Exhibit 99.1
AGREEMENT AND PLAN OF MERGER
by and among
K N ENERGY, INC.,
ROCKIES MERGER CORP.
and
XXXXXX XXXXXX, INC.
Dated as of
July 8, 1999
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of July 8,
1999, by and among K N Energy, Inc., a Kansas corporation ("Parent"), Rockies
Merger Corp., a Delaware corporation and wholly-owned subsidiary of Parent
("Merger Sub"), and Xxxxxx Xxxxxx, Inc., a Delaware corporation (the "Company").
WHEREAS, the Boards of Directors of Parent, Merger Sub and the Company
have each approved the merger of Merger Sub with and into the Company (the
"Merger") in accordance with the Delaware General Corporation Law (the "DGCL");
WHEREAS, as an inducement and a condition to Parent and Merger Sub
entering into this Agreement and incurring the obligations set forth herein,
certain stockholders of the Company have, simultaneously herewith, entered into
a Voting Agreement whereby they have agreed, among other things, to vote in
favor of the Merger; and
WHEREAS, for United States federal income tax purposes, it is intended
that the Merger shall qualify as a reorganization under the provisions of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
and that this Agreement is intended to be and hereby is adopted as a plan of
reorganization within the meaning of Section 368 of the Code.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained in this Agreement, and intending to be
legally bound hereby, the parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with the DGCL, Merger Sub shall
be merged with and into the Company at the Effective Time (as defined in Section
1.3). Following the Effective Time, the Company shall be the surviving
corporation (sometimes referred to herein as the "Surviving Corporation").
SECTION 1.2 Closing. The closing of the Merger (the "Closing") will
take place (a) at 10:00 a.m. on the second business day after satisfaction or
waiver of all of the conditions to the respective obligations of the parties set
forth in Article VII hereof or (b) at such other time and date as Parent and the
Company shall agree (such date and time on and at which the Closing occurs being
referred to herein as the "Closing Date"). At the Closing, there shall be
delivered to Parent and the Company certificates and other documents and
instruments required to be delivered under Article VII hereof. The Closing shall
take place at such location as Parent and the Company shall agree.
SECTION 1.3 Effective Time. Subject to the provisions of this
Agreement, as soon as practicable on the Closing Date, a certificate of merger
(the "Certificate of Merger") shall be properly executed and duly filed with the
Secretary of State of the State of Delaware as provided in the DGCL. The Merger
shall become effective upon the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware (the "Effective Time").
SECTION 1.4 Effects of the Merger. At the Effective Time, (a) the
separate existence of Merger Sub shall cease and Merger Sub shall be merged with
and into the Company (the Company and Merger Sub are sometimes referred to
herein as the "Constituent Corporations") and (b) the Merger shall have the
effects set forth in the DGCL.
SECTION 1.5 Certificate of Incorporation and Bylaws of the Surviving
Corporation. At the Effective Time and without any further action on the part of
the Company and Merger Sub, the Certificate of Incorporation and the Bylaws of
the Company as in effect immediately prior to the Effective Time shall be the
Certificate of Incorporation and the Bylaws of the Surviving Corporation until
thereafter amended as provided therein and under the DGCL.
SECTION 1.6 Directors and Officers of the Surviving Corporation. The
directors and officers of the Company in office immediately prior to the
Effective Time shall be the directors and officers of the Surviving Corporation
and shall hold office until their successors shall have been duly elected or
appointed or qualified or until their earlier death, resignation or removal in
accordance with the Certificate of Incorporation and Bylaws of the Surviving
Corporation.
SECTION 1.7 Tax Consequences. It is intended that the Merger shall
constitute a reorganization within the meaning of Section 368(a) of the Code,
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and each of Parent, Merger Sub and the Company hereby adopt this Agreement as a
"plan of reorganization" for purposes of the Code.
ARTICLE II
CONVERSION OF SECURITIES
SECTION 2.1 Effect on the Stock of the Constituent Corporations. As of
the Effective Time, by virtue of the Merger and without any action on the part
of the holders of any shares of stock of the Constituent Corporations:
(a) Conversion of Merger Sub Stock. Each share of common stock of
Merger Sub, par value $.01 per share, issued and outstanding immediately prior
to the Effective Time shall be converted into and become one fully paid and
nonassessable share of Class A common stock, par value $.01 per share, of the
Surviving Corporation.
(b) Cancellation of Treasury Shares. Each share of Class A common
stock, par value $.01 per share, of the Company ("Class A Common Stock") and
each share of Class B common stock, par value $.01 per share, of the Company
("Class B Common Stock," and together with the Class A Common Stock, "Company
Common Stock") that is held in the treasury of the Company immediately prior to
the Effective Time shall automatically be cancelled and retired without any
conversion thereof and shall cease to exist, and no consideration shall be
delivered in exchange therefor.
(c) Conversion of Company Common Stock. Subject to Section
2.1(d), each share of Company Common Stock issued and outstanding immediately
prior to the Effective Time, other than shares to be cancelled in accordance
with Section 2.1(b), shall automatically be converted into and become the right
to receive 3917.957 (the "Exchange Ratio") fully paid and nonassessable shares
of common stock, par value $5.00 per share, of Parent ("Parent Common Stock"),
which shall constitute the Merger consideration (the "Merger Consideration"). As
of the Effective Time, shares of Company Common Stock shall no longer be
outstanding and shall automatically be cancelled and retired and shall cease to
exist, and each holder of a certificate representing any such Company Common
Stock shall cease to have any rights with respect thereto, except the right to
receive the Merger Consideration upon surrender of such certificate. In no event
shall interest be paid or accrued on the Merger Consideration.
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(d) Appraisal Rights. Notwithstanding any other provision of this
Agreement to the contrary, shares of Company Common Stock outstanding
immediately prior to the Effective Time and held by a holder who has timely
objected to and not voted in favor of the Merger or consented thereto in writing
and who has demanded appraisal in writing for such Company Common Stock in
accordance with Section 262 of the DGCL shall not be converted into a right to
receive the Merger Consideration, unless such holder fails to perfect or
withdraws or otherwise loses its right to appraisal. If after the Effective Time
such holder fails to perfect or withdraws or loses its rights to appraisal, or
if it is determined that such holder does not have an appraisal right, such
shares of Company Common Stock shall be treated as if they had been exchanged as
of the Effective Time for a right to receive the Merger Consideration in
accordance with this Article II. The Company shall give Parent and Merger Sub
prompt notice of any demands received by the Company for appraisal of shares of
Company Common Stock, and Parent and Merger Sub shall have the right to
participate in all negotiations and proceedings with respect to such demands
except as required by applicable law. The Company shall not, except with prior
written consent of Parent and Merger Sub, make any payment with respect to, or
settle or offer to settle, any such demands.
SECTION 2.2 Fractional Interests. No certificates or scrip
representing fractional shares of Parent Common Stock shall be issued in
connection with the Merger, and such fractional interests shall not entitle the
owner thereof to any rights of a stockholder of Parent. In lieu of any such
fractional interests, each holder of shares of Company Common Stock exchanged
pursuant to Section 2.1(c) who would otherwise have been entitled to receive a
fraction of a share of Parent Common Stock (after taking into account all shares
of Company Common Stock then held by such holder) shall receive cash (without
interest) in an amount equal to the product of such fractional part of a share
of Parent Common Stock multiplied by the average of the closing prices of the
Parent Common Stock on the New York Stock Exchange ("NYSE") as reported on the
NYSE Composite Transaction Tape for the 10 trading days immediately preceding
the Closing Date.
SECTION 2.3 Exchange of Certificates; Stock Transfer Books.
(b) Exchange of Shares. At the Effective Time, each holder of an
outstanding certificate or certificates which immediately prior to the Effective
Time represented shares of Company Common Stock (the "Certificates") shall
receive, upon surrender to the Surviving Corporation of one or more Certificates
for cancellation, (i) a certificate representing that number of whole shares of
Parent Common Stock which such holder has the right to receive pursuant to the
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provisions of Section 2.1(c), (ii) a certified or bank cashier's check in an
amount equal to the cash, if any, which such holder has the right to receive
pursuant to the provisions of Section 2.2, after giving effect to any required
tax withholdings and (iii) any dividends or distributions to which such holder
is entitled to pursuant to Section 2.3(d), and the Certificate so surrendered
shall forthwith be cancelled. Certificates surrendered for exchange by any
Person (as defined in Section 9.5) constituting an "affiliate" of the Company
for purposes of Rule 145(c) under the Securities Act of 1933, as amended (the
"Securities Act"), shall not be exchanged, nor shall any Person have the right
to receive the Merger Consideration with respect to any share of Company Common
Stock owned by such Person, until Parent has received a written agreement from
such Person as provided in Section 6.7.
(b) Transfer Taxes. If any certificates for shares of Parent
Common Stock are to be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it shall be a condition of such
exchange that the Person requesting such exchange shall pay to the Surviving
Corporation any transfer or other Taxes required by reason of the issuance of
certificates for such shares of Parent Common Stock in a name other than that of
the registered holder of the Certificate surrendered, or shall establish to the
satisfaction of the Surviving Corporation that such Tax has been paid or is not
applicable.
(c) Closing Transfer Books. From and after the Effective Time,
the stock transfer books of the Company shall be closed and thereafter there
shall be no further registration of transfers of shares of Company Common Stock
on the records of the Company.
(d) Dividends and Other Distributions. No dividends or other
distributions declared or made after the Effective Time with respect to shares
of Parent Common Stock shall be paid to the holder of any unsurrendered
Certificate with respect to the shares of Parent Common Stock such holder is
entitled to receive until the holder of such Certificate shall surrender such
Certificate in accordance with the provisions of this Agreement. Upon such
surrender, Parent shall cause to be paid to the Person in whose name the
certificates representing such shares of Parent Common Stock shall be issued,
any dividends or distributions with respect to such shares of Parent Common
Stock which have a record date after the Effective Time and shall have become
payable between the Effective Time and the time of such surrender. In no event
shall the Person entitled to receive such dividends or distributions be entitled
to receive interest thereon.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub each hereby represents and warrants to the
Company as follows:
SECTION 3.1 Organization and Qualification. Except as set forth in
Section 3. l of the disclosure schedule delivered by Parent to the Company
concurrently with the execution of this Agreement (the "Parent Disclosure
Schedule"), Parent is a corporation duly organized, validly existing and in good
standing under the laws of the State of Kansas, has all requisite corporate
power and authority, and has been duly authorized by all necessary approvals and
orders, to own, lease and operate its Assets (as hereinafter defined) and to
carry on its business as it is now being conducted, and is duly qualified and in
good standing to do business in each jurisdiction in which the nature of its
business or the ownership or leasing of its Assets (as hereinafter defined)
makes such qualification necessary other than in such jurisdictions where the
failure to be so qualified and in good standing will not, when taken together
with all other such failures, have a Parent Material Adverse Effect (as
hereinafter defined).
SECTION 3.2 Subsidiaries. Section 3.2 of the Parent Disclosure
Schedule sets forth a description as of the date hereof of all Subsidiaries (as
defined in Section 9.5) of Parent and each other corporation, partnership,
limited liability company, business, trust or other Person in which Parent or
any of its Subsidiaries owns, directly or indirectly, an interest in the equity
(other than publicly traded securities which constitute less than 5% of the
outstanding securities of such series or class) including the name of each such
Person and Parent's interest therein, and, as to each Subsidiary identified as a
"Material Parent Entity" in Section 3.2 of the Parent Disclosure Schedule, a
brief description of the principal line or lines of business conducted by each
such entity. Except as set forth in Section 3.2 of the Parent Disclosure
Schedule, each of Parent's Subsidiaries is duly organized, validly existing and
in good standing under the laws of its state or county of organization, has all
requisite organizational power and authority, and has been duly authorized by
all necessary approvals and orders, to own, lease and operate its Assets and to
carry on its business as it is now being conducted, and is duly qualified and in
good standing to do business in each jurisdiction in which the nature of its
business or the ownership or leasing of its Assets make such qualification
necessary other than in such jurisdictions where the failure to be so qualified
and in good standing will not, when taken together with all other such failures,
have a Parent Material Adverse Effect. Except as set forth in Section 3.2 of the
Parent Disclosure Schedule, all of the issued and outstanding shares of capital
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stock of each Subsidiary of Parent are validly issued, fully paid, nonassessable
and free of preemptive rights, are owned directly or indirectly by Parent free
and clear of any liens, claims, encumbrances, security interests, equities,
charges and options of any nature whatsoever ("Encumbrances") and there are no
outstanding subscriptions, options, calls, contracts, voting trusts, proxies or
other commitments, understandings, restrictions, arrangements, rights or
warrants, including any right of conversion or exchange under any outstanding
security, instrument or other agreement, obligating any such Subsidiary to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of its capital stock or obligating it to grant, extend or enter into any
such agreement or commitment.
SECTION 3.3 Capitalization. The authorized capital stock of Parent
consists of (i) 150,000,000 shares of Parent Common Stock, (ii) 200,000 shares
of Class A Preferred Stock, without par value (the "Parent Class A Preferred
Stock"), of which 70,000 shares have been designated as a series of "Class A $5
Cumulative Preferred Stock," 1,200 shares have been designated as a series of
"Class A $5.65 Cumulative Preferred Stock" and 125,000 shares have been
designated as a series of "Class A $8.50 Cumulative Preferred Stock" and (iii)
2,000,000 shares of Class B Preferred Stock, without par value (the "Parent
Class B Preferred Stock"), of which 120,000 shares have been designated as a
series of "Class B $8.30 Series Cumulative Preferred Stock" and 150,000 shares
have been designated as "Class B Junior Participating Series Preferred Stock."
As of the close of business on July 6, 1999, there were issued and outstanding
(i) 70,897,055 shares of Parent Common Stock, (ii) no shares of Parent Class A
Preferred Stock and (iii) no shares of Parent Class B Preferred Stock. All of
the issued and outstanding shares of the capital stock of Parent are validly
issued, fully paid, nonassessable and free of preemptive rights. Except as set
forth in Section 3.3 of the Parent Disclosure Schedule, as of the date hereof,
there are no outstanding subscriptions, options, calls, contracts, voting
trusts, proxies or other commitments, understandings, restrictions,
arrangements, rights or warrants, including any right of conversion or exchange
under any outstanding security, instrument or other agreement, obligating Parent
or any of its Subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of the capital stock of Parent or
obligating Parent or any of its Subsidiaries to grant, extend or enter into any
such agreement or commitment, other than (x) Parent's 8.25% Premium Equity
Participating Security Units-PEPS Units ("PEPS Units") (which are exchangeable,
in the aggregate, for up to 16,059,000 shares of Parent Common Stock) and (y)
under the Parent Rights Agreement (as hereinafter defined). Except as set forth
in Section 3.3 of the Parent Disclosure Schedule, Parent has no commitments or
obligations to purchase or redeem any shares of capital stock of Parent or any
of its Subsidiaries. There are no stockholder agreements, voting trusts, proxies
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or other agreements or understandings to which Parent or any of its Subsidiaries
is a party or by which Parent or any of its Subsidiaries is bound relating to
the voting of any shares of the capital stock of Parent or any of its
Subsidiaries by any Person other than Parent or a Subsidiary of Parent. True,
accurate and complete copies of the Restated Articles of Incorporation and
Bylaws of Parent and the charter and bylaws or other organizational documents
and operating agreements for each Subsidiary of Parent, as in effect on the date
hereof, have previously been made available to the Company.
SECTION 3.4 Authority; Non-Contravention; Statutory Approvals;
Compliance.
(a) Authority. Each of Parent and Merger Sub has all requisite power
and authority to enter into this Agreement and, subject to obtaining the Parent
Stockholders' Approval (as hereinafter defined) and each of the statutory
approvals listed in Section 3.4(c) (the "Parent Required Statutory Approvals"),
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement and the consummation by Parent and Merger Sub of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Parent and Merger Sub, subject to obtaining the
applicable Parent Stockholders' Approval. This Agreement has been duly and
validly executed and delivered by Parent and Merger Sub and, assuming the due
authorization, execution and delivery hereof by the Company, constitutes the
valid and binding obligation of Parent and Merger Sub enforceable against each
of them 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 and general equitable
principles (whether considered in a proceeding in equity or at law)). Each
member of the Board of Directors of Parent and each of its executive officers
has advised Parent that he or she currently intends to vote or cause to be voted
all shares of Parent Common Stock owned by him or her in favor of approval of
this Agreement.
(b) Non-Contravention. Except as set forth in Section 3.4(b) of the
Parent Disclosure Schedule, the execution and delivery of this Agreement by
Parent and Merger Sub does not, and the consummation of the transactions
contemplated hereby will not (with or without notice or lapse of time or both),
(i) violate or conflict with any provision of the Restated Articles of
Incorporation or Bylaws of Parent or similar governing documents of any of
Parent's Subsidiaries, (ii) subject to obtaining the Parent Required Statutory
Approvals and the Parent Stockholders' Approval, violate or conflict with any
statute, law, ordinance, rule, regulation, judgment, decree, order, injunction,
writ, permit or license of any Governmental Authority (as hereinafter defined)
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applicable to Parent or any of its Subsidiaries or any of their respective
Assets or (iii) subject to obtaining the third-party consents set forth in
Section 3.4(b) of the Parent Disclosure Schedule (the "Parent Required
Consents"), violate, conflict with, or result in a breach of any provision of,
or constitute a default under, or trigger any obligation to repurchase, redeem
or otherwise retire indebtedness under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination,
cancellation, or acceleration of any obligation or the loss of a material
benefit under, or result in the creation of any Encumbrance upon any of the
Assets of Parent or any of its Subsidiaries pursuant to any provisions of any
note, bond, mortgage, indenture, deed of trust, license, franchise, permit,
concession, contract, lease or other instrument, obligation or agreement of any
kind to which Parent or any of its Subsidiaries is now a party or by which it or
any of its Assets may be bound or affected, except, in the case of clauses (ii)
and (iii), as would not, in the aggregate, have or be reasonably likely to have
a Parent Material Adverse Effect.
(c) Statutory Approvals. Except for (i) applicable requirements, if
any, of the Securities Act, the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and state securities or "blue sky" laws ("Blue Sky Laws"), (ii)
the pre-merger notification requirements of the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act of 1976, as amended, and the rules and regulations thereunder
(the "HSR Act") or filings or notifications under the antitrust, competition or
similar laws of any foreign jurisdiction, (iii) the filing of the Certificate of
Merger pursuant to the DGCL, (iv) applicable filings with and approvals of the
California Public Utility Commission (the "CPUC"), (v) applicable filings with
and approvals of the Federal Energy Regulatory Commission (the "FERC") and (vi)
any notices or filings not required to be given or made until or after the
Effective Time, no declaration, filing or registration with, or notice to or
authorization, consent or approval of, any court, governmental or regulatory
body (including a stock exchange or other self-regulatory body) or authority,
domestic or foreign (each, a "Governmental Authority") is necessary for the
execution and delivery of this Agreement by Parent and Merger Sub or the
consummation by Parent and Merger Sub of the transactions contemplated hereby,
except for such notices, reports, filings, waivers, consents, approvals or
authorizations that, if not made or obtained, would not, in the aggregate, have
or reasonably be expected to have a Parent Material Adverse Effect.
(d) Compliance. Except as set forth in Section 3.4(d) of the Parent
Disclosure Schedule or as disclosed in the Parent SEC Reports (as hereinafter
defined), neither Parent nor any of its Subsidiaries is in violation of or, to
Parent's knowledge, is under investigation with respect to, or has been given
notice or been charged with any violation of, any law, statute, order, rule,
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regulation, ordinance or judgment of any Governmental Authority, except for
violations, investigations and charges relating to Environmental Laws (which are
the subject of Section 3.10) and except for violations, investigations and
charges that, in the aggregate, would not have or reasonably be expected to have
a Parent Material Adverse Effect. Except as set forth in Section 3.4(d) of the
Parent Disclosure Schedule, Parent and each of its Subsidiaries have all
permits, licenses, franchises and other governmental authorizations, consents
and approvals necessary to conduct their businesses as presently conducted
except for Environmental Permits (which are the subject of Section 3.10) and
permits, licenses, franchises, authorizations, consents and approvals the
failure to possess, in the aggregate, would not have or reasonably be expected
to have a Parent Material Adverse Effect.
SECTION 3.5 Reports and Financial Statements. The filings required to
be made by Parent and its Subsidiaries since January 1, 1996 under the
Securities Act, the Exchange Act, the Federal Power Act (the "Power Act"), the
Natural Gas Act (the "Gas Act"), the Natural Gas Policy Act (the "NGPA"), the
Public Utility Holding Company Act of 1935, as amended (the "1935 Act"), or any
applicable state laws, rules or regulations have been filed with the Securities
and Exchange Commission (the "SEC"), the applicable public utility regulatory
authorities or the FERC, as the case may be, including all forms, statements,
reports, agreements (oral or written) and all documents, exhibits, amendments
and supplements appertaining thereto, and Parent has complied in all material
respects with all applicable requirements of the appropriate act and the rules
and regulations thereunder. Parent has made available to the Company a true and
complete copy of each report, schedule, registration statement and definitive
proxy statement filed by Parent with the SEC since January 1, 1996 (as such
documents have since the time of their filing been amended, the "Parent SEC
Reports"). As of their respective dates, the Parent SEC Reports (i) complied, or
with respect to those not yet filed, will comply, in all material respects with
the applicable requirements of the Securities Act and the Exchange Act and (ii)
did not, or with respect to those not yet filed, will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited
consolidated financial statements and unaudited interim financial statements of
Parent included in the Parent SEC Reports (collectively, the "Parent Financial
Statements") have been, or with respect to those not yet filed, will be prepared
in accordance with GAAP (except as may be indicated therein or in the notes
thereto and except with respect to unaudited statements as permitted by Form
l0-Q of the SEC) and fairly present, or with respect to those not yet filed,
will fairly present the financial position of Parent as of the dates thereof and
the results of its operations and cash flows for the periods then ended,
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subject, in the case of the unaudited interim financial statements, to normal,
recurring audit adjustments. Notwithstanding the foregoing, no representation or
warranty is being made in this Section 3.5 with respect to information furnished
in writing by the Company specifically for inclusion in any Parent SEC Report
filed after the date hereof or with respect to any Company SEC Report (as
hereinafter defined) incorporated therein by reference.
SECTION 3.6 Absence of Certain Changes or Events; Absence of
Undisclosed Liabilities. (a) Except as set forth in the Parent SEC Reports or
Section 3.6 of the Parent Disclosure Schedule, from January 1, 1999 through the
date hereof each of Parent and its Subsidiaries has conducted its business in
all material respects only in the ordinary course of such businesses consistent
with past practice and there has not been any (i) declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to the capital stock of Parent other than (x) quarterly
cash dividends of $1.25 per share in respect of the outstanding shares of the
Parent Class A $5 Cumulative Preferred Stock, (y) quarterly cash dividends of
$.20 per share (after giving effect to the 3-for-2 stock dividend effected by
Parent as of December 31, 1998) in respect of the outstanding shares of the
Parent Common Stock and (z) as of and after May 31, 1999 semi-annual
distributions of up to $1.82221 per outstanding PEPS Unit payable in accordance
with the terms thereof; (ii) repurchase, redemption or other acquisition by
Parent or any of its Subsidiaries of any outstanding shares of capital stock or
other equity securities of or other ownership interests in, Parent or any of its
Subsidiaries, except (x) in accordance with any of Parent's Stock Plans (as
defined in Section 9.5) and (y) in connection with Parent's redemption of its
Class A $5 Cumulative Preferred Stock; (iii) material change in any method of
accounting or accounting practices by Parent or any of its Subsidiaries other
than as required by GAAP or applicable law; or (iv) material change in Parent's
business operations, condition (financial or otherwise), results of operations,
assets or liabilities.
(b) Except as set forth in the Parent SEC Reports filed as of
the date hereof, neither Parent nor any of its Subsidiaries has any liabilities
or obligations (whether absolute, accrued, contingent or otherwise) except (i)
liabilities, obligations or contingencies that are accrued or reserved against
in the consolidated financial statements of Parent or reflected in the notes
thereto for the 3-month period ended March 31, 1999; (ii) normal and recurring
liabilities which were incurred after March 31, 1999 in the ordinary course of
business consistent with past practice; or (iii) liabilities, obligations or
contingencies that would not, in the aggregate, have a Parent Material Adverse
Effect.
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SECTION 3.7 Litigation; Regulatory Proceedings. Except as disclosed
in the Parent SEC Reports or as set forth in Section 3.7 of the Parent
Disclosure Schedule, (i) there are, as of the date hereof, no suits, actions,
proceedings or, to the knowledge of Parent, claims pending or, to the knowledge
of Parent, threatened, before a court or other Governmental Authority nor are
there, to the knowledge of Parent, any investigations or reviews pending or
threatened against, relating to or affecting Parent or any of its Subsidiaries
and (ii) there are no judgments, decrees, injunctions or orders of any court,
governmental department, commission, agency, instrumentality or authority or any
arbitrator applicable to Parent or any of its Subsidiaries which, in the
aggregate, could reasonably be expected to have a Parent Material Adverse
Effect.
SECTION 3.8 Tax Matters.
(a) Filing of Timely Tax Returns. Except as set forth in Section
3.8(a) of the Parent Disclosure Schedule, Parent and each of its Subsidiaries
have filed (or there has been filed on their behalf) all Tax Returns required to
be filed by each of them under applicable law. All Tax Returns were in all
material respects (and, as to Tax Returns not filed as of the date hereof will
be) true, complete and correct and filed on a timely basis.
(b) Payment of Taxes. Parent and each of its Subsidiaries have,
within the time and in the manner prescribed by law, paid (and until the Closing
Date will pay within the time and in the manner prescribed by law) all Taxes
that are currently due and payable except for those contested in good faith and
for which adequate reserves have been taken.
(c) Tax Reserves. Except as set forth in Section 3.8(c) of the
Parent Disclosure Schedule, Parent and its Subsidiaries have established (and
until the Effective Time will maintain) on their books and records reserves
adequate to pay all Taxes, all deficiencies in Taxes asserted or proposed
against Parent or its Subsidiaries and reserves for deferred income taxes in
accordance with GAAP.
(d) Tax Liens. There are no Tax liens upon the assets of Parent
or any of its Subsidiaries except liens for Taxes not yet due and payable.
(e) Withholding Taxes. Parent and each of its Subsidiaries have
complied (and until the Effective Time will comply) in all respects with the
provisions of the Code relating to the payment and withholding of Taxes,
including, without limitation, the withholding and reporting requirements under
Sections 1441 through 1464, 3401 through 3406, and 6041 and 6049 of the Code, as
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well as similar provisions under any other laws, and have, within the time and
in the manner prescribed by law, withheld from employee wages and paid over to
the proper governmental authorities all amounts required.
(f) Extensions of Time for Filing Tax Returns. Except as set
forth in Section 3.8(f) of the Parent Disclosure Schedule, neither Parent nor
any of its Subsidiaries has requested any extension of time within which to file
any Tax Return, which Tax Return has not since been filed.
(g) Waivers of Statute of Limitations. Except as set forth in
Section 3.8(g) of the Parent Disclosure Schedule, neither Parent nor any of its
Subsidiaries has executed any outstanding waivers or comparable consents
regarding the application of the statute of limitations with respect to any
Taxes or Tax Returns.
(h) Expiration of Statute of Limitations. Except as set forth in
Section 3.8(h) of the Parent Disclosure Schedule, the statute of limitations for
the assessment of all federal income and applicable state income or franchise
Taxes has expired for all related Tax Returns of Parent and each of its
Subsidiaries or those Tax Returns have been examined by the appropriate taxing
authorities for all periods through the date hereof and no deficiency for any
such Taxes has been proposed, asserted or assessed against Parent or any of its
Subsidiaries that has not been resolved and paid in full.
(i) Audit, Administrative and Court Proceedings. Except as set
forth in Section 3.8(i) of the Parent Disclosure Schedule, no audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Tax Returns of Parent or any of its Subsidiaries, and
neither Parent nor any of its Subsidiaries has any knowledge of any threatened
action, audit or administrative or court proceeding with respect to any such
Taxes or Tax Returns.
(j) Powers of Attorney. Except as set forth in Section 3.8(j) of
the Parent Disclosure Schedule, no power of attorney currently in force has been
granted by Parent or any of its Subsidiaries concerning any Tax matter.
(k) Tax Rulings. Except as set forth in Section 3.8(k) of the
Parent Disclosure Schedule, neither Parent nor any of its Subsidiaries has
received a Tax Ruling or entered into a Closing Agreement with any taxing
authority that would have a continuing adverse effect after the Effective Time.
"Tax Ruling", as used in this Agreement, shall mean a written ruling of a taxing
authority relating to Taxes. "Closing Agreement", as used in this Agreement,
shall mean a written and legally binding agreement with a taxing authority
relating to Taxes.
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(l) Availability of Tax Returns. Except as set forth in Section
3.8(l) of the Parent Disclosure Schedule, Parent and its Subsidiaries have made
available to the Company complete and accurate copies of all federal income and
state income or franchise Tax Returns, and any amendments thereto, filed by
Parent or any of its Subsidiaries for all taxable years commencing on or after
January 1, 1997. Section 3.8(l) of the Parent Disclosure Schedule sets forth all
foreign, state and local jurisdictions in which Parent or any of its
Subsidiaries is or has been subject to Tax and each material type of Tax payable
in such jurisdiction during the taxable years ended December 31, 1998 and
December 31, 1997. In addition, Parent and its Subsidiaries have made available
to the Company complete and accurate copies of all audit reports received from
any taxing authority relating to any Tax Return filed by Parent or any of its
Subsidiaries for all taxable years commencing on or after January 1, 1995.
(m) Tax Sharing Agreements. Except as set forth in Section 3.8(m)
of the Parent Disclosure Schedule, no agreements relating to allocating or
sharing of Taxes exist between or among Parent and any of its Subsidiaries.
(n) Code Section 341(f). Neither Parent nor any of its
Subsidiaries has filed (or will file prior to the Closing) a consent pursuant to
Section 341(f) of the Code or has agreed to have Section 341(f)(2) of the Code
apply to any disposition of a subsection (f) asset (as that term is defined in
Section 341(f)(4) of the Code) owned by Parent or any of its Subsidiaries.
(o) Code Section 168. No property of Parent or any of its
Subsidiaries is property that Parent or any such Subsidiary or any party to this
transaction is or will be required to treat as being owned by another person
pursuant to the provisions of Section 168(f)(8) of the Code (as in effect prior
to its amendment by the Tax Reform Act of 1986) or is "tax-exempt use property"
within the meaning of Section 168 of the Code.
(p) Code Section 481 Adjustments. Except as set forth in Section
3.8(p) of the Parent Disclosure Schedule and except for adjustments that in the
aggregate could not reasonably be expected to have a Parent Material Adverse
Effect, neither Parent nor any of its Subsidiaries is required to include in
income any adjustment pursuant to Section 481(a) of the Code by reason of a
voluntary change in accounting method initiated by Parent or any of its
Subsidiaries, and to the best of the knowledge of Parent, the Internal Revenue
Service (the "IRS") has not proposed any such adjustment or change in accounting
method.
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(q) Tax Attributes. Section 3.8(q) of the Parent Disclosure
Schedule sets forth, with respect to Parent and its Subsidiaries: (i) the amount
of and year of expiration of any net operating loss carryovers and (ii) the
amount of and year of expiration of any tax credit carryovers.
(r) Code Section 338 Elections. Except as set forth in Section
3.8(r) of the Parent Disclosure Schedule, no election under Section 338 of the
Code (or any predecessor provision) has been made by or with respect to Parent
or any of its Subsidiaries or any of their respective assets or properties.
(s) Acquisition Indebtedness. Except as set forth in Section
3.8(s) of the Parent Disclosure Schedule, no indebtedness of Parent or any of
its Subsidiaries is "corporate acquisition indebtedness" within the meaning of
Section 279(b) of the Code.
(t) Code Section 280G. Except as set forth in Section 3.8(t) of
the Parent Disclosure Schedule, neither Parent nor any of its Subsidiaries is a
party to any agreement, contract, or arrangement that could result, on account
of the transactions contemplated hereunder, separately or in the aggregate, in
the payment of any "excess parachute payments" within the meaning of Section
280G of the Code.
(u) Affiliated Group. Except as set forth in Section 3.8(u) of
the Parent Disclosure Schedule: (i) none of Parent and its Subsidiaries (A) has
been a member of an affiliated group filing a consolidated federal income Tax
Return (other than a group the common parent of which was Parent) or (B) has any
liability for Taxes of any other Person (other than any of Parent and its
Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any similar
provision of state, local or foreign law), as a transferee or successor, by
contract, or otherwise, and (ii) neither Parent nor any of its Subsidiaries has
engaged in any intercompany transactions within the meaning of Treasury
Regulation Section 1.1502-13 for which any income remains unrecognized as of the
close of the last taxable year prior to the Effective Time.
(v) Tax Treatment of Merger. Parent has not taken or agreed to
take any action, or knows of any circumstances, that (without regard to any
action taken or agreed to be taken by the Company or any of its affiliates)
would prevent the Merger from qualifying as a reorganization within the meaning
of Sections 368(a)(l)(A) or 368(a)(2)(E) of the Code.
15
SECTION 3.9 Employee Matters; ERISA.
(a) Benefit Plans. Section 3.9(a) of the Parent Disclosure
Schedule contains a true and complete list of each material employee benefit
plan, program or arrangement currently sponsored, maintained or contributed to
by Parent or any of its Subsidiaries for the benefit of employees, former
employees or directors and their beneficiaries or for which Parent or any of its
Subsidiaries may have any liability, including, but not limited to, any employee
benefit plans within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and any employment,
consulting, non-compete, severance or change in control agreement (collectively,
the "Parent Benefit Plans"). For the purposes of this Section 3.9 only, the term
"Parent" shall be deemed to include predecessors thereof.
(b) Termination of Parent Benefit Plans; Withdrawal. All of the
Parent Benefit Plans (other than any multiemployer plan, as defined in Section
3(37) of ERISA) can be terminated by Parent without incurring any material
liability. Subject to any collective bargaining obligations, except as set forth
in Section 3.9(b) of the Parent Disclosure Schedule, Parent and its Subsidiaries
can withdraw from participation in any Parent Benefit Plan that is a
multiemployer plan, without incurring any material liability.
(c) Contributions. Except as set forth in Section 3.9(c) of the
Parent Disclosure Schedule, all material contributions and other payments
required to be made as of the date hereof by Parent or any of its Subsidiaries
to any Parent Benefit Plan (or to any person pursuant to the terms thereof) have
been made or the amount of such payment or contribution obligation has been
properly reflected in the Parent Financial Statements in accordance with GAAP.
(d) Qualification; Compliance. Except as set forth in Section
3.9(d) of the Parent Disclosure Schedule, each of the Parent Benefit Plans
(other than any multiemployer plan as defined in Section 3(37) of ERISA)
intended to be "qualified" within the meaning of Section 401(a) of the Code has
been determined by the IRS to be so qualified, and, to the best knowledge of
Parent, no circumstances exist that are reasonably expected by Parent to result
in the revocation of any such determination. Parent is in compliance in all
material respects with, and each Parent Benefit Plan (other than any
multiemployer plan as defined in Section 3(37) of ERISA) is and has been
operated in all material respects in compliance with, all applicable laws, rules
and regulations governing such plan, including, without limitation, ERISA and
the Code. Each Parent Benefit Plan (other than any multiemp1oyer plan as defined
in Section 3(37) of ERISA) intended to provide for the deferral of income, the
reduction of salary or other compensation, or to afford other income tax
16
benefits, complies with the material requirements of the applicable provisions
of the Code or other laws, rules and regulations required to provide such income
tax benefits.
(e) Liabilities. With respect to the Parent Benefit Plans
individually and in the aggregate, no event has occurred, and, to the best
knowledge of Parent, there exists no condition or set of circumstances that is
reasonably likely to subject Parent or any of its Subsidiaries to any liability
arising under the Code, ERISA or any other applicable law (including, without
limitation, any liability to any such plan or the Pension Benefit Guaranty
Corporation (the "PBGC")), or under any indemnity agreement to which Parent is a
party, which liability could reasonably be expected to have a Parent Material
Adverse Effect.
(f) Welfare Plans. Except as set forth in Section 3.9(f) of the
Parent Disclosure Schedule, none of the Parent Benefit Plans that are "welfare
plans", within the meaning of Section 3(1) of ERISA, provides for any retiree
benefits other than coverage mandated by applicable law or benefits the full
cost of which is borne by the retiree.
(g) Documents Made Available. Parent has made available to the
Company a true and correct copy of each collective bargaining agreement to which
Parent or any of its Subsidiaries is a party or under which Parent or any of its
Subsidiaries has obligations and, with respect to each Parent Benefit Plan, (i)
such plan and summary plan description, as applicable, (ii) the most recent
annual report filed with the IRS, (iii) each related trust agreement, insurance
contract, service provider or investment management agreement (including all
amendments to each such document), (iv) the most recent determination of the IRS
with respect to the qualified status of such plan and (v) the most recent
actuarial report or valuation.
(h) Payments Resulting from Mergers. Except as set forth in
Section 3.9(h) of the Parent Disclosure Schedule or specifically provided for
herein, neither Parent nor any of its Subsidiaries is a party to any plan,
agreement or arrangement pursuant to the terms of which the consummation or
announcement of any transaction contemplated by this Agreement will (either
alone or in connection with the occurrence of any additional or further acts or
events) result in any (A) payment (whether of severance pay or otherwise)
becoming due from Parent or any of its Subsidiaries to any officer, employee,
former employee or director thereof or to a trustee under any "rabbi trust" or
similar arrangement, or (B) benefit under any Parent Benefit Plan being
established or becoming accelerated, or immediately vested or payable.
17
SECTION 3.10 Environmental Protection.
(a) Compliance. Except as set forth in the Parent SEC Reports or
in Section 3.10(a) of the Parent Disclosure Schedule, (i) each of Parent and its
Subsidiaries is in compliance in all material respects with all applicable
Environmental Laws and (ii) to the knowledge of the General Counsel and the
Director of Environmental Health and Safety of Parent, neither Parent nor any of
its Subsidiaries has received any unresolved written communication since January
1, 1996 from any Person or Governmental Authority that alleges that Parent or
any of its Subsidiaries is not in such compliance with applicable Environmental
Laws.
(b) Environmental Permits. Except as set forth in the Parent SEC
Reports or as set forth in Section 3.10(b) of the Parent Disclosure Schedule,
each of Parent and its Subsidiaries has obtained or has applied for all material
environmental, health and safety permits and governmental 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 Parent and its Subsidiaries are in material
compliance with all terms and conditions of the Environmental Permits.
(c) Environmental Claims. Except as set forth in the Parent SEC
Reports or as set forth in Section 3.10(c) of the Parent Disclosure Schedule (i)
as of the date hereof there is no Environmental Claim pending (x) against Parent
or any of its Subsidiaries, (y) to Parent's knowledge, against any Person whose
liability for any Environmental Claim Parent or any of its Subsidiaries has
retained or assumed contractually or (z) against any real or personal property
or operations which Parent or any of its Subsidiaries owns, leases or manages,
in whole or in part, and (ii) there are no past or present actions, activities,
circumstances, conditions, events or incidents which could reasonably be
expected to form the basis of any such Environmental Claim except as would not
be expected to have, individually or in the aggregate, a Parent Material Adverse
Effect.
(d) Releases. Except as set forth in the Parent SEC Reports or as
set forth in Section 3.10(c) or Section 3.10(d) of the Parent Disclosure
Schedule, as of the date hereof there have been no Releases of any Hazardous
Substances that would be reasonably likely to form the basis of any
Environmental Claim against Parent or any of its Subsidiaries, or to Parent's
knowledge against any Person whose liability for any Environmental Claim Parent
or any of its Subsidiaries has retained or assumed contractually, except for
18
those that would not be expected to have, individually or in the aggregate, a
Parent Material Adverse Effect.
(e) Predecessors. Except as set forth in the Parent SEC Reports
or as set forth in Section 3.10(e) of the Parent Disclosure Schedule and, to
Parent's knowledge, with respect to any predecessor of Parent or any Subsidiary
of Parent, there is no Environmental Claim pending or, to Parent's knowledge,
threatened, nor any Release of Hazardous Substances that would be reasonably
likely to form the basis of any Environmental Claim, except for those that would
not be expected to have, individually or in the aggregate, a Parent Material
Adverse Effect.
(f) Disclosure. Parent has made available to the Company all
material documents which Parent reasonably believes provide the basis for (i)
the cost of Parent pollution control equipment currently required or known to be
required in the future; (ii) current Parent remediation costs or Parent
remediation costs known or suspected to be required in the future; or (iii) any
other environmental matter affecting Parent, except for those that would not be
expected to have, individually or in the aggregate, a Parent Material Adverse
Effect.
(g) Cost Estimates. No environmental matter set forth in the
Parent SEC Reports or the Parent Disclosure Schedule could reasonably be
expected to substantially differ from the cost or recovery estimates provided in
the Parent SEC Reports or the Parent Disclosure Schedules, as the case may be.
(h) Reports. Each of Parent and its Subsidiaries has made
available to the Company true, complete and correct summaries or copies of all
environmental audits, assessments or investigations, which (i) have been
conducted by or on behalf of Parent or any of its Subsidiaries since January l,
1996 and (ii) are available to, or in the possession of, Parent or any of its
Subsidiaries on any currently or formerly owned, leased or operated property.
(i) Release. Except as set forth in Section 3.10(i) of the Parent
Disclosure Schedule, neither Parent nor any of its Subsidiaries has released any
party from any material claim under any Environmental Law or waived any rights
against any other party under any Environmental Law, except for those that would
not be expected to have, individually or in the aggregate, a Parent Material
Adverse Effect.
(j) Prior Indemnification Agreements. Except as set forth in
Section 3.10(j) of the Parent Disclosure Schedule, neither Parent nor any of its
Subsidiaries has entered into any material agreement that may require Parent or
19
any of its Subsidiaries to pay to, reimburse, guarantee, pledge, defend,
indemnify or hold harmless any Person for or against any Environmental Claim,
except for those that would not be expected to have, individually or in the
aggregate, a Parent Material Adverse Effect.
(k) Definitions.
(i) "Cleanup" means all actions required to: (1) cleanup,
remove, treat or remediate Hazardous Substances in the indoor or outdoor
environment; (2) prevent the Release of Hazardous Substances so that they do not
migrate, endanger or threaten to endanger public health or welfare or the indoor
or outdoor environment; (3) perform pre-remedial studies and investigations and
post-remedial monitoring and care; or (4) respond to any government requests for
information or documents in any way relating to cleanup, removal, treatment or
remediation or potential cleanup, removal, treatment or remediation of Hazardous
Substances in the indoor or outdoor environment.
(ii) "Environmental Claim" means any claim, action, cause of
action, investigation or notice (written or oral) by any Person alleging
potential liability (including, without limitation, potential liability for
investigatory costs, Cleanup costs, governmental response 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 Substances at any location,
whether or not now or formerly owned, operated, leased or managed by the Parent
or any of its Subsidiaries or the Company or any of its Subsidiaries, as
applicable; (b) circumstances forming the basis of any violation or alleged
violation of, or responsibility or alleged responsibility under, any
Environmental Law; or (c) any and all claims by any Person seeking damages,
contribution, indemnification, cost recovery, compensation or injunctive relief
resulting from the presence or Release of any Hazardous Substances.
(iii) "Environmental Laws" means all federal, state, local
and foreign laws, rules, regulations, statutes, common law, ordinances, policies
or directives relating to pollution or protection of human health or the
environment, including without limitation, laws relating to Releases or
threatened Releases of Hazardous Substances or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, Release,
disposal, transport or handling of Hazardous Substances and all laws and
regulations with regard to recordkeeping, notification, disclosure and reporting
requirements respecting Hazardous Substances.
20
(iv) "Hazardous Substances" means (A) any petroleum or
petroleum products, radioactive materials, asbestos in any form that is or could
become friable, urea formaldehyde foam insulation, and transformers or other
equipment that contain dielectric fluid containing polychlorinated biphenyls;
(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, substance or waste,
exposure to which is now prohibited, limited or regulated under any
Environmental Law in a jurisdiction in which the Parent or any of its
Subsidiaries or the Company or any of its Subsidiaries, as applicable, operates.
(v) "Release" means any release, spill, emission, discharge,
leaking, pumping, injection, deposit, disposal, dispersal, leaching or migration
into the indoor or outdoor environment (including, without limitation, ambient
air, surface water, groundwater and surface or subsurface strata) or into or out
of any property, including the movement of Hazardous Substances through or in
the air, soil, surface water, groundwater or property.
SECTION 3.11 Regulation.
(a) Parent is regulated as a local distribution company or public
utility by the States of Colorado, Wyoming and Nebraska and as a pipeline or
gatherer by the States of Oklahoma, Montana, New Mexico, Colorado, Wyoming,
Texas, Kansas and Utah and by no other state and is a "public utility company"
and a "gas utility company" under the 1935 Act. Except as set forth in Section
3.11(a) of the Parent Disclosure Schedule, neither Parent (except as aforesaid)
nor any of its Subsidiaries is subject to regulation as a local distribution
company, pipeline, gatherer, storage provider or public utility or public
service company (or similar designation) by any other state in the United States
or any foreign country, is a "holding company," "gas utility company," "electric
utility company," "public utility company" or an "affiliate" of any "public
utility company" (other than Parent) or "holding company" as defined under the
1935 Act or the holder of an authorization or certificate issued under Section 3
or Section 7 of the Gas Act.
(b) Parent holds no assets in its own name subject to the
jurisdiction of the United States under Section 7(c) of the Gas Act. Section
3.11(b) of the Parent Disclosure Schedule sets forth all of Parent's direct and
indirect interests in electrical generation assets. Each of the foregoing
21
electric generation assets sells all of its electric generating output pursuant
to contracts under, and is defined as, a qualifying facility pursuant to the
Public Utilities Regulatory Policy Act of 1978 ("PURPA"). Parent has no direct
or indirect control or ownership of electric transmission facilities.
SECTION 3.12 Vote Required.
(a) The approval of the issuance of shares of Parent Common Stock
pursuant to the Merger by the affirmative vote of a majority of the votes cast
by holders of Parent Common Stock, provided that the total vote cast represents
over 50% in interest of all securities entitled to vote on the matter, is the
only vote of the holders of any class or series of the capital stock of Parent
required to approve the issuance of shares of Parent Common Stock pursuant to
the Merger, this Agreement or the consummation of the transactions contemplated
hereby (the "Parent Stockholders' Approval"), except that approval of the
amendment to Parent's Restated Articles of Incorporation to effect the Parent
Name Change (as hereinafter defined) requires the affirmative vote of a majority
of the votes entitled to be cast by all holders of Parent Common Stock. Other
than as set forth herein, no other vote by the stockholders of Parent (or of any
holders of an equity interest in any Subsidiary of Parent, other than Merger
Sub) is required to approve this Agreement, the Merger or consummation of the
transactions contemplated hereby.
(b) The Board of Directors of Parent has (i) unanimously approved
this Agreement in accordance with the General Corporation Code of Kansas (the
"KGCC"), (ii) determined that the issuance of the Merger Consideration is fair
to, and in the best interests of, the holders of the capital stock of Parent,
and (iii) subject to Section 6.2, resolved to recommend the issuance of shares
of Parent Common Stock pursuant to the Merger to such holders for approval.
(c) Prior to the date hereof, the Board of Directors of Parent
has approved this Agreement, the Merger, the issuance of shares of Parent Common
Stock pursuant to the Merger and the other transactions contemplated hereby
(including the Parent Name Change), and such approval is sufficient to render
inapplicable to the issuance of the Merger Consideration and any of such other
transactions the provisions of Sections 17-12,100 through 17-12,104 of the KGCC
and Sections 17-1286 through 17-1298 of the KGCC. To Parent's knowledge, no
other state takeover statute or similar statute or regulation applies or
purports to apply to the Merger, this Agreement, the issuance of the Merger
Consideration or any of the transactions contemplated hereby and no provision of
the Restated Articles of Incorporation or Bylaws of Parent or the charter,
bylaws or other organizational document of any of its Subsidiaries would,
directly or indirectly, restrict or impair the ability of the holders of Company
22
Common Stock to vote, or otherwise to exercise the rights of a stockholder with
respect to, shares of capital stock of Parent that may be acquired or controlled
by the holders of Company Common Stock as contemplated by this Agreement.
(d) The Board of Directors of Merger Sub has unanimously approved
this Agreement, the transactions contemplated hereby and the Merger in
accordance with the DGCL. Parent, as the sole stockholder of Merger Sub, has
approved this Agreement, the transactions contemplated hereby and the Merger in
accordance with the DGCL.
SECTION 3.13 Opinions of Financial Advisors. Parent has received the
opinions of Xxxxxxx Lynch, Pierce, Xxxxxx & Xxxxx Incorporated and of Xxxxxx
Xxxxxxx & Co., Inc. (together, the "Parent Financial Advisors"), dated July 8,
1999, to the effect that, as of such date, the Exchange Ratio is fair to Parent
from a financial point of view. Parent has been authorized by the Parent
Financial Advisors to permit (or reference thereto) the inclusion of such
fairness opinions in the Form S-4 (as hereinafter defined) and the Joint Proxy
Statement (as hereinafter defined).
SECTION 3.14 Insurance. Except as set forth in Section 3.14 of the
Parent Disclosure Schedule, each of Parent and its Subsidiaries is, and has been
continuously since January 1, 1996, insured with financially responsible
insurers or under other financially responsible arrangements in such amounts and
against such risks and losses as are customary for companies conducting the
business as conducted by Parent and its Subsidiaries during such time period.
Neither Parent nor its Subsidiaries has received any notice of cancellation or
termination with respect to any material insurance policy of Parent or its
Subsidiaries. The insurance policies of Parent and each of its Subsidiaries are
valid and enforceable policies in all material respects.
SECTION 3.15 Parent Rights Agreement. Parent has delivered to the
Company a true and complete copy of the Rights Agreement, dated as of August 21,
1995, between Parent and First Chicago Trust Company of New York, as successor
Rights Agent, as amended by Amendment No. 1 to Rights Agreement, dated as of
September 8, 1998 (the "Parent Rights Agreement"), as in effect on the date
hereof. Prior to the Effective Time, Parent will have taken all necessary action
to amend the Parent Rights Agreement so that neither the execution of this
Agreement nor the consummation of the Merger and the other transactions
contemplated hereby (including the issuance of the Merger Consideration) will
(a) cause the Parent Rights to become exercisable, (b) cause any holder of
Company Common Stock immediately prior to the Effective Time to become an
Acquiring Person (as such term is defined in the Parent Rights Agreement) or (c)
23
give rise to a Distribution Date or a Shares Acquisition Date (as those terms
are defined in the Parent Rights Agreement).
SECTION 3.16 Brokers. No broker, finder or investment banker (other
than the Parent Financial Advisors) is entitled to any brokerage, finder's or
other fee or commission in connection with the Merger based upon arrangements
made by or on behalf of Parent. Parent has heretofore furnished to the Company a
complete and correct copy of all agreements between Parent and the Parent
Financial Advisors pursuant to which such firm would be entitled to any payment
relating to the Merger.
SECTION 3.17 No Agreements to Sell Parent or Its Assets. Except as set
forth in Section 3.17 of the Parent Disclosure Schedule, neither Parent nor any
of its Subsidiaries has any legal obligation, absolute or contingent, to any
other Person to sell any material portion of the Assets of Parent or any of its
Subsidiaries, to sell any material portion of the capital stock or other
ownership interests of Parent or any of its Subsidiaries (other than (x)
pursuant to the exercise of any Stock Rights granted under any of Parent's Stock
Plans, (y) the Thermo Agreements (as defined in Section 9.5) or (z) upon
exchange of the PEPS Units), or to effect any merger, consolidation or other
reorganization of Parent or any of its Subsidiaries or to enter into any
agreement with respect thereto. Since January 30, 1999, Parent has executed no
confidentiality agreement with any Person in connection with its consideration
of acquiring all or a substantial part of the Assets or capital stock of Parent
or any of its Subsidiaries.
SECTION 3.18 Assets. Except as set forth in Section 3.18 of the Parent
Disclosure Schedule or except as would not, in the aggregate, have or be
reasonably likely to have a Parent Material Adverse Effect, Parent and its
Subsidiaries have good and marketable or, with respect to Assets located in the
State of Texas, defensible title to or a valid leasehold estate in or a valid
right to use all of the material Assets (other than easements and rights of way
which are the subject of Section 3.23) reflected on Parent's balance sheet at
March 31, 1999 (except for Assets subsequently sold in the ordinary course of
business consistent with past practice). All of such Assets are free and clear
of all Encumbrances (other than Permitted Encumbrances) and have been maintained
in reasonable operating condition and repair, subject to ordinary wear and tear.
SECTION 3.19 Contracts and Commitments. As of the date hereof, Section
3.19 of the Parent Disclosure Schedule contains a complete and accurate list of
all contracts (written or oral), plans, undertakings, commitments or agreements
(including, without limitation, intercompany contracts) ("Parent Contracts") of
24
the following categories to which Parent or any of its Subsidiaries is a party
or by which any of them is bound as of the date of this Agreement:
(a) employment contracts, including, without limitation,
contracts to employ executive officers and other contracts with officers,
directors or stockholders of Parent, and all severance, change in control or
similar arrangements with any officers, employees or agents of Parent that will
result in any obligation (absolute or contingent) of Parent or any of its
Subsidiaries to make any payment to any officers, employees or agents of Parent
following the consummation of the transactions contemplated hereby or
termination or change of terms and conditions of employment;
(b) collective bargaining agreements;
(c) (i) all gas sales and purchase Parent Contracts that are not
cancellable or otherwise terminable on or prior to June 30, 2000 and that have
volumes greater than 5,000 MMBtu/day and all firm transportation and storage
Parent Contracts related to the commodity marketing or Texas intrastate gas
marketing operations of Parent, (ii) gathering Parent Contracts in excess of
$2.0 million annually, (iii) gas purchases for plant shrink and fuel in excess
of $6.0 million annually, (iv) liquid hydrocarbon purchases for purposes of
resale in excess of $4.0 million annually, (v) gas sales at plant outlets in
excess of $6.0 million annually, (vi) liquid hydrocarbon sales in excess of $6.0
million annually, (vii) processing agreements in excess of $2.0 million
annually, (viii) Natural Gas Pipeline transportation contracts in excess of $2.4
million annually, (ix) Natural Gas Pipeline storage and balancing contracts in
excess of $2.4 million annually, (x) the 10 largest KN Interstate transportation
and/or storage Parent Contracts (measured by combined annual revenue), (xi) all
Mid-Con Texas Pipeline Contracts with Houston Lighting & Power, (xii) all
Mid-Con Texas Pipeline Contracts with Entex, (xiii) the 10 largest Mid-Con Texas
Pipeline end use sales contracts (measured by annual revenue), (xiv) all West
Texas System Contracts with Energas, (xv) all West Texas System Contracts with
Southwest Public Service, (xvi) all West Texas System Contracts with Texas
Utilities, (xvii) the 10 largest remaining West Texas System end use sales
Contracts (measured by annual revenue), (xviii) all Rocky Mountain Natural and
Northern Gas Company Contracts with Parent's retail gas divisions, (xix) the 10
largest regulated utility franchise agreements (measured by annual revenue),
(xx) "qualifying facilities" (as defined under PURPA) Contracts for plant outlet
power sales, and (xxi) all en-able and Orcom Contracts for services which are
not cancellable or otherwise terminable on or prior to December 31, 1999;
(d) Parent Contracts for the purchase of inventory which are not
cancellable (without material penalty, cost or other liability) within one year
25
and, other than Parent Contracts described elsewhere in this Section 3.19, other
Parent Contracts made in the ordinary course of business involving annual
expenditures or liabilities in excess of $1,000,000 which are not cancellable
(without material penalty, cost or other liability) within 90 days;
(e) 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 $1,000,000;
(f) Parent Contracts containing covenants limiting the freedom of
Parent or any of its 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;
(g) any Parent Contract pending for the acquisition or
disposition, directly or indirectly (by merger or otherwise) of material Assets
(other than inventory) or capital stock of any Person (including, without
limitation, Parent or any of its Subsidiaries); and
(h) other than Parent Contracts described elsewhere in this
Section 3.19 or Parent Contracts which may be omitted pursuant to the specific
size limitations set forth in other provisions of this Section 3.19, Parent
Contracts between Parent and any of its wholly-owned Subsidiaries, on one hand,
and any Subsidiary of Parent which is not wholly-owned, directly or indirectly,
by Parent, on the other hand.
True copies of the written Parent Contracts identified in Section
3.19 of the Parent Disclosure Schedule (except as to the Parent Contracts
identified in Section 3.19(c), true copies of only those Parent Contracts which
are material as to one or more of the categories listed in Section 3.19(c)), or
with respect to the Natural Gas Pipeline Transportation and Storage Contracts,
true summaries of all material terms, have been delivered or made available to
the Company. Promptly after the date of this Agreement, Parent shall use its
reasonable best efforts to obtain all required consents to deliver or make
available the Natural Gas Pipeline Transportation and Storage Contracts to the
Company and, upon obtaining such consents, shall deliver or make available to
the Company all of the Natural Gas Pipeline Transportation and Storage
Contracts.
SECTION 3.20 Absence of Breaches or Defaults. Except as set forth in
Section 3.20 of the Parent Disclosure Schedule, (i) neither Parent nor any of
its Subsidiaries is in default under, or in breach or violation of (and no event
26
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
its respective charter, bylaws or other governing documents and (ii) neither
Parent nor any of its Subsidiaries is and, to the knowledge of Parent, 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 Parent Contract identified on Section 3.19 of the Parent Disclosure Schedule
except for defaults, breaches, violations or events which, individually or in
the aggregate, would not have a Parent Material Adverse Effect; provided that
any defaults, breaches, violations or events with respect to those Parent
Contracts referred to in Section 3.19(e) shall be scheduled without regard to
any Parent Material Adverse Effect. Other than contracts which have terminated
or expired in accordance with their terms, each of the Parent Contracts
identified on Section 3.19 of the Parent Disclosure Schedule is valid, binding
and enforceable 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 Parent, no event has occurred which either entitles,
or would, on notice or lapse of time or both, entitle the holder of any
indebtedness for borrowed money affecting Parent or any of its Subsidiaries to
accelerate, or which does accelerate, the maturity of any indebtedness affecting
Parent or any of its Subsidiaries, except as set forth in Section 3.20 of the
Parent Disclosure Schedule.
SECTION 3.21 Labor Matters.
(a) Section 3.21(a) of the Parent Disclosure Schedule contains a
complete list of all organizations representing the employees of Parent or any
of its Subsidiaries. As of the date hereof, there is no strike or work stoppage,
pending or, to the knowledge of Parent, threatened, which involves any employees
of Parent or any of its Subsidiaries.
(b) Section 3.21(b) of the Parent Disclosure Schedule contains as
of the date hereof (i) a list of all material unfair employment or labor
practice charges which are presently pending which, to the knowledge of Parent,
have been filed with any Governmental Authority by or on behalf of any employee
against Parent or any of its Subsidiaries and (ii) a list of all material
employment-related litigation, including, without limitation, arbitrations or
administrative proceedings which are presently pending, filed by or on behalf of
any former, current or prospective employee against Parent or any of its
Subsidiaries.
27
(c) Except as described in Sections 3.21(a) and (b) of the Parent
Disclosure Schedule, there are not presently pending or, to the knowledge of
Parent, threatened, against Parent or any of its Subsidiaries any claims by any
Governmental Authority, labor organization, or any former, current or
prospective employee alleging that Parent or any such employer has violated any
applicable laws respecting employment practices, except where such claims would
not, individually or in the aggregate, have a Parent Material Adverse Effect.
SECTION 3.22 Affiliate Transactions. Except as set forth in the Parent
SEC Reports and Schedule 3.22 of the Parent Disclosure Schedule, from December
31, 1998 through the date of this Agreement there have been no transactions,
agreements, arrangements or understandings (and no such arrangements are
pending) between Parent or any of its Subsidiaries, on the one hand, and
affiliates of Parent or other Persons, on the other hand, that would be required
to be disclosed under Item 404 of Regulation S-K under the Securities Act.
SECTION 3.23 Easements. The businesses of Parent and each of its
Subsidiaries are being operated in a manner which does not violate (in any
manner which would, or which would be reasonably likely to, have a Parent
Material Adverse Effect) the terms of any easements, rights of way, permits,
servitudes, licenses, leasehold estates and similar rights relating to real
property (collectively, "Easements") used by Parent and each of its Subsidiaries
in such businesses. All Easements are valid and enforceable, except as the
enforceability thereof may be affected by bankruptcy, insolvency or other laws
of general applicability affecting the rights of creditors generally or
principles of equity, and grant the rights purported to be granted thereby and
all rights necessary thereunder for the current operation of such business,
except where the failure of any such Easement to be valid and enforceable or to
grant the rights purported to be granted thereby or necessary thereunder would
have a Parent Material Adverse Effect. There are no special gaps in the
Easements which would impair the conduct of such businesses in a manner which
would, or which would be reasonably likely to, have a Parent Material Adverse
Effect, and no part of the pipelines, equipment and other tangible personal
property used in connection with Parent's pipeline operations is located on
property which is not owned in fee by Parent or a Subsidiary or subject to an
Easement in favor of Parent or a Subsidiary, where the failure of such
pipelines, equipment or assets to be so located would have a Parent Material
Adverse Effect. As of the date of this Agreement, there are no pending or, to
the knowledge of the Company, threatened actions against any Easements which are
reasonably likely to have a Parent Material Adverse Effect.
28
SECTION 3.24 Commodity Price Exposure. The Risk Management Committee
of Parent has established risk parameters, limits and guidelines in compliance
with the risk management policy approved by Parent's Board of Directors which
parameters, limits and guidelines have been previously provided to the Company
(the "Parent Trading Guidelines") to restrict the level of risk that Parent and
its Subsidiaries are authorized to take with respect to the net position
resulting from all physical commodity transactions, exchange traded futures and
options and over-the-counter derivative instruments (the "Net Parent Position")
and monitors the compliance by Parent and its Subsidiaries with such risk
parameters. As of the date hereof, (i) the Net Parent Position is within the
risk parameters which are set forth in the Parent Trading Guidelines and (ii)
the exposure of Parent and its Subsidiaries with respect to their net position
resulting from all physical commodity transactions, exchange traded futures and
options and over-the-counter derivative instruments is not material to Parent
and its Subsidiaries taken as a whole. Except as previously disclosed in writing
to the Company, as of the date hereof, neither Parent nor any of its
Subsidiaries is a party to any agreement for (x) the purchase, sale,
transportation, storage of petroleum, petroleum products, natural gas, natural
gas liquids, electricity, or other energy products which would result in a loss
or have a negative value in excess of $5.0 million when marked to market in
accordance with generally recognized xxxx to market accounting policies that
have been discussed and agreed to by the parties or (y) for the processing of
natural gas and natural gas liquids which would result in a loss in excess of
$2.0 million when valued at market prices as of the date hereof.
SECTION 3.25 Year 2000. All Software and hardware systems currently
utilized by Parent and its Subsidiaries and material to the operation of their
respective businesses are capable of providing or are being adapted or replaced
to provide on or before December 31, 1999 accurate results using data having
date ranges spanning the twentieth and twenty-first centuries, except where the
failure to provide such accurate results is not reasonably expected to have a
Parent Material Adverse Effect.
SECTION 3.26 Intellectual Property and Software.
(a) Parent and its Subsidiaries have used commercially reasonable
measures to protect the confidentiality of the material trade secrets used in
connection with its business. To Parent's knowledge, no material Intellectual
Property or Software used in connection with its businesses has been improperly
used, improperly divulged or misappropriated by Parent or any other Person. As
of the date hereof, neither Parent nor any of its Subsidiaries has made in the
past three years any claim in writing which remains unresolved of a violation,
infringement, misuse or misappropriation by others of rights of Parent and its
Subsidiaries to or in connection with any material Intellectual Property used in
29
connection with its business. There is no pending or, to the knowledge of
Parent, threatened claim by any third person of a violation, infringement,
misuse or misappropriation by any of Parent or any of its Subsidiaries of any
Intellectual Property or Software owned by any third person, or of the
invalidity of any patent used in connection with its business, that would,
individually or in the aggregate, have a Parent Material Adverse Effect. No
trade secret, formula, process, invention, design, know-how or other information
considered material, confidential or proprietary to Parent or any of its
Subsidiaries has been disclosed or authorized to be disclosed except in the
ordinary course of business or pursuant to any obligation of confidentiality
binding on the recipient.
(b) "Intellectual Property" means intellectual and similar
property of every kind and nature relating to, used or necessary in the
operation of the business of a Person and each of its Subsidiaries, including,
without limitation, all U.S. and foreign patents and patent applications,
divisions, continuations or continuations-in-part, extensions, reissues or
substitutions of any of the foregoing, all U.S. and foreign trademarks, service
marks, and trademark or service xxxx registrations and applications, trade
names, logos, designs, Internet domain names, slogans and general intangibles of
like nature, all registrations and recordings thereof and all extensions and
renewals thereof together with all goodwill symbolized thereby or associated
therewith, copyrights, U.S. and foreign copyright registrations, renewals and
applications, technology, trade secrets and other confidential information, know
how, confidential or proprietary technical and business information, proprietary
processes, formulae, algorithms, models and methodologies, licenses and rights
with respect to the intellectual property, agreements, computer programs,
databases and compilations (and all descriptions, flow-charts, documentation and
other work product related to the foregoing) and all other proprietary rights.
SECTION 3.27 Form S-4 and Joint Proxy Statement. None of the
information supplied or to be supplied by or on behalf of Parent or any of its
Subsidiaries for inclusion or incorporation by reference in (i) the registration
statement on Form S-4 to be filed with the SEC by Parent in connection with the
issuance of the Merger Consideration (the "Form S-4") will, at the time the Form
S-4 is filed with the SEC and at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading and (ii) the proxy statement in definitive
form relating to the meeting of Parent's stockholders and the Company's
stockholders to be held in connection with the issuance of the Merger
Consideration (the "Joint Proxy Statement") will, at the date mailed to
stockholders of Parent and the Company and at the times of such meetings,
contain any untrue statement of a material fact or omit to state any material
30
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. If, at any time prior to the Effective Time, any event with respect
to Parent or any of its Subsidiaries, or with respect to any information
supplied by Parent for inclusion or incorporation by reference in the Form S-4
or the Joint Proxy Statement, shall occur which is required to be described in
an amendment or supplement to, the Form S-4 or the Joint Proxy Statement, such
event shall be so described, and such amendment or supplement shall be promptly
filed with the SEC and, as required by law, disseminated to the stockholders of
Parent entitled to vote at the meeting of Parent's stockholders to which the
Joint Proxy Statement applies and to the holders of the Company Common Stock
entitled to vote at the meeting of the Company's stockholders to which the Joint
Proxy Statement applies. The Form S-4 and the Joint Proxy Statement, to the
extent either relates to Parent and its Subsidiaries, will comply as to form in
all material respects with the provisions of the Securities Act and the Exchange
Act, respectively, and the rules and regulations thereunder.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub as
follows:
SECTION 4.1 Organization and Qualification. Except as set forth in
Section 4. l of the disclosure schedule delivered by the Company to Parent and
Merger Sub concurrently with the execution of this Agreement (the "Company
Disclosure Schedule"), the Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, has all
requisite corporate power and authority, and has been duly authorized by all
necessary approvals and orders, to own, lease and operate its Assets and to
carry on its business as it is now being conducted, and is duly qualified and in
good standing to do business in each jurisdiction in which the nature of its
business or the ownership or leasing of its Assets makes such qualification
necessary other than in such jurisdictions where the failure to be so qualified
and in good standing will not, when taken together with all other such failures,
have a Company Material Adverse Effect.
SECTION 4.2 Subsidiaries. Section 4.2 of the Company Disclosure
Schedule sets forth a description as of the date hereof of all Subsidiaries of
the Company and each other corporation, partnership, limited liability company,
31
business, trust or other Person in which the Company or any of its Subsidiaries
owns, directly or indirectly, an interest in the equity (other than publicly
traded securities which constitute less than 5% of the outstanding securities of
such series or class) including the name of each such Person and the Company's
interest therein, and, as to each Subsidiary identified as a "Material Company
Entity" in Section 4.2 of the Company Disclosure Schedule, a brief description
of the principal line or lines of business conducted by each such entity. Except
as set forth in Section 4.2 of the Company Disclosure Schedule, each of
Company's Subsidiaries is duly organized, validly existing and in good standing
under the laws of its state of organization, has all requisite organizational
power and authority, and has been duly authorized by all necessary approvals and
orders, to own, lease and operate its Assets and to carry on its business as it
is now being conducted, and is duly qualified and in good standing to do
business in each jurisdiction in which the nature of its business or the
ownership or leasing of its Assets make such qualification necessary other than
in such jurisdictions where the failure to be so qualified and in good standing
will not, when taken together with all other such failures, have a Company
Material Adverse Effect. Except as set forth in Section 4.2 of the Company
Disclosure Schedule, all of the issued and outstanding shares of capital stock
of each Subsidiary of the Company are validly issued, fully paid, nonassessable
and free of preemptive rights, are owned directly or indirectly by the Company
free and clear of any Encumbrances and there are no outstanding subscriptions,
options, calls, contracts, voting trusts, proxies or other commitments,
understandings, restrictions, arrangements, rights or warrants, including any
right of conversion or exchange under any outstanding security, instrument or
other agreement, obligating any such Subsidiary to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of its capital stock or
obligating it to grant, extend or enter into any such agreement or commitment.
SECTION 4.3 Capitalization. The authorized capital stock of the
Company consists of (i) 25,000 shares of Class A Common Stock, par value $0.01,
of which, as of the date hereof, 8,047 shares are issued and outstanding and
(ii) 25,000 shares of Class B Common Stock, par value $0.01, of which, as of the
date hereof, 2,541 shares are issued and outstanding. All of the issued and
outstanding shares of the capital stock of the Company are validly issued, fully
paid, nonassessable and free of preemptive rights. Section 4.3 of the Company
Disclosure Schedule sets forth a list of holders of Company Common Stock and the
number of shares held by each holder. As of the date hereof, there are no
outstanding subscriptions, options, calls, contracts, voting trusts, proxies or
other commitments, understandings, restrictions, arrangements, rights or
warrants, including any right of conversion or exchange under any outstanding
security, instrument or other agreement, obligating the Company or any of its
Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of the capital stock of the Company or obligating the
32
Company or any of its Subsidiaries to grant, extend or enter into any such
agreement or commitment other than the conversion of the Company's Class B
Common Stock under the Company's Restated Certificate of Incorporation. Except
as set forth in Section 4.3 of the Company Disclosure Schedule, the Company has
no commitments or obligations to purchase or redeem any shares of capital stock
of the Company or any of its Subsidiaries. Except as set forth in Section 4.3 of
the Company Disclosure Schedule, there are no stockholder agreements, voting
trusts, proxies or other agreements or understandings to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound relating to the voting of any shares of the capital stock
of the Company or any of its Subsidiaries by any Person other than the Company
or a Subsidiary of the Company. True, accurate and complete copies of the
Restated Certificate of Incorporation and Bylaws of the Company, the charter and
bylaws or other organizational documents and operating agreements for each
Subsidiary of the Company and all shareholder, partnership or similar agreements
to which the Company or any of its Subsidiaries is a party, as in effect on the
date hereof, have previously been delivered to Parent.
SECTION 4.4 Authority; Non-Contravention; Statutory Approvals;
Compliance.
(a) Authority. The Company has all requisite power and authority
to enter into this Agreement and, subject to obtaining the Company Stockholders'
Approval (as hereinafter defined) and each of the statutory approvals listed in
Section 4.4(c) (the "Company Required Statutory Approvals"), to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation by the Company of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of the
Company, subject to obtaining the applicable Company Stockholders' Approval.
This Agreement has been duly and validly executed and delivered by the Company
and, assuming the due authorization, execution and delivery hereof by Parent and
Merger Sub, constitutes the valid and binding obligation of the Company
enforceable against it 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 and
general equitable principles (whether considered in a proceeding in equity or at
law)).
(b) Non-Contravention. Except as set forth in Section 4.4(b) of
the Company Disclosure Schedule, the execution and delivery of this Agreement by
the Company does not, and the consummation of the transactions contemplated
33
hereby will not (with or without notice or lapse of time or both), (i) violate
or conflict with any provision of the Restated Certificate of Incorporation or
Bylaws of the Company or similar governing documents of any of the Company's
Subsidiaries, (ii) subject to obtaining the Company Required Statutory Approvals
and the Company Stockholders' Approval, violate or conflict with any statute,
law, ordinance, rule, regulation, judgment, decree, order, injunction, writ,
permit or license of any Governmental Authority applicable to the Company or any
of its Subsidiaries or any of their respective Assets or (iii) subject to
obtaining the third-party consents set forth in Section 4.4(b) of the Company
Disclosure Schedule (the "Company Required Consents"), violate, conflict with,
or result in a breach of any provision of, or constitute a default under, or
trigger any obligation to repurchase, redeem or otherwise retire indebtedness
under, or result in the termination of, or accelerate the performance required
by, or result in a right of termination, cancellation, or acceleration of any
obligation or the loss of a material benefit under, or result in the creation of
any Encumbrance upon any of the Assets of the Company or any of its Subsidiaries
pursuant to any provisions of any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which the Company or any of
its Subsidiaries is now a party or by which it or any of its Assets may be bound
or affected, except, in the case of clauses (ii) and (iii), as would not, in the
aggregate, have or be reasonably likely to have a Company Material Adverse
Effect.
(c) Statutory Approvals. Except for (i) applicable requirements,
if any, of the Securities Act, the Exchange Act or "Blue Sky Laws," (ii) the
pre-merger notification requirements of the HSR Act or filings or notifications
under the antitrust, competition or similar laws of any foreign jurisdiction,
(iii) the filing of the Certificate of Merger pursuant to the DGCL, (iv)
applicable filings with and approvals by the CPUC, (v) applicable filings with
and approvals of the FERC and (vi) any notices or filings not required to be
given or made until or after the Effective Time, no declaration, filing or
registration with, or notice to or authorization, consent or approval of, any
Governmental Authority is necessary for the execution and delivery of this
Agreement by the Company or the consummation by the Company of the transactions
contemplated hereby, except for such notices, reports, filings, waivers,
consents, approvals or authorizations that, if not made or obtained, would not,
in the aggregate, have or reasonably be expected to have a Company Material
Adverse Effect.
(d) Compliance. Except as set forth in Section 4.4(d) of the
Company Disclosure Schedule or as disclosed in the Company SEC Reports, neither
the Company nor any of its Subsidiaries is in violation of or, to the Company's
knowledge, is under investigation with respect to, or has been given notice or
been charged with any violation of, any law, statute, order, rule, regulation,
34
ordinance or judgment of any Governmental Authority, except for violations,
investigations and charges relating to Environmental Laws (which are the subject
of Section 4.11) and except for violations, investigations and charges that, in
the aggregate, would not have or reasonably be expected to have a Company
Material Adverse Effect. Except as set forth in Section 4.4(d) of the Company
Disclosure Schedule, the Company and each of its Subsidiaries have all permits,
licenses, franchises and other governmental authorizations, consents and
approvals necessary to conduct their businesses as presently conducted except
for Environmental Permits (which are the subject of Section 4.11) and permits,
licenses, franchises, authorizations, consents and approvals the failure to
possess, in the aggregate, would not have or reasonably be expected to have a
Company Material Adverse Effect.
SECTION 4.5 Reports and Financial Statements. The filings required to
be made by the Company and its Subsidiaries since February 14, 1997 under the
Securities Act, the Exchange Act, the Interstate Commerce Act or any applicable
state laws, rules or regulations have been filed with the SEC, the applicable
public utility regulatory authorities or the FERC, as the case may be, including
all forms, statements, reports, agreements (oral or written) and all documents,
exhibits, amendments and supplements appertaining thereto, and the Company has
complied in all material respects with all applicable requirements of the
appropriate act and the rules and regulations thereunder. The Company has made
available to Parent a true and complete copy of each report, schedule,
registration statement (including, but not limited to the Company's Amendment
No. 1 to Registration Statement on Form S-1, as filed with the SEC on June 18,
1999 (Registration No. 333-78165)) and definitive proxy statement filed by
Company or any of its Subsidiaries with the SEC since February 14, 1997 (as such
documents have since the time of their filing been amended, the "Company SEC
Reports"). As of their respective dates, the Company SEC Reports (i) complied,
or with respect to those not yet filed, will comply, in all material respects
with the applicable requirements of the Securities Act and the Exchange Act and
(ii) did not, or with respect to those not yet filed, will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited
consolidated financial statements and unaudited interim financial statements of
the Company included in the Company SEC Reports (collectively, the "Company
Financial Statements") have been, or with respect to those not yet filed, will
be prepared in accordance with GAAP (except as may be indicated therein or in
the notes thereto and except with respect to unaudited statements as permitted
by Form l0-Q of the SEC) and fairly present, or with respect to those not yet
filed, will fairly present the financial position of the Company as of the dates
thereof and the results of its operations and cash flows for the periods then
35
ended, subject, in the case of the unaudited interim financial statements, to
normal, recurring audit adjustments. Notwithstanding the foregoing, no
representation or warranty is being made in this Section 4.5 with respect to
information furnished in writing by Parent specifically for inclusion in any
Company SEC Report filed after the date hereof or with respect to any Parent SEC
Report incorporated therein by reference.
SECTION 4.6 Absence of Certain Changes or Events; Absence of
Undisclosed Liabilities.
(a) Except as set forth in the Company SEC Reports or Section 4.6
of the Company Disclosure Schedule, from January 1, 1999 through the date hereof
each of the Company and its Subsidiaries has conducted its business in all
material respects only in the ordinary course of such businesses consistent with
past practice and there has not been any (i) declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to the capital stock of the Company; (ii) repurchase,
redemption or other acquisition by the Company or any of its Subsidiaries of any
outstanding shares of capital stock or other equity securities of or other
ownership interests in, the Company or any of its Subsidiaries, except in
accordance with the Stock Plans; (iii) material change in any method of
accounting or accounting practices by the Company or any of its Subsidiaries
other than as required by GAAP or applicable law; or (iv) material change in the
Company's business operations, condition (financial or otherwise), results of
operations, assets or liabilities.
(b) Except as set forth in the Company SEC Reports filed as of
the date hereof, neither the Company nor any of its Subsidiaries has any
liabilities or obligations (whether absolute, accrued, contingent or otherwise)
except (i) liabilities, obligations or contingencies that are accrued or
reserved against in the consolidated financial statements of the Company or
reflected in the notes thereto for the 3-month period ended March 31, 1999; (ii)
normal and recurring liabilities which were incurred after March 31, 1999 in the
ordinary course of business consistent with past practice; or (iii) liabilities,
obligations or contingencies that would not, in the aggregate, have a Company
Material Adverse Effect.
SECTION 4.7 Litigation; Regulatory Proceedings. Except as disclosed
in the Company SEC Reports or as set forth in Section 4.7 of the Company
Disclosure Schedule, (i) there are as of the date hereof no suits, actions,
proceedings or, to the knowledge of the Company, claims pending or, to the
knowledge of the Company, threatened, before a court or other Governmental
Authority nor are there, to the knowledge of the Company, any investigations or
36
reviews pending or threatened against, relating to or affecting the Company or
any of its Subsidiaries and (ii) there are no judgments, decrees, injunctions or
orders of any court, governmental department, commission, agency,
instrumentality or authority or any arbitrator applicable to the Company or any
of its Subsidiaries which, in the aggregate, could reasonably be expected to
have a Company Material Adverse Effect.
SECTION 4.8 Form S-4 and Proxy Statement. None of the information
supplied or to be supplied by or on behalf of the Company or any of its
Subsidiaries for inclusion or incorporation by reference in (i) the Form S-4
will, at the time the Form S-4 is filed with the SEC and at the time it becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they are made, not misleading and (ii) the Joint Proxy Statement will, at
the date mailed to stockholders of Parent and the Company and at the times of
such meetings, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not misleading. If, at any time prior to the Effective Time, any event with
respect to the Company or any of its Subsidiaries, or with respect to any
information supplied by the Company for inclusion or incorporation by reference
in the Form S-4 or the Joint Proxy Statement, shall occur which is required to
be described in an amendment or supplement to, the Form S-4 or the Joint Proxy
Statement, such event shall be so described, and such amendment or supplement
shall be promptly filed with the SEC and, as required by law, disseminated to
the stockholders of Parent entitled to vote at the meeting of Parent's
stockholders to which the Joint Proxy Statement applies and to the holders of
the Company Common Stock entitled to vote at the meeting of the Company's
stockholders to which the Joint Proxy Statement applies. The Joint Proxy
Statement, to the extent it relates to the Company, will comply as to form in
all material respects with the provisions of the Exchange Act and the rules and
regulations thereunder.
SECTION 4.9 Tax Matters.
(a) Filing of Timely Tax Returns. Except as set forth in Section
4.9(a) of the Company Disclosure Schedule, the Company and each of its
Subsidiaries have filed (or there has been filed on their behalf) all Tax
Returns required to be filed by each of them under applicable law. All Tax
Returns were in all material respects (and, as to Tax Returns not filed as of
the date hereof will be) true, complete and correct and filed on a timely basis.
37
(b) Payment of Taxes. The Company and each of its Subsidiaries
have, within the time and in the manner prescribed by law, paid (and until the
Closing Date will pay within the time and in the manner prescribed by law) all
Taxes that are currently due and payable except for those contested in good
faith and for which adequate reserves have been taken.
(c) Tax Reserves. Except as set forth in Section 4.9(c) of the
Company Disclosure Schedule, the Company and its Subsidiaries have established
(and until the Effective Time will maintain) on their books and records reserves
adequate to pay all Taxes, all deficiencies in Taxes asserted or proposed
against the Company or its Subsidiaries and reserves for deferred income taxes
in accordance with GAAP.
(d) Tax Liens. There are no Tax liens upon the Assets of the
Company or any of its Subsidiaries except liens for Taxes not yet due and
payable.
(e) Withholding Taxes. The Company and each of its Subsidiaries
have complied (and until the Effective Time will comply) in all respects with
the provisions of the Code relating to the payment and withholding of Taxes,
including, without limitation, the withholding and reporting requirements under
Sections 1441 through 1464, 3401 through 3406, and 6041 and 6049 of the Code, as
well as similar provisions under any other laws, and have, within the time and
in the manner prescribed by law, withheld from employee wages and paid over to
the proper governmental authorities all amounts required.
(f) Extensions of Time for Filing Tax Returns. Except as set
forth in Section 4.9(f) of the Company Disclosure Schedule, neither the Company
nor any of its Subsidiaries has requested any extension of time within which to
file any Tax Return, which Tax Return has not since been filed.
(g) Waivers of Statute of Limitations. Except as set forth in
Section 4.9(g) of the Company Disclosure Schedule, neither the Company nor any
of its Subsidiaries has executed any outstanding waivers or comparable consents
regarding the application of the statute of limitations with respect to any
Taxes or Tax Returns.
(h) Expiration of Statute of Limitations. Except as set forth in
Section 4.9(h) of the Company Disclosure Schedule, the statute of limitations
for the assessment of all federal income and applicable state income or
franchise Taxes has expired for all related Tax Returns of the Company and each
of its Subsidiaries or those Tax Returns have been examined by the appropriate
taxing authorities for all periods through the date hereof and no deficiency for
38
any such Taxes has been proposed, asserted or assessed against the Company or
any of its Subsidiaries that has not been resolved and paid in full.
(i) Audit, Administrative and Court Proceedings. Except as set
forth in Section 4.9(i) of the Company Disclosure Schedule, no audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Tax Returns of the Company or any of its Subsidiaries,
and neither the Company nor any of its Subsidiaries has any knowledge of any
threatened action, audit or administrative or court proceeding with respect to
any such Taxes or Tax Returns.
(j) Powers of Attorney. Except as set forth in Section 4.9(j) of
the Company Disclosure Schedule, no power of attorney currently in force has
been granted by the Company or any of its Subsidiaries concerning any Tax
matter.
(k) Tax Rulings. Except as set forth in Section 4.9(k) of the
Company Disclosure Schedule, neither the Company nor any of its Subsidiaries has
received a Tax Ruling or entered into a Closing Agreement with any taxing
authority that would have a continuing adverse effect after the Effective Time.
(l) Availability of Tax Returns. Except as set forth in Section
4.9(l) of the Company Disclosure Schedule, the Company and its Subsidiaries have
made available to Parent complete and accurate copies of all federal income and
state income or franchise Tax Returns, and any amendments thereto, filed by the
Company or any of its Subsidiaries for all taxable years commencing on or after
January 1, 1997. Section 4.9(l) of the Company Disclosure Schedule sets forth
all foreign, state and local jurisdictions in which the Company or any of its
Subsidiaries is or has been subject to Tax and each material type of Tax payable
in such jurisdiction during the taxable years ended December 31, 1998 and
December 31, 1997. In addition, the Company and its Subsidiaries have made
available to Parent complete and accurate copies of all audit reports received
by the Company or any of its Subsidiaries on or after February 14, 1997 from any
taxing authority relating to any Tax Return filed by the Company or any of its
Subsidiaries for all taxable years commencing on or after January 1, 1995.
(m) Tax Sharing Agreements. Except as set forth in Section 4.9(m)
of the Company Disclosure Schedule, no agreements relating to allocating or
sharing of Taxes exist between or among the Company and any of its Subsidiaries.
(n) Code Section 341(f). Neither the Company nor any of its
Subsidiaries has filed (or will file prior to the Closing) a consent pursuant to
39
Section 341(f) of the Code or has agreed to have Section 341(f)(2) of the Code
apply to any disposition of a subsection (f) asset (as that term is defined in
Section 341(f)(4) of the Code) owned by the Company or any of its Subsidiaries.
(o) Code Section 168. No property of the Company or any of its
Subsidiaries is property that the Company or any such Subsidiary or any party to
this transaction is or will be required to treat as being owned by another
person pursuant to the provisions of Section 168(f)(8) of the Code (as in effect
prior to its amendment by the Tax Reform Act of 1986) or is "tax-exempt use
property" within the meaning of Section 168 of the Code.
(p) Code Section 481 Adjustments. Except as set forth in Section
4.9(p) of the Company Disclosure Schedule and except for adjustments that in the
aggregate could not reasonably be expected to have a Company Material Adverse
Effect, neither the Company nor any of its Subsidiaries is required to include
in income any adjustment pursuant to Section 481(a) of the Code by reason of a
voluntary change in accounting method initiated by the Company or any of its
Subsidiaries, and to the best of the knowledge of the Company, the IRS has not
proposed any such adjustment or change in accounting method.
(q) Tax Attributes. Section 4.9(q) of the Company Disclosure
Schedule sets forth, with respect to the Company and its Subsidiaries: (i) the
amount of and year of expiration of any net operating loss carryovers and (ii)
the amount of and year of expiration of any tax credit carryovers.
(r) Code Section 338 Elections. Except as set forth in Section
4.9(r) of the Company Disclosure Schedule, no election under Section 338 of the
Code (or any predecessor provision) has been made by or with respect to the
Company or any of its Subsidiaries or any of their respective assets or
properties.
(s) Acquisition Indebtedness. Except as set forth in Section
4.9(s) of the Company Disclosure Schedule, no indebtedness of the Company or any
of its Subsidiaries is "corporate acquisition indebtedness" within the meaning
of Section 279(b) of the Code.
(t) Code Section 280G. Except as set forth in Section 4.9(t) of
the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries
is a party to any agreement, contract, or arrangement that could result, on
account of the transactions contemplated hereunder, separately or in the
aggregate, in the payment of any "excess parachute payments" within the meaning
of Section 280G of the Code.
40
(u) Affiliated Group. Except as set forth in Section 4.9(u) of
the Company Disclosure Schedule: (i) none of the Company and its Subsidiaries
(A) has been a member of an affiliated group filing a consolidated federal
income Tax Return (other than a group the common parent of which was the
Company) or (B) has any liability for Taxes of any other Person (other than any
of the Company and its Subsidiaries) under Treasury Regulation Section 1.1502-6
(or any similar provision of state, local or foreign law), as a transferee or
successor, by contract, or otherwise, and (ii) neither the Company nor any of
its Subsidiaries has engaged in any intercompany transactions within the meaning
of Treasury Regulation Section 1.1502-13 for which any income remains
unrecognized as of the close of the last taxable year prior to the Effective
Time.
(v) Tax Treatment of Merger. The Company has not taken or agreed
to take any action, or knows of any circumstances, that (without regard to any
action taken or agreed to be taken by Parent or Merger Sub or any of their
respective affiliates) would prevent the Merger from qualifying as a
reorganization within the meaning of Sections 368(a)(l)(A) or 368(a)(2)(E) of
the Code.
SECTION 4.10 Employee Matters; ERISA.
(a) Benefit Plans. Section 4.10(a) of the Company Disclosure
Schedule contains a true and complete list of each material employee benefit
plan, program or arrangement currently sponsored, maintained or contributed to
by the Company or any of its Subsidiaries for the benefit of employees, former
employees or directors and their beneficiaries or for which the Company or any
of its Subsidiaries may have any liability, including, but not limited to, any
employee benefit plans within the meaning of Section 3(3) of ERISA, and any
employment, consulting, non-compete, severance or change in control agreement
(collectively, the "Company Benefit Plans"). For the purposes of this Section
4.10 only, the term "Company" shall be deemed to include predecessors thereof.
(b) Termination of Company Benefit Plans; Withdrawal. All of the
Company Benefit Plans (other than any multiemployer plan, as defined in Section
3(37) of ERISA) can be terminated by the Company without incurring any material
liability. Subject to any collective bargaining obligations, except as set forth
in Section 4.10(a) of the Company Disclosure Schedule, the Company and its
Subsidiaries can withdraw from participation in any Company Benefit Plan that is
a multiemployer plan, without incurring any material liability.
41
(c) Contributions. Except as set forth in Section 4.10(c) of the
Company Disclosure Schedule, all material contributions and other payments
required to be made as of date hereof by the Company or any of its Subsidiaries
to any Company Benefit Plan (or to any person pursuant to the terms thereof)
have been made or the amount of such payment or contribution obligation has been
properly reflected in the Company Financial Statements in accordance with GAAP.
(d) Qualification; Compliance. Except as set forth in Section
4.10(d) of the Company Disclosure Schedule, each of the Company Benefit Plans
(other than any multiemployer plan as defined in Section 3(37) of ERISA)
intended to be "qualified" within the meaning of Section 401(a) of the Code has
been determined by the IRS to be so qualified, and, to the best knowledge of the
Company, no circumstances exist that are reasonably expected by the Company to
result in the revocation of any such determination. The Company is in compliance
in all material respects with, and each Company Benefit Plan (other than any
multiemployer plan as defined in Section 3(37) of ERISA) is and has been
operated in all material respects in compliance with, all applicable laws, rules
and regulations governing such plan, including, without limitation, ERISA and
the Code. Each Company Benefit Plan (other than any multiemp1oyer plan as
defined in Section 3(37) of ERISA) intended to provide for the deferral of
income, the reduction of salary or other compensation, or to afford other income
tax benefits, complies with the material requirements of the applicable
provisions of the Code or other laws, rules and regulations required to provide
such income tax benefits.
(e) Liabilities. With respect to the Company Benefit Plans
individually and in the aggregate, no event has occurred, and, to the best
knowledge of the Company, there exists no condition or set of circumstances that
is reasonably likely to subject the Company or any of its Subsidiaries to any
liability arising under the Code, ERISA or any other applicable law (including,
without limitation, any liability to any such plan or the PBGC, or under any
indemnity agreement to which the Company is a party, which liability could
reasonably be expected to have a Company Material Adverse Effect.
(f) Welfare Plans. Except as set forth in Section 4.10(f) of the
Company Disclosure Schedule, none of the Company Benefit Plans that are "welfare
plans", within the meaning of Section 3(1) of ERISA, provides for any retiree
benefits other than coverage mandated by applicable law or benefits the full
cost of which is borne by the retiree.
42
(g) Documents Made Available. The Company has made available to
Parent a true and correct copy of each collective bargaining agreement to which
the Company or any of its Subsidiaries is a party or under which the Company or
any of its Subsidiaries has obligations and, with respect to each Company
Benefit Plan, (i) such plan and summary plan description, as applicable, (ii)
the most recent annual report filed with the IRS, (iii) each related trust
agreement, insurance contract, service provider or investment management
agreement (including all amendments to each such document), (iv) the most recent
determination of the IRS with respect to the qualified status of such plan and
(v) the most recent actuarial report or valuation.
(h) Payments Resulting from Mergers. Except as set forth in
Section 4.10(h) of the Company Disclosure Schedule or specifically provided for
herein, neither the Company nor any of its Subsidiaries is a party to any plan,
agreement or arrangement pursuant to the terms of which the consummation or
announcement of any transaction contemplated by this Agreement will (either
alone or in connection with the occurrence of any additional or further acts or
events) result in any (A) payment (whether of severance pay or otherwise)
becoming due from the Company or any of its Subsidiaries to any officer,
employee, former employee or director thereof or to a trustee under any "rabbi
trust" or similar arrangement, or (B) benefit under any Company Benefit Plan
being established or becoming accelerated, or immediately vested or payable.
SECTION 4.11 Environmental Protection.
(a) Compliance. Except as set forth in the Company SEC Reports or
in Section 4.11(a) of the Company Disclosure Schedule, (i) each of the Company
and its Subsidiaries is in compliance in all material respects with all
applicable Environmental Laws and (ii) to the knowledge of the Vice President -
Environmental of Xxxxxx Xxxxxx Energy Partners, L.P., neither the Company nor
any of its Subsidiaries has received any unresolved written communication since
January 1, 1996 from any Person or Governmental Authority that alleges that the
Company or any of its Subsidiaries is not in such compliance with applicable
Environmental Laws.
(b) Environmental Permits. Except as set forth in the Company SEC
Reports or as set forth in Section 2.11(b) of the Company Disclosure Schedule,
each of the Company and its Subsidiaries has obtained or has applied for all
material 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
43
is pending agency approval, and the Company and its Subsidiaries are in material
compliance with all terms and conditions of the Environmental Permits.
(c) Environmental Claims. Except as set forth in the Company SEC
Reports or as set forth in Section 4.11(c) of the Company Disclosure Schedule
(i) as of the date hereof there is no Environmental Claim pending (x) against
the Company or any of its Subsidiaries, (y) to the Company's knowledge, against
any Person whose liability for any Environmental Claim the Company or any of its
Subsidiaries has retained or assumed contractually or (z) against any real or
personal property or operations which the Company or any of its Subsidiaries
owns, leases or manages, in whole or in part, and (ii) there are no past or
present actions, activities, circumstances, conditions, events or incidents
which could reasonably be expected to form the basis of any such Environmental
Claim, except as would not be expected to have, individually or, in the
aggregate, a Company Material Adverse Effect.
(d) Releases. Except as set forth in the Company SEC Reports or
as set forth in Section 4.11(c) or Section 4.11(d) of the Company Disclosure
Schedule, as of the date hereof there have been no Releases of any Hazardous
Substances that would be reasonably likely to form the basis of any
Environmental Claim against the Company or any of its Subsidiaries, or to the
Company's knowledge against any Person whose liability for any Environmental
Claim the Company or any of its Subsidiaries has retained or assumed
contractually, except for those that would not be expected to have, individually
or in the aggregate, a Company Material Adverse Effect.
(e) Predecessors. Except as set forth in the Company SEC Reports
or as set forth in Section 4.11(e) of the Company Disclosure Schedule and, to
the Company's knowledge, with respect to any predecessor of the Company or any
Subsidiary of the Company, there is no Environmental Claim pending or, to the
Company's knowledge, threatened, nor any Release of Hazardous Substances that
would be reasonably likely to form the basis of any Environmental Claim, except
for those that would not be expected to have, individually or in the aggregate,
a Company Material Adverse Effect.
(f) Disclosure. The Company has made available to Parent all
material documents which the Company reasonably believes provide the basis for
(i) the cost of Company pollution control equipment currently required or known
to be required in the future; (ii) current Company remediation costs or Company
remediation costs known or suspected to be required in the future; or (iii) any
other environmental matter affecting the Company, except for those that would
44
not be expected to have, individually or in the aggregate, a Company Material
Adverse Effect.
(g) Cost Estimates. No environmental matter set forth in the
Company SEC Reports or the Company Disclosure Schedule could reasonably be
expected to substantially differ from the cost or recovery estimates provided in
the Company SEC Reports.
(h) Reports. Each of the Company and its Subsidiaries has made
available to Parent true, complete and correct summaries or copies of all
environmental audits, assessments or investigations, which (i) have been
conducted by or on behalf of the Company or any of its Subsidiaries since
January l, 1996 and (ii) are available to, or in the possession of, the Company
or any of its Subsidiaries on any currently or formerly owned, leased or
operated property.
(i) Release. Except as set forth in Section 4.11(i) of the
Company Disclosure Schedule, neither the Company nor any of its Subsidiaries has
released any party from any material claim under any Environmental Law or waived
any rights against any other party under any Environmental Law, except for those
that would not be expected to have, individually or in the aggregate, a Company
Material Adverse Effect.
(j) Prior Indemnification Agreements. Except as set forth in
Section 4.11(j) of the Company Disclosure Schedule, neither the Company nor any
of its Subsidiaries has entered into any material agreement that may require the
Company or any of its Subsidiaries to pay to, reimburse, guarantee, pledge,
defend, indemnify or hold harmless any Person for or against any Environmental
Claim, except for those that would not be expected to have, individually or in
the aggregate, a Company Material Adverse Effect.
SECTION 4.12 Regulation. The Company is regulated as an oil pipeline
company by the FERC and as a pipeline company by the State of California.
Neither the Company nor any of its Subsidiaries is subject to regulation as a
"holding company," "gas utility company," "electric utility company," "public
utility company," "subsidiary" of any of the foregoing, "affiliate" of any of
the foregoing or "affiliate" of any "Subsidiary" of any of the foregoing.
SECTION 4.13 Insurance. Except as set forth in Section 4.13 of the
Company Disclosure Schedule, each of the Company and its Subsidiaries is, and
has been continuously since February 14, 1997, insured with financially
45
responsible insurers or under other financially responsible arrangements in such
amounts and against such risks and losses as are customary for companies
conducting the business as conducted by the Company and its Subsidiaries during
such time period. Neither the Company nor its Subsidiaries has received any
notice of cancellation or termination with respect to any material insurance
policy of the Company or its Subsidiaries. The insurance policies of the Company
and each of its Subsidiaries are valid and enforceable policies in all material
respects.
SECTION 4.14 Company Rights Agreement. The Company has no
stockholders' rights plan.
SECTION 4.15 Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the Merger based upon arrangements made by or on behalf of the Company.
SECTION 4.16 No Other Agreements to Sell the Company or Its Assets.
Except pursuant to this Agreement and as set forth in Section 4.16 of the
Company Disclosure Schedule, neither the Company nor any of its Subsidiaries has
any legal obligation, absolute or contingent, to any other Person to sell any
material portion of the Assets of the Company or any of its Subsidiaries, to
sell any material portion of the capital stock or other ownership interests of
the Company or any of its Subsidiaries (other than pursuant to the exercise of
any Stock Rights granted under any of the Company's Stock Plans) or to effect
any merger, consolidation or other reorganization of the Company or any of its
Subsidiaries or to enter into any agreement with respect thereto. Since January
30, 1999, the Company has executed no confidentiality agreement with any Person
in connection with its consideration of acquiring all or a substantial part of
the Assets or capital stock of the Company or any of its Subsidiaries.
SECTION 4.17 Assets. Except as set forth in Section 4.17 of the
Company Disclosure Schedule or except as would not, in the aggregate, have or be
reasonably likely to have a Company Material Adverse Effect, the Company and its
Subsidiaries have good and marketable or, with respect to Assets located in the
State of Texas, defensible title to or a valid leasehold estate in or a valid
right to use all of the material Assets (other than easements and rights of way
which are the subject of Section 4.22) reflected on the Company's balance sheet
at March 31, 1999 (except for Assets subsequently sold in the ordinary course of
business consistent with past practice). All of such Assets are free and clear
of all Encumbrances (other than Permitted Encumbrances) and have been maintained
in reasonable operating condition and repair, subject to ordinary wear and tear.
46
SECTION 4.18 Contracts and Commitments. As of the date hereof, Section
4.18 of the Company Disclosure Schedule contains a complete and accurate list of
all contracts (written or oral), plans, undertakings, commitments or agreements
(including, without limitation, intercompany contracts) ("Company Contracts") of
the following categories to which the Company or any of its Subsidiaries is a
party or by which any of them is bound as of the date of this Agreement:
(a) employment contracts, including, without limitation,
contracts to employ executive officers and other contracts with officers,
directors or stockholders of the Company, and all severance, change in control
or similar arrangements with any officers, employees or agents of the Company
that will result in any obligation (absolute or contingent) of the Company or
any of its Subsidiaries to make any payment to any officers, employees or agents
of the Company following the consummation of the transactions contemplated
hereby or termination or change of terms and conditions of employment;
(b) collective bargaining agreements;
(c) Company Contracts for the purchase of inventory which are not
cancellable (without material penalty, cost or other liability) within one year
and, other than Company Contracts described elsewhere in this Section 4.18,
other Company Contracts made in the ordinary course of business involving annual
expenditures or liabilities in excess of $5,000,000 which are not cancellable
(without material penalty, cost or other liability) within 90 days;
(d) 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 $1,000,000;
(e) Company Contracts containing covenants limiting the freedom
of the Company or any of its 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;
(f) any Company Contract pending for the acquisition or
disposition, directly or indirectly (by merger or otherwise) of material Assets
(other than inventory) or capital stock of any Person (including, without
limitation, the Company or any of its Subsidiaries); and
47
(g) other than Company Contracts described elsewhere in this
Section 4.18 or Company Contracts which may be omitted pursuant to the specific
size limitations set forth in other provisions of this Section 4.18, Company
Contracts between the Company and any of its wholly-owned Subsidiaries, on one
hand, and any Subsidiary of the Company which is not wholly-owned, directly or
indirectly, by the Company, on the other hand.
True copies of the written Company Contracts identified in
Section 4.18 of the Company Disclosure Schedule have been delivered or made
available to Parent.
SECTION 4.19 Absence of Breaches or Defaults. Except as set forth in
Section 4.19 of the Company Disclosure Schedule, (i) neither the Company nor any
of its Subsidiaries 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 its charter, bylaws or other governing documents and (ii) neither
the Company nor any of its Subsidiaries is and, to the knowledge of the Company,
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 Company Contract identified on Section 4.18 of the Company Disclosure
Schedule except for defaults, breaches, violations or events which, individually
or in the aggregate, would not have a Company Material Adverse Effect; provided
that any defaults, breaches, violations or events with respect to those Company
Contracts referred to in Section 4.18(d) shall be scheduled without regard to
any Company Material Adverse Effect. Other than contracts which have terminated
or expired in accordance with their terms, each of the Company Contracts
identified on Section 4.18 of the Company Disclosure Schedule is valid, binding
and enforceable 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 the Company, no event has occurred which either
entitles, or would, on notice or lapse of time or both, entitle the holder of
any indebtedness for borrowed money affecting the Company or any of its
Subsidiaries to accelerate, or which does accelerate, the maturity of any
indebtedness affecting the Company or any of its Subsidiaries, except as set
forth in Section 4.19 of the Company Disclosure Schedule.
48
SECTION 4.20 Labor Matters.
(a) Section 4.20(a) of the Company Disclosure Schedule contains a
complete list of all organizations representing the employees of the Company or
any of its Subsidiaries. As of the date hereof, there is no strike or work
stoppage, pending or, to the knowledge of the Company, threatened, which
involves any employees of the Company or any of its Subsidiaries.
(b) Section 4.20(b) of the Company Disclosure Schedule contains
as of the date hereof (i) a list of all material unfair employment or labor
practice charges which are presently pending which, to the knowledge of the
Company, have been filed with any governmental authority by or on behalf of any
employee against the Company or any of its Subsidiaries and (ii) a list of all
material employment-related litigation, including, without limitation,
arbitrations or administrative proceedings which are presently pending, filed by
or on behalf of any former, current or prospective employee against the Company
or any of its Subsidiaries.
(c) Except as described in Sections 4.20(a) and (b) of the
Company Disclosure Schedule, there are not presently pending or, to the
knowledge of the Company, threatened, against the Company or any of its
Subsidiaries any claims by any Governmental Authority, labor organization, or
any former, current or prospective employee alleging that the Company or any
such employer has violated any applicable laws respecting employment practices,
except where such claims would not, individually or in the aggregate, have a
Company Material Adverse Effect.
SECTION 4.21 Affiliate Transactions. Except as set forth in the
Company SEC Reports and Schedule 4.21 of the Company Disclosure Schedule, from
December 31, 1998 through the date of this Agreement there have been no
transactions, agreements, arrangements or understandings (and no such
arrangements are pending) between the Company or any of its Subsidiaries, on the
one hand, and affiliates of the Company or other Persons, on the other hand,
that would be required to be disclosed under Item 404 of Regulation S-K under
the Securities Act.
SECTION 4.22 Easements. The businesses of the Company and each of its
Subsidiaries are being operated in a manner which does not violate (in any
manner which would, or which would be reasonably likely to, have a Company
Material Adverse Effect) the terms of any Easements used by the Company and each
of its Subsidiaries in such businesses. Except as set forth in the Company SEC
Reports, all Easements are valid and enforceable, except as the enforceability
49
thereof may be affected by bankruptcy, insolvency or other laws of general
applicability affecting the rights of creditors generally or principles of
equity, and grant the rights purported to be granted thereby and all rights
necessary thereunder for the current operation of such business, except where
the failure of any such Easement to be valid and enforceable or to grant the
rights purported to be granted thereby or necessary thereunder would have a
Company Material Adverse Effect. Except as set forth in the Company SEC Reports,
there are no special gaps in the Easements which would impair the conduct of
such businesses in a manner which would, or which would be reasonably likely to,
have a Company Material Adverse Effect, and no part of the pipelines, equipment
and other tangible personal property used in connection with the Company's
pipeline operations is located on property which is not owned in fee by the
Company or a Subsidiary or subject to an Easement in favor of the Company or a
Subsidiary, where the failure of such pipelines, equipment or assets to be so
located would have a Company Material Adverse Effect. As of the date of this
Agreement, there are no pending or, to the knowledge of the Company, threatened
actions against any Easements which are reasonably likely to have a Company
Material Adverse Effect.
SECTION 4.23 Commodity Price Exposure. Neither the Company nor any of
its Subsidiaries is engaged in the purchase and resale of commodity products.
SECTION 4.24 Year 2000. All Software and hardware systems currently
utilized by the Company and its Subsidiaries and material to the operation of
their respective businesses are capable of providing or are being adapted or
replaced to provide on or before December 31, 1999 accurate results using data
having date ranges spanning the twentieth and twenty-first centuries, except
where the failure to provide such accurate results is not reasonably expected to
have a Company Material Adverse Effect.
SECTION 4.25 Intellectual Property and Software. Subject to obtaining
required consents under all license agreements pursuant to which the Company or
its Subsidiaries have obtained the right to use the Intellectual Property owned
by third parties, the Surviving Corporation, after giving effect to the Merger,
will own or have the valid, legal right to use all Intellectual Property and
Software used in connection with its business as conducted by the Company on the
date hereof. No trade secret, formula, process, invention, design, know-how or
other information considered material, confidential or proprietary to the
Company or any of its Subsidiaries has been disclosed or authorized to be
disclosed except in the ordinary course of business or pursuant to an obligation
of confidentiality binding on the recipient. The Company and its Subsidiaries
have used commercially reasonable measures to protect the confidentiality of the
material trade secrets used in connection with its business. To the Company's
50
knowledge, no material Intellectual Property or Software used in connection with
its businesses has been improperly used, improperly divulged or misappropriated
by the Company or any other Person. As of the date hereof, neither the Company
nor any of its Subsidiaries has made in the past three years any claim in
writing which remains unresolved of a violation, infringement, misuse or
misappropriation by others of rights of the Company and its Subsidiaries to or
in connection with any material Intellectual Property used in connection with
its business. There is no pending or, to the knowledge of the Company,
threatened claim by any third person of a violation, infringement, misuse or
misappropriation by any of the Company or any of its Subsidiaries of any
Intellectual Property or Software owned by any third person, or of the
invalidity of any patent used in connection with its business, that would,
individually or in the aggregate, have a Company Material Adverse Effect.
SECTION 4.26 Nature of the Company's Business. Since the date of its
formation, the Company has not engaged in any business activities other than in
connection with its organization, the acquisition and ownership of Kinder Xxxxxx
X.X., Inc. and the transaction proposed herein.
SECTION 4.27 Vote Required. The approval of the Merger by the
affirmative vote of a majority of the votes entitled to be cast by all holders
of Company Common Stock is the only vote of holders of any class or series of
the capital stock of the Company required to approve this Agreement, the Merger
and the transactions contemplated hereby (the "Company Stockholders' Approval").
Other than as set forth herein, no other vote (including, without limitation,
that of any holders of an equity interest in any Subsidiary of the Company) is
required to approve this Agreement, the Merger or the consummation of the
transactions contemplated hereby.
SECTION 4.28 Ownership of Parent Common Stock. Except as set forth in
Section 4.28 of the Company Disclosure Schedule, neither the Company nor any of
its affiliates "beneficially own" (as such term is defined for purposes of
Section 13(d) of the Exchange Act) any shares of Parent Common Stock.
SECTION 4.29 Section 203 of the DGCL. Prior to the date hereof, the
Board of Directors of the Company has approved this Agreement and the Merger,
and such approval is sufficient to render inapplicable to the Merger and to such
other transactions the provisions of Section 203 of the DGCL. To the Company's
knowledge, no other state takeover statute or similar statue or regulation
applies or purports to apply to the Merger, this Agreement or any of the
transactions contemplated hereby and no provision of the Company's or any of its
Subsidiary's Articles of Incorporation, Bylaws or other similar organizational
documents would, directly or indirectly, restrict or impair the ability of
51
Parent to vote, or otherwise to exercise the rights of a stockholder with
respect to, shares of capital stock of the Company and its Subsidiaries that may
be acquired or controlled by Parent as contemplated by this Agreement.
ARTICLE V
COVENANTS RELATING TO
CONDUCT OF BUSINESS
SECTION 5.1 Conduct of the Company's Business Pending the Merger. The
Company covenants and agrees that, during the period from the date hereof to the
Effective Time (except as otherwise contemplated by the terms of this
Agreement), unless Parent shall otherwise agree in writing in advance, the
businesses of the Company and its Subsidiaries shall be conducted only in the
usual and ordinary course of business in substantially the same manner as
heretofore conducted and in compliance with applicable laws; and the Company and
its Subsidiaries shall each use all commercially reasonable efforts consistent
with the foregoing to preserve substantially intact the business organization of
the Company and its Subsidiaries, to keep available the services of the present
officers and employees of the Company and its Subsidiaries (subject to prudent
management of workforce needs and ongoing programs currently in force), to
preserve the present relationships of the Company and its Subsidiaries with
customers, suppliers, distributors and other Persons with which the Company or
any of the Subsidiaries has significant business relations, to maintain and keep
its material assets in good repair and condition (subject to ordinary wear and
tear), to maintain supplies and inventories in quantities consistent with past
practice; provided, however, that, notwithstanding any of the foregoing, in no
event shall any of the Company's Subsidiaries be restricted from taking any
action, nor shall they be required to obtain Parent's consent prior to taking
such action, if Kinder Xxxxxx X.X., Inc. believes the taking of that action to
be in the best interests of Xxxxxx Xxxxxx Energy Partners, L.P. and its
unitholders; and provided, further, that the Company shall promptly notify
Parent of any action taken pursuant to the immediately preceding proviso. By way
of amplification and not limitation, neither the Company nor any of its
Subsidiaries shall, except as set forth in Section 5.1 of the Company Disclosure
Schedule and as otherwise contemplated by the terms of this Agreement, between
the date of this Agreement and the Effective Time, directly or indirectly do, or
propose or commit to do, any of the following without the prior written consent
of Parent:
(a) except as required by law, make or commit to make any capital
expenditures (other than reimbursable expenditures which are collected from
52
third parties within 120 days of incurrence) in excess of $1 million, other than
(i) expenditures for routine maintenance and repair or (ii) unplanned capital
expenditures due to emergency conditions, unanticipated catastrophic events or
extreme weather;
(b) incur any indebtedness for borrowed money or guarantee such
indebtedness of another Person (other than the Company or a wholly-owned
Subsidiary of the Company or enter into any "keep well" or other agreement to
maintain the financial condition of another Person (other than the Company or a
wholly-owned Subsidiary of the Company) or make any loans, or advances of
borrowed money or capital contributions to, or equity investments in, any other
Person (other than the Company or a wholly-owned Subsidiary of the Company) or
issue or sell any debt securities such that the debt of the Company shall be
greater than $148.6 million plus any debt incurred to fund a required capital
contribution by Kinder Xxxxxx X.X., Inc. to Xxxxxx Xxxxxx Energy Partners, L.P.
or its operating limited partnerships in accordance with their respective
limited partnership agreements;
(c) (i) amend its Restated Certificate of Incorporation or Bylaws
or the charter or bylaws or organizational documents of any of its Subsidiaries;
(ii) split, combine or reclassify the outstanding shares of its capital stock or
declare, set aside or pay any dividend payable in cash (other than dividends in
an amount not to exceed $10 million payable as a result, directly or indirectly,
of quarterly distributions from Xxxxxx Xxxxxx Energy Partners, L.P. received
through Kinder Xxxxxx X.X., Inc. consistent with past practice, whether such
dividends are paid directly after receipt or are paid by borrowings, subject to
this Agreement, after repayment of indebtedness), stock or property or make any
other distribution with respect to such shares of capital stock or other
ownership interests; (iii) redeem, purchase or otherwise acquire, directly or
indirectly, any shares of its capital stock or other ownership interests; or
(iv) sell or pledge any stock of any of its Subsidiaries;
(d) (i) issue or sell or agree to issue or sell any additional
shares of, or grant, confer or award any options, warrants or rights of any kind
to acquire any shares of, its capital stock of any class; (ii) enter into any
agreement, contract or commitment out of the ordinary course of its business, to
dispose of or acquire, or relating to the disposition or acquisition of, a
segment of its business; (iii) except in the ordinary course of business
consistent with past practice, sell, pledge, dispose of or encumber any material
amount of assets (including without limitation, any indebtedness owed to them or
any claims held by them); or (iv) acquire (by merger, consolidation, acquisition
of stock or assets or otherwise) any corporation, partnership or other business
organization or division thereof or acquire any material amount of assets (other
than in the ordinary course of business consistent with past practice) or make
53
any material investment, either by purchase of stock or other securities, or
contribution to capital, in any case, in any other Person (other than a
Subsidiary of the Company as of the date hereof);
(e) except as required by law, grant any severance or termination
pay (other than pursuant to policies or agreements in effect on the date hereof
as disclosed in the Company SEC reports or set forth in Section 5.1(e) of the
Company Disclosure Schedule) or increase the benefits payable under its
severance or termination pay policies or agreements in effect on the date hereof
or enter into any employment (other than "at will") or severance agreement with
any officer, director or employee;
(f) except as required by law, adopt or amend any bonus, profit
sharing, compensation, stock option, pension, retirement, deferred compensation,
employment or other employee benefit plan, agreement, trust, fund or other
arrangement for the benefit or welfare of any director, officer or employee or
increase in any manner the compensation or fringe benefits of any director,
officer or, except in the ordinary course of business consistent with past
practice, employee, or grant, confer, award or pay any forms of cash incentive,
bonuses or other benefit not required by any existing plan, arrangement or
agreement;
(g) enter into or modify any collective bargaining agreement,
other than in replacement of collective bargaining agreements expiring prior to
the Effective Time;
(h) make any material change in its tax or accounting policies or
any material reclassification of Assets or liabilities except as required by
law, rule or regulation or GAAP;
(i) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), except the payment, discharge or satisfaction of (i) liabilities or
obligations in the ordinary course of business consistent with past practice or
in accordance with the terms thereof as in effect on the date hereof or (ii)
claims settled or compromised to the extent permitted by Section 5.1(j), or
waive, release, grant or transfer any rights of material value or modify or
change in any material respect any existing Company Contract, in each case other
than in the ordinary course of business consistent with past practice;
(j) settle or compromise any litigation, other than litigation
not in excess of amounts reserved for in the most recent consolidated financial
statements of the Company included in the Company SEC Reports or, if not so
54
reserved for, in an aggregate amount not in excess of $500,000, provided in
either case such settlement documents do not involve any material non-monetary
obligations on the part of the Company and its Subsidiaries;
(k) take any action (without regard to any action taken or agreed
to be taken by Parent or any of its affiliates) with knowledge that such action
would prevent the Merger from qualifying as a reorganization within the meaning
of Sections 368(a)(1)(A) or 368(a)(2)(E) of the Code;
(l) consummate any acquisition or disposition pursuant to any
Company Contract disclosed pursuant to Section 4.18 other than in accordance
with the terms so disclosed (including without waiver of any condition to the
Company's obligations to consummate such acquisition), excluding insignificant
deviations from such terms;
(m) engage in any activities which would cause a change in its
status, or that of its Subsidiaries, under the 1935 Act, or that would impair
the ability of the Parent to claim an exemption as of right under Section
3(a)(1) of the 1935 Act; and
(n) take, or offer or propose to take, or agree to take in
writing or otherwise, any of the actions described in Sections 5.1(a) through
5.1(m) or any action which would or is reasonably likely to result in (i) a
material breach of any provision of this Agreement, (ii) any of the
representations and warranties of the Company set forth in this Agreement
becoming untrue in any material respect or (iii) any of the conditions set forth
in Article VII not being satisfied.
SECTION 5.2 Conduct of Parent's Business Pending the Merger. Except
as set forth in Section 5.2 of the Parent Disclosure Schedule, Parent covenants
and agrees that, during the period from the date hereof to the Effective Time
(except as otherwise contemplated by the terms of this Agreement), unless the
Company shall otherwise agree in writing in advance, the businesses of Parent
and its Subsidiaries shall be conducted only in the usual and ordinary course of
business in substantially the same manner as heretofore conducted and in
compliance with applicable laws; and Parent and its Subsidiaries shall each use
all commercially reasonable efforts consistent with the foregoing to preserve
substantially intact the business organization of Parent and its Subsidiaries,
to keep available the services of the present officers and employees of Parent
and its Subsidiaries (subject to prudent management of workforce needs and
ongoing programs currently in force), to preserve the present relationships of
Parent and its Subsidiaries with customers, suppliers, distributors and other
Persons with which Parent or any of the Subsidiaries has significant business
relations, to maintain and keep its material assets in good repair and condition
55
(subject to ordinary wear and tear), to maintain supplies and inventories in
quantities consistent with past practice and, with respect to any hedging and
energy trading transactions, to comply with prudent policies, practices and
procedures with respect to risk management and trading limitations, including
the Company Trading Guidelines. Parent and its Subsidiaries will manage their
commodity price risk exposure with respect to their respective gathering,
processing, transportation and storage contracts in accordance with prudent risk
management guidelines to be developed and mutually agreed to by the Company and
Parent as promptly as practicable after the date hereof. From time to time prior
to the Effective Time, Parent will allow the Company and its representatives
reasonable access to the energy trading operations, as well as gathering,
processing, transportation and storage contracting operations, of Parent and its
Subsidiaries and their respective books and records, and develop appropriate
procedures to permit the Company and its representatives to monitor Parent's and
its Subsidiaries' compliance with the Company Trading Guidelines and the other
risk management guidelines agreed to by the parties. The Company will not amend
or rescind the Company Trading Guidelines or the other risk management
guidelines agreed to by the parties. By way of amplification and not limitation,
neither Parent nor any of its Subsidiaries shall, except as set forth in Section
5.2 of the Parent Disclosure Schedule and as otherwise contemplated by the terms
of this Agreement, between the date of this Agreement and the Effective Time,
directly or indirectly do, or propose or commit to do, any of the following
without the prior written consent of the Company:
(a) except as required by law, make or commit to make any capital
expenditures (other than reimbursable expenditures which are collected from
third parties within 120 days of incurrence) in excess of 110% of those
contained in Parent's 1999 budget provided to and approved by the Company prior
to the date hereof, and for the fiscal year 2000 make any such expenditures in
excess of those contained in Parent's 2000 budget which shall have been provided
to and reasonably approved by the Company prior to incurring any such
expenditures, other than (i) expenditures for routine maintenance and repair or
(ii) unplanned capital expenditures due to emergency conditions, unanticipated
catastrophic events or extreme weather;
(b) incur any indebtedness for borrowed money or guarantee such
indebtedness of another Person (other than Parent or a wholly-owned Subsidiary
of Parent or enter into any "keep well" or other agreement to maintain the
financial condition of another Person (other than Parent or a wholly-owned
Subsidiary of Parent) or make any loans, or advances of borrowed money or
capital contributions to, or equity investments in, any other Person (other than
Parent or a wholly-owned Subsidiary of Parent) or issue or sell any debt
securities, other than (i) refinancings or refundings of indebtedness existing
56
as of the date hereof, (ii) in connection with financings or ordinary course
trade payables and (iii) additional borrowings under existing lines of credit or
via commercial paper issuances in the ordinary course of business consistent
with past practice in an amount such that total short-term indebtedness of
Parent from these sources shall not exceed $700 million in the aggregate,
provided that any of such additional indebtedness does not cause Parent's debt
to be downgraded to below investment grade;
(c) (i) amend its Restated Articles of Incorporation or Bylaws or
the charter or bylaws of any of its Subsidiaries; (ii) split, combine or
reclassify the outstanding shares of its capital stock or declare, set aside or
pay any dividend payable in cash (other than (x) regular quarterly cash
dividends of Parent in an amount not to exceed $0.20 per share of Parent Common
Stock paid at such times and in such amounts as are consistent with past
practices and in compliance with applicable law and (y) contract fees in
connection with the PEPS Units); (iii) except for "cashless" exercises of
Parent's Stock Rights pursuant to any of its Stock Plans, redeem, purchase or
otherwise acquire, directly or indirectly, any shares of its capital stock or
other ownership interests; or (iv) sell or pledge any stock of any of its
Subsidiaries;
(d) (i) Other than (w) pursuant to Parent's Stock Rights granted
in the ordinary course of business consistent with past practice under any of
Parent's Stock Plans, (x) the Thermo Agreements, (y) early settlement of the
PEPS Units or (z) pursuant to Parent's DRIP Plan, issue or sell or agree to
issue or sell any additional shares of, or grant, confer or award any options,
warrants or rights of any kind to acquire any shares of, its capital stock of
any class; (ii) enter into any agreement, contract or commitment out of the
ordinary course of its business, to dispose of or acquire, or relating to the
disposition or acquisition of, a segment of its business; (iii) except in the
ordinary course of business consistent with past practice, sell, pledge, dispose
of or encumber any material amount of Assets (including without limitation, any
indebtedness owed to them or any claims held by them); or (iv) acquire (by
merger, consolidation, acquisition of stock or Assets or otherwise) any
corporation, partnership or other business organization or division thereof or
acquire any material amount of Assets (other than in the ordinary course of
business consistent with past practice or other than pursuant to Section 5.2(a))
or make any material investment, either by purchase of stock or other
securities, or contribution to capital, in any case, in any other Person;
(e) except as required by law, grant any severance or termination
pay (other than pursuant to policies or agreements in effect on the date hereof
as disclosed in the Parent SEC Reports or set forth in Section 5.2(e) of the
57
Parent Disclosure Schedule) or increase the benefits payable under its severance
or termination pay policies or agreements in effect on the date hereof or enter
into any employment (other than "at will") or severance agreement with any
officer, director or employee;
(f) except as required by law, adopt or amend any bonus, profit
sharing, compensation, stock option, pension, retirement, deferred compensation,
employment or other employee benefit plan, agreement, trust, fund or other
arrangement for the benefit or welfare of any director, officer or employee or
increase in any manner the compensation or fringe benefits of any director,
officer or, except in the ordinary course of business consistent with past
practice, employee, or grant, confer, award or pay any forms of cash incentive,
bonuses or other benefit not required by any existing plan, arrangement or
agreement, except for retention bonuses paid to Parent employees with the
reasonable approval of the Company in an aggregate amount not to exceed $5
million;
(g) enter into or amend (i) any Parent Contract for the sale,
purchase, transportation and/or storage of gas related to the commodity
marketing or Texas intrastate gas marketing operations of Parent which is not
consistent with the Parent Trading Guidelines, (ii) any Parent Contract for
gathering in excess of $2.0 million annually, (iii) any Parent Contract for
purchase or sale of gas for plant shrink and fuel in excess of $2.0 million
annually, (iv) any Parent Contract for purchase or sale of liquid hydrocarbons
in excess of $6.0 million annually, (v) any Parent Contract for sale of gas at
plant outlets in excess of $6.0 million annually, (vi) any Parent Contract for
processing in excess of $2.0 million annually, (vii) any Parent Contract for
transportation services in excess of $2.4 million annually, (viii) any Parent
Contract for storage and/or balancing services in excess of $2.4 million
annually, in each case which is not cancellable or otherwise terminable on or
prior to December 31, 1999, (ix) any franchise agreement, (x) any qualifying
facilities Parent Contracts for plant outlet power sales or (xi) any eno able or
Orcom agreements or similar agreements for services which are not cancellable or
otherwise terminable on or prior to December 31, 1999;
(h) enter into or modify any collective bargaining agreement,
other than in replacement of collective bargaining agreements expiring prior to
the Effective Time;
(i) make any material change in its tax or accounting policies or
any material reclassification of Assets or liabilities except as required by
law, rule or regulation or GAAP;
58
(j) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), except the payment, discharge or satisfaction of (i) liabilities or
obligations in the ordinary course of business consistent with past practice or
in accordance with the terms thereof as in effect on the date hereof or (ii)
claims settled or compromised to the extent permitted by Section 5.2(k), or
waive, release, grant or transfer any rights of material value or modify or
change in any material respect any existing Parent Contract, in each case other
than in the ordinary course of business consistent with past practice;
(k) settle or compromise any litigation, other than litigation
not in excess of amounts reserved for in the most recent consolidated financial
statements of Parent included in the Parent SEC Reports or, if not so reserved
for, in an aggregate amount not in excess of $500,000, provided in either case
such settlement documents do not involve any material non-monetary obligations
on the part of Parent and its Subsidiaries;
(l) take any action (without regard to any action taken or agreed
to be taken by Parent or any of its affiliates) with knowledge that such action
would prevent the Merger from qualifying as a reorganization within the meaning
of Sections 368(a)(1)(A) or 368(a)(2)(E) of the Code;
(m) consummate any acquisition pursuant to any Parent Contract
disclosed pursuant to Section 3.19(g) other than in accordance with the terms so
disclosed (including without waiver of any condition to the Company's
obligations to consummate such acquisition), excluding insignificant deviations
from such terms;
(n) enter into any fixed price, basis or option positions related
to petroleum, petroleum products, natural gas, natural gas liquids, electricity
or energy in any form, either financial or physical that are not consistent with
the Parent Trading Guidelines;
(o) engage in any activities which would cause a change in its
status, or that of its Subsidiaries, under the 1935 Act, or that would impair
the ability of Parent to claim an exemption as of right under Section 3(a)(1) of
the 1935 Act; and
(p) take, or offer or propose to take, or agree to take in
writing or otherwise, any of the actions described in Sections 5.2(a) through
5.2(o) or any action which would or is reasonably likely to result in (i) a
material breach of any provision of this Agreement, (ii) any of the
representations and warranties of Parent set forth in this Agreement becoming
59
untrue in any material respect or (iii) any of the conditions set forth in
Article VII not being satisfied.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 Preparation of Form S-4 and the Joint Proxy Statement;
Stockholder Meetings. (a) Promptly following the date of this Agreement, Parent
and the Company shall prepare and Parent shall file with the SEC the Joint Proxy
Statement, and Parent shall prepare and file with the SEC the Form S-4, in which
the Joint Proxy Statement will be included as a prospectus. Each of the Company
and Parent shall use its reasonable best efforts to have the Form S-4 declared
effective under the Securities Act as promptly as practicable after such filing.
Each of the Company and Parent will use its reasonable best efforts to cause the
Joint Proxy Statement to be mailed to its respective stockholders as promptly as
practicable after the Form S-4 is declared effective under the Securities Act.
Parent shall also take any action (other than qualifying to do business in any
jurisdiction in which it is not now so qualified) required to be taken under any
applicable state securities law in connection with the issuance of Parent Common
Stock in the Merger, and the Company shall furnish all information concerning
the Company and the holders of the Company Common Stock as may be reasonably
required in connection with any such action. Each of Parent and the Company
shall furnish all information concerning itself to the other as may be
reasonably requested in connection with any such action and the preparation,
filing and distribution of the Form S-4 and the Joint Proxy Statement, which
information shall be true and correct in all material respects without omission
of any material fact which is required to make such information not false or
misleading. The Company, Parent and Merger Sub each agree to correct any
information provided by it for use in the Form S-4 or the Joint Proxy Statement
which shall have become false or misleading. Subject to Section 6.2, no
amendment or supplement to the Form S-4 or the Joint Proxy Statement will be
made without the approval of both Parent and the Company. Each party will advise
the other, promptly after it receives notice thereof, of the time when the Form
S-4 has become effective or any supplement or amendment has been filed, the
issuance of any stop order, the suspension, if applicable, of the qualification
of the Parent Common Stock for sale in any jurisdiction, or any request by the
SEC for amendment of the Form S-4 or the Joint Proxy Statement or comments
thereon and responses thereto or requests by the SEC for additional information.
60
(b) Subject to Section 6.2, Parent, acting through its Board of
Directors, shall, in accordance with its Restated Articles of Incorporation and
Bylaws, promptly and duly call, give notice of, convene and hold, as soon as
practicable following the date upon which the Form S-4 becomes effective, a
meeting of the holders of Parent Common Stock for the purpose of voting to
approve (i) the issuance of Parent Common Stock pursuant to the Merger and (ii)
an amendment to Parent's Restated Articles of Incorporation to amend the
Parent's corporate name to be "Xxxxxx Xxxxxx, Inc." (the "Parent Name Change").
Parent shall, through its Board of Directors, recommend approval of the issuance
of Parent Common Stock pursuant to the Merger and the Parent Name Change by the
stockholders of Parent and include in the Joint Proxy Statement such
recommendation and take all reasonable and lawful action to solicit and obtain
such approval, subject to the Parent's Board of Directors' rights under Section
6.2. The Company, acting through its Board of Directors, shall, in accordance
with its Certificate of Incorporation and Bylaws, promptly and duly call, give
notice of, convene and hold, as soon as practicable following the date upon
which the Form S-4 becomes effective, a meeting of the holders of Company Common
Stock for the purpose of voting to approve the Merger, this Agreement and the
transactions contemplated hereby. The Company shall, through its Board of
Directors, recommend approval of the Merger, this Agreement and the transactions
contemplated hereby by the stockholders of the Company and include in the Joint
Proxy Statement such recommendation and take all reasonable and lawful action to
solicit and obtain such approval.
SECTION 6.2 No Solicitation. (a) Parent shall not, nor shall it
permit any of its Subsidiaries to (and Parent shall use its reasonable best
efforts to cause its and each of its Subsidiaries' officers, directors,
employees, representatives and agents, including, but not limited to, investment
bankers, attorneys and accountants, not to), directly or indirectly, encourage,
solicit, participate in or initiate discussions or negotiations with, provide
any information to, or enter into any agreement with, any Person (other than the
Company, any of its affiliates or representatives) concerning any merger,
business combination, tender offer, exchange offer, sale of assets (other than
as expressly permitted by Section 5.2), sale of shares of capital stock or debt
securities or similar transactions involving Parent or any Subsidiary, division
or operating or principal business unit of Parent (a "Parent Acquisition
Proposal"). Parent further agrees that it will immediately cease any existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any of the foregoing. Notwithstanding the foregoing, prior to
Parent Stockholders' Approval, Parent may, directly or indirectly, provide
access and furnish information concerning its business, properties or assets to
any Person pursuant to appropriate confidentiality agreements, and may negotiate
and participate in discussions and negotiations with such Person, if (w) such
61
Person has submitted an unsolicited bona fide written proposal to the Board of
Directors of Parent relating to any such transaction, (x) such proposal provides
for the acquisition for cash and/or publicly traded securities of all of the
outstanding Parent Common Stock, (y) the Board of Directors of Parent determines
in good faith, after consultation with its independent financial advisor, that
such proposal is more favorable to the holders of Parent Common Stock than the
Merger and is fully financed or reasonably capable of being financed or
otherwise consummated, and (z) the Board of Directors of Parent determines in
good faith, after consultation with independent legal counsel, that the failure
to provide such information or access or to engage in such discussions or
negotiations would be inconsistent with their fiduciary duties to Parent's
stockholders under applicable law. A proposal meeting all of the criteria in the
preceding sentence is referred to herein as a "Superior Proposal." Parent will
immediately notify the Company of any Parent Acquisition Proposal, or if an
inquiry is made, will keep the Company fully apprized of all developments with
respect to any Parent Acquisition Proposal, will immediately provide to the
Company copies of any written materials received by Parent in connection with
any Parent Acquisition Proposal, discussion, negotiation or inquiry and the
identity of the party making any Parent Acquisition Proposal or inquiry or
engaging in such discussion or negotiation. Parent will promptly provide to the
Company any non-public information concerning Parent provided to any other
Person which was not previously provided to the Company. Subject to the last
sentence of this Section 6.2(a) and notwithstanding anything to the contrary
contained in this Agreement, except in connection with the valid termination of
this Agreement pursuant to Section 8.1(c)(i) hereof, neither the Board of
Directors of Parent nor any committee thereof shall (i) approve or recommend, or
propose to approve or recommend, any Parent Acquisition Proposal, (ii) enter
into any agreement (other than a confidentiality agreement) with respect to any
Parent Acquisition Proposal or (iii) withdraw or modify, or propose to withdraw
or modify, in a manner adverse to the Company, the approval or recommendation by
Parent's Board of Directors or a committee thereof of the Merger, this Agreement
or the issuance of the Parent Common Stock to be issued pursuant to the Merger.
Nothing contained in this Section 6.2 shall prohibit Parent or its Board of
Directors from taking and disclosing to Parent's stockholders a position with
respect to a tender offer by a third party pursuant to Rules l4d-9 and l4e-2(a)
promulgated under the Exchange Act.
(b) The Company shall not, nor shall it permit any of its Subsidiaries
to (and the Company shall use its reasonable best efforts to cause its and each
of its Subsidiaries' officers, directors, employees, representatives and agents,
including, but not limited to, investment bankers, attorneys and accountants,
not to), directly or indirectly, encourage, solicit, participate in or initiate
discussions or negotiations with, provide any information to, or enter into any
agreement with, any Person (other than Parent, any of its affiliates or
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representatives) concerning any merger, business combination, tender offer,
exchange offer, sale of assets (other than as expressly permitted by Section
5.1), sale of shares of capital stock or debt securities or similar transactions
involving the Company or any Subsidiary, division or operating or principal
business unit of the Company (a "Company Acquisition Proposal"); provided,
however, that, notwithstanding any of the foregoing, in no event shall any of
the Company's Subsidiaries be restricted from taking any action, nor shall they
be required to obtain Parent's consent prior to taking such action, if Kinder
Xxxxxx X.X., Inc. believes the taking of that action to be in the best interests
of Xxxxxx Xxxxxx Energy Partners, L.P. and its unitholders. The Company further
agrees that it will immediately cease any existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any of the
foregoing.
SECTION 6.3 Access to Information. (a) Except as required pursuant to
any confidentiality agreement or similar agreement or arrangement to which the
Company or Parent or any of their respective Subsidiaries is a party or pursuant
to applicable law or the regulations or requirements of any stock exchange or
other regulatory organization with whose rules the parties are required to
comply, from the date of this Agreement to the Effective Time, the Company or
Parent shall, and shall cause their respective Subsidiaries to, furnish promptly
such information concerning, and provide reasonable access during normal
business hours with respect to, the business, properties, contracts, assets,
liabilities, personnel and other aspects of such party and its Subsidiaries as
the other party or its representatives may reasonably request. Each party shall
use reasonable efforts to accommodate the other party's request for information
or access in the event the first party is subject to a confidentiality
agreement. No investigation conducted pursuant to this Section 6.3 shall affect
or be deemed to modify any representation or warranty made in this Agreement.
(b) The parties shall comply with, and shall cause their
respective representatives to comply with, all of their respective obligations
under the confidentiality agreement dated July 2, 1999 (the "Confidentiality
Agreement") between the Company and Parent with respect to the information
disclosed pursuant to this Section 6.3.
SECTION 6.4 Notification of Certain Matters. The Company shall give
prompt notice to Parent, and Parent shall give prompt notice to the Company, of
(i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would be likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate and (ii) any failure of
the Company, Parent or Merger Sub, as the case may be, to comply with or satisfy
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any covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section 6.4 shall not limit or otherwise affect the remedies available hereunder
to the party receiving such notice.
SECTION 6.5 Further Action. Upon the terms and subject to the
conditions hereof, each of the parties hereto shall use all commercially
reasonable efforts to take, or cause to be taken, all appropriate action, and to
do or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including, without limitation, (i)
cooperating in the preparation and filing of the Form S-4, the Proxy Statement,
and required filings under the HSR Act and any amendments thereof, (ii) using
all commercially reasonable efforts to make all required regulatory filings and
applications and to obtain all licenses, permits, consents, approvals,
authorizations, qualifications and orders of Governmental Authorities and
parties to contracts with the Company and its Subsidiaries as are necessary for
the consummation of the transactions contemplated by this Agreement and to
fulfill the conditions to the Merger, including, without limitation, the Company
Required Statutory Approvals and the Parent Required Statutory Approvals, (iii)
cooperating in all respects with each other in connection with any investigation
or other inquiry, including any proceeding initiated by a private party, in
connection with the transactions pursuant hereto, (iv) keeping the other party
informed in all material respects of any material communication received by such
party from, or given by such party to, the Federal Trade Commission (the "FTC"),
the Antitrust Division of the Department of Justice ("DOJ"), the SEC, the FERC
or any other Governmental Authority and of any material communication received
or given in connection with any proceeding by a private party, in each case
regarding any of the transactions contemplated hereby, (v) cooperating in all
respects with each other in connection with providing the tax opinions described
in Sections 7.2(d) and 7.3(d) of this Agreement and using all commercially
reasonable efforts to obtain the tax opinions referred to in such Sections of
this Agreement, and (vi) permitting the other party to review any material
communication given by it to, and consult with each other in advance of any
meeting or conference with, the FTC, the DOJ or any such other Governmental
Authority or, in connection with any such proceeding by a private party, with
any other Person.
SECTION 6.6 Stock Exchange Listing. Parent shall use its reasonable
best efforts to have approved for listing on the NYSE prior to the Effective
Time, subject to official notice of issuance, the Parent Common Stock to be
issued pursuant to the Merger.
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SECTION 6.7 Affiliates. The Company shall deliver to Parent a letter
identifying all persons who are, on the date hereof, "affiliates" of the Company
for purposes of Rule 145 under the Securities Act. The Company shall use its
reasonable best efforts to cause each such Person to deliver to Parent on or
prior to the Closing Date a written agreement substantially in the form attached
as Exhibit A hereto.
SECTION 6.8 Public Announcements. Subject to each party's disclosure
obligations imposed by applicable law, Parent and the Company shall cooperate
with each other in the development and distribution of all news releases and
other public information disclosures with respect to this Agreement or any of
the transactions contemplated hereby and shall not issue any public announcement
or statement without the prior consent of the other party.
SECTION 6.9 Rights Agreement. Parent shall take all actions
necessary to ensure that the Parent Rights Agreement is amended in accordance
with Section 3.15 prior to the Effective Time.
SECTION 6.10 Takeover Statutes. If any "interested stockholder,"
"fair price," "moratorium," "control share acquisition" or other form of
antitakeover statute or regulation shall become applicable to the transactions
contemplated hereby, the Company and the members of its Board of Directors shall
grant such approvals and take such other actions as may be necessary to make
Parent and its Subsidiaries exempt under or otherwise not subject to such
statutes.
SECTION 6.11 Transition Management. As soon as practicable after the
date hereof, the parties shall create a joint transition management committee
(the "Transition Committee") consisting of two representatives from each of the
parties hereto designated from time to time as agreed by each of the Boards of
Directors of Parent and the Company. The initial members of the Transition
Committee shall be Xxxxxxx X. Xxxxxx, Xxxxxxx X. Xxxxxx, Xxxx Xxxxx, and Xxxxxx
Xxxxxx. The Transition Committee shall be responsible for organizing,
developing, managing and implementing a transition plan for the prompt and
efficient integration of the business organizations of Parent and the Company
and their respective Subsidiaries (the "Transition Plan"), subject to the
requirement that control of the management and properties of Parent and the
Company, as set forth in this Agreement, shall at all times prior to the
Effective Time remain under the control of their respective Boards of Directors.
The Transition Committee shall report its findings and make recommendations to
the Board of Directors of each of Parent and the Company with respect to
transition matters. Xxxxxxx X. Xxxxxx will manage and be responsible for the
day-to-day activities and operations of the Transition Committee. After the date
hereof and prior to the Effective Time, Xxxxxxx X. Xxxxxx shall be permitted to
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attend those meetings of Parent's Board of Directors and Xxxxxxx X. Xxxxx shall
be permitted to attend those meetings of the Company's Board of Directors as
they deem appropriate.
SECTION 6.12 Employment Agreement. Parent shall execute and deliver
to Xxxxxxx X. Xxxxxx an employment agreement substantially in the form attached
as Exhibit B hereto (the "Employment Agreement"), such agreement to be effective
as of the Effective Time. The Company shall use its best efforts to cause
Xxxxxxx X. Xxxxxx to enter into the Employment Agreement.
SECTION 6.13 Governance Agreement. Parent shall execute and deliver
to each of the other parties named therein a governance agreement substantially
in the form attached as Exhibit C hereto (the "Governance Agreement"), such
agreement to be effective as of the Effective Time. The Company shall use its
best efforts to cause the persons named therein to enter into the Governance
Agreement.
SECTION 6.14 No Investment in Parent Common Stock. Prior to the
Effective Time, the Company shall not acquire (directly or indirectly,
beneficially or of record) any shares of Parent Common Stock (or any rights to
acquire any such shares), except pursuant to this Agreement.
SECTION 6.15 Bank Holding Company Act. At the request of First Union
Corporation, the parties shall make appropriate provision to provide that First
Union Corporation's holdings of capital stock of Parent are structured in such a
way, including, if necessary, by providing a form of non-voting capital stock,
so as not to result in a violation by First Union Corporation of the Bank
Holding Company Act of 1956.
ARTICLE VII
CONDITIONS
SECTION 7.1 Conditions to the Obligations of Each Party to Effect the
Merger. The obligations of the Company, on the one hand, and Parent and Merger
Sub, on the other hand, to effect the Merger, are subject to the satisfaction
or, if permitted by applicable law, waiver of the following conditions:
(a) Form S-4. The Form S-4 shall have been declared effective by
the SEC under the Securities Act and no stop order suspending the effectiveness
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of the Form S-4 shall have been issued by the SEC and no proceeding for that
purpose shall have been initiated by the SEC.
(b) Stockholder Approval. The issuance of shares of Parent Common
Stock pursuant to the Merger shall have been approved by the requisite vote of
the holders of the outstanding shares of Parent Common Stock. The Merger and
this Agreement shall have been approved by the requisite vote of the holders of
the outstanding shares of Company Common Stock.
(c) No Injunction. No court of competent jurisdiction shall have
issued or entered any order which is then in effect and has the effect of making
any of the transactions contemplated by this Agreement, including the Merger,
illegal, or otherwise prohibiting their consummation.
(d) HSR Act. All applicable waiting periods (and any extension
thereof) applicable to the consummation of the Merger under the HSR Act shall
have expired or been terminated.
(e) Consents and Approvals. All consents, authorizations, orders,
permits and approvals of (or registrations, declarations or filings with) any
Governmental Authorities in connection with the execution, delivery and
performance of this Agreement shall have been obtained and made, except where
the failure to obtain or make any such consents, authorizations, order, permit,
approval, registration, declaration or filing would not result in a Parent
Material Adverse Effect or a Company Material Adverse Effect.
(f) Listing. The shares of Parent Common Stock to be issued
pursuant to this Agreement shall have been authorized for listing on the NYSE
subject to official notice of issuance.
(g) 1935 Act. None of the holders of Company Common Stock shall,
as a result of the Merger, become subject to registration regulation as a
"holding company" under the 1935 Act and Parent shall not, as a result of the
Merger, become subject to registration regulation as part of a "holding company
system" under the 1935 Act.
SECTION 7.2 Conditions to the Obligations of Parent and Merger Sub.
The obligations of Parent and Merger Sub to effect the Merger are subject to the
satisfaction or, if permitted by applicable law, waiver of the following further
conditions:
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(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all material respects as of the date of this Agreement and (except to the
extent such representations and warranties speak as of an earlier date) as of
the Closing Date as though made on and as of the Closing Date, except where any
such failure or failures to be so true and correct (without regard to
materiality or knowledge qualifiers contained therein), in the aggregate, would
not have a Company Material Adverse Effect. Parent shall have received a
certificate of the President of the Company to such effect.
(b) Covenants. The Company shall have performed or complied in
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the Closing
Date, and Parent shall have received a certificate of the President of the
Company to that effect.
(c) Company Material Adverse Effect. No Company Material Adverse
Effect shall have occurred.
(d) Tax Opinion. Parent shall have received a written opinion of
Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP, dated as of the Closing Date, in form
and substance reasonably satisfactory to it, substantially to the effect that,
on the basis of representations of Parent and the Company contained in tax
certificates that are customarily required in similar circumstances, the Merger
constitutes a "reorganization" within the meaning of Section 368 of the Code.
(e) Required Consents. The Company Required Consents and the
Company Required Statutory Approvals shall have been obtained at or prior to the
Effective Time.
(f) Employment Agreement. Xxxxxxx X. Xxxxxx shall have entered
into the Employment Agreement with Parent.
(g) Governance Agreement. The parties thereto shall have entered
into the Governance Agreement with Parent.
(h) Appraisal Rights. No holder of Company Common Stock shall
have demanded appraisal pursuant to Section 262 of the DGCL.
SECTION 7.3 Conditions to the Obligations of the Company. The
obligations of the Company to effect the Merger are subject to the satisfaction
or, if permitted by applicable law, waiver of the following further conditions:
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(a) Representations and Warranties. The representations and
warranties of Parent and Merger Sub set forth in this Agreement shall be true
and correct in all material respects as of the date of this Agreement and
(except to the extent such representations and warranties speak as of an earlier
date) as of the Closing Date, except where any such failure or failures to be so
true and correct (without regard to materiality or knowledge qualifiers
contained therein), in the aggregate, would not have a Parent Material Adverse
Effect. The Company shall have received a certificate of the Chief Executive
Officers of Parent and Merger Sub to such effect.
(b) Covenants. Parent and Merger Sub shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by them on or prior to the
Closing Date, and the Company shall have received a certificate of the President
of Parent and Merger Sub to that effect.
(c) Parent Material Adverse Effect. No Parent Material Adverse
Effect shall have occurred.
(d) Tax Opinion. The Company shall have received a written
opinion of Xxxxxxxxx & Xxxxxxxxx, L.L.P., date as of the Closing Date, in form
and substance reasonably satisfactory to it, substantially to the effect that,
on the basis of representations of the Company and Parent contained in tax
certificates that are customarily required in similar circumstances, the Merger
constitutes a "reorganization" within the meaning of Section 368 of the Code.
(e) Required Consents. The Parent Required Consents and the
Parent Required Statutory Approvals shall have been obtained at or prior to the
Effective Time.
(f) Parent Rights. The rights issued pursuant to the Parent
Rights Agreement shall not have become non-redeemable, exercisable, distributed
or triggered pursuant to the terms of such agreement. Parent shall have amended
the Parent Rights Agreement in accordance with Section 3.15 hereof.
(g) Employment Agreement. Parent shall have entered into the
Employment Agreement with Xxxxxxx X. Xxxxxx.
(h) Governance Agreement. Parent shall have entered into the
Governance Agreement.
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(i) Director Resignations; Bylaw Amendment. All of Parent's
directors, other than those directors listed on Annex A to the Governance
Agreement, shall have submitted their resignations from the Board of Directors,
effective as of the Effective Time, and the Bylaws of Parent shall have been
amended, effective as of the Effective Time, in compliance with Section 2.1 of
the Governance Agreement.
ARTICLE VIII
TERMINATION
SECTION 8.1 Termination. Anything herein or elsewhere to the contrary
notwithstanding, this Agreement may be terminated and the Merger contemplated
herein may be abandoned at any time prior to the Effective Time, whether before
or after stockholder approval thereof:
(a) By the mutual consent of the Board of Directors of Parent and
the Board of Directors of the Company.
(b) By either of the Board of Directors of the Company or the
Board of Directors of Parent:
(i) if the Merger shall not have been consummated on or before
December 31, 1999; provided, however, that the right to terminate this
Agreement under this Section 8.1(b)(i) shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been the
cause of, or resulted in, the failure of the Merger to have been
consummated on or before such date; and provided, further, that such date
shall be extended to March 31, 2000 if on December 31, 1999 (x) any Parent
Required Statutory Approval or Company Required Statutory Approval has not
been obtained but is being diligently pursued and (y) all other conditions
to the consummation of the transactions contemplated hereby are then
capable of being satisfied; or
(ii) if any Governmental Authority shall have issued an order,
decree or ruling or taken any other action (which order, decree, ruling or
other action the parties hereto shall use their reasonable efforts to
lift), in each case, permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by this Agreement and such order,
decree, ruling or other action shall have become final and non-appealable;
or
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(iii) if any required approval of the stockholders of Parent for
the issuance of shares of Parent Common Stock pursuant to the Merger shall
not have been obtained at a duly held meeting of stockholders or at any
adjournment thereof; provided, however, that the right to terminate under
this Section 8.1(b)(iii) shall not be available to any party whose failure
to fulfill any obligations under this Agreement has been the cause of, or
resulted in, the failure of such approval to have been obtained; or
(iv) if any required approval of the stockholders of the Company
of the Merger and this Agreement shall not have been obtained at a duly
held meeting of stockholders or at any adjournment thereof; provided,
however, that the right to terminate under this Section 8.1(b)(iv) shall
not be available to any party whose failure to fulfill any obligations
under this Agreement has been the cause of, or resulted in, the failure of
such approval to have been obtained.
(c) By the Board of Directors of Parent:
(i) if, prior to the Effective Time, the Board of Directors of
Parent (or any committee thereof) shall have withdrawn, or modified or
changed in a manner adverse to the Company, its approval or recommendation
of the issuance of shares of Parent Common Stock pursuant to the Merger in
order to approve and permit Parent to execute a definitive agreement
providing for a Superior Proposal; provided that (A) at least 5 business
days prior to terminating this Agreement pursuant to this Section 8.1(c)(i)
Parent has provided the Company with written notice advising the Company
that the Board of Directors of Parent has received a Superior Proposal that
it intends to accept, specifying the material terms and conditions of such
Superior Proposal and identifying the Person making such Superior Proposal
and (B) Parent shall have caused its financial and legal advisors to
negotiate in good faith with the Company to make such adjustments in the
terms and conditions of this Agreement as would enable Parent to proceed
with the transactions contemplated herein on such adjusted terms; and
further provided that simultaneously with any termination of this Agreement
pursuant to this Section 8.1(c)(i), Parent shall pay to the Company the
Termination Fee (as defined in Section 8.3(b) hereof); and further provided
that Parent may not terminate this Agreement pursuant to this Section
8.1(c)(i) if Parent is in material breach of this Agreement; or
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(ii) if, prior to the Effective Time, the Company breaches or
fails in any material respect to perform or comply with any of its material
covenants and agreements contained herein or breaches its representations
and warranties in any material respect, which breach cannot be or has not
been cured within 30 days after the giving of written notice by Parent to
the Company and which breach of a covenant, representation or warranty
could reasonably be expected to result in a Company Material Adverse
Effect; provided that Parent may not terminate this Agreement pursuant to
this Section 8.1(c)(ii) if Parent is in material breach of this Agreement;
(d) By the Board of Directors of the Company:
(i) if, prior to the Effective Time, the Board of Directors of
Parent (or any committee thereof) shall have (A) recommended a Parent
Acquisition Proposal or offer (B) withdrawn, modified or changed in a
manner adverse to the Company its approval or recommendation of the
issuance of shares of Parent Common Stock pursuant to the Merger, (C) taken
a position in accordance with the last sentence of Section 6.2(a) adverse
to the Company, (D) executed an agreement in principle (or similar
agreement) or definitive agreement providing for a tender offer or exchange
offer for any shares of capital stock of Parent, or a merger, consolidation
or other business combination with a Person other than the Company, or (E)
resolved to do any of the foregoing; provided that the Company may not
terminate this Agreement pursuant to this Section 8.1(d)(i) if the Company
is in material breach of this Agreement;
(ii) if Parent breaches its agreements contained in the first two
sentences of Section 6.2(a) or breaches in any material respect its
agreements contained in Section 6.2(a) other than the first two sentences
thereof; provided that the Company may not terminate this Agreement
pursuant to this Section 8.1(d)(ii) if the Company is in material breach of
this Agreement; or
(iii) if, prior to the Effective Time, Parent breaches or fails
in any material respect to perform or comply with any of its material
covenants or agreements contained herein (other than Section 6.2(a)) or
breaches its representations and warranties in any material respect, which
breach cannot be or has not been cured within 30 days after the giving of
written notice by the Company to Parent and which breach of a covenant,
representation or warranty could reasonably be expected to result in a
Parent Material Adverse Effect; provided that the Company may not terminate
this Agreement pursuant to this Section 8.1(d)(iii) if the Company is in
material breach of this Agreement.
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SECTION 8.2 Effect of Termination. In the event of the termination of
this Agreement as provided in Section 8.1 hereof, written notice thereof shall
forthwith be given to the other party or parties specifying the provision hereof
pursuant to which such termination is made, and this Agreement shall forthwith
become null and void, except as set forth in Section 9.1, and there shall be no
liability on the part of the Parent or the Company except (a) for fraud and (b)
as set forth in Section 8.3.
SECTION 8.3 Fees and Expenses. (a) Except as contemplated by this
Agreement, including Sections 8.3(b) and 8.3(c) hereof, all costs and expenses
incurred in connection with this Agreement and the consummation of the
transactions contemplated hereby shall be paid by the party incurring such
expenses.
(b) If (v) the Board of Directors of Parent (or any committee
thereof) shall terminate this Agreement pursuant to Section 8.1(c)(i) hereof,
(w) the Board of Directors of the Company shall terminate this Agreement
pursuant to Section 8.1(d)(i) or Section 8.1(d)(ii), (x) the Board of Directors
of the Company shall terminate this Agreement pursuant to Section 8.1(d)(iii) as
a result of a willful breach by Parent, (y) either the Board of Directors of
Parent or the Board of Directors of the Company shall terminate this Agreement
pursuant to Section 8.1(b)(iii) and on or prior to the date of the Parent
stockholders meeting an Alternative Transaction (as defined below) has been
publicly announced, or (z) either the Board of Directors of Parent or the Board
of Directors of the Company shall terminate this Agreement pursuant to Section
8.1(b)(iii) and on or prior to the date of the Parent stockholders meeting no
Alternative Transaction has been publicly announced, Parent shall pay to the
Company (not later than one business day after such termination of this
Agreement or, in the case of any termination by the Company pursuant to Section
8.1(c)(i) hereof, simultaneously with such termination) an amount equal to (I)
in the case of clauses (v), (w), (x) or (y), $45 million (the "Termination Fee")
and (II) in the case of clause (z), $22.5 million. If the Board of Directors of
the Company shall terminate this Agreement pursuant to Section 8.1(d)(iii) other
than as a result of a willful breach by Parent, Parent shall promptly reimburse
the Company for all actual, documented and reasonable out-of-pocket expenses
incurred, or to be incurred by the Company (including the fees and expenses of
legal counsel, accountants, financial advisors, other consultants, financial
printers and financing sources) ("Expenses") in connection with the Merger and
the consummation of the transactions contemplated by this Agreement, in an
amount not to exceed $5 million in the aggregate. Under no circumstances shall
Parent be required to pay more than one fee pursuant to this Section 8.3(b).
"Alternative Transaction" means any of the following events: (i) the acquisition
of Parent or any of its Subsidiaries by merger, tender offer or otherwise by any
Person other than the Company or any of affiliate thereof (a "Third Party");
(ii) the acquisition by a Third Party of 30% or more of the Assets of Parent and
73
its Subsidiaries, taken as a whole; (iii) the acquisition by a Third Party of
30% or more of the outstanding shares of Parent Common Stock; (iv) the adoption
by Parent of a plan of liquidation or the declaration or payment of an
extraordinary dividend; or (v) the repurchase by Parent or any of its
Subsidiaries of 30% or more of the outstanding shares of Parent Common Stock.
(c) If the Board of Directors of the Parent shall terminate this
Agreement pursuant to Section 8.1(c)(ii) as a result of a willful breach by the
Company, the Company shall pay to Parent (not later than one business day after
such termination of this Agreement) an amount equal to the Termination Fee. If
the Board of Directors of Parent shall terminate this Agreement pursuant to
Section 8.1(c)(ii) other than as a result of a willful breach by the Company,
the Company shall reimburse Parent for Expenses in connection with the Merger
and the consummation of the transactions contemplated by this Agreement, in an
amount not to exceed $5 million in the aggregate.
(d) Parent and the Company agree that the agreements contained in
Section 8.3(b) and (c) are an integral part of the transactions contemplated by
this Agreement and constitute liquidated damages and not a penalty. If one party
fails to promptly pay to the other any amounts due under such Section 8.3(b) and
(c), the defaulting party shall pay the costs and expenses (including legal fees
and expenses) in connection with any action, including the filing of any lawsuit
or other legal action, taken to collect payment, together with interest on any
unpaid amounts at the publicly announced prime rate of Citibank, N.A. from the
date such amount was required to be paid.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Non-Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements of each of the
Company, Parent and Merger Sub set forth in this Agreement shall not survive
following the Effective Time or the termination of this Agreement pursuant to
Section 8.1, as the case may be, other than Sections 6.3(b) and 8.3 hereof. Each
party agrees that, except for the representations and warranties contained in
this Agreement, or in any agreements attached hereto or any certificate
delivered pursuant to this Agreement, no party has made any other
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representations and warranties, and each party hereby disclaims any other
representations and warranties made by itself or any of its officers, directors,
employees, agents, financial and legal advisors or other representatives with
respect to the execution and delivery of this Agreement or the transactions
contemplated in this Agreement, notwithstanding the delivery or disclosure to
any other party or any party's representatives of any documentation or other
information with respect to any one or more of the foregoing.
SECTION 9.2 Amendment. This Agreement may be amended prior to the
Effective Time by the parties hereto, by action taken or authorized by their
respective Boards of Directors, at any time before or after approval of any
matters presented in connection with the Merger by the stockholders of Parent,
but, after such approval, no amendment shall be made which by law requires
further approval by such stockholders without such further approval. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
SECTION 9.3 Extension; Waiver. At any time prior to the Effective
Time, either party hereto may (a) extend the time for the performance of any of
the obligations or other acts of the other party hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party.
SECTION 9.4 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally,
telecopied (which is confirmed) or sent by overnight courier service to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
if to the Company to:
Xxxxxx Xxxxxx, Inc.
0000 XxXxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attn: Xxxxxxx X. Xxxxxx
Fax: (000) 000-0000
75
with a copy to:
Xxxxxxxxx & Xxxxxxxxx, L.L.P.
South Tower Penzoil Place
000 Xxxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000-0000
Attn: Xxxxx Xxxx, Esq.
Fax: (000) 000-0000
and
if to Parent or Merger Sub, to:
K N Energy, Inc.
000 Xxx Xxxxxx Xxxxxx
Phase II - 0xx Xxxxx XX
Xxxxxxxx, Xxxxxxxx 00000-0000
Attn: Xxxxxxx X. Xxxxx
Fax: (000) 000-0000
and a copy to:
Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP
0000 Xxx Xxxx Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000-0000
Attn: Xxxxxxx X. Xxxxx, Esq.
Fax: (000) 000-0000
SECTION 9.5 Certain Definitions.
"affiliate" shall mean, with respect to any Person, any other
Person that directly, or through one or more intermediaries, controls or is
controlled by or is under common control with such Person.
"Assets" shall mean, with respect to any Person, all properties,
land, buildings, improvements, leasehold improvements, Fixtures and Equipment
and other assets, real or personal, tangible or intangible, owned, leased or
licensed by such Person or any of its Subsidiaries.
76
"Company Material Adverse Effect" shall mean a material adverse
change in or effect on the business, operations, assets, financial condition or
results of operations of the Company and its Subsidiaries, taken as a whole, or
any change that materially impairs or materially delays the ability of the
Company to consummate the transactions contemplated by this Agreement; provided,
that a Company Material Adverse Effect shall exclude any change or effect due to
(i) United States or global economic condition or financial markets in general,
(ii) changes in the international, national, regional or local wholesale or
retail markets for natural gas or liquid hydrocarbons as a whole and (iii)
rules, regulations or decisions of the FERC, the CPUC or any other regulatory
body affecting the petroleum products pipelines industry as a whole.
"Fixtures and Equipment"shall mean, with respect to any Person,
all of the furniture, fixtures, furnishings, machinery and equipment owned,
leased or licensed by such Person and located in, at or upon the facilities of
such Person.
"GAAP" shall mean generally accepted accounting principles in the
United States, as in effect from time to time, consistently applied.
"knowledge", the phrase "to the knowledge of Parent" or any
similar phrase shall mean and be limited to the actual (but not constructive or
imputed) knowledge of senior management of Parent without inquiry; the phrase
"to the knowledge of the Company" or any similar phrase shall mean and be
limited to the actual (but not constructive or imputed) knowledge of senior
management of the Company, Kinder Xxxxxx X.X., Inc. and Xxxxxx Xxxxxx Energy
Partners, L.P. without inquiry.
"Parent Material Adverse Effect" shall mean a material adverse
change in or effect on the business, operations, assets, financial condition or
results of operations of Parent and its Subsidiaries, taken as a whole, or any
change that materially impairs or materially delays the ability of Parent to
consummate the transactions contemplated by this Agreement; provided, that a
Parent Material Adverse Effect shall exclude any change or effect due to (i)
United States or global economic condition or financial markets in general, (ii)
changes in the international, national, regional or local wholesale or retail
markets for natural gas, liquid hydrocarbons or electricity as a whole and (iii)
rules, regulations or decisions of the FERC or any other regulatory body
affecting the interstate natural gas transmission industry as a whole or the
wholesale sale and transmission of electric power as a whole.
77
"Permitted Encumbrances" shall mean any Encumbrances resulting
from (i) all statutory or other liens for Taxes or assessments which are not yet
due or delinquent or the validity of which are being contested in good faith by
appropriate proceedings for which adequate reserves are being maintained in
accordance with GAAP; (ii) all cashiers', landlords', workers' and repairers'
liens, and similar liens imposed by law, incurred in the ordinary course of
business; (iii) all laws and governmental rules, regulations, ordinances and
restrictions; (iv) all leases, subleases, licenses, concessions or service
contracts to which any Person or any of its Subsidiaries is a party; (v)
Encumbrances identified on title policies or preliminary title reports or other
documents or writing delivered or made available for inspection to any Person
prior to the date hereof or included in the public records; and (vi) all other
liens and mortgages (but solely to the extent such liens and mortgages secure
indebtedness described or referred to in the Parent Disclosure Schedule or the
Company Disclosure Schedule, as applicable), covenants, imperfections in title,
charges, easements, restrictions and other Encumbrances which, in the case of
any such Encumbrances pursuant to clause (i) through (vi), do not materially
detract from or materially interfere with the present use of the Asset subject
thereto or affected thereby.
"Person" shall mean any individual, corporation, partnership,
limited liability company, joint, venture, governmental agency or
instrumentality, or any other entity.
"Stock Plan" shall mean any employee stock option, performance
unit, stock purchase or similar plan of a Person or any of its Subsidiaries.
"Stock Rights" shall mean any outstanding stock options, stock
appreciation rights, limited stock appreciation rights, performance units,
phantom stock and stock purchase rights of a Person.
"Subsidiary" shall mean, with respect to any Person, (i) any
corporation, partnership, joint venture or other organization, whether
incorporated or unincorporated, of which such Person directly or indirectly owns
or controls at least a majority of the securities or other interests having by
their terms ordinary voting power to elect a majority of the board of directors
or others performing similar functions, (ii) any limited partnership of which
such Person, or any Subsidiary of such Person, is the general partner and (iii)
any general partnership of which such Person, or any Subsidiary of such Person,
owns an interest in the revenues or profits of 50% or more. With respect to the
Company, the definition of "Subsidiary" shall include, without limitation,
Kinder Xxxxxx X.X., Inc., Xxxxxx Xxxxxx Energy Partners, L.P., Xxxxxx Xxxxxx
Operating L.P. "A," Xxxxxx Xxxxxx Operating L.P. "B," Xxxxxx Xxxxxx Operating
78
L.P. "C," and Xxxxxx Xxxxxx Operating L.P. "D" and, in each case, any
Subsidiaries thereof.
"Tax" or "Taxes" includes all taxes, charges, fees, levies or
other assessments imposed by any federal, state, local or foreign taxing
authority, including, without limitation, all income, gross receipts, gains,
profits, windfall profits, gift, severance, ad valorem, social security,
employment, disability, unemployment, premium, recapture, credit, excise,
property, sales, use, occupation, service, service use, leasing, leasing use,
value added, transfer, payroll, withholding, estimated, license, stamp,
franchise or similar taxes (including any interest earned thereon or penalties,
additions or fines attributable thereto or attributable to any failure to comply
with any requirement regarding Tax Returns and any interest in respect of such
penalties, additions or fines).
"Tax Return" includes any report, return, document, declaration
or other information or filing required to be supplied to any taxing authority
or jurisdiction with respect to Taxes, including, without limitation, any
supporting schedules or attachments and any amendments or claims for refund with
respect thereto.
"Thermo Agreements" shall mean (i) the Contribution Agreement,
dated as of February 18, 1998, by and among Thermo LLC, a Colorado limited
liability company, Thermo Ft. Xxxxxx, X.X., a Colorado limited partnership,
Thermo Investments Limited Partnership, a Colorado limited partnership, Crystal
River Energy Company, a California corporation, Xxxxx Xxxxxx III, an individual,
Xxxxxx X. Xxxxxx, an individual, Xxxx X. Xxxxxxxx, an individual, and KN
Cogeneration, Inc., a Colorado corporation; (ii) the Purchase Agreement, dated
as of February 18, 1998, by and among Xxxxx Xxxxxx III, an individual, Thermo
Greeley I, Inc., a Colorado corporation, and KN Thermo Acquisition, Inc., a
Colorado corporation; (iii) the Master Joint Venture Agreement, dated as of
February 18, 1998, by and among Xxxxx Xxxxxx III, an individual, Xxxxxx X.
Xxxxxx, an individual, Xxxx Xxxxxxxx, an individual, Thermo LLC, a Colorado
limited liability company, and KN Cogeneration, a Colorado corporation; and (iv)
the Transaction Modification Agreement, dated as of August 27, 1998, by and
among Thermo LLC, a Colorado limited liability company, Thermo Ft. Xxxxxx, X.X.,
a Colorado limited partnership, Thermo Investments Limited Partnership, a
Colorado limited partnership, Crystal River Energy Company, a California
corporation, Xxxxx Xxxxxx III, an individual, Xxxxx Xxxxxx III, as trustee under
that certain restated Declaration and Agreement of Trust dated August 10, 1997,
originally dated January 1, 1997, Xxxxxx X. Xxxxxx, an individual, Thermo
Greeley I, Inc., a Colorado corporation, KN Cogeneration, Inc., a Colorado
corporation, and KN Thermo Acquisition, Inc., a Colorado corporation; and (v)
79
any other Parent Contracts arising from or related to the relationship between
the Company and its affiliates, on the one hand, and Thermo, LLC and its
affiliates (including, the parties set forth in clauses (i) through (iv) above),
on the other hand; including in each case any and all exhibits, attachments or
amendments to the above referenced agreements.
SECTION 9.6 Other Defined Terms. The following terms shall have the
respective meanings given to such terms in the Sections set forth below:
Term Section
---- -------
1935 Act.....................................................................3.5
Agreement...............................................................Recitals
Alternative Transaction...................................................8.3(b)
Blue Sky Laws.............................................................3.4(c)
Certificate of Merger........................................................1.3
Certificates..............................................................2.3(a)
Class A Common Stock......................................................2.1(b)
Class B Common Stock......................................................2.1(b)
Closing......................................................................1.2
Closing Agreement.........................................................3.8(k)
Closing Date.................................................................1.2
Code....................................................................Recitals
Company.................................................................Recitals
Company Acquisition Proposal..............................................6.2(b)
Company Benefit Plans....................................................4.10(a)
Company Common Stock......................................................2.1(b)
Company Contracts...........................................................4.18
Company Disclosure Schedule..................................................4.1
Company Financial Statements.................................................4.5
Company Required Consents.................................................4.4(b)
Company SEC Reports..........................................................4.5
Company Stockholders' Approval..............................................4.27
Confidentiality Agreement.................................................6.3(b)
Constituent Corporations.....................................................1.4
CPUC......................................................................3.4(c)
DGCL....................................................................Recitals
DOJ..........................................................................6.5
Easements...................................................................3.23
Effective Time...............................................................1.3
Employment Agreement........................................................6.12
80
Encumbrances.................................................................3.2
Environmental Permits.......................................................3.10
ERISA.....................................................................3.9(a)
Exchange Ratio............................................................2.1(c)
Exchange Act..............................................................3.4(c)
Expenses..................................................................8.3(c)
FERC.........................................................................3.5
Form S-4....................................................................3.27
FTC..........................................................................6.5
Gas Act......................................................................3.5
Governance Agreement........................................................6.13
Governmental Authority....................................................3.4(c)
HSR Act ..................................................................3.4(c)
Intellectual Property....................................................3.26(b)
Interim Operating Committee.................................................6.11
IRS.......................................................................3.8(p)
Joint Proxy Statement.......................................................3.27
KGCC.....................................................................3.12(b)
Merger..................................................................Recitals
Merger Consideration......................................................2.1(c)
Merger Sub..............................................................Recitals
Net Parent Position.........................................................3.24
NGPA.........................................................................3.5
NYSE.........................................................................2.2
Parent..................................................................Recitals
Parent Acquisition Proposal...............................................6.2(a)
Parent Benefit Plans......................................................3.9(a)
Parent Class A Preferred Stock...............................................3.3
Parent Class B Preferred Stock...............................................3.3
Parent Common Stock.......................................................2.1(c)
Parent Contracts............................................................3.19
Parent Disclosure Schedule...................................................3.1
Parent Financial Statements..................................................3.5
Parent Financial Advisors...................................................3.13
Parent Required Consents..................................................3.4(b)
Parent Required Statutory Approvals..........................................3.4
Parent Rights Agreement.....................................................3.15
Parent SEC Reports...........................................................3.5
Parent Stockholders' Approval............................................3.12(a)
Parent Trading Guidelines...................................................3.24
81
PBGC......................................................................3.9(e)
PEPS Units...................................................................3.3
Power Act....................................................................3.5
PURPA....................................................................3.11(b)
Registration Statement.......................................................4.8
SEC..........................................................................3.5
Securities Act............................................................2.3(a)
Superior Proposal.........................................................6.2(a)
Surviving Corporation........................................................1.1
Task Force..................................................................6.11
Tax Ruling................................................................3.8(k)
Termination Fee...........................................................8.3(b)
SECTION 9.7 Descriptive Headings. The descriptive headings contained
in this Agreement are inserted for convenience only and shall not affect in any
way the meaning or interpretation of this Agreement.
SECTION 9.8 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the Merger is not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner in order that the
Merger be consummated as originally contemplated to the fullest extent possible.
SECTION 9.9 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, and all of which
shall constitute a single agreement.
SECTION 9.10 Entire Agreement; No Third Party Beneficiaries. This
Agreement, together with the Confidentiality Agreement and the other agreements
referred to herein or contemplated hereby, (a) constitutes the entire agreement
and supersedes all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof; and (b) is not
intended to confer upon any Person other than the parties hereto any rights or
remedies hereunder.
82
SECTION 9.11 Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of Delaware without regard to
any applicable conflicts of law.
SECTION 9.12 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. This Agreement will be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors and
permitted assigns.
SECTION 9.13 Specific Performance. The parties recognize and agree
that if for any reason any of the provisions of this Agreement are not performed
in accordance with their specific terms or otherwise breached, immediate and
irreparable harm or injury would be caused for which money damages would not be
an adequate remedy. Accordingly, each party agrees that, in addition to any
other available remedies, the other party shall be entitled to specific
performance of the terms hereof, in addition to any other remedy at law or
equity. In the event that any action should be brought in equity to enforce the
provisions of this Agreement, no party will allege, and each party hereby waives
the defense, that there is an adequate remedy at law.
83
IN WITNESS WHEREOF, each of the undersigned has caused this Agreement
to be duly signed as of the date first written above.
K N ENERGY, INC.
By: /s/ Xxxxxxx X. Xxxxx
-----------------------------------
Name: Xxxxxxx X. Xxxxx
Title: Interim CEO
ROCKIES MERGER CORP.
By: /s/ Xxxxxxx X. Xxxxx
-----------------------------------
Name: Xxxxxxx X. Xxxxx
Title: Vice President
XXXXXX XXXXXX, INC.
By: /s/ Xxxxxxx X. Xxxxxx
-----------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Vice Chairman and President
TABLE OF CONTENTS
Page
ARTICLE I
THE MERGER
SECTION 1.1 The Merger.................................................... 1
SECTION 1.2 Closing....................................................... 2
SECTION 1.3 Effective Time................................................ 2
SECTION 1.4 Effects of the Merger......................................... 2
SECTION 1.5 Certificate of Incorporation and Bylaws of the
Surviving Corporation......................................... 2
SECTION 1.6 Directors and Officers of the Surviving Corporation........... 2
SECTION 1.7 Tax Consequences.............................................. 2
ARTICLE II
CONVERSION OF SECURITIES
SECTION 2.1 Effect on the Stock of the Constituent Corporations. ........ 3
SECTION 2.2 Fractional Interests.......................................... 4
SECTION 2.3 Exchange of Certificates; Stock Transfer Books................ 4
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB
SECTION 3.1 Organization and Qualification................................ 6
SECTION 3.2 Subsidiaries.................................................. 6
SECTION 3.3 Capitalization................................................ 7
SECTION 3.4 Authority; Non-Contravention; Statutory Approvals;
Compliance.................................................... 8
SECTION 3.5 Reports and Financial Statements.............................. 10
SECTION 3.6 Absence of Certain Changes or Events; Absence of
Undisclosed Liabilities....................................... 11
SECTION 3.7 Litigation; Regulatory Proceedings............................ 12
SECTION 3.8 Tax Matters................................................... 12
i
SECTION 3.9 Employee Matters; ERISA....................................... 16
SECTION 3.10 Environmental Protection...................................... 18
SECTION 3.11 Regulation.................................................... 21
SECTION 3.12 Vote Required................................................. 22
SECTION 3.13 Opinions of Financial Advisors................................ 23
SECTION 3.14 Insurance..................................................... 23
SECTION 3.15 Parent Rights Agreement....................................... 23
SECTION 3.16 Brokers....................................................... 24
SECTION 3.17 No Agreements to Sell Parent or Its Assets.................... 24
SECTION 3.18 Assets........................................................ 24
SECTION 3.19 Contracts and Commitments..................................... 24
SECTION 3.20 Absence of Breaches or Defaults............................... 26
SECTION 3.21 Labor Matters................................................. 27
SECTION 3.22 Affiliate Transactions........................................ 28
SECTION 3.23 Easements..................................................... 28
SECTION 3.24 Commodity Price Exposure...................................... 29
SECTION 3.25 Year 2000..................................................... 29
SECTION 3.26 Intellectual Property and Software............................ 29
SECTION 3.27 Form S-4 and Joint Proxy Statement............................ 30
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
SECTION 4.1 Organization and Qualification................................ 31
SECTION 4.2 Subsidiaries.................................................. 31
SECTION 4.3 Capitalization................................................ 32
SECTION 4.4 Authority; Non-Contravention; Statutory Approvals;
Compliance.................................................... 33
SECTION 4.5 Reports and Financial Statements.............................. 35
SECTION 4.6 Absence of Certain Changes or Events; Absence of
Undisclosed Liabilities....................................... 36
SECTION 4.7 Litigation; Regulatory Proceedings............................ 36
SECTION 4.8 Form S-4 and Proxy Statement.................................. 37
SECTION 4.9 Tax Matters................................................... 37
SECTION 4.10 Employee Matters; ERISA....................................... 41
SECTION 4.11 Environmental Protection...................................... 43
SECTION 4.12 Regulation.................................................... 45
ii
SECTION 4.13 Insurance..................................................... 45
SECTION 4.14 Company Rights Agreement...................................... 46
SECTION 4.15 Brokers....................................................... 46
SECTION 4.16 No Other Agreements to Sell the Company or Its Assets......... 46
SECTION 4.17 Assets........................................................ 46
SECTION 4.18 Contracts and Commitments..................................... 47
SECTION 4.19 Absence of Breaches or Defaults............................... 48
SECTION 4.20 Labor Matters................................................. 49
SECTION 4.21 Affiliate Transactions........................................ 49
SECTION 4.22 Easements..................................................... 49
SECTION 4.23 Commodity Price Exposure...................................... 50
SECTION 4.24 Year 2000..................................................... 50
SECTION 4.25 Intellectual Property and Software............................ 50
SECTION 4.26 Nature of the Company's Business.............................. 51
SECTION 4.27 Vote Required................................................. 51
SECTION 4.28 Ownership of Parent Common Stock.............................. 51
SECTION 4.29 Section 203 of the DGCL....................................... 51
ARTICLE V
COVENANTS RELATING TO
CONDUCT OF BUSINESS
SECTION 5.1 Conduct of the Company's Business Pending the Merger.......... 52
SECTION 5.2 Conduct of Parent's Business Pending the Merger............... 55
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 Preparation of Form S-4 and the Joint Proxy Statement;
Stockholder Meetings.......................................... 60
SECTION 6.2 No Solicitation............................................... 61
SECTION 6.3 Access to Information......................................... 63
SECTION 6.4 Notification of Certain Matters............................... 63
SECTION 6.5 Further Action................................................ 64
SECTION 6.6 Stock Exchange Listing........................................ 64
SECTION 6.7 Affiliates.................................................... 65
SECTION 6.8 Public Announcements.......................................... 65
SECTION 6.9 Rights Agreement.............................................. 65
iii
SECTION 6.10 Takeover Statutes............................................. 65
SECTION 6.11 Transition Management......................................... 65
SECTION 6.12 Employment Agreement.......................................... 66
SECTION 6.13 Governance Agreement.......................................... 66
SECTION 6.14 No Investment in Parent Common Stock.......................... 66
SECTION 6.15 Bank Holding Company Act...................................... 66
ARTICLE VII
CONDITIONS
SECTION 7.1 Conditions to the Obligations of Each Party to
Effect the Merger............................................. 66
SECTION 7.2 Conditions to the Obligations of Parent and Merger Sub ....... 67
SECTION 7.3 Conditions to the Obligations of the Company.................. 68
ARTICLE VIII
TERMINATION
SECTION 8.1 Termination................................................... 70
SECTION 8.2 Effect of Termination......................................... 73
SECTION 8.3 Fees and Expenses............................................. 73
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Non-Survival of Representations, Warranties
and Agreements................................................ 74
SECTION 9.2 Amendment..................................................... 75
SECTION 9.3 Extension; Waiver............................................. 75
SECTION 9.4 Notices....................................................... 75
SECTION 9.5 Certain Definitions........................................... 76
SECTION 9.7 Descriptive Headings.......................................... 82
SECTION 9.8 Severability.................................................. 82
SECTION 9.9 Counterparts.................................................. 82
SECTION 9.10 Entire Agreement; No Third Party Beneficiaries................ 82
SECTION 9.11 Governing Law................................................. 83
SECTION 9.12 Assignment.................................................... 83
SECTION 9.13 Specific Performance.......................................... 83
iv
EXHIBIT A - Form of Affiliate Letter
EXHIBIT B - Form of Employment Agreement
EXHIBIT C - Form of Governance Agreement
v
EXHIBIT A
FORM OF AFFILIATE LETTER
[Date]
K N Energy, Inc.
000 Xxx Xxxxxx Xxxxxx
Phase II - 0xx Xxxxx XX
Xxxxxxxx, Xxxxxxxx 00000-0000
Ladies and Gentlemen:
I have been advised that as of the date of this letter I may be deemed
to be an "affiliate" of Xxxxxx Xxxxxx, Inc., a Delaware corporation (the
"Company"), as the term "affiliate" is defined for purposes of paragraphs (c)
and (d) of Rule 145 of the rules and regulations (the "Rules and Regulations")
of the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended, (the "Act"). Pursuant to the terms of the
Agreement and Plan of Merger, dated as of July 8, 1999 (the "Merger Agreement"),
among K N Energy, Inc., a Kansas corporation ("Parent"), Rockies Merger Corp., a
Delaware corporation and wholly-owned subsidiary of Parent ("Merger Sub"), and
the Company, Merger Sub will be merged with and into the Company (the "Merger").
As a result of the Merger, I may receive shares of Parent Common Stock
(as defined in the Merger Agreement) (the "Merger Consideration") in exchange
for shares of Company Common Stock (as defined in the Merger Agreement) owned by
me.
1. Compliance with the Act. I represent, warrant and covenant to
Parent that in the event I receive any Merger Consideration as a result of the
Merger:
A. I shall not make any sale, transfer or other disposition of
the Merger Consideration in violation of the Act or the Rules and
Regulations.
B. I have carefully read this letter and the Merger Agreement and
discussed the requirements of such documents and other applicable
limitations upon my ability to sell, transfer or otherwise dispose of
the Merger Consideration to the extent I felt necessary, with my
counsel or counsel for the Company.
A-1
C. I have been advised that the issuance of Parent Common Stock
to me pursuant to the Merger will be registered with the Commission
under the Act on a Registration Statement on Form S-4. However, I have
also been advised that, since at the time the Merger is submitted for
a vote of the stockholders of Company, I may be deemed to have been an
affiliate of Company and the distribution by me of the Parent Common
Stock has not been registered under the Act, I may not sell, transfer
or otherwise dispose of the Parent Common Stock issued to me in the
Merger unless (i) such sale, transfer or other disposition has been
registered under the Act, (ii) such sale, transfer or disposition is
made in conformity with Rule 145 promulgated by the Commission under
the Act, or (iii) in the opinion of counsel reasonably acceptable to
Parent, or pursuant to a "no action" letter obtained by the
undersigned from the staff of the Commission, such sale, transfer or
other disposition is otherwise exempt from registration under the Act.
2. I understand that Parent is under no obligation to register the
sale, transfer or other disposition of Parent Common Stock by me or on my behalf
under the Act or to take any other action necessary in order to make compliance
with an exemption from such registration available.
3. I also understand that stop transfer instructions will be given to
Parent's transfer agent with respect to the Parent Common Stock issued to me and
that there will be placed on the certificates for the Parent Common Stock issued
to me or any substitutions therefor a legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES
ACT OF 1933 APPLIES AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT OR IN ACCORDANCE WITH AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933."
4. I also understand that unless the transfer by me of my Parent
Common Stock has been registered under the Act or is a sale made in conformity
with the provisions of Rule 145, Parent reserves the right to put the following
legend on the certificates issued to my transferee:
A-2
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED
FROM A PERSON WHO RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH
RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES.
THE SHARES HAVE BEEN ACQUIRED BY THE HOLDER NOT WITH A VIEW TO,
OR FOR RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN
THE MEANING OF THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD,
PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT OR IN ACCORDANCE WITH AN EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933."
It is understood and agreed that the legends set forth in
paragraph 3 and 4 above will be removed by delivery of substituted
certificates without such legend if such legend is not required for
purposes of the Act or this letter agreement. It is understood and
agreed that such legends and the stop orders referred to above will be
removed if (i) one year shall have elapsed from the date the
undersigned acquired Parent Common Stock received in the Merger and
the provisions of Rule 145(d)(2) are then available to the
undersigned, (ii) two years shall have elapsed from the date the
undersigned acquired the Parent Common Stock received in the Merger
and the provisions of Rule 145(d)(3) are then available to the
undersigned, or (iii) Parent has received either an opinion of
counsel, which opinion and counsel shall be reasonably satisfactory to
Parent, or a "no action" letter obtained by the undersigned from the
staff of the Commission, to the effect that the restrictions imposed
by Rule 145 under the Act no longer apply to the undersigned.
5. Certain Tax Matters. The undersigned does not intend to take a
position on any federal or state income tax return that is inconsistent with the
treatment of the Merger as a tax-free reorganization for federal or state income
tax purposes.
A-3
Execution of this letter should not be considered an admission on my
part that I am an "affiliate" of the Company as described in the first paragraph
of this letter or as a waiver of any rights I may have to object to any claim
that I am such an affiliate on or after the date of this letter.
Very truly yours,
Name: _________________________________
Accepted this ______ day of
___________, 1999 by
K N ENERGY, INC.
By:____________________________________
Name:__________________________________
Title:_________________________________
A-4
EXHIBIT B
EMPLOYMENT AGREEMENT
This Agreement (the "Agreement") is made and entered into on _______
__, 1999 (the "Effective Date"), between KN Energy, Inc., (the "Company"), a
Kansas corporation, and Xxxxxxx X. Xxxxxx, a resident of Texas ("Employee").
WHEREAS, the Company, Xxxxxx Xxxxxx, Inc. and Rockies Merger Corp.
have entered into an Agreement and Plan of Merger, dated as of July 8, 1999,
whereby Rockies Merger Corp. will be merged with and into Xxxxxx Xxxxxx, Inc.
(the "Merger");
WHEREAS, the Company desires to retain Employee under the terms and
conditions set forth herein and Employee has agreed to be so employed;
NOW THEREFORE BE IT RESOLVED, in consideration for the mutual promises
and covenants contained herein, the parties hereto agree as follows:
1. Agreement to Employ. The Company hereby employs Employee and
Employee hereby accepts employment upon the terms and conditions hereinafter set
forth. Employee will initially serve as the Chief Executive Officer of the
Company and will perform such other duties as may be designated or assigned to
him from time to time by the Company's Board of Directors and which are
consistent with the executive-level responsibilities currently assigned to
Employee. During the term or any extension hereof of this Agreement, Employee
shall serve as the chairman of the Company's Board of Directors. Employee agrees
to devote substantially all of his time to the discharge of the affairs of the
Company and its subsidiaries; but, the Company acknowledges that Employee has
outside business interests and agrees that Employee may devote a portion of his
time and attention to such business interests provided such business interests
do not interfere with Employee's performance of his duties hereunder.
2. Compensation.
a. Salary and Bonus. For all services to be rendered by
Employee, the Company shall pay Employee a salary at the rate of
$750,000.00 per year, in installments on equal frequency to the
Company's standard payroll practices. Salary payments shall be subject
to withholding and other applicable taxes (e.g., federal and state
withholding, FICA, earnings tax, etc.). The amount of salary due to
Employee under this Agreement for any period of time less than one (1)
month shall be prorated, based upon the number of days worked by
Employee. In addition to a salary, Employee shall be paid bonuses in
such amounts as determined by the Company's Board of Directors and any
applicable Company plan.
b. Salary Adjustments. The salary payable to Employee hereunder
will be adjusted on each anniversary of the Effective Date, by the
greater of (i) increasing it in the same proportion that the "Consumer
Price Index" most recently published (as of such anniversary) by the
United States Department of Labor has increased in comparison to the
Consumer Price Index which had been most recently published by the
Department of Labor one (1) year earlier or (ii) increasing it by an
amount determined by the Company's Board of Directors. The Company
will notify Employee each year of the amount of the CPI increase and
Employee's salary for that year. No decrease in Employee salary, as
adjusted from time to time, will occur as a result of the adjustments
provided herein. The "Consumer Price Index" shall mean the Consumer
Price Index for Urban Wage Earners and Clerical Workers, U.S. City
Average, for all items, as promulgated by the Bureau of Labor
Statistics of the United States Department of Labor (or if publication
of such index is discontinued, any substantially equivalent successor
index).
3. Term. This Agreement shall be for a term commencing on the
Effective Date and continuing for an initial term of three (3) years. The term
of this Agreement shall be extended on each anniversary of the Effective Date
for an additional one (1) year period, such that as of each anniversary of the
Effective Date, there shall be three (3) years remaining in the term of this
Agreement.
4. Personnel Policies and Employee Benefits. The general personnel
policies of the Company will apply to Employee with the same force and effect as
to any other employee of the Company, except to the extent such general
personnel policies are inconsistent with the terms and provisions of this
Agreement, in which event, the terms and provisions of this Agreement shall
control. Such personnel policies shall include Employee's eligibility for
employee benefits, if any, such as insurance of any kind, including life,
medical and disability insurance, and similar employee benefits as the Board of
Directors of the Company determines, in its sole discretion, from time to time.
In the event that the Company's general personnel policies provide benefits or
compensation to the Company's employees such as vacation, and Employee is given
a similar or comparable benefit pursuant to this Agreement, the benefit shall
not be cumulative and Employee shall be entitled only to the benefits conferred
by this Agreement.
5. Termination of Employment by the Company.
a. Without Cause. The Company may terminate Employee's
employment under this Agreement at any time without Cause (as
hereinafter defined); provided, however, that in such event, the
Company shall pay Severance Benefits (as defined herein below) to
Employee within ten days of Employee's termination.
-2-
b. With Cause. The Company may terminate Employee's employment
under this Agreement at any time for Cause effective immediately upon
Notice of Termination. In the event the Company terminates this
Agreement for Cause on the part of Employee, Employee shall receive
salary for the period to the date of his termination, but the Company
shall not be obligated to pay any salary or other compensation for any
period of time after such termination. Employee shall not be entitled
to receive severance pay from the Company if his employment is
terminated for Cause. For purposes of this Agreement, "Cause" shall
mean the occurrence of any of the following events:
(i) A Grand Jury indictment or a prosecutorial
information (or any procedurally equivalent action) charging
Employee with illegal or fraudulent acts, criminal conduct or
willful misconduct whether or not relating to the activities of
the Company;
(ii) A Grand Jury indictment or a prosecutorial
information (or any procedurally equivalent action) charging
Employee with any criminal acts involving moral turpitude whether
or not having a material adverse effect upon the Company;
(iii) Grossly negligent failure by Employee to perform
his duties in a manner which he knows, or has reason to know, to
be in the Company's best interests;
(iv) Bad faith refusal by Employee to carry out
reasonable instructions of the Board not inconsistent with the
provisions of this Agreement; or
(v) Material violation by the Employee of any of the
terms of this Agreement.
c. Death. If Employee dies during the term of this Agreement,
within 10 days of such death the Company shall pay to Employee's
estate an amount equal to Employee's annual salary as severance pay.
Once such severance pay is received by Employee's estate this
Agreement shall terminate.
d. Disability. The Company may terminate Employee's employment
under this Agreement at any time effective immediately upon written
Notice of Termination if Employee becomes "totally and permanently
disabled" (as hereinafter defined) so as to preclude Employee from
performing his duties hereunder. If so terminated, Employee shall be
entitled to receive: (i) the amount of any insurance proceeds payable
to Employee under disability insurance policies, if any, then
maintained for Employee's (and not the Company's) benefit; and (ii)
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salary through the effective date of termination of employment.
Employee shall be deemed to be "totally and permanently disabled" (x)
if Employee provides written acknowledgment thereof (or if Employee is
unable to give such acknowledgment, it is provided by any adult member
of his family), (y) a qualified independent physician selected by the
Company shall have provided his opinion that Employee either (1) is
permanently disabled, or (2) is incapable of resuming substantially
full performance of his duties for the Company for a period of at
least six (6) months, or (z) Employee refuses to submit to an
examination by an independent physician selected by the Company for
purposes of determining whether a total and permanent disability has
occurred.
6. Termination of Employment by Employee.
a. Employee shall have the right to terminate his employment at
any time by providing at least thirty (30) days' prior written
notice of termination to the Company. Following such termination,
Employee shall receive salary for the period through the date of
termination, but the Company shall not be obligated to pay any
salary or compensation (including severance pay) for any period
of time after such termination.
b. If Employee is subject to a Change in Duties as defined
herein below, at Employee's option Employee may elect to
immediately terminate this Agreement and receive Severance
Benefits (as hereinafter defined) within ten days after
termination.
"Change in Duties" shall mean, without Employee's written
consent, the occurrence of any one or more of the following:
i. A significant reduction in the nature, scope of
authority or duties of Employee from those applicable to him
immediately prior to such reduction;
ii. A substantial reduction in Employee's existing annual
base salary or bonus opportunity under any applicable bonus or
incentive compensation plan from that provided to him immediately
prior to such reduction;
iii. Receipt of employee benefits (including but not limited
to medical, dental, life insurance, accidental death and
dismemberment, and long-term disability plans) and perquisites by
Employee that are materially inconsistent with the employee
benefits and perquisites provided by the Company to executives
with comparable duties immediately prior to such receipt; or
-4-
iv. A substantial change in the location of Employee's
principal place of employment by the Company by more than 50
miles from the location where he is then principally employed.
7. Notice of Termination. Any termination of Employee's employment
by the Company pursuant to Section 5 or by Employee pursuant to Section 6 shall
be communicated by written Notice of Termination to the other party hereto. Said
Notice shall be deemed to have been duly given when delivered or mailed by
United States certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Company:
KN Energy, Inc.
000 Xxx Xxxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxx
Attention: President
If to the Employee:
Xxxxxxx X. Xxxxxx
0000 XxXxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
or at such other address as either party may designate in writing to the other.
8. Company Property; Confidentiality. Upon termination of this
Agreement for any reason whatsoever, Employee shall immediately deliver to the
Company any and all confidential, proprietary or other property, tangible or
intangible, of the Company. Employee agrees to maintain the confidentiality of
all trade secrets and proprietary and confidential information (collectively,
the "Confidential Information") of the Company, both during and subsequent to
any periods of employment with the Company, and Employee will not, without
express written authorization by the Company, directly or indirectly reveal or
cause or allow to be revealed any such Confidential Information to any person
other than to the Company's employees who are authorized to receive such
Confidential Information in order to perform their duties for the Company, nor
will Employee use any such Confidential Information to the detriment of the
Company or other than in the course of his employment with the Company.
9. Intellectual Property. Any interest in patents, patent
applications, inventions, copyrights, developments and processes ("Inventions")
which Employee now or hereafter during the period Employee is employed by the
Company may own or develop relating to the fields in which the Company may then
be engaged shall belong to the Company; and forthwith upon request of the
Company, Employee shall execute all assignments and other documents and take all
such other action as the Company may reasonably request in order to vest in the
-5-
Company all his right, title and interest in and to the Inventions free and
clear of all liens, charges and encumbrances.
10. Key-Man Life Insurance. If requested by the Company, Employee
shall submit to such physical examinations and otherwise take such actions and
execute and deliver such documents as may be reasonably necessary to enable the
Company, at its expense and for its own benefit, to obtain life insurance on the
life of the Employee. The disposition of the proceeds of such policy shall be in
the sole discretion of the Company.
11. Severance Benefits. Severance Benefits include the following:
a. A lump sum cash payment in an amount equal to three times
the aggregate of (x) Employee's current base salary and (y) the
greater of (i) the amount of any cash incentive bonus to be paid to
Employee pursuant to any applicable Company plan based on the maximum
of the current year's target or (ii) Employee's aggregate cash bonus
paid with regard to the Company's prior fiscal year.
b. Employee shall be entitled to continue the medical, dental,
life insurance and accidental death and dismemberment coverages
provided by the Company to its active employees for up to 36 months.
Such benefit rights shall apply only to those medical, dental, life
insurance and accidental death and dismemberment coverages provided by
the Company to its active employees which the Company has in effect
from time to time for active employees. Medical, dental, life
insurance and accidental death and dismemberment coverages provided by
the Company to its active employees shall immediately end upon
Employee's obtainment of new employment and eligibility for reasonably
comparable medical, dental, life insurance and accidental death and
dismemberment coverages provided by the Company to its then active
employees (with Employee being obligated hereunder to promptly report
such eligibility to the Company). Nothing herein shall be deemed to
adversely affect in any way the additional rights, after consideration
of this extension period, of Employee and his eligible dependents to
health care continuation coverage as required pursuant to Part 6 of
Title I of the Employee Retirement Income Security Act of 1974, as
amended.
c. The severance payments under this Agreement shall be paid to
Employee on or before the 10th business day after the last day of
Employee's employment with the Company. Any severance benefits paid
pursuant to this Paragraph will be deemed to be a severance payment
and not compensation for purposes of determining benefits under the
Company's qualified plans and shall be subject to any required tax
withholding.
-6-
d. Notwithstanding anything to the contrary in this or any
other agreement, upon a termination of Employee's employment under
Section 5 (other than Section 5b), Employee's stock options,
restricted stock, and other stock awards granted and outstanding under
all KN Energy, Inc. or subsidiary stock plans shall become immediately
exercisable and all restrictions thereon shall be removed.
12. Certain Additional Payments by the Company. Notwithstanding
anything to the contrary in this Agreement, in the event that any payment or
distribution by the Company to or for the benefit of Employee, whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise (a "Payment"), would be subject to the excise tax imposed by
Section 4999 of the Code or any interest or penalties with respect to such
excise tax (such excise tax, together with any such interest or penalties, are
hereinafter collectively referred to as the "Excise Tax"), the Company shall pay
to Employee an additional payment (a "Gross-up Payment") in an amount such that
after payment by Employee of all taxes (including any interest or penalties
imposed with respect to such taxes), including any Excise Tax imposed on any
Gross-up Payment, Employee retains an amount of the Gross-up Payment equal to
the Excise Tax imposed upon the Payments. The Company and Employee shall make an
initial determination as to whether a Gross-up Payment is required and the
amount of any such Gross-up Payment. Employee shall notify the Company
immediately in writing of any claim by the Internal Revenue Service which, if
successful, would require the Company to make a Gross-up Payment (or a Gross-up
Payment in excess of that, if any, initially determined by the Company and
Employee) within five days of the receipt of such claim. The Company shall
notify Employee in writing at least five days prior to the due date of any
response required with respect to such claim if it plans to contest the claim.
If the Company decides to contest such claim, Employee shall cooperate fully
with the Company in such action; provided, however, the Company shall bear and
pay directly or indirectly all costs and expenses (including additional interest
and penalties) incurred in connection with such action and shall indemnify and
hold Employee harmless, on an after-tax basis, for any Excise Tax or income tax,
including interest and penalties with respect thereto, imposed as a result of
the Company's action. If, as a result of the Company's action with respect to a
claim, Employee receives a refund of any amount paid by the Company with respect
to such claim, Employee shall promptly pay such refund to the Company. If the
Company fails to timely notify Employee whether it will contest such claim or
the Company determines not to contest such claim, then the Company shall
immediately pay to Employee the portion of such claim, if any, which it has not
previously paid to Employee.
13. Restrictive Covenant.
a. Non-Competition. Employee agrees that while he remains in
the employ of the Company and for a period of twelve (12) months
-7-
following termination of such employment with cause pursuant to
Section 5b or by Employee pursuant to Section 6a, Employee will not
anywhere in the United States, directly or indirectly, own, manage,
operate, join, contract or participate in the ownership, management or
control of or be employed by or be connected in any manner with any
business which is or may be competitive in any manner to the business
engaged in as of the date of such termination by the Company or any
partnership in which the Company is a general partner or any of the
direct or indirect subsidiaries or affiliates of such partnerships,
(collectively, excluding the Company, the "Company Affiliates").
Notwithstanding the foregoing, both during and subsequent to his
employment with the Company, Employee may: (i) own up to five percent
(5%) of the outstanding equity securities of any corporation,
partnership or other business which is listed upon a national stock
exchange or traded in the over-the-counter market, and (ii) continue
his ownership, management, operation, control and other participation
with those businesses in which Employee is involved as of the
Effective Date and any additional businesses or opportunities which
have been approved by the Board of Directors of the Company or its
Conflicts and Audit Committee (or other appropriate committee of the
Board of Directors).
b. Reformation. In the event any restriction contained in
Section 13a should be considered by any court of competent
jurisdiction to be unenforceable because it is unreasonable either in
length of time or area to which said restriction applies, it is the
intent of the parties hereto that said court reduce and reform the
provisions thereof so as to apply to limits considered enforceable by
said court.
c. Specific Performance. Recognizing that irreparable damage
will result to the Company and/or the Company Affiliates in the event
of breach of the covenants and assurances of Section 13a by Employee,
the Company and/or the Company Affiliates shall be entitled to an
injunction to be issued by any court of competent jurisdiction
enjoining and restraining Employee and each and every person, firm,
company, corporation, partnership or other entity acting in concert or
participating with Employee from the continuation of such breach, and
in addition thereto, Employee shall pay to the Company and the Company
Affiliates all ascertainable damages, including costs and reasonable
attorneys' fees and expenses, sustained by the Company and the Company
Affiliates by reason of the breach of said covenants and assurances.
14. Expense Reimbursement. Employee shall be reimbursed by the
Company for the reasonable and necessary business expenses incurred by Employee
in the discharge of his duties, subject to the Company's standard policies and
procedures related to expense reimbursement and approval thereof.
-8-
15. Waiver. Failure of either party to demand strict compliance with
any of the terms, covenants or conditions hereof shall not be deemed a waiver of
such term, covenant or condition, nor shall any waiver or relinquishment by
either party of any right or power hereunder at any one time or more times be
deemed a waiver or relinquishment of such right or power at any other time or
times.
16. Severability. The invalidity or unenforceability of any provision
or provisions of this Agreement shall not affect the validity or enforceability
of any other provisions of this Agreement, which shall remain in full force and
effect.
17. Governing Law; Binding Effect. This Agreement shall be governed
by and construed in accordance with the laws of the State of Texas, without
regard to its principal of conflicts law, and shall be binding upon the parties
hereto, their heirs, executors, administrators, successors and assigns.
18. Entire and Final Agreement. This Agreement shall supersede any
and all agreements of employment, oral or written (including correspondence,
memoranda, term sheets, etc.), heretofore existing and contains the entire
agreement of the parties with respect to the subject matter hereof. This
Agreement may not be modified orally, but only by an agreement in writing,
signed by the party against whom the enforcement of any waiver, change,
modification, extension or discharge is sought.
19. Assignment. This Agreement is not assignable by any party hereto
without the written consent of the other parties hereto.
20. Section Headings. The section headings contained in this
Agreement are inserted for purposes of convenience only and shall not affect the
meaning or interpretation of this Agreement.
-9-
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed on its behalf and Employee has hereunto set his hand the day and year
first above written.
EMPLOYEE: COMPANY:
KN ENERGY, INC.
______________________________ By:_____________________________________
Xxxxxxx X. Xxxxxx Name:___________________________________
Title:__________________________________
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EXHIBIT C
GOVERNANCE AGREEMENT
between
K N ENERGY, INC.,
XXXXXXX X. XXXXXX,
and
XXXXXX ASSOCIATES, INC.
DATED AS OF , 1999
GOVERNANCE AGREEMENT
THIS GOVERNANCE AGREEMENT (this "Agreement"), dated as of ____ __,
1999, is entered into by and among K N Energy, Inc., a Kansas corporation (the
"Company"), Xxxxxxx X. Xxxxxx, an individual ("Kinder"), and Xxxxxx Associates,
Inc. ("Xxxxxx"), a Kansas corporation wholly-owned by Xxxxxxx X. Xxxxxx. Xxxxxx
and Xxxxxx shall together be referred to herein as the "Stockholders".
WHEREAS, the Company, Rockies Merger Corp., Inc., a Delaware
corporation and wholly-owned subsidiary of the Company ("Merger Sub"), and
Xxxxxx Xxxxxx, Inc., a Delaware corporation ("KM Inc."), have entered into an
Agreement and Plan of Merger (the "Merger Agreement"), dated July 8, 1999,
pursuant to which Merger Sub will merge with and into KM Inc. on the terms and
conditions set forth therein (the "Merger"); and
WHEREAS, the Stockholders Beneficially Own (as defined herein)
approximately 81% of KM Inc., and after giving effect to the Merger, the
Stockholders will Beneficially Own approximately 30% of the Company; and
WHEREAS, as a condition to the willingness of the Company and KM Inc.,
respectively, to enter into the Merger Agreement, and each party, in order to
induce the other to enter into such agreement, has agreed to execute and deliver
this Agreement concurrently with the Closing under the Merger Agreement (the
"Merger Closing"); and
WHEREAS, the Company and the Stockholders desire to establish in this
Agreement certain terms and conditions concerning the corporate governance of
the Company after the Merger Closing; and
WHEREAS, the Company and the Stockholders also desire to establish in
this Agreement certain terms and conditions concerning the acquisition and
disposition of securities of the Company by the Stockholders.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions. As used in this Agreement, the following
terms shall have the following meanings:
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly, through one or more intermediaries, Controls, is
Controlled by, or is under common Control with, such first Person.
"Associate" has the meaning set forth in Rule 12b-2 under the Exchange
Act as in effect on the date of this Agreement.
"Beneficial Ownership" and any derivative thereto has the meaning set
forth in Rule 13d-3 under the Exchange Act as in effect on the date of this
Agreement.
"Board" means the Board of Directors of the Company.
"Broad Distribution" means a distribution of Voting Securities that,
to the knowledge, after due inquiry, of the Person on whose behalf such
distribution is being made, will not result in the acquisition by any other
Person of any such Voting Securities to the extent that, after giving effect to
such acquisition, such acquiring Person would hold in excess of the greater of
(x) 5% of the Total Voting Power of the Company or (y) if such acquiring Person
is an institutional investor eligible to file a Statement on Schedule 13G (or
any successor form) with respect to its investment in the Company, 7% of the
Total Voting Power of the Company.
"Buyout Transaction" means a tender offer, merger, sale of all or
substantially all of the Company's assets or any similar transaction involving
the Company or any of its Subsidiaries, on the one hand, and either of the
Stockholders or any Affiliate of either of the Stockholders, on the other, that
offers each holder of Voting Securities (other than, if applicable, the Person
proposing such transaction) the opportunity to dispose of all Voting Securities
Beneficially Owned by such holder.
"Closing" shall have the meaning set forth in Section 1.2 of the
Merger Agreement.
2
"Common Stock" means the common stock, par value $5.00 per share, of
the Company.
"Company" has the meaning set forth in the recitals to this Agreement.
"Control" has the meaning specified in Rule 12b-2 under the Exchange
Act as in effect on the date of this Agreement.
"Exchange Act" means the Securities and Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Governmental Entity" means any court, administrative agency,
regulatory body, commission or other governmental authority, board, bureau or
instrumentality, domestic or foreign and any subdivision thereof.
"Group" has the meaning set forth in Section 13(d) of the Exchange Act
as in effect on the date of this Agreement.
"Independent Director" means a director of the Company who (i) is in
fact independent; (ii) is not (apart from such directorship) an officer,
Affiliate, employee, principal stockholder or partner of KM Inc. or the
Stockholders, as applicable, or any Affiliate of KM Inc. or the Stockholders;
and (iii) is deemed independent under New York Stock Exchange Rule 303 in effect
on the date of this Agreement.
"KM Inc." has the meaning set forth in the recitals to this Agreement.
"Maximum Ownership Percentage" shall mean 49.9%.
"Merger" has the meaning set forth in the recitals to this Agreement.
"Merger Agreement" has the meaning set forth in the recitals to this
Agreement.
"Merger Closing" has the meaning set forth in the recitals to this
Agreement.
"Merger Sub" has the meaning set forth in the recitals to this
Agreement.
"Other Holders" means the holders of the Other Shares.
3
"Other Shares" means Voting Securities not Beneficially Owned by the
Stockholders.
"Person" means any individual, group, corporation, firm, partnership,
limited liability company, joint venture, trust, business association,
organization, Governmental Entity or other entity.
"SEC" means the Securities and Exchange Commission or any successor
Governmental Entity.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Stockholder Vote" means as to any matter to be presented to the
holders of Voting Securities, a vote at a duly called and held annual or special
meeting of the holders of Voting Securities entitled to vote on such matter.
"Stockholders" has the meaning set forth in the recitals to this
Agreement.
"Stockholder Directors" means Stockholder Nominees who are elected or
appointed to serve as members of the Board in accordance with this Agreement.
"Stockholder Nominees" means such Persons as are so designated by the
Stockholders, as such designations may change from time to time in accordance
with this Agreement, to serve as members of the Board pursuant to Section 2.3
hereof.
"Subsidiary" means, with respect to any Person, as of any date of
determination, any other Person as to which such Person owns, directly or
indirectly, or otherwise controls, more than 50% of the voting shares or other
similar interests.
"Third Party Offer" means a bona fide offer to enter into a Buyout
Transaction by a Person other than the Stockholders, an Affiliate of the
Stockholders or any Person acting on behalf of the Stockholders or any Affiliate
of the Stockholders.
"Total Voting Power of the Company" means the total number of votes
that may be cast in the election of directors of the Company if all Voting
Securities outstanding or treated as outstanding pursuant to the final sentence
of this definition were present and voted at a meeting held for such purpose.
The percentage of the Total Voting Power of the Company Beneficially Owned by
any Person is the percentage of the Total Voting Power of the Company that is
4
represented by the total number of votes that may be cast in the election of
directors of the Company by Voting Securities Beneficially Owned by such Person.
In calculating such percentage, the Voting Securities Beneficially Owned by any
Person that are not outstanding but are then subject to immediate issuance upon
exercise or exchange of rights of conversion or any options, warrants or other
rights (the "Rights") Beneficially Owned by such Person shall be deemed to be
outstanding for the purpose of computing the percentage of the Total Voting
Power represented by Voting Securities Beneficially Owned by such Person, but
any Rights Beneficially Owned by any other Person shall not be deemed to be
outstanding for purpose of computing the percentage of the Total Voting Power
represented by Voting Securities Beneficially Owned by the Person with respect
to whom the calculation is being performed.
"Voting Securities" means Common Stock and any other securities of the
Company or any Subsidiary of the Company entitled to vote generally in the
election of directors of the Company or such Subsidiary of the Company.
ARTICLE II
CORPORATE GOVERNANCE
SECTION 2.1 Board of Directors. Upon the effectiveness of the
resignation of those current members of the Company's Board who are not
designated in Annex A hereof and in anticipation of such resignations, the
Company shall cause the Board to (i) amend the Bylaws of the Company to decrease
the number of Board members from fifteen (15) to ten (10) and (ii) fill the four
(4) vacancies on the Company's Board with the Stockholder Directors listed in
Annex A hereof such that effective as of the Closing, the Board shall consist of
ten (10) members, four (4) of whom shall be Stockholder Directors. Effective as
of the Closing, the Board members of the Company and their respective classes
shall be as indicated in Annex A hereto.
SECTION 2.2 Independent Directors. Until the termination of this
Agreement as provided in Article V hereof, the total number of Independent
Directors shall at all times constitute a majority of the Board.
SECTION 2.3 Board Representation of Stockholders. The parties hereto
shall exercise all authority under applicable law to cause any slate of
directors presented to the stockholders of the Company for election to the Board
to consist of such nominees that, if elected, would result in the Board
consisting of four (4) Stockholder Directors.
5
SECTION 2.4 Designation of Slate. Any Stockholder Nominees that are
included in a slate of directors pursuant to Section 2.3 shall be designated by
the Stockholders, and any non-Stockholder Nominees that are to be included in
any slate of directors shall be designated in accordance with the Bylaws of the
Company. The Company's nominating committee shall nominate each person so
designated.
SECTION 2.5 Resignations and Replacements. If at any time a member of
the Board resigns or is removed, a new member shall be designated to replace
such member until the next election of directors. If, consistent with Section
2.3, the replacement director is to be a Stockholder Director, the Stockholders
shall designate the replacement Stockholder Director.
SECTION 2.6 Solicitation and Voting of Shares. (a) The Company shall
use reasonable efforts to solicit from the stockholders of the Company eligible
to vote for the election of directors proxies in favor of the Board nominees
selected in accordance with Section 2.3 and 2.4.
(b) In any election of directors, the Stockholders will vote or
execute a written consent with respect to all Voting Securities as to which they
are entitled to vote or execute a written consent for all nominees in accordance
with the provisions of Section 2.3 and 2.4. In addition, the Stockholders agree
that neither they nor any Affiliate will vote, or act by written consent with
respect to any Voting Securities, in favor of any amendment of the Company's
Restated Articles of Incorporation or Bylaws which would be inconsistent with
the governance provisions contained in this Agreement.
ARTICLE III
STANDSTILL
SECTION 3.1 Standstill. (a) Except as otherwise expressly provided in
this Agreement (including this Section 3.1, Section 3.2 or Section 3.3) or as
specifically approved by a majority of the Independent Directors, the
Stockholders shall not, directly or indirectly: (i) by purchase or otherwise,
acquire, agree to acquire or offer to acquire Beneficial Ownership of any Voting
Securities or direct or indirect rights or options to Beneficially Own Voting
Securities (including any voting trust certificates representing such
securities) if after such acquisition the Voting Securities then Beneficially
Owned by the Stockholders would exceed the Maximum Ownership Percentage of the
then outstanding number of Voting Securities of the Company; (ii) enter into,
6
propose to enter into, solicit or support any merger or business combination or
similar transaction involving the Company or any of its Subsidiaries, on the one
hand, and either of the Stockholders or any Affiliate of either of the
Stockholders, on the other, or purchase, acquire, propose to purchase or acquire
or solicit or support the purchase or acquisition of any portion of the business
or assets of the Company or any of its Subsidiaries by either of the
Stockholders or by any Affiliate of either of the Stockholders; (iii) form, join
or in any way participate in a Group (other than a Group consisting solely of
the Stockholders) formed for the purpose of acquiring, holding, voting or
disposing of or taking any other action with respect to Voting Securities that
would be required under Section 13(d) of the Exchange Act to file a Statement on
Schedule 13D with respect to such Voting Securities if the Group would
Beneficially Own more than the Maximum Ownership Percentage of the then
outstanding number of Voting Securities of the Company; (iv) deposit any Voting
Securities in a voting trust or enter into any voting agreement or arrangement
with respect thereto (other than this Agreement) which would entitle any Person
to Control more than the Maximum Ownership Percentage of the Total Voting Power
of the Company; (v) take any action challenging the validity or enforceability
of the foregoing or which would be inconsistent with the foregoing ; or (vi)
assist, advise, encourage or negotiate with any Person with respect to, or seek
to do, any of the foregoing.
(b) Nothing in this Agreement shall (i) prohibit or restrict
the Stockholders from responding to any inquiries from any stockholders of the
Company as to the Stockholders' intention with respect to the voting of any
Voting Securities Beneficially Owned by the Stockholders so long as such
response is consistent with the terms of this Agreement; (ii) restrict the right
of each Stockholder Director on the Board or any committee thereof to vote on
any matter as such individual believes appropriate in light of his or her duties
as a director or committee member or the manner in which a Stockholder Nominee
may participate in his or her capacity as a director in deliberations or
discussions at meetings of the Board or as a member of any committee thereof;
(iii) prohibit the Stockholders from Beneficially Owning Voting Securities
issued as dividends or distributions in respect of, or issued upon conversion,
exchange or exercise of, securities which the Stockholders are permitted to
Beneficially Own under this Agreement; (iv) prohibit any officer, director,
employee or agent of the Stockholders from purchasing or otherwise acquiring
Voting Securities so long as he or she is not a member of a group that includes
the Stockholders or is not otherwise acting on behalf of the Stockholders; or
(v) prohibit the Stockholders from disclosing in accordance with their
obligations (if any) under the federal securities laws or other applicable law
its (if any) that the Company has become the subject of a Buyout Transaction or
a Third Party Offer.
7
SECTION 3.2 Buyout Transaction by Stockholders. Nothing in this
Agreement shall prohibit or restrict the Stockholders from proposing,
participating in, supporting or causing the consummation of a Buyout Transaction
if (i) a majority of the Company's Independent Directors approve the Buyout
Transaction and (ii) the Company receives a written opinion from a
nationally-recognized investment bank to the effect that the Buyout Transaction
is fair to all of the Company's stockholders from a financial point of view.
SECTION 3.3 Third Party Offers. In the event that the Company becomes
the subject of a Third Party Offer, the Stockholders may not support such Third
Party Offer, vote in favor of such Third Party Offer or tender or sell its
Voting Securities to the Person making such Third Party Offer unless the Third
Party Offer is made available to all of the Company's stockholders and the Other
Holders are entitled to participate in the Third Party Offer on the same terms
and under the same conditions as the Stockholders.
ARTICLE IV
TRANSFER RESTRICTIONS
SECTION 4.1 Restrictions. (a) Except as provided in Section 3.3, the
Stockholders shall not, directly or indirectly, sell, transfer or otherwise
dispose of any Voting Securities except as follows: (i) transfers solely among
the Stockholders; (ii) in accordance with the volume and manner-of-sale
limitations of Rule 144 under the Securities Act (regardless of whether such
limitations are applicable) and otherwise subject to compliance with the
Securities Act; and (iii) in a registered public offering or a non-registered
offering subject to an applicable exemption from the registration requirements
of the Securities Act in a manner calculated to achieve a Broad Distribution.
8
(b) Notwithstanding Section 4.1(a) hereof, the Stockholders may:
(i) sell or transfer up to 4.9% at a time of the then
outstanding number of shares of Voting Securities of the Company
in a private placement exempt from the registration requirements
of the Securities Act; provided, that if the buyer of such Voting
Securities is acting as a Group with the Stockholders, after such
sale or transfer the Group shall not Beneficially Own more than
the Maximum Ownership Percentage of the then outstanding shares
of Voting Securities of the Company;
(ii) sell or transfer 5% or more of the then outstanding
number of shares of Voting Securities of the Company at any time
so long as (A) a majority of the Independent Directors approves
the sale or transfer, (B)(1) the buyer of such Voting Securities
agrees to be bound by the terms of this Agreement and (2) the
aggregate amount of all Voting Securities sold or transferred
pursuant to this subsection, when added to the Voting Securities
Beneficially Owned by the Stockholders after such sales or
transfers, does not exceed the Maximum Ownership Percentage of
the then outstanding shares of Voting Securities of the Company
or (C) the Other Holders shall have the ability to participate in
such sale or transfer on a pro rata basis.
SECTION 4.2 Legends. (a) Except as set forth in paragraph (b) below,
during the term of this Agreement all certificates representing Voting
Securities Beneficially Owned by the Stockholders shall bear an appropriate
restrictive legend indicating that such Voting Securities are subject to
restrictions pursuant to this Agreement.
(b) Upon any transfer or proposed transfer of Beneficial
Ownership by the Stockholders of any Voting Securities to any Person other than
the Stockholders or their Subsidiaries that is permitted pursuant to this
Agreement, the Company shall, upon receipt of timely-notice and such
certificates, opinions and other documentation as shall be reasonably requested
by the Company, cause certificates representing such transferred Voting
Securities to be issued not later than the time needed to effect such transfer
(x) without any restrictive legend if upon consummation of such transfer such
Voting Securities are no longer "restricted securities" as defined in Rule 144
under the Securities Act or (y) without any reference to this Agreement if upon
consummation of such transfer such Voting Securities continue to be "restricted
securities".
9
SECTION 4.3 Effect. Any purported transfer of Voting Securities that
is inconsistent with the provisions of this Article IV shall be null and void
and of no force or effect.
ARTICLE V
TERMINATION
SECTION 5.1 Automatic Termination. This Agreement shall automatically
terminate upon the earlier of: (i) eighteen (18) months from the Effective Time
or (ii) the date on which the percentage of the Total Voting Power of the
Company Beneficially Owned by the Stockholders (or by any transferee who has
agreed to be bound by the terms of this Agreement) in the aggregate is less than
15%.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally,
telecopied (which is confirmed) or sent by overnight courier service to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
If to the Company:
K N Energy, Inc.
000 Xxx Xxxxxx Xxxxxx
Phase II - 0xx Xxxxx XX
Xxxxxxxx, Xxxxxxxx 00000-0000
Attention: Xxxxxx X. Xxxxxx
Vice President and General Counsel
Fax: (000) 000-0000
Copy to:
Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP
0000 Xxx Xxxx Xxxxxx, X.X.
Xxxxxxxxxx, XX 00000-0000
Attention: Xxxxxxx X. Xxxxx, Esq.
Fax: (000) 000-0000
If to the Stockholders:
c/o Xxxxxx Xxxxxx, Inc.
0000 XxXxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Xxx Xxxxxxxxxx
Fax: (000) 000-0000
Copy to:
Bracewell & Xxxxxxxxx, L.L.P.
South Tower Pennzoil Place
000 Xxxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000-0000
Attention: Xxxxx X. Xxxx, Esq.
Fax: (000) 000-0000
or to such other address or facsimile number as the Person to whom notice is
given shall have previously furnished to the others in writing in the manner set
forth above.
SECTION 6.2 Interpretation. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "included", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation".
SECTION 6.3 Severability. The provisions of this Agreement shall be
deemed severable and the in validity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any person or entity
or any circumstance, is found to be invalid or unenforceable in any
jurisdiction, (a) a suitable and equitable provision shall be substituted
therefor, upon the agreement of all of the parties hereto, in order to carry
out, so far as may be valid and enforceable, the intent and purpose of such
invalid or unenforceable provision and (b) the remainder of this Agreement and
the application of such provision to other Persons or circumstances shall not be
affected by such invalidity or unenforceability, nor shall such invalidity or
unenforceability affect the validity or enforceability of such provision, or the
application thereof, in any other jurisdiction.
SECTION 6.4 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, and all of which
shall constitute a single agreement.
SECTION 6.5 Entire Agreement; No Third Party Beneficiaries. This
Agreement, together with the Merger Agreement and the other agreements
contemplated hereby, (a) constitutes the entire agreement and supersedes all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof; and (b) is not intended to confer
upon any Person other than the parties hereto any rights or remedies hereunder.
SECTION 6.6 Further Assurances. Each party shall execute, deliver,
acknowledge and file such other documents and take such further actions as may
be reasonably requested from time to time by the other party hereto to give
effect to and carry out the transactions contemplated herein.
SECTION 6.7 Governing Law; Equitable Remedies. This Agreement shall be
governed by and construed in accordance with the laws of the State of Delaware,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of law. The parties hereto agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties hereto shall be entitled to equitable
relief, including in the form of injunctions, in order to enforce specifically
the provisions of this Agreement, in addition to any other remedy to which they
are entitled at law or in equity.
SECTION 6.8 Amendments; Waivers. (a) No provision of this Agreement
may be amended or waived unless such amendment or waiver is in writing and
signed, in the case of an amendment, by the parties hereto, or in the case of a
waiver, by the party against whom the waiver is to be effective; provided that
no such amendment or waiver by the Company shall be effective without the
approval of a majority of the Independent Directors. Notwithstanding any
provision herein to the contrary, if a majority of the Independent Directors
determine in good faith to do so, such Independent Directors may seek to
enforce, in the name and on behalf of the Company, the terms of this Agreement
against the Stockholders.
(b) No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
SECTION 6.9 Assignment. Except as set forth herein, neither this
Agreement nor any of the rights or obligations hereunder shall be assigned by
either of the parties hereto without the prior written consent of the other
party, except that either party may assign all its rights and obligations to the
assignee of all or substantially all of the assets of such party, provided that
such party shall in no event be released from its obligations hereunder without
the prior written consent of the other party. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of and be enforceable
by the parties and their respective successors and assigns.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered, all as of the date first set forth above.
K N ENERGY, INC.
By:
-----------------------------------
Name:
Title:
XXXXXXX X. XXXXXX
----------------------------------------
Name: Xxxxxxx X. Xxxxxx
XXXXXX ASSOCIATES, INC.
By:
-----------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: President
Annex A
Board Members After the Merger Closing
--------------------------------------
Stockholder Directors: Xxxxxxx X. Xxxxxx (Class I)
Xxx X. Xxxxxxx (Class I)
Xxxxx Xxxxxxx (Class II)
Xxxxxxx X. Xxxxxx (Class III)
Non-Stockholder Directors: Xxxxxx X. Xxxxxx, Xx. (Class I)
Xxxxxxx X. Xxxx (Class I)
Xxxxxxx X. Xxxxxx (Class II)
H.A. True, III (Class II)
Xxxxxxx X. Xxxxx (Class III)
Xxxxxx Xxxxxxx, III (Class III)
