitled to any rights
or benefits pursuant to, this Rights Agreement, in each
case by reason of (a) the approval, execution or
delivery of the Merger Agreement or (b) consummation of
any of the transactions contemplated thereby,
including, without limitation, the Merger.
Section 5. Effectiveness. This Amendment shall be
deemed effective as of July 8, 1999 as if executed by both
parties on such date. Except as expressly amended by this
Amendment, the Rights Agreement shall remain in full force and
effect.
Section 6. Governing Law. This Amendment shall be
deemed to be a contract made under the laws of the State of
Kansas and for all purposes shall be governed by and construed
and enforced in accordance with the laws of such State applicable
to contracts to be made and performed entirely within such State.
Section 7. Counterparts. This Amendment may be
executed in any number of counterparts and each of such
counterparts shall for all purposes be deemed to be an original,
and all such counterparts shall together constitute but one and
the same instrument.
Section 8. Severability. If any term, provision,
covenant or restriction of this Amendment is held by a court of
competent jurisdiction or other authority to be invalid, illegal
or unenforceable, then the remainder of the terms, provisions,
covenants or restrictions of this Amendment shall remain in full
force and effect and shall in no way be affected, impaired or
invalidated.
Section 9. Descriptive Headings. Descriptive headings
of the several Sections of this Amendment are inserted for
convenience only and shall not control or affect the meaning or
construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed, all as of the day and year first above
written.
K N ENERGY, INC.
By: /s/ Stewart A. Bliss
--------------------------------
Name: Stewart A. Bliss
Title: Chairman and Chief
Executive Officer
FIRST CHICAGO TRUST COMPANY
OF NEW YORK, Rights Agent
By: /s/ Thomas McDonough
-----------------------------
Name: Thomas McDonough
Title: Assistant Vice
President
RECEIVABLES PURCHASE AGREEMENT
dated as of September 28, 1999
Among
KN RECEIVABLES CORPORATION ,
as Seller,
FALCON ASSET SECURITIZATION CORPORATION,
INTERNATIONAL SECURITIZATION CORPORATION
and
THE FINANCIAL INSTITUTIONS PARTY HERETO,
as Investors
BANK ONE, NA,
as Agent
TABLE OF CONTENTS
ARTICLE I
PURCHASE ARRANGEMENTS 1
Section 1.1 Purchase Facility 1
Section 1.2 Increases 2
Section 1.3 Decreases 2
Section 1.4 Payment Requirements 2
ARTICLE II
PAYMENTS AND COLLECTIONS 3
Section 2.1 Payments 3
Section 2.2 Collections Prior to Amortization 3
Section 2.3 Collections Following Amortization 4
Section 2.4 Application of Collections 4
Section 2.5 Seller's Interest 5
Section 2.6 Payment Rescission 6
Section 2.7 Purchaser Interests 6
ARTICLE III
CONDUIT FUNDING 6
Section 3.1 CP Costs 6
Section 3.2 CP Costs Payments 6
Section 3.3 Calculation of CP Costs 7
ARTICLE IV
FINANCIAL INSTITUTION FUNDING 7
Section 4.1 Financial Institution Funding 7
Section 4.2 Financial Institution Discount Payments
7
Section 4.3 Selection and Continuation of Tranche
Periods 7
Section 4.4 Financial Institution Discount Rates
8
Section 4.5 Suspension of the LIBO Rate 8
ARTICLE V
REPRESENTATIONS AND WARRANTIES 8
Section 5.1 Representations and Warranties of Seller
Parties 8
Section 5.2 Financial Institution Representations
and Warranties 12
ARTICLE VI
CONDITIONS OF PURCHASES 13
Section 6.1 Conditions Precedent to Initial
Incremental Purchase 13
Section 6.2 Conditions Precedent to All Purchases
and Reinvestments 13
ARTICLE VII
COVENANTS 14
Section 7.1 Affirmative Covenants of Seller 14
Section 7.2 Negative Covenants of Seller 21
ARTICLE VIII
ADMINISTRATION AND COLLECTION 23
Section 8.1 Designation of Servicer 23
Section 8.2 Duties of Servicer 24
Section 8.3 Collection Notices 25
Section 8.4 Responsibilities of Seller 26
Section 8.5 Reports 26
Section 8.6 Servicing Fees 26
ARTICLE IX
AMORTIZATION EVENTS 26
Section 9.1 Amortization Events 26
Section 9.2 Remedies 29
ARTICLE X
INDEMNIFICATION 29
Section 10.1 INDEMNITIES BY SELLER 29
Section 10.2 Increased Cost and Reduced Return 33
Section 10.3 OTHER COSTS AND EXPENSES 34
ARTICLE XI
THE AGENT 34
Section 11.1 Authorization and Action 34
Section 11.2 Delegation of Duties 35
Section 11.3 Exculpatory Provisions 35
Section 11.4 Reliance by Agent 35
Section 11.5 Non-Reliance on Agent and Other
Purchasers 36
Section 11.6 Reimbursement and Indemnification 36
Section 11.7 Agent in its Individual Capacity 36
Section 11.8 Successor Agent 36
ARTICLE XII
ASSIGNMENTS; PARTICIPATIONS 37
Section 12.1 Assignments 37
Section 12.2 Participations 38
ARTICLE XIII
LIQUIDITY FACILITY 38
Section 13.1 Transfer to Financial Institutions 38
Section 13.2 Transfer Price Reduction Yield 39
Section 13.3 Payments to Conduits 39
Section 13.4 Limitation on Commitment to Purchase
from Conduits 39
Section 13.5 Defaulting Financial Institutions 39
Section 13.6 Terminating Financial Institutions 40
ARTICLE XIV
MISCELLANEOUS 41
Section 14.1 Waivers and Amendments 41
Section 14.2 Notices 42
Section 14.3 Ratable Payments 42
Section 14.4 Protection of Ownership Interests of the
Purchasers 42
Section 14.5 Confidentiality 43
Section 14.6 Bankruptcy Petition 44
Section 14.7 Limitation of Liability 44
Section 14.8 CHOICE OF LAW 44
Section 14.9 CONSENT TO JURISDICTION 44
Section 14.10 WAIVER OF JURY TRIAL 45
Section 14.11 Integration; Binding Effect; Survival of
Terms 45
Section 14.12 Counterparts; Severability; Section
References 45
Section 14.13 Bank One Roles 45
Section 14.14 Characterization 46
EXHIBITS AND SCHEDULES
Exhibit I Definitions
Exhibit II Form of Purchase Notice
Exhibit III Places of Business of the Seller Parties;
Locations of Records; Federal Employer
Identification Number(s)
Exhibit IV Names of Collection Banks; Collection Accounts
Exhibit V Form of Compliance Certificate
Exhibit VI Form of Collection Account Agreement
Exhibit VII Form of Assignment Agreement
Exhibit VIII Credit and Collection Policy
Exhibit IX Form of Contract(s)
Exhibit X Form of Monthly Report
Schedule A Commitments of Financial Institutions
Schedule B Documents to be Delivered to the Agent
RECEIVABLES PURCHASE AGREEMENT
This Receivables Purchase Agreement dated as of September
28, 1999 is among KN Receivables Corporation, a Delaware
corporation ("Seller"), the funding entities listed on Schedule A
to this Agreement (together with any of their respective
successors and assigns hereunder, the "Financial Institutions"),
Falcon Asset Securitization Company ("FALCON") and International
Securitization Corporation ("ISC"), (FALCON and ISC each being
referred to individually as a "Conduit" and collectively as the
"Conduits," and together with the Financial Institutions, the
"Purchasers") and Bank One, NA, as agent for the Purchasers
hereunder or any successor agent hereunder (together with its
successors and assigns hereunder, the "Agent"). Unless defined
elsewhere herein, capitalized terms used in this Agreement shall
have the meanings assigned to such terms in Exhibit I.
PRELIMINARY STATEMENTS
Seller desires to transfer and assign Purchaser Interests to
the Purchasers from time to time.
The Conduits may, in their absolute and sole discretion,
purchase Purchaser Interests from Seller from time to time.
In the event that either Conduit declines to make any
purchase, the Financial Institutions shall, at the request of
Seller, purchase Purchaser Interests from time to time. In
addition, the Financial Institutions have agreed to provide a
liquidity facility to the Conduits in accordance with the terms
hereof.
Bank One, NA has been requested and is willing to act as
Agent on behalf of Conduits and the Financial Institutions in
accordance with the terms hereof.
1 ARTICLE PURCHASE ARRANGEMENTSARTICLE
2 PURCHASE ARRANGEMENTS
1.1 Section Purchase Facility .
1.2
(a) Upon the terms and subject to the conditions
hereof, Seller may, at its option, sell and assign Purchaser
Interests to the Agent for the benefit of one or more of the
Purchasers. In accordance with the terms and conditions set
forth herein, each Conduit may, at its option, instruct the Agent
to purchase on its behalf, or if such Conduit shall decline to
purchase, the Agent shall purchase, on behalf of the Financial
Institutions, Purchaser Interests from time to time in an
aggregate amount not to exceed at such time the lesser of (i) the
Purchase Limit and (ii) the aggregate amount of the Commitments
during the period from the date hereof to but not including the
Facility Termination Date.
(a) Seller may, upon at least 10 Business Days' notice
to the Agent, terminate in whole or reduce in part, ratably among
the Financial Institutions, the unused portion of the Purchase
Limit; provided that each partial reduction of the Purchase Limit
shall be in an amount equal to $5,000,000 or an integral multiple
thereof.
(b)
1.2 Section Increases . Seller shall provide the Agent
with at least two Business Days' prior notice in a form set forth
as Exhibit II hereto of each Incremental Purchase (a "Purchase
Notice"). Each Purchase Notice shall be subject to Section 6.2
hereof and, except as set forth below, shall be irrevocable and
shall specify the requested Purchase Price (which shall not be
less than $10,000,000) and date of purchase (which, in the case
of any Incremental Purchase (after the initial Incremental
Purchase hereunder), shall only be on a Settlement Date) and, in
the case of an Incremental Purchase to be funded by the Financial
Institutions, the requested Discount Rate and Tranche Period.
Following receipt of a Purchase Notice, the Agent will determine
whether either Conduit individually or both Conduits collectively
agree to make the entire proposed purchase. If the Conduits
decline to make the entire proposed purchase, Seller may cancel
the Purchase Notice or, in the absence of such a cancellation,
the portion of the Incremental Purchase of Purchaser Interests
that is not being made by the Conduits will be made by the
Financial Institutions. On the date of each Incremental
Purchase, upon satisfaction of the applicable conditions
precedent set forth in Article VI, each purchasing Conduit or
Financial Institution, as applicable, shall deposit to the
Facility Account, in immediately available funds, no later than
12:00 noon (Chicago time), an amount equal to (i) in the case of
a Conduit, such Conduit's share of the aggregate Purchase Price
of the Purchaser Interests Conduits are purchasing and (ii) in
the case of a Financial Institution, such Financial Institution's
Pro Rata Share of the aggregate Purchase Price of the Purchaser
Interests the Financial Institutions are purchasing.
1.3
1.4 Section Decreases . Seller shall provide the Agent
with prior written notice in conformity with the Required Notice
Period (a "Reduction Notice") of any proposed reduction of
Aggregate Capital from Collections. Such Reduction Notice shall
designate (i) the date (the "Proposed Reduction Date") upon which
any such reduction of Aggregate Capital shall occur (which date
shall give effect to the applicable Required Notice Period), and
(ii) the amount of Aggregate Capital to be reduced which shall be
applied ratably to the Purchaser Interests of the Conduits and
the Financial Institutions in accordance with the amount of
Capital (if any) owing to Conduits (ratably, based on their
respective Conduit Shares), on the one hand, and the amount of
Capital (if any) owing to the Financial Institutions (ratably,
based on their respective Pro Rata Shares), on the other hand
(the "Aggregate Reduction"). Only one (1) Reduction Notice shall
be outstanding at any time. No Aggregate Reduction will be made
following the occurrence of the Amortization Date without the
consent of the Agent.
1.1 Section Payment Requirements . All amounts to be paid
or deposited by Seller or Servicer pursuant to any provision of
this Agreement shall be paid or deposited in accordance with the
terms hereof no later than 11:00 a.m. (Chicago time) on the day
when due in immediately available funds, and if not received
before 11:00 a.m. (Chicago time) shall be deemed to be received
on the next succeeding Business Day. If such amounts are payable
to a Purchaser they shall be paid to the Agent, for the account
of such Purchaser, at One Bank One Plaza, Chicago, Illinois 60670
until otherwise notified by the Agent. Upon notice to Seller,
the Agent may debit the Facility Account for all amounts due and
payable hereunder. All computations of Financial Institution
Discount Rate, per annum fees calculated as part of any CP Costs,
per annum fees hereunder and per annum fees under the Fee Letter
shall be made on the basis of a year of 360 days for the actual
number of days elapsed. If any amount hereunder shall be payable
on a day which is not a Business Day, such amount shall be
payable on the next succeeding Business Day.
1.2
1.3
2 ARTICLE PAYMENTS AND COLLECTIONSARTICLE
3 PAYMENTS AND COLLECTIONS
1.1 Section Payments . Notwithstanding any limitation on
recourse contained in this Agreement, Seller shall immediately
pay to the Agent when due, for the account of the relevant
Purchaser or Purchasers on a full recourse basis, (i) such fees
as set forth in the Fee Letter (which fees shall be sufficient to
pay all fees owing to the Financial Institutions), (ii) all
amounts payable as Deemed Collections (which shall be immediately
due and payable by Seller and applied to reduce outstanding
Aggregate Capital hereunder in accordance with Sections 2.2 and
2.3 hereof), (iii) all amounts payable pursuant to Article X, if
any, (iv) all Servicer costs and expenses, including the
Servicing Fee, in connection with servicing, administering and
collecting the Receivables to the extent not paid directly to the
Servicer, (v) all Broken Funding Costs and (vi) all Default Fees
(collectively, the "Recourse Obligations"). If any Person fails
to pay any of the Recourse Obligations when due, such Person
agrees to pay, on demand, the Default Fee in respect thereof
until paid. CP Costs and all amounts payable as Financial
Institution Discount (collectively, the "Non-Recourse
Obligations") are payable only to the extent of Available Funds
as provided in Section 2.4. If the Non-Recourse Obligations are
not paid when due, the Default Fee shall accrue on such unpaid
amounts and shall be payable on the next date on which Non-
Recourse Obligations are payable. Notwithstanding the foregoing,
no provision of this Agreement or the Fee Letter shall require
the payment or permit the collection of any amounts hereunder in
excess of the maximum permitted by applicable law. If at any
time Seller receives any Collections or is deemed to receive any
Collections, Seller shall immediately pay such Collections or
Deemed Collections to the Servicer for application in accordance
with the terms and conditions hereof and, at all times prior to
such payment, such Collections or Deemed Collections shall be
held in trust by Seller for the exclusive benefit of the
Purchasers and the Agent.
1.1 Section Collections Prior to Amortization . (a) On
each day prior to the Amortization Date, the Servicer shall set
aside and hold in trust the Purchasers' Collections for the
payment of any accrued and unpaid Aggregate Unpaids pursuant to
Section 2.4 or for a Reinvestment as provided in this Section
2.2. At any time any Collections or Deemed Collections are
received by the Servicer prior to the Amortization Date, (i) the
Servicer shall set aside such portion of the Purchasers'
Collections as shall be required to pay the amounts specified
pursuant to clauses first through eighth in Section 2.4, and (ii)
Seller hereby requests and the Purchasers (other than any
Terminating Financial Institutions) hereby agree to make,
simultaneously with such receipt, a reinvestment (each a
"Reinvestment") with that portion of the balance of each and
every Collection or Deemed Collection received by the Servicer
that is part of any Purchaser Interest (other than any Purchaser
Interests of Terminating Financial Institutions), such that after
giving effect to such Reinvestment, the amount of Capital of such
Purchaser Interest immediately after such receipt and
corresponding Reinvestment shall be equal to the amount of
Capital immediately prior to such receipt. On each Settlement
Date prior to the occurrence of the Amortization Date, the
Servicer shall remit to the Agent's account the amounts set aside
during the preceding Settlement Period that have not been subject
to a Reinvestment.
1.2
1.3 (b) Amounts set aside pursuant to clause seventh of
Section 2.4 to reduce the Capital of all Purchaser Interests of
Terminating Financial Institutions shall be applied ratably to
each Terminating Financial Institution according to its
respective Termination Percentage. Each Terminating Financial
Institution shall be allocated a ratable portion of the aggregate
Purchasers' Collections from the date of any assignment by any
Conduit pursuant to Section 13.6 (the "Termination Date") until
such Terminating Financing Institution's Capital shall be paid in
full. This ratable portion shall be calculated on the
Termination Date of each Terminating Financial Institution as a
percentage equal to (i) Capital of such Terminating Financial
Institution outstanding on its Termination Date, divided by (ii)
the Aggregate Capital outstanding on such Termination Date (the
"Termination Percentage"). Each Terminating Financial
Institution's Termination Percentage shall remain constant prior
to the Amortization Date. On and after the Amortization Date,
each Termination Percentage shall be disregarded, and each
Terminating Financial Institution's Capital shall be reduced
ratably with all Financial Institutions in accordance with
Section 2.3.
1.4
1.5 Section Collections Following Amortization . On the
Amortization Date and on each day thereafter, the Servicer shall
set aside and hold in trust, for the holder of each Purchaser
Interest, all the Purchasers' Collections.
1.6
1.7 Section Application of Collections . On each
Settlement Date, the Servicer shall distribute all Available
Funds with respect to the preceding Calculation Period in the
following order of priority, based upon the instructions set
forth in the Monthly Report prepared by the Servicer:
1.8
first, to the payment of the Servicer's reasonable out-
of-pocket costs and expenses in connection with servicing,
administering and collecting the Receivables incurred during
the related Accrual Period, including the servicing fee, if
Seller or one of its Affiliates is not then acting as the
Servicer;
second, any Available Funds remaining after the
application in clause first shall be applied to the
reimbursement of the Agent's costs of collection and
enforcement of this Agreement incurred during the related
Accrual Period;
third, any Available Funds remaining after the
applications in clauses first and second shall be applied
ratably for the ratable payment of all Non-Recourse
Obligations accrued during the related Accrual Period;
fourth, if the aggregate Purchaser Interests exceed
100% as of the last day of the related Calculation Period,
any Available Funds remaining after the applications in
clauses first through third shall be paid to the Agent in
reduction of Capital to the extent necessary to reduce the
aggregate Purchaser Interests to 100%;
fifth, if the Amortization Date occurs, any Available
Funds remaining after the applications in clauses first
through fourth shall be paid to the Agent in reduction of
Capital to the extent necessary to reduce Capital to zero;
sixth, any Available Funds remaining after the
applications in clauses first through fifth shall be applied
ratably for the ratable payment of all unpaid Recourse
Obligations accrued during the related Accrual Period,
provided that to the extent such Recourse Obligations relate
to the payment of Servicer costs and expenses, including the
Servicing Fee, when Seller or one of its Affiliates is
acting as the Servicer, such costs and expenses will not be
paid until after the payment in full of all other Recourse
Obligations;
seventh, if prior to the Amortization Date there are
one or more Terminating Financial Institutions with
Purchaser Interests greater than zero, an amount equal to
the product of (A) the sum of the Termination Percentages
for each of the Terminating Financial Institutions and (B)
the Available Funds remaining after the applications in
clauses first through sixth shall be paid to such
Terminating Financial Institutions in accordance with
Section 2.2(b) until such time as the Capital of all such
Purchaser Interests have been reduced to zero;
eighth, any Available Funds remaining after the
applications in clauses first through seventh shall be
applied ratably for the payment to the Servicer of the
Servicing Fee specified in Section 8.6; and
ninth, all remaining Available Funds shall (A) prior to
the Amortization Date, be set aside and held in trust by the
Servicer for a Reinvestment as provided in Section 2.2 and
(B) on and after the Amortization Date, be paid to Seller.
Collections applied to the payment of Aggregate Unpaids
shall be distributed in accordance with the aforementioned
provisions, and, giving effect to each of the priorities set
forth in Section 2.4 above, shall be shared ratably (within each
priority) among the Agent and the Purchasers in accordance with
the amount of such Aggregate Unpaids owing to each of them in
respect of each such priority.
1.1 Section Seller's Interest . The Servicer shall turn
over to the Seller any Collections which do not constitute
Purchasers' Collections, less all reasonable costs and expenses
of the Servicer for servicing, collecting and administering the
portion of the Receivables represented by such Collections.
1.2
1.3 Section Payment Rescission . No payment of any of the
Aggregate Unpaids shall be considered paid or applied hereunder
to the extent that, at any time, all or any portion of such
payment or application is rescinded by application of law or
judicial authority, or must otherwise be returned or refunded for
any reason. Seller shall remain obligated for the amount of any
payment or application so rescinded, returned or refunded, and
shall promptly pay to the Agent (for application to the Person or
Persons who suffered such recission, return or refund) the full
amount thereof, plus the Default Fee from the date of any such
recission, return or refunding; provided, however, that Seller
shall not be obligated to make any such payment to the Agent to
the extent that (i) such recission, return or refund arises in a
bankruptcy or insolvency proceeding of an Obligor, (ii) such
recission, return or refund relates to a Collection on a
Receivable previously received by the Servicer and (iii) the
Agent would not have received a corresponding payment out of
other Collections in the normal course pursuant to Section 2.4
(and the computations of the amounts to be paid pursuant thereto)
if such refunded Receivable (or portion thereof) had not been
collected in the first instance.
1.4
1.5 Section Purchaser Interests . Seller shall ensure that
the Purchaser Interests of the Purchaser shall at no time exceed
in the aggregate 100%, unless and only to the extent that such
excess results from a reduction in the Net Receivables Balance as
a result of a Receivable being written off as uncollectible. If
the aggregate of the Purchaser Interests of the Purchasers so
exceeds 100%, Seller shall pay to the Agent within one (1)
Business Day an amount to be applied to reduce the Aggregate
Capital (as allocated by the Agent), such that after giving
effect to such payment the aggregate of the Purchaser Interests
equals or is less than 100% as so calculated.
1.6
1 ARTICLE CONDUIT FUNDINGARTICLE
2 CONDUIT FUNDING
1.1 Section CP Costs . To the extent of Available Funds as
provided in clause third of Section 2.4, CP Costs shall accrue
with respect to the Capital associated with each Purchaser
Interest of each Conduit for each day that any Capital in respect
of such Purchaser Interest is outstanding. Each Purchaser
Interest of a Conduit funded substantially with Pooled Commercial
Paper will accrue CP Costs each day on a pro rata basis, based
upon the percentage share that the Capital in respect of such
Purchaser Interest represents in relation to all assets held by
such Conduit and funded substantially with Pooled Commercial
Paper.
1.1 Section CP Costs Payments . On each Yield Settlement
Date, the Servicer shall advance out of the Purchasers'
Collections to the Agent (for the benefit of each Conduit) an
aggregate amount equal to all accrued and unpaid CP Costs in
respect of the Capital associated with all Purchaser Interests of
such Conduit for the immediately preceding Accrual Period and all
other Yield Settlement Obligations in accordance with Article II.
The Servicer shall recoup such advance from the amounts set aside
for such Yield Settlement Date Obligations pursuant to the
applicable clause of Section 2.4.
1.2
1.3 Section Calculation of CP Costs . On the third
Business Day immediately preceding each Yield Settlement Date,
each Conduit shall calculate the aggregate amount of CP Costs for
the applicable Accrual Period and Agent shall notify Seller of
such aggregate amounts.
1.4
1 ARTICLE FINANCIAL INSTITUTION FUNDINGARTICLE
2 FINANCIAL INSTITUTION FUNDING
1.1 Section Financial Institution Funding . Each Purchaser
Interest of the Financial Institutions shall accrue Financial
Institution Discount for each day during its Tranche Period at
either the LIBO Rate or the Base Rate in accordance with the
terms and conditions hereof. Until Seller gives notice to the
Agent of another Discount Rate in accordance with Section 4.4,
the initial Discount Rate for any Purchaser Interest transferred
to the Financial Institutions pursuant to the terms and
conditions hereof shall be the Base Rate. If the Financial
Institutions acquire by assignment from any Conduit any Purchaser
Interest pursuant to Article XIII, each Purchaser Interest so
assigned shall each be deemed to have a new Tranche Period
commencing on the date of any such assignment.
1.1 Section Financial Institution Discount Payments . On
the Yield Settlement Date for each Purchaser Interest of the
Financial Institutions, the Servicer shall advance out of the
Purchasers' Collections to the Agent (for the benefit of the
Financial Institutions) an aggregate amount equal to the accrued
and unpaid Financial Institution Discount for the entire Tranche
Period of each such Purchaser Interest and all other Yield
Settlement Obligations then due and owing to the Financial
Institutions or the Agent in accordance with Article II. The
Servicer shall recoup such advance from the amounts set aside for
such Yield Settlement Date Obligations pursuant to the applicable
clause of Section 2.4.
1.2
(a) Section Selection and Continuation of Tranche Periods .
With consultation from (and approval not to be unreasonably
withheld by) the Agent, Seller shall from time to time request
Tranche Periods for the Purchaser Interests of the Financial
Institutions, provided that, if at any time the Financial
Institutions shall have a Purchaser Interest, Seller shall always
request Tranche Periods such that at least one Tranche Period
shall end on the date specified in Clause (A) of the definition
of Settlement Date.
(b)
(c) Seller or the Agent, upon notice to and consent by
the other received at least three (3) Business Days prior to the
end of a Tranche Period (the "Terminating Tranche") for any
Purchaser Interest, may, effective on the last day of the
Termination Tranche: (i) divide any such Purchaser Interest into
multiple Purchaser Interests, (ii) combine any such Purchaser
Interest with one or more other Purchaser Interests that have a
Terminating Tranche ending on the same day as such Terminating
Tranche or (iii) combine any such Purchaser Interest with a new
Purchaser Interest to be purchased on the day such Terminating
Tranche ends, provided, that in no event may a Purchaser Interest
of a Conduit be combined with a Purchaser Interest of the
Financial Institutions.
(d)
1.3 Section Financial Institution Discount Rates . Seller
may select the LIBO Rate or the Base Rate for each Purchaser
Interest of the Financial Institutions. Seller shall by 11:00
a.m. (Chicago time): (i) at least three (3) Business Days prior
to the expiration of any Terminating Tranche with respect to
which the LIBO Rate is being requested as a new Discount Rate and
(ii) at least one (1) Business Day prior to the expiration of any
Terminating Tranche with respect to which the Base Rate is being
requested as a new Discount Rate, give the Agent irrevocable
notice of the new Discount Rate for the Purchaser Interest
associated with such Terminating Tranche. Until Seller gives
notice to the Agent of another Discount Rate, the initial
Discount Rate for any Purchaser Interest transferred to the
Financial Institutions pursuant to the terms and conditions
hereof shall be the Base Rate.
1.4
(a) Section Suspension of the LIBO Rate . If any
Financial Institution notifies the Agent that it has determined
that funding its Pro Rata Share of the Purchaser Interests of the
Financial Institutions at a LIBO Rate would violate any
applicable law, rule, regulation, or directive of any
governmental or regulatory authority, whether or not having the
force of law, or that (i) deposits of a type and maturity
appropriate to match fund its Purchaser Interests at such LIBO
Rate are not available or (ii) such LIBO Rate does not accurately
reflect the cost of acquiring or maintaining a Purchaser Interest
at such LIBO Rate, then the Agent shall suspend the availability
of such LIBO Rate and require Seller to select the Base Rate for
any Purchaser Interest accruing Financial Institution Discount
Rate at such LIBO Rate.
(b)
(c) If less than all of the Financial Institutions
give a notice to the Agent pursuant to Section 4.5, each
Financial Institution which gave such a notice shall be obliged,
at the request of Seller, any Conduit or the Agent, to assign all
of its rights and obligations hereunder to (i) another Financial
Institution or (ii) another funding entity nominated by Seller or
the Agent that is acceptable to the Conduit and willing to
participate in this Agreement through the Liquidity Termination
Date in the place of such notifying Financial Institution;
provided that (i) the notifying Financial Institution receives
payment in full, pursuant to an Assignment Agreement, of an
amount equal to such notifying Financial Institution's Pro Rata
Share of the Capital and Financial Institution Discount owing to
all of the Financial Institutions and all accrued but unpaid fees
and other costs and expenses payable in respect of its Pro Rata
Share of the Purchaser Interests of the Financial Institutions,
and (ii) the replacement Financial Institution otherwise
satisfies the requirements of Section 12.1(b).
(d)
1 ARTICLE REPRESENTATIONS AND WARRANTIESARTICLE
2 REPRESENTATIONS AND WARRANTIES
1.1 Section Representations and Warranties of Seller
Parties . Seller hereby represents and warrants to the Agent and
the Purchasers, as to itself, as of the date hereof and as of the
date of each Incremental Purchase and the date of each
Reinvestment that:
(a) Corporate Existence and Power. Such Seller is a
corporation duly organized, validly existing and in good standing
under the laws of its state of incorporation, and is duly
qualified to do business and is in good standing as a foreign
corporation, and has and holds all corporate power and all
governmental licenses, authorizations, consents and approvals
required to carry on its business in each jurisdiction in which
its business is conducted except where a failure to do so will
cause a Material Adverse Effect.
(b)
(c) Power and Authority; Due Authorization Execution
and Delivery. The execution and delivery by Seller of this
Agreement and each other Transaction Document to which it is a
party, and the performance of its obligations hereunder and
thereunder and, in the case of Seller, Seller's use of the
proceeds of purchases made hereunder, are within its corporate
powers and authority and have been duly authorized by all
necessary corporate action on its part. This Agreement and each
other Transaction Document to which Seller is a party has been
duly executed and delivered by Seller.
(d)
(e) No Conflict. The execution and delivery by Seller
of this Agreement and each other Transaction Document to which it
is a party, and the performance of its obligations hereunder and
thereunder do not contravene or violate (i) its certificate or
articles of incorporation or by-laws, (ii) any law, rule or
regulation applicable to it, (iii) any restrictions under any
agreement, contract or instrument to which it is a party or by
which it or any of its property is bound, or (iv) any order,
writ, judgment, award, injunction or decree binding on or
affecting it or its property, and do not result in the creation
or imposition of any Adverse Claim on assets of Seller or its
Subsidiaries (except as created hereunder); and no transaction
contemplated hereby requires compliance with any bulk sales act
or similar law.
(f)
(g) Governmental Authorization. Other than the filing
of the financing statements required hereunder, no authorization
or approval or other action by, and no notice to or filing with,
any governmental authority or regulatory body is required for the
due execution and delivery by Seller of this Agreement and each
other Transaction Document to which it is a party and the
performance of its obligations hereunder and thereunder.
(h)
(i) Actions, Suits. There are no actions, suits or
proceedings pending, or to the best of such Seller Party's
knowledge, threatened, against or affecting Seller, or any of its
properties, in or before any court, arbitrator or other body,
that could reasonably be expected to have a Material Adverse
Effect. Seller is not in default with respect to any order of
any court, arbitrator or governmental body.
(j)
(k) Binding Effect. This Agreement and each other
Transaction Document to which Seller is a party constitute the
legal, valid and binding obligations of Seller enforceable
against Seller in accordance with their respective terms, except
as such enforcement may be limited by applicable bankruptcy,
insolvency, reorganization or other similar laws relating to or
limiting creditors' rights generally and by general principles of
equity (regardless of whether enforcement is sought in a
proceeding in equity or at law).
(l)
(m) Accuracy of Information. All information
heretofore furnished by Seller or any of its Affiliates to the
Agent or the Purchasers for purposes of or in connection with
this Agreement, any of the other Transaction Documents or any
transaction contemplated hereby or thereby is, and all such
information hereafter furnished by Seller or any of its
Affiliates to the Agent or the Purchasers will be, true and
accurate in every material respect on the date such information
is stated or certified and does not and will not contain any
material misstatement of fact or omit to state a material fact or
any fact necessary to make the statements contained therein not
misleading.
(n)
(o) Use of Proceeds. No proceeds of any purchase
hereunder will be used (i) for a purpose that violates, or would
be inconsistent with, Regulation T, U or X promulgated by the
Board of Governors of the Federal Reserve System from time to
time or (ii) to acquire any security in any transaction which is
subject to Section 13 or 14 of the Securities Exchange Act of
1934, as amended.
(p)
(q) Good Title. Immediately prior to each purchase
hereunder, Seller shall be the legal and beneficial owner of the
Receivables and Related Security with respect thereto, free and
clear of any Adverse Claim, except as created by the Transaction
Documents. There have been duly filed all financing statements
or other similar instruments or documents necessary under the UCC
(or any comparable law) of all appropriate jurisdictions to
perfect Seller's ownership interest in each Receivable, its
Collections and the Related Security.
(r)
(s) Perfection. This Agreement, together with the
filing of the financing statements contemplated hereby, is
effective to, and shall, upon each purchase hereunder, transfer
to the Agent for the benefit of the relevant Purchaser or
Purchasers (and the Agent for the benefit of such Purchaser or
Purchasers shall acquire from Seller) a valid and perfected first
priority undivided percentage ownership or security interest in
each Receivable existing or hereafter arising and in the Related
Security and Collections with respect thereto, free and clear of
any Adverse Claim, except as created by the Transactions
Documents. There have been duly filed all financing statements
or other similar instruments or documents necessary under the UCC
(or any comparable law) of all appropriate jurisdictions to
perfect the Agent's (on behalf of the Purchasers) ownership
interest in the Receivables, the Related Security and the
Collections.
(t)
(u) Places of Business and Locations of Records. The
principal places of business and chief executive office of Seller
and the offices where it keeps all of its Records are located at
the address(es) listed on Exhibit III or such other locations of
which the Agent has been notified in accordance with Section
7.2(a) in jurisdictions where all action required by Section
14.4(a) has been taken and completed. Seller's Federal Employer
Identification Number is correctly set forth on Exhibit III.
(v)
(w) Collections. The conditions and requirements set
forth in Section 7.1(j) and Section 8.2 have at all times been
satisfied and duly performed. The names and addresses of all
Collection Banks, together with the account numbers of the
Collection Accounts of Seller at each Collection Bank and the
post office box number of each Lock-Box, are listed on Exhibit
IV. Seller has not granted any Person, other than the Agent as
contemplated by this Agreement, dominion and control of any Lock-
Box or Collection Account, or the right to take dominion and
control of any such account at a future time or upon the
occurrence of a future event.
(x)
(y) Material Adverse Effect. (i) The initial Servicer
represents and warrants that since June 30, 1999, no event has
occurred that would have a material adverse effect on the
financial condition or operations of the initial Servicer and its
Subsidiaries or the ability of the initial Servicer to perform
its obligations under this Agreement, and (ii) Seller represents
and warrants that since the date of this Agreement, no event has
occurred that would have a material adverse effect on (A) the
financial condition or operations of Seller, (B) the ability of
Seller to perform its obligations under the Transaction
Documents, or (C) the collectibility of the Receivables generally
or any material portion of the Receivables.
(z)
(aa) Names. In the past five (5) years, Seller has not
used any corporate names, trade names or assumed names other than
the name in which it has executed this Agreement.
(bb)
(cc) Ownership of Seller. KNEI owns, directly or
indirectly, 100% of the issued and outstanding capital stock of
Seller, free and clear of any Adverse Claim. Such capital stock
is validly issued, fully paid and nonassessable, and there are no
options, warrants or other rights to acquire securities of
Seller.
(dd)
(ee) Not a Holding Company or an Investment Company.
Seller is not a "holding company" or a "subsidiary holding
company" of a "holding company" within the meaning of the Public
Utility Holding Company Act of 1935, as amended, or any successor
statute. Seller is not an "investment company" within the
meaning of the Investment Company Act of 1940, as amended, or any
successor statute.
(ff)
(gg) Compliance with Law. Seller has complied in all
respects with all applicable laws, rules, regulations, orders,
writs, judgments, injunctions, decrees or awards to which it may
be subject and with respect to which a failure to comply will
cause a Material Adverse Effect. Each Receivable, together with
the Contract related thereto, does not contravene any laws, rules
or regulations applicable thereto (including, without limitation,
laws, rules and regulations relating to truth in lending, fair
credit billing, fair credit reporting, equal credit opportunity,
fair debt collection practices and privacy), and no part of such
Contract is in violation of any such law, rule or regulation.
(hh)
(ii) Compliance with Credit and Collection Policy.
Seller has complied in all material respects with the Credit and
Collection Policy with regard to each Receivable and the related
Contract, and has not made any change to such Credit and
Collection Policy, except such material change as to which the
Agent has been notified in accordance with Section 7.1(a)(vii).
(jj)
(kk) Payments to Originators. With respect to each
Receivable transferred to Seller under the Receivables Sale
Agreement, Seller has given reasonably equivalent value to the
applicable Originator in consideration therefor and such transfer
was not made for or on account of an antecedent debt. No
transfer by the Originators of any Receivable under the
Receivables Sale Agreement is or may be voidable under any
section of the Bankruptcy Reform Act of 1978 (11 U.S.C. 101 et
seq.), as amended.
(a) Enforceability of Contracts. Each Contract with
respect to each Receivable is effective to create, and has
created, a legal, valid and binding obligation of the related
Obligor to pay the Outstanding Balance of the Receivable created
thereunder and any accrued interest thereon, enforceable against
the Obligor in accordance with its terms, except as such
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws relating to or limiting
creditors' rights generally and by general principles of equity
(regardless of whether enforcement is sought in a proceeding in
equity or at law).
(b)
(c) Eligible Receivables. Each Receivable included in
the Net Receivables Balance as an Eligible Receivable on the date
of its purchase under the Receivables Sale Agreement was an
Eligible Receivable on such purchase date.
(d)
(e) Net Receivables Balance. Seller has determined
that, immediately after giving effect to each purchase hereunder,
the Net Receivables Balance is at least equal to the sum of
(i) the Aggregate Capital, plus (ii) the Aggregate Reserves.
(f)
(g) Year 2000. Seller (i) has reviewed the areas
within its business and operations which could be adversely
affected by the Year 2000 Problem, (ii) has developed a Year 2000
Plan to address the Year 2000 Problem on a timely basis, (iii)
is taking all actions reasonably necessary to meet the schedule
and goals of the Year 2000 Plan and (iv) has established adequate
reserves to implement the Year 2000 Plan. Seller does not
reasonably anticipate that the Year 2000 Problem could have a
Material Adverse Effect.
(h)
(i) Accounting. The manner in which Seller accounts
for the transactions contemplated by this Agreement and the
Receivables Sale Agreement does not jeopardize the true sale
analysis.
(j)
(k) Type of Receivable. None of the Receivables
transferred to Seller under the Receivables Sale Agreement
resulted from the sale of an interest in minerals or the like
(including oil and gas) before extraction or at the well head or
the mine head.
(l)
1.2 Section Financial Institution Representations and
Warranties . Each Financial Institution hereby represents and
warrants to the Agent and the Conduits that:
1.3
(a) Existence and Power. Such Financial Institution
is a corporation or a banking association duly organized, validly
existing and in good standing under the laws of its jurisdiction
of incorporation or organization, and has all corporate power to
perform its obligations hereunder.
(b)
(c) No Conflict. The execution and delivery by such
Financial Institution of this Agreement and the performance of
its obligations hereunder are within its corporate powers, have
been duly authorized by all necessary corporate action, do not
contravene or violate (i) its certificate or articles of
incorporation or association or by-laws, (ii) any law, rule or
regulation applicable to it, (iii) any restrictions under any
agreement, contract or instrument to which it is a party or any
of its property is bound, or (iv) any order, writ, judgment,
award, injunction or decree binding on or affecting it or its
property, and do not result in the creation or imposition of any
Adverse Claim on its assets. This Agreement has been duly
authorized, executed and delivered by such Financial Institution.
(d)
(e) Governmental Authorization. No authorization or
approval or other action by, and no notice to or filing with, any
governmental authority or regulatory body is required for the due
execution and delivery by such Financial Institution of this
Agreement and the performance of its obligations hereunder.
(f)
(g) Binding Effect. This Agreement constitutes the
legal, valid and binding obligation of such Financial Institution
enforceable against such Financial Institution in accordance with
its terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization or other
similar laws relating to or limiting creditors' rights generally
and by general principles of equity (regardless of whether such
enforcement is sought in a proceeding in equity or at law).
(h)
1 ARTICLE CONDITIONS OF PURCHASESARTICLE
2 CONDITIONS OF PURCHASES
(a) Section Conditions Precedent to Initial Incremental
Purchase . The initial Incremental Purchase of a Purchaser
Interest under this Agreement is subject to the conditions
precedent that the Agent shall have received on or before the
date of such purchase those documents listed on Schedule B and
the Agent shall have received all fees and expenses required to
be paid on such date pursuant to the terms of this Agreement and
the Fee Letter.
(a) Section Conditions Precedent to All Purchases and
Reinvestments . Each purchase of a Purchaser Interest (other than
pursuant to Section 13.1) and each Reinvestment shall be subject
to the further conditions precedent that in the case of each
such purchase or Reinvestment: (i) the Servicer shall have
delivered to the Agent on or prior to the date of such purchase,
in form and substance satisfactory to the Agent, all Monthly
Reports as and when due under Section 8.5 and (ii) upon the
Agent's request, the Servicer shall have delivered to the Agent
at least three (3) Business Days prior to such purchase or
Reinvestment an interim Monthly Report showing the amount of
Eligible Receivables; the Facility Termination Date shall not
have occurred; and (c) on the date of each such Incremental
Purchase or Reinvestment, the following statements shall be true
(and acceptance of the proceeds of such Incremental Purchase or
Reinvestment shall be deemed a representation and warranty by
Seller that such statements are then true):
(b)
(i) the representations and warranties set forth in
Section 5.1 are true and correct on and as of the date of such
Incremental Purchase or Reinvestment as though made on and as of
such date;
(ii) no event has occurred, or would result from such
Incremental Purchase or Reinvestment, that will constitute an
Amortization Event, and no event has occurred and is continuing,
or would result from such Incremental Purchase or Reinvestment,
that would constitute a Potential Amortization Event; and
(iii) the Aggregate Capital does not exceed the
Purchase Limit and the aggregate Purchaser Interests do not
exceed 100%.
It is expressly understood that each Reinvestment shall, unless
otherwise directed by the Agent or any Purchaser, occur
automatically on each day that the Servicer shall receive any
Collections without the requirement that any further action be
taken on the part of any Person and notwithstanding the failure
of Seller to satisfy any of the foregoing conditions precedent in
respect of such Reinvestment. The failure of Seller to satisfy
any of the foregoing conditions precedent in respect of any
Reinvestment shall give rise to a right of the Agent, which right
may be exercised at any time on demand of the Agent, to rescind
the related purchase and direct Seller to pay to the Agent for
the benefit of the Purchasers an amount equal to the Collections
prior to the Amortization Date that shall have been applied to
the affected Reinvestment.
1 ARTICLE COVENANTSARTICLE
2 COVENANTS
1.1 Section Affirmative Covenants of Seller . Until the
date on which the Aggregate Unpaids have been indefeasibly paid
in full and this Agreement terminates in accordance with its
terms, Seller hereby covenants, as to itself, as set forth below:
(a) Financial Reporting. Seller will maintain, for
itself and each of its Subsidiaries, a system of accounting
established and administered in accordance with generally
accepted accounting principles and furnish or cause to be
furnished to the Agent:
(b)
(i) Annual Reporting. Within 100 days after the
close of each of its respective fiscal years, financial
statements for such fiscal year certified by an Authorized
Officer of Seller, together with copies of the financial
statements of KNEI delivered pursuant to Section 4.1(a)(i)
of the Receivables Sale Agreement.
(i) Quarterly Reporting. Within 50 days after
the close of the first three (3) quarterly periods of each
of its respective fiscal years, balance sheets as at the
close of each such period and statements of income and
retained earnings and a statement of cash flows for the
period from the beginning of such fiscal year to the end of
such quarter, all certified by an Authorized Officer of
Seller, together with copies of the financial statements of
KNEI delivered pursuant to Section 4.1(a)(ii) of the
Receivables Sale Agreement.
(i) Compliance Certificate. Together with the
financial statements required to be furnished hereunder, a
compliance certificate in substantially the form of Exhibit
V signed by an Authorized Officer of Seller and dated the
date of such annual financial statement or such quarterly
financial statement, as the case may be together with copies
of the Certificates of KNEI delivered pursuant to Section
4.1(a)(iii) of the Receivables Sale Agreement.
(i) Notices under Transaction Documents.
Promptly upon its receipt of any notice, request for
consent, certification, report or other communication under
or in connection with any Transaction Document from any
Person other than the Agent or any Conduit, copies of the
same.
(i) Change in Credit and Collection Policy. At
least thirty (30) days prior to the effectiveness of any
material change in or material amendment to the Credit and
Collection Policy, and promptly after the effectiveness of
any other change in or amendment to the Credit and
Collection Policy, a copy of the Credit and Collection
Policy then in effect and a notice (A) indicating such
change or amendment, and (B) if such proposed change or
amendment would be reasonably likely to adversely affect the
collectibility of the Receivables or decrease the credit
quality of any newly created Receivables, requesting the
Agent's consent thereto.
(i) Other Information. Promptly, from time to
time, such other information, documents, records or reports
relating to the Receivables or the condition or operations,
financial or otherwise, of Seller as the Agent may from time
to time reasonably request in order to protect the interests
of the Agent and the Purchasers under or as contemplated by
this Agreement.
(a) Notices. Seller will notify the Agent in writing
of any of the following promptly upon learning of the occurrence
thereof, describing the same and, if applicable, the steps being
taken with respect thereto:
(b)
(i) Amortization Events or Potential Amortization
Events. The occurrence of each Amortization Event and each
Potential Amortization Event, by a statement of an
Authorized Officer of Seller.
(i) Judgment. The entry of any judgment or
decree against Seller, or the entry of any judgment or
decree against any Originator if the aggregate outstanding
amount of all judgments and decrees against all Originators
on a combined basis exceeds $60,000,000.
(i) Litigation. The institution of any
litigation, arbitration proceeding or governmental
proceeding against Seller or to which Seller becomes party,
or the institution of any litigation, arbitration or
governmental proceeding against any Originator or in which
such Originator becomes a party that remains unsettled for a
period of thirty (30) days from the commencement thereof and
involves claims of damages or any other relief which
reasonably may be expected to cause a Material Adverse
Effect.
(i) Material Adverse Effect. The occurrence of
any event or condition that has had, or could reasonably be
expected to have, a Material Adverse Effect.
(i) Termination Date. The occurrence of the
"Termination Date" under and as defined in the Receivables
Sale Agreement.
(i) Defaults Under Other Agreements. The
occurrence of a default or an event of default under any
other financing arrangement pursuant to which Seller is a
debtor or an obligor.
(i) Downgrade. Any downgrade in the rating of
any Indebtedness of any Originator by Standard and Poor's
Ratings Group or by Moody's Investors Service, Inc., setting
forth the Indebtedness affected and the nature of such
change.
(a) Compliance with Laws and Preservation of Corporate
Existence. Seller will comply in all respects with all
applicable laws, rules, regulations, orders, writs, judgments,
injunctions, decrees or awards to which it may be subject with
respect to which a failure to comply may reasonably be expected
to cause a Material Adverse Effect. Seller will preserve and
maintain its corporate existence, rights, franchises and
privileges in the jurisdiction of its incorporation, and qualify
and remain qualified in good standing as a foreign corporation in
each jurisdiction where its business is conducted.
(b)
(c) Audits. Seller will furnish to the Agent from
time to time such information with respect to it and the
Receivables as the Agent may reasonably request. Seller will,
from time to time, during regular business hours as requested by
the Agent upon reasonable notice, permit the Agent, or its agents
or representatives (and shall cause the Originators to permit the
Agent or their agents or representatives), (i) to examine all
Records in the possession or under the control of such Person
relating to the Receivables and the Related Security, including,
without limitation, the related Contracts, and (ii) to visit the
offices and properties of such Person for the purpose of
examining such materials described in clause (i) above, and to
discuss matters relating to such Person's financial condition or
the Receivables and the Related Security or any Person's
performance under any of the Transaction Documents or any
Person's performance under the Contracts and, in each case, with
any of the officers or employees of Seller or the Servicer having
knowledge of such matters. Seller shall reimburse Agent promptly
for all of Agent's reasonable costs incurred in connection with
(i) so long as no Amortization Event or Potential Amortization
Event has occurred, not more than one such audit per calendar
year and (ii) following the occurrence and during the continuance
of an Amortization Event or a Potential Amortization Event, any
such audit.
(d)
(e) Keeping and Marking of Records and Books.
(f)
(i) Seller will (and will cause the Originators
to) maintain and implement administrative and operating
procedures (including, without limitation, an ability to
recreate records evidencing Receivables in the event of the
destruction of the originals thereof), and keep and maintain
all documents, books, records and other information
reasonably necessary or advisable for the collection of all
Receivables (including, without limitation, records adequate
to permit the immediate identification of each new
Receivable and all Collections of and adjustments to each
existing Receivable). Seller will, and will require each
Originator to, give the Agent notice of any material change
in the administrative and operating procedures referred to
in the previous sentence.
(i) Seller will (and will cause the Originators
to) (A) on or prior to the date hereof, mark its master data
processing records relating to the Purchaser Interests with
a legend, acceptable to the Agent, describing the Purchaser
Interests and (B) following the occurrence and during the
continuance of an Amortization Event, upon the request of
the Agent (x) mark each Contract with a legend describing
the Purchaser Interests and (y) deliver to the Agent all
Contracts (including, without limitation, all multiple
originals of any such Contract) relating to the Receivables.
(a) Compliance with Contracts and Credit and
Collection Policy. Seller will (and will cause the Originators
to) timely and fully (i) perform and comply with all provisions,
covenants and other promises required to be observed by it under
the Contracts related to the Receivables with respect to which a
failure to perform or comply may reasonably be expected to
adversely affect the collectibility thereof, and (ii) comply in
all material respects with the Credit and Collection Policy in
regard to each Receivable and the related Contract. Seller will
pay when due any taxes payable in connection with the
Receivables, exclusive of taxes on or measured by income or gross
receipts of the Conduits, the Agent or any Financial Institution.
(b)
(c) Performance and Enforcement of Receivables Sale
Agreement. Seller will, and will require each Originator to,
perform each of their respective obligations and undertakings
under and pursuant to the Receivables Sale Agreement, will
purchase Receivables thereunder in strict compliance with the
terms thereof and will vigorously enforce the rights and remedies
accorded to Seller under the Receivables Sale Agreement. Seller
will take all actions to perfect and enforce its rights and
interests (and the rights and interests of the Agent and the
Purchasers as assignees of Seller) under the Receivables Sale
Agreement as the Agent may from time to time reasonably request,
including, without limitation, making claims to which it may be
entitled under any indemnity, reimbursement or similar provision
contained in the Receivables Sale Agreement.
(d)
(e) Ownership. Seller will (or will cause the
Originators to) take all necessary action to (i) vest legal and
equitable title to the Receivables, the Related Security and the
Collections purchased under the Receivables Sale Agreement
irrevocably in Seller, free and clear of any Adverse Claims other
than Adverse Claims in favor of the Agent and the Purchasers
(including, without limitation, the filing of all financing
statements or other similar instruments or documents necessary
under the UCC (or any comparable law) of all appropriate
jurisdictions to perfect Seller's interest in such Receivables,
Related Security and Collections and such other action to
perfect, protect or more fully evidence the interest of Seller
therein as the Agent may reasonably request), and (ii) establish
and maintain, in favor of the Agent, for the benefit of the
Purchasers, a valid and perfected first priority undivided
percentage ownership interest (and/or a valid and perfected first
priority security interest) in all Receivables, Related Security
and Collections to the full extent contemplated herein, free and
clear of any Adverse Claims other than Adverse Claims in favor of
the Agent for the benefit of the Purchasers (including, without
limitation, the filing of all financing statements or other
similar instruments or documents necessary under the UCC (or any
comparable law) of all appropriate jurisdictions to perfect the
Agent's (for the benefit of the Purchasers) interest in such
Receivables, Related Security and Collections and such other
action to perfect, protect or more fully evidence the interest of
the Agent for the benefit of the Purchasers as the Agent may
reasonably request).
(f)
(g) Purchasers' Reliance. Seller acknowledges that
the Purchasers are entering into the transactions contemplated by
this Agreement in reliance upon Seller's identity as a legal
entity that is separate from the Originators. Therefore, from
and after the date of execution and delivery of this Agreement,
Seller shall take all reasonable steps to maintain Seller's
identity as a separate legal entity and to make it manifest to
third parties that Seller is an entity with assets and
liabilities distinct from those of the Originators and any
Affiliates thereof and not just a division of any Originator or
any such Affiliate. Without limiting the generality of the
foregoing and in addition to the other covenants set forth
herein, Seller will:
(h)
(A) conduct its own business in its own name
and require that all full-time employees of Seller, if
any, identify themselves as such and not as employees
of any Originator (including, without limitation, by
means of providing appropriate employees with business
or identification cards identifying such employees as
Seller's employees);
(A) compensate all employees, consultants
and agents directly, from Seller's own funds, for
services provided to Seller by such employees,
consultants and agents and, to the extent any employee,
consultant or agent of Seller is also an employee,
consultant or agent of any Originator or any Affiliate
thereof, allocate the compensation of such employee,
consultant or agent between Seller and such Originator
or such Affiliate, as applicable, on a basis that
reflects the services rendered to Seller and such
Originator or such Affiliate, as applicable;
(A) have a separate telephone number, which
will be answered only in its name and separate
stationery, invoices and checks in its own name;
(A) conduct all transactions with the
Originators (including, without limitation, any
delegation of its obligations hereunder as Servicer)
strictly on an arm's-length basis, allocate all
overhead expenses (including, without limitation,
telephone and other utility charges) for items shared
between Seller and an Originator on the basis of actual
use to the extent practicable and, to the extent such
allocation is not practicable, on a basis reasonably
related to actual use;
(A) at all times have a Board of Directors
consisting of three members, at least one member of
which is an Independent Director;
(A) observe all corporate formalities as a
distinct entity, and ensure that all corporate actions
relating to (A) the selection, maintenance or
replacement of the Independent Director, (B) the
dissolution or liquidation of Seller or (C) the
initiation of, participation in, acquiescence in or
consent to any bankruptcy, insolvency, reorganization
or similar proceeding involving Seller, are duly
authorized by unanimous vote of its Board of Directors
(including the Independent Director);
(A) maintain Seller's books and records
separate from those of the Originators and any
Affiliate thereof and otherwise readily identifiable as
its own assets rather than assets of any Originator and
any Affiliate thereof;
(A) prepare its financial statements
separately from those of the Originators and insure
that any consolidated financial statements of the
Originators or any Affiliate thereof that include
Seller and that are filed with the Securities and
Exchange Commission or any other governmental agency
have notes clearly stating that Seller is a separate
corporate entity and that its assets will be available
first and foremost to satisfy the claims of the
creditors of Seller;
(A) except as herein specifically otherwise
provided and other than any commingling in the Chase
Collection Account which is provided for in Section
7.1(j) herein, maintain the funds or other assets of
Seller separate from, and not commingled with, those of
the Originators or any Affiliate thereof and only
maintain bank accounts or other depository accounts to
which Seller alone is the account party, into which
Seller alone makes deposits and from which Seller
alone (or the Agent hereunder) has the power to make
withdrawals;
(A) pay all of Seller's operating expenses
from Seller's own assets (except for certain payments
by an Originator or other Persons pursuant to
allocation arrangements that comply with the
requirements of this Section 7.1(i));
(A) operate its business and activities such
that: it does not engage in any business or activity
of any kind, or enter into any transaction or
indenture, mortgage, instrument, agreement, contract,
lease or other undertaking, other than the transactions
contemplated and authorized by this Agreement and the
Receivables Sale Agreement; and does not create, incur,
guarantee, assume or suffer to exist any indebtedness
or other liabilities, whether direct or contingent,
other than (1) as a result of the endorsement of
negotiable instruments for deposit or collection or
similar transactions in the ordinary course of
business, (2) the incurrence of obligations under this
Agreement, (3) the incurrence of obligations, as
expressly contemplated in the Receivables Sale
Agreement, to make payment to the Originators
thereunder for the purchase of Receivables from the
Originators under the Receivables Sale Agreement, and
(4) the incurrence of operating expenses in the
ordinary course of business of the type otherwise
contemplated by this Agreement;
(A) maintain its corporate charter in
conformity with this Agreement, such that it does not
amend, restate, supplement or otherwise modify its
Certificate of Incorporation or By-Laws in any respect
that would impair its ability to comply with the terms
or provisions of any of the Transaction Documents,
including, without limitation, Section 7.1(i) of this
Agreement;
(A) maintain the effectiveness of, and
continue to perform under the Receivables Sale
Agreement, such that it does not amend, restate,
supplement, cancel, terminate or otherwise modify the
Receivables Sale Agreement, or give any consent,
waiver, directive or approval thereunder or waive any
default, action, omission or breach under the
Receivables Sale Agreement or otherwise grant any
indulgence thereunder, without (in each case) the prior
written consent of the Agent;
(A) maintain its corporate separateness such
that it does not merge or consolidate with or into, or
convey, transfer, lease or otherwise dispose of
(whether in one transaction or in a series of
transactions, and except as otherwise contemplated
herein) all or substantially all of its assets (whether
now owned or hereafter acquired) to, or acquire all or
substantially all of the assets of, any Person, nor at
any time create, have, acquire, maintain or hold any
interest in any Subsidiary.
(A) maintain at all times the Required
Capital Amount (as defined in the Receivables Sale
Agreement) and refrain from making any dividend,
distribution, redemption of capital stock or payment of
any subordinated indebtedness which would cause the
Required Capital Amount to cease to be so maintained;
and
(A) take such other actions as are necessary
on its part to ensure that the facts and assumptions
set forth in the opinion issued by Vinson & Elkins, as
counsel for Seller, in connection with the closing or
initial Incremental Purchase under this Agreement and
relating to substantive consolidation issues, and in
the certificates accompanying such opinion, remain true
and correct in all material respects at all times.
(a) Collections. Seller will cause (1) all proceeds
from all Lock-Boxes to be directly deposited by a Collection Bank
into a Collection Account and (2) each Lock-Box and Collection
Account to be subject at all times to a Collection Account
Agreement that is in full force and effect. In the event any
payments relating to Receivables are remitted directly to Seller
or any Affiliate of Seller, Seller will remit (or will cause all
such payments to be remitted) directly to a Collection Bank and
deposited into a Collection Account within two (2) Business Days
following receipt thereof and, at all times prior to such
remittance, Seller will itself hold or, if applicable, will cause
such payments to be held in trust for the exclusive benefit of
the Agent and the Purchasers. Seller will maintain exclusive
ownership, dominion and control (subject to the terms of this
Agreement) of each Lock-Box and Collection Account and shall not
grant the right to take dominion and control of any Lock-Box or
Collection Account at a future time or upon the occurrence of a
future event to any Person, except to the Agent as contemplated
by this Agreement. Within 60 days following the Closing Date,
Seller will cause the Servicer to either (a) notify all Obligors
that are currently remitting payments to the Chase Collection
Account to redirect payments to one of the other Collection
Accounts (other than the Chase Collection Account) or to a newly
established account which is subject to a Collection Account
Agreement or (b) cease using the Chase Collection Account for any
purpose other than receiving and processing Collections, and
notify all Persons (other than Obligors) that are currently
remitting payments to the Chase Collection Account to redirect
payments to a newly established account.
(b)
(c) Minimum Net Worth. Seller shall at all times
maintain Net Worth of not less than the Required Capital Amount.
(d)
1.2 Section Negative Covenants of Seller . Until the date
on which the Aggregate Unpaids have been indefeasibly paid in
full and this Agreement terminates in accordance with its terms,
Seller hereby covenants that:
1.3
(a) Name Change, Offices and Records. Seller will not
change its name, identity or corporate structure (within the
meaning of Section 9-402(7) of any applicable enactment of the
UCC) or relocate its chief executive office or any office where
Records are kept, unless it shall have: (i) given the Agent at
least forty-five (45) days' prior written notice thereof and (ii)
delivered to the Agent all financing statements, instruments and
other documents requested by the Agent in connection with such
change or relocation.
(b)
(c) Change in Payment Instructions to Obligors.
Except as may be required by the Agent pursuant to Section
8.2(b), Seller will not add or terminate any bank as a Collection
Bank, or make any change in the instructions to Obligors
regarding payments to be made to any Lock-Box or Collection
Account, unless the Agent shall have received, at least ten (10)
days before the proposed effective date therefor, (i) written
notice of such addition, termination or change and (ii) with
respect to the addition of a Collection Bank or a Collection
Account or Lock-Box, an executed Collection Account Agreement
with respect to the new Collection Account or Lock-Box; provided,
however, that Seller may make changes in instructions to Obligors
regarding payments if such new instructions require such Obligor
to make payments to another existing Collection Account.
(d)
(e) Modifications to Contracts and Credit and
Collection Policy. Seller will not make any change to the Credit
and Collection Policy that could adversely affect the
collectibility of the Receivables or decrease the credit quality
of any newly created Receivables. Except as provided in Section
8.2(d), Seller, acting as Servicer or otherwise, will not, and
will not extend, amend or otherwise modify the terms of any
Receivable or any Contract related thereto other than in
accordance with the Credit and Collection Policy.
(f)
(g) Sales, Liens. Seller will not sell, assign (by
operation of law or otherwise) or otherwise dispose of, or grant
any option with respect to, or create or suffer to exist any
Adverse Claim upon (including, without limitation, the filing of
any financing statement) or with respect to, any Receivable,
Related Security or Collections, or upon or with respect to any
Contract under which any Receivable arises, or any Lock-Box or
Collection Account, or assign any right to receive income with
respect thereto (other than, in each case, the creation of the
interests therein in favor of the Agent and the Purchasers
provided for herein), and Seller will defend the right, title and
interest of the Agent and the Purchasers in, to and under any of
the foregoing property, against all claims of third parties
claiming through or under Seller or the Originators. Seller will
not create or suffer to exist any mortgage, pledge, security
interest, encumbrance, lien, charge or other similar arrangement
on any of its inventory.
(h)
(i) Nature of Business; Other Agreements; Other
Indebtedness. Seller shall not engage in any business or
activity of any kind or enter into any transaction or indenture,
mortgage, instrument, agreement, contract, lease or other
undertaking, in each case other than the transactions
contemplated and authorized by this Agreement and the Receivables
Sale Agreement. Without limiting the generality of the
foregoing, Seller shall not create, incur, guarantee, assume or
suffer to exist any Indebtedness or other liabilities, whether
direct or contingent, other than:
(j)
(i) as a result of the endorsement of negotiable
instruments for deposit or collection or similar
transactions in the ordinary course of business,
(i) the incurrence of obligations under this
Agreement or any other Transaction Document,
(i) the incurrence of obligations, as expressly
contemplated in the Receivables Sale Agreement, to make
payment to the Originators thereunder for the purchase of
Receivables from the Originators under the Receivables Sale
Agreement, and
(i) the incurrence of operating expenses in the
ordinary course of business of the type otherwise
contemplated in Section 7.1(i) of this Agreement.
Seller may pay expenses permitted by Section 8.2(e)(iv) with the
proceeds of Subordinated Loans (to the extent that a Subordinated
Loan could be borrowed without rendering Seller's Net Worth less
than the Required Capital Amount). In the event Seller shall at
any time receive a Subordinated Loan under the Receivables Sale
Agreement, the obligations of Seller in connection therewith
shall be subordinated to the obligations of Seller to the
Purchasers and the Agent under this Agreement, on the terms
provided for in the Subordinated Note and the Receivables Sale
Agreement.
(a) Amendments to Receivables Sale Agreement. Seller
shall not, without the prior written consent of the Agent (which
consent shall not be unreasonably withheld or delayed):
(b)
(i) cancel or terminate the Receivables Sale
Agreement,
(i) give any consent, waiver, directive or
approval under the Receivables Sale Agreement,
(i) waive any default, action, omission or breach
under the Receivables Sale Agreement, or otherwise grant any
indulgence thereunder, or
(i) amend, supplement or otherwise modify any of
the terms of the Receivables Sale Agreement.
(a) Net Receivables Balance. At no time prior to the
Amortization Date shall Seller permit the Net Receivables Balance
to be less than an amount equal to the sum of (i) the aggregate
Capital of all the Purchaser Interests plus (ii) the Aggregate
Reserves.
(b)
(c) Termination Date Determination. Seller will not
designate the Termination Date (as defined in the Receivables
Sale Agreement), or send any written notice to Originator in
respect thereof, without the prior written consent of the Agent,
except with respect to the occurrence of such Termination Date
arising pursuant to Section 6.1(d) of the Receivables Sale
Agreement.
(d)
1 ARTICLE ADMINISTRATION AND COLLECTIONARTICLE
2 ADMINISTRATION AND COLLECTION
(a) Section Designation of Servicer . The servicing,
administration and collection of the Receivables shall be
conducted by such Person (the "Servicer") so designated from time
to time in accordance with this Section 8.1. Seller is hereby
designated as, and hereby agrees to perform the duties and
obligations of, the Servicer pursuant to the terms of this
Agreement. The Agent may at any time designate as Servicer any
Person to succeed Seller or any successor Servicer.
(a) Without the prior written consent of the Agent and
the Required Financial Institutions, Seller shall not be
permitted to delegate any of its duties or responsibilities as
Servicer to any Person other than (i) K N Energy, Inc. ("KNEI")
and (ii) with respect to certain Charged-Off Receivables, outside
collection agencies in accordance with its customary practices.
KNEI shall not be permitted to further delegate to any other
Person any of the duties or responsibilities of the Servicer
delegated to it by Seller. If at any time the Agent shall
designate as Servicer any Person other than Seller, all duties
and responsibilities theretofore delegated by Seller to KNEI may,
at the discretion of the Agent, be terminated forthwith on notice
given by the Agent to Seller.
(b)
(c) Notwithstanding the foregoing subsection (b), (i)
Seller shall be and remain primarily liable to the Agent and the
Purchasers for the full and prompt performance of all duties and
responsibilities of the Servicer hereunder and (ii) the Agent and
the Purchasers shall be entitled to deal exclusively with Seller
in matters relating to the discharge by the Servicer of its
duties and responsibilities hereunder. The Agent and the
Purchasers shall not be required to give notice, demand or other
communication to any Person other than Seller (with a copy to
KNEI as provided below Seller's signature hereto) in order for
communication to the Servicer and its sub-servicer or other
delegate with respect thereto to be accomplished. Seller, at all
times that it is the Servicer, shall be responsible for providing
any sub-servicer or other delegate of the Servicer with any
notice given to the Servicer under this Agreement.
(a) Section Duties of Servicer . The Servicer shall take
or cause to be taken all such actions as may be reasonably
necessary or advisable to collect each Receivable from time to
time, all in accordance with applicable laws, rules and
regulations, with reasonable care and diligence, and in
accordance with the Credit and Collection Policy.
(b)
(c) The Servicer will instruct all Obligors to pay all
Collections directly to a Lock-Box or Collection Account. The
Servicer shall effect a Collection Account Agreement
substantially in the form of Exhibit VI with each bank party to a
Collection Account at any time. In the case of any remittances
received in any Lock-Box or Collection Account that shall have
been identified, to the satisfaction of the Servicer, to not
constitute Collections or other proceeds of the Receivables or
the Related Security, the Servicer shall promptly remit such
items to the Person identified to it as being the owner of such
remittances. From and after the date the Agent delivers to any
Collection Bank a Collection Notice pursuant to Section 8.3, the
Agent may request that the Servicer, and the Servicer thereupon
promptly shall instruct all Obligors with respect to the
Receivables, to remit all payments thereon to a new depositary
account specified by the Agent and, at all times thereafter,
Seller and the Servicer shall not deposit or otherwise credit,
and shall not permit any other Person to deposit or otherwise
credit to such new depositary account any cash or payment item
other than Collections.
(d)
(e) The Servicer shall administer the Collections in
accordance with the procedures described herein and in Article
II. The Servicer shall set aside and hold in trust for the
account of Seller and the Purchasers their respective shares of
the Collections in accordance with Article II. The Servicer
shall, upon the request of the Agent, segregate, in a manner
acceptable to the Agent, all cash, checks and other instruments
received by it from time to time constituting Collections from
the general funds of the Servicer or Seller prior to the
remittance thereof in accordance with Article II. If the
Servicer shall be required to segregate Collections pursuant to
the preceding sentence, the Servicer shall segregate and deposit
with a bank designated by the Agent such allocable share of
Collections of Receivables set aside for the Purchasers on the
first Business Day following receipt by the Servicer of such
Collections, duly endorsed or with duly executed instruments of
transfer.
(f)
(g) The Servicer may, in accordance with the Credit
and Collection Policy, extend the maturity of any Receivable or
adjust the Outstanding Balance of any Receivable as the Servicer
determines to be appropriate to maximize Collections thereof;
provided, however, that such extension or adjustment shall not
alter the status of such Receivable as a Delinquent Receivable or
Charged-Off Receivable or limit the rights of the Agent or the
Purchasers under this Agreement. Notwithstanding anything to the
contrary contained herein, upon the occurrence and during the
continuance of an Amortization Event, the Agent shall have the
absolute and unlimited right to direct the Servicer to commence
or settle any legal action with respect to any Receivable or to
foreclose upon or repossess any Related Security.
(a) The Servicer shall hold in trust for Seller and
the Purchasers all Records that (i) evidence or relate to the
Receivables, the related Contracts and Related Security or (ii)
are otherwise necessary or desirable to collect the Receivables
and shall, as soon as practicable upon demand of the Agent
following the occurrence and during the continuance of an
Amortization Event, deliver or make available to the Agent
copies of all such Records, at a place selected by the Agent.
The Servicer shall, as soon as practicable following receipt
thereof turn over to Seller any cash collections or other cash
proceeds received with respect to Indebtedness not constituting
Receivables. The Servicer shall, from time to time at the
request of any Purchaser, furnish to the Purchasers (promptly
after any such request) a calculation of the amounts set aside
for the Purchasers pursuant to Article II.
(b)
(c) Any payment by an Obligor in respect of any
indebtedness owed by it to any Originator or Seller shall, except
as otherwise specified by such Obligor or otherwise required by
contract or law and unless otherwise instructed by the Agent, be
applied as a Collection of any Receivable of such Obligor
(starting with the oldest such Receivable) to the extent of any
amounts then due and payable thereunder before being applied to
any other receivable or other obligation of such Obligor.
(d)
(e)
1.2 Section Collection Notices . The Agent is authorized
at any time during the continuance of an Amortization Event to
date and to deliver to the Collection Banks the Collection
Notices. Seller hereby transfers to the Agent for the benefit of
the Purchasers, effective when the Agent delivers such notice,
the exclusive ownership and control of each Lock-Box and the
Collection Accounts. In case any authorized signatory of Seller
whose signature appears on a Collection Account Agreement shall
cease to have such authority before the delivery of such notice,
such Collection Notice shall nevertheless be valid as if such
authority had remained in force. Seller hereby authorizes the
Agent, and agrees that the Agent shall, following the occurrence
and during the continuance of an Amortization Event, be entitled
to (i) endorse Seller's name on checks and other instruments
representing Collections, (ii) enforce the Receivables, the
related Contracts and the Related Security and (iii) take such
action as shall be necessary or desirable to cause all cash,
checks and other instruments constituting Collections of
Receivables to come into the possession of the Agent rather than
Seller.
1.3
1.4 Section Responsibilities of Seller . Anything herein
to the contrary notwithstanding, the exercise by the Agent and
the Purchasers of their rights hereunder shall not release the
Servicer or Seller from any of their duties or obligations with
respect to any Receivables or under the related Contracts. The
Purchasers shall have no obligation or liability with respect to
any Receivables or related Contracts, nor shall any of them be
obligated to perform the obligations of Seller.
1.1 Section Reports . The Servicer shall prepare and
forward to the Agent (i) on the 20th day of each month and at
such times as the Agent shall request, a Monthly Report and (ii)
at such times as the Agent shall request, a listing by Obligor of
all Receivables together with an aging of such Receivables. The
Agent and the Purchasers acknowledge that Seller and the Servicer
do not have all necessary data to enable them to compute certain
ratios in respect of Defaulted Receivables and Dilutions prior to
September 1, 1998. Accordingly, the Servicer shall be permitted
to make any computations herein which pertain in part to periods
prior to such date without reference to periods prior to such
date.
1.2
1.3 Section Servicing Fees . In consideration of Seller's
agreement to act as Servicer hereunder, the Purchasers hereby
agree that, so long as Seller shall continue to perform as
Servicer hereunder, Seller shall be entitled to receive a fee
(the "Servicing Fee") on the first calendar day of each month, in
arrears for the immediately preceding month equal to 1.0% per
annum of the aggregate amount of outstanding Capital as
compensation for its servicing activities, which fee shall be
payable in accordance with the terms of Article III.
1.4
1 ARTICLE AMORTIZATION EVENTSARTICLE
2 AMORTIZATION EVENTS
1.1 Section Amortization Events . The occurrence of any
one or more of the following events shall constitute an
Amortization Event:
(a) The Servicer (so long as any Affiliate of KNEI is
the Servicer) or Seller shall fail (i) to make any payment or
deposit required hereunder when due and, for any such payment or
deposit which is not in respect of Capital, such failure
continues for one (1) Business Day, or (ii) to perform or observe
any covenant or agreement hereunder (other than as referred to in
clause (i) of this paragraph (a)) and such failure shall continue
for ten (10) Business Days after notice thereof has been given to
the Servicer (so long as any Affiliate of KNEI is the Servicer)
or Seller by the Agent.
(b)
(c) The Servicer (so long as any Affiliate of KNEI is
the Servicer) or Seller shall fail to perform or observe any
covenant contained in Article VII hereof and such failure shall
continue for ten (10) Business Days after notice thereof has been
given to the Servicer (so long as any Affiliate of KNEI is the
Servicer) or Seller by the Agent.
(d)
(e) Any representation, warranty, certification or
statement made by the Servicer (so long as any Affiliate of KNEI
is the Servicer) or Seller in this Agreement, any other
Transaction Document or in any other document delivered pursuant
hereto or thereto shall prove to have been incorrect when made or
deemed made.
(f)
(g) KNEI 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 KNEI or such Subsidiary or is waived
by the requisite percentage of holders of such Material Financial
Obligations entitled to so waive, then the Amortization Event
under this Agreement by reason of such failure shall be deemed to
have been cured.
(h)
(i) 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 KNEI or any Subsidiary or
is waived by the requisite percentage of holders of such Material
Debt entitled to so waive, then the Amortization Event under this
Agreement by reason of such acceleration, event or condition
shall be deemed to have been cured.
(j)
(i) Seller or Servicer (so long as any Affiliate of
KNEI is the Servicer) shall generally not pay its debts as such
debts become due or shall admit in writing its inability to pay
its debts generally or shall make a general assignment for the
benefit of creditors; or any proceeding shall be instituted by or
against Seller or such Servicer or any of its Material
Subsidiaries seeking to adjudicate it bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief or composition of it or its debts
under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking the entry of an
order for relief or the appointment of a receiver, trustee or
other similar official for it or any substantial part of its
property and such proceeding shall not be dismissed within
60 days of the filing thereof or (ii) Seller, such Servicer or
any of its Material Subsidiaries shall take any corporate action
to authorize any of the actions set forth in clause (i) above in
this subsection (e).
(ii)
(k) Seller shall fail to comply with the terms of
Section 2.7 hereof.
(l)
(m) The Three-Month Average Dilution Ratio shall
exceed 5% at any time.
(n) The Three-Month Average Default Ratio shall exceed
5% at any time.
(o)
(p) The Three-Month Average Variance Ratio shall
exceed 7% at any time.
(q)
(r) The Performance Guarantor's credit rating for its
long term senior unsecured debt obligations shall be reduced
below BB+ by Standard & Poor's Ratings Services or below Ba1 by
Moody's Investors Service, Inc., or either such rating agency
shall withdraw its rating.
(s)
(t) A Change of Control shall occur.
(u)
(v) KNEI ceases to own 100% of Seller.
(w)
(x) (i) Consolidated Debt of KNEI shall exceed 74.0%
of Consolidated Total Capitalization at any time; (ii) total Debt
of all Consolidated Subsidiaries (excluding Debt of a
Consolidated Subsidiary of KNEI to KNEI or to another
Consolidated Subsidiary of KNEI, shall exceed 10% of Consolidated
Debt of KNEI at any time or (iii) Consolidated Debt of each
Material Subsidiary shall exceed 65% of the Consolidated Total
Capitalization of such Material Subsidiary at any time.
(y)
(z) Consolidated Net Worth of KNEI shall be less than
an amount equal to the sum of (i) $1,236,000,000 plus (ii) 50% of
Consolidated Net Income for each fiscal quarter of KNEI ending
after December 30, 1998 and at or prior to such time (but only if
such Consolidated Net Income for such fiscal quarter is a
positive amount) at any time.
(a) KNEI shall fail to perform or observe any term,
covenant or agreement contained in the Credit Agreement and such
failure shall continue unremedied beyond any applicable grace or
cure period provided therein.
(b)
(c) One or more final judgments for the payment of
money shall be entered against Seller on claims not covered by
insurance or as to which the insurance carrier has denied its
responsibility, and such judgment shall continue unsatisfied and
in effect for thirty (30) consecutive days without a stay of
execution.
(d)
(e) Performance Guarantor shall fail to perform or
observe any term, covenant or agreement required to be performed
by it under the Performance Guaranty, or the Performance Guaranty
shall cease to be effective or to be the legally valid, binding
and enforceable obligation of Performance Guarantor, or
Performance Guarantor shall directly or indirectly contest in any
manner such effectiveness, validity, binding nature or
enforceability.
(f)
(g) The "Amortization Date" shall occur under the
Receivables Sale Agreement or any Originator shall for any reason
cease to transfer, or cease to have the legal capacity to
transfer, or otherwise be incapable of transferring Receivables
to Seller under the Receivables Sale Agreement.
(h)
(i) This Agreement shall terminate in whole or in part
(except in accordance with its terms), or shall cease to be
effective or to be the legally valid, binding and enforceable
obligation of Seller, or the Agent for the benefit of the
Purchasers shall cease to have a valid and perfected first
priority ownership/security interest in the Receivables, the
Related Security and the Collections with respect thereto and the
Collection Accounts.
(j)
1.2 Section Remedies . Upon the occurrence and during the
continuation of an Amortization Event, the Agent may, or upon the
direction of the Required Financial Institutions shall, take any
of the following actions: (i) replace the Person then acting as
Servicer if such Amortization Event arises from the actions of
the Servicer, (ii) declare the Amortization Date to have
occurred, whereupon the Amortization Date shall forthwith occur,
without demand, protest or further notice of any kind, all of
which are hereby expressly waived by Seller; provided, however,
that upon the occurrence of Amortization Event described in
Section 9.1(e), or of an actual or deemed entry of an order for
relief with respect to Seller or the Servicer (so long as any
Affiliate of KNEI is the Servicer) under the Federal Bankruptcy
Code, the Amortization Date shall automatically occur, without
demand, protest or any notice of any kind, all of which are
hereby expressly waived by Seller, (iii) to the fullest extent
permitted by applicable law, declare that the Default Fee shall
accrue with respect to any of the Aggregate Unpaids outstanding
at such time, (iv) deliver the Collection Notices to the
Collection Banks, and (v) notify Obligors of the Purchasers'
interest in the Receivables. The aforementioned rights and
remedies shall be in addition to all other rights and remedies of
the Agent and the Purchasers available under this Agreement, by
operation of law, at equity or otherwise, all of which are hereby
expressly preserved, including, without limitation, all rights
and remedies provided under the UCC, all of which rights shall be
cumulative.
ARTICLE INDEMNIFICATION
1 ARTICLE
INDEMNIFICATION
1.1 Section INDEMNITIES BY SELLER . WITHOUT LIMITING ANY
OTHER RIGHTS THAT THE AGENT OR ANY PURCHASER MAY HAVE HEREUNDER
OR UNDER APPLICABLE LAW, (A) SELLER HEREBY AGREES TO INDEMNIFY
(AND PAY UPON DEMAND TO) THE AGENT AND EACH PURCHASER AND THEIR
RESPECTIVE ASSIGNS, OFFICERS, DIRECTORS, AGENTS AND EMPLOYEES
(EACH AN "INDEMNIFIED PARTY") FROM AND AGAINST ANY AND ALL
DAMAGES, LOSSES, CLAIMS, TAXES, LIABILITIES, COSTS, EXPENSES AND
FOR ALL OTHER AMOUNTS PAYABLE, INCLUDING REASONABLE ATTORNEYS'
FEES (WHICH ATTORNEYS MAY BE EMPLOYEES OF THE AGENT OR SUCH
PURCHASER) AND DISBURSEMENTS (ALL OF THE FOREGOING BEING
COLLECTIVELY REFERRED TO AS "INDEMNIFIED AMOUNTS") AWARDED
AGAINST OR INCURRED BY ANY OF THEM ARISING OUT OF OR AS A RESULT
OF THIS AGREEMENT OR THE ACQUISITION, EITHER DIRECTLY OR
INDIRECTLY, BY A PURCHASER OF AN INTEREST IN THE RECEIVABLES,
AND (B) THE SERVICER HEREBY AGREES TO INDEMNIFY (AND PAY UPON
DEMAND TO) EACH INDEMNIFIED PARTY FOR INDEMNIFIED AMOUNTS AWARDED
AGAINST OR INCURRED BY ANY OF THEM ARISING OUT OF THE SERVICER'S
ACTIVITIES AS SERVICER HEREUNDER EXCLUDING, HOWEVER, IN ALL OF
THE FOREGOING INSTANCES UNDER THE PRECEDING CLAUSES (A) AND (B):
(i) INDEMNIFIED AMOUNTS TO THE EXTENT A FINAL
JUDGMENT OF A COURT OF COMPETENT JURISDICTION HOLDS THAT
SUCH INDEMNIFIED AMOUNTS RESULTED FROM GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT ON THE PART OF THE INDEMNIFIED PARTY
SEEKING INDEMNIFICATION;
(i) INDEMNIFIED AMOUNTS TO THE EXTENT THE SAME
INCLUDES LOSSES IN RESPECT OF RECEIVABLES THAT ARE
UNCOLLECTIBLE ON ACCOUNT OF THE INSOLVENCY, BANKRUPTCY OR
LACK OF CREDITWORTHINESS OF THE RELATED OBLIGOR;
(i) TAXES IMPOSED BY THE JURISDICTION IN WHICH
SUCH INDEMNIFIED PARTY'S PRINCIPAL EXECUTIVE OFFICE IS
LOCATED, ON OR MEASURED BY THE OVERALL NET INCOME OF SUCH
INDEMNIFIED PARTY TO THE EXTENT THAT THE COMPUTATION OF SUCH
TAXES IS CONSISTENT WITH THE CHARACTERIZATION FOR INCOME TAX
PURPOSES OF THE ACQUISITION BY THE PURCHASERS OF PURCHASER
INTERESTS AS A LOAN OR LOANS BY THE PURCHASERS TO SELLER
SECURED BY THE RECEIVABLES, THE RELATED SECURITY, THE
COLLECTION ACCOUNTS AND THE COLLECTIONS;
(i) INDEMNIFIED AMOUNTS TO THE EXTENT THE SAME
ARE A RESULT OF A VIOLATION BY SUCH INDEMNIFIED PARTY OF ANY
BANKING OR SECURITIES LAWS OR REGULATIONS;
(i) INDEMNIFIED AMOUNTS TO THE EXTENT THEY
INCLUDE COSTS AND EXPENSES OF A TYPE REFERRED TO IN SECTIONS
10.2 AND 10.3 HEREOF, EXCEPT TO THE EXTENT PROVIDED IN
SECTIONS 10.2 AND 10.3;
(i) INDEMNIFIED AMOUNTS TO THE EXTENT THEY
CONSTITUTE STATE OR LOCAL FRANCHISE TAXES TO THE EXTENT THAT
THE INDEMNIFIED PARTY IS SUBJECT TO TAXATION IN THE
JURISDICTION IMPOSING SUCH FRANCHISE TAXES SOLELY FOR
REASONS OTHER THAN THE TRANSACTIONS CONTEMPLATED BY THE
TRANSACTION DOCUMENTS; AND
(i) INDEMNIFIED AMOUNTS THAT UNDER THE TERMS OF
CLAUSES (I) THROUGH (XVI) BELOW ARE EXPRESSLY EXCEPTED FROM
THE INDEMNIFICATION PROVISIONS OF SUCH CLAUSES.
PROVIDED, HOWEVER, THAT NOTHING CONTAINED IN THIS SENTENCE SHALL
LIMIT THE LIABILITY OF SELLER OR LIMIT THE RECOURSE OF THE
PURCHASERS TO SELLER FOR AMOUNTS OTHERWISE SPECIFICALLY PROVIDED
TO BE PAID BY SELLER UNDER THE TERMS OF THIS AGREEMENT. WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING INDEMNIFICATION, BUT
SUBJECT TO THE LIMITATIONS SET FORTH IN CLAUSES (I) AND (II) OF
THIS PREVIOUS SENTENCE, SELLER SHALL INDEMNIFY THE AGENT AND THE
PURCHASERS FOR INDEMNIFIED AMOUNTS (INCLUDING, WITHOUT
LIMITATION, LOSSES IN RESPECT OF UNCOLLECTIBLE RECEIVABLES,
REGARDLESS OF WHETHER REIMBURSEMENT THEREFOR WOULD CONSTITUTE
RECOURSE TO SELLER) RELATING TO OR RESULTING FROM:
(i) ANY REPRESENTATION OR WARRANTY MADE BY SELLER
OR ANY ORIGINATOR (OR ANY OFFICERS OF ANY SUCH PERSON) UNDER
OR IN CONNECTION WITH THIS AGREEMENT, ANY OTHER TRANSACTION
DOCUMENT OR ANY OTHER INFORMATION OR REPORT DELIVERED BY ANY
SUCH PERSON PURSUANT HERETO OR THERETO, WHICH SHALL HAVE
BEEN FALSE OR INCORRECT WHEN MADE OR DEEMED MADE;
(i) THE FAILURE BY SELLER OR ANY ORIGINATOR TO
COMPLY WITH ANY APPLICABLE LAW, RULE OR REGULATION WITH
RESPECT TO ANY RECEIVABLE OR CONTRACT RELATED THERETO, OR
THE NONCONFORMITY OF ANY RECEIVABLE OR CONTRACT INCLUDED
THEREIN WITH ANY SUCH APPLICABLE LAW, RULE OR REGULATION OR
ANY FAILURE OF ANY ORIGINATOR TO KEEP OR PERFORM ANY OF ITS
OBLIGATIONS, EXPRESS OR IMPLIED, WITH RESPECT TO ANY
CONTRACT;
(i) ANY FAILURE OF SELLER OR ANY ORIGINATOR TO
PERFORM ITS DUTIES, COVENANTS OR OTHER OBLIGATIONS IN
ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT OR ANY
OTHER TRANSACTION DOCUMENT;
(i) ANY PRODUCTS LIABILITY, PERSONAL INJURY OR
DAMAGE SUIT, OR OTHER SIMILAR CLAIM ARISING OUT OF OR IN
CONNECTION WITH MERCHANDISE, INSURANCE OR SERVICES THAT ARE
THE SUBJECT OF ANY CONTRACT OR ANY RECEIVABLE;
(i) ANY DISPUTE, CLAIM, OFFSET OR DEFENSE (OTHER
THAN DISCHARGE IN BANKRUPTCY OF THE OBLIGOR) OF THE OBLIGOR
TO THE PAYMENT OF ANY RECEIVABLE (INCLUDING, WITHOUT
LIMITATION, A DEFENSE BASED ON SUCH RECEIVABLE OR THE
RELATED CONTRACT NOT BEING A LEGAL, VALID AND BINDING
OBLIGATION OF SUCH OBLIGOR ENFORCEABLE AGAINST IT IN
ACCORDANCE WITH ITS TERMS), OR ANY OTHER CLAIM RESULTING
FROM THE SALE OF THE MERCHANDISE OR SERVICE RELATED TO SUCH
RECEIVABLE OR THE FURNISHING OR FAILURE TO FURNISH SUCH
MERCHANDISE OR SERVICES;
(i) COMMINGLING OF COLLECTIONS OF RECEIVABLES AT
ANY TIME WITH OTHER FUNDS;
(i) ANY INVESTIGATION, LITIGATION OR PROCEEDING
RELATED TO OR ARISING FROM THIS AGREEMENT OR ANY OTHER
TRANSACTION DOCUMENT, THE TRANSACTIONS CONTEMPLATED HEREBY,
THE USE OF THE PROCEEDS OF AN INCREMENTAL PURCHASE OR A
REINVESTMENT, THE OWNERSHIP OF THE PURCHASER INTERESTS OR
ANY OTHER INVESTIGATION, LITIGATION OR PROCEEDING RELATING
TO SELLER OR ANY ORIGINATOR IN WHICH ANY INDEMNIFIED PARTY
BECOMES INVOLVED AS A RESULT OF ANY OF THE TRANSACTIONS
CONTEMPLATED HEREBY;
(i) ANY INABILITY TO LITIGATE ANY CLAIM AGAINST
ANY OBLIGOR IN RESPECT OF ANY RECEIVABLE AS A RESULT OF SUCH
OBLIGOR BEING IMMUNE FROM CIVIL AND COMMERCIAL LAW AND SUIT
ON THE GROUNDS OF SOVEREIGNTY OR OTHERWISE FROM ANY LEGAL
ACTION, SUIT OR PROCEEDING;
(i) ANY AMORTIZATION EVENT DESCRIBED IN SECTION
9.1(D);
(i) ANY FAILURE OF SELLER TO ACQUIRE AND MAINTAIN
LEGAL AND EQUITABLE TITLE TO, AND OWNERSHIP OF ANY
RECEIVABLE AND THE RELATED SECURITY AND COLLECTIONS WITH
RESPECT THERETO FROM ANY ORIGINATOR, FREE AND CLEAR OF ANY
ADVERSE CLAIM (OTHER THAN AS CREATED HEREUNDER); OR ANY
FAILURE OF SELLER TO GIVE REASONABLY EQUIVALENT VALUE TO ANY
ORIGINATOR UNDER THE RECEIVABLES SALE AGREEMENT IN
CONSIDERATION OF THE TRANSFER BY SUCH ORIGINATOR OF ANY
RECEIVABLE, OR ANY ATTEMPT BY ANY PERSON TO VOID SUCH
TRANSFER UNDER STATUTORY PROVISIONS OR COMMON LAW OR
EQUITABLE ACTION;
(i) ANY FAILURE TO VEST AND MAINTAIN VESTED IN
THE AGENT FOR THE BENEFIT OF THE PURCHASERS, OR TO TRANSFER
TO THE AGENT FOR THE BENEFIT OF THE PURCHASERS, LEGAL AND
EQUITABLE TITLE TO, AND OWNERSHIP OF, A FIRST PRIORITY
PERFECTED UNDIVIDED PERCENTAGE OWNERSHIP INTEREST (TO THE
EXTENT OF THE PURCHASER INTERESTS CONTEMPLATED HEREUNDER) OR
SECURITY INTEREST IN THE RECEIVABLES, THE RELATED SECURITY
AND THE COLLECTIONS, FREE AND CLEAR OF ANY ADVERSE CLAIM
(EXCEPT AS CREATED BY THE TRANSACTION DOCUMENTS);
(i) THE FAILURE TO HAVE FILED, OR ANY DELAY IN
FILING, FINANCING STATEMENTS OR OTHER SIMILAR INSTRUMENTS OR
DOCUMENTS UNDER THE UCC OF ANY APPLICABLE JURISDICTION OR
OTHER APPLICABLE LAWS WITH RESPECT TO ANY RECEIVABLE, THE
RELATED SECURITY AND COLLECTIONS WITH RESPECT THERETO, AND
THE PROCEEDS OF ANY THEREOF, WHETHER AT THE TIME OF ANY
INCREMENTAL PURCHASE OR REINVESTMENT OR AT ANY SUBSEQUENT
TIME;
(i) ANY ACTION OR OMISSION BY SELLER WHICH
REDUCES OR IMPAIRS THE RIGHTS OF THE AGENT OR THE PURCHASERS
WITH RESPECT TO ANY RECEIVABLE OR THE VALUE OF ANY SUCH
RECEIVABLE;
(i) ANY ATTEMPT BY ANY PERSON TO VOID ANY
INCREMENTAL PURCHASE OR REINVESTMENT HEREUNDER UNDER
STATUTORY PROVISIONS OR COMMON LAW OR EQUITABLE ACTION;
(i) THE YEAR 2000 PROBLEM INVOLVING SELLER,
SERVICER (SO LONG AS ANY AFFILIATE OF KNEI IS THE SERVICER),
ANY ORIGINATOR OR ANY OBLIGOR; AND
(i) THE FAILURE OF ANY RECEIVABLE INCLUDED IN THE
CALCULATION OF THE NET RECEIVABLES BALANCE AS AN ELIGIBLE
RECEIVABLE TO BE AN ELIGIBLE RECEIVABLE AT THE TIME SO
INCLUDED.
1.1 Section Increased Cost and Reduced Return . If any
funding source shall be charged any fee, expense, or increased
cost on account of the adoption if any applicable law, rule or
regulation (including any applicable law, rule or regulation
regarding capital adequacy) or any change therein, 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
with any request or directive (whether or not having the force of
law) of any such authority, central bank or comparable agency, in
each case occurring after the date hereof (a "Regulatory
Change"): (i) that subjects any funding source to any charge or
withholding on or with respect to any funding agreement or a
funding source's obligations under a funding agreement, or on or
with respect to receivables, or changes the basis of taxation of
payments to any funding source of any amounts payable under any
funding agreement (except for changes in the rate of tax on the
overall net income of a funding source or taxes excluded by
Section 10.1) or (ii) that imposes, modifies or deems applicable
any reserve, assessment, insurance charge, special deposit or
similar requirement against assets of, deposits with or for the
account of a funding source, or credit extended by a funding
source pursuant to a funding agreement or (iii) that imposes any
other condition the result of which is to increase the cost to a
funding source of performing its obligations under a funding
agreement, or to reduce the ate of return on a funding source's
capital as a consequence of its obligations under a funding
agreement, or to reduce the amount of any sum received or
receivable by a funding source under a funding agreement or to
require any payment calculated by reference to the amount of
interests or loans held or interest received by it, then, upon
demand by the agent, seller shall pay to the agent, for the
benefit of the relevant funding source, such amounts charged to
such funding source or such amounts to otherwise compensate such
funding source for such reduction.
1.2
1.3 Section OTHER COSTS AND EXPENSES . SELLER SHALL PAY TO
THE AGENT AND THE CONDUITS ON DEMAND ALL COSTS AND OUT-OF-POCKET
EXPENSES IN CONNECTION WITH THE PREPARATION, EXECUTION, DELIVERY
AND ADMINISTRATION OF THIS AGREEMENT, THE TRANSACTIONS
CONTEMPLATED HEREBY AND THE OTHER DOCUMENTS TO BE DELIVERED
HEREUNDER, INCLUDING WITHOUT LIMITATION, THE COST OF CONDUITS'
AUDITORS AUDITING THE BOOKS, RECORDS AND PROCEDURES OF SELLER
ONCE PER YEAR PRIOR TO THE OCCURRENCE OF AN AMORTIZATION EVENT
AND AT ANY TIME UPON THE OCCURRENCE AND DURING THE CONTINUANCE OF
AN AMORTIZATION EVENT, REASONABLE FEES AND OUT-OF-POCKET EXPENSES
OF LEGAL COUNSEL FOR CONDUITS AND THE AGENT (WHICH SUCH COUNSEL
MAY BE EMPLOYEES OF CONDUITS OR THE AGENT) WITH RESPECT THERETO
AND WITH RESPECT TO ADVISING CONDUITS AND THE AGENT AS TO THEIR
RESPECTIVE RIGHTS AND REMEDIES UNDER THIS AGREEMENT. SELLER
SHALL PAY TO AGENT ON DEMAND ANY AND ALL COSTS AND EXPENSES OF
THE AGENT AND THE PURCHASERS, IF ANY, INCLUDING REASONABLE
COUNSEL FEES AND EXPENSES IN CONNECTION WITH THE ENFORCEMENT OF
THIS AGREEMENT AND THE OTHER DOCUMENTS DELIVERED HEREUNDER AND IN
CONNECTION WITH ANY RESTRUCTURING OR WORKOUT OF THIS AGREEMENT OR
SUCH DOCUMENTS, OR THE ADMINISTRATION OF THIS AGREEMENT FOLLOWING
AN AMORTIZATION EVENT; PROVIDED, HOWEVER, TO THE EXTENT FEASIBLE
AND A CONFLICT OF INTEREST DOES NOT EXIST, THE PURCHASERS SHALL
ALL USE THE SAME COUNSEL.
1.4
ARTICLE THE AGENT
1 ARTICLE
THE AGENT
1.1 Section Authorization and Action . Each Purchaser
hereby designates and appoints Bank One to act as its agent
hereunder and under each other Transaction Document, and
authorizes the Agent to take such actions as agent on its behalf
and to exercise such powers as are delegated to the Agent by the
terms of this Agreement and the other Transaction Documents
together with such powers as are reasonably incidental thereto.
The Agent shall not have any duties or responsibilities, except
those expressly set forth herein or in any other Transaction
Document, or any fiduciary relationship with any Purchaser, and
no implied covenants, functions, responsibilities, duties,
obligations or liabilities on the part of the Agent shall be read
into this Agreement or any other Transaction Document or
otherwise exist for the Agent. In performing its functions and
duties hereunder and under the other Transaction Documents, the
Agent shall act solely as agent for the Purchasers and does not
assume nor shall be deemed to have assumed any obligation or
relationship of trust or agency with or for any Seller or any of
such Seller Party's successors or assigns. The Agent shall not
be required to take any action that exposes the Agent to personal
liability or that is contrary to this Agreement, any other
Transaction Document or applicable law. The appointment and
authority of the Agent hereunder shall terminate upon the
indefeasible payment in full of all Aggregate Unpaids. Each
Purchaser hereby authorizes the Agent to execute each of the
Uniform Commercial Code financing statements, together with such
other instruments or documents determined by the Agent to be
necessary or desirable in order to perfect, evidence or more
fully protect the interest of the Purchasers contemplated
hereunder, on behalf of such Purchaser (the terms of which shall
be binding on such Purchaser).
1.1 Section Delegation of Duties . The Agent may execute
any of its duties under this Agreement and each other Transaction
Document by or through agents or attorneys-in-fact and shall be
entitled to advice of counsel concerning all matters pertaining
to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agents or attorneys-in-fact
selected by it with reasonable care.
1.2
1.3 Section Exculpatory Provisions . Neither the Agent nor
any of its directors, officers, agents or employees shall be (i)
liable for any action lawfully taken or omitted to be taken by it
or them under or in connection with this Agreement or any other
Transaction Document (except for its, their or such Person's own
gross negligence or willful misconduct), or (ii) responsible in
any manner to any of the Purchasers for any recitals, statements,
representations or warranties made by Seller contained in this
Agreement, any other Transaction Document or any certificate,
report, statement or other document referred to or provided for
in, or received under or in connection with, this Agreement, or
any other Transaction Document or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this
Agreement, or any other Transaction Document or any other
document furnished in connection herewith or therewith, or for
any failure of Seller to perform its obligations hereunder or
thereunder, or for the satisfaction of any condition specified in
Article VI, or for the perfection, priority, condition, value or
sufficiency of any collateral pledged in connection herewith.
The Agent shall not be under any obligation to any Purchaser to
ascertain or to inquire as to the observance or performance of
any of the agreements or covenants contained in, or conditions
of, this Agreement or any other Transaction Document, or to
inspect the properties, books or records of Seller. The Agent
shall not be deemed to have knowledge of any Amortization Event
or Potential Amortization Event unless the Agent has received
notice from Seller or a Purchaser.
1.4
1.5 Section Reliance by Agent . The Agent shall in all
cases be entitled to rely, and shall be fully protected in
relying, upon any document or conversation believed by it to be
genuine and correct and to have been signed, sent or made by the
proper Person or Persons and upon advice and statements of legal
counsel (including, without limitation, counsel to Seller),
independent accountants and other experts selected by the Agent.
The Agent shall in all cases be fully justified in failing or
refusing to take any action under this Agreement or any other
Transaction Document unless it shall first receive such advice
or concurrence of the Conduits or the Required Financial
Institutions or all of the Purchasers, as applicable, as it deems
appropriate and it shall first be indemnified to its satisfaction
by the Purchasers, provided that unless and until the Agent shall
have received such advice, the Agent may take or refrain from
taking any action, as the Agent shall deem advisable and in the
best interests of the Purchasers. The Agent shall in all cases
be fully protected in acting, or in refraining from acting, in
accordance with a request of the Conduits or the Required
Financial Institutions or all of the Purchasers, as applicable,
and such request and any action taken or failure to act pursuant
thereto shall be binding upon all the Purchasers.
1.6
1.7 Section Non-Reliance on Agent and Other Purchasers .
Each Purchaser expressly acknowledges that neither the Agent, nor
any of its officers, directors, employees, agents,
attorneys-in-fact or affiliates has made any representations or
warranties to it and that no act by the Agent hereafter taken,
including, without limitation, any review of the affairs of
Seller, shall be deemed to constitute any representation or
warranty by the Agent. Each Purchaser represents and warrants to
the Agent that it has and will, independently and without
reliance upon the Agent or any other Purchaser and based on such
documents and information as it has deemed appropriate, made its
own appraisal of and investigation into the business, operations,
property, prospects, financial and other conditions and
creditworthiness of Seller and made its own decision to enter
into this Agreement, the other Transaction Documents and all
other documents related hereto or thereto.
1.8
1.9 Section Reimbursement and Indemnification . The
Financial Institutions agree to reimburse and indemnify the Agent
and its officers, directors, employees, representatives and
agents ratably according to their Pro Rata Shares, to the extent
not paid or reimbursed by Seller (i) for any amounts for which
the Agent, acting in its capacity as Agent, is entitled to
reimbursement by Seller hereunder and (ii) for any other expenses
incurred by the Agent, in its capacity as Agent and acting on
behalf of the Purchasers, in connection with the administration
and enforcement of this Agreement and the other Transaction
Documents.
1.10
1.11 Section Agent in its Individual Capacity . The Agent
and its Affiliates may make loans to, accept deposits from and
generally engage in any kind of business with Seller or any
Affiliate of Seller as though the Agent were not the Agent
hereunder. With respect to the acquisition of Purchaser
Interests pursuant to this Agreement, the Agent shall have the
same rights and powers under this Agreement in its individual
capacity as any Purchaser and may exercise the same as though it
were not the Agent, and the terms "Financial Institution,"
"Purchaser," "Financial Institutions" and "Purchasers" shall
include the Agent in its individual capacity.
1.12
1.13 Section Successor Agent . The Agent may, upon five
days' notice to Seller and the Purchasers, and the Agent will,
upon the direction of all of the Purchasers (other than the
Agent, in its individual capacity) resign as Agent. If the Agent
shall resign, then the Required Financial Institutions during
such five-day period shall appoint from among the Purchasers a
successor agent. If for any reason no successor Agent is
appointed by the Required Financial Institutions during such five-
day period, then effective upon the termination of such five day
period, the Purchasers shall perform all of the duties of the
Agent hereunder and under the other Transaction Documents and
Seller shall make all payments in respect of the Aggregate
Unpaids directly to the applicable Purchasers and for all
purposes shall deal directly with the Purchasers. After the
effectiveness of any retiring Agent's resignation hereunder as
Agent, the retiring Agent shall be discharged from its duties and
obligations hereunder and under the other Transaction Documents
and the provisions of this Article XI and Article X shall
continue in effect for its benefit with respect to any actions
taken or omitted to be taken by it while it was Agent under this
Agreement and under the other Transaction Documents.
1.14
ARTICLE ASSIGNMENTS; PARTICIPATIONS
1 ARTICLE
ASSIGNMENTS; PARTICIPATIONS
(a) Section Assignments . Seller and each Financial
Institution hereby agree and consent to the complete or partial
assignment by each Conduit of all or any portion of its rights
under, interest in, title to and obligations under this Agreement
to the Financial Institutions pursuant to Section 13.1 or, with
consent of the Seller, which consent shall not be unreasonably
withheld to any other Person, and upon such assignment, such
Conduit shall be released from its obligations so assigned.
Further, Seller and each Financial Institution hereby agree that
any assignee of the Conduits of this Agreement or all or any of
the Purchaser Interests of the Conduits shall have all of the
rights and benefits under this Agreement as if the term "Conduit"
explicitly referred to such party, and no such assignment shall
in any way impair the rights and benefits of the Conduits
hereunder. Seller shall not have the right to assign its rights
or obligations under this Agreement.
(a) Any Financial Institution may at any time and from
time to time assign to one or more Persons ("Purchasing Financial
Institutions") all or any part of its rights and obligations
under this Agreement pursuant to an assignment agreement,
substantially in the form set forth in Exhibit VII hereto (the
"Assignment Agreement") executed by such Purchasing Financial
Institution and such selling Financial Institution. The consent
of each Conduit shall be required prior to the effectiveness of
any such assignment and, prior to an Amortization Event, the
consent of the Seller (which consent shall not be unreasonably
withheld) shall be required. Each assignee of a Financial
Institution must have a short-term debt rating of A-1 or better
by Standard & Poor's Ratings Group and P-1 by Moody's Investor
Service, Inc. and must agree to deliver to the Agent, promptly
following any request therefor by the Agent or any Conduit, an
enforceability opinion in form and substance satisfactory to the
Agent and each Conduit. Upon delivery of the executed Assignment
Agreement to the Agent, such selling Financial Institution shall
be released from its obligations hereunder to the extent of such
assignment. Thereafter the Purchasing Financial Institution
shall for all purposes be an Financial Institution party to this
Agreement and shall have all the rights and obligations of an
Financial Institution under this Agreement to the same extent as
if it were an original party hereto and no further consent or
action by Seller, the Purchasers or the Agent shall be required.
(b)
(c) Each of the Financial Institutions agrees that in
the event that it shall cease to have a short-term debt rating of
A-1 or better by Standard & Poor's Ratings Services and P-1 by
Moody's Investors Service, Inc. (an "Affected Financial
Institution"), such Affected Financial Institution shall be
obliged, at the request of the Seller, any Conduit or the Agent,
to assign all of its rights and obligations hereunder to (x)
another Financial Institution or (y) another funding entity
nominated by the Agent and acceptable to each Conduit, and
willing to participate in this Agreement through the Liquidity
Termination Date in the place of such Affected Financial
Institution; provided that the Affected Financial Institution
receives payment in full, pursuant to an Assignment Agreement, of
an amount equal to such Financial Institution's Pro Rata Share of
the Capital and Financial Institution Discount owing to the
Financial Institutions and all accrued but unpaid fees and other
costs and expenses payable in respect of its Pro Rata Share of
the Purchaser Interests of the Financial Institutions.
(d)
1.2 Section Participations . Any Financial Institution
may, in the ordinary course of its business at any time sell to
one or more Persons (each a "Participant") participating
interests in its Pro Rata Share of the Purchaser Interests of the
Financial Institutions, its obligation to pay each Conduit its
Acquisition Amounts or any other interest of such Financial
Institution hereunder. Notwithstanding any such sale by a
Financial Institution of a participating interest to a
Participant, such Financial Institution's rights and obligations
under this Agreement shall remain unchanged, such Financial
Institution shall remain solely responsible for the performance
of its obligations hereunder, and Seller, the Conduits and the
Agent shall continue to deal solely and directly with such
Financial Institution in connection with such Financial
Institution's rights and obligations under this Agreement. Each
Financial Institution agrees that any agreement between such
Financial Institution and any such Participant in respect of such
participating interest shall not restrict such Financial
Institution's right to agree to any amendment, supplement, waiver
or modification to this Agreement, except for any amendment,
supplement, waiver or modification described in Section
14.1(b)(i).
1.3
ARTICLE LIQUIDITY FACILITY
1 ARTICLE
LIQUIDITY FACILITY
1.1 Section Transfer to Financial Institutions . Each
Financial Institution hereby agrees, subject to Section 13.4,
that immediately upon written notice from any Conduit delivered
on or prior to the Liquidity Termination Date, it shall acquire
by assignment from such Conduit, without recourse or warranty,
its Pro Rata Share of one or more of the Purchaser Interests of
such Conduit as specified by such Conduit. Each such assignment
by a Conduit shall be made pro rata among all of the Financial
Institutions, except for pro rata assignments to one or more
Terminating Financial Institutions pursuant to Section 13.6.
Each such Financial Institution shall, no later than 12:00 noon
(Chicago time) on the date of such assignment, pay in immediately
available funds (unless payment is otherwise agreed between such
Conduit and any Financial Institution) to the Agent at an account
designated by the Agent, for the benefit of such Conduit, its
Acquisition Amount. Unless a Financial Institution has notified
the Agent that it does not intend to pay its Acquisition Amount,
the Agent may assume that such payment has been made and may, but
shall not be obligated to, make the amount of such payment
available to such Conduit in reliance upon such assumption. Each
Conduit hereby sells and assigns to the Agent for the ratable
benefit of the Financial Institutions, and the Agent hereby
purchases and assumes from such Conduit, effective upon the
receipt by such Conduit of the Conduit Transfer Price, the
Purchaser Interests of such Conduit which are the subject of any
transfer pursuant to this Article XIII.
1.1 Section Transfer Price Reduction Yield . If the
Adjusted Liquidity Price is included in the calculation of the
Conduit Transfer Price for any Purchaser Interest of a Conduit,
each Financial Institution agrees that the Agent shall pay to the
affected Conduit the Reduction Percentage of any Financial
Institution Discount received by the Agent with respect to such
Purchaser Interest.
1.2
1.3 Section Payments to Conduits . In consideration for
the reduction of the Conduit Transfer Prices applicable to a
Conduit by the Conduit Transfer Price Reductions applicable to
such Conduit, effective only at such time as the aggregate amount
of the Capital of the Purchaser Interests of the Financial
Institutions acquired from such Conduit equals the Conduit
Residual applicable to such Conduit, each Financial Institution
hereby agrees that the Agent shall not distribute to the
Financial Institutions and shall immediately remit to such
Conduit any Yield, Collections or other payments received by it
to be applied pursuant to the terms hereof or otherwise to reduce
the Capital of the Purchaser Interests of the Financial
Institutions.
1.4
1.5 Section Limitation on Commitment to Purchase from
Conduits . Notwithstanding anything to the contrary in this
Agreement, no Financial Institution shall have any obligation to
purchase any Purchaser Interest from any Conduit, pursuant to
Section 13.1 or otherwise, if:
1.6
(i) Such Conduit shall have voluntarily commenced
any proceeding or filed any petition under any bankruptcy,
insolvency or similar law seeking the dissolution,
liquidation or reorganization of such Conduit or taken any
corporate action for the purpose of effectuating any of the
foregoing; or
(i) involuntary proceedings or an involuntary
petition shall have been commenced or filed against such
Conduit by any Person under any bankruptcy, insolvency or
similar law seeking the dissolution, liquidation or
reorganization of such Conduit and such proceeding or
petition shall have not been dismissed.
1.1 Section Defaulting Financial Institutions . If one or
more Financial Institutions defaults in its obligation to pay its
Acquisition Amount pursuant to Section 13.1 (each such Financial
Institution shall be called a "Defaulting Financial Institution"
and the aggregate amount of such defaulted obligations being
herein called the "Conduit Transfer Price Deficit"), then upon
notice from the Agent, each Financial Institution other than the
Defaulting Financial Institutions (a "Non-Defaulting Financial
Institution") shall promptly pay to the Agent, in immediately
available funds, an amount equal to the lesser of (x) such Non-
Defaulting Financial Institution's proportionate share (based
upon the relative Commitments of the Non-Defaulting Financial
Institutions) of the Conduit Transfer Price Deficit and (y) the
unused portion of such Non-Defaulting Financial Institution's
Commitment. A Defaulting Financial Institution shall forthwith
upon demand pay to the Agent for the account of the Non-
Defaulting Financial Institutions all amounts paid by each Non-
Defaulting Financial Institution on behalf of such Defaulting
Financial Institution, together with interest thereon, for each
day from the date a payment was made by a Non-Defaulting
Financial Institution until the date such Non-Defaulting
Financial Institution has been paid such amounts in full, at a
rate per annum equal to the Federal Funds Effective Rate plus two
percent (2%). In addition, without prejudice to any other rights
that the affected Conduit may have under applicable law, each
Defaulting Financial Institution shall pay to such Conduit
forthwith upon demand, the difference between such Defaulting
Financial Institution's unpaid Acquisition Amount and the amount
paid with respect thereto by the Non-Defaulting Financial
Institutions, together with interest thereon, for each day from
the date of the Agent's request for such Defaulting Financial
Institution's Acquisition Amount pursuant to Section 13.1 until
the date the requisite amount is paid to such Conduit in full, at
a rate per annum equal to the Federal Funds Effective Rate plus
two percent (2%).
1.2
1.3 Section Terminating Financial Institutions .
1.4
(a) Each Financial Institution hereby agrees to
deliver written notice to the Agent not more than 30 Business
Days and not less than 5 Business Days prior to the Liquidity
Termination Date indicating whether such Financial Institution
intends to renew its Commitment hereunder. If any Financial
Institution fails to deliver such notice on or prior to the date
that is 5 Business Days prior to the Liquidity Termination Date,
such Financial Institution will be deemed to have declined to
renew its Commitment (each Financial Institution which has
declined or has been deemed to have declined to renew its
Commitment hereunder, a "Non-Renewing Financial Institution").
The Agent shall promptly notify Conduits of each Non-Renewing
Financial Institution and each Conduit, in its sole discretion,
may (A) to the extent of Commitment Availability, declare that
such Non-Renewing Financial Institution's Commitment shall, to
such extent, automatically terminate on a date specified by such
Conduit on or before the Liquidity Termination Date or (B) upon
one (1) Business Days' notice to such Non-Renewing Financial
Institution assign to such Non-Renewing Financial Institution on
a date specified by such Conduit its Pro Rata Share of the
aggregate Purchaser Interests then held by such Conduit, subject
to, and in accordance with, Section 13.1.
(b)
(c) In addition, any Conduit may, in its sole
discretion, at any time (x) to the extent of Commitment
Availability, declare that any Affected Financial Institution's
Commitment shall automatically terminate on a date specified by
such Conduit or (y) assign to any Affected Financial Institution
on a date specified by such Conduit its Pro Rata Share of the
aggregate Purchaser Interests then held by such Conduit, subject
to, and in accordance with, Section 13.1 (each Affected Financial
Institution or each Non-Renewing Financial Institution is
hereinafter referred to as a "Terminating Financial
Institution"). The parties hereto expressly acknowledge that any
declaration of the termination of any Commitment, any assignment
pursuant to this Section 13.6 and the order of priority of any
such termination or assignment among Terminating Financial
Institutions shall be made by each Conduit in its sole and
absolute discretion.
(d)
(e) Upon any assignment to a Terminating Financial
Institution as provided in this Section 13.6, any remaining
Commitment of such Terminating Financial Institution shall
automatically terminate. Upon reduction to zero of the Capital
of all of the Purchaser Interests of a Terminating Financial
Institution (after application of Collections thereto pursuant to
Sections 2.2 and 2.3) all rights and obligations of such
Terminating Financial Institution hereunder shall be terminated
and such Terminating Financial Institution shall no longer be a
"Financial Institution" hereunder; provided, however, that the
provisions of Article X shall continue in effect for its benefit
with respect to Purchaser Interests held by such Terminating
Financial Institution prior to its termination as a Financial
Institution.
(f)
ARTICLE MISCELLANEOUS
1 ARTICLE
MISCELLANEOUS
(a) Section Waivers and Amendments . No failure or delay
on the part of the Agent or any Purchaser in exercising any
power, right or remedy under this Agreement shall operate as a
waiver thereof, nor shall any single or partial exercise of any
such power, right or remedy preclude any other further exercise
thereof or the exercise of any other power, right or remedy. The
rights and remedies herein provided shall be cumulative and
nonexclusive of any rights or remedies provided by law. Any
waiver of this Agreement shall be effective only in the specific
instance and for the specific purpose for which given.
(a) No provision of this Agreement may be amended,
supplemented, modified or waived except in writing in accordance
with the provisions of this Section 14.1(b). Conduits, Seller
and the Agent, at the direction of the Required Financial
Institutions, may enter into written modifications or waivers of
any provisions of this Agreement, provided, however, that no such
modification or waiver shall:
(b)
(i) without the consent of each affected
Purchaser, (A) extend the Liquidity Termination Date or the
date of any payment or deposit of Collections by Seller or
the Servicer, (B) reduce the rate or extend the time of
payment of Financial Institution Discount or any CP Costs
(or any component of Financial Institution Discount or CP
Costs), (C) reduce any fee payable to the Agent for the
benefit of the Purchasers, (D) except pursuant to Article
XII hereof, change the amount of the Capital of any
Purchaser, any Financial Institution's Pro Rata Share
(except pursuant to Sections 13.1 or 13.5) or any Financial
Institution's Commitment, (E) amend, modify or waive any
provision of the definition of Required Financial
Institutions or this Section 14.1(b), (F) consent to or
permit the assignment or transfer by Seller of any of its
rights and obligations under this Agreement, (G) change the
definition of "Eligible Receivable," "Loss Reserve,"
"Conduit Transfer Price," "Purchaser Interest," "Deemed
Collections" or "Net Receivables Balance" or (H) amend or
modify any defined term (or any defined term used directly
or indirectly in such defined term) used in clauses (A)
through (G) above in a manner that would circumvent the
intention of the restrictions set forth in such clauses; or
(i) without the written consent of the then
Agent, amend, modify or waive any provision of this
Agreement if the effect thereof is to affect the rights or
duties of such Agent.
Notwithstanding the foregoing, (i) without the consent of the
Financial Institutions, but with the consent of Seller, the Agent
may amend this Agreement solely to add additional Persons as
Financial Institutions hereunder and (ii) the Agent, the Required
Financial Institutions and the Conduits may enter into amendments
to modify any of the terms or provisions of Article XI, Article
XII, Section 14.13 or any other provision of this Agreement
without the consent of Seller, provided that such amendment has
no negative impact upon Seller. Any modification or waiver made
in accordance with this Section 14.1 shall apply to each of the
Purchasers equally and shall be binding upon Seller, the
Purchasers and the Agent.
(i) Section Notices . Except as provided in this Section
14.2, all communications and notices provided for hereunder shall
be in writing (including bank wire, telecopy or electronic
facsimile transmission or similar writing) and shall be given to
the other parties hereto at their respective addresses or
telecopy numbers set forth on the signature pages hereof or at
such other address or telecopy number as such Person may
hereafter specify for the purpose of notice to each of the other
parties hereto. Each such notice or other communication shall be
effective if given by telecopy, upon the receipt thereof, if
given by mail, three (3) Business Days after the time such
communication is deposited in the mail with first class postage
prepaid or if given by any other means, when received at the
address specified in this Section 14.2. Seller hereby authorizes
the Agent to effect purchases and Tranche Period and Discount
Rate selections based on telephonic notices made by any Person
whom the Agent in good faith believes to be acting on behalf of
Seller. Seller agrees to deliver promptly to the Agent a written
confirmation of each telephonic notice signed by an authorized
officer of Seller; provided, however, the absence of such
confirmation shall not affect the validity of such notice. If
the written confirmation differs from the action taken by the
Agent, the records of the Agent shall govern absent manifest
error.
(ii)
1.2 Section Ratable Payments . If any Purchaser, whether
by setoff or otherwise, has payment made to it with respect to
any portion of the Aggregate Unpaids owing to such Purchaser
(other than payments received pursuant to Section 10.2 or 10.3)
in a greater proportion than that received by any other Purchaser
entitled to receive a ratable share of such Aggregate Unpaids,
such Purchaser agrees, promptly upon demand, to purchase for cash
without recourse or warranty a portion of such Aggregate Unpaids
held by the other Purchasers so that after such purchase each
Purchaser will hold its ratable proportion of such Aggregate
Unpaids; provided that if all or any portion of such excess
amount is thereafter recovered from such Purchaser, such purchase
shall be rescinded and the purchase price restored to the extent
of such recovery, but without interest.
1.3
(a) Section Protection of Ownership Interests of the
Purchasers . Seller agrees that from time to time, at its
expense, it will promptly execute and deliver all instruments and
documents, and take all actions, that may be necessary or
desirable, or that the Agent may request, to perfect, protect or
more fully evidence the Purchaser Interests, or to enable the
Agent or the Purchasers to exercise and enforce their rights and
remedies hereunder. At any time during the continuance of an
Amortization Event, the Agent may, or the Agent may direct Seller
or the Servicer to, notify the Obligors of Receivables, at
Seller's expense, of the ownership or security interests of the
Purchasers under this Agreement and may also direct that payments
of all amounts due or that become due under any or all
Receivables be made directly to the Agent or its designee.
Seller shall, at any Purchaser's request, withhold the identity
of such Purchaser in any such notification.
(b)
(c) If Seller fails to perform any of its obligations
hereunder, the Agent or any Purchaser may (but shall not be
required to) perform, or cause performance of, such obligation,
and the Agent's or such Purchaser's costs and expenses incurred
in connection therewith shall be payable by Seller as provided in
Section 10.3. Seller irrevocably authorizes the Agent at any
time and from time to time in the sole discretion of the Agent,
and appoints the Agent as its attorney-in-fact, to act on behalf
of Seller (i) to execute on behalf of Seller as debtor and to
file financing statements necessary or desirable in the Agent's
sole discretion to perfect and to maintain the perfection and
priority of the interest of the Purchasers in the Receivables and
(ii) to file a carbon, photographic or other reproduction of this
Agreement or any financing statement with respect to the
Receivables as a financing statement in such offices as the Agent
in its sole discretion deems necessary or desirable to perfect
and to maintain the perfection and priority of the interests of
the Purchasers in the Receivables. This appointment is coupled
with an interest and is irrevocable.
(d)
(e) Section Confidentiality . Seller and each Purchaser
shall maintain and shall cause each of its employees and officers
to maintain the confidentiality of this Agreement and the other
confidential or proprietary information with respect to the Agent
and Conduits and their respective businesses obtained by it or
them in connection with the structuring, negotiating and
execution of the transactions contemplated herein, except that
Seller and such Purchaser and its officers and employees may
disclose such information to Seller's and such Purchaser's
external accountants and attorneys and as required by any
applicable law or order of any judicial or administrative
proceeding.
(f)
(g) In the event that Seller, the Servicer or any
Affiliate of either of them (herein called "Subject Entities")
provides to the Agent or any Purchaser information belonging to
any of the Subject Entities, the Agent and the Purchasers shall
thereafter maintain such information in confidence in accordance
with the standards of care and diligence that each utilizes in
maintaining its own confidential information. This obligation of
confidence shall not apply to such portions of the information
which (i) are disclosed to the Agent, the Financial Institutions
or Conduits by each other, (ii) are disclosed by the Agent or the
Purchasers to any prospective or actual assignee or participant
of any of them, (iii) are disclosed by the Agent to any rating
agency, Commercial Paper dealer or provider of a surety, guaranty
or credit or liquidity enhancement to Conduits or any entity
organized for the purpose of purchasing, or making loans secured
by, financial assets for which Bank One acts as the
administrative agent and to any officers, directors, employees,
outside accountants and attorneys of any of the foregoing, (iv)
are in the public domain, (v) hereafter become part of the public
domain without the Agent or the Purchasers breaching their
obligation of confidence to any Subject Entity, (vi) are
previously known by the Agent or the Purchasers from some source
other than any Subject Entity, (vii) are hereafter obtained by or
available to the Agent or the Purchasers from a third party who
owes no obligation of confidence to the Subject Entities with
respect to such information or through any other means other than
through disclosure by the Subject Entities, (viii) are disclosed
with Seller's consent, (ix) must be disclosed to any Governmental
Authority regulating the activities of the Agent or the
Purchasers, or (x) as may be required by law or regulation or
order of any Governmental Authority in any judicial, arbitration
or governmental proceeding.
(h)
1.4 Section Bankruptcy Petition . Seller, the Agent and
each Financial Institution hereby covenants and agrees that,
prior to the date that is one year and one day after the payment
in full of all outstanding senior Indebtedness of any Conduit or
any Financial Institution that is a special purpose bankruptcy
remote entity, it will not institute against, or join any other
Person in instituting against, such Conduit or any such entity
any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings or other similar proceeding under the
laws of the United States or any state of the United States.
1.5
1.6 Section Limitation of Liability . Except with respect
to any claim arising out of the willful misconduct or gross
negligence of Seller, the Servicer, any Originator or any
Conduit, the Agent or any Financial Institution, no claim may be
made by Seller, any Conduit, the Agent, any Financial Institution
or any other Person against any such Person or their respective
Affiliates, directors, officers, employees, attorneys or agents
for any special, indirect, consequential or punitive damages in
respect of any claim for breach of contract or any other theory
of liability arising out of or related to the transactions
contemplated by this Agreement, or any act, omission or event
occurring in connection therewith; and each such party hereby
waives, releases, and agrees not to sue upon any claim for any
such damages, whether or not accrued and whether or not known or
suspected to exist in its favor.
1.7
1.8 Section CHOICE OF LAW . ALL PROVISIONS OF THIS
AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF
TEXAS.
1.9
1.10 Section CONSENT TO JURISDICTION . SELLER HEREBY
IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY
UNITED STATES FEDERAL OR ILLINOIS STATE COURT SITTING IN CHICAGO,
ILLINOIS IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR ANY DOCUMENT EXECUTED BY SUCH PERSON
PURSUANT TO THIS AGREEMENT AND EACH OF Seller HEREBY IRREVOCABLY
AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING
MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY
WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE
OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR
THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL
LIMIT THE RIGHT OF THE AGENT OR ANY PURCHASER TO BRING
PROCEEDINGS AGAINST SELLER IN THE COURTS OF ANY OTHER
JURISDICTION. ANY JUDICIAL PROCEEDING BY SELLER AGAINST THE
AGENT OR ANY PURCHASER OR ANY AFFILIATE OF THE AGENT OR A
PURCHASER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY
WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT
OR ANY DOCUMENT EXECUTED BY SELLER PURSUANT TO THIS AGREEMENT
SHALL BE BROUGHT ONLY IN A COURT IN CHICAGO, ILLINOIS.
1.11
1.12 Section WAIVER OF JURY TRIAL . EACH PARTY HERETO
HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING,
DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT,
CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR
CONNECTED WITH THIS AGREEMENT, ANY DOCUMENT EXECUTED BY SELLER
PURSUANT TO THIS AGREEMENT OR THE RELATIONSHIP ESTABLISHED
HEREUNDER OR THEREUNDER.
1.13
1.14 Section Integration; Binding Effect; Survival of Terms
.
1.15
(a) This Agreement and each other transaction Document
contains the final and complete integration of all prior
expressions by the parties hereto with respect to the subject
matter hereof and shall constitute the entire agreement among the
parties hereto with respect to the subject matter hereof
superseding all prior oral or written understandings.
(b)
(c) This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors
and permitted assigns (including any trustee in bankruptcy).
This Agreement shall create and constitute the continuing
obligations of the parties hereto in accordance with its terms
and shall remain in full force and effect until terminated in
accordance with its terms; provided, however, that the rights and
remedies with respect to (i) any breach of any representation and
warranty made by Seller pursuant to Article V, (ii) the
indemnification and payment provisions of Article X, and Sections
14.5 and 14.6 shall be continuing and shall survive any
termination of this Agreement.
(d)
1.16 Section Counterparts; Severability; Section References
. This Agreement may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all
of which when taken together shall constitute one and the same
Agreement. Any provisions of this Agreement which are prohibited
or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions
hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such
provision in any other jurisdiction. Unless otherwise expressly
indicated, all references herein to "Article," "Section,"
"Schedule" or "Exhibit" shall mean articles and sections of, and
schedules and exhibits to, this Agreement.
1.17
1.18 Section Bank One Roles . Each of the Financial
Institutions acknowledges that Bank One acts, or may in the
future act, (i) as administrative agent for any Conduit or any
Financial Institution, (ii) as issuing and paying agent for the
Commercial Paper, (iii) to provide credit or liquidity
enhancement for the timely payment for the Commercial Paper and
(iv) to provide other services from time to time for any Conduit
or any Financial Institution (collectively, the "Bank One
Roles"). Without limiting the generality of this Section 14.13,
each Financial Institution hereby acknowledges and consents to
any and all Bank One Roles and agrees that in connection with any
Bank One Role, Bank One may take, or refrain from taking, any
action that it, in its discretion, deems appropriate, including,
without limitation, in its role as administrative agent for
Conduits, and the giving of notice to the Agent of a mandatory
purchase pursuant to Section 13.1.
1.19
(a) Section Characterization . It is the intention of
the parties hereto that each purchase hereunder shall constitute
and be treated as an absolute and irrevocable sale, which
purchase shall provide the applicable Purchaser with the full
benefits of ownership of the applicable Purchaser Interest.
Except as specifically provided in this Agreement, each sale of a
Purchaser Interest hereunder is made without recourse to Seller;
provided, however, that (i) Seller shall be liable to each
Purchaser and the Agent for all representations, warranties,
covenants and indemnities made by Seller pursuant to the terms of
this Agreement, and (ii) such sale does not constitute and is not
intended to result in an assumption by any Purchaser or the Agent
or any assignee thereof of any obligation of Seller or any
Originator or any other person arising in connection with the
Receivables, the Related Security, or the related Contracts, or
any other obligations of Seller or any Originator.
(b)
(c) It is further the express intent of the Seller,
Agent and each Purchaser that Section 9.102(d) of the Texas
Business and Commerce Code shall apply to all purchases and sales
of Receivables and Purchaser Interests hereunder. Each of the
Seller, Agent and each Purchaser agree that it will not account
for the transaction contemplated herein other than as a sale of
Receivables to the Purchasers, except that for purposes of all
taxes, the transactions contemplated hereby shall be treated as a
loan by the Purchasers (through the Agent) to the Seller that is
secured by the Receivables.
(d)
(e) In the event that the characterization in Section
14.14(b) is not respected for any reason, in addition to any
ownership interest which the Agent may from time to time acquire
pursuant hereto, Seller hereby grants to the Agent for the
ratable benefit of the Purchasers a valid and perfected security
interest in all of Seller's right, title and interest in, to and
under all Receivables now existing or hereafter arising, the
Collections, each Lock-Box, each Collection Account, all Related
Security, all other rights and payments relating to such
Receivables, and all proceeds of any thereof prior to all other
liens on and security interests therein to secure the prompt and
complete payment of the Aggregate Unpaids. The Agent and the
Purchasers shall have, in addition to the rights and remedies
that they may have under this Agreement, all other rights and
remedies provided to a secured creditor under the UCC and other
applicable law, which rights and remedies shall be cumulative.
(f)
[SIGNATURE PAGES FOLLOW]
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered by their duly authorized
officers as of the date hereof.
KN RECEIVABLES CORPORATION
By: /s/ Rose M. Robeson
-------------------------------
Title: Vice President and Treasurer
Address: One Allen Center
500 Dallas Street,
Suite 1000
Houston, TX 77002
with copy to:
K N Energy, Inc.
Address: 370 Van Gordon Street
Lakewood, CO 80228-8304
Attn: _Rose M. Robeson
FALCON ASSET SECURITIZATION CORPORATION
By: /s/ Patrick Drennan
--------------------------------
Authorized Signatory
Address: c/o Bank
One, NA, as Agent
Asset Backed Finance
Suite IL1-0079, 1-19
One Bank One Plaza
Chicago, Illinois 60670-0079
Fax: (312) 732-1844
INTERNATIONAL SECURITIZATION CORPORATION
By: /s/ Patrick Drennan
-------------------------------
Authorized Signatory
Address: c/o Bank
One, NA, as Agent
Asset Backed Finance
Suite IL1-0079, 1-19
One Bank One Plaza
Chicago, Illinois 60670-0079
Fax: (312) 732-1844
BANK ONE, NA, as a Financial Institution
and as Agent
By: /s/ Patrick Drennan
------------------------
Title: Director
Address: Bank One, NA
Asset Backed Finance
Suite 0596, 1-21
One Bank One Plaza
Chicago, Illinois 60670-0596
Fax: (312) 732-4487
EXHIBIT I
DEFINITIONS
As used in this Agreement, the following terms shall have
the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"Accrual Period" means (i) unless the Agent has designated a
Special Settlement Date, each calendar month, provided that the
initial Accrual Period hereunder means the period from (and
including) the date of the initial purchase hereunder to (and
including) the last day of the calendar month thereafter and (ii)
if the Agent has designated any Special Settlement Date, such
period of time commencing on the day following the last day of
the preceding Accrual Period and ending on a day preceding such
Special Settlement Date as specified by the Agent.
"Acquisition Amount" means, on the date of any purchase from
any Conduit of Purchaser Interests pursuant to Section 13.1, (i)
with respect to any Financial Institution other than Bank One
(but including Bank One if it is at any time a Terminating
Financial Institution), the lesser of (a) such Financial
Institution's Pro Rata Share of the Conduit Transfer Price and
(b) such Financial Institution's unused Commitment and (ii) with
respect to Bank One solely in the instant of a purchase from any
Conduit of Purchaser Interests by all of the Financial
Institutions, the difference between (a) the Conduit Transfer
Price and (b) the aggregate amount payable by all other Financial
Institutions on such date pursuant to clause (i) above.
"Adjusted Liquidity Price" means, in determining the Conduit
Transfer Price for any Purchaser Interest, an amount equal to
RI~ LEFT [ (i)~DC~+~(ii)~ LEFT [ {NDR} over {1~+~(.50~x~ .10)}
RIGHT] ~RIGHT ]
where:
RI = the undivided percentage interest
evidenced by such Purchaser Interest.
DC = the Deemed Collections.
NDR = the Outstanding Balance of all
Receivables as to which any payment, or part
thereof, has not remained unpaid for sixty-
one (61) days or more from the original due
date for such payment.
Each of the foregoing shall be determined from the most recent
Monthly Report received from the Servicer.
"Adverse Claim" means a lien, security interest, charge or
encumbrance, or other right or claim in, of or on any Person's
assets or properties in favor of any other Person. Security
interests in favor of owners of interests in production provided
by a Section 9-319 Statute shall not be considered "Adverse
Claims" so long as the applicable Originators timely pay such
interest owners in full all amounts due and owing to such
interest owners.
"Affected Financial Institution" has the meaning specified
in Section 12.1(c).
"Affiliate" means, with respect to any Person, any other
Person directly or indirectly controlling, controlled by, or
under direct or indirect common control with, such Person or any
Subsidiary of such Person. A Person shall be deemed to control
another Person if the controlling Person owns 10% or more of any
class of voting securities of the controlled Person or possesses,
directly or indirectly, the power to direct or cause the
direction of the management or policies of the controlled Person,
whether through ownership of stock, by contract or otherwise.
"Agent" has the meaning set forth in the preamble to this
Agreement.
"Aggregate Capital" means, on any date of determination, the
aggregate amount of Capital of all Purchaser Interests
outstanding on such date.
"Aggregate Reduction" has the meaning specified in Section
1.3.
"Aggregate Reserves" means, on any date of determination,
the sum of the Loss Reserve, the Discount and Servicing Fee
Reserve, the Variance Reserve and the Dilution Reserve.
"Aggregate Unpaids" means, at any time, an amount equal to
the sum of all, Aggregate Capital and all other unpaid
Obligations (whether due or accrued) at such time.
"Agreement" means this Receivables Purchase Agreement, as it
may be amended or modified and in effect from time to time.
"Amortization Date" means the earliest to occur of (i) the
day on which any of the conditions precedent set forth in Section
6.2 are not satisfied, (ii) the Business Day immediately prior to
the occurrence of an Amortization Event set forth in Section
9.1(f), (iii) the Business Day specified in a written notice from
the Agent following the occurrence of any other Amortization
Event, (iv) the date which is sixty (60) Business Days after the
Agent's receipt of written notice from Seller that it wishes to
terminate the facility evidenced by this Agreement, and (v) sixty
(60) days following the date of assignment by any Conduit to all
of the Financial Institutions pursuant to Section 13.1 hereof.
"Amortization Event" has the meaning specified in Article
IX.
"Assignment Agreement" has the meaning set forth in Section
12.1(b).
"Authorized Officer" means, with respect to any Person, its
president, corporate controller, treasurer or chief financial
officer.
"Available Funds" shall mean, on any Settlement Date, the
aggregate of (i) the aggregate Purchasers' Collections received
with respect to Receivables during the related Calculation
Period.
"Bank One" means Bank One, NA, in its individual capacity
and its successors.
"Base Rate" means a rate per annum equal to the corporate
base rate, prime rate or base rate of interest, as applicable,
announced by the Reference Bank from time to time, changing when
and as such rate changes.
"Broken Funding Costs" means for any Purchaser Interest
which: (X) (i) has its Capital reduced or terminated without
compliance with the notice requirements hereunder or (ii) is
assigned under Article XIII (other than assignments by Conduits
at a time that no Amortization Event or Potential Amortization
Event has occurred and is continuing) or terminated prior to the
date it was originally scheduled, the excess, if any, of (A) the
CP Costs or Financial Institution Discount (as applicable) that
would have accrued during the remainder of the tranche periods
for Commercial Paper determined by the Agent to relate to such
Purchaser Interest subsequent to the date of such reduction,
assignment or termination on the Capital of such Purchaser
Interest if such reduction or termination had not occurred or
such Reduction Notice had not been delivered, over (B) the sum of
(x) to the extent all or a portion of such Capital is allocated
to another Purchaser Interest, the CP Costs or Financial
Institution Discount (as applicable) actually accrued during such
periods on such Capital for the new Purchaser Interest, and (y)
to the extent such Capital is not allocated to another Purchaser
Interest, the income, if any, actually received during such
periods by the holder of such Purchaser Interest from investing
the portion of such Capital not so allocated or (Y) does not
become subject to an Aggregate Reduction following the delivery
of a Reduction Notice, the amount of CP Costs or Financial
Institution Discount, swap costs or other interest expense that
accrue for Commercial Paper or other funding sources determined
by the Agent to relate to such Purchaser Interest subsequent to
the date such Aggregate Reduction was designated to occur
pursuant to the Reduction Notice in the Capital of such Purchaser
Interest. In the event that the amount referred to in clause (B)
exceeds the amount referred to in clause (A), the relevant
Purchaser or Purchasers agree to pay to Seller the amount of such
excess. All Broken Funding Costs shall be due and payable
hereunder upon demand.
"Business Day" means any day on which banks are not
authorized or required to close in New York, New York or Chicago,
Illinois and The Depository Trust Company of New York is open for
business, and, if the applicable Business Day relates to any
computation or payment to be made with respect to the LIBO Rate,
any day on which dealings in dollar deposits are carried on in
the London interbank market.
"Calculation Period" means (i) unless the Agent has
designated a Special Settlement Date, each calendar month or
portion thereof which elapses during the term of the Agreement
and (ii) if the Agent has designated any Special Settlement Date,
such period of time commencing on the day following the last day
of the preceding Calculation Period and ending on a day preceding
such Special Settlement Date as specified by the Agent. The
first Calculation Period shall commence on the date of the
Purchase of Receivables hereunder and the final Calculation
Period shall terminate on the Amortization Date.
"Capital" of any Purchaser Interest means, at any time, (A)
the Purchase Price of such Purchaser Interest, minus (B) the sum
of the aggregate amount of Collections and other payments
received by the Agent which in each case are applied to reduce
such Capital in accordance with the terms and conditions of this
Agreement; provided that such Capital shall be restored (in
accordance with Section 2.5) in the amount of any Collections or
other payments so received and applied if at any time the
distribution of such Collections or payments are rescinded,
returned or refunded for any reason.
"Change of Control" means the acquisition by any Person, or
two or more Persons acting in concert, of beneficial ownership
(within the meaning of Rule 13d-3 of the Securities and Exchange
Commission under the Securities Exchange Act of 1934) of 30% or
more of the outstanding shares of voting stock of any Seller.
"Change in Ownership" means KNEI shall cease to own, free
and clear of all Adverse Claims, all of the outstanding shares of
voting stock of Seller on a fully-diluted basis.
"Charged-Off Receivable" means a Receivable: (i) as to which
the Obligor thereof has taken any action, or suffered any event
to occur, of the type described in Section 9.1(f) (as if
references to Seller therein refer to such Obligor); (ii) as to
which the Obligor thereof, if a natural person, is deceased,
(iii) which, consistent with the Credit and Collection Policy,
would be written off Seller's books as uncollectible or (iv)
which has been identified by Seller as uncollectible.
"Chase Collection Account" means account number 323076947
maintained with Chase Manhattan Bank in the name of K N Energy,
Inc.
"Closing Date" means September 28, 1999.
"Collection Account" means each concentration account,
depositary account, lock-box account or similar account in which
any Collections are collected or deposited and which is listed on
Exhibit IV.
"Collection Account Agreement" means an agreement
substantially in the form of Exhibit VI among the Originator,
Seller, the Agent and a Collection Bank.
"Collection Bank" means, at any time, any of the banks
holding one or more Collection Accounts.
"Collection Notice" means a notice, in substantially the
form of Annex A to Exhibit VI, from the Agent to a Collection
Bank.
"Collections" means, with respect to any Receivable, all
cash collections and other cash proceeds in respect of such
Receivable, including, without limitation, all CP Costs,
Financial Institution Discount, Finance Charges or other related
amounts accruing in respect thereof and all cash proceeds of
Related Security with respect to such Receivable.
"Commercial Paper" means promissory notes of any Conduit
issued by such Conduit in the commercial paper market.
"Commitment" means, for each Financial Institution, the
commitment of such Financial Institution to purchase Purchaser
Interests from (i) Seller and (ii) Conduits, in an amount not to
exceed, (a) in the aggregate, the amount set forth opposite such
Financial Institution's name on Schedule A to this Agreement, as
such amount may be modified in accordance with the terms hereof
(including, without limitation, any termination of Commitments
pursuant to Section 13.6 hereof) and (b) with respect to any
individual purchase hereunder, its Pro Rata Share of the Purchase
Price therefor.
"Commitment Availability" means at any time the positive
difference (if any) between (a) an amount equal to the aggregate
amount of the Commitments at such time minus (b) the Aggregate
Capital at such time.
"Concentration Limit" means, at any time, for any Obligor,
3.33% of the aggregate Capital of the Purchaser Interests, or
such other higher amount (a "Special Concentration Limit") for
such Obligor designated by the Agent; provided, that in the case
of an Obligor and any Affiliate of such Obligor, the
Concentration Limit shall be calculated as if such Obligor and
such Affiliate are one Obligor; and provided, further, that
Conduits or the Required Financial Institutions may, upon not
less than three Business Days' notice to Seller, cancel any
Special Concentration Limit.
"Conduit Residual" means, for a Conduit, the sum of the
Conduit Transfer Price Reductions for such Conduit.
"Conduits" has the meaning set forth in the preamble to this
Agreement.
"Conduit Share" means, for each Conduit, a percentage equal
to (i) the Capital invested by such Conduit in Purchaser
Interests divided by (ii) the aggregate amount of all Capital
invested by all Conduits in Purchaser Interests.
"Conduit Transfer Price" means, with respect to the
assignment by any Conduit of one or more Purchaser Interests to
the Agent for the benefit of the Financial Institutions pursuant
to Section 13.1 (except as otherwise agreed between such Conduit
and any Financial Institution), the sum of (i) the lesser of (a)
the Capital of each such Purchaser Interest and (b) the Adjusted
Liquidity Price of each such Purchaser Interest and (ii) all
accrued and unpaid CP Costs for each such Purchaser Interest.
"Conduit Transfer Price Deficit" has the meaning set forth
in Section 13.5.
"Conduit Transfer Price Reduction" means in connection with
the assignment of a Purchaser Interest by any Conduit to the
Agent for the benefit of the Financial Institutions, the positive
difference between (i) the Capital of such Purchaser Interest and
(ii) the Adjusted Liquidity Price for such Purchaser Interest.
"Consolidated Assets" means the total amount of assets
appearing on the consolidated balance sheet of KNEI 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.
"Consolidated Net Income" means, for any period, the net
income of KNEI 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 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 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.
"Contingent Obligation" of a Person means any agreement,
undertaking or arrangement by which such Person assumes,
guarantees, endorses, contingently agrees to purchase or provide
funds for the payment of, or otherwise becomes or is contingently
liable upon, the obligation or liability of any other Person, or
agrees to maintain the net worth or working capital or other
financial condition of any other Person, or otherwise assures any
creditor of such other Person against loss, including, without
limitation, any comfort letter, operating agreement, take-or-pay
contract or application for a letter of credit.
"Contract" means, with respect to any Receivable, any and
all instruments, agreements, invoices or other writings pursuant
to which such Receivable arises or which evidences such
Receivable.
"CP Costs" means, for each day, the sum of (i) discount or
yield accrued on Pooled Commercial Paper on such day, plus (ii)
any and all accrued commissions in respect of placement agents
and Commercial Paper dealers, and issuing and paying agent fees
incurred, in respect of such Pooled Commercial Paper for such
day, plus (iii) other costs associated with funding small or odd-
lot amounts with respect to all receivable purchase facilities
which are funded by Pooled Commercial Paper for such day, minus
(iv) any accrual of income net of expenses received on such day
from investment of collections received under all receivable
purchase facilities funded substantially with Pooled Commercial
Paper, minus (v) any payment received on such day net of expenses
in respect of Broken Funding Costs related to the prepayment of
any Purchaser Interest of any Conduit pursuant to the terms of
any receivable purchase facilities funded substantially with
Pooled Commercial Paper. In addition to the foregoing costs, if
Seller shall request any Incremental Purchase during any period
of time determined by the Agent in its sole discretion to result
in incrementally higher CP Costs applicable to such Incremental
Purchase, the Capital associated with any such Incremental
Purchase shall, during such period, be deemed to be funded by
Conduits in a special pool (which may include capital associated
with other receivable purchase facilities) for purposes of
determining such additional CP Costs applicable only to such
special pool and charged each day during such period against such
Capital.
"Credit Agreement" means the $600,000,000 364-Day Credit
Agreement dated as of January 8, 1999 among K N Energy, Inc., the
banks listed therein and Morgan Guaranty Trust Company of New
York as administrative agent (as amended, restated, supplemented
or otherwise modified from time to time), or any successor
facility.
"Credit and Collection Policy" means Seller's credit and
collection policies and practices relating to Contracts and
Receivables existing on the date hereof and summarized in Exhibit
VIII hereto, as modified from time to time in accordance with
this Agreement.
"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 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.
"Deemed Collections" means the aggregate of all amounts
Seller shall have been deemed to have received as a Collection of
a Receivable. Seller shall be deemed to have received a
Collection in full of a Receivable if at any time:
(a) the Outstanding Balance of a Receivable is:
(i) reduced as a result of any defective or
rejected goods or services, any discount or any
adjustment by an Originator or by the Servicer (other
than cash Collections on account of the Receivables) or
for any other reason not arising from the financial
inability of the Obligor to pay,
(ii) reduced or canceled as a result of a
setoff in respect of any claim by any Person (whether
such claim arises out of the same or a related
transaction or an unrelated transaction and whether
such claim relates to such Originator or any Affiliate
thereof other than Seller), or
(iii) is otherwise reduced as a result of
any of the factors set forth in the definition of
"Dilution," or
(b) any of the representations and warranties set
forth in Article V are no longer true with respect to any
Receivable or any Receivable which was represented to be an
Eligible Receivable on any date is determined by Seller or the
Agent to not have been an Eligible Receivable on such date.
"Default Fee" means with respect to any amount due and
payable by Seller in respect of any Aggregate Unpaids, an amount
equal to the greater of (i) $1000 and (ii) interest on any such
unpaid Aggregate Unpaids at a rate per annum equal to 2% above
the Base Rate, it being understood that a Default Fee shall not
accrue on a Receivable by reason of such Receivable becoming a
Defaulted Receivable.
"Default Ratio" means, for any Calculation Period, a ratio
(expressed as a percentage) equal to (i) the Outstanding Balance
of all Receivables which are more than sixty-one (61) and less
than ninety-one (91) days past due plus all Charged-Off
Receivables (without duplication) written off during such period
divided by (ii) the aggregate Original Balance of all Receivables
generated during the Calculation Period which ended three (3)
Calculation Periods prior to such Calculation Period.
"Defaulted Receivable" means a Receivable: (i) as to which
the Obligor thereof has taken any action, or suffered any event
to occur, of the type described in Section 9.1(f) (as if
references to Seller therein refer to such Obligor); (ii) as to
which the Obligor thereof, if a natural person, is deceased,
(iii) which, consistent with the Credit and Collection Policy,
would be written off Seller's books as uncollectible, (iv) which
has been identified by Seller as uncollectible in accordance with
the Credit and Collection Policy or (v) as to which any payment,
or part thereof, remains unpaid for sixty-one (61) days or more
from the original due date for such payment.
"Defaulting Financial Institution" has the meaning set forth
in Section 13.5.
"Delinquent Receivable" means a Receivable as to which any
payment, or part thereof, remains unpaid for thirty-one (31) days
or more from the original due date for such payment.
"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.
"Designated Obligor" means an Obligor indicated by the Agent
to Seller in writing.
"Dilution Horizon Ratio" means, as of any date as set forth
in the most recent Monthly Report, a ratio computed by dividing
(i) the aggregate Original Balance of all Receivables generated
during the most recently ended Calculation Period by (ii) the
aggregate Outstanding Balance of total Eligible Receivables as at
the last day of the most recently ended Calculation Period.
"Dilution Ratio" means, on any date, a percentage equal to a
fraction (i) the numerator of which is the aggregate amount of
Dilutions (excluding any positive Monthly Variance) which
occurred during the Calculation Period most recently ended prior
to such date, and (ii) the denominator of which is the aggregate
Original Balance of the Receivables generated during the second
full Calculation Period preceding such date.
"Dilution Reserve" means, on any date, an amount equal to
the product of (x) the greater of (i) 5% and (ii) the Dilution
Reserve Ratio then in effect and (y) the Net Receivables Balance
as of the close of business on the immediately preceding Business
Day.
"Dilution Reserve Ratio" means, as of any date, an amount
calculated as follows:
DRR = [(2.0 x ADR) + [(HDR-ADR) x (HDR/ADR]] x DHR
where:
DRR = the Dilution Reserve Ratio;
ADR = the average of the Dilution Ratios for the
past twelve Calculation Periods;
HDR = the highest average of the Dilution Ratios
for any three consecutive Calculation Periods during
the most recent twelve months; and
DHR = the Dilution Horizon Ratio.
The Dilution Reserve Ratio shall be calculated monthly in each
Monthly Report and such Dilution Reserve Ratio shall, absent
manifest error, be effective from the corresponding Settlement
Date until the next succeeding Settlement Date.
"Dilutions" means, at any time, the aggregate amount of
reductions in the Outstanding Balances of the Receivables as a
result of any positive Monthly Variance, setoff, discount,
rebate, trade-in credit, credit memo, inter-company entry,
adjustment or otherwise, other than (i) Cash Collections on
account of the Receivables and (ii) charge-offs.
"Discount and Servicing Fee Reserve" means, on any date, two
percent (2.0%) of the Net Receivables Balance.
"Effective Date" means the date the Credit Agreement became
effective in accordance with Section 3.01 thereof.
"Eligible Receivable" means, at any time, a Receivable:
(i) the Obligor of which (a) if a natural person, is a
resident of the United States or, if a corporation or other
business organization, is organized under the laws of the
United States or any political subdivision thereof and has
its chief executive office in the United States; (b) is not
an Affiliate of any of the parties hereto; (c) is not a
Designated Obligor; and (d) is not a government or a
governmental subdivision or agency,
(i) which is denominated and payable only in United
States dollars in the United States,
(i) which is not a Delinquent Receivable,
(i) which is not a Charged-Off Receivable,
(i) which by its terms is due and payable within 30
days of the original billing date therefor and has not had
its payment terms extended,
(i) which is an "account" within the meaning of
Section 9-106 of the UCC of all applicable jurisdictions,
(i) which is an account receivable representing all or
part of the sales price of merchandise, insurance or
services within the meaning of Section 3(c)(5) of the
Investment Company Act of 1940, as amended,
(i) which arises under a Contract that contains an
obligation to pay a specified sum of money, contingent only
upon the sale of goods or the provision of services by
Seller,
(i) which arises under a Contract in substantially the
form of one of the form of contracts set forth on Exhibit IX
hereto or otherwise approved by the Agent in writing, which,
together with such Receivable, is in full force and effect
and constitutes the legal, valid and binding obligation of
the related Obligor enforceable by Seller and its assignees
against such Obligor in accordance with its terms,
(i) which arises under a Contract which (A) does not
require the Obligor under such Contract to consent to the
transfer, sale or assignment of the rights and duties of the
Originator or any of its assignees under such Contract and
(B) does not contain a confidentiality provision that
purports to restrict the ability of any Purchaser to
exercise its rights under this Agreement, including, without
limitation, its right to review the Contract,
(i) which, together with the Contract related thereto,
does not contravene any law, rule or regulation applicable
thereto (including, without limitation, any law, rule and
regulation relating to truth in lending, fair credit
billing, fair credit reporting, equal credit opportunity,
fair debt collection practices and privacy) and with respect
to which no part of the Contract related thereto is in
violation of any such law, rule or regulation,
(i) which is not subject to any affirmatively asserted
right of recission, set-off (in respect of all or any
portion of the Outstanding Balance thereof then being
proposed for inclusion in Net Receivables Balance as of any
date), counterclaim, any other defense (including defenses
arising out of violations of usury laws) of the applicable
Obligor or Originator or any other Adverse Claim, and the
Obligor thereon holds no right as against Originator to
cause Originator to repurchase the goods or merchandise the
sale of which shall have given rise to such Receivable
(except with respect to sale discounts effected pursuant to
the Contract, or defective goods returned in accordance with
the terms of the Contract),
(i) which satisfies all applicable requirements of the
Credit and Collection Policy,
(i) which was generated in the ordinary course of
Originator's business,
(i) which arises solely from the sale of goods or the
provision of services to the related Obligor by Originator,
and not by any other Person (in whole or in part), and
(i) as to which the Agent has not notified Seller that
the Agent has determined that such Receivable or class of
Receivables is not acceptable as an Eligible Receivable,
including, without limitation, because such Receivable
arises under a Contract that is not acceptable to the Agent.
(i) as to which Originator has satisfied and fully
performed all obligations on its part with respect to such
Receivable required to be fulfilled by it, and no further
action is required to be performed by any Person with
respect thereto other than payment thereon by the applicable
Obligor, and
(i) all right, title and interest to and in which has
been validly transferred by Originator directly to Seller
under and in accordance with the Receivables Sale Agreement,
and Seller has good and marketable title thereto free and
clear of any Adverse Claim.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.
"Facility Account" means Seller's Account No. 102-0403 at
Bank One.
"Facility Termination Date" means the earliest of (i)
September 28, 2004, (ii) the Liquidity Termination Date and (iii)
the Amortization Date.
"Federal Bankruptcy Code" means Title 11 of the United
States Code entitled "Bankruptcy," as amended and any successor
statute thereto.
"Federal Funds Effective Rate" means, for any period, a
fluctuating interest rate per annum for each day during such
period equal to (a) the weighted average of the rates on
overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published
for such day (or, if such day is not a Business Day, for the
preceding Business Day) by the Federal Reserve Bank of New York
in the Composite Closing Quotations for U.S. Government
Securities; or (b) if such rate is not so published for any day
which is a Business Day, the average of the quotations at
approximately 10:30 a.m. (Chicago time) for such day on such
transactions received by the Reference Bank from three federal
funds brokers of recognized standing selected by it.
"Fee Letter" means that certain letter agreement dated as of
the date hereof among Seller, the Originators and the Agent, as
it may be amended or modified and in effect from time to time.
"Finance Charges" means, with respect to a Contract, any
finance, interest, late payment charges or similar charges owing
by an Obligor pursuant to such Contract.
"Financial Institution Discount" means for each respective
Tranche Period relating to Purchaser Interests of the Financial
Institutions, an amount equal to the product of the applicable
Financial Institution Discount Rate for each Purchaser Interest
multiplied by the Capital of such Purchaser Interest for each day
elapsed during such Tranche Period, annualized on a 360 day
basis.
"Financial Institution Discount Rate" means, the LIBO Rate
or the Base Rate, as applicable, with respect to each Purchaser
Interest of the Financial Institutions.
"Financial Institutions" has the meaning set forth in the
preamble in this Agreement.
"Funding Agreement" means this Agreement and any agreement
or instrument executed by any Funding Source with or for the
benefit of any Conduit.
"Funding Source" means (i) any Financial Institution or (ii)
any insurance company, bank or other funding entity providing
liquidity, credit enhancement or back-up purchase support or
facilities to any Conduit.
"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.
"Incremental Purchase" means a purchase of one or more
Purchaser Interests which increases the total outstanding Capital
hereunder.
"Indebtedness" of a Person means such Person's (i)
obligations for borrowed money, (ii) obligations representing the
deferred purchase price of property or services (other than
accounts payable arising in the ordinary course of such Person's
business payable on terms customary in the trade), (iii)
obligations, whether or not assumed, secured by liens or payable
out of the proceeds or production from property now or hereafter
owned or acquired by such Person, (iv) obligations which are
evidenced by notes, acceptances, or other instruments, (v)
capitalized lease obligations, (vi) net liabilities under
interest rate swap, exchange or cap agreements, (vii) Contingent
Obligations and (viii) liabilities in respect of unfunded vested
benefits under plans covered by Title IV of ERISA.
"Independent Director" shall mean a member of the Board of
Directors of Seller who is not at such time, and has not been at
any time during the preceding five (5) years, (A) a director,
officer, employee or affiliate of Seller, the Originators, or any
of their respective Subsidiaries or Affiliates, or (B) the
beneficial owner (at the time of such individual's appointment as
an Independent Director or at any time thereafter while serving
as an Independent Director) of any of the outstanding common
shares of Seller, the Originators, or any of their respective
Subsidiaries or Affiliates, having general voting rights;
"KNEI" means K N Energy, Inc., a Kansas corporation, and its
successors.
"LIBO Rate" means the rate per annum equal to the sum of (i)
(a) the rate at which deposits in U.S. Dollars are offered by the
Reference Bank to first-class banks in the London interbank
market at approximately 11:00 a.m. (London time) two Business
Days prior to the first day of the relevant Tranche Period, such
deposits being in the approximate amount of the Capital of the
Purchaser Interest to be funded or maintained, divided by (b) one
minus the maximum aggregate reserve requirement (including all
basic, supplemental, marginal or other reserves) which is imposed
against the Reference Bank in respect of Eurocurrency
liabilities, as defined in Regulation D of the Board of Governors
of the Federal Reserve System as in effect from time to time
(expressed as a decimal), applicable to such Tranche Period plus
(ii) 1.05% per annum. The LIBO Rate shall be rounded, if
necessary, to the next higher 1/16 of 1%.
"Liquidity Termination Date" means September 26, 2000.
"Loan" has the meaning set forth in the Credit Agreement.
"Lock-Box" means each locked postal box with respect to
which a bank who has executed a Collection Account Agreement has
been granted exclusive access for the purpose of retrieving and
processing payments made on the Receivables and which is listed
on Exhibit IV.
"Loss Horizon Ratio" means, for any day, a fraction
(calculated as a percentage) computed by dividing (i) the
aggregate Original Balance of all Receivables generated during
the two (2) most recently ended Calculation Periods by (ii) the
aggregate Outstanding Balance of total Eligible Receivables as at
the last day of the most recently ended Calculation Period.
"Loss Reserve" means, on any date, an amount equal to the
product of (x) the greater of (i) 10% and (ii) the Loss Reserve
Ratio then in effect and (y) the Net Receivables Balance as of
the close of business of the Servicer on the immediately
preceding Business Day.
"Loss Reserve Ratio" means, as of any date, an amount
calculated as follows:
LRR = 2.0 x DR x LHR, where
LRR = the Loss Reserve Ratio;
DR = the highest average of the Default Ratios for
any three consecutive Calculation Periods during the
most recently ended Calculation Period; and
LHR = the Loss Horizon Ratio.
The Loss Reserve Ratio shall be calculated monthly in each
Monthly Report and such Loss Reserve Ratio shall, absent manifest
error, be effective from the corresponding Settlement Date until
the next succeeding Settlement Date.
"Loss-to-Liquidation Ratio" means, as at the last day of any
calendar month, a percentage equal to (i) the amount of
Charged-Off Receivables which became Charged-Off Receivables
during such month, divided by (ii) the aggregate amount of
Collections during such month.
"Mandatorily Convertible Preferred Stock" means, with
respect to KNEI, preferred securities of a Subsidiary which are
(i) mandatorily convertible into common equity securities of KNEI
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 KNEI within approximately
three years for an equal amount or (iii) otherwise structured in
a manner satisfactory to the Agent so as to ensure the issuance
of incremental common equity securities of KNEI in a
substantially equal amount within approximately three years.
"Material Adverse Effect" means a material adverse effect on
(i) the financial condition or operations of any Seller and its
Subsidiaries, (ii) the ability of any Seller to perform its
obligations under this Agreement, (iii) the legality, validity or
enforceability of this Agreement or any other Transaction
Document, (iv) any Purchaser's interest in the Receivables
generally or in any significant portion of the Receivables, the
Related Security or the Collections with respect thereto, or (v)
the collectibility of the Receivables generally or of any
material portion of the Receivables.
"Material Debt" means Debt (other than (i) the Notes and
(ii) Debt owing to KNEI or a Subsidiary) of KNEI 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
KNEI or a Subsidiary) and/or payment obligations in respect of
Derivatives Obligations of KNEI 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" of a Person means any Subsidiary of
such Person the consolidated assets of which constitute 10% or
more of the Consolidated Assets of such Person.
"Monthly Report" means a report, in substantially the form
of Exhibit X hereto (appropriately completed), furnished by the
Servicer to the Agent pursuant to Section 8.5. In addition to
such other information as may be included therein, each Monthly
Report shall set forth the amounts to be distributed pursuant to
each clause of Section 2.4, as applicable.
"Monthly Variance" means the aggregate Original Balance of
all Receivables generated during a Calculation Period as
determined on the last day of such Calculation Period minus the
actual invoice amount for such Receivables.
"Net Receivables Balance" means, at any time, the aggregate
Outstanding Balance of all Eligible Receivables at such time
reduced by the aggregate amount by which the Outstanding Balance
of all Eligible Receivables of each Obligor and its Affiliates
exceeds the Concentration Limit for such Obligor.
"Non-Defaulting Financial Institution" has the meaning set
forth in Section 13.5.
"Non-Renewing Financial Institution" has the meaning set
forth in Section 13.6(a).
"Notes" means promissory notes of KNEI, substantially in the
form of Exhibit A to the Credit Agreement, evidencing the
obligation of KNEI to repay the Loans, and "Note" means any one
of such promissory notes issued under the Credit Agreement.
"Obligations" shall have the meaning set forth in Section
2.1.
"Obligor" means a Person obligated to make payments pursuant
to a Contract.
"Original Balance" means, with respect to any Receivable,
the Outstanding Balance of such Receivable on the date it was
generated.
"Originator" means K N Energy, Inc., a Kansas corporation,
and each Person that becomes an Additional Originator pursuant to
Section 1.8 of the Receivables Sale Agreement and who has not
ceased to be a party to this Agreement and the Receivables Sale
Agreement pursuant to Section 1.9 of the Receivables Sales
Agreement.
"Outstanding Balance" of any Receivable at any time means
the then outstanding principal balance thereof.
"Participant" has the meaning set forth in Section 12.2.
"Performance Guarantor" means K N Energy, Inc., a Kansas
corporation, and its successors.
"Person" means an individual, partnership, corporation
(including a business trust), limited liability company, joint
stock company, trust, unincorporated association, joint venture
or other entity, or a government or any political subdivision or
agency thereof.
"Pooled Commercial Paper" means Commercial Paper notes of
any Conduit subject to any particular pooling arrangement by such
Conduit, but excluding Commercial Paper issued by such Conduit
for a tenor and in an amount specifically requested by any Person
in connection with any agreement effected by such Conduit.
"Potential Amortization Event" means an event which, with
the passage of time or the giving of notice, or both, would
constitute an Amortization Event.
"Proposed Reduction Date" has the meaning set forth in
Section 1.3.
"Pro Rata Share" means, for each Financial Institution, a
percentage equal to (i) the Commitment of such Financial
Institution, divided by (ii) the aggregate amount of all
Commitments of all Financial Institutions, hereunder, adjusted as
necessary to give effect to the application of the terms of
Sections 13.5 or 13.6.
"Purchase Limit" means $150,000,000.
"Purchase Notice" has the meaning set forth in Section 1.2.
"Purchase Price" means, with respect to any Incremental
Purchase of a Purchaser Interest, the amount paid to Seller for
such Purchaser Interest which shall not exceed the least of
(i) the amount requested by Seller in the applicable
Purchase Notice,
(i) the unused portion of the Purchase Limit on the
applicable purchase date and
(i) the excess, if any, of the Net Receivables
Balance (less the Aggregate Reserves) on the applicable
purchase date over the aggregate outstanding amount of
Aggregate Capital determined as of the date of the most
recent Monthly Report, without taking into account such
proposed Incremental Purchase.
"Purchasers" means each Conduit and each Financial
Institution, as applicable.
"Purchasers' Collections" means, for any period, with
respect to Receivables in existence prior to and on the
Amortization Date, the product of the aggregate Purchaser
Interest and the amount of Collections and Deemed Collections
with respect to such Receivables during such period.
"Purchaser Interest" means, at any time, an undivided
percentage ownership interest (computed as set forth below)
associated with a designated amount of Capital, selected pursuant
to the terms and conditions hereof in (i) each Receivable arising
prior to the time of the most recent computation or recomputation
of such undivided interest, (ii) all Related Security with
respect to each Receivable, and (iii) all Collections with
respect to, and other proceeds of, each Receivable. Each such
undivided percentage interest shall equal:
C over
{~NRB~-~AR}
where:
C = the Capital of such Purchaser Interest.
AR = the Aggregate Reserves.
NRB = the Net Receivables Balance.
Such undivided percentage ownership interest shall be initially
computed on its date of purchase. Thereafter, until the Facility
Termination Date, each Purchaser Interest shall be automatically
recomputed (or deemed to be recomputed) on each day prior to the
Facility Termination Date. The variable percentage represented
by any Purchaser Interest as computed ( or deemed recomputed) as
of the close of the business day immediately preceding the
Facility Termination Date shall remain constant at all times.
"Purchasing Financial Institution" has the meaning set
forth in Section 12.1(b).
"Receivable" means all accounts (as defined in Article
9.106 of the UCC) owed to Seller or an Originator (at the time it
arises, and before giving effect to any transfer or conveyance
under the Receivables Sale Agreement or hereunder) or in which
Seller or Originator has a security interest or other interest,
including without limitation, any indebtedness, obligation or
interest constituting an account under Article 9.102 of the UCC
arising in connection with the sale of goods or the rendering of
services by Originator, and further includes, without limitation,
the obligation to pay any Finance Charges with respect thereto.
Indebtedness and other rights and obligations arising from any
one transaction, including, without limitation, indebtedness and
other rights and obligations represented by an individual
invoice, shall constitute a Receivable separate from a Receivable
consisting of the indebtedness and other rights and obligations
arising from any other transaction; provided further, that any
indebtedness, rights or obligations referred to in the
immediately preceding sentence shall be a Receivable regardless
of whether the account debtor or Seller treats such indebtedness,
rights or obligations as a separate payment obligation.
"Receivables Sale Agreement" means that certain
Receivables Sale Agreement, dated as of the date hereof, between
the Originators and Seller, as the same may be amended, restated
or otherwise modified from time to time.
"Records" means, with respect to any Receivable, all
Contracts and other documents, books, records and other
information (including, without limitation, computer programs,
tapes, disks, punch cards, data processing software and related
property and rights) relating to such Receivable, any Related
Security therefor and the related Obligor.
"Reduction Notice" has the meaning set forth in Section
1.3.
"Reduction Percentage" means, for any Purchaser Interest
acquired by the Financial Institutions from any Conduit for less
than the Capital of such Purchaser Interest, a percentage equal
to a fraction the numerator of which is the Conduit Transfer
Price Reduction for such Purchaser Interest and the denominator
of which is the Capital of such Purchaser Interest.
"Reference Bank" means Bank One or such other bank as the
Agent shall designate with the consent of Seller.
"Regulatory Change" has the meaning set forth in Section
10.2(a).
"Reinvestment" has the meaning set forth in Section 2.2.
"Related Security" means, with respect to any Receivable:
(i) all of Seller's interest in the inventory and
goods (including returned or repossessed inventory or
goods), if any, the financing or lease of which by
Seller gave rise to such Receivable, and all insurance
contracts with respect thereto,
(ii) all other security interests or liens and
property subject thereto from time to time, if any,
purporting to secure payment of such Receivable, whether
pursuant to the Contract related to such Receivable or
otherwise, together with all financing statements and
security agreements describing any collateral securing
such Receivable,
(iii) all guaranties, insurance and other
agreements or arrangements of whatever character from
time to time supporting or securing payment of such
Receivable whether pursuant to the Contract related to
such Receivable or otherwise,
(iv) all service contracts and other contracts and
agreements associated with such Receivable,
(v) all Records related to such Receivable,
(vi) all of Seller's right, title and interest in,
to and under the Receivables Sale Agreement in respect
of such Receivable, and
(vii) all proceeds of any of the foregoing.
"Required Capital Amount" means the greater of (i)
$4,500,000 and (ii) 3% of the Net Receivables Balance at such
time.
"Required Financial Institutions" means, at any time,
Financial Institutions with Commitments in excess of 66-2/3% of
the Purchase Limit.
"Required Notice Period" means the number of days
required notice set forth below applicable to the Aggregate
Reduction indicated below:
Aggregate Reduction Required Notice Period
#$100,000,000 two Business Days
$100,000,000 to $250,000,000 five Business Days
"Section 9.319 Statute" means Section 9.319 of the Texas
UCC (Texas Business and Commerce Code Annotated 9.319 (Vernon
1991); Section 9-319 of the Kansas UCC (Kansas Statutes Annotated
84-9-319 (Supp. 1994); Section 9-319 of the Wyoming UCC
(Wyoming Statutes 34-1-9-319 (1991)); the Oklahoma Oil and Gas
Owners' Lien Act (Oklahoma Statutes Annotated tit. 52 (West
1991); the Oil and Gas Products Lien Act of New Mexico (New
Mexico Statutes Annotated 48-9-1 through 48-9-8 (Michie
1987)); the Mississippi Lien Act (Mississippi Code Annotated
53-3-41 (1990)), to the extent any such statute creates an
Adverse Claim in favor of an interest owner which would have
priority over any Purchaser's Purchaser Interest in the
Receivables and any comparable law of any other jurisdiction that
may now or hereafter be in effect.
"Seller" has the meaning set forth in the preamble to
this Agreement.
"Seller Interest" means, at any time, an undivided
percentage ownership interest of Seller in the Receivables,
Related Security and all Collections with respect thereto equal
to (i) one, minus (ii) the aggregate of the Purchaser Interests.
"Seller Parties" has the meaning set forth in the
preamble to this Agreement.
"Servicer" means at any time the Person (which may be the
Agent) then authorized pursuant to Article VIII to service,
administer and collect Receivables.
"Settlement Date" means (i) the 22nd day of each month,
(ii) the last day of the relevant Tranche Period in respect of
each Purchaser Interest of the Financial Institutions and (iii)
following the Amortization Date, each additional day designated
as a "Settlement Date" by the Agent by means of written notice to
Seller (each, a "Special Settlement Date").
"Settlement Period" means (i) prior to the Amortization
Date, in respect of each Purchaser Interest of Conduits, the
immediately preceding Accrual Period, (ii) in respect of each
Purchaser Interest of the Financial Institutions, the entire
Tranche Period of such Purchaser Interest and (iii) following the
Amortization Date, if the Agent designates any Special Settlement
Date, any period commencing on the day following the last day of
the preceding Settlement Period and ending on such day prior to
such Special Settlement Date as is designated by the Agent.
"Subject Entities" has the meaning set forth in Section
14.5(a) herein.
"Subsidiary" of a Person means (i) any corporation more
than 50% of the outstanding securities having ordinary voting
power of which shall at the time be owned or controlled, directly
or indirectly, by such Person or by one or more of its
Subsidiaries or by such Person and one or more of its
Subsidiaries, or (ii) any partnership, association, limited
liability company, joint venture or similar business organization
more than 50% of the ownership interests having ordinary voting
power of which shall at the time be so owned or controlled.
Unless otherwise expressly provided, all references herein to a
"Subsidiary" shall mean a Subsidiary of Seller.
"Terminating Financial Institution" has the meaning set
forth in Section 13.6(a).
"Terminating Tranche" has the meaning set forth in
Section 4.3(b).
"Termination Date" has the meaning set forth in Section
2.2.
"Termination Percentage" has the meaning set forth in
Section 2.2.
"Three-Month Average Default Ratio" means, as of the last
day of any Calculation Period, the average of the Default Ratio
for such Calculation Period and each of the two immediately
preceding Calculation Periods.
"Three-Month Average Dilution Ratio" means, as of the
last day of any Calculation Period, the average of the Dilution
Ratio for such Calculation Period and each of the two immediately
preceding Calculation Periods.
"Three-Month Average Variance Ratio" means, as of each
Settlement Date, the average of the Variance Ratio for the
Calculation Period most recently ended and each of the two
immediately preceding Calculation Periods.
"Tranche Period" means, with respect to any Purchaser
Interest held by a Financial Institution:
(a) if the Financial Institution Discount Rate
for such Purchaser Interest is calculated on the basis
of the LIBO Rate, a period of one, two, three or six
months, or such other period as may be mutually
agreeable to the Agent and Seller, commencing on a
Business Day selected by Seller or the Agent pursuant to
this Agreement. Such Tranche Period shall end on the
day in the applicable succeeding calendar month which
corresponds numerically to the beginning day of such
Tranche Period, provided, however, that if there is no
such numerically corresponding day in such succeeding
month, such Tranche Period shall end on the last
Business Day of such succeeding month; or
(b) if the Financial Institution Discount Rate
for such Purchaser Interest is calculated on the basis
of the Base Rate, a period commencing on a Business Day
selected by Seller and agreed to by the Agent, provided
no such period shall exceed one month.
If any Tranche Period would end on a day which is not a Business
Day, such Tranche Period shall end on the next succeeding
Business Day, provided, however, that in the case of Tranche
Periods corresponding to the LIBO Rate, if such next succeeding
Business Day falls in a new month, such Tranche Period shall end
on the immediately preceding Business Day. In the case of any
Tranche Period for any Purchaser Interest of which commences
before the Amortization Date and would otherwise end on a date
occurring after the Amortization Date, such Tranche Period shall
end on the Amortization Date. The duration of each Tranche
Period which commences after the Amortization Date shall be of
such duration as selected by the Agent.
"Transaction Documents" means, collectively, this
Agreement, each Purchase Notice, the Receivables Sale Agreement,
each Collection Account Agreement, the Fee Letter, the
Subordinated Note (as defined in the Receivables Sale Agreement)
and all other instruments, documents and agreements executed and
delivered in connection herewith.
"Trust Preferred Securities" means, with respect to KNEI,
mandatorily redeemable capital trust securities of trusts which
are Subsidiaries and the subordinated debentures of KNEI in which
the proceeds of the issuance of such capital trust securities are
invested, including, without limitation, $275,000,000 of such
securities outstanding at the date of this Agreement.
"UCC" means the Uniform Commercial Code as from time to
time in effect in the specified jurisdiction.
"Variance Ratio" means, on any date, a percentage equal
to a fraction (i) the numerator of which is the absolute value of
the Monthly Variance for the second full Calculation Period
preceding such date and (ii) the denominator of which is the
aggregate Original Balance of Receivables generated during such
Calculation Period as determined on the last day of such
Calculation Period.
"Variance Reserve" means, on any date, an amount equal to
the product of (x) the greater of (i) 5% and (ii) the product of
(a) 2 and (b) the highest Three-Month Average Variance Ratio over
the preceding twelve month period and (y) the Net Receivables
Balance as of the close of business of the Servicer on the
immediately preceding Business Day.
"Year 2000 Plan" means a plan to prevent the Year 2000
Problem from having an adverse effect upon the business,
financial condition, operations, property or prospects of a
Person.
"Year 2000 Problem" means, with respect to any Person,
the risk that mission critical computer applications directly
used by that Person cannot or will not: (a) handle date
information involving any and all dates before, during and/or
after January 1, 2000, including accepting input, providing
output and performing date calculations in whole or in part; (b)
operate accurately without interruption on and in respect of any
and all dates before, during and/or after January 1, 2000; and
(c) store and provide date input information without creating any
ambiguity as to the century.
"Yield Settlement Date" means the 5th day of each month
(or if any such day is not a Business Day, the Yield Settlement
Date shall occur on the next succeeding Business Day).
"Yield Settlement Date Obligations" means all Obligations
other than amounts payable as Deemed Collections and Servicing
Fees payable to Seller or an Affiliate of Seller (each of which,
unless otherwise stated herein, shall be due and owing on the
first Yield Settlement Date after such obligation arises).
All accounting terms not specifically defined herein
shall be construed in accordance with generally accepted
accounting principles. All terms used in Article 9 of the UCC in
the State of Illinois, and not specifically defined herein, are
used herein as defined in such Article 9.
EXHIBIT II
FORM OF PURCHASE NOTICE
[Date]
Bank One, NA, as Agent
One Bank One Plaza, 21st Floor
Asset-Backed Finance
Chicago, Illinois 60670-0596
Attention: [Ann Somers]
Re: PURCHASE NOTICE
Ladies and Gentlemen:
Reference is hereby made to the Receivables Purchase
Agreement, dated as of _________, [19__, by and among
___________________, a ___________ corporation (the "Seller"),
______________________, as Servicer, the Financial Institutions,
Falcon Asset Securitization Corporation and International
Securitization Corporation ("Conduits"), and Bank One, NA, as
Agent (the "Receivables Purchase Agreement"). Capitalized terms
used herein shall have the meanings assigned to such terms in the
Receivables Purchase Agreement.
The Agent is hereby notified of the following Incremental
Purchase:
Purchase Price: $
Date of Purchase:
Requested Discount Rate: [LIBO Rate] [Base Rate] [Pooled
Commercial Paper rate]
Please credit the Purchase Price in immediately available
funds to our Facility Account [and then wire-transfer the
Purchase Price in immediately available funds on the
above-specified date of purchase to:
[Account Name]
[Account No.]
[Bank Name & Address]
[ABA #]
Reference:
Telephone advice to: [Name] @ tel. No. ( )
Please advise [Name] at telephone no ( )
_________________ if Conduits will not be making this purchase.
In connection with the Incremental Purchase to be made on
the above listed "Date of Purchase" (the "Purchase Date"), the
Seller hereby certifies that the following statements are true on
the date hereof, and will be true on the Purchase Date (before
and after giving effect to the proposed Incremental Purchase):
(i) the representations and warranties of the
Seller set forth in Section 5.1 of the Receivables Purchase
Agreement are true and correct on and as of the Purchase Date as
though made on and as of such date;
(ii) no event has occurred and is continuing, or
would result from the proposed Incremental Purchase, that will
constitute an Amortization Event or a Potential Amortization
Event;
(iii) the Facility Termination Date has
not occurred, the Aggregate Capital does not exceed the Purchase
Limit and the aggregate Purchaser Interests do not exceed 100%;
and
(iv) the amount of Aggregate Capital is $_________
after giving effect to the Incremental Purchase to be made on the
Purchase Date.
Very truly yours,
[SELLER]
By:
Name:
Title:
EXHIBIT III
PLACES OF BUSINESS OF SELLER;
LOCATIONS OF RECORDS;
FEDERAL EMPLOYER IDENTIFICATION NUMBER(S)
Places of Business of Seller: One Allen Center
500 Dallas Street, Suite 1000
Houston, TX 77002
Location of Records: (a) Same as above
(b ) 370 Van Gordon Street
Lakewood, CO 80228
Federal Employer Identification Number: _________________
EXHIBIT IV
NAMES OF COLLECTION BANKS; COLLECTION ACCOUNTS
EXHIBIT V
FORM OF COMPLIANCE CERTIFICATE
To: Bank One, NA, as Agent
This Compliance Certificate is furnished pursuant to that
certain Receivables Purchase Agreement dated as of ________ ___,
1999 among KN Receivables Corporation (the "Seller"), the
Purchasers party thereto and Bank One, NA, as agent for such
Purchasers (the "Agreement").
THE UNDERSIGNED HEREBY CERTIFIES THAT:
1. I am the duly elected of
Seller.
2. I have reviewed the terms of the Agreement and I have
made, or have caused to be made under my supervision, a detailed
review of the transactions and conditions of Seller and its
Subsidiaries during the accounting period covered by the attached
financial statements.
3. The examinations described in paragraph 2 did not
disclose, and I have no knowledge of, the existence of any
condition or event which constitutes an Amortization Event or
Potential Amortization Event, as each such term is defined under
the Agreement, during or at the end of the accounting period
covered by the attached financial statements or as of the date of
this Certificate, except as set forth in paragraph 5 below.
4. Schedule I attached hereto sets forth financial data
and computations evidencing the compliance with certain covenants
of the Agreement, all of which data and computations are true,
complete and correct.
5. Described below are the exceptions, if any, to
paragraph 3 by listing, in detail, the nature of the condition or
event, the period during which it has existed and the action
which Seller has taken, is taking, or proposes to take with
respect to each such condition or event:
The foregoing certifications, together with the
computations set forth in Schedule I hereto and the financial
statements delivered with this Certificate in support hereof, are
made and delivered this day of, ____.
SCHEDULE I TO COMPLIANCE CERTIFICATE
A. Schedule of Compliance as of __________, ____ with
Section ___ of the Agreement. Unless otherwise
defined herein, the terms used in this Compliance
Certificate have the meanings ascribed thereto in
the Agreement.
This schedule relates to the month ended:
EXHIBIT VI
FORM OF COLLECTION ACCOUNT AGREEMENT
[On letterhead of name of Originator]
,
[Lock-Box Bank/Concentration Bank/Depositary Bank]
Re: Name of Originator.
Ladies and Gentlemen:
Reference is hereby made to P.O. Box #
in [city, state, zip code] (the "Lock-Box") of which you have
exclusive control for the purpose of receiving mail and
processing payments therefrom pursuant to that certain [name of
lock-box agreement) between you and [K N Energy, Inc.] (the
"Company") dated (the "Agreement"). You hereby
confirm your agreement to perform the services described therein.
Among the services you have agreed to perform therein, is to
endorse all checks and other evidences of payment, and credit
such payments to the Company's checking account no.
maintained with you in the name of the Company (the "Lock-Box
Account").
The Company hereby informs you that pursuant to
that certain Receivables Sale Agreement, dated as of ______ __,
1999 between the Company, the other Orginators specified therein
and KN Receivables Corporation (the "Seller"), the Company has
transferred all of its right, title and interest in and to, and
exclusive ownership and control of, the Lock-Box and the Lock-Box
Account to the Seller. The Company and the Seller hereby request
that the name of the Lock-Box Account be changed to [Name of
Originator], as Sub-Servicer."
The Company and Seller hereby irrevocably instruct
you, and you hereby agree, that upon receiving notice from Bank
One, NA ("Bank One") in the form attached hereto as Annex A: (i)
the name of the Lock-Box Account will be changed to Bank One for
itself and as agent (or any designee of Bank One) and Bank One
will have exclusive ownership of and access to the Lock-Box and
the Lock-Box Account, and neither the Company, the Seller, nor
any of their respective affiliates will have any control of the
Lock-Box or the Lock-Box Account or any access thereto, (ii) you
will either continue to send the funds from the Lock-Box to the
Lock-Box Account, or will redirect the funds as Bank One may
otherwise request, (iii) you will transfer monies on deposit in
the Lock-Box Account, at any time, as directed by Bank One, (iv)
all services to be performed by you under the Agreement will be
performed on behalf of Bank One, and (v) all correspondence or
other mail which you have agreed to send to the Company or the
Seller will be sent to Bank One at the following address:
Bank One, NA
Suite 0079, 21st Floor
One Bank One Plaza
Chicago, Illinois 60670-0079
Attention: Credit Manager, Asset Backed
Securities Division
Moreover, upon such notice, Bank One for itself
and as agent will have all rights and remedies given to the
Company (and the Seller, as the Company's assignee) under the
Agreement. Seller agrees, however, to continue to pay all fees
and other assessments due thereunder at any time.
You hereby acknowledge that monies deposited in
the Lock-Box Account or any other account established with you by
Bank One for the purpose of receiving funds from the Lock-Box are
subject to the liens of Bank One for itself and as agent, and
will not be subject to deduction, set-off, banker's lien or any
other right you or any other party may have against the Company
or the Seller except that you may debit the Lock-Box Account for
any items deposited therein that are returned or otherwise not
collected and for all charges, fees, commissions and expenses
incurred by you in providing services hereunder, all in
accordance with your customary practices for the charge back of
returned items and expenses.
THIS LETTER AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER WILL BE GOVERNED BY AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF ILLINOIS. This letter agreement may be executed in any
number of counterparts and all of such counterparts taken
together will be deemed to constitute one and the same
instrument.
This letter agreement contains the entire
agreement between the parties, and may not be altered, modified,
terminated or amended in any respect, nor may any right, power or
privilege of any party hereunder be waived or released or
discharged, except upon execution by all parties hereto of a
written instrument so providing. In the event that any provision
in this letter agreement is in conflict with, or inconsistent
with, any provision of the Agreement, this letter agreement will
exclusively govern and control. Each party agrees to take all
actions reasonably requested by any other party to carry out the
purposes of this letter agreement or to preserve and protect the
rights of each party hereunder.
Please indicate your agreement to the terms of this
letter agreement by signing in the space provided below. This
letter agreement will become effective immediately upon execution
of a counterpart of this letter agreement by all parties hereto.
Very truly yours,
[ORIGINATOR]
By:
Name:
Title:
KN RECEIVABLES CORPORATION
By:
Name:
Title:
Acknowledged and agreed to
this day of
[COLLECTION BANK]
By:
Name:
Title:
BANK ONE, NA, as Agent
By:
Name:
Title:
ANNEX A
FORM OF NOTICE
[On letterhead of Bank One]
,
[Collection Bank/Depositary Bank/Concentration Bank]
Re: [Name of Originator]/KN Receivables
Corporation
Ladies and Gentlemen:
We hereby notify you that we are exercising our
rights pursuant to that certain letter agreement among [name of
Originator], KN Receivables Corporation, you and us, to have the
name of, and to have exclusive ownership and control of, account
number (the "Lock-Box Account") maintained with you,
transferred to us. Lock-Box Account will henceforth be a
zero-balance account, and funds deposited in the Lock-Box Account
should be sent at the end of each day to . You
have further agreed to perform all other services you are
performing under that certain agreement dated
between you and [Originator] on our behalf.
We appreciate your cooperation in this matter.
Very truly yours,
BANK ONE, NA
(for itself and as agent)
By:
Title:
EXHIBIT VII
FORM OF ASSIGNMENT AGREEMENT
THIS ASSIGNMENT AGREEMENT (this "Assignment
Agreement") is entered into as of the ___ day of ____________,
____, by and between _______________ ("Assignor") and
_________________ ("Assignee").
PRELIMINARY STATEMENTS
A. This Assignment Agreement is being executed
and delivered in accordance with Section 12.1(a) of that certain
Receivables Purchase Agreement dated as of September 28, 1999 by
and among KN Receivables Corporation, Falcon Asset Securitization
Corporation, International Securitization Corporation, Bank One,
NA, as Agent, and the Financial Institutions party thereto (as
amended, modified or restated from time to time, the "Purchase
Agreement"). Capitalized terms used and not otherwise defined
herein are used with the meanings set forth or incorporated by
reference in the Purchase Agreement.
B. Assignor is a Financial Institution party to
the Purchase Agreement, and Assignee wishes to become a Financial
Institution thereunder; and
C. Assignor is selling and assigning to Assignee
an undivided ____________% (the "Transferred Percentage")
interest in all of Assignor's rights and obligations under the
Purchase Agreement and the Transaction Documents, including,
without limitation, Assignor's Commitment and (if applicable) the
Capital of Assignor's Purchaser Interests as set forth herein;
AGREEMENT
The parties hereto hereby agree as follows:
1. The sale, transfer and assignment effected by
this Assignment Agreement shall become effective (the "Effective
Date") two (2) Business Days (or such other date selected by the
Agent in its sole discretion) following the date on which a
notice substantially in the form of Schedule II to this
Assignment Agreement ("Effective Notice") is delivered by the
Agent to Conduits, Assignor and Assignee. From and after the
Effective Date, Assignee shall be a Financial Institution party
to the Purchase Agreement for all purposes thereof as if Assignee
were an original party thereto and Assignee agrees to be bound by
all of the terms and provisions contained therein.
2. If Assignor has no outstanding Capital under
the Purchase Agreement, on the Effective Date, Assignor shall be
deemed to have hereby transferred and assigned to Assignee,
without recourse, representation or warranty (except as provided
in paragraph 6 below), and Assignee shall be deemed to have
hereby irrevocably taken, received and assumed from Assignor, the
Transferred Percentage of Assignor's Commitment and all rights
and obligations associated therewith under the terms of the
Purchase Agreement, including, without limitation, the
Transferred Percentage of Assignor's future funding obligations
under Section 4.1 of the Purchase Agreement.
3. If Assignor has any outstanding Capital under
the Purchase Agreement, at or before 12:00 noon, local time of
Assignor, on the Effective Date Assignee shall pay to Assignor,
in immediately available funds, an amount equal to the sum of (i)
the Transferred Percentage of the outstanding Capital of
Assignor's Purchaser Interests (such amount, being hereinafter
referred to as "Assignee's Capital"); (ii) all accrued but unpaid
(whether or not then due) Financial Institution Discount Rate
attributable to Assignee's Capital; and (iii) accruing but unpaid
fees and other costs and expenses payable in respect of
Assignee's Capital for the period commencing upon each date such
unpaid amounts commence accruing, to and including the Effective
Date ("Assignee's Acquisition Cost");
whereupon, Assignor shall be deemed to have sold, transferred and
assigned to Assignee, without recourse, representation or
warranty (except as provided in paragraph 6 below), and Assignee
shall be deemed to have hereby irrevocably taken, received and
assumed from Assignor, the Transferred Percentage of Assignor's
Commitment and the Capital of Assignor's Purchaser Interests (if
applicable) and all related rights and obligations under the
Purchase Agreement and the Transaction Documents, including,
without limitation, the Transferred Percentage of Assignor's
future funding obligations under Section 4.1 of the Purchase
Agreement.
4. Concurrently with the execution and delivery
hereof, Assignor will provide to Assignee copies of all documents
requested by Assignee which were delivered to such Assignor
pursuant to the Purchase Agreement.
5. Each of the parties to this Assignment
Agreement agrees that at any time and from time to time upon the
written request of any other party, it will execute and deliver
such further documents and do such further acts and things as
such other party may reasonably request in order to effect the
purposes of this Assignment Agreement.
6. By executing and delivering this Assignment
Agreement, Assignor and Assignee confirm to and agree with each
other, the Agent and the Financial Institutions as follows: (a)
other than the representation and warranty that it has not
created any Adverse Claim upon any interest being transferred
hereunder, Assignor makes no representation or warranty and
assumes no responsibility with respect to any statements,
warranties or representations made by any other Person in or in
connection with the Purchase Agreement or the Transaction
Documents or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of Assignee, the Purchase
Agreement or any other instrument or document furnished pursuant
thereto or the perfection, priority, condition, value or
sufficiency of any collateral; (b) Assignor makes no
representation or warranty and assumes no responsibility with
respect to the financial condition of Assignor, any Obligor, any
Assignor Affiliate or the performance or observance by Assignor,
any Obligor, any Assignor Affiliate of any of their respective
obligations under the Transaction Documents or any other
instrument or document furnished pursuant thereto or in
connection therewith; (c) Assignee confirms that it has received
a copy of the Purchase Agreement and copies of such other
Transaction Documents, together with such other documents and
information as it has requested and deemed appropriate to make
its own credit analysis and decision to enter into this
Assignment Agreement; (d) Assignee will, independently and
without reliance upon the Agent, Conduits, Assignor or any other
Financial Institution or Assignee 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 action
under the Purchase Agreement and the Transaction Documents; (e)
Assignee appoints and authorizes the Agent to take such action as
agent on its behalf and to exercise such powers under the
Transaction Documents as are delegated to the Agent by the terms
thereof, together with such powers as are reasonably incidental
thereto; and (g) Assignee agrees that it will perform in
accordance with their terms all of the obligations which, by the
terms of the Purchase Agreement and the Transaction Documents,
are required to be performed by it as a Financial Institution or,
when applicable, as a Assignee.
7. Each party hereto represents and warrants to
and agrees with the Agent that it is aware of and will comply
with the provisions of the Purchase Agreement, including, without
limitation, Sections 4.1, 13.1 and 14.6 thereof.
8. Schedule I hereto sets forth the revised
Commitment of Assignor and the Commitment of Assignee, as well as
administrative information with respect to Assignee.
9. THIS ASSIGNMENT AGREEMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
ILLINOIS.
10. Assignee hereby covenants and agrees that,
prior to the date which is one year and one day after the payment
in full of all senior indebtedness for borrowed money of
Conduits, it will not institute against, or join any other Person
in instituting against, Conduits any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings or other
similar proceeding under the laws of the United States or any
state of the United States.
IN WITNESS WHEREOF, the parties hereto have caused this
Assignment Agreement to be executed by their respective duly
authorized officers of the date hereof.
[ASSIGNOR]
By:
Title:
[ASSIGNEE]
By:
Title:
SCHEDULE I TO ASSIGNMENT AGREEMENT
LIST OF LENDING OFFICES, ADDRESSES
FOR NOTICES AND COMMITMENT AMOUNTS
Date: _______________, ____
Transferred Percentage: ________%
A-1 A-2 B-1 B-2
Assignor Commitment Commitment
(prior to (after
giving giving
effect to effect to Ratable
the the Outstanding Share of
Assignment Assignment Capital Outstanding
Agreement) Agreement) if any Capital
A-2 B-1 B-2
Assignee Commitment
(after
giving
effect to Ratable
the Outstanding Share of
Assignment Capital Outstanding
Agreement if any Capital
Address for Notices
Attention:
Phone:
Fax:
SCHEDULE II TO ASSIGNMENT AGREEMENT
EFFECTIVE NOTICE
TO:________________________, Assignor
________________________
________________________
________________________
TO:________________________, Assignee
________________________
________________________
________________________
The undersigned, as Agent under the Receivables
Purchase Agreement dated as of ______, ____ by and among
___________, a ____________ corporation, _____________, as
Servicer, Falcon Asset Securitization Corporation,
______________________, Bank One, NA, as Agent, and the Financial
Institutions party thereto, hereby acknowledges receipt of
executed counterparts of a completed Assignment Agreement dated
as of ____________, ____ between __________________, as Assignor,
and __________________, as Assignee. Terms defined in such
Assignment Agreement are used herein as therein defined.
1. Pursuant to such Assignment Agreement, you
are advised that the Effective Date will be ______________, ____.
2. Each Conduit hereby consents to the
Assignment Agreement as required by Section 12.1(b) of the
Receivables Purchase Agreement.
[3. Pursuant to such Assignment Agreement,
Assignee is required to pay $____________ to Assignor at or
before 12:00 noon (local time of Assignor) on the Effective Date
in immediately available funds.]
Very truly yours,
BANK ONE, NA, individually and
as Agent
By:__________________________
Title:_______________________
FALCON ASSET SECURITIZATION
CORPORATION
By: ____________________________
Authorized Signatory
EXHIBIT VIII
CREDIT AND COLLECTION POLICY
EXHIBIT IX
FORM OF CONTRACT(S)
EXHIBIT X
FORM OF MONTHLY REPORT
[In addition to such other information as may be
included on this exhibit, each Monthly Report should set forth
the following with respect to the related Calculation Period (as
defined in the Receivables Sale Agreement): (i) the aggregate
Outstanding Balance of Receivables created and conveyed by
Originator to Seller in purchases pursuant to the Receivables
Sale Agreement during such Calculation Period, as well as the Net
Receivables Balance included therein, (ii) the aggregate purchase
price payable to Originator in respect of such purchases,
specifying the Discount Factor (as defined in the Receivables
Sale Agreement) in effect for such Calculation Period and the
aggregate Purchase Price Credits (as defined in the Receivables
Sale Agreement) deducted in calculating such aggregate purchase
price, (iii) the aggregate amount of funds received by the
Servicer during such Calculation Period which are to be applied
as Reinvestments, (iv) the increase or decrease in the amount
outstanding under the Subordinated Note (as defined in the
Receivables Sale Agreement) as of the end of such Calculation
Period after giving effect to the application of funds toward the
aggregate purchase price and the restrictions on Subordinated
Loans (as defined in the Receivables Sale Agreement) set forth in
Section 1.2(a)(ii) of the Receivables Sale Agreement, and (v) the
amount of any capital contribution made by Originator to Seller
as of the end of such Calculation Period pursuant to Section
1.2(b) of the Receivables Sale Agreement.]
The above is a true and accurate accounting
pursuant to the terms of the Receivables Purchase Agreement dated
[month, day, year] (the "Agreement"), by and among [Seller's
name] and Bank One, NA as Agent, and I have no knowledge of the
existence of any conditions or events which constitute an
Amortization Event or Potential Amortization Event, as each such
term is defined under the Agreement, during or at the end of the
accounting period covered by this monthly report or as of the
date of this certificate, except as set forth below.
By:______________________
Name:___________________
Title:____________________
Company Name:___________
Date:____________________
SCHEDULE A
COMMITMENTS OF FINANCIAL INSTITUTIONS
Financial Institution Commitment
SCHEDULE B
DOCUMENTS TO BE DELIVERED TO THE AGENT
ON OR PRIOR TO THE INITIAL PURCHASE
PART I: Documents to be Delivered in Connection with the
Receivables Sale Agreement
1. Executed copies of the Receivables Sale Agreement,
duly executed by the parties thereto.
1. Copy of the Resolutions of the Board of Directors
of each Originator certified by its Secretary,
authorizing such Originator's execution, delivery
and performance of the Receivables Sale Agreement
and the other documents to be delivered by it
thereunder.
1. Articles or Certificate of Incorporation of each
Originator certified by the Secretary of State of
the jurisdiction of incorporation of such
Originator.
1. Good Standing Certificate for each Originator
issued by the Secretaries of State of its state of
incorporation and each jurisdiction where it has
material operations.
1. A certificate of the Secretary of each Originator
certifying: (i) the names and signatures of the
officers authorized on its behalf to execute the
Receivables Sale Agreement and any other documents
to be delivered by it thereunder and (ii) a copy of
such Originator's By-Laws.
1. Pre-filing state and federal tax lien, judgment
lien and UCC lien searches against each Originator
from the following jurisdictions:
1. Signed financing statements for all jurisdictions
as may be necessary or, in the opinion of Seller
(or its assigns), desirable, under the UCC of all
appropriate jurisdictions or any comparable law in
order to perfect the ownership interests
contemplated by the Receivables Sale Agreement.
1. Signed UCC termination statements, if any,
necessary to release all security interests and
other rights of any Person in the Receivables,
Contracts or Related Security previously granted by
each Originator.
1. Executed Collection Account Agreements for each
Lock-Box and Collection Account.
1. Favorable opinions of legal counsel for each
Originator reasonably acceptable to Seller (or its
assigns) in the form attached hereto as Annex B.
1. A "true sale" opinion and "substantive
consolidation" opinion of counsel for each
Originator with respect to the transactions
contemplated by the Receivables Sale Agreement.
1. A Compliance Certificate.
1. Executed copies of the Subscription Agreement (as
defined in the Receivables Sale Agreement).
1. Executed copies of the Subordinated Note (as
defined in the Receivables Sale Agreement) by
Seller in favor of each Originator.
PART II: Documents to Be Delivered in Connection with the
Agreement
1. Executed copies of the Agreement, duly executed by
the parties thereto.
1. Copy of the Resolutions of the Board of Directors
of Seller certified by its Secretary authorizing
such Person's execution, delivery and performance
of this Agreement and the other documents to be
delivered by it hereunder.
1. Articles or Certificate of Incorporation of Seller
certified by the Secretary of State of its
jurisdiction of incorporation.
1. Good Standing Certificate for Seller issued by the
Secretaries of State of its state of incorporation
and each jurisdiction where it has material
operations.
1. A certificate of the Secretary of Seller certifying
(i) the names and signatures of the officers
authorized on its behalf to execute this Agreement
and any other documents to be delivered by it
hereunder and (ii) a copy of such Person's By-Laws.
1. Pre-filing state and federal tax lien, judgment
lien and UCC lien searches against Seller from the
following jurisdictions:
1. Signed financing statements for all jurisdictions
as may be necessary or, in the opinion of the
Agent, desirable, under the UCC of all appropriate
jurisdictions or any comparable law in order to
perfect the ownership interests contemplated by
this Agreement.
1. Signed UCC termination statements, if any,
necessary to release all security interests and
other rights of any Person in the Receivables,
Contracts or Related Security previously granted by
Seller.
1. Executed copies of Collection Account Agreements
for each Lock-Box and Collection Account.
1. Favorable opinions of legal counsel for Seller
reasonably acceptable to the Agent in the form
attached hereto as Annex C.
1. If requested by any Conduit or the Agent, a
favorable opinion of legal counsel for each
Financial Institution, reasonably acceptable to the
Agent which addresses the following matters:
-- This Agreement has been duly authorized
by all necessary corporate action of
such Financial Institution.
-- This Agreement has been duly executed
and delivered by such Financial
Institution and, assuming due
authorization, execution and delivery by
each of the other parties thereto,
constitutes a legal, valid and binding
obligation of such Financial
Institution, enforceable against such
Financial Institution in accordance with
its terms.
1. A Compliance Certificate.
1. The Fee Letter.
1. A Monthly Report as at September 28, 1999.
RECEIVABLES SALE AGREEMENT
Dated as of September 28, 1999
BETWEEN
K N ENERGY, INC.
as the Originator
AND
OTHER ORIGINATORS SPECIFIED HEREIN
AND
KN RECEIVABLES CORPORATION
as Buyer
TABLE OF CONTENTS
Page
ARTICLE I
AMOUNTS AND TERMS 2
Section 1.1 Purchases of Receivables 2
Section 1.2 Payment for the Purchase 3
Section 1.3 Purchase Price Credit Adjustments 5
Section 1.4 Payments and Computations, Etc 6
Section 1.5 Allocation of Purchase Price and
Indemnification 6
Section 1.6 Transfer of Records 7
Section 1.7 Characterization 8
Section 1.8 Additional Originators 8
Section 1.9 Withdrawal of Originator 9
ARTICLE II
REPRESENTATIONS AND WARRANTIES 9
Section 2.1 Representations and Warranties of
Originators 9
ARTICLE III
CONDITIONS OF PURCHASES 14
Section 3.1 Conditions Precedent to Purchase 14
Section 3.2 Conditions Precedent to Subsequent
Payments 14
Section 3.3 Conditions Precedent to Purchase from
Additional Originators 14
ARTICLE IV
COVENANTS 16
Section 4.1 Affirmative Covenants of KNEI 16
Section 4.2 Affirmative Covenants of Each Originator
19
Section 4.3 Negative Covenants of the Originators
22
ARTICLE V
ADMINISTRATION AND COLLECTION 23
Section 5.1 Designation of Sub-Servicer 23
Section 5.2 Duties of Sub-Servicer 24
Section 5.3 Collection Rights 25
Section 5.4 Responsibilities of the Sub-Servicer and
Originators
26
Section 5.5 Reports 26
Section 5.6 Sub-Servicer Fee 26
ARTICLE VI
AMORTIZATION EVENTS 26
Section 6.1 Amortization Events 26
Section 6.2 Remedies 28
ARTICLE VII
INDEMNIFICATION 28
Section 7.1 INDEMNITIES BY KNEI 28
Section 7.2 Other Costs and Expenses 33
Section 7.3 LIABILITY OF ADDITIONAL ORIGINATORS TO
KNEI AND INDEMNIFIED PARTIES 33
ARTICLE VIII
MISCELLANEOUS 33
Section 8.1 Waivers and Amendments 33
Section 8.2 Notices 34
Section 8.3 Protection of Ownership Interests of
Buyer 34
Section 8.4 Confidentiality 35
Section 8.5 Bankruptcy Petition 35
Section 8.6 CHOICE OF LAW 36
Section 8.7 CONSENT TO JURISDICTION 36
Section 8.8 WAIVER OF JURY TRIAL 36
Section 8.9 Integration; Binding Effect; Survival of
Terms 37
Section 8.10 Counterparts; Severability; Section
References 37
Exhibits and Schedules
Exhibit I - Definitions
Exhibit II - Places of Business; Locations of Records;
Federal Employer Identification Number(s); Other
Names
Exhibit III - Lock-Boxes; Collection Accounts; Collection
Banks
Exhibit IV - Form of Compliance Certificate
Exhibit V - Credit and Collection Policy
Exhibit VI - Form of Subscription Agreement
Exhibit VII - Form of Subordinated Note
Exhibit VIII - Form of Joinder Supplement
Exhibit IX - Form of Performance Guaranty
Schedule A List of Documents to Be Delivered to Buyer
Prior to the Purchase
RECEIVABLES SALE AGREEMENT
THIS RECEIVABLES SALE AGREEMENT, dated as of September
28, 1999, is by and between K N Energy, Inc., a Kansas
corporation ("KNEI"), and certain Additional Originators as
specified herein (KNEI and the Additional Originators, each an
"Originator," collectively "Originators") and KN Receivables
Corporation, a Delaware corporation ("Buyer"). Unless defined
elsewhere herein, capitalized terms used in this Agreement shall
have the meanings assigned to such terms in Exhibit I.
PRELIMINARY STATEMENTS
Each Originator now owns, and from time to time
hereafter will own, Receivables. The Originators wish to
sell and assign to Buyer, and Buyer wishes to purchase from
the Originators, all of each Originator's right, title and
interest in and to such Receivables, together with the
Related Security and Collections with respect thereto.
The Originators and Buyer intend the transactions
contemplated hereby to be true sales of the Receivables from
the Originators to Buyer, providing Buyer with the full
benefits of ownership of the Receivables, and the
Originators and Buyer do not intend these transactions to
be, or for any purpose to be characterized as, loans from
Buyer to the Originators.
Following the purchase of Receivables from the
Originators, Buyer will sell undivided interests therein and
in the associated Related Security and Collections pursuant
to that certain Receivables Purchase Agreement dated as of
September 28, 1999 (as the same may from time to time
hereafter be amended, supplemented, restated or otherwise
modified, the "Purchase Agreement") among Buyer, Falcon
Asset Securitization Corporation ("FALCON"), International
Securitization Corporation ("ISC") (FALCON and ISC each
being referred to individually as a "Conduit" and
collectively as the "Conduits"), the financial institutions
from time to time party thereto as "Financial Institutions"
and Bank One, NA or any successor agent appointed pursuant
to the terms of the Purchase Agreement, as agent for the
Conduits and such Financial Institutions (in such capacity,
the "Agent"). The Conduits and the Financial Institutions
together are referred to herein as the Purchasers.
1. ARTICLE AMOUNTS AND TERMS
a. Section Purchases of Receivables .
b.
i. Effective on the date hereof, in consideration
for the Purchase Price and upon the terms and subject to the
conditions set forth herein, each Originator does hereby sell,
assign, transfer, set-over and otherwise convey to Buyer, without
recourse (except to the extent expressly provided herein), and
Buyer does hereby purchase from each Originator, all of such
Originator's right, title and interest in and to all Receivables
existing as of the close of business on the Business Day
immediately prior to the date hereof and all Receivables
thereafter arising through and including the Amortization Date,
together, in each case, with all Related Security relating
thereto and all Collections thereof. In accordance with the
preceding sentence, on the date hereof, Buyer shall acquire all
of such Originator's right, title and interest in and to all
Receivables existing as of the close of business on the Business
Day immediately prior to the date hereof and thereafter arising
through and including the Amortization Date, together with all
Related Security relating thereto and all Collections thereof;
provided, that, Buyer shall be obligated to pay the Purchase
Price therefor in accordance with Section 1.2.
i. It is the intention of the parties hereto that
the Purchase of Receivables made hereunder shall constitute a
"sale of accounts" (as such term is used in Article 9 of the
UCC), which sale is absolute and irrevocable and provides Buyer
with the full benefits of ownership of the Receivables. It is
further the intention of the Parties hereto that Section 9.102(d)
of the Texas Business and Commerce Code shall apply to all
purchases and sales of Receivables and Related Security and
Collections with respect thereto. Except for the Purchase Price
Credits owed pursuant to Section 1.3, the sale of Receivables
hereunder is made without recourse to the Originators; provided,
however, that (i) each Originator shall be liable to Buyer for
all representations, warranties and covenants made by such
Originator pursuant to the terms of the Transaction Documents to
which such Originator is a party, and (ii) such sale does not
constitute and is not intended to result in an assumption by
Buyer or any assignee thereof of any obligation of any Originator
or any other Person arising in connection with the Receivables,
the related Contracts and/or other Related Security or any other
obligations of such Originator. In view of the intention of the
parties hereto that the Purchase of Receivables made hereunder
shall constitute a sale of such Receivables rather than loans
secured thereby, each Originator agrees that it will, on or prior
to the date hereof and in accordance with Section 4.1(e)(ii),
mark its master data processing records relating to the
Receivables with a legend acceptable to Buyer and to the Agent
(as Buyer's assignee), evidencing that Buyer has purchased such
Receivables as provided in this Agreement and to note in its
financial statements that its Receivables have been sold to
Buyer. Upon the request of Buyer or the Agent (as Buyer's
assignee), each Originator will execute and file such financing
or continuation statements, or amendments thereto or assignments
thereof, and such other instruments or notices, as may be
necessary or appropriate to perfect and maintain the perfection
of Buyer's ownership interest in the Receivables and the Related
Security and Collections with respect thereto, or as Buyer or the
Agent (as Buyer's assignee) may reasonably request.
ii.
b. Section Payment for the Purchase .
c.
i. The Purchase Price for the Purchase of
Receivables in existence on the close of business on the Business
Day immediately preceding the date hereof (the "Initial Cutoff
Date") shall be payable in full by Buyer to KNEI on the date
hereof, and shall be paid to KNEI in the following manner:
ii.
(1) by delivery of immediately available funds,
to the extent of funds made available to Buyer in connection with
its subsequent sale of an interest in such Receivables to the
Purchasers under the Purchase Agreement, and
(1) the balance by accepting a contribution to
its capital and/or with the proceeds of a borrowing from KNEI of
a subordinated revolving loan (each, a "Subordinated Loan") in
such amounts as determined by Buyer; provided that such borrowing
pursuant to a Subordinated Loan would not cause Buyer's Net Worth
to be less than the Required Capital Amount.
The Purchase Price for each Receivable coming into existence
after the Initial Cutoff Date shall be due and owing in full by
Buyer to each Originator or its designee on the date each such
Receivable came into existence (except that Buyer may, with
respect to any such Purchase Price, offset against such Purchase
Price any amounts owed by such Originator to Buyer hereunder and
which have become due but remain unpaid) and shall be paid to
such Originator in the manner provided in the following
paragraphs (b), (c) and (d).
i. With respect to any Receivables coming into
existence after the date hereof, on each Settlement Date, Buyer
shall pay to KNEI for the account of the Originators the Purchase
Price for each Purchase from such Originator during the related
Calculation Period as follows:
ii.
first, by delivery of immediately available funds,
to the extent of funds available to Buyer from its
subsequent sale of an interest in such Receivables to the
Agent for the benefit of the Purchasers under the Purchase
Agreement or otherwise;
second, with the proceeds of any Subordinated
Loans from KNEI to Buyer in an amount not to exceed the
lesser of (i) the remaining unpaid portion of such Purchase
Price and (ii) the maximum Subordinated Loan that could be
borrowed without rendering Buyer's Net Worth less than the
Required Capital Amount; and
third, unless KNEI has declared the Amortization
Date to have occurred by accepting a contribution to Buyer's
capital pursuant to the Subscription Agreement in an amount
equal to the remaining unpaid balance of such Purchase
Price.
Subject to the limitations set forth in Section 1.2(a)(ii), KNEI
irrevocably agrees to advance each Subordinated Loan requested by
Buyer on or prior to the Amortization Date. The Subordinated
Loans owing to KNEI shall be evidenced by, and shall be payable
in accordance with the terms and provisions of the Subordinated
Note and shall be payable solely from funds which Buyer is not
required under the Purchase Agreement to set aside for the
benefit of, or otherwise pay over to, the Agent for the benefit
of the Purchasers.
i. On each Business Day during each Calculation
Period after the date hereof, all Collections and all proceeds of
the Incremental Purchases received by Buyer under the Purchase
Agreement and not required to be paid to Purchasers pursuant to
the Purchase Agreement shall be paid to KNEI for the account of
the Originators as payments toward the Purchase Price of
Receivables sold or to be sold by the Originators to Buyer during
such Calculation Period. Although amounts shall be paid directly
to KNEI for the benefit of the Originators on each Business Day
in accordance with the first sentence of this paragraph,
settlement of the Purchase Price between Buyer and KNEI shall be
effected on a monthly basis on Settlement Dates with respect to
all Receivables coming into existence during the same Calculation
Period and based on the information contained in the Monthly
Report for the Calculation Period then most recently ended.
Although settlement for each Calculation Period shall be effected
on the related Settlement Date, increases or decreases in the
amount owing under the Subordinated Note made pursuant to clause
second of paragraph (b) above and any contribution of capital to
Buyer made pursuant to clause third of paragraph (b) above shall
be deemed to have occurred and shall be effective as of the last
Business Day of such Calculation Period.
a. Section Purchase Price Credit Adjustments . If on
any day:
b.
i. the Outstanding Balance of a Receivable is:
(1) reduced as a result of any defective or
rejected goods or services, any discount or any adjustment by an
Originator (other than cash Collections on account of the
Receivables) or for any other reason not arising from the
financial inability of the Obligor to pay,
(1) reduced or canceled as a result of a setoff
in respect of any claim by any Person (whether such claim arises
out of the same or a related transaction or an unrelated
transaction and whether such claim relates to such Originator or
any Affiliate thereof other than Buyer), or
(1) is otherwise reduced as a result of any of
the factors set forth in the definition of "Dilution," or
i. any of the representations and warranties made
by such Originator set forth in Article II are no longer true
with respect to any Receivable or any Receivable which was
represented to be a Continuing Eligible Receivable on any date is
determined by Buyer or the Agent to not have been a Continuing
Eligible Receivable on such date,
ii.
iii. then, in such event, Buyer shall be entitled to a credit
(each, a "Purchase Price Credit") against the Purchase Price
otherwise payable hereunder to KNEI on behalf of the Originators
equal to the full amount of such reduction or cancellation (in
the case of clause (a)) or the Outstanding Balance of such
Receivable (in the case of clause (b)). If, on any Purchase
Date, such Purchase Price Credit exceeds the Original Balance of
the Receivables coming into existence on any day, then KNEI on
behalf of such Originator shall pay the remaining amount of such
Purchase Price Credit in cash within 5 Business Days thereafter,
provided that if the Amortization Date has not occurred, KNEI on
behalf of such Originator shall be allowed to deduct the
remaining amount of such Purchase Price Credit from any
indebtedness owed to KNEI under the Subordinated Note. It is
understood and agreed that the obligation of KNEI to provide such
Purchase Price Credits to Buyer and to make such cash payments as
are required by the preceding sentence shall, if such obligation
is fulfilled in a timely fashion, constitute the sole remedy
against KNEI on behalf of such Originator for such circumstances
available to Buyer and its assigns.
iv.
b. Section Payments and Computations, Etc . All
amounts to be paid or deposited by Buyer hereunder shall be paid
or deposited in accordance with the terms hereof on the day when
due in immediately available funds to the account of KNEI
designated from time to time by KNEI or as otherwise directed by
KNEI. In the event that any payment owed by any Person hereunder
becomes due on a day that is not a Business Day, then such
payment shall be made on the next succeeding Business Day. If
any Person fails to pay any amount hereunder when due, such
Person agrees to pay, on demand, the Default Fee in respect
thereof until paid in full; provided, however, that such Default
Fee shall not at any time exceed the maximum rate permitted by
applicable law. All computations of interest payable hereunder
shall be made on the basis of a year of 360 days for the actual
number of days (including the first but excluding the last day)
elapsed.
c.
d. Section Allocation of Purchase Price and
Indemnification .
e.
i. As described in Sections 1.2 and 1.3, Buyer
shall pay the Purchase Price for Receivables generated by all
Originators to KNEI in full performance and satisfaction of
Buyer's Purchase Price payment obligations hereunder. KNEI shall
be solely responsible to properly allocate and remit such
payment, and all other Buyer Payments, to the Originators in
respect of the Receivables sold by each such Originator. On each
date on which KNEI receives any Buyer Payment, on and subject to
the conditions set forth in this Agreement, KNEI shall make an
allocation and remittance of such Buyer Payment among the
Originators as follows:
ii.
first, on each day on which an Originator (other than
KNEI) sells Receivables to Buyer, any cash received from
Buyer shall be distributed among each such Originator (other
than KNEI) in proportion to the unpaid amount of the
Purchase Price of all Receivables sold by such Originator on
such day;
second, as of each day on which an Originator (other
than KNEI) sells Receivables to Buyer and as of which KNEI
makes a Subordinated Loan or a capital contribution to
Buyer, KNEI (on behalf of Buyer) shall distribute to such
Originator (other than KNEI) an amount equal to the
remaining unpaid Purchase Price of all Receivables sold by
such Originator on such day (it being intended that (i) each
Originator other than KNEI shall be entitled to receive 100
per cent of the Purchase Price of its Receivables as of the
day on which such Receivables are sold to Buyer and (ii)
that the making of Subordinated Loans or a capital
contribution by KNEI to Buyer shall provide the funds as of
such day to make up the shortfall in cash owed to any such
Originator); and
third, all remaining payments by Buyer to KNEI shall be
retained by KNEI and applied, first, to the unpaid amount of
the Purchase Price of all Receivables theretofore sold by
KNEI to Buyer, and second, to the amounts owing on the
Subordinated Note.
i. Each Originator agrees that:
ii.
(1) Buyer's payment to KNEI, as such
Originator's agent, of the Purchase Price for any Receivable
originated by such Originator shall constitute full payment to
such Originator for such Receivable; and
(1) Upon such payment to KNEI by Buyer,
such Originator shall look only to KNEI for the proper allocation
and remittance of Buyer Payments for such Receivables and shall
indemnify and hold Buyer harmless for any act, omission, failure
or error by KNEI in connection with the proper allocation or
remittance of any amounts due to such Originator from KNEI.
a. Section Transfer of Records .
b.
(a) In connection with the Purchase of Receivables
hereunder, each Originator hereby sells, transfers, assigns and
otherwise conveys to Buyer all of such Originator's right and
title to and interest in the Records insofar as they relate to
all Receivables sold hereunder, without the need for any further
documentation in connection with the Purchase. In connection
with such transfer, such Originator hereby grants to each of
Buyer, the Agent and the Servicer an irrevocable, non-exclusive
license to use, without royalty or payment of any kind, all
software used by such Originator to account for the Receivables,
to the extent necessary to administer the Receivables, whether
such software is owned by such Originator or is owned by others
and used by such Originator under license agreements with respect
thereto, provided that, to the extent the consent of any third
party licensor to make such grant is required, the grant is
limited to the extent such consent has been obtained; and
provided further that should the consent of any licensor of such
Originator to such grant of the license described herein be
required, such Originator hereby agrees that upon the request of
Buyer (or the Agent as Buyer's assignee), such Originator will
use its reasonable efforts to obtain the consent of such third-
party licensor. The license granted hereby shall be irrevocable,
and shall terminate on the date this Agreement terminates in
accordance with its terms.
(b) Each Originator (i) shall take such action
requested by Buyer and/or the Agent (as Buyer's assignee), from
time to time hereafter, that may be necessary or appropriate to
ensure that Buyer and its assigns under the Purchase Agreement
have an enforceable ownership interest in the Records relating to
the Receivables purchased from such Originator hereunder, and
(ii) shall use its reasonable efforts to ensure that Buyer, the
Agent and the Servicer each has an enforceable right (whether by
license or sublicense or otherwise) to use all of the computer
software used to account for the Receivables and/or to recreate
such Records.
a. Section Characterization . If, notwithstanding
the intention of the parties expressed in Section 1.1(b), any
sale or contribution by an Originator to Buyer of Receivables,
Related Security and Collections with respect thereto hereunder
shall be characterized as a secured loan and not a sale or such
sale shall for any reason be ineffective or unenforceable, then
this Agreement shall be deemed to constitute a security agreement
under the UCC and other applicable law. For this purpose and
without being in derogation of the parties' intention that the
sale of Receivables, Related Security and Collections with
respect thereto hereunder shall constitute a true sale thereof,
each Originator hereby grants to Buyer a duly perfected security
interest in all of such Originator's right, title and interest
in, to and under all Receivables now existing and hereafter
arising, all Collections and Related Security with respect
thereto, and all proceeds of the foregoing, which security
interest shall be prior to all other Adverse Claims thereto.
After the occurrence of an Amortization Event, Buyer and its
assigns shall have, in addition to the rights and remedies which
they may have under this Agreement, all other rights and remedies
provided to a secured creditor after default under the UCC and
other applicable law, which rights and remedies shall be
cumulative.
b.
c. Section Additional Originators . Effective upon
the execution and delivery of a Joinder Supplement, each Person
executing such Joinder Supplement in the capacity of an
Additional Originator shall become an Additional Originator
hereunder; provided, that:
d.
(a) such Person shall be a direct or indirect
wholly-owned Subsidiary of KNEI;
(b) the Agent shall have consented to such
Person becoming an Additional Originator, such consent
(which shall be in the sole discretion of the Agent) to
be evidenced by the Agent's execution and delivery of
the applicable Joinder Supplement; and
(c) no Receivables shall be
purchased from such Person
hereunder until on or after the
date (the "Additional Originator
Closing Date") on which all
conditions specified in Section 3.3
have been satisfied with respect to
such Originator.
a. Section Withdrawal of Originator . Any
Originator may terminate further sales of interests in its
Receivables hereunder by providing at least fifteen days' notice
to Buyer and Agent of such withdrawal. On the date set forth in
such notice (the "Withdrawal Date"), such Originator shall
discontinue any further sale of interests in Receivables and
shall only be party to this Agreement to the extent that Buyer
continues to have an interest in any Purchased Receivables
acquired from such Originator or any amounts remain payable by
Buyer or such Originator to the other hereunder. No such
withdrawal shall affect the Originator's representations or
agreements concerning Purchased Receivables or Related Security
in which Buyer retains an interest or any related Collections.
1. ARTICLE REPRESENTATIONS AND WARRANTIES
a. Section Representations and Warranties of
Originators . Each Originator hereby represents and warrants to
Buyer that:
i. Corporate Existence and Power. Such Originator
is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation and is duly
qualified to do business and is in good standing as a foreign
enterprise in each jurisdiction where the nature of its business
requires such qualification and has and holds all full power and
authority and all governmental licenses, authorizations, consents
and approvals required to carry on its business in each
jurisdiction in which its business is conducted except where a
failure to do so will not cause a Material Adverse Effect.
ii.
iii. Power and Authority; Due Authorization
Execution and Delivery. The execution and delivery by such
Originator of this Agreement and each other Transaction Document
to which it is a party, and the performance of its obligations
hereunder and thereunder and, such Originator's use of the
proceeds of the Purchase made hereunder, are within its corporate
powers and authority and have been duly authorized by all
necessary corporate action on its part. This Agreement and each
other Transaction Document to which such Originator is a party
has been duly executed and delivered by such Originator.
iv.
v. No Conflict. The execution and delivery by
such Originator of this Agreement and each other Transaction
Document to which it is a party, and the performance of its
obligations hereunder and thereunder do not contravene or violate
(i) its certificate or articles of incorporation or by-laws (or
equivalent organizational documents), (ii) any law, rule or
regulation applicable to it, (iii) any restrictions under any
agreement, contract or instrument to which it is a party or by
which it or any of its property is bound, or (iv) any order,
writ, judgment, award, injunction or decree binding on or
affecting it or its property, and do not result in the creation
or imposition of any Adverse Claim on assets of such Originator
or its Subsidiaries (except as created hereunder) and no
transaction contemplated hereby requires compliance with any bulk
sales act or similar law.
vi.
vii. Governmental Authorization. Other than the
filing of the financing statements required hereunder, no
authorization or approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body is
required for the due execution and delivery by such Originator of
this Agreement and each other Transaction Document to which it is
a party and the performance of its obligations hereunder and
thereunder.
viii.
ix. Actions, Suits. There are no actions, suits
or proceedings pending, or to the best of such Originator's
knowledge, threatened, against or affecting such Originator, or
any of its properties, in or before any court, arbitrator or
other body, that could reasonably be expected to have a Material
Adverse Effect. Such Originator is not in default with respect
to any order of any court, arbitrator or governmental body.
x.
xi. Binding Effect. This Agreement and each
other Transaction Document to which such Originator is a party
constitute the legal, valid and binding obligations of such
Originator enforceable against such Originator in accordance with
their respective terms, except as such enforcement may be limited
by applicable bankruptcy, insolvency, reorganization or other
similar laws relating to or limiting creditors' rights generally
and by general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law).
xii.
xiii. Accuracy of Information. All
information heretofore furnished by such Originator or any of its
Affiliates to Buyer (or its assigns) for purposes of or in
connection with this Agreement, any of the other Transaction
Documents or any transaction contemplated hereby or thereby is,
and all such information hereafter furnished by such Originator
or any of its Affiliates to Buyer (or its assigns) will be, true
and accurate in every material respect on the date such
information is stated or certified and does not and will not
contain any material misstatement of fact or omit to state a
material fact or any fact necessary to make the statements
contained therein not misleading.
xiv.
xv. Use of Proceeds. No proceeds of the Purchase
hereunder will be used (i) for a purpose that violates, or would
be inconsistent with, Regulation T, U or X promulgated by the
Board of Governors of the Federal Reserve System from time to
time or (ii) to acquire any security in any transaction which is
subject to Section 13 or 14 of the Securities Exchange Act of
1934, as amended.
xvi.
xvii. Good Title. Immediately prior to the
time each Receivable came into existence, such Originator shall
be the legal and beneficial owner of each such Receivable and
Related Security with respect thereto, free and clear of any
Adverse Claim, except as created by the Transaction Documents.
There have been duly filed all financing statements or other
similar instruments or documents necessary under the UCC (or any
comparable law) of all appropriate jurisdictions to perfect such
Originator's ownership interest in each Receivable, its
Collections and the Related Security.
xviii.
xix. Perfection. This Agreement, together with
the filing of the financing statements contemplated hereby, is
effective to transfer to Buyer (and Buyer shall acquire from such
Originator) legal and equitable title to, with the right to sell
and encumber each Receivable existing and hereafter arising,
together with the Related Security and Collections with respect
thereto, free and clear of any Adverse Claim, except as created
by the Transactions Documents. There have been duly filed all
financing statements or other similar instruments or documents
necessary under the UCC (or any comparable law) of all
appropriate jurisdictions to perfect Buyer's ownership interest
in the Receivables, the Related Security and the Collections.
xx.
xxi. Places of Business. The principal places of
business and chief executive office of such Originator and the
offices where it keeps all of its Records are located at the
address(es) listed on Exhibit II or such other locations of which
Buyer has been notified in accordance with Section 4.2(a) in
jurisdictions where all action required by Section 4.2(a) has
been taken and completed. Such Originator's Federal Employer
Identification Number is correctly set forth on Exhibit II.
xxii.
xxiii. Collections. The conditions and
requirements set forth in Section 4.1(j) have at all times been
satisfied and duly performed. The names and addresses of all
Collection Banks, together with the account numbers of the
Collection Accounts of such Originator at each Collection Bank
and the post office box number of each Lock-Box, are listed on
Exhibit III.
xxiv.
xxv. Material Adverse Effect. Since June 30, 1999
no event has occurred that would have a Material Adverse Effect.
xxvi.
xxvii. Names. In the past five (5) years, KNEI
has not used any corporate names, trade names or assumed names
other than the name in which it has executed this Agreement. As
of the date of the applicable Joinder Supplement, in the five
years prior to such date, the applicable Additional Originator
has not used any corporate names, trade names, or assumed names
other than those listed on the applicable Joinder Supplement.
xxviii.
xxix. Ownership of Buyer. KNEI owns, directly
or indirectly, 100% of the issued and outstanding capital stock
of Buyer, free and clear of any Adverse Claim. Such capital
stock is validly issued, fully paid and nonassessable, and there
are no options, warrants or other rights to acquire securities of
Buyer.
xxx.
xxxi. Not a Holding Company or an Investment
Company. Such Originator is not a "holding company" or a
"subsidiary holding company" of a "holding company" within the
meaning of the Public Utility Holding Company Act of 1935, as
amended, or any successor statute. Such Originator is not an
"investment company" within the meaning of the Investment Company
Act of 1940, as amended, or any successor statute.
xxxii.
xxxiii. Compliance with Law. Such Originator
has complied in all respects with all applicable laws, rules,
regulations, orders, writs, judgments, injunctions, decrees or
awards to which it may be subject and with respect to which a
failure to comply will cause a Material Adverse Effect. Each
Receivable, together with the Contract related thereto, does not
contravene any laws, rules or regulations applicable thereto (in
cluding, without limitation, laws, rules and regulations relating
to truth in lending, fair credit billing, fair credit reporting,
equal credit opportunity, fair debt collection practices and
privacy), and no part of such Contract is in violation of any
such law, rule or regulation.
xxxiv.
xxxv. Compliance with Credit and Collection
Policy. Such Originator has complied in all material respects
with the Credit and Collection Policy with regard to each
Receivable and the related Contract, and has not made any change
to such Credit and Collection Policy, except such material change
as to which Buyer (or its assigns) has been notified in
accordance with Section 4.1(a)(vii).
xxxvi.
xxxvii. Payments to Originator. With respect to
each Receivable transferred to Buyer hereunder, the Purchase
Price received by such Originator constitutes reasonably
equivalent value in consideration therefor and such transfer was
not made for or on account of an antecedent debt. No transfer by
such Originator of any Receivable hereunder is or may be voidable
under any section of the Bankruptcy Reform Act of 1978 (11 U.S.C.
101 et seq.), as amended.
xxxviii.
xxxix. Enforceability of Contracts. Each
Contract with respect to each Receivable is effective to create,
and has created, a legal, valid and binding obligation of the
related Obligor to pay the Outstanding Balance of the Receivable
created thereunder and any accrued interest thereon, enforceable
against the Obligor in accordance with its terms, except as such
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws relating to or limiting
creditors' rights generally and by general principles of equity
(regardless of whether enforcement is sought in a proceeding in
equity or at law).
xl.
xli. Eligible Receivables. Each Receivable
included in the Net Receivables Balance as an Eligible Receivable
on the date it came into existence was an Eligible Receivable on
such date.
xlii.
xliii. Year 2000. Such Originator (i) has
reviewed the areas within its business and operations which could
be adversely affected by the Year 2000 Problem, (ii) has
developed a Year 2000 Plan to address the Year 2000 Problem on a
timely basis, (iii) is taking all actions necessary to meet the
schedule and goals of the Year 2000 Plan and (iv) has established
adequate reserves to implement the Year 2000 Plan. Such
Originator does not reasonably anticipate that the Year 2000
Problem could have a Material Adverse Effect.
xliv.
xlv. Accounting. The manner in which such
Originator accounts for the transactions contemplated by this
Agreement does not jeopardize the true sale analysis.
xlvi.
xlvii. Compliance with Representations. On and
as of the date of the Purchase and on and as of each subsequent
date each Receivable came into existence, such Originator hereby
represents and warrants that all of the other representations and
warranties set forth in this Article II are true and correct on
and as of each such date (and after giving effect to all
Receivables in existence on each such date) as though made on and
as of each such date.
xlviii.
xlix. Type of Receivable. None of the
Receivables transferred to Buyer under this Agreement resulted
from the sale of an interest in minerals or the like (including
oil and gas) before extraction or at the well head or the mine
head.
1. ARTICLE CONDITIONS OF PURCHASES
i. Section Conditions Precedent to Purchase . The
initial Purchase under this Agreement is subject to the
conditions precedent that Buyer shall have received on or before
the date of such purchase those documents listed on Schedule A
and all of the conditions to the Purchase under the Purchase
Agreement shall have been satisfied or waived in accordance with
the terms thereof.
a. Section Conditions Precedent to Subsequent
Payments . Buyer's obligation to pay for Receivables coming into
existence after the date hereof shall be subject to the further
condition precedent that the Facility Termination Date shall not
have occurred. Each Originator represents and warrants that the
representations and warranties set forth in Article II are true
and correct on and as of the date each Receivable came into
existence as though made on and as of such date.
b.
c. Section Conditions Precedent to Purchase from
Additional Originators . The Purchase under this Agreement from
an Additional Originator is subject to the conditions precedent
that, on or before the Additional Originator Closing Date for
such Additional Originator:
d.
i. the following documents shall have been
delivered:
ii.
(1) a certificate from each such Additional
Originator's Secretary certifying:
1) an attached copy of its Certificate of
Incorporation or other charter document(s)
(certified within 30 days prior to the
Additional Originator Closing Date by the
Secretary of State of its jurisdiction of
formation or incorporation);
2) an attached copy of its by-laws, operating
agreement or other constitutional
document(s);
3) an attached copy of resolutions of
its Board of Directors or other governing
body authorizing its execution, delivery and
performance of the Joinder Supplement, the
Sale Agreement and related documents; and
4) the names, titles and specimen
signatures of its officers authorized to
execute and deliver the Joinder Supplement,
the Sale Agreement and related documents;
(1) good standing certificates for each such
Additional Originator from the states in which it is formed and
in which it has principal operations certified by each such state
within 30 days prior to the Additional Originator Closing Date;
(1) state and federal tax lien, judgment lien
and UCC lien searches against each such Additional Originator
from the state in which its Chief Executive Office is located
(the "Filing State") and as applicable for tax and judgment
liens;
(1) executed UCC financing statements naming
each such Additional Originator, as debtor, PRC, as secured
party, and Bank One, NA, as Agent, as assignee of secured party,
for filing with the Secretary of State of the Filing State;
(1) opinions from each such Additional
Originator's counsel, in form and substance reasonably
satisfactory to the Agent, regarding corporate, UCC, true sale,
non-consolidation and other matters with respect to each such
Additional Originator;
(1) an Officer's Certificate from KNEI to the
effect that no Amortization Event or Potential Amortization Event
has occurred and is continuing;
(1) an executed Collection Agreement with
respect to each such Additional Originator's Collection Accounts;
and
(1) a Monthly Report which reflects the
addition of the Receivables of such Additional Originator and the
Net Receivables Balance and Aggregate Reserves for such
Additional Originator. For purposes of all calculations hereunder
and under the Purchase Agreement, the Net Receivables Balance and
Aggregate Reserves for the Additional Originator shown in such
supplement shall supersede or supplement the calculation of such
items in the then outstanding Monthly Report, effective as of the
Additional Originator Closing Date.
1. ARTICLE COVENANTS
a. Section Affirmative Covenants of KNEI . Until the
date on which this Agreement terminates in accordance with its
terms, KNEI, in its capacity as Originator, hereby covenants as
set forth below:
i. Financial Reporting. KNEI will maintain, for
itself and each of its Subsidiaries, a system of accounting
established and administered in accordance with generally
accepted accounting principles, and furnish to Buyer (or its
assigns):
ii.
(1) Annual Reporting. Within 100 days after
the close of each of its respective fiscal years, audited,
unqualified financial statements (which shall include balance
sheets, statements of income and retained earnings and a
statement of cash flows) for KNEI and its consolidated
subsidiaries for such fiscal year certified in a manner
acceptable to Buyer (and its assigns) by independent public
accountants acceptable to Buyer (and its assigns).
(1) Quarterly Reporting. Within 50 days after
the close of the first three (3) quarterly periods of each of its
respective fiscal years, balance sheets of KNEI as at the close
of each such period and statements of income and retained
earnings and a statement of cash flows for KNEI for the period
from the beginning of such fiscal year to the end of such
quarter, all certified by its chief financial officer.
(1) Compliance Certificate. Together with the
financial statements required hereunder, a compliance certificate
in substantially the form of Exhibit IV signed by KNEI's
Authorized Officer and dated the date of such annual financial
statement or such quarterly financial statement, as the case may
be.
(1) Shareholders Statements and Reports.
Promptly upon the furnishing thereof to the shareholders of KNEI
copies of all financial statements, reports and proxy statements
so furnished.
(1) S.E.C. Filings. Promptly upon the filing
thereof, copies of all registration statements and annual,
quarterly, monthly or other regular reports which KNEI or any of
its Subsidiaries files with the Securities and Exchange
Commission.
(1) Copies of Notices. Promptly upon its
receipt of any notice, request for consent, financial statements,
certification, report or other communication under or in
connection with any Transaction Document from any Person other
than Buyer, the Agent or the Conduits, copies of the same.
(1) Change in Credit and Collection Policy. At
least thirty (30) days prior to the effectiveness of any material
change in or amendment to the Credit and Collection Policy, a
copy of the Credit and Collection Policy then in effect and a
notice indicating such change or amendment.
(1) Other Information. Promptly, from time to
time, such other information, documents, records or reports
relating to the Receivables or the condition or operations,
financial or otherwise, of KNEI as Buyer (or its assigns) may
from time to time reasonably request in order to protect the
interests of Buyer (and its assigns) under or as contemplated by
this Agreement.
i. Notices. KNEI will notify Buyer (or its
assigns) in writing of any of the following promptly upon
learning of the occurrence thereof, describing the same and, if
applicable, the steps being taken with respect thereto:
ii.
(1) Amortization Events or Potential
Amortization Events. The occurrence of each Amortization Event
and each Potential Amortization Event, by a statement of an
Authorized Officer of KNEI.
(1) Litigation. The institution of any
litigation, arbitration, proceeding or governmental proceeding
against any Originator or any of its Subsidiaries, or to which
such Originator or any of its Subsidiaries becomes party, in
either case which (A) remains unsettled for a period of 90 days
from the commencement thereof and involves claims for damages or
relief in an amount which could reasonably be expected to have a
Material Adverse Effect, or (B) has resulted in a final judgment
or judgments for the payment of money in an amount which has a
Material Adverse Effect.
(1) Material Adverse Effect. The occurrence of
any event or condition that has, or could reasonably be expected
to have, a Material Adverse Effect.
(1) Defaults Under Other Agreements. The
occurrence of a default or an event of default under any other
financing arrangement pursuant to which KNEI is a debtor or an
obligor pursuant to which KNEI has an obligation of $50,000,000
or more.
(1) Downgrade of the KNEI. Any downgrade
in the rating of any Indebtedness of KNEI or any of its
Subsidiaries by Standard and Poor's Ratings Services or by
Moody's Investors Service, Inc., setting forth the Indebtedness
affected and the nature of such change.
(2)
b. Section Affirmative Covenants of Each Originator .
Until the date this Agreement shall terminate in accordance with
its terms, each Originator, in its capacity as an Originator,
covenants and agrees as follows:
c.
i. Compliance with Laws and Preservation of
Corporate Existence. Such Originator will comply in all respects
with all applicable laws, rules, regulations, orders, writs,
judgments, injunctions, decrees or awards to which it may be
subject with respect to which a failure to comply may reasonably
be expected to cause a Material Adverse Effect. Such Originator
will preserve and maintain its corporate existence, rights,
franchises and privileges in the jurisdiction of its
incorporation, and qualify and remain qualified in good standing
as a foreign enterprise in each jurisdiction where its business
is conducted and where a failure to qualify would cause a
Material Adverse Effect.
ii.
iii. Audits. Such Originator will furnish to
Buyer (or its assigns) from time to time such information with
respect to it and the Receivables as Buyer (or its assigns) may
reasonably request. Such Originator will, from time to time,
during regular business hours as requested by Buyer (or its
assigns), upon reasonable notice, permit Buyer (or its assigns)
or their respective agents or representatives, (i) to examine and
make copies of and abstracts from all Records in the possession
or under the control of such Originator relating to the
Receivables and the Related Security, including, without
limitation, the related Contracts, and (ii) to visit the offices
and properties of such Originator for the purpose of examining
such materials described in clause (i) above, and to discuss
matters relating to such Originator's financial condition or the
Receivables and the Related Security or such Originator's
performance under any of the Transaction Documents or such
Originator's performance under the Contracts and, in each case,
with any of the officers or employees of such Originator having
knowledge of such matters. Such Originator shall reimburse Buyer
promptly for all of Buyer's reasonable costs incurred in
connection with (i) so long as no Amortization Event or Potential
Amortization Event has occurred, not more than one such audit per
calendar year and (ii) following the occurrence of an
Amortization Event or a Potential Amortization Event, any such
audit.
iv.
v. Keeping and Marking of Records and Books.
vi.
(1) Such Originator will maintain and implement
administrative and operating procedures (including, without
limitation, an ability to recreate records evidencing Receivables
in the event of the destruction of the originals thereof), and
keep and maintain all documents, books, records and other
information reasonably necessary or advisable for the collection
of all Receivables (including, without limitation, records
adequate to permit the immediate identification of each new
Receivable and all Collections of and adjustments to each
existing Receivable). Such Originator will give Buyer (or its
assigns) notice of any material change in the administrative and
operating procedures referred to in the previous sentence.
(1) Such Originator will (A) on or prior to the
date hereof, mark its master data processing records relating to
the Receivables with a legend, acceptable to Buyer (or its
assigns), describing Buyer's ownership interests in the
Receivables and further describing the Purchaser Interests of the
Agent (on behalf of the Purchasers) under the Purchase Agreement
and (B) following the occurrence of an Amortization Event, upon
the request of Buyer (or its assigns), (x) mark each Contract
with a legend describing Buyer's ownership interests in the
Receivables and further describing the Purchaser Interests of the
Agent (on behalf of the Purchasers) and (y) deliver to Buyer (or
its assigns) all Contracts (including, without limitation, all
multiple originals of any such Contract) relating to the
Receivables.
i. Compliance with Contracts and Credit and
Collection Policy. Such Originator will timely and fully (i)
perform and comply with all provisions, covenants and other
promises required to be observed by it under the Contracts
related to the Receivables with respect to which a failure to
perform or comply may reasonably be expected to adversely affect
the collectibility thereof, and (ii) comply in all respects with
the Credit and Collection Policy in regard to each Receivable and
the related Contract. Such Originator will pay when due any
taxes payable in connection with the Receivables, exclusive of
taxes on or measured by income or gross receipts of Buyer and its
assigns.
ii.
iii. Ownership. Such Originator will take all
necessary action to establish and maintain, irrevocably in Buyer,
legal and equitable title to the Receivables, the Related
Security and the Collections, free and clear of any Adverse
Claims other than Adverse Claims in favor of Buyer (and its
assigns) (including, without limitation, the filing of all
financing statements or other similar instruments or documents
necessary under the UCC (or any comparable law) of all
appropriate jurisdictions to perfect Buyer's interest in such
Receivables, Related Security and Collections and such other
action to perfect, protect or more fully evidence the interest of
Buyer as Buyer (or its assigns) may reasonably request).
iv.
v. Purchasers' Reliance. Such Originator
acknowledges that the Agent and the Purchasers are entering into
the transactions contemplated by the Purchase Agreement in
reliance upon Buyer's identity as a legal entity that is separate
from such Originator and any Affiliates thereof. Therefore, from
and after the date of execution and delivery of this Agreement,
such Originator will take all reasonable steps including, without
limitation, all steps that Buyer or any assignee of Buyer may
from time to time reasonably request to maintain Buyer's identity
as a separate legal entity and to make it manifest to third
parties that Buyer is an entity with assets and liabilities
distinct from those of such Originator and any Affiliates thereof
and not just a division of such Originator. Without limiting the
generality of the foregoing and in addition to the other
covenants set forth herein, such Originator (i) will not hold
itself out to third parties as liable for the debts of Buyer nor
purport to own the Receivables and other assets acquired by
Buyer, (ii) will take all other actions necessary on its part to
ensure that Buyer is at all times in compliance with the
covenants set forth in Section 7.1(i) of the Purchase Agreement
and (iii) will cause all tax liabilities arising in connection
with the transactions contemplated herein or otherwise to be
allocated between such Originator and Buyer on an arm's-length
basis and in a manner consistent with the procedures set forth in
U.S. Treasury Regulations 1.1502-33(d) and 1.1552-1.
vi.
vii. Collections. Such Originator will cause (1)
all proceeds from all Lock-Boxes to be directly deposited by a
Collection Bank into a Collection Account and (2) each Lock-Box
and Collection Account to be subject at all times to a Collection
Account Agreement that is in full force and effect. In the event
any payments relating to Receivables are remitted directly to
Originator or any Affiliate of such Originator, such Originator
will remit (or will cause all such payments to be remitted)
directly to a Collection Bank for deposit into a Collection
Account within two (2) Business Days following receipt thereof
and, at all times prior to such remittance, such Originator will
itself hold or, if applicable, will cause such payments to be
held in trust for the exclusive benefit of Buyer and its assigns.
Such Originator will transfer exclusive ownership, dominion and
control of each Lock-Box and Collection Account to Buyer and,
will not grant the right to take dominion and control of any Lock-
Box or Collection Account at a future time or upon the occurrence
of a future event to any Person, except to Buyer (or its assigns)
as contemplated by this Agreement and the Purchase Agreement.
viii.
ix. Taxes. Such Originator will file all tax
returns and reports required by law to be filed by it and
promptly pay all taxes and governmental charges at any time
owing.
x.
xi. Obligations under Purchase Agreement. Such
Originator covenants and agrees to fully perform all of the
obligations of an Originator set forth in the Purchase Agreement.
xii.
b. Section Negative Covenants of the Originators .
Until the date on which this Agreement terminates in accordance
with its terms, each Originator hereby covenants that:
c.
i. Name Change, Offices and Records. Such
Originator will not change its name, identity or corporate
structure (within the meaning of Section 9-402(7) of any
applicable enactment of the UCC) or relocate its chief executive
office or any office where Records are kept unless it shall have:
(i) given Buyer (and its assigns) at least forty-five (45) days'
prior written notice thereof and (ii) delivered to Buyer (or its
assigns) all financing statements, instruments and other
documents requested by Buyer (or its assigns) in connection with
such change or relocation.
ii.
iii. Change in Payment Instructions to Obligors.
Such Originator will not add or terminate any bank as a
Collection Bank, or make any change in the instructions to
Obligors regarding payments to be made to any Lock-Box or
Collection Account, unless Buyer (and its assigns) shall have
received, at least ten (10) days before the proposed effective
date therefor, (i) written notice of such addition, termination
or change and (ii) with respect to the addition of a Collection
Bank or a Collection Account or Lock-Box, an executed Collection
Account Agreement with respect to the new Collection Account or
Lock-Box; provided, however, that such Originator may make
changes in instructions to Obligors regarding payments if such
new instructions require such Obligor to make payments to another
existing Collection Account.
iv.
v. Modifications to Contracts and Credit and
Collection Policy. Such Originator will not make any change to
the Credit and Collection Policy that could adversely affect the
collectibility of the Receivables or decrease the credit quality
of any newly created Receivables. Except as otherwise permitted
in its capacity as Servicer pursuant to Article VIII of the
Purchase Agreement, such Originator will not extend, amend or
otherwise modify the terms of any Receivable or any Contract
related thereto other than in accordance with the Credit and
Collection Policy.
vi.
vii. Sales, Liens. Such Originator will not sell,
assign (by operation of law or otherwise) or otherwise dispose
of, or grant any option with respect to, or create or suffer to
exist any Adverse Claim upon (including, without limitation, the
filing of any financing statement) or with respect to, any
Receivable, Related Security or Collections, or upon or with
respect to any Contract under which any Receivable arises, or any
Lock-Box or Collection Account, or assign any right to receive
income with respect thereto (other than, in each case, the
creation of the interests therein in favor of Buyer provided for
herein), and such Originator will defend the right, title and
interest of Buyer in, to and under any of the foregoing property,
against all claims of third parties claiming through or under
such Originator. Such Originator shall not create nor suffer to
exist any mortgage, pledge, security interest, encumbrance, lien,
charge or other similar arrangement on any of its inventory.
viii.
ix. Accounting for Purchase. Such Originator
will not, and will not permit any Affiliate to, account for or
treat (whether in financial statements or otherwise) the
transactions contemplated hereby in any manner other than the
sale of the Receivables and the Related Security by such
Originator to Buyer or in any other respect account for or treat
the transactions contemplated hereby in any manner other than as
a sale of the Receivables and the Related Security by such
Originator to Buyer.
x.
2. ARTICLE ADMINISTRATION AND COLLECTION
a. Section Designation of Sub-Servicer .
b.
i. The servicing, administration and collection of
the Receivables shall be conducted by the Servicer so designated
from time to time in accordance with Section 8.1(a) of the
Purchase Agreement. KNEI is hereby designated as, and hereby
agrees to act as, sub-servicer (the "Sub-Servicer") for Buyer in
Buyer's capacity as the initial Servicer designated pursuant to
the terms of the Purchase Agreement, and KNEI agrees in such
capacity as Sub-Servicer to perform all of the duties and
obligations of the Servicer set forth herein and in the Purchase
Agreement with respect to the Receivables, the Related Security
related thereto and Collections thereof. If the Agent appoints a
new Servicer pursuant to the terms hereof, KNEI shall no longer
be required to act as Sub-Servicer hereunder unless it so
consents.
i. KNEI further agrees that, so long as it shall
remain as Sub-Servicer, it shall be directly liable to the Agent
and the Purchasers for the full and prompt performance of all
such duties and responsibilities of the Servicer; provided that
(i) nothing in this Agreement shall eliminate Buyer's primary
liability to the Agent and the Purchasers for its duties as
Servicer (for so long as Buyer is the Servicer or the Servicer is
an Affiliate thereof or is appointed by Buyer), (ii) Buyer and
its assigns shall retain sole responsibility and authority for
withdrawing funds from each Collection Account, and (iii) the
Agent and the Purchasers shall be entitled to deal exclusively
with Buyer in matters relating to the discharge by the Servicer
of its duties pursuant to Section 8.1 of the Purchase Agreement.
ii.
iii. Without the prior written consent of Buyer
and its assignees, KNEI shall not be permitted to delegate any of
its duties or responsibilities as Sub-Servicer to any Person
other than an Originator. If at any time, pursuant to the terms
and conditions of the Purchase Agreement, the Agent shall
designate as Servicer any Person other than Buyer, all duties and
responsibilities theretofore delegated by Buyer to the Sub-
Servicer shall be terminated forthwith.
a. Section Duties of Sub-Servicer .
b.
i. The Sub-Servicer shall take or cause to be
taken all such actions as may be reasonably necessary or
advisable to collect each Receivable from time to time, all in
accordance with applicable laws, rules and regulations, with
reasonable care and diligence, and in accordance with the Credit
and Collection Policy, in each case to the same extent required
of such Originator under Section 4.2(d).
i. The Sub-Servicer shall use its reasonable best
efforts to segregate, on each Business Day, in a manner
reasonably acceptable to Buyer and the Agent, all cash, checks
and other instruments received by it from time to time
constituting Collections from the general funds of the Sub-
Servicer prior to the remittance thereof to Buyer. The Sub-
Servicer shall remit to Buyer all Collections of Receivables not
later than the Business Day immediately following receipt of such
Collections. The Sub-Servicer shall cause Collections to be
applied as described herein and in the Purchase Agreement.
ii.
iii. The Sub-Servicer, may, in accordance with the
Credit and Collection Policy, extend the maturity of any
Receivable or adjust the Outstanding Balance of any Receivable as
the Sub-Servicer may determine to be appropriate to maximize
Collections thereof; provided, however, that such extension or
adjustment shall not alter the status of such Receivable as a
Delinquent Receivable or Defaulted Receivable or limit the rights
of the Agent or the Purchasers under the Purchase Agreement.
Notwithstanding anything to the contrary contained herein, from
and after the occurrence of an Amortization Event, Buyer shall
have the absolute and unlimited right to direct the Sub-Servicer
to commence or settle any legal action with respect to any
Receivable or to foreclose upon or repossess any Related
Security.
iv.
v. The Sub-Servicer shall hold in trust for
Buyer and its assignees, in accordance with their respective
interests, all Records that it is required to maintain hereunder,
the related Contracts and Related Security or that are otherwise
necessary or desirable to collect the Receivables and (to the
fullest extent permitted to do so without violating contractual
restrictions imposed by licensors as provided in Section 1.6(a)
herein or the confidentiality provisions of any such contract)
shall, as soon as reasonably practicable upon demand of Buyer
upon the occurrence and during the continuance of an Amortization
Event, deliver or make available to Buyer copies of all such
Records at the chief executive office of such Sub-Servicer.
vi.
vii. Any payment by an Obligor in respect of any
indebtedness owed by it to any Originator in connection with a
Receivable shall, except as otherwise required by contract or law
and unless otherwise instructed by Buyer, be applied as a
Collection to such Receivable or Receivables of such Obligor
originated by such Originator as shall be designated by such
Originator.
viii.
ix. If KNEI is terminated as Sub-Servicer, KNEI
as Sub-Servicer agrees to cooperate with Buyer and the successor
Sub-Servicer in effecting the termination of the responsibilities
and rights of KNEI to conduct servicing hereunder, and shall (to
the fullest extent permitted to do so without violating
contractual restrictions imposed by licensors as provided in
Section1.5(a) herein or the confidentiality provisions of any
such contract) promptly transfer to the successor Sub-Servicer
copies of all records, correspondence and documents necessary for
the continued servicing of the Receivables, and shall do and
accomplish all other acts or things necessary or appropriate to
effect the transfer of servicing rights.
x.
b. Section Collection Rights . KNEI hereby authorizes
Buyer and the Servicer, and agrees that each of Buyer and the
Servicer shall, if KNEI is terminated as Sub-Servicer, be
entitled to (i) endorse its name on checks and other instruments
representing Collections, (ii) enforce the Receivables and the
Related Security and (iii) take such action as shall be necessary
or desirable to cause all cash, checks and other instruments
constituting Collections of Receivables to come into the
possession of the Servicer or its designees, on behalf of Buyer
and its assignees, rather than KNEI.
c.
d. Section Responsibilities of the Sub-Servicer and
Originators . Anything herein to the contrary notwithstanding,
the exercise by Buyer (or its assignees) of its rights hereunder
shall not release any Sub-Servicer or any Originator from any of
their respective duties or obligations with respect to any
Receivables or under the related Contracts. Neither Buyer nor any
of its assignees (including any Servicer) shall have any
obligation or liability with respect to any Receivables or
related Contracts, nor shall any of them be obligated to perform
the obligations of such Sub-Servicer or Originator.
e.
f. Section Reports . Not later than the third
Business Day preceding each Settlement Date, the Sub-Servicer
shall prepare and forward to Buyer and the Agent a Monthly Report
for the related Calculation Period (or other comparable report
for such period as may be applicable).
g.
h. Section Sub-Servicer Fee . In consideration of the
Sub-Servicer's agreement to perform the duties and obligations of
the Servicer under the Purchase Agreement, Buyer hereby agrees
that, so long as KNEI shall continue to perform as Sub-Servicer
hereunder, Buyer shall, within 30 days of each Settlement Date,
pay over to KNEI a monthly fee in an amount equal to (i) a per
annum rate not to exceed 1% agreed to by Buyer and KNEI from time
to time, multiplied by (ii) the average Outstanding Balance of
the Receivables held by Buyer (without taking account of any
interests therein sold pursuant to the Purchase Agreement) during
the related Calculation Period, such fee to be calculated to
provide the Sub-Servicer reasonable compensation for its
servicing activities. Such fee shall be payable for each
Calculation Period on the related Settlement Date and may be
payable with the proceeds of any Subordinated Loan (to the extent
that a Subordinated Loan could be borrowed without rendering
Buyer's Net Worth less than the Required Capital Amount).
i.
1. ARTICLE AMORTIZATION EVENTS
a. Section Amortization Events . The occurrence of
any one or more of the following events shall constitute an
Amortization Event:
i. Any Originator shall fail (i) to make any
payment or deposit required hereunder when due and such failure
continues for one (1) Business Day, or (ii) to perform or observe
any covenant or agreement hereunder (other than as referred to in
clause (i) of this paragraph (a)) or any other Transaction
Document to which it is a party and such failure shall continue
for ten (10) Business Days after notice thereof has been given to
such Originator by Buyer (or its assignees).
ii.
iii. Any representation, warranty, certification
or statement made by any Originator in this Agreement, any other
Transaction Document or in any other document delivered pursuant
hereto or thereto shall prove to have been incorrect when made or
deemed made.
iv.
v. KNEI 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 KNEI or such Subsidiary or is waived
by the requisite percentage of holders of such Material Financial
Obligations entitled to so waive, then the Amortization Event
under this Agreement by reason of such failure shall be deemed to
have been cured.
vi.
vii. 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 KNEI or any Subsidiary or
is waived by the requisite percentage of holders of such Material
Debt entitled to so waive, then the Amortization Event under this
Agreement by reason of such acceleration, event or condition
shall be deemed to have been cured.
viii.
(1) Any Originator or any of its Material
Subsidiaries shall generally not pay its debts as such debts
become due or shall admit in writing its inability to pay its
debts generally or shall make a general assignment for the
benefit of creditors; or any proceeding shall be instituted by or
against any Originator or any of its Material Subsidiaries
seeking to adjudicate it bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief or composition of it or its debts under any
law relating to bankruptcy, insolvency or reorganization or
relief of debtors, or seeking the entry of an order for relief or
the appointment of a receiver, trustee or other similar official
for it or any substantial part of its property, and such
proceedings shall not be dismissed within 60 days of the filing
thereof or (ii) any Originator or any of its Material
Subsidiaries shall take any corporate action to authorize any of
the actions set forth in the foregoing clause (i) of this
subsection (d).
(2)
ix. A Change of Control of KNEI shall occur.
x.
xi. One or more final judgments for the payment
of money shall be entered against any Originator on claims not
covered by insurance or as to which the insurance carrier has
denied its responsibility, and such judgment shall continue
unsatisfied and in effect for thirty (30) consecutive days
without a stay of execution.
xii.
b. Section Remedies . Upon the occurrence and during
the continuation of an Amortization Event, Buyer may take any of
the following actions: (i) declare the Amortization Date to have
occurred, whereupon the Amortization Date shall forthwith occur,
without demand, protest or further notice of any kind, all of
which are hereby expressly waived by such Originator; provided,
however, that upon the occurrence of Amortization Event described
in Section 6.1(d), or of an actual or deemed entry of an order
for relief with respect to such Originator under the Federal
Bankruptcy Code, the Amortization Date shall automatically occur,
without demand, protest or any notice of any kind, all of which
are hereby expressly waived by such Originator and (ii) to the
fullest extent permitted by applicable law, declare that the
Default Fee shall accrue with respect to any amounts then due and
owing by Buyer to such Originator. The aforementioned rights and
remedies shall be in addition to all other rights and remedies of
Buyer and its assigns available under this Agreement, by
operation of law, at equity or otherwise, all of which are hereby
expressly preserved, including, without limitation, all rights
and remedies provided under the UCC, all of which rights shall be
cumulative.
c.
2. ARTICLE INDEMNIFICATION
a. Section INDEMNITIES BY KNEI . WITHOUT LIMITING
ANY OTHER RIGHTS THAT BUYER MAY HAVE HEREUNDER OR UNDER
APPLICABLE LAW, KNEI HEREBY AGREES TO INDEMNIFY BUYER AND ITS
ASSIGNS, OFFICERS, DIRECTORS, AGENTS AND EMPLOYEES (EACH AN
"INDEMNIFIED PARTY") FROM AND AGAINST ANY AND ALL DAMAGES,
LOSSES, CLAIMS, TAXES, LIABILITIES, COSTS, EXPENSES AND FOR ALL
OTHER AMOUNTS PAYABLE, INCLUDING REASONABLE ATTORNEYS' FEES
(WHICH ATTORNEYS MAY BE EMPLOYEES OF BUYER) AND DISBURSEMENTS
(ALL OF THE FOREGOING BEING COLLECTIVELY REFERRED TO AS
"INDEMNIFIED AMOUNTS") AWARDED AGAINST OR INCURRED BY ANY OF THEM
ARISING OUT OF OR AS A RESULT OF THIS AGREEMENT OR THE
ACQUISITION, EITHER DIRECTLY OR INDIRECTLY, BY BUYER OF AN
INTEREST IN THE RECEIVABLES, EXCLUDING, HOWEVER:
(1) INDEMNIFIED AMOUNTS TO THE EXTENT A FINAL
JUDGMENT OF A COURT OF COMPETENT JURISDICTION HOLDS THAT SUCH
INDEMNIFIED AMOUNTS RESULTED FROM GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT ON THE PART OF THE INDEMNIFIED PARTY SEEKING
INDEMNIFICATION;
(1) INDEMNIFIED AMOUNTS TO THE EXTENT THE SAME
INCLUDES LOSSES IN RESPECT OF RECEIVABLES THAT ARE UNCOLLECTIBLE
ON ACCOUNT OF THE INSOLVENCY, BANKRUPTCY OR LACK OF
CREDITWORTHINESS OF THE RELATED OBLIGOR; OR
(1) TAXES IMPOSED BY THE JURISDICTION IN
WHICH SUCH INDEMNIFIED PARTY'S PRINCIPAL EXECUTIVE OFFICE IS
LOCATED, ON OR MEASURED BY THE OVERALL NET INCOME OF SUCH
INDEMNIFIED PARTY TO THE EXTENT THAT THE COMPUTATION OF SUCH
TAXES IS CONSISTENT WITH THE INTENDED TAX CHARACTERIZATION;
(1) INDEMNIFIED AMOUNTS TO THE EXTENT THE SAME
ARE A RESULT OF A VIOLATION BY SUCH INDEMNIFIED PARTY OF ANY
BANKING OR SECURITIES LAWS OR REGULATIONS;
(1) INDEMNIFIED AMOUNTS TO THE EXTENT THEY
INCLUDE COSTS AND EXPENSES OF A TYPE REFERRED TO IN SECTION 7.2
HEREOF, EXCEPT TO THE EXTENT PROVIDED IN SECTION 7.2;
(1) INDEMNIFIED AMOUNTS TO THE EXTENT THEY
CONSTITUTE STATE OR LOCAL FRANCHISE TAXES TO THE EXTENT THAT THE
INDEMNIFIED PARTY IS SUBJECT TO TAXATION IN THE JURISDICTION
IMPOSING SUCH FRANCHISE TAXES SOLELY FOR REASONS OTHER THAN THE
TRANSACTIONS CONTEMPLATED BY THE TRANSACTION DOCUMENTS; AND
(1) INDEMNIFIED AMOUNTS THAT UNDER THE TERMS OF
CLAUSES (I) THROUGH (XIV) BELOW ARE EXPRESSLY EXCEPTED FROM THE
INDEMNIFICATION PROVISIONS OF SUCH CLAUSES.
PROVIDED, HOWEVER, THAT NOTHING CONTAINED IN THIS SENTENCE SHALL
LIMIT THE LIABILITY OF KNEI OR LIMIT THE RECOURSE OF BUYER TO
KNEI FOR AMOUNTS OTHERWISE SPECIFICALLY PROVIDED TO BE PAID BY
KNEI UNDER THE TERMS OF THIS AGREEMENT. WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING INDEMNIFICATION, BUT SUBJECT TO THE
LIMITATIONS SET FORTH IN CLAUSES (I) AND (II) OF THIS PREVIOUS
SENTENCE, KNEI SHALL INDEMNIFY BUYER FOR INDEMNIFIED AMOUNTS
(INCLUDING, WITHOUT LIMITATION, LOSSES IN RESPECT OF
UNCOLLECTIBLE RECEIVABLES, REGARDLESS OF WHETHER REIMBURSEMENT
THEREFOR WOULD CONSTITUTE RECOURSE TO SELLER) RELATING TO OR
RESULTING FROM:
(i) ANY REPRESENTATION OR WARRANTY MADE BY ANY
ORIGINATOR (OR ANY OFFICERS OF SUCH ORIGINATOR) UNDER OR IN
CONNECTION WITH THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENT OR
ANY OTHER INFORMATION OR REPORT DELIVERED BY SUCH ORIGINATOR
PURSUANT HERETO OR THERETO, WHICH SHALL HAVE BEEN FALSE OR
INCORRECT WHEN MADE OR DEEMED MADE;
(i) THE FAILURE BY ANY ORIGINATOR, TO COMPLY
WITH ANY APPLICABLE LAW, RULE OR REGULATION WITH RESPECT TO ANY
RECEIVABLE OR CONTRACT RELATED THERETO, OR THE NONCONFORMITY OF
ANY RECEIVABLE OR CONTRACT INCLUDED THEREIN WITH ANY SUCH
APPLICABLE LAW, RULE OR REGULATION OR ANY FAILURE OF ANY
ORIGINATOR TO KEEP OR PERFORM ANY OF ITS OBLIGATIONS, EXPRESS OR
IMPLIED, WITH RESPECT TO ANY CONTRACT;
(i) ANY FAILURE OF ANY ORIGINATOR TO PERFORM
ITS DUTIES, COVENANTS OR OTHER OBLIGATIONS IN ACCORDANCE WITH THE
PROVISIONS OF THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT;
(i) ANY PRODUCTS LIABILITY OR SIMILAR CLAIM
ARISING OUT OF OR IN CONNECTION WITH MERCHANDISE, INSURANCE OR
SERVICES THAT ARE THE SUBJECT OF ANY CONTRACT;
(i) ANY DISPUTE, CLAIM, OFFSET OR DEFENSE
(OTHER THAN DISCHARGE IN BANKRUPTCY OF THE OBLIGOR) OF THE
OBLIGOR TO THE PAYMENT OF ANY RECEIVABLE (INCLUDING, WITHOUT
LIMITATION, A DEFENSE BASED ON SUCH RECEIVABLE OR THE RELATED
CONTRACT NOT BEING A LEGAL, VALID AND BINDING OBLIGATION OF SUCH
OBLIGOR ENFORCEABLE AGAINST IT IN ACCORDANCE WITH ITS TERMS), OR
ANY OTHER CLAIM RESULTING FROM THE SALE OF THE MERCHANDISE OR
SERVICE RELATED TO SUCH RECEIVABLE OR THE FURNISHING OR FAILURE
TO FURNISH SUCH MERCHANDISE OR SERVICES;
(i) THE COMMINGLING OF COLLECTIONS OF
RECEIVABLES AT ANY TIME WITH OTHER FUNDS;
(i) ANY INVESTIGATION, LITIGATION OR PROCEEDING
RELATED TO OR ARISING FROM THIS AGREEMENT OR ANY OTHER
TRANSACTION DOCUMENT, THE TRANSACTIONS CONTEMPLATED HEREBY, THE
USE OF THE PROCEEDS OF A PURCHASE, THE OWNERSHIP OF THE
RECEIVABLES OR ANY OTHER INVESTIGATION, LITIGATION OR PROCEEDING
RELATING TO ANY ORIGINATOR IN WHICH ANY INDEMNIFIED PARTY BECOMES
INVOLVED AS A RESULT OF ANY OF THE TRANSACTIONS CONTEMPLATED
HEREBY;
(i) ANY INABILITY TO LITIGATE ANY CLAIM AGAINST
ANY OBLIGOR IN RESPECT OF ANY RECEIVABLE AS A RESULT OF SUCH
OBLIGOR BEING IMMUNE FROM CIVIL AND COMMERCIAL LAW AND SUIT ON
THE GROUNDS OF SOVEREIGNTY OR OTHERWISE FROM ANY LEGAL ACTION,
SUIT OR PROCEEDING;
(i) ANY AMORTIZATION EVENT DESCRIBED IN SECTION
6.1(D);
(i) ANY FAILURE TO VEST AND MAINTAIN VESTED IN
BUYER, OR TO TRANSFER TO BUYER, LEGAL AND EQUITABLE TITLE TO, AND
OWNERSHIP OF, THE RECEIVABLES, THE RELATED SECURITY AND THE
COLLECTIONS, FREE AND CLEAR OF ANY ADVERSE CLAIM;
(i) THE FAILURE TO HAVE FILED, OR ANY DELAY IN
FILING, FINANCING STATEMENTS OR OTHER SIMILAR INSTRUMENTS OR
DOCUMENTS UNDER THE UCC OF ANY APPLICABLE JURISDICTION OR OTHER
APPLICABLE LAWS WITH RESPECT TO ANY RECEIVABLE, THE RELATED
SECURITY AND COLLECTIONS WITH RESPECT THERETO, AND THE PROCEEDS
OF ANY THEREOF, WHETHER AT THE TIME OF THE PURCHASE OR AT ANY
SUBSEQUENT TIME;
(i) ANY ACTION OR OMISSION BY ANY ORIGINATOR
WHICH REDUCES OR IMPAIRS THE RIGHTS OF BUYER WITH RESPECT TO ANY
RECEIVABLE OR THE VALUE OF ANY SUCH RECEIVABLE;
(i) ANY ATTEMPT BY ANY PERSON TO VOID ANY
PURCHASE HEREUNDER UNDER STATUTORY PROVISIONS OR COMMON LAW OR
EQUITABLE ACTION; AND
(i) THE YEAR 2000 PROBLEM INVOLVING KNEI OR ANY
ORIGINATOR.
1.1 Section Other Costs and Expenses . Knei shall pay
to buyer on demand all costs and out-of-pocket expenses in
connection with the preparation, execution, delivery and
administration of this agreement, the transactions contemplated
hereby and the other documents to be delivered hereunder. Knei
shall pay to buyer on demand any and all costs and expenses of
buyer, if any, including reasonable counsel fees and expenses in
connection with the enforcement of this agreement and the other
documents delivered hereunder and in connection with any
restructuring or workout of this agreement or such documents, or
the administration of this agreement following an amortization
event.
1.2
1.3 Section LIABILITY OF ADDITIONAL ORIGINATORS TO
KNEI AND INDEMNIFIED PARTIES . NOTWITHSTANDING ANYTHING TO THE
CONTRARY HEREIN, KNEI SHALL HAVE THE RIGHT TO SEEK CONTRIBUTION
FROM ANY ADDITIONAL ORIGINATOR FOR ANY INDEMNIFIED LOSSES WHICH
IT INDEMNIFIED BUT WHICH WERE CAUSED, IN WHOLE OR IN PART,
DIRECTLY OR INDIRECTLY, BY SUCH ADDITIONAL ORIGINATOR'S ACTION
OR INACTION. IN ADDITION, IF KNEI FAILS TO PERFORM ITS
INDEMNIFICATION OR REIMBURSEMENT OBLIGATIONS IN A TIMELY FASHION,
THEN THE ADDITIONAL ORIGINATORS SHALL BE JOINTLY AND SEVERALLY
LIABLE TO EACH INDEMNIFIED PARTY FOR ALL LOSSES SUBJECT TO
INDEMNIFICATION OR REIMBURSEMENT PURSUANT TO THIS AGREEMENT.
1.4
1 ARTICLE MISCELLANEOUS
(a) Section Waivers and Amendments . No failure or
delay on the part of Buyer (or its assigns) in exercising any
power, right or remedy under this Agreement shall operate as a
waiver thereof, nor shall any single or partial exercise of any
such power, right or remedy preclude any other further exercise
thereof or the exercise of any other power, right or remedy. The
rights and remedies herein provided shall be cumulative and
nonexclusive of any rights or remedies provided by law. Any
waiver of this Agreement shall be effective only in the specific
instance and for the specific purpose for which given.
(a) No provision of this Agreement may be amended,
supplemented, modified or waived except in writing signed by all
Originators and Buyer and, to the extent required under the
Purchase Agreement, the Agent and the Financial Institutions or
the Required Financial Institutions.
(b)
(i) Section Notices . Except as provided below, all
communications and notices provided for hereunder shall be in
writing (including bank wire, telecopy or electronic facsimile
transmission or similar writing) and shall be given to the other
parties hereto at their respective addresses or telecopy numbers
set forth on the signature pages hereof or at such other address
or telecopy number as such Person may hereafter specify for the
purpose of notice to each of the other parties hereto. Each such
notice or other communication shall be effective if given by
telecopy, upon the receipt thereof, if given by mail, three (3)
Business Days after the time such communication is deposited in
the mail with first class postage prepaid or if given by any
other means, when received at the address specified in this
Section 8.2.
(ii)
(c) Section Protection of Ownership Interests of Buyer
. Each Originator agrees that from time to time, at its
expense, it will promptly execute and deliver all instruments and
documents, and take all actions, that may be necessary or
desirable, or that Buyer (or its assigns) may request, to
perfect, protect or more fully evidence the Purchaser Interests,
or to enable Buyer (or its assigns) to exercise and enforce their
rights and remedies hereunder. At any time during the
continuance of an Amortization Event, Buyer (or its assigns) may,
at the Originator's sole cost and expense, direct an Originator
to notify the Obligors of Receivables of the ownership interests
of Buyer under this Agreement and may also direct that payments
of all amounts due or that become due under any or all
Receivables be made directly to Buyer or its designee.
(d)
(e) If any Originator fails to perform any of its
obligations hereunder, Buyer (or its assigns) may (but shall not
be required to) perform, or cause performance of, such
obligation, and Buyer's (or such assigns') costs and expenses
incurred in connection therewith shall be payable by such
Originator as provided in Section 7.2. Each Originator
irrevocably authorizes Buyer (and its assigns) at any time and
from time to time in the sole discretion of Buyer (or its
assigns), and appoints Buyer (and its assigns) as its
attorney(es)-in-fact, to act on behalf of the Originator (i) to
execute on behalf of the Originator as debtor and to file
financing statements necessary or desirable in Buyer's (or its
assigns') sole discretion to perfect and to maintain the
perfection and priority of the interest of Buyer in the
Receivables and (ii) to file a carbon, photographic or other
reproduction of this Agreement or any financing statement with
respect to the Receivables as a financing statement in such
offices as Buyer (or its assigns) in their sole discretion deem
necessary or desirable to perfect and to maintain the perfection
and priority of Buyer's interests in the Receivables. This
appointment is coupled with an interest and is irrevocable.
(f)
(g) Section Confidentiality . Each Originator shall
maintain and shall cause each of its respective employees and
officers to maintain the confidentiality of this Agreement and
the other confidential proprietary information with respect to
the Agent and the Conduits and their respective businesses
obtained by it or them in connection with the structuring,
negotiating and execution of the transactions contemplated
herein, except that such Originator and its officers and
employees may disclose such information to such Originator's
external accountants and attorneys and as required by any
applicable law or order of any judicial or administrative
proceeding.
(h)
(i) In the event that any Originator provides to
Buyer, the Agent or any Purchaser information belonging to such
Originator, Buyer, the Agent and the Purchasers shall thereafter
maintain such information in confidence in accordance with the
standards of care and diligence that each utilizes in maintaining
its own confidential information. This obligation of confidence
shall not apply to such portions of the information which (i) are
disclosed to Buyer, the Agent, the Financial Institutions or
Conduits by each other, (ii) are disclosed by Buyer, the Agent or
the Purchasers to any prospective or actual assignee or
participant of any of them, (iii) are disclosed by the Agent to
any rating agency, Commercial Paper dealer or provider of a
surety, guaranty or credit or liquidity enhancement to Conduits
or any entity organized for the purpose of purchasing, or making
loans secured by, financial assets for which Bank One acts as the
administrative agent and to any officers, directors, employees,
outside accountants and attorneys of any of the foregoing, (iv)
are in the public domain, (v) hereafter become part of the public
domain without Buyer, the Agent or the Purchasers breaching their
obligation of confidence to such Originator, (vi) are previously
known by Buyer, the Agent or the Purchasers from some source
other than such Originator, (vii) are hereafter obtained by or
available to Buyer, the Agent or the Purchasers from a third
party who owes no obligation of confidence to such Originator
with respect to such information or through any other means other
than through disclosure by such Originator, (viii) are disclosed
with such Originators consent, (ix) must be disclosed to any
Governmental Authority regulating the activities of Buyer, the
Agent or the Purchasers, or (x) as may be required by law or
regulation or order of any Governmental Authority in any
judicial, arbitration or governmental proceeding.
(j)
1.2 Section Bankruptcy Petition . Each Originator and
each Buyer hereby covenants and agrees that, prior to the date
that is one year and one day after the payment in full of all
outstanding senior Indebtedness of each Conduit, it will not
institute against, or join any other Person in instituting
against, such Conduit any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings or other
similar proceeding under the laws of the United States or any
state of the United States.
1.3
1.4 Section CHOICE OF LAW . ALL PROVISIONS OF THIS
AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF
TEXAS.
1.5
1.6 Section CONSENT TO JURISDICTION . EACH ORIGINATOR
HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF
ANY UNITED STATES FEDERAL OR ILLINOIS STATE COURT SITTING IN
CHICAGO, ILLINOIS IN ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY DOCUMENT EXECUTED BY SUCH
ORIGINATOR PURSUANT TO THIS AGREEMENT AND EACH ORIGINATOR HEREBY
IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND
IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS
TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN
SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM.
NOTHING HEREIN SHALL LIMIT THE RIGHT OF BUYER (OR ITS ASSIGNS) TO
BRING PROCEEDINGS AGAINST ANY OR ALL OF THE ORIGINATORS IN THE
COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY ANY
ORIGINATOR AGAINST BUYER (OR ITS ASSIGNS) OR ANY AFFILIATE
THEREOF INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY
ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT OR
ANY DOCUMENT EXECUTED BY SUCH ORIGINATOR PURSUANT TO THIS
AGREEMENT SHALL BE BROUGHT ONLY IN A COURT IN CHICAGO, ILLINOIS.
1.7
1.8 Section WAIVER OF JURY TRIAL . EACH PARTY HERETO
HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING,
DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT,
CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR
CONNECTED WITH THIS AGREEMENT, ANY DOCUMENT EXECUTED BY SUCH
ORIGINATOR PURSUANT TO THIS AGREEMENT OR THE RELATIONSHIP
ESTABLISHED HEREUNDER OR THEREUNDER.
1.9
1.10 Section Integration; Binding Effect; Survival of
Terms .
1.11
(a) This Agreement, the Subordinated Note, the
Subscription Agreement and each Collection Account Agreement
contain the final and complete integration of all prior
expressions by the parties hereto with respect to the subject
matter hereof and shall constitute the entire agreement among the
parties hereto with respect to the subject matter hereof
superseding all prior oral or written understandings.
(b)
(c) This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective
successors and permitted assigns (including any trustee in bank
ruptcy). This Agreement shall create and constitute the
continuing obligations of the parties hereto in accordance with
its terms and shall remain in full force and effect until
terminated in accordance with its terms; provided, however, that
the rights and remedies with respect to (i) any breach of any
representation and warranty made by the Originators pursuant to
Article II, (ii) the indemnification and payment provisions of
Article VII, and Section 8.5 shall be continuing and shall
survive any termination of this Agreement.
(d)
1.12 Section Counterparts; Severability; Section
References . This Agreement may be executed in any number of
counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to
be an original and all of which when taken together shall
constitute one and the same Agreement. Any provisions of this
Agreement which are prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to
the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other
jurisdiction. Unless otherwise expressly indicated, all
references herein to "Article," "Section," "Schedule" or
"Exhibit" shall mean articles and sections of, and schedules and
exhibits to, this Agreement.
1.13
* * * * *
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered by their duly authorized
officers as of the date hereof.
K N ENERGY, INC.
By:/s/ Rose M. Robeson
Title: Vice President and Treasurer
Address:370 Van Gordon Street
Lakewood, CO 80228
KN RECEIVABLES CORPORATION
By: /s/ Rose M. Robeson
Title: Vice President and Treasurer
Address:One Allen Center
500 Dallas, Suite 1000
Houston, TX 77002
Exhibit I
Definitions
This is Exhibit I to the Agreement (as hereinafter
defined). As used in the Agreement and the Exhibits, Schedules
and Annexes thereto, capitalized terms have the meanings set
forth in this Exhibit I (such meanings to be equally applicable
to the singular and plural forms thereof). If a capitalized term
is used in the Agreement, or any Exhibit, Schedule or Annex
thereto, and not otherwise defined therein or in this Exhibit I,
such term shall have the meaning assigned thereto in Exhibit I to
the Purchase Agreement.
"Additional Originator Closing Date" means, as to any
Person, the first date upon which such Person becomes an
Additional Originator hereunder pursuant to Section 1.8 of this
Agreement.
"Additional Originator" means each Person who becomes a
party to this Agreement from time to time for the purpose of
selling its Receivables to Buyer pursuant to Section 1.8 and who
has not ceased to be a party to the Agreement and the Purchase
Agreement pursuant to Section 1.9 of this Agreement.
"Agent" has the meaning set forth in the Preliminary
Statements to the Agreement.
"Agreement" means the Receivables Sale Agreement dated
as of September 28, 1999, between Originator and Buyer, as the
same may be amended, restated or otherwise modified.
"Aggregate Reserves" has the definition set forth in
the Purchase Agreement.
"Amortization Date" means the earliest to occur of (i)
the Facility Termination Date, (ii) any Business Day so
designated by Originator or Buyer, and (ii) the Business Day
immediately prior to the occurrence of an Amortization Event set
forth in Section 6.1(d), (iii) the Business Day specified in a
written notice from Buyer to Originator following the occurrence
of any other Amortization Event, and (iv) the date which is 60
Business Days after Buyer's receipt of written notice from
Originator that it wishes to terminate the facility evidenced by
this Agreement.
"Amortization Event" has the meaning set forth in
Section 6.1 of the Agreement.
"Authorized Officer" means, with respect to each
Originator, its corporate controller or chief financial officer.
"Base Rate" means a rate per annum equal to the
corporate base rate, prime rate or base rate of interest, as
applicable, announced by the Reference Bank from time to time,
changing when and as such rate changes.
"Business Day" means any day on which banks are not
authorized or required to close in New York, New York or Chicago,
Illinois and The Depository Trust Company of New York is open for
business.
"Buyer" has the meaning set forth in the preamble to
the Agreement.
"Buyer Payment" means any payment from Buyer of the
Purchase Price for Receivables or any payment by Buyer of any
amount owed in respect of Subordinated Loans.
"Calculation Period" means each calendar month or
portion thereof which elapses during the term of the Agreement.
The first Calculation Period shall commence on the date of the
Purchase of Receivables hereunder and the final Calculation
Period shall terminate on the Amortization Date.
"Change of Control" means the acquisition by any
Person, or two or more Persons acting in concert, of beneficial
ownership (within the meaning of Rule 13d-3 of the Securities and
Exchange Commission under the Securities Exchange Act of 1934) of
30% or more of the outstanding shares of voting stock of KNEI.
"Collection Account" means each concentration account,
depositary account, lock-box account or similar account in which
any Collections are collected or deposited that is subject to a
Collection Agreement.
"Collection Agreement" means, in the case of any actual
or proposed Collection Account, an agreement in substantially the
form of Exhibit VI hereto.
"Collections" means, with respect to any Receivable,
all cash collections and other cash proceeds in respect of such
Receivable, including, without limitation, all cash proceeds of
Related Security with respect to such Receivable and all Deemed
Collections.
"Continuing Eligible Receivable" means, as of any date
of determination, a Receivable that (i) as of the date on which
it was sold to Buyer under the Agreement, met all eligibility
criteria in the definition of "Eligible Receivable" and (ii) as
of such date of determination, meets all eligibility criteria in
the definition of "Eligible Receivable."
"Credit and Collection Policy" means the applicable
Originator's credit and collection policies and practices
relating to Contracts and Receivables existing on the date hereof
and summarized in Exhibit V, as modified from time to time in
accordance with the Agreement.
"Deemed Collections" means the aggregate of all amounts
that Buyer shall be entitled to receive a Purchase Price Credit
for pursuant to Section 1.3 herein.
"Default Fee" means a per annum rate of interest equal
to the sum of (i) the Base Rate, plus (ii) 2% per annum, it being
understood that a Default Fee shall not accrue on a Receivable by
reason of such Receivable becoming a Defaulted Receivable.
"Defaulted Receivable" means a Receivable: (i) as to
which the Originator thereof has taken any action, or suffered
any event to occur, of the type described in Section 6.1(e);
(ii) as to which the Originator thereof, if a natural person, is
deceased, (iii) which, consistent with the Credit and Collection
Policy, would be written off Originator's books as uncollectible,
(iv) which has been identified by Originator as uncollectible in
accordance with the Credit and Collection Policy or (v) as to
which any payment, or part thereof, remains unpaid for sixty-one
(61) days or more from the original due date for such payment.
"Delinquent Receivable" means a Receivable as to which
any payment, or part thereof, remains unpaid for thirty-one (31)
days or more from the original due date for such payment.
"Dilutions" means, at any time, the aggregate amount of
reductions in the Outstanding Balances of the Receivables as a
result of any setoff, discount, rebate, trade-in credit, credit
memo, inter-company entry, adjustment or otherwise, other than
(i) cash Collections on account of the Receivables and
(ii) charge-offs.
"Discount Factor" means a percentage calculated to
provide Buyer with a reasonable return on its investment in the
Receivables after taking account of (i) the time value of money
based upon the anticipated dates of collection of the Receivables
and the cost to Buyer of financing its investment in the
Receivables during such period and (ii) the risk of nonpayment by
the Obligors. The Originators and Buyer may agree from time to
time to change the Discount Factor based on changes in one or
more of the items affecting the calculation thereof, provided
that any change to the Discount Factor shall take effect as of
the commencement of a Calculation Period, shall apply only
prospectively and shall not affect the Purchase Price payment in
respect of Purchase which occurred during any Calculation Period
ending prior to the Calculation Period during which the
Originators and Buyer agree to make such change.
"Eligible Receivable" has the meaning set forth in the
Purchase Agreement.
"FALCON" has the meaning set forth in the Preliminary
Statements to the Agreement.
"Federal Bankruptcy Code" means Title 11 of the United
States Code entitled "Bankruptcy", as amended and any successor
statute thereto.
"Initial Cutoff Date" has the meaning set forth in
Section 1.2(a) hereof.
"Intended Tax Characterization" means, for income tax
purposes, the characterization of the acquisition by the
Purchasers of Purchaser Interests under the Purchase Agreement as
a loan or loans by the Purchasers to Buyer secured by the
Receivables, the Related Security and the Collections.
"ISC" has the meaning set forth in the Preliminary
Statements to the Agreement.
"KNEI" means K N Energy, Inc., a Kansas corporation,
and its successors.
"Material Adverse Effect" means a material adverse
effect on (i) the financial condition or operations of the
applicable Originator and its Subsidiaries, (ii) the ability of
the applicable Originator to perform its obligations under the
Agreement or any other Transaction Document, (iii) the legality,
validity or enforceability of the Agreement or any other
Transaction Document, (iv) the applicable Originator's, Buyer's,
the Agent's or any Purchaser's interest in the Receivables
generally or in any significant portion of the Receivables, the
Related Security or Collections with respect thereto, or (v) the
collectibility of the Receivables generally or of any material
portion of the Receivables.
"Material Debt" has the meaning set forth in the
Receivables Purchase Agreement
"Material Financial Obligations" has the meaning set
forth in the Receivables Purchase Agreement.
"Material Subsidiary" has the meaning set forth in the
Receivables Purchase Agreement.
"Net Worth" means as of the last Business Day of each
Calculation Period preceding any date of determination, the
excess, if any, of (a) the aggregate Outstanding Balance of the
Receivables at such time, over (b) the sum of (i) the aggregate
Capital outstanding at such time, plus (ii) the aggregate
outstanding principal balance of the Subordinated Loans
(including any Subordinated Loan proposed to be made on the date
of determination).
"Original Balance" means, with respect to any
Receivable, the Outstanding Balance of such Receivable on the
date it was purchased by Buyer.
"Originator" has the meaning set forth in the preamble
to the Agreement.
"Potential Amortization Event" means an event which,
with the passage of time or the giving of notice, or both, would
constitute an Amortization Event.
"Purchase" means the purchase under the Agreement by
Buyer from Originator of the Receivables, the Related Security
and the Collections related thereto, together with all related
rights in connection therewith.
"Purchase Agreement" has the meaning set forth in the
Preliminary Statements to the Agreement.
"Purchase Price" means, with respect to any Purchase on
any date, the aggregate price to be paid by Buyer to an
Originator for such Purchase in accordance with Section 1.2 of
the Agreement for the Receivables, Collections and Related
Security being sold to Buyer on such date, which price shall
equal (i) the product of (x) the Original Balance of such
Receivables, multiplied by (y) one minus the Discount Factor then
in effect, minus (ii) any Purchase Price Credits to be credited
against the Purchase Price otherwise payable in accordance with
Section 1.3 of the Agreement.
"Purchase Price Credit" has the meaning set forth in
Section 1.3 of the Agreement.
"Purchased Receivables" means, collectively, all
Receivables existing on the date of the Purchase hereunder, and
all Receivables arising thereafter through and including the
Amortization Date, all Related Security associated therewith, all
Collections in respect of any Receivables or any Related
Security, all proceeds of the foregoing, and all Collection
Accounts and all balances, checks, money orders and other
instruments from time to time therein, which in each case have
been sold to Buyer hereunder.
"Purchaser" has the meaning set forth in the Purchase
Agreement.
"Receivable" means all accounts (as defined in Article
9.106 of the UCC) owed to an Originator (without giving effect to
any transfer or conveyance under the Agreement) or Buyer (after
giving effect to the transfers under the Agreement) constituting
an account under Article 9.102 of the UCC arising in connection
with the sale or the rendering of services by such Originator and
includes, without limitation, the obligation to pay any Finance
Charges with respect thereto. Indebtedness and other rights and
obligations arising from any one transaction, including, without
limitation, indebtedness and other rights and obligations
represented by an individual invoice, shall constitute a
Receivable separate from a Receivable consisting of the
indebtedness and other rights and obligations arising from any
other transaction.
"Related Security" means, with respect to any
Receivable:
(i) all of each Originator's interest
in inventory and goods (including returned or repossessed
inventory or goods), if any, the financing of which by such
Originator gave rise to such Receivable, and all insurance
contracts with respect thereto,
(i) all other security interests or liens and
property subject thereto from time to time, if any, purporting to
secure payment of such Receivable, whether pursuant to the
Contract related to such Receivable or otherwise, together with
all financing statements and security agreements describing any
collateral securing such Receivable,
(i) all guaranties, insurance and other
agreements or arrangements of whatever character from time to
time supporting or securing payment of such Receivable whether
pursuant to the Contract related to such Receivable or otherwise,
(i) all service contracts and other contracts
and agreements associated with such Receivable,
(i) all Records related to such Receivable, and
(i) all proceeds of any of the foregoing.
"Required Capital Amount" means the greater of (i)
$4,500,000 and (ii) 3% of the Net Receivables Balance at such
time.
"Settlement Date" means the 22nd day of each calendar
month.
"Subordinated Loan" has the meaning set forth in
Section 1.2(a) of the Agreement.
"Subordinated Note" means a promissory note in
substantially the form of Exhibit VIII hereto as more fully
described in Section 1.2 of the Agreement, as the same may be
amended, restated, supplemented or otherwise modified from time
to time.
"Subscription Agreement" means that certain Stockholder
and Subscription Agreement, dated as of September 28, 1999,
between KNEI and Buyer, substantially in the form of Exhibit VII
hereto.
"Subsidiary" of a Person means (i) any corporation more
than 50% of the outstanding securities having ordinary voting
power of which shall at the time be owned or controlled, directly
or indirectly, by such Person or by one or more of its
Subsidiaries or by such Person and one or more of its
Subsidiaries, or (ii) any partnership, association, limited
liability company, joint venture or similar business organization
more than 50% of the ownership interests having ordinary voting
power of which shall at the time be so owned or controlled.
"Transaction Documents" means, collectively, this
Agreement, the Purchase Agreement, each Collection Account
Agreement, the Subordinated Note, the Subscription Agreement and
all other instruments, documents and agreements executed and
delivered in connection herewith.
All accounting terms not specifically defined herein
shall be construed in accordance with generally accepted
accounting principles. All terms used in Article 9 of the UCC in
the State of Texas, and not specifically defined herein, are used
herein as defined in such Article 9.
Exhibit II
Places of Business; Locations of Records;
Federal Employer Identification Number(s); Other Names
Places of Business: One Allen Center
500 Dallas Street, Suite 1000
Houston, TX 77002
Locations of Records: (a) Same as above
(b) 370 Van Gordon Street
Lakewood, CO 80228
Federal Employer Identification Number:
Corporate, Partnership Trade and Assumed Names:
Exhibit III
Lock-boxes; Collection Accounts; Collection Banks
Exhibit IV
Form of Compliance Certificate
This Compliance Certificate is furnished pursuant to
that certain Receivables Sale Agreement dated as of September 28,
1999, between K N Energy, Inc. and the Additional Originators
specified therein, ("Originators") and KN Receivables Corporation
(the "Agreement"). Capitalized terms used and not otherwise
defined herein are used with the meanings attributed thereto in
the Agreement.
THE UNDERSIGNED HEREBY CERTIFIES THAT:
1. I am the duly elected ______________ of Originator.
2. I have reviewed the terms of the Agreement and I
have made, or have caused to be made under my supervision, a
detailed review of the transactions and conditions of Originator
and its Subsidiaries during the accounting period covered by the
attached financial statements.
3. The examinations described in paragraph 2 did not
disclose, and I have no knowledge of, the existence of any
condition or event which constitutes an Amortization Event or a
Potential Amortization Event, as each such term is defined under
the Agreement, during or at the end of the accounting period
covered by the attached financial statements or as of the date of
this Certificate, except as set forth below.
4. Described below are the exceptions, if any, to
paragraph 3 by listing, in detail, the nature of the condition or
event, the period during which it has existed and the action
which Originator has taken, is taking, or proposes to take with
respect to each such condition or event:
The foregoing certifications, together with the
computations set forth in Schedule I hereto and the financial
statements delivered with this Certificate in support hereof, are
made and delivered this day of , 19__.
______________________________
[Name]
Exhibit V
Credit and Collection Policy
Exhibit VI
Form of Subscription Agreement
STOCKHOLDER AND SUBSCRIPTION AGREEMENT
THIS STOCKHOLDER AND SUBSCRIPTION AGREEMENT (this
"Agreement"), dated as of September 28, 1999, is entered into by
and between KN Receivables Corporation, a Delaware corporation,
("SPV") and K N Energy, INC., a Kansas corporation ("Parent").
Except as otherwise specifically provided herein, capitalized
terms used in this Agreement have the meanings ascribed thereto
in the Receivables Sale Agreement, dated as of even date
herewith, between SPV and Parent (as amended, restated,
supplemented or otherwise modified from time to time, the "Sale
Agreement").
RECITALS
A. SPV has been organized under the laws of the State
of Delaware for the purpose of, among other things, purchasing,
holding, financing, receiving and transferring accounts
receivable and related assets originated or otherwise held by
Parent and/or its Subsidiaries.
B. Contemporaneously with the execution and delivery of
this Agreement: (i) Parent, various Additional Originators and
SPV have entered into the Sale Agreement pursuant to which Parent
and such Additional Originators have, from and after the Purchase
date thereunder and prior to the termination date specified
therein, sold all of their Receivables, Collections and Related
Security to SPV; and (ii) SPV, Parent, as Servicer, certain
financial institutions party thereto as "Purchasers," and Bank
One, NA, as the "Agent," have entered into a Receivables Purchase
Agreement (as amended, restated, supplemented or otherwise
modified from time to time, the "Purchase Agreement") pursuant to
which SPV will sell "Purchaser Interests" to the Agent for the
benefit of the Purchasers.
C. SPV desires to sell shares of its capital stock to
Parent, and Parent desires to purchase such shares, on the terms
set forth in this Agreement.
3
NOW, THEREFORE, SPV and Parent agree as follows:
1. Section Purchase and Sale of Capital Stock.
Parent hereby purchases from SPV, and SPV hereby sells to Parent,
1,000 shares of common stock, par value $1.00 per share, of SPV
(the "Common Stock") for the Stock Purchase Price set forth in
Section 2(a). The shares of Common Stock being purchased under
this Agreement are referred to herein as the "Shares." Within
three (3) Business Days from the date hereof, SPV shall deliver
to Parent a certificate registered in Parent's name representing
the Shares.
2.
3. Section Consideration for Shares and Capital
Contributions.
4.
(a) Consideration for Shares. To induce SPV to
enter into the Sale Agreement and to enable SPV to fund its
obligations thereunder by consummating the transactions
contemplated by the Purchase Agreement, and in reliance upon the
representations and warranties set forth herein, Parent hereby
pays to SPV on the date hereof the sum of $1,000 (the "Stock
Purchase Price") in consideration of the purchase of the Shares.
The Stock Purchase Price shall take the form of a transfer of
cash, except that Parent may, in lieu of cash payment of the
Stock Purchase Price, offset the amount of the Stock Purchase
Price against the purchase price otherwise payable by SPV to
Parent on the Purchase date pursuant to the Sale Agreement.
(b)
(c) Contributions After Initial Closing Date.
From time to time Parent may make additional capital
contributions to SPV. All such contributions shall take the form
of a cash transfer, except that SPV agrees to, in lieu of cash
payment thereof, offset the amount of such contributions against
the purchase price for Receivables otherwise payable by SPV to
Parent on the date of such capital contributions. All of the
Receivables so paid for through such offset shall constitute
purchased Receivables within the meaning of the Sale Agreement
and shall be subject to all of the representations, warranties
and indemnities otherwise made thereunder. It is expressly
understood and agreed that Parent has no obligations under this
Agreement or otherwise to make any capital contributions from and
after payment of the Stock Purchase Price.
(d)
5. Section Representations and Warranties of SPV.
SPV represents and warrants to Parent as follows:
6.
(a) SPV is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of
Delaware, and has all requisite corporate power and authority to
carry on its business as proposed to be conducted on the date
hereof.
(b)
(c) SPV has all requisite legal and corporate
power to enter into this Agreement, to issue the Shares and to
perform its other obligations under this Agreement.
(d)
(e) Upon receipt by SPV of the Stock Purchase
Price and the issuance of the Shares to Parent, the Shares will
be duly authorized, validly issued, fully paid and nonassessable.
(f)
(g) SPV has taken all corporate action necessary
for its authorization, execution and delivery of, and, its
performance under, this Agreement.
(h)
(i) This Agreement constitutes a legally valid
and binding obligation of SPV, enforceable against SPV in
accordance with its terms, except that enforceability may be
limited by bankruptcy, insolvency, reorganization or other
similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity, regardless of
whether such enforceability is considered in a proceeding in
equity or at law.
(j)
(k) SPV has filed its Certificate of
Incorporation in the form attached hereto as Annex A with the
Secretary of State of Delaware and (ii) adopted By-laws in the
form attached hereto as Annex B.
(l)
(m) The issuance of the Shares by SPV hereunder
is legally permitted by all laws and regulations to which SPV is
subject.
(n)
7. Section Representations and Warranties of Parent.
Parent represents and warrants to SPV as follows:
8.
(a) Parent is a corporation duly incorporated,
validly existing and in good standing under the laws of the State
of Kansas, and has all requisite corporate power and authority to
carry on its business as conducted on the date hereof.
(b)
(c) Parent has all requisite legal and corporate
power to enter into this Agreement, to purchase the Shares and to
perform its other obligations under this Agreement.
(d)
(e) Parent has taken all corporate action
necessary for its authorization, execution and delivery of, and
its performance under, this Agreement.
(f)
(g) This Agreement constitutes a legally valid
and binding obligation of Parent, enforceable against Parent in
accordance with its terms, except that enforceability may be
limited by bankruptcy, insolvency, reorganization or other
similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity, regardless of
whether such enforceability is considered in a proceeding in
equity or at law.
(h)
(i) Parent is purchasing the Shares for
investment for its own account, not as a nominee or agent, and
not with a view to any distribution of any part thereof. Parent
has no current intention of selling, granting a participation in,
or otherwise distributing, the shares.
(j)
(k) Parent understands that the Shares have not
been registered under the Securities Act of 1933, as amended, or
under any other Federal or state law, and that SPV does not
contemplate such a registration.
(l)
(m) Parent has such knowledge, sophistication and
experience in financial and business matters that it is capable
of evaluating the merits and risks of the transactions
contemplated by this Agreement, and has made such investigations
in connection herewith as have been deemed necessary or desirable
to make such evaluation.
(n)
(o) The purchase of the Shares by Parent is
legally permitted by all laws and regulations to which Parent is
subject.
(p)
9. Section Restrictions on Transfer Imposed by the
Act; Legend.
10.
(a) Legend. Each certificate representing any
Shares shall be endorsed with the following legend:
(b)
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE NOT
REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES ACT. SUCH SECURITIES SHALL
NOT BE SOLD, PLEDGED, HYPOTHECATED, DONATED OR OTHERWISE
TRANSFERRED OR DISPOSED OF ABSENT SUCH REGISTRATION, UNLESS,
IN THE OPINION OF THE CORPORATION'S COUNSEL, SUCH
REGISTRATION IS NOT REQUIRED. IN ADDITION, THESE SECURITIES
HAVE BEEN ISSUED OR SOLD IN RELIANCE ON SECTION 4(2) OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR
TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER
SUCH ACT OR PURSUANT TO AN EFFECTIVE REGISTRATION UNDER SUCH
ACT.
(a) Registration of Transfers. SPV need not
register a transfer of any Shares unless the conditions specified
in the legend set forth in Section 5(a) hereof are satisfied.
SPV may also instruct its transfer agent (which may be SPV) not
to register the transfer of any Shares unless the conditions
specified in the legend set forth in Section 5(a) hereof are
satisfied.
(b)
2. Section Agreement to Vote. Parent hereby agrees
and covenants to vote all of the shares of Common Stock now or
hereafter owned by it, whether beneficially or otherwise, as is
necessary at a meeting of stockholders of SPV, or by written
consent in lieu of any such meeting, to cause to be elected to,
and maintained on, SPV's board of directors at least one (1)
person meeting the qualifications of an Independent Director and
selected in accordance with the provisions of the Certificate of
Incorporation and By-Laws of SPV.
3.
4. Section Successors and Assigns. Each party agrees
that it will not assign, sell, transfer, delegate, or otherwise
dispose of, whether voluntarily or involuntarily, or by operation
of law, any right or obligation under this Agreement except in
connection with a transfer of Shares in compliance with the terms
and conditions hereof, as contemplated by Section 5(b) above, or
otherwise in accordance with the terms hereof. Any purported
assignment, transfer or delegation in violation of this Section 7
shall be null and void ab initio. Subject to the foregoing
limits on assignment and delegation and except as otherwise
provided herein, this Agreement shall be binding upon and inure
to the benefit of the parties hereto, their respective heirs,
legatees, executors, administrators, assignees and legal
successors.
5.
6. Section Amendments and Waivers. Any term hereof
may be amended and the observance of any term hereof may be
waived (either generally or in a particular instance and either
retroactively or prospectively) only with the written consent of
SPV and Parent. Any amendment or waiver so effected shall be
binding upon SPV and Parent.
7.
8. Section Further Acts. Each party agrees to
perform any further acts and execute and deliver any document
which may be reasonably necessary to carry out the provisions of
this Agreement.
9.
10. Section Counterparts. This Agreement may be
executed in any number of counterparts, and all of such
counterparts together will be deemed one instrument.
11.
12. Section Notices. Any and all notices,
acceptances, statements and other communications to Parent in
connection herewith shall be in writing, delivered personally, by
facsimile or certified mail, return receipt requested, and shall
be addressed to the address of Parent indicated on the stock
transfer register of SPV or, if no address is so indicated, to
the address provided to SPV pursuant to the Sale Agreement unless
changed by written notice to SPV or its successor.
13.
14. Section GOVERNING LAW. THIS AGREEMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE
STATE OF ILLINOIS, EXCEPT AND TO THE EXTENT THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE IS APPLICABLE.
15.
16. Section Entire Agreement. This Agreement,
together with the Sale Agreement and the documents expressly to
be delivered in connection therewith, constitute the entire
understanding and agreement between the parties hereto with
subject matter hereof and thereof.
17.
18. Section Severability of this Agreement. In case
any provision of this Agreement shall be invalid or
unenforceable, the validity, legality and enforceability of the
remaining shall not in any way be affected or impaired thereby.
19.
IN WITNESS WHEREOF, the parties have executed and
delivered this Agreement as of the date first above written.
1.
2.
1. KN RECEIVABLES CORPORATION
By:
Name:
Title:
K N ENERGY, INC.
By:
Name:
Title:
ANNEX A to Subscription Agreement
Certificate of Incorporation
Annex B to Subscription Agreement
By-Laws
Exhibit VII
Form of Subordinated Note
SUBORDINATED NOTE
______________, 1999
1. Note. FOR VALUE RECEIVED, the undersigned, KN
Receivables Corporation, a Delaware corporation ("SPV"), hereby
unconditionally promises to pay to the order of K N Energy, Inc.,
a Kansas corporation ("Lender"), in lawful money of the United
States of America and in immediately available funds, on the date
following the Amortization Date which is one year and one day
after the date on which (i) the Outstanding Balance of all
Receivables (other than Receivables which are uncollectible on
account of insolvency, bankruptcy or lack of creditworthiness of
the related Obligor) sold under the "Sale Agreement" referred to
below has been reduced to zero and (ii) Lender and each other
Originator under the Sale Agreement has paid to Buyer all
indemnities, adjustments and other amounts which may be owed
thereunder in connection with the Purchases (the "Collection
Date"), the aggregate unpaid principal sum outstanding of all
"Subordinated Loans" made from time to time by Lender to SPV
pursuant to and in accordance with the terms of that certain
Receivables Sale Agreement dated as of September 28, 1999 between
the Lender and other Originators and SPV (as amended, restated,
supplemented or otherwise modified from time to time, the "Sale
Agreement"). Reference to Section 1.2 of the Sale Agreement is
hereby made for a statement of the terms and conditions under
which the loans evidenced hereby have been and will be made. All
terms which are capitalized and used herein and which are not
otherwise specifically defined herein shall have the meanings
ascribed to such terms in the Sale Agreement.
2. Interest. SPV further promises to pay interest on
the outstanding unpaid principal amount hereof from the date
hereof until payment in full hereof at a rate equal to the Base
Rate; provided, however, that if SPV shall default in the payment
of any principal hereof, SPV promises to pay, on demand, interest
at the rate of the Base Rate plus 2.00% per annum on any such
unpaid amounts, from the date such payment is due to the date of
actual payment. Interest shall be payable on the first Business
Day of each month in arrears; provided, however, that SPV may
elect on the date any interest payment is due hereunder to defer
such payment and upon such election the amount of interest due
but unpaid on such date shall constitute principal under this
Subordinated Note. The outstanding principal of any loan made
under this Subordinated Note shall be due and payable on the
Collection Date and may be repaid or prepaid at any time without
premium or penalty.
3. Principal Payments. Lender is authorized and
directed by SPV to enter on the grid attached hereto, or, at its
option, in its books and records, the date and amount of each
loan made by it which is evidenced by this Subordinated Note and
the amount of each payment of principal made by SPV, and absent
manifest error, such entries shall constitute prima facie
evidence of the accuracy of the information so entered; provided
that neither the failure of Lender to make any such entry or any
error therein shall expand, limit or affect the obligations of
SPV hereunder.
4. Subordination. The indebtedness evidenced by this
Subordinated Note is subordinated to the prior payment in full of
all of SPV's recourse obligations under that certain Receivables
Purchase Agreement dated as of September 28, 1999 by and among
SPV, various "Purchasers" from time to time party thereto, and
Bank One, NA, as the "Agent" (as amended, restated, supplemented
or otherwise modified from time to time, the "Purchase
Agreement"). The subordination provisions contained herein are
for the direct benefit of, and may be enforced by, the Agent and
the Purchasers and/or any of their respective assignees
(collectively, the "Senior Claimants") under the Purchase
Agreement. Until the date on which all "Capital" outstanding
under the Purchase Agreement has been repaid in full and all
other obligations of SPV and/or the Servicer thereunder and under
the "Fee Letter" referenced therein (all such obligations,
collectively, the "Senior Claim") have been indefeasibly paid and
satisfied in full, Lender shall not demand, accelerate, sue for,
take, receive or accept from SPV, directly or indirectly, in cash
or other property or by set-off or any other manner (including,
without limitation, from or by way of collateral) any payment or
security of all or any of the indebtedness under this
Subordinated Note or exercise any remedies or take any action or
proceeding to enforce the same; provided, however, that (i)
Lender hereby agrees that it will not institute against SPV any
proceeding of the type described in Section 5.1(d) of the Sale
Agreement unless and until the Collection Date has occurred and
(ii) nothing in this paragraph shall restrict SPV from paying, or
Lender from requesting, any payments under this Subordinated Note
so long as SPV is not required under the Purchase Agreement to
set aside for the benefit of, or otherwise pay over to, the funds
used for such payments to any of the Senior Claimants pursuant to
the Purchase Agreement and further provided that the making of
such payment would not otherwise violate the terms and provisions
of the Purchase Agreement. Should any payment, distribution or
security or proceeds thereof be received by Lender in violation
of the immediately preceding sentence, Lender agrees that such
payment shall be segregated, received and held in trust for the
benefit of, and deemed to be the property of, and shall be
immediately paid over and delivered to the Agent for the benefit
of the Senior Claimants.
5. Bankruptcy; Insolvency. Upon the occurrence of
any proceeding of the type described in Section 5.1(d) of the
Sale Agreement involving SPV as debtor, then and in any such
event the Senior Claimants shall receive payment in full of all
amounts due or to become due on or in respect of Capital and the
Senior Claim (including "CP Costs" and "Yield" as defined and as
accruing under the Purchase Agreement after the commencement of
any such proceeding, whether or not any or all of such CP Costs
or Yield is an allowable claim in any such proceeding) before
Lender is entitled to receive payment on account of this
Subordinated Note, and to that end, any payment or distribution
of assets of SPV of any kind or character, whether in cash,
securities or other property, in any applicable insolvency
proceeding, which would otherwise be payable to or deliverable
upon or with respect to any or all indebtedness under this
Subordinated Note, is hereby assigned to and shall be paid or
delivered by the Person making such payment or delivery (whether
a trustee in bankruptcy, a receiver, custodian or liquidating
trustee or otherwise) directly to the Agent for application to,
or as collateral for the payment of, the Senior Claim until such
Senior Claim shall have been paid in full and satisfied.
6. Amendments. This Subordinated Note shall not be
amended or modified except in accordance with Section 7.1 of the
Sale Agreement. The terms of this Subordinated Note may not be
amended or otherwise modified without the prior written consent
of the Agent for the benefit of the Purchasers.
7. GOVERNING LAW. THIS SUBORDINATED NOTE HAS BEEN
MADE AND DELIVERED AT CHICAGO, ILLINOIS, AND SHALL BE INTERPRETED
AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED
IN ACCORDANCE WITH THE LAWS AND DECISIONS OF THE STATE OF
ILLINOIS. WHEREVER POSSIBLE EACH PROVISION OF THIS SUBORDINATED
NOTE SHALL BE INTERPRETED IN SUCH MANNER AS TO BE EFFECTIVE AND
VALID UNDER APPLICABLE LAW, BUT IF ANY PROVISION OF THIS
SUBORDINATED NOTE SHALL BE PROHIBITED BY OR INVALID UNDER
APPLICABLE LAW, SUCH PROVISION SHALL BE INEFFECTIVE TO THE EXTENT
OF SUCH PROHIBITION OR INVALIDITY, WITHOUT INVALIDATING THE
REMAINDER OF SUCH PROVISION OR THE REMAINING PROVISIONS OF THIS
SUBORDINATED NOTE.
8. Waivers. All parties hereto, whether as makers,
endorsers, or otherwise, severally waive presentment for payment,
demand, protest and notice of dishonor. Lender additionally
expressly waives all notice of the acceptance by any Senior
Claimant of the subordination and other provisions of this
Subordinated Note and expressly waives reliance by any Senior
Claimant upon the subordination and other provisions herein
provided.
9. Assignment. This Subordinated Note may not be
assigned, pledged or otherwise transferred to any party other
than Lender without the prior written consent of the Agent, and
any such attempted transfer shall be void.
10. Sharing of Amounts Received Pursuant to
Subordinated Note. Lender will share all amounts received
pursuant to this Subordinated Note in accordance with Section 1.5
of the Sale Agreement.
KN RECEIVABLES CORPORATION
By:_____________________________
Title:
Schedule
to
SUBORDINATED NOTE
SUBORDINATED LOANS AND PAYMENTS OF PRINCIPAL
Amount
Amount of of Unpaid
Subordinated Principal Principal Notation
Date Loan Paid Balance made by
EXHIBIT VIII
FORM OF JOINDER SUPPLEMENT
JOINDER SUPPLEMENT
<Insert name of company> (the "Company"), a <Insert
state of formation and kind of organization>, hereby joins in the
Receivables Sale Agreement ("Sale Agreement"), dated as of
__________, by and between K N Energy, Inc., certain other
originators as specified therein and KN Receivables Corporation
(as amended, restated, supplemented or otherwise modified from
time to time). Except as otherwise specifically provided herein,
capitalized terms used in this joinder have the meanings ascribed
thereto in the Sale Agreement.
The Company agrees to be bound by the terms of, and to
perform all of the obligations of an Originator and Additional
Originator under, the Sale Agreement and all related agreements.
For purposes of the Sale Agreement, the Company's chief executive
office, address for notices, primary location of records,
Collection Accounts and Federal Employer Identification Number
are as set forth below. In the past five years, the Company has
not used any corporate names, trade names or assumed names other
than those set forth below. The "Additional Originator Closing
Date" for the Company shall be _________________, ______.
Dated: <Insert Date>
<INSERT NAME OF COMPANY>
---------------------------
By:
Its:
Chief Executive Office:
Address for Notices:
Primary Location of Records:
Federal Employer Identification Num-
ber:
Collection Accounts:
Trade/Assumed Names:
Acknowledged and agreed to this _____ day of
___________, 1999 that the Performance Guaranty will apply to
obligations of this Additional Originator.
K N ENERGY, INC., as
Performance Guarantor
By:___________________________________
Name:
Title:
Address:
EXHIBIT IX
FORM OF PERFORMANCE GUARANTY
PERFORMANCE GUARANTY
This Performance Guaranty (the "Guaranty"), dated as of
, 1999 is executed by K N Energy, Inc. (the
"Performance Guarantor") in favor of the Beneficiaries defined
below.
Recitals
The Performance Guarantor and the Additional
Originators as specified and defined therein (each an
"Originator", collectively "Originators") have entered into a
Receivables Sale Agreement with KN Receivables Corporation
("KRC") dated as of September 28, 1999 (as amended, modified,
renewed or extended and in effect from time to time, the "Sale
Agreement"), pursuant to which the Originators, subject to the
terms and conditions contained therein, are selling their
respective rights, titles and interests in Receivables to KRC.
Furthermore, KRC has entered into a Receivables
Purchase Agreement dated as of September 28, 1999 (as amended,
modified, renewed or extended and in effect from time to time,
the "Purchase Agreement" and together with the Sale Agreement,
the "Agreements"), with the Purchasers party thereto and Bank
One, NA, as Agent for such Purchasers, pursuant to which the
Purchasers, subject to the terms and conditions contained
therein, may purchase interests in KRC's Receivables.
KRC is a Subsidiary of the Performance Guarantor and
the Performance Guarantor is expected to receive substantial
direct and indirect benefits from the sale of Receivables by the
Originators to KRC pursuant to the Sale Agreement and the
purchase of interests in the Receivables of KRC by the Purchasers
pursuant to the Purchase Agreement (which benefits are hereby
acknowledged).
As an inducement for the Purchasers to purchase
interests in KRC's Receivables, the Performance Guarantor has
agreed to guaranty the due and punctual performance by all
Additional Originators of their obligations under the Sale
Agreement and the Purchase Agreement.
It is a condition precedent to the Purchasers agreeing
to purchase interests in KRC's Receivables pursuant to the
Purchase Agreement that the Performance Guarantor execute and
deliver to the Agent a performance guaranty in favor of the Agent
and the Purchasers (each, a "Beneficiary" and together, the
"Beneficiaries") substantially in the form hereof.
The Performance Guarantor wishes to guaranty the due
and punctual performance by each Additional Originator of its
obligations to the Beneficiaries under or in respect of the Sale
Agreement and the Purchase Agreement, as provided herein.
NOW, THEREFORE, the Performance Guarantor hereby agrees
as follows:
1. Definitions. As used herein:
"Obligations" means, collectively, (i) all covenants,
agreements, terms, conditions and indemnities to be performed and
observed by the Additional Originators under and pursuant to the
Sale Agreement and each other document executed and delivered by
the Additional Originators pursuant to the Sale Agreement,
including, without limitation, the due and punctual payment of
all sums which are or may become due and owing by the Additional
Originators under the Sale Agreement or the Fee Letter whether
for Discount, Funding Charges, fees, expenses (including counsel
fees), indemnified amounts or otherwise, whether upon any
termination or for any other reason and (ii) all obligations of
the Additional Originators under the Purchase Agreement.
All capitalized terms used herein, and not otherwise
defined herein, shall have their respective meanings as defined
in the Agreements.
2. Guaranty of Performance of Obligations. The
Performance Guarantor hereby guarantees to the Beneficiaries the
full and punctual payment and performance by the Additional
Originators of the Obligations. This Guaranty is an absolute,
unconditional and continuing guaranty of the full and punctual
performance of all of the Obligations of the Additional
Originators under the Agreements and each other document executed
and delivered by the Additional Originators pursuant to the
Agreements and is in no way conditioned upon any requirement that
the Beneficiaries first attempt to collect any amounts owing by
the Additional Originators to the Purchasers from KRC or resort
to any collateral security, any balance of any deposit account or
credit on the books of any Purchaser in favor of the Additional
Originators or any other Person or other means of obtaining
payment. Should any Originator default in the payment or
performance of any of the Obligations, the Agent or any one of
the Purchasers may cause the immediate performance by the
Performance Guarantor of the Obligations and cause any such
payment Obligations to become forthwith due and payable to the
Beneficiaries, without demand or notice of any nature (other than
as expressly provided herein), all of which are expressly waived
by the Performance Guarantor. Notwithstanding the foregoing,
this Guaranty is not a guarantee of the collection of any of the
Receivables and the Performance Guarantor shall not be
responsible for any Obligations to the extent the failure to
perform such Obligations by the Additional Originators results
from Receivables being uncollectible on account of the
insolvency, bankruptcy or lack of creditworthiness of the related
Obligor or any action or inaction of such Obligor (other than any
arising from disputes, claims, offsets, setoffs, defenses or
other matters as more fully set forth in subclause (v) of Section
9.1 of the Purchase Agreement); provided that nothing herein
shall relieve the Additional Originators from performing in full
their Obligations under the Purchase Agreement or the Performance
Guarantor of its undertaking hereunder with respect to the full
performance of such duties.
3. Performance Guarantor's Further Agreements to Pay.
The Performance Guarantor further agrees, as the principal
obligor and not as a guarantor only, to pay to the Beneficiaries,
forthwith upon 30 days following written notice in funds
immediately available to the Beneficiaries, all reasonable and
documented out-of-pocket costs and expenses (including court
costs and legal expenses) incurred or expended by such
Beneficiaries in connection with enforcement of this Guaranty and
together with interest on amounts recoverable under this Guaranty
from the time when such amounts become due until payment, at a
rate of interest (computed for the actual number of days elapsed
based on a 360 day year) equal to the Base Rate plus 2% per
annum, such rate of interest changing when and as the Base Rate
changes.
4. Waivers by Performance Guarantor; Agent's and
Purchasers' Freedom to Act. The Performance Guarantor waives
notice of acceptance of this Guaranty, notice of any action taken
or omitted by any Beneficiary in reliance on this Guaranty, and
any requirement that the Beneficiaries be diligent or prompt in
making demands under this Guaranty, giving notice of any
Amortization Event, other default or omission by the Additional
Originators or asserting any other rights of any Beneficiary
under this Guaranty. The Performance Guarantor warrants that it
has adequate means to obtain from the Additional Originators, on
a continuing basis, information concerning the financial
condition of the Additional Originators, and that it is not
relying on the Agent or Beneficiaries to provide such
information, now or in the future. The Performance Guarantor
also irrevocably waives all defenses (i) that at any time may be
available in respect of the Obligations by virtue of any statute
of limitations, valuation, stay, moratorium law or other similar
law now or hereafter in effect or (ii) that arise under the law
of suretyship, including impairment of collateral. Each of the
Beneficiaries shall be at liberty, without giving notice to or
obtaining the assent of the Performance Guarantor and without
relieving the Performance Guarantor of any liability under this
Guaranty, to deal with the Additional Originators and with each
other party who now is or after the date hereof becomes liable in
any manner for any of the Obligations, in such manner as any
Beneficiary in its sole discretion deems fit, and to this end the
Performance Guarantor agrees that the validity and enforceability
of this Guaranty, including without limitation, the provisions of
7 hereof, shall not be impaired or affected by any of the
following: (a) any extension, modification or renewal of, or
indulgence with respect to, or substitutions for, the Obligations
or any part thereof or any agreement relating thereto at any
time; (b) any failure or omission to enforce any right, power or
remedy with respect to the Obligations or any part thereof or any
agreement relating thereto, or any collateral securing the
Obligations or any part thereof; (c) any waiver of any right,
power or remedy or of any Amortization Event or default with
respect to the Obligations or any part thereof or any agreement
relating thereto; (d) any release, surrender, compromise,
settlement, waiver, subordination or modification, with or
without consideration, of any other obligation of any person or
entity with respect to the Obligations or any part thereof; (e)
the enforceability or validity of the Obligations or any part
thereof or the genuineness, enforceability or validity of any
agreement relating thereto or with respect to the Obligations or
any part thereof; (f) the application of payments received from
any source to the payment of any payment Obligations of the
Additional Originators or any part thereof or amounts which are
not covered by this Guaranty even though the Beneficiaries might
lawfully have elected to apply such payments to any part or all
of the payment Obligations of the Additional Originators or to
amounts which are not covered by this Guaranty; (g) the existence
of any claim, setoff or other rights which the Performance
Guarantor may have at any time against the Additional Originators
in connection herewith or any unrelated transaction; (h) any
assignment or transfer of the Obligations or any part thereof; or
(i) any failure on the part of the Additional Originators to
perform or comply with any term of the Agreements or any other
document executed in connection therewith or delivered
thereunder, all whether or not the Performance Guarantor shall
have had notice or knowledge of any act or omission referred to
in the foregoing clauses (a) through (i) of this Section.
5. Unenforceability of Obligations Against the
Additional Originators. Notwithstanding (a) any change of
ownership of the Additional Originators or the insolvency,
bankruptcy or any other change in the legal status of the
Additional Originators; (b) the change in or the imposition of
any law, decree, regulation or other governmental act which does
or might impair, delay or in any way affect the validity,
enforceability or the payment when due of the Obligations; (c)
the failure of the Additional Originators or the Performance
Guarantor to maintain in full force, validity or effect or to
obtain or renew when required all governmental and other
approvals, licenses or consents required in connection with the
Obligations or this Guaranty, or to take any other action
required in connection with the performance of all obligations
pursuant to the Obligations or this Guaranty; or (d) if any of
the moneys included in the Obligations have become irrecoverable
from the Additional Originators for any other reason other than
final payment in full of the payment Obligations in accordance
with their terms, this Guaranty shall nevertheless be binding on
the Performance Guarantor. This Guaranty shall be in addition to
any other guaranty or other security for the Obligations, and it
shall not be rendered unenforceable by the invalidity of any such
other guaranty or security. In the event that acceleration of
the time for payment of any of the Obligations is stayed upon the
insolvency, bankruptcy or reorganization of the Additional
Originators or for any other reason with respect to the
Additional Originators, all such amounts then due and owing with
respect to the Obligations under the terms of the Agreements, or
any other agreement evidencing, securing or otherwise executed in
connection with the Obligations, shall be immediately due and
payable by the Performance Guarantor.
6. Representations and Warranties.
6.1. Binding Effect. The Performance Guarantor has
the corporate power and authority and legal right to execute and
deliver this Guaranty, perform its obligations hereunder and
consummate the transactions therein contemplated. The execution
and delivery by the Performance Guarantor of this Guaranty, the
performance of its obligations and consummation of the
transactions contemplated hereunder have been duly authorized by
proper corporate proceedings, and this Guaranty constitutes the
legal, valid and binding obligation of the Performance Guarantor
enforceable against the Performance Guarantor in accordance with
its terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization or other similar laws of general
applicability and by the effect of general principles of equity
(regardless of whether enforceability is considered in a
proceeding in equity or at law).
6.2. No Conflict; Government Consent. The execution,
delivery and performance by the Performance Guarantor of this
Guaranty are within its corporate powers, have been duly
authorized by all necessary corporate action, do not contravene
or violate (i) its certificate of incorporation or by-laws, (ii)
any law, rule or regulation applicable to it the contravention or
violation of which would or could reasonably be expected to have
a Material Adverse Effect, (iii) any restrictions under any
material agreement, contract or instrument to which it is a party
or by which it or any of its property is bound, the contravention
or violation of which would or could reasonably be expected to
have a Material Adverse Effect or (iv) any material order, writ,
judgment, award, injunction or decree binding on or affecting it
or its property, the contravention or violation of which would or
could reasonably be expected to have a Material Adverse Effect
and do not result in the creation or imposition of any Adverse
Claim on assets of the Performance Guarantor (except as created
under the Transaction Documents).
7. Subrogation; Subordination. Until the Obligations
are paid in full, the Performance Guarantor shall not enforce or
otherwise exercise any right of subrogation to any of the rights
of any Purchaser against the Additional Originators and,
notwithstanding anything to the contrary contained herein, until
the Obligations are paid in full, hereby waives all rights of
subrogation (whether contractual, under Section 509 of the United
States Bankruptcy Code, at law or in equity or otherwise) to the
claims of the Beneficiaries against the Additional Originators
and all contractual, statutory or legal or equitable rights of
contribution, reimbursement, indemnification and similar rights
and "claims" (as that term is defined in the United States
Bankruptcy Code) which the Performance Guarantor might now have
or hereafter acquire against the Additional Originators that
arises from the existence or performance of the Performance
Guarantor's obligations hereunder; the Performance Guarantor will
not claim any setoff, recoupment or counterclaim against the
Additional Originators in respect of any liability of the
Performance Guarantor to the Additional Originators; and the
Performance Guarantor waives any benefit of and any right to
participate in any collateral security which may be held by the
Beneficiaries. The payment of any amounts due with respect to
any indebtedness of the Additional Originators now or thereafter
owed to the Performance Guarantor is hereby subordinated to the
prior payment in full of all of the Obligations; provided, that
as long as no Amortization Event has occurred and is continuing,
the Performance Guarantor shall be permitted to receive any and
all payments required under such indebtedness without respect to
such subordination. The Performance Guarantor agrees that, after
the occurrence of any default in the payment or performance of
any of the Obligations, the Performance Guarantor will not
demand, sue for or otherwise attempt to collect any such
indebtedness of the Additional Originators to the Performance
Guarantor until all of the Obligations shall have been paid and
performed in full. If, notwithstanding the foregoing sentence,
the Performance Guarantor shall collect, enforce or receive any
amounts in respect of such indebtedness while any Obligations are
still unperformed or outstanding, such amounts shall be
collected, enforced and received by the Performance Guarantor as
trustee for the Beneficiaries and be paid over to the Agent on
account of the Obligations without affecting in any manner the
liability of the Performance Guarantor under the other provisions
of this Guaranty. The provisions of this 7 shall be
supplemental to and not in derogation of any rights and remedies
of the Beneficiaries under any separate subordination agreement
which the Beneficiaries may at any time and from time to time
enter into with the Performance Guarantor.
8. Termination of Guaranty. The Performance
Guarantor's obligations hereunder shall continue in full force
and effect until all Obligations are finally paid and satisfied
in full and the Purchase Agreement is terminated, provided that
this Guaranty shall continue to be effective or shall be
reinstated, as the case may be, if at any time payment or other
satisfaction of any of the Obligations is rescinded or must
otherwise be restored or returned upon the bankruptcy,
insolvency, or reorganization of the Additional Originators or
otherwise, as though such payment had not been made or other
satisfaction occurred, whether or not the Agent is in possession
of this Guaranty. No invalidity, irregularity or
unenforceability by reason of the Bankruptcy Code or any
insolvency or other similar law, or any law or order of any
government or agency thereof purporting to reduce, amend or
otherwise affect the Obligations shall impair, affect, be a
defense to or claim against the obligations of the Performance
Guarantor under this Guaranty.
9. Effect of Bankruptcy. This Guaranty shall survive
the insolvency of the Additional Originators and the commencement
of any case or proceeding by or against the Additional
Originators under the federal Bankruptcy Code or other federal,
state or other applicable bankruptcy, insolvency or
reorganization statutes. No automatic stay under the federal
Bankruptcy Code with respect to the Additional Originators or
other federal, state or other applicable bankruptcy, insolvency
or reorganization statutes to which the Additional Originators is
subject shall postpone the obligations of the Performance
Guarantor under this Guaranty.
10. Taxes. All payments made by the Performance
Guarantor hereunder shall be made without withholding for or on
account of any present or future Taxes unless otherwise required
by law. If any such withholding is so required, the Performance
Guarantor shall make the withholding, pay the amount withheld to
the appropriate authority before penalties attach thereto or
interest accrues thereon and pay such additional amount as may be
necessary to ensure that the net amount actually received by the
Person entitled to receive such payment free and clear of such
Taxes (including such Taxes on such additional amount), and all
penalties or interest thereon, is equal to the amount that such
Person(as the case may be) would have received had such
withholding not been made, except to the extent such withholding
(x) is in payment of, and serves as an effective credit for,
Excluded Taxes payable by such Person(as the case may be) or
(y) would not have been imposed if such Person pays any such
Taxes, penalties or interest for which the Performance Guarantor
is responsible, the Performance Guarantor shall reimburse such
Person for that payment in accordance with Section 7.5 of the
Sale Agreement. If the Performance Guarantor pays any such Taxes,
penalties or interest, it shall deliver official tax receipts (or
certified copies thereof) evidencing that payment to such Person
on whose account such withholding was made (with a copy to the
Agent if not the recipient of the original) on or before the
thirtieth day after payment (or as soon thereafter as the
Performance Guarantor is able to obtain such receipts).
11. Further Assurances. The Performance Guarantor
agrees to do all such things and execute all such documents as
the Beneficiaries may reasonably consider necessary or desirable
to give full effect to this Guaranty and to perfect and preserve
the rights and powers of the Beneficiaries hereunder.
12. Successors and Assigns. This Guaranty shall be
binding upon the Performance Guarantor, its successors and
assigns, and shall inure to the benefit of and be enforceable by
the Beneficiaries and their successors, transferees and assigns.
The Performance Guarantor may not assign or transfer any of its
obligations hereunder without the prior written consent of each
of the Purchasers. Without limiting the generality of the
foregoing sentence, the Beneficiaries may, subject to Article
XIII of the Purchase Agreement, assign or otherwise transfer the
Agreements, any other documents executed in connection therewith
or delivered thereunder or any other agreement or note held by
them evidencing, securing or otherwise executed in connection
with the Obligations, or sell participations in any interest
therein, to any other entity or other person, and such other
entity or other person shall thereupon become vested, to the
extent set forth in the agreement evidencing such assignment,
transfer or participation, with all the rights in respect thereof
granted to the Beneficiaries herein.
13. Amendments and Waivers. No amendment or waiver
of any provision of this Guaranty nor consent to any departure by
the Performance Guarantor therefrom shall be effective unless the
same shall be in writing and signed by the Agent and the
Performance Guarantor. No failure on the part of any Beneficiary
to exercise, and no delay in exercising, any right hereunder
shall operate as a waiver thereof; nor shall any single or
partial exercise of any right hereunder preclude any other or
further exercise thereof or the exercise of any other right.
14. Notices. All notices and other communications
called for hereunder shall be made in writing and, unless
otherwise specifically provided herein, shall be deemed to have
been duly made or given when delivered by hand or mailed first
class, postage prepaid, or, in the case of telegraphic,
telecopied or telexed notice, when transmitted, answer back
received, addressed as follows: if to the Performance Guarantor,
at the address set forth beneath its signature hereto, and if to
the Beneficiaries, at the addresses set forth for each respective
Beneficiary on the signature pages of the Purchase Agreement, or
at such other addresses as each of the Performance Guarantor or
any of the Beneficiaries may designate in writing to the other.
15. GOVERNING LAW. THIS GUARANTY SHALL BE CONSTRUED
IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF
CONFLICTS) OF THE STATE OF ILLINOIS.
16. CONSENT TO JURISDICTION. EACH OF THE PERFORMANCE
GUARANTOR AND THE BENEFICIARIES HEREBY IRREVOCABLY SUBMITS TO THE
NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR
ILLINOIS STATE COURT SITTING IN CHICAGO IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTY, THE
AGREEMENTS OR ANY OTHER DOCUMENT EXECUTED IN CONNECTION THEREWITH
OR DELIVERED THEREUNDER AND EACH OF THE PERFORMANCE GUARANTOR AND
THE BENEFICIARIES HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN
RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED
IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW
OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN
INCONVENIENT FORUM.
17. Miscellaneous. This Guaranty constitutes the
entire agreement of the Performance Guarantor with respect to the
matters set forth herein. No failure on the part of the Agent to
exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; nor shall any single or partial
exercise of any right hereunder preclude any other or further
exercise thereof or the exercise of any other right. The rights
and remedies herein provided are cumulative and not exclusive of
any remedies provided by law or any other agreement, and this
Guaranty shall be in addition to any other guaranty of or
collateral security for any of the Obligations. The provisions
of this Guaranty are severable, and in any action or proceeding
involving any state corporate law, or any state or federal
bankruptcy, insolvency, reorganization or other law affecting the
rights of creditors generally, if the obligations of the
Performance Guarantor hereunder would otherwise be held or
determined to be avoidable, invalid or unenforceable on account
of the amount of the Performance Guarantor's liability under this
Guaranty, then, notwithstanding any other provision of this
Guaranty to the contrary, the amount of such liability shall,
without any further action by the Performance Guarantor or the
Beneficiaries, be automatically limited and reduced to the
highest amount that is valid and enforceable as determined in
such action or proceeding. The invalidity or unenforceability of
any one or more sections of this Guaranty shall not affect the
validity or enforceability of its remaining provisions. Captions
are for the ease of reference only and shall not affect the
meaning of the relevant provisions. The meanings of all defined
terms used in this Guaranty shall be equally applicable to the
singular and plural forms of the terms defined.
* * * *
IN WITNESS WHEREOF, the Performance Guarantor has caused
this Performance Guaranty to be executed and delivered as of the
date first above written.
K N ENERGY, INC.
By:
Name:
Title:
Telecopy: __________________
Schedule A
DOCUMENTS TO BE DELIVERED TO BUYER
ON OR PRIOR TO THE PURCHASE
1. Copy of the Resolutions of the Board of Directors of each
Originator certified by its Secretary, authorizing
Originator's execution, delivery and performance of the
Agreement and the other documents to be delivered by it
thereunder.
2. Articles or Certificate of Incorporation, Partnership
Agreement (or equivalent organizational documents) of each
Originator certified by the Secretary of State of the
jurisdiction of incorporation or formation of such
Originator.
3. Good Standing Certificate for each Originator issued by the
Secretary of State of each jurisdiction where it has
material operations.
4. A certificate of the Secretary of each Originator
certifying: (i) the names and signatures of the officers
authorized on its behalf to execute the Agreement and any
other documents to be delivered by it thereunder and (ii) a
copy of such Originator's By-Laws.
5. Signed financing statements in all jurisdictions as may be
necessary or, in the opinion of Buyer (or its assigns),
desirable, under the UCC of all appropriate jurisdictions or
any comparable law in order to perfect the ownership
interests contemplated by the Agreement.
6. Signed UCC termination statements, if any, necessary to
release all security interests and other rights of any
Person in the Receivables, Contracts or Related Security
previously granted by Originator.
7. Executed Collection Account Agreements for each Lock-Box and
Collection Account.
8. A favorable opinion of legal counsel for each Originator
reasonably acceptable to Buyer (or its assigns) in the form
attached hereto as Annex B.
10. A "true sale" opinion and "substantive consolidation"
opinion of counsel for each Originator with respect to the
transactions contemplated by the Agreement and the Purchase
Agreement.
11. A Compliance Certificate.
12. A direction letter executed by each Originator authorizing
Buyer and its assigns, and directing warehousemen to allow
Buyer and its assigns, to inspect and make copies from such
Originator's books and records maintained at off-site data
processing or storage facilities.
13. A Monthly Report as at September 28, 1999.
_______________________________
1FOOTER B HAS BEEN ENTERED (DRAFT)
2Article numbering in effect.
Exceptions to the current outline style can be created by
pressing CTRL+SHIFT+F5. This inserts only a ParaNum code. You
may type any additional text or formatting codes that you need,
such as brackets or unusual indents.
3Section numbering in effect.
Exceptions to the current outline style can be created by
pressing CTRL+SHIFT+F5. This inserts only a ParaNum code. You
may type any additional text or formatting codes that you need,
such as brackets or unusual indents.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 22459
<SECURITIES> 0
<RECEIVABLES> 673503
<ALLOWANCES> 12515
<INVENTORY> 134209
<CURRENT-ASSETS> 960859
<PP&E> 7767790
<DEPRECIATION> 880768
<TOTAL-ASSETS> 8352141
<CURRENT-LIABILITIES> 1472224
<BONDS> 3298484
0
0
<COMMON> 354837
<OTHER-SE> 869121
<TOTAL-LIABILITY-AND-EQUITY> 8352141
<SALES> 3704018
<TOTAL-REVENUES> 3704018
<CGS> 2995953
<TOTAL-COSTS> 3499944
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2465
<INTEREST-EXPENSE> 210505
<INCOME-PRETAX> 13387
<INCOME-TAX> 5221
<INCOME-CONTINUING> 8166
<DISCONTINUED> (17970)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9804)
<EPS-BASIC> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
