SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
February 8, 2000
(Date of earliest event reported)
KINDER MORGAN, INC.
(Exact name of registrant as specified in its charter)
Kansas 1-6446 48-0290000
(State or other (Commission (I.R.S. Employer
jurisdiction File Number) Identification No.)
of incorporation)
1301 McKinney, Suite 3400
Houston, Texas 77010
(Address of principal executive offices, including zip code)
713-844-9500
(Registrant's telephone number, including area code)
<PAGE> 2
Item 5. Other Events.
Kinder Morgan, Inc., a Kansas corporation (the "Company"),
and certain of its subsidiaries, have entered into a definitive
agreement dated as of February 8, 2000 (the "Agreement") with
ONEOK, Inc., an Oklahoma corporation ("ONEOK"). The Agreement
provides for the sale to ONEOK of (i) all of the Company's
natural gas gathering and processing business in Oklahoma, Kansas
and West Texas, (ii) the Company's marketing and trading
business, and (iii) certain of the Company's storage and
transmission pipelines in the mid-continent region.
ONEOK will (i) pay approximately $114 million plus an amount
equal to net working capital at closing, (ii) assume the
operating lease associated with the Bushton, Kansas gas
processing plant and (iii) assume long-term capacity commitments
on Natural Gas Pipeline Company of America and on Kinder Morgan
Interstate Gas Transmission LLC (formerly KN Interstate Gas
Transmission Co.).
On February 8, 2000, the Company issued a press release, a
copy of which is attached hereto as Exhibit 99.1 and incorporated
herein by reference. A copy of the Agreement is attached hereto
as Exhibit 99.2 and incorporated herein by reference.
<PAGE> 3
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits.
(c) Exhibits.
The following materials are filed as exhibits to this
Current Report on Form 8-K.
Exhibit
Number Description
99.1 Press Release dated February 8, 2000.
99.2 Stock and Asset Purchase Agreement dated
February 8, 2000 by and among Kinder
Morgan, Inc., Midcon Gas Services Corp.,
KN Gas Gathering, Inc., KN Services,
Inc. and ONEOK, Inc.
<PAGE> 4
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 hereunto duly authorized.
Kinder Morgan, Inc.
By:/s/ Joseph Listengart
---------------------------
Joseph Listengart
Vice President, General
Counsel and Secretary
Date: February 23, 2000
<PAGE> 5
EXHIBIT INDEX
Exhibit
Number Description
99.1 Press Release dated February 8, 2000.
99.2 Stock and Asset Purchase Agreement dated
February 8, 2000 by and among Kinder
Morgan, Inc., Midcon Gas Services Corp.,
KN Gas Gathering, Inc., KN Services,
Inc. and ONEOK, Inc.
[KINDER MORGAN, INC.]
Larry Pierce Irene Twardowski
Media Relations Investor Relations
(303) 914-4751 (713) 844-9543
ONEOK TO PURCHASE KINDER MORGAN
MID-CONTINENT ASSETS
HOUSTON, Feb. 8, 2000 - Kinder Morgan, Inc. (NYSE:KMI) and
ONEOK, Inc. (NYSE: OKE) today announced they have signed a
definitive agreement for ONEOK to purchase all of KMI's natural
gas gathering and processing businesses in Oklahoma, Kansas and
West Texas. In addition, ONEOK agreed to purchase KMI's
marketing and trading business, as well as certain storage and
transmission pipelines in the mid-continent region.
As consideration, ONEOK will pay KMI approximately $114
million plus an amount equal to net working capital at closing;
assume the operating lease associated with the Bushton, Kansas
gas processing plant; and assume long-term capacity commitments
on Natural Gas Pipeline Company of America and on Kinder Morgan
Interstate Gas Transmission (formerly KN Interstate Gas
Transmission Co.).
David Kyle, president and chief operating officer of ONEOK,
Inc., said, "This is a continuation of our strategy of expanding
our ownership of natural gas assets and marketing capabilities in
the mid-continent region. This acquisition represents in excess
of 12,000 miles of pipeline, six gas processing plants with
capacity of 1.26 billion cubic feet per day and 10.5 billion
cubic feet of storage. When we combine these assets with our
existing assets and those to be added with the Dynegy transaction
announced last week we will be able to take advantage of
operating synergies. We expect this transaction to be accretive
to earnings the first year even without those synergies."
Richard D. Kinder, chairman and CEO of KMI, said, "Last fall
we announced our intention to exit these businesses as part of
our "back to basics" strategy. With this sale, KMI's divestiture
program is more than 80 percent complete. The sales proceeds are
(more)
<PAGE> 2
KMI Sells Assets Page 2
consistent with the estimates we made in the fourth quarter as
part of the write-down of discontinued operations. The
combination of cash, assumption of the Bushton lease and long-
term capacity agreements will further strengthen our balance
sheet and other credit characteristics. Going forward, we will
focus on growing our core, fee-based businesses."
Kinder Morgan, Inc. is one of the largest midstream energy
companies in America, operating more than 30,000 miles of natural
gas and products pipelines in 26 states. It also has significant
retail distribution, marketing, gathering, electric generation
and terminal assets. Kinder Morgan, Inc., through its general
partner interest, operates Kinder Morgan Energy Partners, L. P.,
America's largest pipeline master limited partnership. Combined,
the two companies have an enterprise value of approximately $10
billion.
ONEOK, Inc. is an integrated natural gas company involved in
production, processing, gathering, storage and transmission in
the mid-continent areas of the United States. The company's
natural gas marketing operations provide service to customers in
25 states. The company is also the largest natural gas
distributor in Kansas and Oklahoma, operating as Kansas Gas
Service and Oklahoma Natural Gas Company, serving 1.4 million
customers.
For more information, contact: www.kindermorgan.com.
This news release includes 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
Kinder Morgan believes that its expectations are based on
reasonable assumptions, it can give no assurance that such
assumptions will materialize.
# # #
STOCK AND ASSET PURCHASE AGREEMENT
by and among
KINDER MORGAN, INC.,
MIDCON GAS SERVICES CORP.,
KN GAS GATHERING, INC.
and
KN SERVICES, INC.
(as "Sellers")
and
ONEOK, Inc.
(as "Buyer")
February 8, 2000
TABLE OF CONTENTS
Page
ARTICLE 1 PURCHASE AND SALE
1.1 Transfer of Equity and Assets 1
1.2 Consideration 2
1.3 Adjustment to Cash Consideration and Other Matters 2
1.4 Excluded Assets 5
1.5 Assumption of Obligations 6
1.6 Excluded Obligations and Liabilities 6
1.7 Nonassignable Contracts, Permits and Leases 7
1.8 Asset Allocation 8
1.9 Apportionments; Post-Closing Adjustments 8
1.10 Section 338(h)(10) Election 8
ARTICLE 2 CLOSING
2.1 Closing 9
2.2 Deliveries at the Closing 9
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE SELLER
3.1 Organization and Existence 10
3.2 Capitalization of the Stock Entities 11
3.3 Subsidiaries 12
3.4 Authority and Approval 12
3.5 No Conflict 13
3.6 Laws and Regulations; Litigation 13
3.7 No Default 14
3.8 Licenses 14
3.9 Financial Statements 14
3.10 No Adverse Changes 15
3.11 Liabilities 15
3.12 Taxes 15
3.13 Plans 16
3.14 Accurate and Complete Records 16
3.15 Brokerage Arrangements 17
3.16 Utility Status 17
3.17 Bankruptcy 17
3.18 Environmental Matters 17
3.19 Contracts and Commitments 19
3.20 Assets 21
3.21 Solvency 22
3.22 Property 22
3.23 Year 2000 24
3.24 Hedging 24
3.25 Insurance 24
3.26 Condition of Assets 24
3.27 Labor Relations 25
3.28 Consents and Approvals 25
3.29 PCBs 25
3.30 Commingled Property 25
3.31 Employee Actions 25
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE BUYER
4.1 Organization and Existence 26
4.2 Authority and Approval 26
4.3 No Conflict 26
4.4 Litigation 26
4.5 Funds Available 27
4.6 Brokerage Arrangements 27
4.7 Investment Purposes 27
4.8 Bankruptcy 27
4.9 Qualified Plans 27
ARTICLE 5 ADDITIONAL AGREEMENTS,COVENANTS, RIGHTS AND OBLIGATIONS
5.1 Certain Changes 27
5.2 Operations 29
5.3 Access 30
5.4 Antitrust Notification; Other Reporting Requirements 31
5.5 Reasonable Best Efforts 31
5.6 Confidentiality 32
5.7 Intercompany Accounts and Contracts 32
5.8 Software 32
5.9 Certain Assets 33
5.10 Further Assurances 33
5.11 D & O Indemnification 33
5.12 Post-Closing Further Assurances 34
5.13 Sellers' Retained Liabilities 34
5.14 Most Favored Nation 34
5.15 Other Actions 34
5.16 Alliance Agreement 35
ARTICLE 6 CONDITIONS TO CLOSING
6.1 Conditions to the Obligation of the Buyer 35
6.2 Conditions to the Obligation of the Sellers 38
ARTICLE 7 TAX MATTERS
7.1 Liability for Taxes 39
7.2 Returns 41
7.3 Tax Proceedings 41
7.4 Payment of Taxes 42
7.5 Cooperation and Exchange of Information 42
7.6 Conflict 43
ARTICLE 8 EMPLOYEES AND EMPLOYEE BENEFITS
8.1 Status of Employees 43
8.2 Employee Related Matters 44
ARTICLE 9 INVESTIGATION; LIMITATIONS
9.1 Independent Investigation 47
9.2 Survival of Warranties and Representations and
Indemnification 47
ARTICLE 10 TERMINATION
10.1 Events of Termination 48
10.2 Effect of Termination 48
ARTICLE 11 INDEMNIFICATION
11.1 Indemnification of the Sellers 48
11.2 Indemnification of the Buyer 50
11.3 Material Adverse Effect Limitation 51
11.4 Demands 52
11.5 Right to Contest and Defend 52
11.6 Cooperation 52
11.7 Right to Participate 53
11.8 Payment of Damages 53
11.9 Limitations on Indemnification 53
11.10 Sole Remedy 54
11.11 Express Negligence Rule 54
ARTICLE 12 MISCELLANEOUS
12.1 Expenses 54
12.2 Knowledge 54
12.3 Notices 55
12.4 No Negotiations 56
12.5 Governing Law 56
12.6 Public Statements 56
12.7 Form of Payment 56
12.8 Entire Agreement; Amendments and Waivers 56
12.9 Binding Effect and Assignment 57
12.10 Severability 57
12.11 Interpretation 57
12.12 Headings and Schedules 57
12.13 Multiple Counterparts 57
SCHEDULES
Schedule 1.1(d) - KN Gas Assets
Schedule 1.3 - Working Capital
Schedule 1.3(a)(vi)(ii) - Big Spring and Springdale Volumes
Schedule 1.8 - Asset Allocation
Schedule 1.10 - 338(h)(10) Allocation
Schedule 3.3 - Subsidiaries
Schedule 3.5 - No Conflict
Schedule 3.6(a) - Violations
Schedule 3.6(b) - Claims
Schedule 3.7 - No Default
Schedule 3.9 - Financial Statements
Schedule 3.10 - No Adverse Changes
Schedule 3.11 - Liabilities
Schedule 3.12 - Taxes
Schedule 3.13(a) - Plans
Schedule 3.16 - Utility Status
Schedule 3.18 - Environmental Matters
Schedule 3.19 - Contracts and Commitments
Schedule 3.20 - KN Gas No Conflict
Schedule 3.22 - Title Defects
Schedule 3.24 - Hedging
Schedule 3.26 - Condition of Assets
Schedule 3.27 - Labor Relations
Schedule 3.30(a) - Sellers Commingling
Schedule 3.30(b) - Stock Entities and Subsidiaries Commingling
Schedule 3.31 - Employee Actions
Schedule 5.1 - Certain Changes
Schedule 5.5 - Contracts in Negotiation
Schedule 5.9 - AOG Excluded Assets
Schedule 5.13 - Sellers' Retained Liabilities
Schedule 5.14 - Protected Capacity Contracts
Schedule 8.1(a) - Available Employees
Schedule 8.1(b) - Discussion Employees
Schedule 8.1(c) - Accepted Employees
Schedule 12.2 - Knowledge
EXHIBITS
Exhibit A Form of Transition Services Agreement
Exhibit B Form of Amendment No. 1 to Agreement for Facility Connections
DEFINED TERMS
Page
Agreement 1
AOG 1
AOG Shares 1
Asset Allocation 8
Asset Schedule 5
Assumed Obligations 6
Available Employees 43
Balance Sheet Date 14
Balance Sheets 15
Bushton Guaranties 31
Bushton Lease 20
Buyer 1
Buyer Notice 42
Buyer Parties 50
Buyer Pension Plan 44
Buyer Savings Plan 44
Buyer Welfare Plans 45
Cash Consideration 2
Closing 9
Closing Date 9
Code 8
Confidentiality Agreement 30
Consolidated Adjusted Working Capital 2
Constituent Documents 56
Continued Employee 43
Contracts 6
Damages 49
Deductible 53
Easements 23
Effective Date 9
Environmental Claim 17
Environmental Laws 17
Environmental Permits 18
Equity 2
Estimated Consolidated Adjusted Working Capital 3
Excluded Assets 5
Excluded Liabilities 6
FERC 14
Final Consolidated Adjusted Working Capital 4
Financial Statements 14
First National 31
GAAP 2
Governmental Authority 14
Hazardous Materials 18
HSR Act 13
Indemnity Claim 52
IRS 16
KM LLC Agreement 38
KMI 1
KN 31
KN Gas 1
KN Gas Assets 2
KN Plan 16
KN Processing 1
KN Processing Shares 1
KN Services 1
KN Services Interests 1
Leases 6
Liens 22
Material Adverse Effect 13
Materials 5
MidCon Gas Products 1
MidCon Gas Products Shares 1
MidCon Gas Services 1
MTGS 28
Notice 55
Old Gas 5
Palo Duro 1
Palo Duro Shares 1
Permits 6
Permitted Encumbrances 23
Pre-Closing Date Period 39
Proceeding Notice 41
Property 22
Protected Capacity Contracts 34
Releases 18
Remainder Gas 5
Returns 39
Section 338 Forms 9
Section 338(h)(10) Election 8
Sellers 1
Sellers Pension Plan 44
Sellers Plans 44
Sellers Welfare Plans 45
Sellers' Parties 49
Sellers' Retained Liabilities 34
Stock Entities 2
Storage Gas Deficiency 15
Subsidiaries 12
Taxes 39
Threshold Amount 51
Transfer Date 43
Westar 51
Working Capital Category 3
STOCK AND ASSET PURCHASE AGREEMENT
This Stock and Asset Purchase Agreement ("Agreement") is
made and entered into as of February 8, 2000, by and among Kinder
Morgan, Inc., a Kansas corporation ("KMI"), Midcon Gas Services
Corp., a Delaware corporation ("MidCon Gas Services"), KN Gas
Gathering, Inc., a Colorado corporation ("KN Gas"), KN Services,
Inc., a Colorado corporation ("KN Services") and ONEOK, Inc., an
Oklahoma corporation (the "Buyer").
W I T N E S S E T H:
WHEREAS, KMI, MidCon Gas Services, KN Gas and KN Services
(collectively, the "Sellers") desire to sell (i) all of the
equity interests in certain of their subsidiaries, and (ii)
certain of their respective assets;
WHEREAS, the Buyer desires to purchase that equity and
assets from the respective Sellers and such Sellers have agreed
to sell the respective equity and assets to the Buyer on the
terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the
respective representations, warranties, covenants, agreements and
conditions contained herein, the parties hereto agree as follows:
ARTICLE 1
PURCHASE AND SALE
1.1 Transfer of Equity and Assets. Pursuant to the terms
of this Agreement, on the Closing Date (as hereinafter defined):
(a) KMI will sell, transfer, convey and assign to
Buyer all of the outstanding capital stock (the "KN Processing
Shares") of KN Processing, Inc., a Delaware corporation ("KN
Processing"), and all of the outstanding shares of capital stock
(the "AOG Shares") of American Oil and Gas Corporation, a
Delaware corporation ("AOG");
(b) MidCon Gas Services will sell, transfer, convey
and assign to Buyer all of the outstanding shares of capital
stock (the "Palo Duro Shares") of Palo Duro Pipeline Company,
Inc., a Delaware corporation ("Palo Duro") and all of the
outstanding shares of capital stock (the "MidCon Gas Products
Shares") of MidCon Gas Products Corp., a Delaware corporation
("MidCon Gas Products");
(c) KN Services will sell, transfer, convey and assign
to Buyer the 1% general partnership interests held by KN Services
(together, the "KN Services Interests") in both Interenergy
Resources, L.P, a Texas limited partnership, and KN Marketing,
L.P., a Texas limited partnership; and
(d) KN Gas will sell, transfer, convey and assign to
Buyer all of its rights, title and interests in and to the assets
specified on Schedule 1.1(d) (the "KN Gas Assets").
1.2 Consideration. On the terms and subject to the
conditions of this Agreement, on the Closing Date, the Buyer will
purchase the KN Processing Shares, the AOG Shares, the Palo Duro
Shares, the MidCon Gas Products Shares and the KN Services
Interests (collectively, the "Equity") and the KN Gas Assets in
consideration for $108,600,000 in cash paid by Buyer (the "Cash
Consideration"), subject to adjustment pursuant to Section 1.3 of
this Agreement.
1.3 Adjustment to Cash Consideration and Other Matters.
(a) The parties will make the following adjustments to
the Cash Consideration at the Closing (as hereinafter defined):
(i) In the event the Estimated Consolidated
Adjusted Working Capital (as hereinafter defined) is a negative
amount, the Cash Consideration shall be reduced by the amount of
such Estimated Consolidated Adjusted Working Capital.
(ii) In the event the Estimated Consolidated
Adjusted Working Capital is a positive amount, the Cash
Consideration shall be increased by the amount of such Estimated
Consolidated Adjusted Working Capital.
(iii) The Cash Consideration may be increased
as specified in Section 8.2(j).
(iv) The Cash Consideration shall be increased in
an amount equal to the total expenditures made by Sellers in
respect of the items set forth in Schedule 5.1 (to the extent
such funds have actually been spent subsequent to the Balance
Sheet Date and prior to Closing) up to, but not in excess of, the
individual amounts set forth on Schedule 5.1 in respect of such
items and otherwise to which the Buyer and the Sellers agree in
writing.
(v) The Cash Consideration shall be increased in
an amount equal to any payments made on the Bushton Lease (as
hereinafter defined) prior to Closing beginning with and
including the regularly scheduled payment due on May 25, 2000.
(vi) For purposes of this Agreement, the term
"Consolidated Adjusted Working Capital" shall mean the sum of:
the cash, securities and other cash equivalents, natural gas and
natural gas liquids inventories (excluding cushion gas), prepaid
expenses and other current assets of KN Processing, AOG, Palo
Duro and MidCon Gas Products (collectively, the "Stock Entities")
as at the Closing Date, less the sum of all current liabilities
of the Stock Entities as at the Closing Date and exclusive of any
intercompany accounts all as calculated in accordance with
generally accepted accounting principles ("GAAP"). Consolidated
Adjusted Working Capital shall include (i) the accounts set forth
on Schedule 1.3, (ii) the volumes listed on Schedule
1.3(a)(vi)(ii) for the twelve months subsequent to the Effective
Date as listed on Schedule 1.3(a)(vi)(ii) with respect to Big
Springs and Springdale, which values shall be priced based on the
settlement price as of the day prior to the Closing Date as
quoted on the New York Mercantile Exchange for futures contracts
for natural gas for each applicable month period less the
applicable basis differential to get to the ANR Pipeline Company,
Oklahoma region, equivalent, (iii) all gas imbalances of the
Stock Entities and the Subsidiaries, and (iv) all natural gas and
natural gas liquids inventories and imbalances related to the KN
Gas Assets. Consolidated Adjusted Working Capital shall not
include (i) any account receivables that are outstanding more
than 90 days from the date of the original invoice and in no case
should invoices dated prior to January 1, 2000 be included, (ii)
any liabilities relating to the Bushton Lease payment schedule;
provided, however, that if the Closing occurs after March 31,
2000, an accrual of $1,950,000 per month commencing April 1,
2000, or the pro rata portion thereof per day for any partial
month prior to Closing, shall be included in current liabilities
for purposes of the determination of Consolidated Adjusted
Working Capital, or (iii) long-term debt due within one year,
sinking fund requirements on preferred stock, notes payable -
bank, accrued interest, accrued federal income taxes, accrued
state income taxes and associated companies accounts receivable.
(b) No later than 5 business days prior to the
Closing, Sellers shall deliver Sellers' best reasonable estimate
of Consolidated Adjusted Working Capital ("Estimated Consolidated
Adjusted Working Capital") to Buyer, and the amount to be paid at
Closing shall be adjusted based on such estimate as set forth in
Section 1.3(a).
(c) The Sellers and the Buyer shall have up until 90
days after the Closing Date during which to verify the accuracy
of the adjustment to the Cash Consideration based on the
Estimated Consolidated Adjusted Working Capital. If neither KMI
nor the Buyer notify the other in writing within 90 days after
the Closing Date of any dispute with respect to such adjustment,
then such adjustment shall be conclusively considered to be true
and correct. If notice is timely given and KMI and Buyer are
unable to agree upon the determination of the Cash Consideration
adjustments pursuant to Section 1.3(a) within 60 days after
written notice, an accounting firm selected in the manner
hereinafter provided shall be requested to audit and determine
such adjustments. The selection of the accounting firm shall be
made by KMI from a list of three nationally recognized
independent accounting firms submitted by the Buyer. Each party
shall provide the other parties reasonable access to its books,
records, facilities and personnel as necessary to verify the
accuracy of the Estimated Consolidated Adjusted Working Capital.
(d) Within 30 days after the selection of an
accounting firm, Buyer and KMI shall each submit to the
accounting firm (with a copy to the other party) their respective
proposals for the determination of the adjustment to the Cash
Consideration, which proposals shall only be allowed to specify
proposals with respect to the following groups of accounts listed on
Schedule 1.3 and which groups may not be unbundled for purposes of the
arbitration described in this Section 1.3: (i) Cash and Marketable
Securities, (ii) Notes Receivable, Accounts Receivable and Allowance of
Doubtful Accounts, (iii) Gas in Underground Storage - Current, (iv) any
other category of current assets, (v) Accounts Payable, and (vi) any
other category of current liabilities (each of these categories, a
"Working Capital Category"). If either side fails to timely submit an
initial proposal, the proposal submitted by the other side shall be
adopted. Each proposal shall include all evidence and arguments
relied upon by the presenting party to support its conclusions.
The accounting firm shall schedule a hearing in the City of
Houston, Texas, U.S.A. at a site mutually agreeable to Buyer and
KMI not later than ten (10) days after receipt of the last
proposal. No less than 3 days prior to the hearing, each party
may submit additional information and arguments in response to
the proposal offered by the other side and the accounting firm
may ask questions of the parties.
(e) Within twenty (20) days after the last of the
proposals to be submitted is submitted and no later than ten (10)
days after the hearing, the accounting firm shall choose the
proposal related to each applicable Working Capital Category of
one of the parties which, based on the information and evidence
presented, the accounting firm determines is the better estimate
of that Working Capital Category as an adjustment to the Cash
Consideration (collectively, the determinations are the "Final
Consolidated Adjusted Working Capital"). The Final Consolidated
Adjusted Working Capital shall be final, conclusive and binding
for purposes of this Agreement.
(f) At any time prior to the issuance of a written
decision by the accounting firm, the parties may agree in writing
as to any Working Capital Category to be an adjustment to the
Cash Consideration, in which case any later issued decision of
the accounting firm shall be null and void and the process may be
halted. By agreement in writing, the parties hereto may extend
any of the time periods set forth in this Section 1.3.
(g) Buyer and KMI shall each bear their respective
costs of the process described in this Section 1.3 except that
(i) if the Final Consolidated Adjusted Working Capital includes
an equal number of determinations with respect to Working Capital
Categories in favor of each of Buyer and KMI, Buyer and KMI shall
share equally the costs and expenses of the accounting firm, and
(ii) if the Final Consolidated Adjusted Working Capital includes
more determinations as to the number of categories with respect
to Working Capital Categories in favor of either Buyer or KMI,
the other shall pay all costs and expenses of the accounting
firm.
(h) Within three business days following the delivery
of the Final Consolidated Adjusted Working Capital, KMI or the
Buyer, as the case may be, shall remit payment to the other in an
amount equal to the difference between the Estimated Consolidated
Adjusted Working Capital and the Final Consolidated Adjusted
Working Capital. Any payment shall bear interest from the
Closing Date at the rate equal to the "LIBOR Rate," as defined
below, plus 50 basis points. Payments made pursuant to this
Section 1.3 shall be made by wire transfer of immediately
available funds to an account designated by the party receiving
such payment.
For purposes of the clause (h) above, the "LIBOR Rate" shall
be the rate of interest per annum at which deposits in U.S.
Dollars are offered to major banks in the London interbank market
at approximately 11:00 a.m. (London time), as reported by the
Telerate System page 3750 or such other page as may replace such
page 3750 on such system (rounded upwards, if necessary, to the
nearest one-sixteenth of one percent) for the purpose of
reporting London Interbank Offered Rates of major banks under the
heading for British Bankers Association Interest Settlement Rates
in the column designated "USD" (U. S. Dollar), on the Closing
Date.
(i) In connection with the determination of the Final
Consolidated Adjusted Working Capital, the parties shall agree
(based on the process described above) on the amount of any
outstanding gas imbalance related to the Stock Entities and the
Subsidiaries as of the date that is 90 days prior to the
Effective Date ("Old Gas"), all of which shall be included in the
determination of the Consolidated Adjusted Working Capital.
Within 30 days after the date that is 180 days after the Closing
Date, the Sellers and the Buyer shall agree on the aggregate
value of the Old Gas remaining as of the date that is 180 days
after the Closing Date (the "Remainder Gas"). If the parties
agree on the aggregate value of the Remainder Gas, the applicable
party shall pay to the other party one-half of the difference
between the aggregate value of the Old Gas and the aggregate
value of the Remainder Gas. The Old Gas and the Remainder Gas
shall both be valued for purposes of this clause (i) as of the
Effective Date. If the parties do not agree on the aggregate
value of the Remainder Gas, the above arbitration
procedures related to the determination of the Final Consolidated
Adjusted Working Capital shall be used to determine the aggregate
value of the Remainder Gas.
(j) Buyer shall have up until 90 days after the
Closing Date during which to verify the book value of materials
and supplies included as current assets for the determination of
the Consolidated Adjusted Working Capital ("Materials"). Prior
to the date that is 90 days after the Closing Date, Buyer may
notify Sellers in writing that Buyer desires to sell to Sellers
specified Materials at the book value proposed by Sellers in
connection with the determination of the Consolidated Adjusted
Working Capital. In that case, Sellers shall purchase from Buyer
those Materials at that price as promptly after notice as
reasonably practicable. Notwithstanding the other provisions of
this Section 1.3(j), in the event any Materials, or any portion
thereof, are excluded from the Consolidated Adjusted Working
Capital pursuant to the arbitration provisions of this Section
1.3, Buyer may not cause the Sellers to purchase such Materials
pursuant to this Section 1.3(j).
(k) Cash receipts and disbursements shall be the
property and responsibility of the Buyer as of the Effective
Date.
1.4 Excluded Assets. The KN Gas Assets include only those
assets specifically listed on the Schedule 1.1(d) hereto (the
"Asset Schedule"). The KN Gas Assets do not include any asset
not specifically listed on the applicable Schedule hereto,
including, but not limited to, the following (the "Excluded
Assets"):
(a) all cash on hand, on deposit or in transit and
arising out of the operation of KN Gas or its business prior to
the Closing Date;
(b) all of the Sellers' Plans, as defined herein
below;
(c) causes of action and third-party indemnities,
policies of insurance, fidelity, surety or similar bonds and the
coverage afforded thereby other than those specifically relating
to the KN Gas Assets and identified on the appropriate Schedule
hereto;
(d) any books and records of Sellers or KN Gas
(including, but not limited to, minute books and governance
documents of Sellers) other than those specifically relating to
the KN Gas Assets and the operations thereof including those
identified on the appropriate Schedule hereto;
(e) other than a Lease (as defined below), any
contract (written or oral), plan, undertaking, commitment or
agreement (collectively, "Contracts") not listed on the Asset
Schedule;
(f) any license, permit, franchise, consent, approval
or authority (collectively, "Permits") not listed on the Asset
Schedule; and
(g) any contract (written or oral), undertaking,
commitment or agreement regarding the lease of real or personal
property (collectively, "Leases") not listed on the Asset
Schedule;
(h) subject to Section 1.7 below, each Lease, Contract
or Permit set forth on the Asset Schedule that requires the
consent to assignment by a person or entity other than KN Gas and
which consents have not been obtained on or before the Closing
Date;
(i) any Tax refund related to the KN Gas Assets or KN
Gas' business for periods ending on or prior to the Closing Date;
and
(j) any notes and accounts receivable of KN Gas not
listed on the Asset Schedule.
1.5 Assumption of Obligations. Upon the sale of the KN Gas
Assets by KN Gas in accordance with this Agreement, the Buyer
assumes and agrees to pay, perform and discharge, in a timely
manner and in accordance with the terms thereof, from and after
the Effective Date only such of the obligations of KN Gas in
respect of the following (collectively, the "Assumed
Obligations"): (i) the Permits, Contracts and Leases transferred
and assigned to Buyer hereunder in conformity with the provisions
of such Permits, Contracts and Leases disclosed on Schedule
1.1(d), and (ii) all liabilities of KN Gas for transfer, sales,
use, and other similar Taxes (as hereinafter defined) arising in
connection with the transactions contemplated by this Agreement.
The assumption by Buyer of the Assumed Obligations shall not
enlarge any rights or remedies of any third parties under any
Contracts with KN Gas. Nothing herein prevents Buyer from
contesting in good faith any of the Assumed Obligations. KN Gas
agrees to satisfy and discharge all of its liabilities that are
not assumed by Buyer pursuant to the terms of this Agreement,
whether known as of the date hereof or thereafter determined.
Sellers represent that all payments due under such Permits,
Contracts and Leases have been timely made.
1.6 Excluded Obligations and Liabilities. It is expressly
understood and agreed that, except as specifically provided in
Section 1.5, Buyer is not obligated to pay, perform or discharge
any debt, obligation, cost, expense or liability of KN Gas,
whether absolute or contingent, known or unknown (the "Excluded
Liabilities"), including, but not limited to debts, obligations,
costs, expenses and liabilities:
(a) related to any of the Excluded Assets or to any
employees of Sellers other than the Continued Employees pursuant
to Article 8;
(b) for the payables of KN Gas relating to its
business to trade accounts and other creditors whether due or
contingent, relating to the operation and ownership of the KN Gas
Assets prior to the Effective Date (except any such payables
arising from the Assumed Obligations occurring after Effective
Date);
(c) for any Taxes relating to KN Gas' business or the
KN Gas Assets for taxable periods ending on or prior to the
Effective Date;
(d) for any of the liabilities or expenses of the
Sellers incurred in the negotiation of and carrying out of its
obligations under this Agreement; or
(e) for liabilities and obligations of the Sellers to
the Buyer created by this Agreement.
Further, the Sellers shall pay directly or reimburse the Buyer
for any liabilities and expense of the Stock Entities and
Subsidiaries (as hereinafter defined) incurred solely in the
negotiation of and carrying out of the transactions contemplated
under this Agreement; provided, however, that this payment or
reimbursement requirement shall not alter the Stock Entities' and
Subsidiaries' obligations with respect to any of their respective
operational expenses or liabilities.
1.7 Nonassignable Contracts, Permits and Leases.
(a) If any Permits, Contracts or Leases set forth on the
Asset Schedule are not by their respective terms assignable, KN
Gas agrees to use its reasonable best efforts promptly to obtain,
or cause to be obtained, prior to the Closing Date, any written
consents necessary to convey to the Buyer the benefit thereof, it
being understood that such reasonable best efforts shall not
include any requirement to offer or grant financial
accommodations to any third party or to remain secondarily liable
with respect to any such Permits, Contracts or Leases. Buyer
shall cooperate with KN Gas, in such manner as may be reasonably
requested in connection therewith, including without limitation,
active participation in visits to and meetings, discussions and
negotiations with all persons or entities with the authority to
grant or withhold consent. To the extent that any such consents
cannot be obtained, KN Gas and the Buyer will use their
reasonable best efforts to take such actions as may be possible
without violation or breach of any such nonassignable Permits,
Contracts or Leases to effectively grant the applicable Buyer the
economic benefits of, and impose upon the Buyer the economic
burdens of, such Permits, Contracts and Leases.
(b) If any Permits, Contracts or Leases that are the
subject of Section 5.15 hereof are not by their respective terms
assignable, the Sellers agree to use their respective reasonable
best efforts promptly to obtain, or cause to be obtained, prior
to the Closing Date, any written consents necessary to convey to
the Stock Entities or the Subsidiaries the benefit thereof, it
being understood that such reasonable best efforts shall not
include any requirement to offer or grant financial
accommodations to any third party or to remain secondarily liable
with respect to any such Permits, Contracts or Leases. Buyer
shall cooperate with each of the Sellers, in such manner as may
be reasonably requested in connection therewith, including
without limitation, active participation in visits to and
meetings, discussions and negotiations with all persons or
entities with the authority to grant or withhold consent. To the
extent that any such consents cannot be obtained, each of the
Sellers and the Buyer will use their reasonable best efforts to
take such actions as may be possible without violation or breach
of any such nonassignable Permits, Contracts or Leases to
effectively grant the Stock Entities or the Subsidiaries the
economic benefits of, and impose upon the Stock Entities and the
Subsidiaries the economic burdens of, such Permits, Contracts and
Leases.
1.8 Asset Allocation. Sellers and Buyer shall agree on or
before the Closing to allocate the Cash Consideration (together
with any assumed liabilities and all other capitalizable costs)
for the KN Gas Assets (the "Asset Allocation"). The Asset
Allocation shall be set forth on Schedule 1.8 to be delivered at
Closing. Such Asset Allocation shall be prepared in accordance
with the residual method described in the Treasury Regulations
promulgated under Code Section 338(b)(5). The Sellers and the
Buyer further agree to comply with all filing, notice and
reporting requirements described in Code Section 1060 and the
temporary Treasury Regulations promulgated thereunder, including
the timely preparation and filing of Form 8594 based on the Asset
Allocation. The Sellers and the Buyer hereby agree that they
will report the federal, state, foreign and other Tax
consequences of the transactions contemplated by this Agreement
in a manner consistent with the Asset Allocation.
1.9 Apportionments; Post-Closing Adjustments. At the
Closing, the following items shall be apportioned as of 11:59
p.m. on the day preceding the Effective Date: (a) property
taxes, utility charges and other state, county and municipal
taxes and assessments and charges affecting the KN Gas Assets;
(b) rents and other payments under any of the Leases and
Contracts included in the KN Gas Assets; and (c) such other items
as are customarily apportioned in connection with the sale of
property such as the KN Gas Assets, all such items prior to such
time being for the account of Sellers and all such items after
such time being the account of Buyer. At the Closing, Sellers or
Buyer, as the case may be, shall deliver to the other a check or
wire transfer for the net amount owing under this Section 1.9.
If any such items cannot accurately be apportioned at the Closing
or prior thereto, or if it is later determined that such
apportionment at Closing was not accurate, such items shall be
apportioned or reapportioned, as the case may be, as soon as
practicable after the Closing Date or the date on which the
apportionment error is discovered, as applicable, but in no event
more than 120 days after the Closing Date.
1.10 Section 338(h)(10) Election. The Buyer and the Sellers
are eligible to and shall make a timely and effective joint
election (the "Section 338(h)(10) Election") under Section
338(h)(10) of the Internal Revenue Code of 1986, as amended (the
"Code") and applicable similar provisions of state and local law
with regard to the purchase of the Equity and the equity of the
Subsidiaries. The Sellers shall furnish information in a timely
manner such that all necessary documents for filing can be
prepared and available no later than 90 days prior to the due
date of the filings. The Buyer shall be responsible for, and
control, the preparation and filing of such election. The
allocation of purchase price among the assets of Stock Entities
shall be determined by the Sellers and Buyer on or before the
Closing, shall be set forth on Schedule 1.10 to be delivered at
Closing, and shall be made in the manner required by Sections 338
and 1060 of the Code and the Treasury Regulations promulgated
thereunder, and any comparable provisions of state, local or
foreign law or regulations as appropriate. Such allocation shall
be used for purposes of determining the modified aggregate deemed
sales price under the applicable Treasury Regulations and in
reporting the deemed sale of assets of the Stock Entities in
connection with the 338(h)(10) Election. The Buyer and Sellers
shall report, act, and file in all respects and for all purposes
consistent with the allocation set forth on Schedule 1.10 to be
delivered at Closing. The Sellers, as applicable, shall execute
and deliver to the Buyer such documents or forms (including
Section 338 Forms, as defined below) as the Buyer shall request
or as are required by applicable law for an effective 338(h)(10)
Election. "Section 338 Forms" shall mean all returns, documents,
statements, and other forms that are required to be submitted to
any federal, state, county or other local taxing authority in
connection with a 338(h)(10) Election, including, without
limitation, any "statement of Section 338 election" and Internal
Revenue Service Form 8023 (together with any schedules or
attachments thereto) that are required pursuant to the applicable
Treasury Regulations.
ARTICLE 2
CLOSING
2.1 Closing. Subject to the satisfaction or waiver of the
conditions to closing set forth in Article 6, the closing (the
"Closing") of the acquisition of the Equity and the KN Gas Assets
contemplated hereby shall be held at the offices of Bracewell &
Patterson, L.L.P. at 711 Louisiana Street, Suite 2900, Houston,
Texas on or before the fifth business day following the
satisfaction of the conditions set forth in Article 6 (including
any extension pursuant to Section 6.1(g)) commencing at 9:00
a.m., Houston, Texas time or such other place, date and time as
may be mutually agreed upon by the parties hereto; provided,
however, that the Closing shall be effective as of the first day
of the month in which the Closing occurs (the "Effective Date").
The "Closing Date," as referred to herein, shall mean the date of
the Closing.
2.2 Deliveries at the Closing. At or before the Closing:
(a) KMI will deliver, or cause to be delivered, to
Buyer the certificates representing all of the KN Processing
Shares and the AOG Shares, together with stock powers duly
endorsed by KMI so that the KN Processing Shares and the AOG
Shares may be duly registered in the applicable Buyer's name;
(b) MidCon Gas Services will deliver, or cause to be
delivered, to Buyer the certificates representing all of the Palo
Duro Shares and the MidCon Gas Products Shares, together with
stock powers duly endorsed by MidCon Gas Services so that the
Palo Duro Shares and the MidCon Gas Products Shares may be duly
registered in the Buyer's name;
(c) KN Services will deliver, or cause to be
delivered, to Buyer acknowledgment from the applicable limited
partners so that the KN Services Interests may be duly registered
in the Buyer's name;
(d) KN Services shall transfer ownership of the KN
Services Interests to Buyer by delivery of fully executed
transfer documents in such form as shall be reasonably
satisfactory to KN Services and Buyer;
(e) KN Gas shall transfer ownership of the KN Gas
Assets to Buyer by delivery of fully executed documents in such
form as shall be reasonably satisfactory to KN Gas and Buyer;
(f) Sellers shall deliver resignations of all officers
and directors of the Stock Entities and the Subsidiaries as of
the Closing Date;
(g) Sellers will deliver, or cause to be delivered, to
the Buyer (i) the officers' certificate referred to in Section
6.1(a), (ii) the opinion of Seller's counsel referred to in
Section 6.1(b), and (iii) all the other documents, certificates
and other instruments required to be delivered or caused to be
delivered by the Sellers, the Stock Entities or the Subsidiaries
pursuant hereto;
(h) KMI and Buyer will execute and deliver a
Transition Services Agreement in the form of Exhibit "A" attached
hereto;
(i) KN Gas, KM Interstate and Buyer will execute and
deliver an Amendment No. 1 to Agreement for Facility Connections
in the form of Exhibit "B" attached hereto;
(j) Sellers shall deliver a list of all Environmental
Permits (as hereinafter defined) that, to the Sellers' knowledge,
are held by the Stock Entities or the Subsidiaries or related to
the assets thereof or the KN Gas Assets; and
(k) Buyer will deliver, or cause to be delivered, to
the Sellers: (i) the Cash Consideration, adjusted as applicable
as of the Closing Date as set forth in Section 1.3; (ii) the
officer's certificate referred to in Section 6.2(a), and (iii)
all the other documents, certificates and other instruments
required to be delivered or caused to be delivered by the Buyer
pursuant hereto.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE SELLER
Each Seller hereby represents and warrants, severally and
not jointly with respect to the representations and warranties
applicable solely to the applicable Seller, to the Buyer that as
of the date hereof and as of the Closing Date:
3.1 Organization and Existence. KMI is duly incorporated,
validly existing and in good standing under the laws of the State
of Kansas. MidCon Gas Services is duly incorporated, validly
existing and in good standing under the laws of the State of
Delaware. KN Gas is duly incorporated, validly existing and in
good standing under the laws of the State of Colorado. KN
Services is duly incorporated, validly existing and in good
standing under the laws of the State of Colorado. Each of the
Stock Entities is a corporation duly incorporated, validly
existing and in good standing under the laws of the state of
their respective state of incorporation. Each Seller and each
Stock Entity has full corporate power and authority to own and
hold the properties and assets it now owns and holds and to carry
on its business as and where such properties are now owned or
held and such business is now conducted. Each Seller and each
Stock Entity is duly licensed or qualified to do business as a
foreign corporation and is in good standing in the states in
which the character of the properties and assets now owned or
held by it or the nature of the business now conducted by it
requires it to be so licensed or qualified, except where the
failure to be so qualified or in good standing would not
reasonably be expected to have a material adverse effect on the
business, financial condition or results of operations of the
respective Seller or Stock Entity or adversely affect the ability
of the Sellers to consummate the transactions contemplated by
this Agreement. True and correct copies of the Certificate of
Incorporation and by-laws of the above-described corporations, in
effect as of the date of this Agreement, have been delivered to
Buyer by Sellers.
3.2 Capitalization of the Stock Entities.
(a) The authorized capital stock of KN Processing
consists of 1,000,000 shares of common stock, $10.00 par value
per share, of which 1,000,000 shares are issued and outstanding,
fully paid and nonassessable. The authorized capital stock of
AOG consists of 1,000 shares of common stock, par value $1.00 per
share, and of which 1,000 shares are issued and outstanding,
fully paid and nonassessable. The authorized capital stock of
Palo Duro consists of 1,000 shares of common stock, $1.00 par
value per share, of which 1,000 shares are issued and
outstanding, fully paid and nonassessable. The authorized
capital stock of MidCon Gas Products consists of 1,000 shares of
common stock, $1.00 par value per share, of which 1,000 shares
are issued and outstanding, fully paid and nonassessable.
(b) The KN Processing Shares and the AOG Shares are
owned beneficially and of record by KMI, free and clear of all
security interests, liens, charges, encumbrances and rights of
others. The Palo Duro Shares and the MidCon Gas Products Shares
are owned beneficially and of record by MidCon Gas Services, free
and clear of all security interests, liens, charges, encumbrances
and rights of others. The KN Services Interests are owned
beneficially and of record by KN Services, free and clear of all
security interests, liens, charges, encumbrances and rights of
others, other than pursuant to the limited partnership agreements
of the Partnerships.
(c) The KN Gas Assets are owned by KN Gas free and
clear of all security interests, liens, charges, encumbrances and
right of others, except for Permitted Encumbrances as set forth
in Section 3.22.
(d) There are no outstanding subscriptions, options,
convertible securities, warrants, calls, rights or agreements or
commitments of any kind (issued or granted by, or binding upon,
Sellers, the Stock Entities or the Subsidiaries) to purchase or
otherwise acquire any security of or equity interest in any of
the Stock Entities. KMI, MidCon Gas Services and KN Services,
respectively, have full legal right to sell, assign and transfer
the Equity to the Buyer and will, upon delivery of the Equity to
the Buyer pursuant to the terms hereof, transfer to the Buyer, as
applicable, good and valid title to the Equity free and clear of
all liens, security interests, claims, charges, encumbrances,
rights, options to purchase, voting trusts or other voting
agreements and calls and commitments of every kind affecting the
Equity.
3.3 Subsidiaries.
(a) Set forth on Schedule 3.3 is a true and correct
list of (i) each of the Stock Entities' direct or indirect
investment or interest in or control over any other corporation,
partnership, joint venture, limited liability company or other
business entity, whether incorporated or unincorporated (the
"Subsidiaries"), (ii) the jurisdiction of incorporation or
formation for each of the Subsidiaries, and (iii) each foreign
jurisdiction where each of the Subsidiaries is duly licensed or
qualified to do business as a foreign corporation or partnership,
as applicable.
(b) Each of the Subsidiaries is an entity validly
existing and in good standing under the laws of the State in
which it was formed and has full power and authority to own and
hold the properties and assets it now owns and holds and to carry
on its business as and where such properties and assets are now
owned or held and such business is now conducted. Each of the
Subsidiaries is duly qualified and in good standing in the states
in which the character of the properties and assets now owned or
held by it or the nature of the business now conducted by it
requires it to be so licensed or qualified, except where the
failure to be so qualified or in good standing would not
reasonably be expected to have a material adverse effect on the
business, financial condition or results of operations of the
respective Subsidiary or adversely affect the ability of the
Sellers to consummate the transactions contemplated by this
Agreement. Other than the Subsidiaries, the Stock Entities have
no direct or indirect investment or interest in or control over
any other corporation, partnership, joint venture, limited
liability company or other business entity, whether incorporated
or unincorporated. There are no outstanding subscriptions,
options, convertible securities, warrants, calls, rights, or
agreements or commitments of any kind (issued or granted by, or
binding upon, the Stock Entities or the Subsidiaries) to purchase
or otherwise acquire any security of or equity interest in any of
the Subsidiaries. The capital interests in all Subsidiaries are
free and clear of all liens, security interests, claims, charges,
encumbrances, rights, options to purchase, voting trusts or other
voting agreement and calls and commitments of every kind
affecting the Subsidiary (other than such that may be contained
in an applicable partnership agreement for a Subsidiary with
respect to a partnership interest in that Subsidiary) and the
holders thereof have good and valid title to such interests.
(c) True and correct copies of the organizational
documents of the Subsidiaries, in effect as of the date of this
Agreement, have been furnished by Sellers to the Buyer.
3.4 Authority and Approval. The Sellers have the corporate
power and authority to execute and deliver the Constituent
Documents (as hereinafter defined), to consummate the
transactions contemplated hereby and to perform all the terms and
conditions hereof to be performed by them. The execution and
delivery by the Sellers of the Constituent Documents, the
performance by the Sellers of all the terms and conditions hereof
to be performed by them and the consummation of the transactions
contemplated hereby have been duly authorized and approved by all
requisite corporate action of Sellers. The Constituent Documents
constitute the valid and binding obligation of the Sellers
enforceable in accordance with their terms, except as such
enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting
enforcement of creditors' rights generally and by general
principles of equity (whether applied in a proceeding at law or
in equity).
3.5 No Conflict. Except as set forth in Schedule 3.5
hereto, this Agreement and the execution and delivery hereof by
the Sellers do not, and the fulfillment and compliance with the
terms and conditions hereof and the consummation of the
transactions contemplated hereby will not:
(a) conflict with any of, or require the consent of
any person or entity under, the terms, conditions or provisions
of the charter documents or bylaws or equivalent governing
instruments of the Sellers, the Stock Entities or the
Subsidiaries;
(b) violate any provision of, or require any consent,
authorization or approval under, any law, statute, ordinance,
rule or regulation or any judicial, administrative or arbitration
order, award, judgment, writ, injunction or decree applicable to
the Sellers, the Stock Entities or the Subsidiaries except for
the consents or filings required by the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 ("HSR Act");
(c) conflict with, result in a breach of, constitute a
default under (whether with notice or the lapse of time or both),
or accelerate or permit the acceleration of the performance
required by or any remedies or any rights of termination or
cancellation or the loss of benefits or change in the rights or
obligations of any party, or require any consent, authorization
or approval under (i) any indenture, mortgage or lien, or, any
Contract, Permit, Lease or other instrument to which the Sellers,
the Stock Entities or any of the Subsidiaries is a party or by
which any of them is bound or to which any property of the
Sellers, the Stock Entities or any of the Subsidiaries is
subject, or (ii) any Contracts, Permits or Leases that are
included in the KN Gas Assets, except in the case of clause (i)
or (ii), for those which in the aggregate would not reasonably be
expected to have a material adverse effect on the business,
financial condition or results of operations of the KN Gas
Assets, the Stock Entities and the Subsidiaries, taken as a
whole, or on the ability of the Sellers to consummate the
transactions contemplated by this Agreement (a "Material Adverse
Effect"); or
(d) result in the creation of any material lien,
charge or encumbrance on the Equity, the KN Gas Assets or the
assets of the Stock Entities or their Subsidiaries under any
indenture, mortgage, lien, Lease or Contract.
3.6 Laws and Regulations; Litigation.
(a) Except as set forth in Schedule 3.6(a), and except
for those violations which would not reasonably be expected to
have a Material Adverse Effect, the Stock Entities and their
Subsidiaries and KN Gas are not, to the knowledge of the Sellers,
in violation of or in default under any law, statute, ordinance,
rule or regulation (not including any Environmental Laws (as
hereinafter defined) that are the subject of Section 3.18), or
under any order of any court or federal, state, municipal or
other governmental department, commission, board, bureau, agency
or instrumentality (each, a "Governmental Authority") applicable
to them.
(b) Except to the extent set forth in Schedule 3.6(b)
or for the litigation set forth on Schedule 5.13, as of the date
hereof there are no claims, fines, actions, suits, demands,
investigations or proceedings pending or, to the knowledge of the
Sellers, threatened in writing against or affecting the Stock
Entities or their Subsidiaries, at law or in equity, or before or
by any Governmental Authorities having jurisdiction over the
Stock Entities and their Subsidiaries and KN Gas for which
specific claims have been made in excess of $375,000.
3.7 No Default. Except as set forth in Schedule 3.7, the
Stock Entities and their Subsidiaries and KN Gas are not in
default under, and no condition exists that with notice or lapse
of time or both would constitute a default under, (i) any
mortgage, loan agreement, indenture, evidence of indebtedness or
other instrument evidencing borrowed money to which it or any of
its properties are bound, (ii) any judgment, order, award, writ,
decree or injunction of any Governmental Authority, or (iii) any
other material agreement, except for such defaults and conditions
that, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect.
3.8 Licenses. Other than as described in Section 11.2(m),
the Sellers, in respect to the KN Gas Assets, the Stock Entities
and the Subsidiaries hold all licenses (including radio licenses
frequency licenses and tower licenses, all of which are either
held or will be held as of the Closing), franchises, permits,
certificates and/or other authorizations necessary for the lawful
conduct of their respective businesses, including, but not
limited to, all regulatory certificates of public convenience and
necessity and/or other authority or orders (including those from
the Federal Energy Regulatory Commission ("FERC")), and all other
licenses or approvals needed to perform the services and the
transactions that the Stock Entities, the Subsidiaries and the
Sellers in respect of the KN Gas Assets perform in interstate
commerce with respect to the transportation or sale of natural
gas, except for which the failure to hold would not, individually
or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
3.9 Financial Statements. Attached hereto as Schedule 3.9
are true and correct copies of the following financial statements
(the "Financial Statements"):
(a) the consolidated balance sheets of AOG as of
December 31, 1998, and December 31, 1999 (the "Balance Sheet
Date") and consolidated statements of income for AOG for the
fiscal years ended December 31, 1998 and December 31, 1999;
(b) the balance sheets of KN Processing as of December
31, 1998, and the Balance Sheet Date and statements of income for
KN Processing for the fiscal years ended December 31, 1998 and
December 31, 1999;
(c) the balance sheets of Palo Duro as of December 31,
1998, and the Balance Sheet Date and consolidated statements of
income for Palo Duro for the fiscal years ended December 31, 1998
and December 31, 1999; and
(d) the balance sheets of MidCon Gas Products as of
December 31, 1998, and the Balance Sheet Date and consolidated
statements of income for MidCon Gas Products for the fiscal years
ended December 31, 1998 and December 31, 1999.
Except for the storage gas deficiency of American Gas Storage,
L.P. which is already reflected in the amount of the Cash
Consideration (the "Storage Gas Deficiency"), the Financial
Statements have been prepared from the books and records of the
applicable Stock Entity and fairly present in all material
respects, in accordance with GAAP consistently applied (except as
noted therein, and except, in the case of unaudited interim
financial statements, for normal year-end adjustments), the
financial condition of the Stock Entities as and at the
respective dates and the results of their operations for the
period covered thereby consistent with the expected disposition
of the balances for the transactions contemplated by this
Agreement.
3.10 No Adverse Changes. Except as disclosed in Schedule
3.10, for actions or items required or allowed under Article 5 of
this Agreement and for changes in the ordinary course of business
or due to matters that generally affect the economy or the
industry in which the Sellers or the Stock Entities are engaged,
since the Balance Sheet Date, there have been no material adverse
changes in (a) the assets, liabilities or financial condition of
the Stock Entities and their Subsidiaries, taken as a whole, from
that set forth in the balance sheets dated December 31, 1999
included in the Financial Statements (the "Balance Sheets"), (b)
the business, financial condition or results of operations of the
Stock Entities and their Subsidiaries, taken as a whole, or (c)
the KN Gas Assets.
3.11 Liabilities. Except as set forth on Schedule 3.11 or
as otherwise set forth on the Balance Sheets or reflected in the
notes thereto, neither the Stock Entities nor their Subsidiaries
have any obligations or liabilities (whether accrued, absolute,
contingent, unliquidated or otherwise, whether due or to become
due) that would individually or in the aggregate reasonably be
expected to have a Material Adverse Effect, other than
contractual liabilities incurred in the ordinary course of
business which are not required to be disclosed on the Balance
Sheets under GAAP and other than normal and ordinary liabilities
which have arisen after the Balance Sheet Date in the ordinary
course of business, consistent with past practices.
3.12 Taxes. Except as set forth in Schedule 3.12 or as
would not reasonably be expected to have a Material Adverse
Effect: (a) all Returns (as hereafter defined) required to be
filed by or on behalf of the Stock Entities and their
Subsidiaries, have been duly filed on a timely basis (taking into
account all extensions of due dates) and such Returns are true,
complete and correct; (b) all Taxes shown payable on such Returns
have been paid in full on a timely basis and no other Taxes are
payable by the Stock Entities and to the knowledge of Sellers,
their Subsidiaries, with respect to items or periods covered by
such Returns; (c) the Stock Entities and their Subsidiaries, have
withheld and paid over all Taxes required to have been withheld
and paid over, and complied with all information reporting and
backup withholding requirements, in connection with amounts paid
or owing to any employee, creditor, independent contractor, or
other third party; (d) there are no liens on any of the assets of
the Stock Entities and their Subsidiaries, with respect to Taxes,
other than liens for Taxes not yet due and payable or for Taxes
that the Stock Entities and their Subsidiaries are contesting in
good faith through appropriate proceedings and for which
appropriate reserves have been established; (e) there are no
outstanding agreements or waivers by or with respect to the Stock
Entities or to the knowledge of Sellers, the Subsidiaries,
extending the period for assessment or collection of any Taxes;
(f) there is no pending action, proceeding or investigation for
assessment or collection of Taxes with respect to the Stock
Entities and their Subsidiaries; and (g) Sellers have no
knowledge of any claim, contingent liability or other outstanding
obligation for Taxes related to the Stock Entities or the
Subsidiaries.
3.13 Plans.
(a) Schedule 3.13(a) includes a complete list of the
vacation, floating holiday and wellness and sick leave programs
referred to in Section 8.1.
(b) With respect to each plan or program listed on
Schedule 3.13(a), Sellers have delivered or made available to
Buyer a true, correct and complete copy of all plan documents and
the current summary plan documents.
(c) The KN Energy, Inc. Profit Sharing and Savings
Plan (the "KN Plan") has received a favorable determination from
the United States Internal Revenue Service (the "IRS") that it is
qualified and that its related trust has been determined to be
exempt from taxation under Section 501(a) of the Code. Such
determination letter remains in effect and has not been revoked.
No issue concerning qualification of the KN Plan is pending
before or, to the knowledge of Sellers, threatened by the IRS.
The KN Plan has been administered in substantial compliance with
the applicable requirements of the Code, the Employee Retirement
Income Security Act of 1974, as amended, and other applicable
laws, and according to its terms, except for those terms which
are inconsistent with any changes required by statutes,
regulations, and rulings for which amendments are not yet
required to be made, in which case the KN Plan has been
administered in accordance with the provisions of the statutes,
regulations, and rulings. Neither Sellers, any affiliate, nor,
to the knowledge of Sellers, any fiduciary of the KN Plan has
done anything which would adversely affect the qualified status
of the KN Plan or its related trust.
3.14 Accurate and Complete Records. The books, ledgers,
financial records and other records of the Stock Entities and
their Subsidiaries for the period of time which is not less than
five years prior to the date hereof:
(a) are, or will be as of the Closing Date, in the
possession of the Stock Entities and their Subsidiaries, as
applicable;
(b) have been, in all material respects, maintained in
accordance with all applicable laws, rules and regulations and
generally accepted standards of practice; and
(c) are accurate and complete and do not contain or
reflect any material discrepancies.
3.15 Brokerage Arrangements. Neither the Stock Entities,
their Subsidiaries nor the Sellers have entered (directly or
indirectly) into any agreement with any person, firm or
corporation that would obligate the Buyer, the Stock Entities or
their Subsidiaries to pay any commission, brokerage or "finder's
fee" or other fee in connection with this Agreement or the
transactions contemplated herein other than an agreement with
Merrill Lynch & Co., the fees of whom will be paid by the
Sellers.
3.16 Utility Status. Except as set forth in Schedule 3.16,
none of the Sellers, the Stock Entities nor their Subsidiaries is
subject to regulations as (a) a "holding company" or a "public
utility company" or a "gas utility company" or as a "subsidiary
company" as those terms are defined in the Public Utility Holding
Company Act of 1935, as amended, (b) a "natural gas company"
under the Natural Gas Act, as amended, or (c) a public utility or
public service company (or similar designation) by any state in
the United States or by any foreign country.
3.17 Bankruptcy. There are no bankruptcy, reorganization or
arrangement proceedings pending against, being contemplated by,
or to knowledge of Sellers, threatened against the Sellers, the
Stock Entities or their Subsidiaries.
3.18 Environmental Matters.
(a) Definitions. As used in this Agreement:
(i) "Environmental Claim" means any and all
written administrative, regulatory or judicial actions, suits,
demand, demand letters, claims, liens, investigations,
proceedings or notices of noncompliance or violation by any
person or entity (including any Governmental Authority) alleging
potential liability (including, without limitation, potential
liability for enforcement, investigatory costs, damages,
contribution, indemnification, cost recovery, compensation,
injunctive relief, cleanup costs, governmental resource costs,
removal costs, remedial costs, natural resources damages,
property damages, personal injuries or penalties) arising out of,
based on or resulting from (A) the presence, or Release or
threatened Release into the environment, of any Hazardous
Materials at any location operated, leased or managed as the
Assets or by the Stock Entities or the Subsidiaries; or (B) any
violation of any Environmental Law; or (C) any and all claims by
any third party resulting from the presence or release of any
Hazardous Materials.
(ii) "Environmental Laws" means all federal, state
and local laws, rules and regulations relating to pollution or
protection of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface
or subsurface strata), including, without limitation, laws and
regulations relating to Releases or threatened Releases of
Hazardous Materials, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials.
(iii) "Hazardous Materials" means (a) any
petroleum or petroleum products, radioactive materials, asbestos
in any form that is or could become friable, urea formaldehyde
foam insulation, and transporters or other equipment that
contained dielectric fluid containing polychlorinated biphenyls;
and (b) any chemicals, materials or substances which are now
defined as or included in the definition of "hazardous
substances," "hazardous wastes," "hazardous materials,"
"extremely hazardous wastes," "restricted hazardous wastes,"
"toxic substances," "toxic pollutants," or words of similar
import under any Environmental Law; and (c) any other chemical
material, substances or waste, exposure to which is now
prohibited, limited or regulated under Environmental Law in a
jurisdiction in which the Stock Entities or the Subsidiaries
operate or the KN Gas Assets are operated.
(iv) "Releases" means any release, spill,
emission, leaking, injection, deposit, disposal, discharge,
dispersal, leaching or migration into the atmosphere, soil,
surface water, groundwater or property.
(b) Compliance. Each of the Sellers in respect to the
KN Gas Assets and the Stock Entities and the Subsidiaries is in
compliance with all applicable Environmental Laws, except where
the failure to be in compliance would not reasonably be expected
to have a Material Adverse Effect. Neither the Sellers in
respect to the KN Gas Assets nor the Stock Entities or the
Subsidiaries has received any written communication that alleges
that the Sellers in respect to the KN Gas Assets and the Stock
Entities and the Subsidiaries is not in compliance with
applicable Environmental Laws, except where the failure to be in
compliance would not reasonably be expected to have a Material
Adverse Effect. To the knowledge of the Sellers, neither the
Sellers in respect to the KN Gas Assets nor the Stock Entities or
the Subsidiaries has used any waste disposal site, or otherwise
disposed of, or transported, or arranged for the transportation
of, any Hazardous Materials to any location in violation of any
Environmental Law except where the effect of such violation would
not reasonably be expected to have a Material Adverse Effect.
(c) Environmental Permits. Except as set forth in
Schedule 3.18, each of the Sellers in respect to the KN Gas
Assets, the Stock Entities and the Subsidiaries, as applicable,
has obtained or has applied for all environmental, health and
safety permits and authorizations (collectively, the
"Environmental Permits") necessary for the construction of their
facilities or the conduct of their operations, and all such
permits are in good standing or, where applicable, a renewal
application has been timely filed and is pending agency approval,
and the Sellers in respect to the KN Gas Assets, the Stock
Entities and the Subsidiaries, as applicable, are in material
compliance with all terms and conditions of the Environmental
Permits, in each case except where the failure to obtain or be in
compliance with such Environmental Permit or the requirement to
make any expenditure in connection with such Environmental Permit
would not have a Material Adverse Effect. Schedule 3.18 also
sets forth a list of all categories of Environmental Permits
involving yearly rental payments or receipts in excess of
$250,000.
(d) Environmental Claims. To the knowledge of the
Sellers, there is no Environmental Claim pending (i) against the
Sellers in respect to the KN Gas Assets, the Stock Entities or
the Subsidiaries, as applicable, (ii) against any person or
entity whose liability for any Environmental Claim the Sellers,
the Stock Entities and the Subsidiaries have retained or assumed
either contractually or by operation of law, or (iii) against any
real or personal property or operations that the Sellers, the
Stock Entities and the Subsidiaries owns, leases or manages, in
whole or in part, which, in the case of clauses (i), (ii) and
(iii), would reasonably be expected to have, in the aggregate, a
Material Adverse Effect.
(e) Releases. Except as set forth in Schedule 3.18,
the Sellers have no knowledge of any Releases of any Hazardous
Material that would reasonably be expected to form the basis of
any Environmental Claims against the Sellers in respect to the KN
Gas Assets, the Stock Entities or the Subsidiaries, as
applicable, or against any person or entity whose liability for
any Environmental Claim the Seller, the Stock Entities and the
Subsidiaries has retained or assumed either contractually or by
operation of law, except for Releases of Hazardous Materials, the
liability for which would not reasonably be expected to have, in
the aggregate, a Material Adverse Effect.
(f) Predecessors. The Sellers have no knowledge, with
respect to any predecessor of the Sellers in respect to the KN
Gas Assets, the Stock Entities or the Subsidiaries, as
applicable, of any Environmental Claim pending or threatened, or
of any Release of Hazardous Materials that would reasonably be
expected to form the basis of any Environment Claim, that would
reasonably be expected to have a Material Adverse Effect.
(g) Disclosure. With respect to the Stock Entities,
the Subsidiaries and the KN Gas Assets, the Sellers have no
knowledge of any material facts that the Sellers reasonably
believe would form the basis of a Material Adverse Effect arising
from (i) the cost of pollution control equipment currently
required or known to be required in the future, or (ii) current
remediation costs or remediation costs known to be required in
the future.
3.19 Contracts and Commitments.
(a) Schedule 3.19 contains a complete and accurate
list of all Contracts (including, without limitation,
intercompany contracts) of the following categories to which any
of the Stock Entities or their Subsidiaries is a party or by
which any of them is bound including any Contracts subject to
Section 5.5, as of the date of this Agreement:
(i) the individual severance agreements
referenced in Section 8.2(f)(i) and all employment, personal
services, consulting, noncompetition, severance, golden parachute
or employee, officer or director indemnification contracts;
(ii) (1) all Contracts pertaining to the purchase
and sale of natural gas in all its forms and all other
hydrocarbons (including liquid products) having a term of more
than twenty-seven days or involving the payment or receipt of
more than $250,000 per month of cash or other value; (2) all
Contracts pertaining to the processing, treating, compression,
gathering, storage, exchange, transportation or transmission of
natural gas in all its forms and all other hydrocarbons
(including liquid products) involving the payment or receipt of
more than $100,000 per month of cash or other value;
(iii) all Contracts, Leases, or Permits (other
than Environmental Permits) involving yearly rental payments or
receipts in excess of $250,000 including without limitation all
fee properties, leases, easements and rights of way associated
with the Equipment Lease-Undivided Interest dated as of November
26, 1991, between The First National Bank of Chicago, as Trustee,
and Enron Gas Processing Company and the Site Lease and Easement
Agreement dated as of that date between such parties (the
"Bushton Lease");
(iv) Promissory notes, loans, agreements,
indentures, evidences of indebtedness or other instruments
providing for the lending of money, whether as borrower, lender
or guarantor, in excess of $250,000 and all related security
agreements or similar agreements associated therewith;
(v) Contracts containing covenants limiting the
freedom of the Stock Entities and their Subsidiaries to engage in
any line of business or compete with any person or operate at any
location, including, without limitation, any preferential rights
granted to third parties;
(vi) Any Contract pending for the acquisition or
disposition, directly or indirectly (by merger or otherwise) of
assets with a value in excess of $25,000 (other than inventory)
or capital stock of the Stock Entities and their Subsidiaries;
(vii) Contracts between the Stock Entities and
their Subsidiaries, on one hand, and the Sellers or any affiliate
of the Sellers on the other hand;
(viii) All Contracts pertaining to the
ownership, operation, or maintenance of any and all facilities of
the Stock Entities and their Subsidiaries having a term greater
than 90 days and having a value in excess of $250,000;
(ix) Any other agreement of the Stock Entities and
their Subsidiaries which requires annual payments to be made or
received in excess of $250,000 or are not cancelable with ninety
(90) days' notice, including the Bushton Guaranties (as
hereinafter defined); and
(x) A listing of all Contracts entered into
between the Stock Entities and Subsidiaries with either the
Sellers or their affiliates since December 1, 1999 that are not
cancelable upon 30 days notice.
(b) True copies of the written Contracts, and accurate
written summaries of the oral Contracts, identified in Schedule
3.19 have been made available to the Buyer. Except as set forth
in Schedule 3.19, neither the Stock Entities nor the Subsidiaries
is and, to the knowledge of Sellers, no other party is in default
under, or in breach or violation of (and no event has occurred
which, with notice or the lapse of time or both, would constitute
a default under, or a breach or violation of) any term, condition
or provision of any Contract identified on Schedule 3.19 except
for defaults, breaches, violations or events which, individually
or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect. Other than Contracts which have
terminated or expired in accordance with their terms, each of the
Contracts identified on Schedule 3.19 constitutes valid, binding
and enforceable obligations of the Stock Entities, the
Subsidiaries or Sellers and Sellers' affiliates to the extent
they are parties thereto and, to the knowledge of Sellers,
enforceable obligations of any other party thereto, in accordance
with its terms (subject to the effects of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights
generally, general equitable principles (whether considered on a
proceeding in equity or at law) and an implied covenant of good
faith and fair dealing) and is in full force and effect. No
event has occurred which either entitles, or would, upon notice
or lapse of time or both, entitle the holder of any indebtedness
for borrowed money affecting the Stock Entities and their
Subsidiaries to accelerate, or which does accelerate, the
maturity of any indebtedness affecting the Stock Entities and
their Subsidiaries. Except as set forth in Schedule 3.19, (1)
none of Sellers, Sellers' affiliates, the Stock Entities or their
Subsidiaries have received any prepayment, advance payment,
deposits or similar payments, and have no refund obligation, with
respect to any gas or products purchased, sold, gathered, stored
or processed by or on behalf of the Stock Entities and their
Subsidiaries; (2) none of Sellers, Sellers' affiliates, the
Stock Entities or their Subsidiaries have received any
compensation for gathering, storage or processing services which
would be subject to any refund or create any repayment obligation
either by or to the Stock Entities and their Subsidiaries, and to
the knowledge of Sellers, there is no basis for a claim that a
refund is due; and (3) with regard to gas gathering, processing,
storage and sales Contracts in effect as of the Closing Date, the
Stock Entities and their Subsidiaries will be entitled to receive
the full contract price in accordance with the terms of each such
contract for all gas and products gathered, processed and/or sold
on and after the Closing Date.
3.20 Assets.
(a) The Asset Schedule contains a complete and
accurate list of the KN Gas Assets.
(b) True copies of the written Contracts and Leases,
and accurate written summaries of the oral Contracts and Leases,
identified in the Asset Schedule have been made available to the
Buyer. Except as set forth in Schedule 3.20, KN Gas is not, and
to the knowledge of Sellers, no other party is in default under,
or in breach or violation of (and no event has occurred which,
with notice of the lapse of time or both, would constitute a
default under, or a breach or violation) any term, condition or
provision of any Contract identified on the Asset Schedule except
for defaults, breaches, violations or events which, individually
or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect. Other than Contracts which have
terminated or expired in accordance with their terms, each of the
Contracts identified on the Asset Schedule constitutes valid,
binding and enforceable obligations of KN Gas and to the
knowledge of Sellers, enforceable obligations of any other party
thereto, in accordance with its terms (subject to the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting
creditors' rights generally, general equitable principles
(whether considered on a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing) and is in full
force and effect. To the knowledge of Sellers, no event has
occurred which either entitles, or would, upon notice or lapse of
time or both, entitle the holder of any indebtedness for borrowed
money affecting KN Gas to accelerate, or which does accelerate,
the maturity of any indebtedness affecting the KN Gas Assets.
Except as set forth in Schedule 3.20 or as would not, in the
aggregate, reasonably be expected to result in a Material Adverse
Effect, (1) KN Gas has not received any prepayment, advance
payment, deposits or similar payments, and have no refund
obligation, with respect to any gas or products purchased, sold,
gathered, stored or processed by or on behalf of KN Gas; (2) KN
Gas has not received any compensation for gathering, storage or
processing services which would be subject to any refund or
create any repayment obligation either by or to KN Gas, and to
the knowledge of Sellers, there is no basis for a claim that a
refund is due; and (3) with regard to gas gathering, processing,
storage and sales Contracts in effect as of the Closing Date that
are included in the KN Gas Assets, KN Gas will be entitled to
receive the full contract price in accordance with the terms of
each such contract for all gas and products gathered, processed
and/or sold on and after the Closing Date.
3.21 Solvency. KN Gas is not entering into this Agreement
with actual intent to hinder, delay or defraud creditors.
Immediately prior to and immediately subsequent to the Closing
Date:
(a) the present fair salable value of the assets of KN
Gas (on a going concern basis) will exceed the liability of KN
Gas for its debts (including its contingent obligations);
(b) KN Gas has not incurred, nor does it intend to or
believe that it will incur debts (including contingent
obligations) beyond its ability to pay such debts as such debts
mature (taking into account the timing and amounts of cash to be
received from any source, and of amounts to be payable on or in
respect of debts); and the amount of cash available to KN Gas
after taking into account all other anticipated uses of funds is
anticipated to be sufficient to pay all such amounts on or in
respect of debts, when such amounts are required to be paid; and
(c) KN Gas will have sufficient capital with which to
conduct its business, and the property of KN Gas does not
constitute unreasonably small capital with which to conduct its
business.
For purposes of this Section 3.21, "debt" means any liability or
a (i) right to payment whether or not such a right is reduced to
judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable secured, or
unsecured; or (ii) right to an equitable remedy for breach of
performance if such breach gives rise to a payment, whether or
not such a right to an equitable remedy is reduced to judgment,
fixed, contingent, matured, unmatured, disputed, undisputed,
secured, or unsecured.
3.22 Property.
(a) With respect to real and personal property which
is a part of the KN Gas Assets or real property owned or leased
by the Stock Entities or Subsidiaries (other than Easements (as
hereinafter defined)) (the "Property"), the Sellers, the Stock
Entities or Subsidiaries, as the case may be, have good and valid
fee or leasehold title, as the case may be, to all such Property,
in each case free and clear of all liens, claims, charges,
options, encumbrances, mortgages, pledges or security interests
("Liens"), except for Permitted Encumbrances (as hereinafter
defined), defects in title or Liens described on Schedule 3.22
and other defects in title or Liens which, individually or in the
aggregate, would not reasonably be expected to have a Material
Adverse Effect.
(b) With respect to pipeline easements, rights of way,
licenses and land use permits included as part of the KN Gas
Assets or of or used by the Stock Entities or Subsidiaries
(collectively, the "Easements"), the Sellers, the Stock Entities
or the Subsidiaries, as the case may be, have or at Closing will
have (i) title to or interest in the Easement free and clear of
the claims of those claiming by, through, or under Sellers, the
Stock Entities and the Subsidiaries and not otherwise, and (ii)
indefeasible title to or interest in the Easements sufficient to
enable the Sellers, the Stock Entities and the Subsidiaries to
use and operate their assets and conduct their business in a
reasonable and customary manner and without interference arising
from defects in title, except for Permitted Encumbrances or
defects in title or Liens described on Schedule 3.22.
(c) All of the Leases (including subleases) which are
part of the KN Gas Assets or to which the Stock Entities or the
Subsidiaries is a party are valid, binding and enforceable
obligations of the respective lessors, and neither the Sellers,
the Stock Entities, nor the Subsidiaries, as appropriate, is in
default under any such Leases other than such defaults, if any,
which would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
(d) As used in this Agreement, the term "Permitted
Encumbrances" means, with respect to or upon any of the KN Gas
Assets or the property or assets of the Stock Entities or the
Subsidiaries, whether owned as of the date hereof or thereafter,
any:
(i) Liens existing on the date of this Agreement and
set forth on any Schedule attached hereto;
(ii) Liens incurred and pledges and deposits made in
the ordinary course of business in connection with worker's
compensation;
(iii) Liens securing the performance of bids,
tenders, leases, contracts (other than for the repayment of
debt), statutory obligations, surety, customs and appeal
bonds and other obligations of like nature, incurred as an
incident to and in the ordinary course of business;
(iv) Liens imposed by law, such as carriers',
warehouseman's, mechanics', materialmen's, landlords',
laborers', suppliers' and vendors' liens, incurred in good
faith in the ordinary course of business and securing
obligations which are not yet due or delinquent or which are
being contested in good faith by appropriate proceedings as
to which the Sellers, the Stock Entities or any of the
Subsidiaries, as the case may be, shall, to the extent
required by GAAP, have set aside on its books adequate
reserves;
(v) Liens securing the payment of Taxes, either not
yet due or delinquent or being contested in good faith by
appropriate legal or administrative proceedings and as to
which the Sellers, the Stock Entities or any of the
Subsidiaries, as the case may be, shall, to the extent
required by GAAP, have set aside on its books adequate
reserves;
(vi) zoning restrictions, easements, licenses, rights
of way, declarations, reservations, provisions, covenants,
conditions, waivers, restrictions on the use of property or
other title matters (and with respect to leasehold
interests, mortgages, obligations and Liens incurred,
created, assumed or permitted to exist and arising by,
through or under a landlord or owner of the leased property,
with or without consent of the lessee);
(vii) extensions, renewals and replacements of
Liens referred to in clauses (i) through (vi) above
(provided, that any such extension, renewal or replacement
Lien shall be limited to the property or assets covered by
the Lien extended, renewed or replaced and that the
obligations secured by any such extension, renewal or
replacement Lien shall be in an amount greater than the
amount of the obligations secured by the original Lien
extended, renewed or replaced, none of which, individually
or in the aggregate, would reasonably be expected to have a
material adverse effect upon the value of the property
subject thereto or the use to which such property is
presently put);
(viii) Liens created by Buyer; and
(ix) Liens included in the Assumed Obligations;
provided, that in each case referred to in clauses (i)
through (vi) above, such Liens do not present current
financial obligations or liabilities not reflected in the
Financial Statements.
3.23 Year 2000. Sellers have made available to Purchaser
copies of all correspondence between or on behalf of the Sellers,
the Stock Entities and the Subsidiaries and their third party
suppliers and vendors concerning their Year 2000 compliance.
There are no material problems relating to the Year 2000 issue as
of the Closing.
3.24 Hedging. Except as set forth in Schedule 3.24, neither
the Stock Entities nor any of the Subsidiaries engages in any
natural gas or other futures or options trading or is a party to
any price swaps, hedges, futures or similar instruments, except
for transactions and agreements entered into or hedge contracts
for the purchase or sale of hydrocarbons to which the Sellers,
the Stock Entities or any of the Subsidiaries is a party that are
in accordance with the general practices of other similarly
situated companies in the industry.
3.25 Insurance. Each of the Sellers, the Stock Entities and
the Subsidiaries is insured with financially responsible insurers
in such amounts and against such risks and losses as are
customary in all material respects for companies conducting the
businesses conducted by the respective entity. None of the above
have received any notice of cancellation or termination with
respect to any material insurance policy. To the knowledge of
the Sellers, all of such insurance policies are valid and
enforceable policies in all material respects.
3.26 Condition of Assets. Except as set forth in Schedule
3.26, to the knowledge of the Sellers, the buildings, plant,
structures and equipment included as part of the KN Gas Assets or
owned by the Stock Entities and the Subsidiaries are in good
working condition and repair (other than due to ordinary wear and
tear or to the extent such assets are idled or inactive) and are
suitable in all material respects for the purposes for which they
are now being used in the conduct of the business of the
respective entity, except to the extent that such failure would
not reasonably be expected to have a Material Adverse Effect.
The buildings, plant, structures and equipment included as part
of the KN Gas Assets or owned by the Stock Entities and the
Subsidiaries are sufficient to conduct the operations of the KN
Gas Assets or the Stock Entities and the Subsidiaries, as
applicable, in the ordinary course of business consistent with
past practice of the Stock Entities and the Subsidiaries.
3.27 Labor Relations. Except as disclosed in Schedule 3.27,
neither the Sellers, the Stock Entities nor the Subsidiaries is a
party to any collective bargaining agreement or other labor
agreement with any union or labor organization involving
Continued Employees and there are no current union representation
questions involving Continued Employees nor do the Sellers and
its affiliates know of any action or proceeding by any labor
organization or employee group to organize the Continued
Employees. The Sellers, the Stock Entities and the Subsidiaries
are in material compliance with all applicable laws respecting
employment and employment practices, terms and conditions of
employment, wages, hours of work and occupational safety and
health, and is not engaged in any unfair labor practices as
defined in the National Labor Relations Act or other applicable
law, except where the failure to comply would not reasonably be
expected to have a Material Adverse Effect. There is no labor
strike, slowdown, stoppage or lockout actually pending, or, to
the knowledge of the Sellers, threatened against or affecting the
KN Gas Assets, the Stock Entities or the Subsidiaries.
3.28 Consents and Approvals. Except for the applicable
requirements of the HSR Act, no notices, filing with, application
of, exemptions by, or consent or approvals of, any Governmental
Authority on the part of the Sellers, the Stock Entities or the
Subsidiaries is necessary for the consummation of the transaction
contemplated by the Agreement.
3.29 PCBs. There are no polychlorinated biphenols contained
in any of the pipelines, processing plants or gathering systems
owned by the Stock Entities, the Subsidiaries or present in any
of the KN Gas Assets.
3.30 Commingled Property.
(a) Except as set forth on Schedule 3.30(a), neither
the Sellers nor any of their affiliates have any equipment or
piping located on or within the Property or the Easements.
(b) Except as set forth on Schedule 3.30(b), none of
the Stock Entities or the Subsidiaries have any equipment or
piping located on or within the real property, easements or
leased property owned or controlled by any of the Sellers or
their affiliates.
3.31 Employee Actions. Except as set forth on Schedule 3.6
or Schedule 3.31, to the knowledge of the Sellers, no claim has
been made by any third party arising out of any action taken,
omission by or inaction of any employee of Sellers or any of
Seller's affiliates on behalf of the Stock Entities or the
Subsidiaries prior to the date hereof.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer hereby represents and warrants to the Sellers that
as of the date hereof and as of the Closing Date:
4.1 Organization and Existence. Buyer is a corporation
duly incorporated, validly existing and in good standing under
the laws of the State of Oklahoma.
4.2 Authority and Approval. Buyer has the corporate power
and authority to execute and deliver the Constituent Documents,
to consummate the transactions contemplated thereby and to
perform all the terms and conditions hereof to be performed by
it. The execution and delivery by the Buyer of the Constituent
Documents, the performance by the Buyer of all the terms and
conditions thereof to be performed by it and the consummation of
the transactions contemplated thereby have been duly authorized
and approved by all requisite corporate action of Buyer. The
Constituent Documents constitute the valid and binding obligation
of the Buyer enforceable in accordance with their terms, except
as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting
enforcement of creditors' rights generally and by general
principles of equity (whether applied in a proceeding at law or
in equity).
4.3 No Conflict. This Agreement and the execution and
delivery hereof by the Buyer do not, and the fulfillment and
compliance with the terms and conditions hereof and the
consummation of the transactions contemplated hereby will not,
(a) conflict with any of, or require the consent of any person or
entity under, the terms, conditions or provisions of the charter
documents or bylaws or equivalent governing instruments of the
Buyer; (b) violate any provision of, or require any consent,
authorization or approval under, any law or administrative
regulation or any judicial, administrative or arbitration order,
award, judgment, writ, injunction or decree applicable to the
Buyer except for the consents or filings required by the HSR Act
and any state regulatory commissions; (c) conflict with, result
in a breach of, constitute a default under (whether with notice
or the lapse of time or both), or accelerate or permit the
acceleration of the performance required by, or require any
consent, authorization or approval under, any material indenture,
mortgage or lien, or, any agreement, contract, commitment or
instrument to which the Buyer is a party or by which the Buyer is
bound or to which any property of the Buyer is subject, except
for those which in the aggregate would not reasonably be expected
to have a material adverse effect on the Buyer's ability to
consummate the transactions contemplated by this Agreement.
4.4 Litigation. There are no actions, suits, proceedings
or governmental investigations or inquiries pending against the
Buyer or its properties, assets, operations or business which
might delay or prevent the consummation of the transactions
contemplated hereby.
4.5 Funds Available. Buyer has sufficient cash, or firm
commitments from responsible lending institutions, available
lines of credit or other sources of available funds to enable it
to make payment of the portion of the Cash Consideration.
4.6 Brokerage Arrangements. The Buyer has not entered
(directly or indirectly) into any agreement with any person, firm
or corporation that would obligate the Sellers to pay any
commission, brokerage or "finder's fee" or other fee in
connection with this Agreement and the transactions contemplated
herein.
4.7 Investment Purposes. The Buyer is purchasing the
Equity for its own account for investment purposes and not with a
view to distribution. The Buyer acknowledges that the Equity has
not been registered or qualified under the Securities Act of
1933, as amended, or any state securities laws and may be sold,
assigned, pledged or otherwise disposed of in the absence of such
registration only pursuant to an exemption from such registration
and in accordance with this Agreement. Buyer has had access to
and an opportunity to inspect all relevant information relating
to the Stock Entities, the Subsidiaries and the KN Gas Assets
sufficient to enable the Buyer to evaluate the merits and risks
of his acquisition of the Equity and the KN Gas Assets. Buyer
has had the opportunity to ask questions and receive answers
respecting, and to obtain such additional information as the
Buyer has desired regarding, the business, financial condition
and affairs of the KN Gas Assets, KN Gas, the Stock Entities and
the Subsidiaries.
4.8 Bankruptcy. There is no bankruptcy, reorganization or
arrangement proceedings pending against, being contemplated by,
or to the knowledge of the Buyer, threatened against Buyer.
4.9 Qualified Plans. All employee benefit plans maintained
by Buyer which are intended to be qualified under Section 401(a)
of the Code and which will receive a transfer of assets and
liabilities from a Sellers Plan (as hereinafter defined) in
accordance with Section 8.2 hereof are so qualified and are
permitted to receive such transfer.
ARTICLE 5
ADDITIONAL AGREEMENTS,
COVENANTS, RIGHTS AND OBLIGATIONS
5.1 Certain Changes. Other than as set forth on Schedule
5.1 or Schedule 5.5, without first obtaining the written consent
of the Buyer, from the date hereof until the Closing Date, KN Gas
covenants that it will not (solely with respect to the KN Gas
Assets), and the Sellers covenant that they shall cause the Stock
Entities and the Subsidiaries not to:
(a) operate their businesses, except in the usual,
regular and ordinary course in all material respects consistent
with past practices or make any material change in the conduct of
their businesses and operations, or their financial reporting and
accounting methods;
(b) other than in the ordinary course of business
consistent with past practices, enter into any Contract or
terminate or amend in any material respect any Contract to which
the Stock Entities and their Subsidiaries is a party or that is
included in the KN Gas Assets if the value of the Contract is in
excess of $100,000;
(c) declare, set aside or pay any dividends, or make
any distributions, in respect of their equity securities, or
repurchase, redeem or otherwise acquire any such securities,
other than (i) dividends or distributions by the Subsidiaries in
the ordinary course of business, (ii) any cash dividends or
distributions by the Stock Entities prior to the Closing, (iii)
dividends of accounts receivable outstanding as of the Closing
Date more than ninety (90) days from the date of the original
invoice, (iv) dividend of all of the outstanding equity of Midcon
Texas Gas Services Corp., a Delaware corporation and wholly-owned
subsidiary of Midcon Gas Products ("MTGS") and (v) dividend of
the right with respect to any claims prior to Closing against any
producer related to the Storage Gas Deficiency;
(d) merge into or with or consolidate with any other
corporation or acquire any of the business or assets of any
corporation, person or other entity;
(e) make any change in their charter documents, bylaws
or equivalent governing instruments;
(f) purchase any securities of any corporation, person
or entity, except short term debt securities of governmental
entities and banks, or make any investment in any corporation,
partnership, joint venture or other business enterprise;
(g) increase the indebtedness of, or incur any
obligation or liability, direct or indirect, for the Stock
Entities and their Subsidiaries, other than the incurrence of
liabilities pursuant to existing agreements in the ordinary
course of business consistent with past practices;
(h) sell, lease or otherwise dispose of any of their
assets other than (i) the sale of their assets in the ordinary
course of business pursuant to existing contracts, (ii) assets
with an aggregate value of not more than $50,000, (iii) any
Excluded Assets by KN Gas and (iv) all of the outstanding equity
of MTGS;
(i) purchase, lease or otherwise acquire any property
of any kind whatsoever other than (i) in the ordinary course of
business consistent with past practices or (ii) property with an
aggregate value of not more than $100,000, and (iii) Excluded
Assets by KN Gas;
(j) other than in the ordinary course of business
consistent with past practices (i) enter into any joint venture,
partnership or other similar arrangements; (ii) terminate or
amend any Contract, Permit or other material right, (iii) waive,
release or assign any material rights or claims, (iv) create any
new Liens on the KN Gas Assets or the assets and properties of
the Stock Entities or the Subsidiaries, and (v) make any loans,
advances or capital contributions to, or investments in any other
person;
(k) fail to use reasonable business efforts to renew
any material Contract, Permit or Lease which is part of the KN
Gas Assets or to which the Stock Entities or the Subsidiaries is
a party on substantially the same terms and conditions;
(l) implement or adopt any material change in their
tax methods, principles or elections;
(m) enter into any employment agreement not terminable
at will or enter into any collective bargaining or labor
agreements;
(n) make any change in any of its present accounting
methods and practices, except as required by GAAP;
(o) increase the compensation or benefits of any of
the Continued Employees or the obligations of the Stock Entities
and the Subsidiaries in respect thereto, except as may be
required by applicable law, rule or regulation or consistent with
past practice;
(p) authorize any capital expenditures except in the
ordinary course consistent with past practices;
(q) enter into any renewal of a contract on terms and
conditions, including economic terms, not substantially the same
as the pre-existing contract;
(r) other than in response to an emergency situation,
purchase, lease or otherwise acquire any equipment necessary to
comply with any Environmental Laws or requirement of any
Governmental Authority not described on Schedule 5.1; or
(s) commit to do any of the foregoing.
5.2 Operations. Other than as provided in this Agreement,
KN Gas will (solely with respect to the KN Gas Assets) and the
Sellers will cause the Stock Entities and the Subsidiaries to:
(a) maintain their properties and facilities in as
good working order and condition as of the date hereof, ordinary
wear and tear excepted;
(b) use their reasonable business efforts to maintain
and preserve their business organization intact, retain their
present employees and maintain their relationship with suppliers,
customers and others having business relations with them;
(c) advise the Buyer promptly in writing of any
material change in any document, schedule or other information
delivered pursuant to this Agreement;
(d) file on a timely basis all notices, reports or
other filings necessary or required for the continuing operation
of the business of KN Gas, the Stock Entities and the
Subsidiaries to be filed with or reported to any Governmental
Authority wherever located;
(e) file on a timely basis all complete and correct
applications or other documents necessary to maintain, renew or
extend any Permit, variance or any other approval required by any
Governmental Authority necessary or required for the continuing
operation of the businesses of KN Gas, the Stock Entities and the
Subsidiaries, whether or not such approval would expire before or
after the Closing Date;
(f) not grant any proxy with respect to the Equity or
the Stock Entities' interest in any of the Subsidiaries or
deposit any of the Equity or the Stock Entities' interest in any
of the Subsidiaries into a voting trust or enter into any voting
agreement with respect to any of the Equity or the Stock
Entities' interest in any of the Subsidiaries or enter into any
other agreement, contract or other obligation with respect to the
Equity or the Stock Entities' interest in any of the
Subsidiaries;
(g) maintain with financially responsible insurance
companies insurance in such amounts and against such risks as are
customary for companies engaged in like businesses; and
(h) keep Buyer informed of, and if possible allow
Buyer to participate in, all communications with Chesapeake
Operating, Inc. or any affiliate or related-entity of Chesapeake
Operating, Inc. and without Buyer's consent, shall not enter into
any settlement with any of those entities.
5.3 Access. The Sellers will afford to the Buyer and its
authorized representatives reasonable access to the Sellers', the
Stock Entities' and the Subsidiaries' financial, title, tax,
corporate and legal materials and operating data and information
available as of the date hereof and which becomes available to
the Sellers at any time prior to the Closing Date, and will
furnish to the Buyer such other information as it may reasonably
request, unless any such access and disclosure would violate the
terms of any agreement to which the Sellers, Stock Entities and
their Subsidiaries is bound or any applicable law or regulation.
The Sellers will use their reasonable business efforts to secure
all requisite consents for the examination by the Buyer and its
representatives of all information covered by confidentiality
agreements. The Sellers will cause the Stock Entities and the
Subsidiaries to allow the Buyer access to and consultation with
the lawyers, accountants, and other professionals employed by or
used by the Stock Entities and the Subsidiaries for all purposes
under this Agreement. Any such consultation shall occur under
circumstances appropriate to maintain intact the attorney-client
privilege as to privileged communications and attorney work
product. Additionally, the Sellers will afford to the Buyer and
its authorized representatives reasonable access to the books and
records of the Sellers insofar as they relate to property,
accounting and tax matters of the Stock Entities and the
Subsidiaries. Until the Closing Date, the confidentiality of any
data or information so acquired shall be maintained by the Buyer
and its representatives pursuant to the terms of that certain
Confidentiality Agreement between Buyer and KMI dated December 1,
1999 (the "Confidentiality Agreement"), which Buyer and Sellers
hereby acknowledge is binding on them. Further, the Sellers will
afford to the Buyer and its authorized representatives reasonable
access from the date hereof until the Closing Date, during normal
business hours, to KN Gas', Stock Entities' and the Subsidiaries'
assets and properties; provided that such access shall be at the
sole cost, expense and risk of the Buyer.
5.4 Antitrust Notification; Other Reporting Requirements.
The Sellers and the Buyer will, as promptly as practicable after
the execution of this Agreement, file with the Federal Trade
Commission and the Department of Justice the notification and
report form required for the transactions contemplated hereby and
any supplemental information which may be reasonably requested in
connection therewith pursuant to the HSR Act and the rules and
regulations promulgated thereunder, which notification and report
form and supplemental information will comply in all material
respects with the requirements of the HSR Act and the rules and
regulations promulgated thereunder. The Sellers (through the
Stock Entities and the Subsidiaries, if applicable) and the Buyer
will duly and timely file all notices and reports required to be
filed with all other Governmental Authorities in contemplation of
the consummation of the transactions described herein.
5.5 Reasonable Best Efforts.
(a) The Sellers and the Buyer shall use their
reasonable best efforts (but without any obligation to make any
additional payment or financial accommodation) (i) to obtain all
approvals and consents required by or necessary for the
transactions contemplated by this Agreement, (ii) to ensure that
all of the conditions to the obligations of the Buyer and the
Sellers respectively, contained in Sections 6.1 and 6.2, are
satisfied timely, (iii) to effect the termination of the (1)
Agreement and Guaranty (Bushton Equipment Trust 1991-A) dated as
of March 31, 1997, executed by KN Energy, Inc., a Kansas
corporation ("KN") and acknowledged and accepted by the First
National Bank of Chicago ("First National"); (2) Agreement and
Guaranty (Bushton Equipment Trust 1991-B) dated as of March 31,
1997, executed by KN and acknowledged and accepted by First
National; (3) Agreement and Guaranty (Bushton Equipment Trust
1991-C) dated as of March 31, 1997, executed by KN and
acknowledged and accepted by First National; (4) Agreement and
Guaranty (Bushton Equipment Trust 1991-D) dated as of March 31,
1997, executed by KN and acknowledged and accepted by First
National; (5) Agreement and Guaranty (Bushton Equipment Trust
1991-E) dated as of March 31, 1997, executed by KN and
acknowledged and accepted by First National and (6) Payment,
Performance and Indemnity Agreement dated as of March 31, 1997
executed by KN and Enron Corp. (collectively defined as the
"Bushton Guaranties"), which terminations shall include a full
release of the Sellers; (iv) to allow Buyer to purchase certain
assets related to assets known as Skellytown and Cross Timbers,
on terms and conditions satisfactory to Buyer and Sellers in each
of their sole discretion, and (v) to not impede Buyer's offer of
employment to the Available Employees set forth on Schedule
8.1(a) in accordance with Article 8.
(b) Buyer and each of the Sellers acknowledge that
certain actions may be necessary with respect to the matters and
actions contemplated by this Section 5.5 in making notifications
and obtaining consents or approvals or other clearances which are
material to the consummation of the transactions contemplated
hereby, and Buyer and each of the Sellers agree to take such
action as is reasonably necessary to complete such notifications
and obtain such consents or approvals or other clearances;
provided, however, that nothing in this Section 5.5 or elsewhere
in this Agreement shall require any party hereto to hold separate
or make any divestiture of any asset or otherwise agree to, and
no consents or approvals or other clearances shall be deemed to
be obtained for purposes of this Agreement if such consent or
approval or other clearance contains any restriction on their
operations or other materially burdensome condition which would
in any such case be material to the assets, liabilities or
business of any of the Sellers, the Buyer, the Stock Entities and
their Subsidiaries, or any of their respective subsidiaries in
order to obtain any consent or approval or other clearance
required by this Agreement; provided, further, that it being
understood that such reasonable actions shall not include any
requirement to offer or grant financial accommodations to any
third party or to remain secondarily liable with respect to any
liability.
(c) Buyer acknowledges that the Sellers, Sellers'
affiliates, the Stock Entities and their Subsidiaries are
currently negotiating the contracts, extensions, amendments or
other items listed on Schedule 5.5. Notwithstanding any other
provision of this Agreement, a Material Adverse Effect shall not
be caused by the failure of the Sellers, Sellers' affiliates, the
Stock Entities and their Subsidiaries to effect a resolution of
the negotiation of those items specified on Schedule 5.5.
5.6 Confidentiality. After the Closing Date, the Sellers
shall not, directly or indirectly, use or provide to, or shall
not permit any affiliate, directly or indirectly, to use or
provide to any other person any nonpublic information concerning
the business or operations (financial or other) of the Stock
Entities and the Subsidiaries owned by Buyer, except as on the
advice of counsel is required in governmental filings or
judicial, administrative or arbitration proceedings and then only
after advising Buyer in writing thereof and giving Buyer an
opportunity to secure a protective order.
5.7 Intercompany Accounts and Contracts. Prior to or on
the Closing Date (a) the Stock Entities and the Subsidiaries
shall pay all outstanding payables owed to the Sellers or any of
their affiliates, and (b) the Sellers and any of its affiliates
shall pay all outstanding payables owed to the Stock Entities and
the Subsidiaries. All intercompany Contracts between Sellers and
the Stock Entities and the Subsidiaries shall terminate as of the
Closing, except for any Contract of the type specified in Section
3.19(a)(ii), without respect to the dollar limitations therein,
or specified in Section 3.19(a)(x) and agency agreements related
to gas management and for those Contracts relating to storage or
transportation.
5.8 Software.
(a) Upon Closing, Sellers hereby grant the Stock
Entities the right to use the ODS, Eagle and DARTPlus software
owned by Sellers or affiliates of Sellers and used in the Stock
Entities' business and all customized reports, databases and all
electronic files relating to the day-to-day operations of the
business of the Stock Entities or the Subsidiaries, software,
enhancement and modifications thereto; provided, however, that
such software, reports, databases, files, enhancements and
modifications may not be used by or transferred to any person or
entity other than the Stock Entities and the Stock Entities may
not use those names to refer to that software. If Buyer or its
affiliates violate the preceding provision, the Stock Entities'
right to use the applicable software shall terminate immediately.
(b) Sellers hereby grant to the Stock Entities the
right to use all customized reports, databases and all electronic
files relating to the day-to-day business of the Stock Entities
or the Subsidiaries created under the TIPS, Risk Works, Valmet,
SmartStream, Maximo, Right aNGLe, AltraGTMS and Transenergy GMS
software. Buyer shall pay all license fees required from any
third party related to the right to use the referenced software
or modifications thereto not presently licensed to or owned by
the Stock Entities or the Subsidiaries.
5.9 Certain Assets. Prior to the Closing, Sellers shall
undertake various transfers and documentation perfecting,
modifying and, in some cases, terminating title to various real
and personal property assets related to the transactions
contemplated by this Agreement causing the following:
(a) American Processing, L.P. and American Gathering,
L.P., subsidiaries of AOG, to transfer and assign to Sellers or
affiliates of Sellers, all of those entities' respective right,
title and interest in those assets and liabilities listed on
Schedule 5.9;
(b) All of the outstanding equity of MTGS to be either
transferred or dividended to a Seller or an affiliate of Seller;
(c) A partial assignment of certain rights and
interests held of record by Natural Gas Pipeline Company of
America into MidCon Gas Products vesting Midcon Gas Products
with, subject to the related obligations, certain rights
necessary for its current operations;
(d) Partial Assignments from KNGG to KM Interstate and
vice versa sufficient to vest each of KNGG and KM Interstate
with, subject to the related obligations, certain rights
necessary for, with respect to KNGG, consummation of the
transactions contemplated hereby for KNGG and, with respect to KM
Interstate, the current operations of KM Interstate; and
(e) Assignments by KMI and Kansas-Nebraska Natural Gas
Company, Inc. into KM Interstate, American Processing, L.P. and
American Gathering, L.P. of certain rights related to the Buffalo
Wallow system, as such system is described in the KM LLC
Agreement, as hereafter defined.
5.10 Further Assurances. Upon the terms and subject to the
conditions hereof, each of the parties hereto shall use its
reasonable best efforts to take, or cause to take, all
appropriate action, and to do or cause to be done, all things
necessary, proper or advisable under applicable laws and
regulations to make effective the transactions contemplated in
this Agreement.
5.11 D & O Indemnification. The Buyer, the Stock Entities
and the Subsidiaries shall have no duties or responsibilities to
indemnify the employees, agents, directors or officers of the
Stock Entities and the Subsidiaries in respect to any matters
arising prior to the Closing and Sellers shall indemnify and hold
harmless the Stock Entities and the Subsidiaries in respect
thereto.
5.12 Post-Closing Further Assurances. Each party hereto
understands that due to other transactions or past business
practices involving some of the parties hereto, there may be
assets of the Stock Entities and the Subsidiaries previously
contractually bound (whether in writing or not) and subject to
assignment or transfer from the Stock Entities or the
Subsidiaries or assets held by the Sellers and their affiliates
that are or should be part of the Stock Entities or the
Subsidiaries business or are not or should not be part of the
Stock Entities' or the Subsidiaries' business, as applicable. In
that regard, each party hereto shall use its reasonable best
efforts to take, or cause to take, all appropriate action for no
additional or reduced consideration, and to do or cause to be
done, all things necessary, proper or advisable under applicable
laws and regulations to effect the appropriate assignment or
transfer of any such assets identified by any party hereto after
the date hereof notwithstanding any other provision of this
Agreement; provided, however, that if either KMI or Buyer
determines that any such assignment or asset shall materially
adversely affects the transactions and consideration contemplated
by this Agreement and exchanged at Closing, all parties hereto
shall negotiate in good faith to effect an agreement with respect
to any appropriate reallocation of consideration. To the extent
the parties are unable to agree on the appropriate reallocation
of the purchase price hereunder, the issue shall be considered an
item of indemnification from the Sellers to the Buyer pursuant to
Section 11.2(l) hereof. Any cost or expense related to the
foregoing shall be paid by the Sellers and Buyer shall be
indemnified by Sellers from all such costs and expenses related
thereto.
5.13 Sellers' Retained Liabilities. Notwithstanding any
provision to the contrary herein, Sellers shall retain at the
Closing any and all liability for those claims, actions,
contingent claims, contract obligations, environmental
liabilities and other obligations as set forth on the attached
Schedule 5.13 (the "Sellers' Retained Liabilities").
5.14 Most Favored Nation. For as long as Buyer holds the
contracts for capacity listed on Schedule 5.14 (the "Protected
Capacity Contracts"), Sellers shall compensate Buyer as set forth
below in the event that any of the Sellers or their affiliates
merge with, acquire or otherwise create a "Marketing Affiliate,"
as defined under 18 C.F.R. ' 161.2, and subsequent to that
merger, acquisition or creation, sells capacity for pipeline
segments applicable in a Protected Capacity Contract to its
Marketing Affiliate at a lower rate than the rate contracted for
in a Protected Capacity Contract. Such compensation shall be
calculated quarterly for the affected pipeline segment by
multiplying the difference in price between any applicable
Protected Capacity Contract and the applicable transportation
rate with the Marketing Affiliate by the daily contract volumes
and then multiplying by the days effected.
5.15 Other Actions. Subject to Section 1.7(b), the Sellers
shall take, and shall cause their respective affiliates to take,
any and all actions necessary to transfer and assign to the Stock
Entities or the Subsidiaries, as the case may be, and the Stock
Entities or the Subsidiaries shall assume all obligations under
(a) those Contracts identified on Schedule 3.19 (other than on
Schedule 3.19(a)(i) related to persons other than Continued
Employees and the contract described in Section 5.16) to which
the Sellers or their affiliates (other than the Stock Entities
and the Subsidiaries) are a party, and (b) as to any Contracts
entered into prior to January 1, 2000 in the ordinary course of
business for the exclusive benefit of any of the Stock Entities
or the Subsidiaries that would be required to be disclosed on
Schedule 3.19 as described in clauses (i) through (x) of
subsection (a) thereof (other than on Schedule 3.19(a)(i) related
to persons other than Continued Employees), but for the dollar
limitations set forth therein.
5.16 Alliance Agreement. If the Alliance Agreement dated as
of June 17, 1998, between Kansas City Power & Light Company and
KN Services is not terminated prior to Closing, KN Services and
KN Marketing, L.P. shall enter into an agency agreement, in form
and substance satisfactory to Buyer and KN Services, that will
provide for KN Marketing, L.P. to provide services at no cost to
KN Services to allow KN Services to continue to perform its
obligations thereunder. In no case will KN Marketing, L.P., any
of the Stock Entities or any of the other Subsidiaries be
required to honor the noncompete provisions with respect to that
agreement.
ARTICLE 6
CONDITIONS TO CLOSING
6.1 Conditions to the Obligation of the Buyer. The
obligation of the Buyer to proceed with the Closing contemplated
hereby is subject to the satisfaction on or prior to the Closing
Date of all of the following conditions, any one or more of which
may be waived in writing, in whole or in part, by the Buyer:
(a) The Sellers shall have complied in all material
respects with each of their respective covenants and agreements
contained herein and each of their representations and warranties
contained in this Agreement shall be deemed to have been made
again at and as of the Closing Date and shall then be true and
correct (except to the extent such representations and warranties
expressly relate to an earlier date, and in such case, shall be
true and correct on and as of such earlier date) except for such
failure of representations and warranties to be true and correct
(without regard to any qualifications with respect to Material
Adverse Effect or knowledge contained therein) that would not be
reasonably likely to result in a Material Adverse Effect. The
Buyer shall have received a certificate, dated as of the Closing
Date, of executive officers of the Sellers certifying as to the
matters specified in this Section 6.1(a).
(b) The Buyer shall have received from Bracewell &
Patterson, L.L.P., counsel to the Sellers, an opinion dated the
Closing Date, with such qualifications as are reasonably
acceptable to the Buyer, to the effect that:
(i) KMI is a corporation duly incorporated,
validly existing and in good standing under the laws of the
State of Kansas; MidCon Gas Services is a corporation duly
incorporated, validly existing and in good standing under
the laws of the State of Delaware; KN Gas is a corporation
duly incorporated, validly existing and in good standing
under the laws of the State of Colorado; KN Services is a
corporation duly incorporated, validly existing and in good
standing under the laws of the State of Colorado;
(ii) each of the Stock Entities is duly
incorporated, validly existing and in good standing under
the laws of its respective state of incorporation and is
duly qualified or registered as a foreign corporation and in
good standing under the laws of each of the jurisdictions
set forth on Annex I to the opinion, which list, to the
knowledge of such counsel after due inquiry, sets forth all
jurisdictions in which each of the Stock Entities is
required by applicable law to be qualified to do business;
each of the Sellers has the corporate power and authority to
own their respective assets and to transact their respective
businesses as now being conducted;
(iii) each of the Subsidiaries is validly
existing and in good standing under the laws of its
respective state of formation and is duly qualified or
registered as a foreign corporation and in good standing
under the laws of each of the jurisdictions set forth on
Annex II to the opinion, which list, to the knowledge of
such counsel after due inquiry, sets forth all jurisdictions
in which each of the Subsidiaries is required by applicable
law to be qualified to do business;
(iv) each of the Sellers has the corporate power
to execute and deliver this Agreement and to consummate the
transactions contemplated hereby; all corporate acts and
other proceedings required to be taken by or on the part of
the Sellers to execute and deliver this Agreement and to
consummate the transactions contemplated hereby have been
taken;
(v) the Constituent Documents have been duly
executed and delivered by the Sellers, and constitute the
valid and binding obligations of the Sellers enforceable in
accordance with their terms (except as otherwise limited by
bankruptcy, insolvency, reorganization, moratorium and
similar laws affecting the enforcement of creditors' rights,
and except that such counsel need not express an opinion as
to whether any covenant contained in the Constituent
Documents is specifically enforceable);
(vi) except for such as have been obtained, no
authorization, approval or consent of or declaration or
filing with any Governmental Authority or regulatory body
under the Delaware General Corporation Law, the Texas
Revised Limited Partnership Act or the federal laws of the
United States of America, that in the experience of such
counsel are normally applicable to transactions of the type
contemplated by the Constituent Documents, is necessary or
required of the Sellers in connection with the execution and
delivery of the Constituent Documents or the performance by
the Sellers of their respective obligations thereunder;
(vii) the execution and delivery of the
Constituent Documents by the Sellers and the performance by
the Sellers of their respective obligations thereunder will
not (i) violate or conflict with any provision of the
charter or bylaws of the Sellers, or (ii) violate or
constitute a material default under any provision of, or
result in acceleration of any obligation under, or give rise
to a right to any party to terminate its obligations under,
any document listed on the exhibit index to KMI's Annual
Report on Form 10-K for the fiscal year ended December 31,
1998, and any Quarterly Report on Form 10-Q or Current
Report on Form 8-K of KMI filed during fiscal year 1999 and
2000; and
(viii) no litigation, investigation or
administrative proceeding, known to such counsel after due
inquiry, of or before any court, arbitrator or Governmental
Authority is pending or threatened against the Sellers with
respect to the Agreement or the transactions contemplated
thereby.
(c) The waiting period under the HSR Act and the rules
and regulations promulgated thereunder applicable to the
transactions contemplated hereunder shall have expired or been
terminated.
(d) All necessary filings with and consents of any
Governmental Authority or agency required by Buyer or Sellers for
the consummation of the transactions contemplated in this
Agreement shall have been made and obtained, all waiting periods
with respect to filings made with Governmental Authorities in
contemplation of the consummation of the transactions described
herein shall have expired or been terminated, and no action or
proceeding before a Governmental Authority shall have been
instituted or threatened to restrain or prohibit the Buyer's
acquisition of the Equity and the KN Gas Assets.
(e) No suit, action or other proceeding shall be
pending in which there is sought any remedy to restrain, enjoin
or otherwise prevent the consummation of this Agreement or the
transactions in connection herewith.
(f) The documents and instruments required for the
completion of the transactions contemplated by Section 5.9 of
this Agreement shall be in form and substance reasonably
satisfactory to Buyer and Sellers, including the granting of any
rights to Buyer to access any assets remaining at the entities
described in Section 5.9.
(g) Acceptance of employment by 50% of the field
employees to whom Buyer makes an offer of employment pursuant to
Article 8; provided, however, that if all other conditions to
Closing have been met and the condition set forth in this clause
(g) has not been met, then to allow the parties an opportunity to
satisfy this condition, the Closing Date shall be extended until
the earlier of 15 days (or such longer period as may be agreed by
KMI and Buyer) and the date this clause (g) has been satisfied.
(h) Buyer and the applicable Seller or the applicable
affiliate of the Sellers shall have entered into an agreement
that allows for Buyer's access to the property at the Turkey
Creek processing plant in order to allow operation of such plant
and an exclusive option to purchase that property for $10.00
after remediation, in form and substance reasonably satisfactory
to Buyer and KMI.
(i) Buyer and the applicable Seller or the applicable
affiliate of the Sellers shall have entered into an operating
agreement relating to the operation of 4 compressor stations at
Stinnet and any other commonly shared facilities and equipment as
may be agreed by Buyer and KMI, in form and substance reasonably
satisfactory to Buyer and KMI including, but not limited to, the
facilities described on Schedule 3.30(a) and Schedule 3.30(b).
(j) Buyer and KM Interstate shall have entered into an
operating lease for the assets subject to the Asset Purchase
Agreement dated as of the date hereof between Kinder Morgan
Interstate and the Buyer ("KM LLC Agreement"), in form and
substance reasonably satisfactory to Buyer and KMI.
6.2 Conditions to the Obligation of the Sellers. The
obligation of the Sellers to proceed with the Closing
contemplated hereby is subject to the satisfaction on or prior to
the Closing Date of all of the following conditions, any one or
more of which may be waived in writing, in whole or in part, by
the Sellers:
(a) the Buyer shall have complied in all material
respects with the covenants and agreements contained herein and
each of the representations and warranties contained in this
Agreement shall be deemed to have been made again at and as of
the Closing Date and shall then be true and correct (except to
the extent such representations and warranties expressly relate
to an earlier date, and in such case, shall be true and correct
on and as of such earlier date) in all material respects. The
Sellers shall have received a certificate, dated the Closing
Date, of executive officers of the Buyer certifying as to the
matters specified in this Section 6.2(a).
(b) The waiting period under the HSR Act and the rules
and regulations promulgated thereunder applicable to the
transactions contemplated hereunder shall have expired or been
terminated.
(c) All necessary filings with and consents of any
Governmental Authority or agency required by Buyer or Sellers for
the consummation of the transactions contemplated in this
Agreement shall have been made and obtained, all waiting periods
with respect to filings made with Governmental Authorities in
contemplation of the consummation of the transactions described
herein shall have expired or been terminated, and no action or
proceeding before a Governmental Authority shall have been
instituted or threatened to restrain or prohibit the Buyer's
acquisition of the Equity and the KN Gas Assets.
(d) No suit, action or other proceeding shall be
pending in which there is sought any remedy to restrain, enjoin
or otherwise prevent the consummation of this Agreement or the
transactions in connection herewith.
(e) The documents and instruments required for the
completion of the transactions contemplated by Section 5.9 of
this Agreement shall be in form and substance reasonably
satisfactory to Buyer and Sellers, including the granting of any
rights to Buyer to access any assets remaining at the entities
described in Section 5.9.
(f) Buyer and the applicable Seller or the applicable
affiliate of the Sellers shall have entered into an agreement
that allows for Buyer's access to the property at the Turkey
Creek processing plant and an exclusive option to purchase that
property for $10.00 after remediation, in form and substance
reasonably satisfactory to Buyer and KMI.
(g) Buyer and the applicable Seller or the applicable
affiliate of the Sellers shall have entered into an operating
agreement relating to the operation of 4 compressor stations at
Stinnet and any other commonly shared facilities and equipment as
may be agreed by Buyer and KMI, in form and substance reasonably
satisfactory to Buyer and KMI.
(h) Buyer and KM Interstate shall have entered into an
operating lease for the assets subject to the KM LLC Agreement,
in form and substance reasonably satisfactory to Buyer and KMI.
ARTICLE 7
TAX MATTERS
7.1 Liability for Taxes.
(a) For purposes of this Agreement, "Taxes" means all
taxes, however denominated, including any interest, penalties or
other additions to tax that may become payable in respect
thereof, imposed by any Governmental Authority, which taxes shall
include, without limiting the generality of the foregoing, all
income or profits taxes (including, but not limited to, federal
income taxes and state income taxes), gross receipts taxes, sales
taxes, use taxes, real property gains or transfer taxes, ad
valorem taxes, property taxes, value-added taxes, franchise
taxes, production taxes, severance taxes, windfall profit taxes,
withholding taxes, payroll taxes, employment taxes, excise taxes
and other obligations of the same or similar nature to any of the
foregoing. For purposes of this Agreement, "Returns" means all
reports, estimates, declarations of estimated tax, information
statements and returns relating to, or required to be filed in
connection with, any Taxes, including information returns or
reports with respect to backup withholding and other payments to
third parties.
(b) The Sellers shall be liable for, and shall
indemnify and hold the Buyer and its affiliates harmless from (i)
any Taxes imposed on the Stock Entities pursuant to Treasury
Regulations Section 1.1502-6 which are attributable to having
been a member of any consolidated group on or prior to the
Closing Date, (ii) any Taxes (other than Taxes described in
clause (i) above) imposed on or incurred by the Stock Entities
and their Subsidiaries (based on the Stock Entities' ownership of
the Subsidiaries) for any taxable period ending on or before the
Closing Date (or the portion, determined as described in clause
(d) of this Section 7.1, of any such Taxes imposed on or incurred
by the Stock Entities and their Subsidiaries (based on the Stock
Entities' ownership of the Subsidiaries) for any taxable period
beginning before and ending after the Closing Date which is
allocable to the portion of such period occurring on or before
the Closing Date (the "Pre-Closing Date Period"), excluding (1)
any such Taxes arising from any event occurring on the Closing
Date, but after the Closing, which is outside the ordinary course
of the business of the Stock Entities and their Subsidiaries, (2)
any such Taxes caused by or resulting from any actual or deemed
election pursuant to Section 338 of the Code with regard to the
purchase of the Equity (except any such Taxes caused by or
resulting from the 338(h)(10) Election), and (3) any Taxes that
have been reserved for in the Balance Sheets.
(c) The Buyer shall be liable for, and shall indemnify
and hold the Sellers and their affiliates harmless from (i) any
Taxes imposed on or incurred by the Stock Entities and their
Subsidiaries for any taxable period commencing after the Closing
Date (or the portion, determined as described in clause (d) of
this Section 7.1, of any such Taxes imposed on or incurred by the
Stock Entities and their Subsidiaries for any taxable period
beginning before and ending after the Closing Date which is
allocable to the portion of such period occurring after the
Closing Date, (ii) any Taxes imposed on or incurred by the Stock
Entities and their Subsidiaries for which the Sellers are not
liable under clause (b) of this Section 7.1, and (iii) any state
or local transfer, sales or use, documentation, stamp,
registration or similar fees or Taxes arising as a result of the
sale of the Equity and the KN Gas Assets and the transactions
contemplated hereby.
(d) Whenever it is necessary for purposes of clause
(b) or (c) of this Section 7.1 to determine the portion of any
Taxes imposed on or incurred by the Stock Entities and their
Subsidiaries (based on the Stock Entities' ownership of the
Subsidiaries) for a taxable period beginning before and ending
after the Closing Date which is allocable to the Pre-Closing Date
Period, the determination shall be made, in the case of property
or ad valorem taxes or franchise taxes (which are not measured
by, or based upon, net income), on a per diem basis and, in the
case of other Taxes, by assuming that the Pre-Closing Date Period
constitutes a separate taxable period of the Stock Entities and
their Subsidiaries and by taking into account the actual taxable
events occurring during such period (except that exemptions,
allowances and deductions for a taxable period beginning before
and ending after the Closing Date that are calculated on an
annual or periodic basis, such as the deduction for depreciation,
shall be apportioned to the Pre-Closing Date Period ratably on a
per diem basis).
(e) The Buyer agrees to pay to the Sellers any refund
received after the Closing Date by the Buyer or its affiliates,
including the Stock Entities and the Subsidiaries, in respect of
any Taxes for which the Sellers are liable under clause (b) of
this Section 7.1. The Sellers agrees to pay to the Buyer any
refund received by the Sellers or their affiliates in respect of
any Taxes for which the Buyer is liable under clause (c) of this
Section 7.1. The parties shall cooperate in order to take all
necessary steps to claim any such refund. Any such refund
received by a party or its affiliate for the account of the other
party shall be paid to such other party within 90 days after such
refund is received.
(f) Buyer and Sellers agree not to make or cause any
election (including an election to ratably allocate items under
Treasury Regulations Section 1.1502-76(b)(2)(ii)) to allocate tax
items in a manner inconsistent with Section 7.1(d) hereof.
7.2 Returns.
(a) Sellers shall have the right and obligation to
timely prepare and file, and cause to be timely prepared and
filed, when due, any Return that is required to include the
operations, ownership, assets or activities of the Stock Entities
and the Subsidiaries for taxable periods ending on or before the
Closing Date.
(b) Buyer shall have the right and obligation to
timely prepare and file, and cause to be timely prepared and
filed, when due: (i) all Returns that are required to include
the operations, ownership, assets or activities of Stock Entities
and the Subsidiaries for taxable periods ending after the Closing
Date (including Returns for any taxable period beginning before
and ending after the Closing Date); and (ii) all Returns for
Taxes imposed on Buyer under Section 7.1(c)(iii).
(c) Buyer shall, with respect to any Return for which
the Buyer is responsible under Section 7.2(b) for preparing and
filing, make such Return and related workpapers available for
review by the Sellers if the Return is with respect to Taxes for
which the Sellers may be liable (in whole or in part) hereunder
or under applicable law. Buyer shall make such Returns and
workpapers available for review sufficiently in advance of the
due date for filing such Returns to provide the Sellers with a
meaningful opportunity to analyze and comment on such Returns and
have such Returns modified before filing, accepting the position
of the Buyer unless such position is contrary to the provisions
of Section 7.2(d) hereof.
(d) Any Return which includes or is based on the
operations, ownership, assets or activities of the Stock Entities
and their Subsidiaries for any taxable period beginning before
and ending after the Closing Date, and any Return in respect of
any Taxes for which the Sellers may be liable (in whole or in
part) hereunder shall be prepared in accordance with past tax
accounting practices used with respect to the Returns in question
(unless such past practices are no longer permissible under the
applicable law), and to the extent any items are not covered by
past practices (or in the event such past practices are no longer
permissible under the applicable tax law), in accordance with
reasonable tax accounting practices selected by the filing party
with respect to such Return under this Agreement with the consent
(not to be unreasonably withheld or delayed) of the non-filing
party.
(e) Sellers shall prepare and provide to Buyer such
information as is reasonably requested by Buyer with respect to
the operations, ownership, assets or activities of the Stock
Entities and the Subsidiaries for the Pre-Closing Date Period to
the extent such information is relevant to any Return which Buyer
has the right and obligation hereunder to file.
(f) Buyer shall not file an amended Return for any
period ending on or prior to the Closing Date without the consent
of the Sellers.
7.3 Tax Proceedings. In the event the Buyer or any of its
affiliates receives notice (the "Proceeding Notice") of any
examination, claim, adjustment, or other proceeding with respect
to the liability of the Stock Entities and their Subsidiaries for
Taxes for any period for which the Sellers is or may be liable
under clause (b) of Section 7.1, the Buyer shall notify the
Sellers in writing thereof (the "Buyer Notice") no later than the
earlier of (a) five (5) days after the receipt by the Buyer or
any of its affiliates of the Proceeding Notice or (b) ten (10)
days prior to the deadline for responding to the Proceeding
Notice. Such Buyer Notice shall contain factual information
describing any asserted liability for Taxes in reasonable detail
and shall be accompanied by copies of any notice or other
documents received from any taxing authority with respect to such
matter. As to any such Taxes for which the Sellers is or may be
liable under clause (b) of Section 7.1, the Sellers shall be
entitled at its expense to control or settle the contest of such
examination, claim, adjustment, or other proceeding, provided (i)
it notifies the Buyer in writing that it desires to do so no
later than the earlier of (1) thirty (30) days after receipt of
the Buyer Notice or (2) five (5) days prior to the deadline for
responding to the Proceeding Notice, and (ii) Sellers may not,
without the consent of the Buyer, agree to any settlement which
would result in an increase in the amount of Taxes for which the
Buyer is liable under clause (c) of Section 7.1. The parties
shall cooperate with each other and with their respective
affiliates, and shall consult with each other, in the negotiation
and settlement of any proceeding described in this Section 7.3.
The Buyer will provide, or cause to be provided, to the Sellers
necessary authorizations, including powers of attorney, to
control any proceedings which the Sellers is entitled to control
pursuant to this Section 7.3.
7.4 Payment of Taxes. All Taxes with respect to the Stock
Entities and the Subsidiaries shall be paid by the party that is
responsible for preparing and filing the related Return as
provided in Section 7.2. Except as otherwise provided in this
Article 7, any amount to which a party is entitled under this
Article 7 shall be promptly paid to such party by the party
obligated to make such payment following written notice to the
party so obligated stating that the Taxes to which such amount
relates have been paid or incurred and providing details
supporting the calculation of such amount.
7.5 Cooperation and Exchange of Information. The Buyer on
the one hand, and the Sellers on the other hand, will provide, or
cause to be provided, to the other party copies of all
correspondence received from any taxing authority by such party
or any of its affiliates in connection with the liability of the
Stock Entities and their Subsidiaries for Taxes for any period
for which such other party is or may be liable under clause (b)
or (c) of Section 7.1. The parties will provide each other with
such cooperation and information as they may reasonably request
of each other in preparing or filing any return, amended return,
or claim for refund, in determining a liability or a right of
refund, or in conducting any audit or other proceeding, in
respect of Taxes imposed on the parties or their respective
affiliates. The Buyer on the one hand, and the Sellers on the
other hand, will preserve and retain all returns, schedules,
workpapers and all material records or other documents relating
to any such returns, claims, audits, or other proceedings until
the expiration of the statutory period of limitations (including
extensions) of the taxable periods to which such documents relate
and until the final determination of any payments which may be
required with respect to such periods under this Agreement and
shall make such documents available at the then current
administrative headquarters of such party to the other party or
any affiliate thereof, and their respective officers, employees
and agents, upon reasonable notice and at reasonable times, it
being understood that such representatives shall be entitled to
make copies of any such books and records relating to the Stock
Entities and their Subsidiaries as they shall deem necessary.
Any information obtained pursuant to this Section 7.5 shall be
kept confidential, except as may be otherwise necessary in
connection with the filing of returns or claims for refund or in
conducting any audit or other proceeding. Each party shall
provide the cooperation and information required by this Section
7.5 at its own expense.
7.6 Conflict. In the event of a conflict between the
provisions of this Article 7 and any other provisions of this
Agreement, the provisions of this Article 7 shall control.
ARTICLE 8
EMPLOYEES AND EMPLOYEE BENEFITS
8.1 Status of Employees.
(a) Schedule 8.1(a) sets forth a list of employees of
Sellers available to be transferred to the Stock Entities and the
Subsidiaries (the "Available Employees"), which Schedule includes
the employee's name, current annual base compensation, job title,
severance amount, work location, hire date, vacation balance,
floating holiday balance, wellness balance and sick leave
balance, all as of the date hereof; provided, that subject to the
following provisions of this Article 8, the foregoing shall not
be construed to require the Buyer to continue the employment of
any such employees or prevent the Buyer from changing the terms
and conditions of employment of any Continued Employee (as
hereinafter defined) following the Closing Date.
(b) Schedule 8.1(b) sets forth a list of additional
employees of Sellers that Sellers will make available to Buyer to
discuss potential employment with Buyer (which discussions the
parties agree shall not violate the Confidentiality Agreement),
which Schedule shall include the employee's name, current annual
base compensation, job title, work location, hire date, vacation
balance, floating holiday balance, wellness balance and sick
leave balance, as of the date hereof; provided, that subject to
the following provisions of this Article 8, the foregoing shall
not be construed to require the Buyer to offer employment to any
such employee or prevent the Buyer from changing the terms and
conditions of employment of any Continued Employee (as
hereinafter defined) following the Closing Date.
(c) Five business days prior to the Closing Date,
Buyer shall deliver a Schedule 8.1(c) that includes the names of
those employees from Schedule 8.1(a) and Schedule 8.1(b) who have
agreed to accept employment with Buyer (each, a "Continued
Employee"); provided, however, that to be a Continued Employee,
such employee must (i) receive an offer from Buyer to transfer
employment to the Buyer, (ii) accept the Buyer's offer to
transfer employment to the Buyer under the terms provided herein;
(iii) not receive any severance payment from the Sellers, and
(iv) on the day of closing, such employees of the Sellers must be
actively at work, on wellness or sickness leave, short-term
disability or an approved leave of absence. In the case of an
employee on short-term disability or an approved leave of
absence, such transfer shall be subject to the employee becoming
able to return to active service, and shall be effective upon the
employee's acceptance of such offer and actual return to active
service with the Buyer within six (6) months of the Closing Date,
or if later, as provided under applicable law, and the employee's
"Transfer Date" shall be the date such transfer is effective.
For not less than 12 months following the Closing Date, the terms
of the employment of Continued Employees by the Buyer after the
Closing shall be under substantially similar terms of such
employees' employment by the Sellers with respect to base wages
or salary, vacation, floating holidays and wellness and sick
leave.
8.2 Employee Related Matters.
(a) Effective as of the Closing, the Continued
Employees shall cease to participate in all employee benefit
plans or agreements providing benefits to any Continued
Employees, including but not limited to, all employee benefit
plans, programs, practices or arrangements, whether written or
oral, of the Sellers or their affiliates (the "Sellers Plans"),
other than the severance agreements identified in Schedule 3.19
related to Section 3.19(a)(i), which severance agreements related
to the Continued Employees shall be assigned by Sellers and its
affiliates to the applicable Stock Entities prior to the Closing.
Buyer shall not assume any of the Sellers Plans and shall have no
obligations and shall have no liabilities with respect to the
Continued Employees and the Sellers Plans, except as specifically
provided by this Agreement.
(b) Effective as of the Closing, the Buyer shall take
all action necessary or appropriate to extend coverage under an
existing defined benefit pension plan (the "Buyer Pension Plan")
qualified under section 401(a) of the Code to the Continued
Employees who are participants in the defined benefit pension
plan in effect for the employees of the Sellers (the "Sellers
Pension Plan") at the Closing Date and who after giving effect to
this paragraph have met the eligibility requirements of Buyer
Pension Plan. The Continued Employees shall be credited with
their years of service with the Sellers and its affiliates, for
eligibility and vesting purposes under the Buyer Pension Plan, as
of the Closing Date. The Continued Employees shall accrue
benefits under the Buyer Pension Plan beginning at the Closing
Date and shall include only the actual time worked with the
Buyer.
(c) Effective as of the Closing, the Buyer shall take
all action necessary and appropriate to extend coverage under an
existing defined contribution plan (the "Buyer Savings Plan")
qualified under section 401(a) of the Code to the Continued
Employees at the Closing Date. The Continued Employees will be
credited for service with the Sellers and their affiliates for
eligibility and vesting purposes under the Buyer Savings Plan, as
of the Closing Date. As soon as practicable following the Closing
Date and upon receipt by Sellers of evidence from Buyer that is
reasonably satisfactory to Seller that the Buyer Savings Plan is
qualified under Section 401(a) of the Code, the Sellers shall
cause to be transferred from the trustee of the K N Plan to the
trustee of the Buyer Savings Plan, an amount, in cash or other
assets acceptable to the trustee of the Buyer Savings Plan
(including participant loans which shall be transferred in kind),
equal to the aggregate account balances of the Continued
Employees under the KN Plan, and the KN Plan shall cease to be
responsible for the maintenance and distribution of such account
balances but shall continue to be responsible for and hold the
liabilities for any acts or omissions with respect to the KN Plan
occurring prior to the transfer. Buyer and Sellers shall use
their reasonable best efforts to ensure that any loan balances
outstanding under the KN Plan with respect to any Continued
Employee shall be transferred to the Buyer Savings Plan without
acceleration or default.
(d) Effective as of the Closing, Buyer shall take all
actions necessary or appropriate to offer coverage under an
existing welfare benefit plan (the "Buyer Welfare Plans") to the
Continued Employees and their covered dependents, which plans
shall include medical, dental, prescription drug, life insurance,
long-term disability and retiree medical benefits to those
Continued Employees who are eligible for such benefits under the
terms of the Buyer Welfare Plans, but shall not include severance
pay or other severance benefits except as specifically required
under Section 8.2(f). Claims for such benefits by Continued
Employees with respect to purchases, services or treatment
rendered on or subsequent to the Closing shall be covered by the
Buyer Welfare Plans in accordance with the terms of such Plans,
including Buyer's reserved right to amend or terminate any Buyer
Welfare Plan at any time, and not by the Sellers Plans. Claims
for welfare benefits by Continued Employees with respect to
purchases, services or treatment rendered prior to the Closing
shall be covered by the Sellers' existing welfare plans ("Sellers
Welfare Plans") in accordance with the terms of such Sellers
Welfare Plans, and not by the Buyer Welfare Plans. Claims for
short term and long term disability benefits by Continued
Employees arising out of occurrences subsequent to the Closing
shall be covered by the Buyer Welfare Plans in accordance with
the terms of the Buyer Welfare Plans, and not by the Sellers
Welfare Plans; provided, Buyer may offset any Continued
Employees' accrued paid sick leave against any sick leave or
short-term disability benefits for which such Continued Employee
would otherwise be eligible under Buyer Welfare Plans. Claims
for short term and long term disability benefits by Continued
Employees arising out of occurrences prior to the Closing shall
be covered by the Sellers Welfare Plans in accordance with the
terms of such Plans, and not by the Buyer Welfare Plans. Neither
the Buyer nor any of its affiliates shall be liable for payment
of any disability benefit due to disabled employees of Sellers
who, prior to the Closing, are in the waiting or qualifying
period for disability benefits, unless Buyer makes an offer of
employment and such offer is accepted. After the Closing, the
Sellers shall be responsible for disability benefits payable to
such persons who have not accepted employment with Buyer under
the Sellers' disability plan. The Buyer shall cause the
Continued Employees to be granted credit under the Buyer Welfare
Plans, for the year during which the Closing occurs, against the
deductibles, co-payment limits and out-of-pocket limits of the
Buyer Welfare Plans for the covered expenses already incurred by
such Continued Employees during such year under the Sellers
Welfare Plans, or the welfare plans of Sellers' affiliates, in
which such Continued Employees participate at the Closing Date.
In addition, the Buyer shall cause to be waived any eligibility
waiting periods and pre-existing condition limitations or
restrictions under the Buyer Welfare Plans providing medical
expense, dental and prescription drug benefits to the extent
necessary to provide immediate coverage of Continued Employees
under such welfare plans as of the Closing Date (but only to the
extent that coverage was provided under the applicable Sellers
Welfare Plans or the welfare plan of the Sellers' affiliates).
With respect to Retiree Medical Benefits, Continued Employees
shall be credited for service with the Sellers and their
affiliates for eligibility and vesting purposes under the Buyer's
Plan. The Continued Employees shall accrue benefits in the
nature of a company contribution toward the Retiree Medical Plan
for employment beginning at the Closing Date and shall include
only actual time worked with the Buyer.
(e) All claims for health care and dependent care
flexible spending account benefits submitted after the Closing
Date for expenses incurred prior to the Closing Date by Continued
Employees shall be paid by the Sellers' or its affiliates' health
care and dependent care flexible spending account plan. The Buyer
shall allow each Continued Employee who participated in a health
care or dependent care flexible spending account of the Sellers
or its affiliates to establish a health care or dependent care
flexible spending account pursuant to Buyer's flexible benefit
account plan.
(f) For the period from the Closing until the first
anniversary date thereof, if Buyer terminates the employment of
any Continued Employee, other than for retirement, resignation,
death, disability or cause, or if Buyer requires as a condition
of any Continued Employee's continued employment with Buyer that
the Continued Employee relocate to a location more than 50 miles
from that Continued Employee's current location of employment and
provided that the relocation requirement was not a provision of
the initial job offer from the Buyer pursuant to Section 8.1,
and, as a result, such Continued Employee's employment
terminates, Buyer covenants and agrees that Buyer shall pay
severance pay to that employee in an amount equal to the greater
of (i) any severance pay applicable under Sellers' or its
affiliate's severance benefit plans, including severance
arrangements contained in any agreement between that employee and
Sellers or its affiliates disclosed to Buyer on Schedule 3.19
related to Section 3.19(a)(i) as they existed on the Closing
Date, or (ii) any applicable severance benefit plan or plans of
the Buyer for similarly situated employees. Nothing in this
Section 8.2(f) shall be construed as permitting any Continued
Employee to receive severance pay or other severance pay under
more than one of Sellers' or its affiliates' severance benefit
plans, or any applicable severance plan of Buyer or any severance
agreement between Sellers and any Continued Employee.
(g) All service credited under Sellers' or its
affiliates' vacation policy for Continued Employees, including
unused balances as set forth on Schedule 8.1(a) as may be
increased or decreased as of the Closing Date based on actions of
the Continued Employees after the date hereof, shall be
recognized by Buyer, the Stock Entities and the Subsidiaries.
All Continued Employees who are eligible will be entitled to
participate in any applicable incentive program that the Buyer
may have for similarly situated employees or that may be
established by the Stock Entities and their Subsidiaries, as
applicable, after the Closing. Such participation shall be on a
prorated basis for the number of full calendar months worked with
the Buyer under any applicable incentive period. Sellers and its
affiliates shall be solely responsible for all wages, salary,
overtime pay, bonuses, incentive pay, and other compensation
payable for periods of employment prior to Closing.
(h) Claims for workers' compensation benefits arising
out of occurrences prior to the Closing shall be the
responsibility of Sellers. Claims for workers' compensation
benefits for Continued Employees arising out of occurrences
subsequent to the Closing shall be the responsibility of the
Stock Entities and their Subsidiaries.
(i) Nothing herein shall be deemed or construed to (1)
give rise to any rights, claims, benefits, or causes of action to
any Continued Employee or (2) prevent, restrict, or limit the
Buyer, the Stock Entities and the Subsidiaries following the
Closing from modifying or terminating its pension or other
benefit plans, programs or policies from time to time as it may
deem appropriate, subject only to compliance with the express
provisions of this Article 8 for the benefit of Sellers.
(j) To the extent that an Available Employee other
than a Continued Employee (a "Severance Employee") receives money
from Sellers or their affiliates for the severance of such
Severance Employee in connection with the transactions
contemplated by this Agreement as required by law pursuant to any
contract with Sellers or their affiliates or in accordance with
Sellers' or their affiliates' severance plans or programs
consistent with past practice, Sellers shall pay up to $5,150,000
in the aggregate for that severance expense as specified on
Schedule 8.1(a) related to any of the Severance Employees. Buyer
shall pay to KMI all amounts of that severance expense as
specified on Schedule 8.1(a) in excess of such $5,150,000. Any
severance payments in excess of $5,150,000 accruing to the
Sellers will constitute an adjustment to the Cash Consideration
to be paid pursuant to Section 1.3 hereof. Notwithstanding the
foregoing, Buyer shall pay any severance related to a Continued
Employee.
ARTICLE 9
INVESTIGATION; LIMITATIONS
9.1 Independent Investigation. The Buyer acknowledges that
in making the decision to enter into this Agreement and to
consummate the transactions contemplated hereby, the Buyer has
relied solely on the basis of its own independent investigation
of the KN Gas Assets, the Stock Entities and the Subsidiaries and
upon the express written representations, warranties and
covenants in this Agreement. Without diminishing the scope of
the express written representations, warranties and covenants of
the Sellers in this Agreement and without affecting or impairing
its right to rely thereon, the Buyer acknowledges that the
Sellers have not made, AND THE SELLERS HEREBY EXPRESSLY DISCLAIM
AND NEGATE ANY OTHER REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED, RELATING TO THE KN GAS ASSETS AND OPERATIONS OF THE
STOCK ENTITIES AND THE SUBSIDIARIES (INCLUDING, WITHOUT
LIMITATION, ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE OR CONFORMITY TO MODELS OR
SAMPLES OF MATERIALS).
9.2 Survival of Warranties and Representations and
Indemnification. Notwithstanding any investigation conducted
before or after the Closing, the parties shall, subject to any
facts or limitations set forth in the Schedules attached hereto
or otherwise specifically provided in this Agreement, be entitled
to rely upon the warranties and representations set forth herein
and the obligations of the parties with respect to thereto shall
survive the Closing and continue in full force and effect until
the second anniversary date of the Closing Date, at which time
all warranties and representations set forth in this Agreement
and all liabilities of the parties with respect thereto shall
terminate, except for warranties and representations in Section
3.18 and relating to Taxes and except for claims relating to any
other warranties or representations which are asserted in writing
on or before the second anniversary date of the Closing Date.
Except for Sellers' Retained Liabilities, the warranties and
representations in Section 3.18 and all liabilities of the
parties with respect thereto, all of which relate to
Environmental Claims, shall continue in effect until the fifth
anniversary of the Closing Date. Warranties and representations
concerning Taxes and all liabilities of the parties with respect
thereto shall continue in effect after the second anniversary
date of the Closing Date until the applicable statute of
limitations. Subject to any applicable statute of limitations,
the liabilities of the parties with respect to all claims for
breach of warranties and representations as to which timely
claims have been asserted in writing during the specified period
shall continue until such claims have been finally decided,
settled or adjudicated.
ARTICLE 10
TERMINATION
10.1 Events of Termination. This Agreement may be
terminated at any time prior to the Closing Date:
(a) by mutual written consent of Buyer and KMI;
(b) by either Buyer or KMI in writing after August 31,
2000, if the Closing has not occurred by such date, provided that
as of such date the terminating party is not in default under
this Agreement; or
(c) by either Buyer or KMI in writing without
prejudice to other rights and remedies which the terminating
party or its affiliates may have (provided the terminating party
and its affiliates are not otherwise in material default or
breach of this Agreement, or have not failed or refused to close
without justification hereunder), if the other party or its
affiliates shall (i) materially fail to perform its covenants or
agreements contained herein required to be performed on or prior
to the Closing Date, or (ii) materially breach or have breached
any of its representations or warranties contained herein;
provided, however, that in the case of clause (i) or (ii), the
defaulting party shall have a period of ten (10) days following
written notice from the nondefaulting party to cure any breach of
this Agreement, if such breach is curable; or
(d) by either Buyer or KMI in writing, without
liability, if there shall be any order, writ, injunction or
decree of any Governmental Authority binding on Buyer or Sellers,
which prohibits or restrains Buyer or Sellers from consummating
the transactions contemplated hereby, provided that Buyer and
Sellers shall have used their reasonable best efforts to have any
such order, writ, injunction or decree lifted and the same shall
not have been lifted within 30 days after entry by any such
Governmental Authority.
10.2 Effect of Termination. In the event of the termination
of this Agreement by a party, as provided in Section 10.1 above,
this Agreement shall thereafter become void and there shall be no
liability on the part of any party hereto or their respective
directors, officers, shareholders or agents, except as provided
in Section 12.1 hereof and except that any such termination shall
be without prejudice to the rights of any party hereto arising
out of the material breach by any other party of any
representation, warranty, covenant or agreement contained in this
Agreement.
ARTICLE 11
INDEMNIFICATION
11.1 Indemnification of the Sellers. The Buyer, from and
after the Closing Date, shall indemnify and hold the Sellers and
their affiliates, shareholders, directors, officers, employees,
agents, representatives and insurers (together with the Sellers,
the "Sellers' Parties") harmless from and against any and all
damages (including exemplary damages and penalties), losses,
deficiencies, costs, expenses, obligations, fines, expenditures,
claims and liabilities, including reasonable counsel fees and
reasonable expenses of investigation, defending and prosecuting
alleged or threatened claims from any Governmental Authority or
other litigation (collectively, the "Damages"), suffered by the
Sellers' Parties as a result of, caused by, arising out of, or in
any way relating to:
(a) subject to Section 9.2, any misrepresentation,
breach of warranty or any misrepresentation in or omission from
any list, schedule, certificate, or other instrument furnished or
to be furnished to the Sellers by the Buyer pursuant to the terms
of this Agreement or the Constituent Documents;
(b) any nonfulfillment of any material agreement or
covenant on the part of the Buyer under this Agreement or the
Constituent Documents;
(c) other than those for which the Buyer is being
indemnified by the Sellers hereunder, any action taken, omission
by or inaction of any employee of Sellers or any of Sellers'
affiliates on behalf of the Stock Entities or the Subsidiaries
prior to the Closing Date;
(d) the Assumed Obligations;
(e) other than for those for which the Buyer is being
indemnified by the Sellers hereunder, the ownership, operation or
conduct of the businesses or affairs of the Stock Entities and
the Subsidiaries or the ownership and operation of the KN Gas
Assets arising from any acts, omissions, events, conditions or
circumstances occurring on or after the Closing Date;
(f) the Bushton Guaranties (only to the extent a
payment thereunder arises or accrues after the Closing Date and
is not triggered by an item set forth in Section 11.2(g)) if the
Bushton Guaranties are not terminated in accordance with Section
5.5 of this Agreement;
(g) as set forth in Section 7.1(c) of this Agreement;
(h) any action taken, omission by or inaction of the
Buyer, either prior to or after the Closing Date, with respect to
the selection of, or the process of selection of, or the offer of
employment to, the Available Employees, including but not limited
to with respect to the Worker Adjustment Retraining and
Notification Act; and
(i) as set forth in Section 8.2(j);
(j) any action taken or not taken by Sellers or KN Gas
based on the recommendation or nonapproval of Buyer of items
pursuant to Section 5.1(r);
provided, however, such indemnity shall not include damages
caused by the gross negligence or wilful misconduct of any
employees or agents of Sellers at any time or by any of the Stock
Entities or the Subsidiaries prior to the Closing.
11.2 Indemnification of the Buyer. The Sellers shall,
jointly and severally, indemnify and hold the Buyer and its
respective affiliates (including the Stock Entities and
Subsidiaries subsequent to the Closing Date), shareholders,
directors, officers, employees, agents, representatives and
insurers (together with the Buyer, the "Buyer Parties") harmless
from and against any and all Damages suffered by the Buyer
Parties as a result of, caused by, arising out of, or in any way
relating to:
(a) subject to Section 9.2 and Section 11.3, any
misrepresentation, breach of warranty or any misrepresentation or
omission in this Agreement, the KM LLC Agreement, the Constituent
Documents or from any list, schedule, certificate, or other
instrument furnished or to be furnished to the Buyer by the
Sellers pursuant to the terms of this Agreement or the KM LLC
Agreement, other than in connection with Section 3.18 and Section
3.31 of this Agreement and Section 3.11 of the KM LLC Agreement;
(b) subject to Section 9.2, any misrepresentation,
breach of warranty or any misrepresentation or omission (without
regard to any qualifications with respect to Material Adverse
Effect or knowledge contained therein) in this Agreement, the KM
LLC Agreement, the Constituent Documents or from any list,
schedule, certificate, or other instrument furnished or to be
furnished to the Buyer by the Sellers pursuant to the terms of
this Agreement solely with respect to Section 3.18 hereof and
pursuant to the terms of the KM LLC Agreement solely with respect
to Section 3.11 thereof;
(c) any nonfulfillment of any agreement or covenant on
the part of the Sellers under this Agreement, the KM LLC
Agreement or the Constituent Documents;
(d) as set forth in Section 7.1(b) of this Agreement;
(e) the Excluded Liabilities, as defined under both
this Agreement and the KM LLC Agreement;
(f) other than as covered by Section 11.2(a), those
for which the Sellers are being indemnified by the Buyer
hereunder and as related to any Environmental Claim which is
governed by Section 3.18 of this Agreement and Section 3.11 of
the KM LLC Agreement, any claims by a third party that pertains
to the ownership and operation of the KN Gas Assets under this
Agreement or the "Assets" as defined under the KM LLC Agreement
arising from any acts, omissions, events, conditions or
circumstances occurring on or before the Closing Date;
(g) the Bushton Guaranties (only to the extent a
payment thereunder arises or accrues prior to the Closing Date)
or if the Bushton Guaranties are not terminated in accordance
with Section 5.5 of this Agreement, the occurrence of any event
or the existence of any condition with respect to, or the taking
of any action or any inaction by the Sellers or its affiliates
under the Bushton Guaranties or pursuant to the Bushton Lease
(if, and only if, with respect to the Bushton Lease, the Buyer
and its affiliates did not cause the "Event of Default" or
"Default") that causes or results or has caused or resulted in
the occurrence of an "Event of Default" or "Default" (as those
terms are defined in the Bushton Lease) under the Bushton Lease;
(h) as set forth in Section 8.2(j);
(i) overcharges claimed by Chesapeake Operating, Inc.
or any affiliate or related-entity of Chesapeake Operating, Inc.
based upon Tariff Sheet No. 15 of the Natural Gas Pipeline
Company of America;
(j) any franchise taxes relating to the period prior
to Closing in connection with the franchise tax dispute between
the City of El Paso and Westar Transmission Company, a Delaware
corporation ("Westar") (which was assumed from AOG Gas
Transmission Company, L.P. (successor to Meridian Oil
Transportation, Inc.)) arising out of the franchise ordinance
dated January 9, 1990;
(k) any action taken, omission or inaction of the
Sellers with respect to the continued employment by Sellers of
any employee listed on Schedule 8.1(a) or Schedule 8.1(b);
(l) the Sellers' Retained Liabilities described in
Section 5.13 and Schedule 5.13; and
(m) the transportation of gas without authorization
from FERC on the pipeline system owned or operated by Westar on
or prior to the date hereof (the "Westar Pipeline") by Westar,
any of its predecessors in interest or any of the Stock Entities
or the Subsidiaries that previously owned or operated any of the
Westar Pipeline, the indemnity to be for any period prior to the
Closing Date and ending on the later of (1) 45 days after the
Closing Date if Westar has not filed an application with FERC, or
(2) if Westar has filed an application with FERC on or prior to
45 days after the Closing Date, the date FERC grants its approval
thereof (as long as Westar actively pursues that approval) or
upon the date an order denying the application becomes final (no
longer subject to rehearing) by the FERC of the application.
Nothing in the contract between Westar and Kinder Morgan
Interstate shall prejudice the rights of Buyer under this
Agreement, including, but not limited to, any rights of Buyer
under this Article 11.
11.3 Material Adverse Effect Limitation. Solely for
purposes of the indemnification in Section 11.2, the
representations and warranties in Sections 3.1, 3.2, 3.3, 3.4,
3.12, 3.15 and 3.16 of this Agreement and Sections 3.1, 3.2, 3.3,
3.4, 3.8 and 3.9 of the KM LLC Agreement shall be deemed to have
been made without regard to any Material Adverse Effect or
knowledge limitation therein. Solely for purposes of the
indemnification in Section 11.2, any Material Adverse Effect
limitation in the representations and warranties in Article 3 of
this Agreement and the KM LLC Agreement, other than those listed
in the foregoing sentence, shall be deemed to mean any Damages
having a monetary impact of $375,000 or more (the "Threshold
Amount").
11.4 Demands. Each indemnified party hereunder agrees that
promptly upon its discovery of facts giving rise to a claim for
indemnity under the provisions of this Agreement, including
receipt by it of notice of any demand, assertion, claim, action
or proceeding, judicial or otherwise, by any third party (such
third party actions being collectively referred to herein as the
"Indemnity Claim"), with respect to any matter as to which it
claims to be entitled to indemnity under the provisions of this
Agreement, it will give prompt notice thereof in writing to the
indemnifying party, together with a statement of such information
respecting any of the foregoing as it shall have. Such notice
shall include a formal demand for indemnification under this
Agreement. The indemnifying party shall not be obligated to
indemnify the indemnified party with respect to any Indemnity
Claim if the indemnified party knowingly failed to notify the
indemnifying party thereof in accordance with the provisions of
this Agreement in sufficient time to permit the indemnifying
party or its counsel to defend against such matter and to make a
timely response thereto including, without limitation, any
responsive motion or answer to a complaint, petition, notice or
other legal, equitable or administrative process relating to the
Indemnity Claim, only insofar as such knowing failure to notify
the indemnifying party has actually resulted in prejudice or
damage to the indemnifying party.
11.5 Right to Contest and Defend. The indemnifying party
shall be entitled at its cost and expense to contest and defend
by all appropriate legal proceedings any Indemnity Claim with
respect to which it is called upon to indemnify the indemnified
party under the provisions of this Agreement; provided, that
notice of the intention to so contest shall be delivered by the
indemnifying party to the indemnified party within 20 days from
the date of receipt by the indemnifying party of notice by the
indemnified party of the assertion of the Indemnity Claim. Any
such contest may be conducted in the name and on behalf of the
indemnifying party or the indemnified party as may be
appropriate. Such contest shall be conducted by reputable
counsel employed by the indemnifying party, but the indemnified
party shall have the right but not the obligation to participate
in such proceedings and to be represented by counsel of its own
choosing at its sole cost and expense. The indemnifying party
shall have full authority to determine all action to be taken
with respect thereto; provided, however, that the indemnifying
party will not have the authority to subject the indemnified
party to any obligation whatsoever, other than the performance of
purely ministerial tasks or obligations not involving material
expense. If the indemnifying party does not elect to contest any
such Indemnity Claim, the indemnifying party shall be bound by
the result obtained with respect thereto by the indemnified
party. At any time after the commencement of the defense of any
Indemnity Claim, the indemnifying party may request the
indemnified party to agree in writing to the abandonment of such
contest or to the payment or compromise by the indemnified party
of the asserted Indemnity Claim, whereupon such action shall be
taken unless the indemnified party determines that the contest
should be continued, and so notifies the indemnifying party in
writing within 15 days of such request from the indemnifying
party. If the indemnified party determines that the contest
should be continued, the indemnifying party shall be liable
hereunder only to the extent of the amount that the other party
to the contested Indemnity Claim had agreed unconditionally to
accept in payment or compromise as of the time the indemnifying
party made its request therefor to the indemnified party.
11.6 Cooperation. If requested by the indemnifying party,
the indemnified party agrees to cooperate with the indemnifying
party and its counsel in contesting any Indemnity Claim that the
indemnifying party elects to contest or, if appropriate, in
making any counterclaim against the person asserting the
Indemnity Claim, or any cross-complaint against any person, and
the indemnifying party will reimburse the indemnified party for
any expenses incurred by it in so cooperating. At no cost or
expense to the indemnified party, the indemnifying party shall
cooperate with the indemnified party and its counsel in
contesting any Indemnity Claim.
11.7 Right to Participate. The indemnified party agrees to
afford the indemnifying party and its counsel the opportunity to
be present at, and to participate in, conferences with all
persons, including Governmental Authorities, asserting any
Indemnity Claim against the indemnified party or conferences with
representatives of or counsel for such persons.
11.8 Payment of Damages. The indemnifying party shall pay
to the indemnified party in immediately available funds any
amounts to which the indemnified party may become entitled by
reason of the provisions of this Agreement, such payment to be
made within five days after any such amounts are finally
determined either by mutual agreement of the parties hereto or
pursuant to the final unappealable judgment of a court of
competent jurisdiction. In calculating any amount to be paid by
an indemnifying party by reason of the provisions of this
Agreement, the amount shall be reduced by all tax benefits and
other reimbursements credited to or received by the other party
related to the Damages.
11.9 Limitations on Indemnification.
(a) To the extent the Buyer Parties are entitled to
indemnification for Damages pursuant to Section 11.2(a), the
Sellers shall not be liable for those Damages unless the
aggregate amount of Damages exceeds, in the aggregate, $2,000,000
(the "Deductible"), and then only to the extent of any such
excess; provided, however, that to the extent indemnification is
for any amount in excess of the Threshold Amount, all of such
amount, including the Threshold Amount, shall also be included in
the amount aggregated to meet the Deductible or otherwise be
subject to the indemnification by Sellers in Section 11.2(a);
provided, further, that the Deductible solely with respect to
Sections 3.1, 3.2, 3.3, 3.4, 3.12, 3.15 and 3.16 of this
Agreement and Sections 3.1, 3.2, 3.3, 3.4, 3.8 and 3.9 of the KM
LLC Agreement shall be $100,000.
(b) In addition, to the extent the Buyer Parties are
entitled to indemnification for Damages pursuant to Section
11.2(a), the Sellers shall not be liable for Damages that exceed,
in the aggregate, $25,000,000 less the Deductible; provided,
however, that this clause (b) shall not apply to Damages pursuant
to Section 11.2(a) solely with respect to Sections 3.1, 3.2, 3.3,
3.4, 3.12, 3.15 and 3.16 of this Agreement and Sections 3.1, 3.2,
3.3, 3.4, 3.8 and 3.9 of the KM LLC Agreement.
(c) In addition to the foregoing liabilities of
Sellers in Section 11.9(b), to the extent the Buyer Parties are
entitled to indemnification for Damages pursuant to Section
11.2(b), the Sellers shall be liable for Damages only up to an
aggregate amount of $5,000,000.
(d) Notwithstanding clauses (a), (b) and (c) above and
Section 9.2 of this Agreement and Section 7.2 of the KM LLC
Agreement, to the extent the Buyer Parties are entitled to
indemnification for Damages pursuant to Section 11.2, the Sellers
shall be fully liable for Damages (i) under all of Section 11.2
(other than Section 11.2(a) and Section 11.2(b)), and (ii) fraud.
(e) Notwithstanding any other provision of this
Agreement, Buyer shall not be entitled to any indemnification
under this Article 11 with respect to any gas deficiency related
to the storage fields owned by American Gas Storage, L.P.
11.10 Sole Remedy. No party shall have liability under
this Agreement, the KM LLC Agreement, any of the Constituent
Documents or the transactions contemplated hereby or thereby
except as is provided in Section 10.2 or Article 11 of this
Agreement or Section 8.2 or Section 9.1 of the KM LLC Agreement,
as applicable. In addition, no party shall be required to
indemnify another party under this Article 11 for any item to the
extent such item is subject to an adjustment to the Cash
Consideration which occurred pursuant to Section 1.3.
Notwithstanding anything in this Agreement or the KM LLC
Agreement to the contrary, no indemnified party shall seek or be
entitled to be indemnified for Damages under this Agreement, the
KM LLC Agreement or with respect to the transactions contemplated
by those agreements (except for Damages claimed by a third party)
in excess of such indemnified party's actual, direct damages,
which shall not include any punitive, special, consequential or
extraordinary Damages, or damages relating to lost profits.
11.11 Express Negligence Rule. THE INDEMNIFICATION AND
ASSUMPTION PROVISIONS PROVIDED FOR IN THIS AGREEMENT HAVE BEEN
EXPRESSLY NEGOTIATED IN EVERY DETAIL, ARE INTENDED TO BE GIVEN
FULL AND LITERAL EFFECT, AND SHALL BE APPLICABLE WHETHER OR NOT
THE LIABILITIES, OBLIGATIONS, CLAIMS, JUDGMENTS, LOSSES, COSTS,
EXPENSES OR DAMAGES IN QUESTION ARISE OR AROSE SOLELY OR IN PART
FROM THE GROSS, ACTIVE, PASSIVE OR CONCURRENT NEGLIGENCE, STRICT
LIABILITY, OR OTHER FAULT OF ANY INDEMNIFIED PARTY. BUYER AND
SELLERS ACKNOWLEDGE THAT THIS STATEMENT COMPLIES WITH THE EXPRESS
NEGLIGENCE RULE AND CONSTITUTES CONSPICUOUS NOTICE. NOTICE IN
THIS CONSPICUOUS NOTICE IS NOT INTENDED TO PROVIDE OR ALTER THE
RIGHTS AND OBLIGATIONS OF THE PARTIES, ALL OF WHICH ARE SPECIFIED
ELSEWHERE IN THIS AGREEMENT.
ARTICLE 12
MISCELLANEOUS
12.1 Expenses. Regardless of whether the transactions
contemplated hereby are consummated, each party hereto shall pay
its own expenses incident to this Agreement and all action taken
in preparation for carrying this Agreement into effect. Sellers
shall pay all such expenses incurred by the Stock Entities and
the Subsidiaries, if any.
12.2 Knowledge. When a representation or warranty contained
herein or in any certificate or document delivered in connection
herewith is made to the "knowledge of the Sellers," that phrase
means the actual awareness of factual information, without
independent investigation, of the individuals listed on Schedule
12.2.
12.3 Notices. Any notice, request, instruction,
correspondence or other document to be given hereunder by either
party to the other (herein collectively called "Notice") shall be
in writing and delivered in person or by courier service
requiring acknowledgment of receipt of delivery or mailed by
certified mail, postage prepaid and return receipt requested, or
by telecopier, as follows:
If to the Sellers, addressed to:
Kinder Morgan, Inc.
1301 McKinney, Suite 3400
Houston, Texas 77010
Attention: Joseph Listengart
Telecopy: (713) 844-9570
with a copy to:
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana, Suite 2900
Houston, Texas 77002
Attention: David L. Ronn
Telecopy: (713) 222-3208
If to the Buyer, addressed to:
ONEOK, Inc.
100 W. Fifth Street
Tulsa, OK 74103
Attention: David L. Kyle, President
Telecopy: (918) 588-7961
with a copy to:
Gable & Gotwals
1100 ONEOK Plaza
100 West Fifth Street
Tulsa, OK 74013
Attention: John R. Barker
Telecopy: (918) 595-4990
Notice given by personal delivery, courier service or mail shall
be effective upon actual receipt. Notice given by telecopier
shall be confirmed by appropriate answer back and shall be
effective upon actual receipt if received during the recipient's
normal business hours, or at the beginning of the recipient's
next business day after receipt if not received during the
recipient's normal business hours. Any party may change any
address to which Notice is to be given to it by giving Notice as
provided above of such change of address.
12.4 No Negotiations. The Sellers shall use reasonable
efforts to retrieve promptly all materials delivered to
prospective bidders for the purchase of the KN Gas Assets and the
Equity. Until the first to occur of the Closing or termination
of this Agreement pursuant to the provisions of Article 10, the
Sellers shall not initiate or participate in discussions with, or
otherwise solicit from, any corporation, business or person any
proposals or offers relating to the disposition of KN Gas Assets,
the Equity or the Stock Entities' interest in the Subsidiaries or
the merger or consolidation of the Stock Entities or any of their
Subsidiaries with any other person or entity.
12.5 Governing Law. This Agreement shall be governed and
construed in accordance with the substantive laws of the State of
Texas without reference to principles of conflicts of law.
12.6 Public Statements. The parties hereto shall consult
with each other and no party shall issue any public announcement
or statement with respect to the transactions contemplated hereby
without the consent of the other parties, unless the party
desiring to make such announcement or statement, after seeking
such consent from the other parties, obtains advice from legal
counsel that a public announcement or statement is required by
applicable law.
12.7 Form of Payment. All payments hereunder shall be made
in United States dollars and, unless the parties making and
receiving such payments shall agree otherwise or the provisions
hereof provide otherwise, shall be made by wire or interbank
transfer of immediately available funds by 12:00 Noon Houston,
Texas time on the date such payment is due to such account as the
party receiving payment may designate at least three business
days prior to the proposed date of payment.
12.8 Entire Agreement; Amendments and Waivers. This
Agreement and the documents and instruments and other agreements
specifically referred to herein or delivered pursuant hereto,
including the exhibits and the schedules hereto, as well as
assignments, bills of sale and stock powers delivered herewith
(collectively, the "Constituent Documents") (a) constitute the
entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and
understandings, both written and oral, among the parties with
respect to the subject matter hereof, except for the
Confidentiality Agreement which shall continue in full force and
effect, and shall survive any termination of this Agreement or
the Closing in accordance with its terms; (b) are not intended to
confer upon any other person or entity any rights or remedies
hereunder; and (c) shall not be assigned by operation of law or
otherwise. Each party to this Agreement agrees that (i) no other
party to this Agreement (including its agents and
representatives) has made any representation, warranty, covenant
or agreement to or with such party relating to this Agreement or
the transactions contemplated hereby, other than those expressly
set forth in the Constituent Documents, and (ii) such party has
not relied upon any representation, warranty, covenant or
agreement relating to the transactions contemplated by the
Constituent Documents, other than those referred to in clause (i)
above. No supplement, modification or waiver of this Agreement
shall be binding unless executed in writing by each party to be
bound thereby. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any
other provision hereof (regardless of whether similar), nor shall
any such waiver constitute a continuing waiver unless otherwise
expressly provided.
12.9 Binding Effect and Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and
their respective permitted successors and assigns; but neither
this Agreement nor any of the rights, benefits or obligations
hereunder shall be assigned, by operation of law or otherwise, by
any party hereto without the prior written consent of the other
parties, except for an assignment of all or a portion of the
Buyer's rights hereunder to any one or more wholly-owned
subsidiaries or wholly-owned affiliates of the Buyer. Nothing in
this Agreement, express or implied, is intended to confer upon
any person or entity other than the parties hereto and their
respective permitted successors and assigns, any rights, benefits
or obligations hereunder.
12.10 Severability. If any provision of the Agreement
is rendered or declared illegal or unenforceable by reason of any
existing or subsequently enacted legislation or by decree of a
court of last resort, Sellers and Buyer shall promptly meet and
negotiate substitute provisions for those rendered or declared
illegal or unenforceable, but all of the remaining provisions of
this Agreement shall remain in full force and effect.
12.11 Interpretation. The parties agree that they have
been represented by counsel during the negotiation and execution
of this Agreement and, therefore waive the application of any
law, regulation, holding or rule of construction providing that
ambiguities in an agreement or other document will be construed
against the party drafting such agreement or document.
12.12 Headings and Schedules. The headings of the
several Articles and Sections herein are inserted for convenience
of reference only and are not intended to be a part of or to
affect the meaning or interpretation of this Agreement. The
schedules referred to herein are attached hereto and incorporated
herein by this reference, and unless the context expressly
requires otherwise, such schedules are incorporated in the
definition of "Agreement."
12.13 Multiple Counterparts. This Agreement may be
executed in one or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute
one and the same instrument.
EXECUTED as of the date first set forth above.
ONEOK, INC.
By: /s/ David L. Kyle
----------------------------
Name: David L. Kyle
Title: President and COO
KINDER MORGAN, INC.
By: /s/ Joseph Listengart
-----------------------------
Name: Joseph Listengart
Title: Vice President and Secretary
MIDCON GAS SERVICES CORP.
By: /s/ Douglas N. Schantz
-----------------------------
Name: Douglas N. Schantz
Title: Executive Vice President
KN SERVICES, INC.
By: /s/ Douglas N. Schantz
------------------------------
Name: Douglas N. Schantz
Title: Executive Vice President
KN GAS GATHERING, INC.
By: /s/ Joseph Listengart
------------------------------
Name: Joseph Listengart
Title: Vice President and Secretary
