EXHIBIT 10.1
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PURCHASE AND SALE AGREEMENT
between
XXXXXX XXXXXX, INC.
KN GAS GATHERING, INC.
as Sellers
and
HS RESOURCES, INC.
HS GATHERING, L.L.C.
as Buyers
Dated as of November 23, 1999
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TABLE OF CONTENTS
Page
Article I. DEFINITIONS.......................................................................1
Section 1.1 Definitions..................................................................1
Section 1.2 Terminology.................................................................13
Article II. PURCHASE AND SALE...............................................................14
Section 2.1 The Purchase and Sale.......................................................14
Section 2.2 Closing.....................................................................15
Section 2.3 Access to Books and Records; Other Information; Assets......................15
Section 2.4 Actions Upon Execution......................................................15
Section 2.5 Closing Actions.............................................................17
Section 2.6 Determination of Working Capital............................................18
Section 2.7 Revenues and Expenses.......................................................19
Section 2.8 Nonassignable Gathering Assets..............................................19
Section 2.9 Certain Contractual Matters.................................................20
Section 2.10 Acceleration of Closing.....................................................20
Section 2.11 Books and Records Transfer..................................................23
Article III. REPRESENTATIONS AND WARRANTIES OF THE SELLERS..................................24
Section 3.1 Representations and Warranties..............................................24
3.1.1 Organization and Good Standing...........................................24
3.1.2 Authority of Each Seller.................................................24
3.1.3 No Violations............................................................24
3.1.4 Compliance with Laws.....................................................25
3.1.5 Permits..................................................................25
3.1.6 Environmental Matters....................................................25
3.1.7 Contracts................................................................26
3.1.8 Litigation...............................................................27
3.1.9 Gathering Assets and Transmission Assets.................................27
3.1.10 Title to Gathering Assets and Transmission Assets........................27
3.1.11 No Brokers...............................................................28
3.1.12 Master Equipment Lease...................................................28
3.1.13 Taxes....................................................................28
3.1.14 Certain Information......................................................29
3.1.15 FERC Matters.............................................................29
3.1.16 Year 2000 Compliance for Field Operations................................29
3.1.17 Sellers'Status...........................................................30
3.1.18 No Bankruptcy............................................................30
3.1.19 Labor Matters............................................................30
Section 3.2 Certain Additional Representations and Warranties Concerning KNWTLLC........30
3.2.1 Organization and Good Standing...........................................30
3.2.2 No Conflict..............................................................30
3.2.3 Capitalization...........................................................30
3.2.4 Title to Membership Interest.............................................31
3.2.5 Subsidiaries; Investments................................................31
3.2.6 Financial Statements.....................................................31
3.2.7 Employee Matters.........................................................31
3.2.8 Natural Gas Act..........................................................31
3.2.9 Employee Benefit Plans and Policies......................................31
Section 3.3 Certain Representations and Warranties Repeated as of Closing...............32
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BUYER.........................................32
Section 4.1 Representations and and Warranties..........................................32
Section 4.1 Organization and Good Standing..............................................32
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Section 4.1.2 Authority of Buyers......................................................32
Section 4.1.3 No Violations............................................................33
Section 4.1.4 Acquisition as Investment................................................33
Section 4.1.5 Brokerage or Finders Fees................................................33
Section 4.1.6 Knowledgeable Buyers.....................................................33
Section 4.1.7 Approval by Master Equipment Lessor......................................34
Section 4.1.8 No Default...............................................................34
Section 4.1.9 Order 497 Plans..........................................................34
Section 4.2 Certain Additional Representations and Warranties as of Closing.............34
ARTICLE V. ADDITIONAL AGREEMENTS AND COVENANTS..............................................34
Section 5.1 Covenants of Sellers........................................................34
5.1.1 Transaction Costs........................................................35
5.1.2 Intragroup Balances and Agreements.......................................35
5.1.3 Satisfaction of Certain Obligations......................................35
5.1.4 Covenants Concerning the Master Equipment Lease..........................35
5.1.5 Subrogation..............................................................36
5.1.6 Title Curative...........................................................36
5.1.7 Evidence of Payment......................................................37
Section 5.2 Covenants of Buyer..........................................................37
5.2.1 Transaction Costs........................................................37
Section 5.3 Mutual Covenants............................................................37
5.3.1 Distributions............................................................37
5.3.2 Preparation of Tax Returns; Responsibility for Taxes.....................38
5.3.3 Seller's ACCESS..........................................................39
5.3.4 Transfer Taxes...........................................................40
5.3.5 Reasonable Efforts.......................................................40
5.3.6 Certain Filings..........................................................40
5.3.7 Notices of Certain Events................................................41
5.3.8 Damage or Condemnation...................................................42
5.3.9 Continued Operation......................................................43
5.3.10 Environmental Review................................................. ...43
5.3.11 Conduct of Business......................................................47
5.3.12 Press Release............................................................49
5.3.13 No Solicitation..........................................................49
5.3.14 Signs....................................................................49
5.3.15 Removal of Inventory.....................................................49
5.3.16 FERC.....................................................................49
5.3.17 New Agreements...........................................................50
5.3.18 Payment for Imbalances...................................................50
5.3.19 Optional Excluded Assets.................................................50
5.3.20 Modifications and Loans Related Thereto..................................50
5.3.21 No Warranty and Disclaimers..............................................51
5.3.22 Ft. Xxxxxx Air Permits...................................................52
ARTICLE VI. CONDITIONS TO CLOSINGS....................................................... ..53
Section 6.1 Buyer's Obligation to Close.................................................53
6.1.1 Litigation...............................................................53
6.1.2 Compliance with Agreement................................................53
6.1.4 HSR Act..................................................................53
6.1.5 Resignation of Officers..................................................53
6.1.5 Regulatory Matters.......................................................54
Section 6.2 Sellers' Obligation to Close................................................54
6.2.1 Litigation...............................................................54
Page
6.2.2 Performance of Certain Obligations........................................54
6.2.3 HSR Act...................................................................54
6.2.4 Regulatory Matters........................................................54
ARTICLE VII. INDEMNIFICATION................................................................55
Section 7.1 Indemnification of Buyer....................................................55
Section 7.2 Indemnification of the Sellers..............................................57
Section 7.3 Certain Limitations On Indemnification......................................59
Section 7.4 Indemnification Procedures..................................................60
7.4.1 Claim Notice.............................................................60
7.4.2 Defense by Indemnifying Party............................................61
7.4.3 Indemnified Party Right to Defend........................................61
7.4.4 Indemnity Notice.........................................................62
Section 7.5 Negligence..................................................................62
Section 7.6 Limitation On Liabilities...................................................62
Section 7.7 Remedies Exclusive..........................................................62
Section 7.8 Survival....................................................................63
Section 7.9 Determination of Losses.....................................................64
Section 7.10 Transaction Threshold.......................................................64
ARTICLE VIII. TERMINATION RIGHTS............................................................65
Section 8.1 Termination.................................................................65
Section 8.2 Effect of Termination.......................................................65
8.2.1 Unwinding................................................................65
8.2.2 Amoco Gathering Agreement Amendment......................................68
8.2.3 Waiver of Right of First Refusal.........................................68
ARTICLE IX. ARBITRATION.....................................................................69
Section 9.1 Arbitration.................................................................69
ARTICLE X. GENERAL......................................................................... 71
Section 10.1 Exclusive Agreement; Disclosure Schedule....................................71
Section 10.2 Successors and Assigns......................................................71
Section 10.3 Amendments..................................................................72
Section 10.4 Further Assurances..........................................................72
Section 10.5 Notices.....................................................................73
Section 10.6 Governing Law...............................................................73
Section 10.7 Severability................................................................73
Section 10.8 Counterparts................................................................74
EXHIBITS TO PURCHASE AGREEMENT:
Exhibit A Map of Wattenberg System
Exhibit B Disclosure Schedule
Exhibit C Tax Allocation Schedule
Exhibit D Form of Assignment of Membership Interest
Exhibit E Form of Partial Assignment
Exhibit F Form of Assignment of Plant Interest
Exhibit G Form of Assignment of Station Site Leasehold Interest
Exhibit H Form of Deed
Exhibit I Form of Assignment, Xxxx of Sale and Conveyance
Schedule 1.1(a) Contracts-Gathering
Schedule 1.1(b) Contracts-Transmission
Schedule 1.1(c) Excluded Assets
Schedule 1.1(d) Permits-Gathering
Schedule 1.1(e) Permits-Transmission
Schedule 1.1(f) Personal Property-Gathering
Schedule 1.1(g) Personal Property-Transmission
Schedule 1.1(h) Real Property-Gathering
Schedule 1.1(i) Real Property-Transmission
Schedule 1.1(j) Calculation of Working Capital
Schedule 1.1(k) Master Equipment Lease Instruments and Master
Equipment Lease Transfer Documents
Schedule 5.1.6 Title Defects
Schedule 5.3.19 Optional Excluded Assets property description and
work description
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT is made and entered into this 23rd day
of November, 1999 among Xxxxxx Xxxxxx, Inc., a Kansas corporation ("KMI"), KN
Gas Gathering, Inc., a Colorado corporation ("KNGG") (KMI and KNGG individually
a "Seller", and collectively the "SELLERS"), HS Resources, Inc., a Delaware
corporation ("HSR") and HS Gathering, L.L.C., a Colorado limited liability
company ("HSG") (HSR and HSG individually a "BUYER", and collectively the
"BUYERS").
WHEREAS, KMI is the owner of the Membership Interest (as hereafter
defined) and KNGG is the owner of the Gathering Assets (as hereinafter defined);
WHEREAS, KMI desires to sell and HSR desires to purchase the Membership
Interest, and KNGG desires to sell and HSG desires to purchase the Gathering
Assets, all subject to and in accordance with the terms of this Agreement;
NOW, THEREFORE, in consideration of the mutual promises made herein, and
subject to the conditions hereinafter set forth, the parties agree as follows:
ARTICLE I. DEFINITIONS
SECTION 1.1 DEFINITIONS.
The terms set forth below shall have the meanings ascribed to them in
this Article I or in the part of this Agreement or the Operating Services
Agreements referred to below:
AFFILIATE: with respect to an entity, any other entity controlling,
controlled by or under common control with such entity. As used in this
definition, the term "control," including the correlative terms "controlling,"
"controlled by" and "under common control with" shall mean the possession,
direct or indirect, of the power to direct or cause the direction of the
management or policies of an entity, whether through ownership of voting
securities, by contract or otherwise.
AGREEMENT: this Agreement as the same may be modified or amended in
accordance with the terms hereof from time to time.
AMOCO GATHERING AGREEMENT: the Gas Gathering Agreement between KN Front
Range Gathering Company, predecessor to KNGG, and Amoco Production Company dated
March 5, 1993.
AMOCO GATHERING AND TRANSPORTATION AGREEMENTS AMENDMENTS: instruments in
mutually agreeable form that, subject to Section 8.2.2, amend Section 11.1 of
the Amoco Gathering Agreement and Article XI of the Amoco Transportation Service
Agreement such that the primary term of each of these agreements ends on
December 31, 2001, and the agreements shall be thereafter be extended year by
year (without any further increase in gathering rates) unless Buyer
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provides written notice of termination to KNGG 60 days prior to the anniversary
of such termination date.
AMOCO TRANSPORTATION SERVICE AGREEMENT: the Interruptible Transportation
Service Agreement between KNWTLLC and Amoco Production Company dated April 1,
1993.
ASSESSMENT PERIOD: as defined in Section 5.3.10(a).
AUDITOR: Xxxxxx Xxxxxxxx & Co. or, if such firm refuses or otherwise
fails to perform the services contemplated by Section 2.6 hereof, such other
nationally recognized firm of independent public accountants agreed upon by
Sellers and Buyer.
BASE CASH CONSIDERATION: as defined in Section 2.1(b).
BOOKS AND RECORDS: all existing financial, engineering, operating,
accounting, tax, business, environmental, legal, marketing, and other data,
files, documents, instruments, notes, papers, books and records (other than
those protected by legal privilege, other than confidentiality afforded to tax
returns under state law, or that pertain to liabilities retained by Sellers
hereunder) of Sellers and their Affiliates that relate materially to the
Wattenberg System or KNWTLLC, including without limitation, financial
statements, budgets, ledgers, journals, deeds, property records, title policies,
drawings, records, maps, charts, surveys, prints, franchises, customer lists,
supplier lists, sales and sales promotional data, advertising materials, cost
and pricing information, corporate records, permits, certificates, FERC filings,
Tax Returns and reports.
BUSINESS DAY: any day other than a Saturday, a Sunday or a day on which
banks in Denver, Colorado are authorized or required by law to be closed.
BUYER: as defined in the preamble to this Agreement.
BUYERS' ENVIRONMENTAL CONSULTANTS: as defined in Section 5.3.10.
BUYER INDEMNIFIED PARTIES: as defined in Section 7.1.
CASH CONSIDERATION: as defined in Section 2.1(b).
CHASE LEASING: Chase Equipment Leasing, Inc., a New York corporation.
CLAIM: any demand, claim, charge, complaint, injunction, action,
investigation, cause of action, suit, legal or governmental proceeding or
arbitration, whether or not ultimately determined to be valid.
CLAIM NOTICE: as defined in Section 7.4.1.
CLOSING: as defined in Section 2.2.
CLOSING DATE: as defined in Section 2.2.
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CODE: the Internal Revenue Code of 1986, as amended, or any amending or
superseding tax laws of the United States of America.
CONFIDENTIALITY AGREEMENT: the Confidentiality Agreement dated June 10,
1999 between KMI, formerly known as KN, and Buyer.
CONTRACT: any agreement, contract, commitment, license, option, lease,
or instrument, including all amendments, modifications and supplements thereto.
CONTRACTS-GATHERING: all Contracts set forth in Schedule 1.1(a).
CONTRACTS-TRANSMISSION: all Contracts set forth in Schedule 1.1(b)
CONVEYANCE DOCUMENTS: all deeds, bills of sale, assignments and other
good and sufficient instruments of transfer, conveyance and assignment executed
pursuant to Section 2.5(c) as are appropriate to transfer the Gathering Assets
to Buyer at the Closing in accordance with the terms of this Agreement.
DEFECTIVE ENVIRONMENTAL CONDITION: the existence as of the Operations
Transfer Date, as determined by the Environmental Assessment, of (i) a condition
constituting a violation of Environmental Laws associated with or arising from
the past or current ownership, operation or condition of the Gathering Assets or
Transmission Assets or (ii) the presence of Hazardous Material in the soil,
subsurface media, groundwater, or surface water or building at, on, in or under
the Gathering Assets or Transmission Assets, or which has migrated from the
Gathering Assets or Transmission Assets, in a manner or quantity: (A) which is
required by any Governmental Authority to be evaluated, characterized or
remediated pursuant to Environmental Laws; or (B) for which a Permit or closure
plan that is required by any Governmental Authority under Environmental Laws has
not been obtained. Facilities abandonment and site restoration obligations
customarily taken at the time of permanent abandonment of the applicable
facilities shall not constitute a "Defective Environmental Condition." The
Environmental Matters disclosed in Section 3.1.5 and Part I of Section 3.1.6 of
the Disclosure Schedule shall not constitute "Defective Environmental
Conditions." The Environmental Matters described in Part II of Section 3.1.6 of
the Disclosure Schedule shall be evaluated pursuant to Section 5.3.10 to
determine if such matters constitute "Defective Environmental Conditions". The
presence or existence of asbestos-containing materials or lead-based paints
being used for their intended purpose and in a manner consistent with general
industry practice, or naturally occurring radioactive materials that result from
standard operations shall not constitute the basis for a "Defective
Environmental Condition." Any condition or violation that is not reasonably
expected to cost more than $5,000 to correct shall not constitute a "Defective
Environmental Condition".
DEFENSIBLE TITLE: complete and exclusive ownership by KNGG or KNWTLLC,
as applicable, to the interest in the relevant asset purported to be owned by
it, defensible against all Encumbrances and the claims and demands of all
persons claiming the same, save and except for the Permitted Encumbrances.
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DIRECT COSTS: as defined in the Operating Services Agreements.
DISPUTES: as defined in Section 9.1(a).
DISCLOSURE SCHEDULE: that certain disclosure schedule attached hereto as
Exhibit B.
EFFECTIVE TIME: 11:59 p.m. Denver time on December 31, 2001, or on such
earlier date as may be specified pursuant to Section 2.10.
ELECTION PERIOD: as defined in Section 7.4.1.
EMPLOYEE LETTER AGREEMENT: that certain letter agreement dated
October 6, 1999 between KN, KNWTLLC and Buyer concerning certain employee
matters.
ENCUMBRANCE: any lien, pledge, security interest, mortgage, defect in
title or similar matter that would create an impairment of use and enjoyment of,
or loss of interest in the relevant asset.
ENVIRONMENTAL ASSESSMENT: as defined in Section 5.3.10.
ENVIRONMENTAL COSTS: the estimated costs and expenses (including Buyer's
estimated direct internal and third party costs) to correct any Defective
Environmental Condition in the most cost effective manner reasonably available,
consistent with Environmental Laws and reasonably certain to achieve a no
further action determination from applicable Governmental Authorities prior to
June 1, 2010. In the case of any Defective Environmental Condition related to
the Plant, only the portion of such costs attributable to the Plant Interest
shall be taken into account. The Parties acknowledge that non-permanent remedies
(such as mechanisms to contain or stabilize hazardous materials including
monitoring site conditions, natural attenuation, risk-based corrective action,
institutional controls or other appropriate restrictions on the use of property,
caps, dikes, encapsulation, leachate collection systems, etc.) may be the most
cost effective manner reasonably available, provided that such non-permanent
remedy is consistent with Environmental Laws and less costly than the least
costly permanent remedy (such as excavation and removal of soil) and meets the
standard set forth in the first sentence of this definition.
ENVIRONMENTAL DEFECT NOTICE as defined in Section 5.3.10.
ENVIRONMENTAL DEFECT NPV: with respect to any Defective Environmental
Condition, the net present value (determined based on a 10% discount rate
compounded annually) as of the Closing Date, of the estimated Environmental
Costs that have been incurred and will be incurred by Buyers in connection with
such Defective Environmental Condition.
ENVIRONMENTAL INFORMATION: as defined in Section 5.3.10.
ENVIRONMENTAL LAWS: any and all federal, state and local laws, statutes,
regulations, rules, orders, ordinances, licenses or permits of any Governmental
Authority pertaining to health, safety, the environment, wildlife or natural
resources in effect in any and all jurisdictions in which the Gathering Assets
and Transmission Assets are located, including, without limitation, the Clean
Air Act, the Federal Water Pollution Control Act, the Rivers and Harbors Act of
1899, the Safe
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Drinking Water Act, the Comprehensive Environmental Response, Compensation and
Liability Act; the Superfund Amendments and Reauthorization Act of 1986, the
Solid Waste Disposal Act, the Resource Conservation and Recovery Act, the
Hazardous and Solid Waste Amendments of 1984, the Toxic Substances Control Act,
the Emergency Planning and Community Right-to-Know Act, the National
Environmental Policy Act, the Occupational Safety and Health Act, the Oil
Pollution Act, the Pipeline Safety Act, the Natural Gas Pipeline Safety Act, and
the Hazardous Materials Transportation Uniform Safety Act, any state laws
implementing the foregoing federal laws, any state laws pertaining to waste
management, including, without limitation, the handling of oil and gas
exploration and production or processing wastes or the use, maintenance and
closure of pits and impoundments, all other federal, state or local
environmental conservation or protection laws, and any common law creating
liability for environmental conditions, all as amended as of the date of this
Agreement; provided, however, for the purpose of determining whether any
Defective Environmental Condition has been corrected pursuant to Section
5.3.10(m), Environmental Laws shall mean the laws described herein effective as
of the date of (i) the written assurance from the appropriate Governmental
Authority or (ii) the certification from a qualified consultant, required
pursuant to Section 5.3.10(m) of this Agreement. Environmental Laws shall
include, without limitation, all restrictions, conditions, standards,
limitations, prohibitions, requirements, obligations, schedules and timetables
contained in Environmental Laws in effect on the date of this Agreement or
contained in any order, decree, judgment, or injunction which is issued,
entered, or approved (x) prior to the date of this Agreement and in effect on
the date of this Agreement under any of the foregoing Environmental Laws, or (y)
after the date of this Agreement under any of the foregoing Environmental Laws
in effect as of the date of this Agreement.
ENVIRONMENTAL MATTER: as defined in Section 7.1(c).
ERISA: the Employee Retirement Income Security Act of 1974, as amended.
EXCLUDED ASSETS: any properties, privileges, rights and interests (i)
described in Schedule 1.1.(c); and (ii) the Optional Excluded Assets provided
that Sellers notify Buyers prior to Closing that Sellers elect to retain such
Optional Excluded Assets.
FACILITY FEES: the fees payable by Buyer to Sellers pursuant to
Section 2.9(a).
FACILITY FEES PAYMENT DATE: as defined in Section 2.9.
FERC: the Federal Energy Regulatory Commission.
FTC: as defined in Section 5.3.6.
GATHERING AGREEMENT: that certain Gathering Agreement dated July 16,
1992 between Buyer and KN Front Range Gathering Company (predecessor to KNGG).
GATHERING AND TRANSPORTATION AGREEMENTS EXTENSIONS: instruments in
mutually agreeable form extending the primary term of both the Gathering
Agreement and the Transportation Agreement to December 31, 2001.
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GATHERING ASSETS: the Real Property-Gathering, Plant Interest, Personal
Property-Gathering, Line Pack-Gathering, Contracts-Gathering, Permits-Gathering
and Other Assets-Gathering, except for the Excluded Assets.
GATHERING INTERIM GROSS MARGIN: is defined in the Gathering System
Operating Services Agreement.
GATHERING SYSTEM: all of the facilities owned or leased by KNGG and used
in the gathering of natural gas from individual xxxxx located in Weld, Adams,
Arapahoe, Denver and Boulder Counties, Colorado to the Transmission System
comprising approximately 1000 miles of pipeline and 3000 horsepower of site
rated compression, located in Weld, Adams, Arapahoe, Denver and Boulder
Counties, Colorado, as more fully depicted on the map attached hereto as Exhibit
A, as operated by or on behalf of KNGG on the date hereof.
GATHERING SYSTEM OPERATING SERVICES AGREEMENT. the Gathering System
Operating Services Agreement between KNGG and HSG executed and delivered
simultaneously with this Agreement, as the name may be modified or amended from
time to time.
GOVERNMENTAL AUTHORITY: any court, governmental department, commission,
council, board, agency or other instrumentality of the United States of America
or any state, county, municipality or local government.
HAZARDOUS MATERIAL: any materials that are regulated by or form the
basis for liability under Environmental Laws, including, without limitation, (a)
any petroleum or petroleum products, including crude oil or any fraction
thereof, natural gas, natural gas liquids, liquified natural gas or synthetic
gas useable for fuel (or mixtures of natural gas and such synthetic gas);
flammable materials, explosives, radioactive materials, asbestos, transformers
or other equipment or materials that contain polychlorinated biphenyls ("PCBs");
and (b) any materials or substances that are defined as or included in the
definition of "hazardous substances", "hazardous wastes", "hazardous materials",
"highly hazardous chemicals", "extremely hazardous wastes", "restricted
hazardous wastes", "toxic substances" or "persistent bioaccumulative toxic
chemicals" under any Environmental Law.
HSG: HS Gathering, L.L.C. a Colorado limited liability company.
HSR ACT: the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as
amended.
HSR GUARANTEE: the Guarantee Agreement executed and delivered by HSR
simultaneously with the execution of this Agreement in favor of Sellers and
KNWTLLC guaranteeing certain obligations of HSG.
IMBALANCE PAYABLES-GATHERING: that quantity of gas owed by KNGG under
service agreements with respect to the Gathering System with respect to the
period of time ending on September 30, 1999.
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IMBALANCE PAYABLES-TRANSMISSION: that quantity of gas owed by KNWTLLC
under service agreements with respect to the Gathering ystem with respect to
the period of time ending on September 30, 1999.
IMBALANCE RECEIVABLES-GATHERING: that quantity of gas owed to KNGG under
service agreements with respect to the Gathering System with respect to the
period of time ending on September 30, 1999.
IMBALANCE RECEIVABLES-TRANSMISSION: that quantity of gas owed to KNWTLLC
under service agreements with respect to the Transmission System with respect to
the period of time ending on September 30, 1999.
IMBALANCE SCHEDULE: as defined in Section 5.3.18.
INDEBTEDNESS: shall mean, for any Person any of the following: (i) all
obligations of such Person for borrowed money whether evidenced by bonds,
debentures, notes or other similar instruments; (ii) all obligations of such
Person (whether contingent or otherwise) in respect of bankers' acceptances,
letters of credit, surety or other bonds and similar instruments; (iii) all
obligations of such Person to pay the deferred purchase price of property or
services; (iv) all obligations under leases which shall have been, or should
have been, in accordance with generally accepted accounting principals, recorded
as capital leases in respect of which such Person is liable (whether contingent
or otherwise); (v) all obligations under leases which require such Person to
make payments over the term of such lease, including payments at termination,
which are substantially equal to at least eighty percent (80%) of the purchase
price of the property subject to such lease plus interest at an imputed rate of
interest; (vi) all Indebtedness (as described in the other clauses of this
definition) and other obligations of others secured by a lien on any asset of
such Person, whether or not such Indebtedness is assumed by such Person; (vii)
all Indebtedness (as described in the other clauses of this definition) and
other obligations of others guaranteed by such Person or in which such Person
otherwise assures a creditor against loss of the debtor or obligations of
others; (viii) all obligations or undertakings of such Person to maintain or
cause to be maintained the financial position or covenants of others or to
purchase the Indebtedness (as described in the other clauses of this definition)
or property of others; (ix) obligations to deliver goods or services in
consideration of advance payments; and (x) obligations to pay for goods or
services whether or not such goods or services are actually received or utilized
by such Person.
INDEMNIFIED PARTY: as defined in Section 7.4.1.
INDEMNIFYING PARTY: as defined in Section 7.4.1.
INDEMNITY NOTICE: as defined in Section 7.4.4.
INITIAL PAYMENT: as defined in Section 2.1(b).
INSTRUMENT: any contract, agreement, indenture, mortgage, document or
writing (whether formal agreement, letter or otherwise) under which any
obligation of any Person to the Master
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Equipment Lease is evidenced, assumed or undertaken, or any Encumbrance is
established or perfected.
INTANGIBLES: the Contracts-Gathering, Permits-Gathering and
Rights-of-Way owned in connection with, or held for the benefit of, the
Gathering System.
INTERIM PERIOD: as defined in the Gathering System Operating Agreement.
JUSTICE DEPARTMENT: as defined in Section 5.3.6.
KMI: Xxxxxx Xxxxxx, Inc., a Kansas corporation, formerly known as KN
Energy, Inc.
KMI ACCOUNT: the account designated from time to time by notice in
writing from KMI to Buyer to which payments to Sellers hereunder are to be made.
KMI GUARANTEE: the Guarantee Agreement executed and delivered by KMI
simultaneously with the execution of this Agreement in favor of HSR guaranteeing
certain obligations of KNGG and KNWTLLC.
KN: KN Energy, Inc, a Kansas corporation, now known as KMI.
KNOWLEDGE: when used in the phrase "to Seller's knowledge", "knowledge"
means, and shall be limited to, with respect to Seller, the actual knowledge of
the individuals identified in Section 1.1 of the Disclosure Schedule.
KNWTLLC: XX Xxxxxxxxxx Transmission Limited Liability Company, a
Colorado limited liability company.
KNWTLLC BALANCE SHEET: as defined in Section 3.2.6.
LEGAL REQUIREMENT: all applicable laws, statutes, rules, regulations,
codes, ordinances, permits, bylaws, variances, orders, conditions, and licenses
of a Governmental Authority, except Environmental Laws.
LINE PACK-GATHERING: the natural gas utilized as line pack in the
Gathering System.
LINE PACK-TRANSMISSION: the natural gas utilized as line pack in the
Transmission System.
LOSSES: as defined in Section 7.1.
MEMBERSHIP INTEREST: all of the outstanding membership interests in
KNWTLLC.
MASTER EQUIPMENT LEASE: the Master Equipment Lease Agreement dated March
31, 1993 between NationsBanc Leasing and KN Front Range Gathering Company,
predecessor to KNGG, as amended by the First Amendment to Master Equipment Lease
Agreement between the same Persons, dated as of August 19, 1993, the other
Instruments identified in Schedule 1.1(k) and all
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conveyances, supplemental deeds, security agreements, mortgages and other
security instruments executed in connection therewith.
MASTER EQUIPMENT LEASE TRANSFER DOCUMENTS: The documents and instruments
identified in Schedule 1.1(k), as such documents and instruments may be modified
or amended in accordance with the terms hereof.
MASTER EQUIPMENT LESSOR: NationsBanc Leasing Corporation, a North
Carolina corporation, and any successor thereto as lessor under the Master
Equipment Lease.
MATERIAL ADVERSE EFFECT: any circumstance, change, development or event
which has had or would reasonably be expected to have a material adverse effect
on the Wattenberg System or KNWTLLC, or the business or operations thereof;
provided, however, that such term shall not include future changes in general
economic, industry or market conditions or changes in Legal Requirements,
Environmental Laws or regulatory policy.
MODIFICATION: as defined in the Operating Services Agreements.
NATURAL GAS ACT: The Natural Gas Act of 1938, as amended.
NOTICES: as defined in Section 10.5.
OPERATIONS TRANSFER DATE: as defined in the Operating Services
Agreements.
OPERATING SERVICES AGREEMENTS: the Transmission System Operating
Services Agreement and the Gathering System Operating Services Agreement.
OPTIONAL EXCLUDED ASSETS: the properties, privileges, rights and
interests described in Schedule 5.3.19.
OTHER ASSETS-GATHERING: all of the following: (i) all Books and Records
that relate materially to the Gathering System, (ii) all computer software (to
the extent transferable), and computer files used solely in connection with the
Gathering System, and (iii) all office furniture, equipment and computers
located in KMI's Brighton office or at the compressor stations.
OTHER ASSETS-TRANSMISSION: all of the following: (i) all Books and
Records that relate materially to the Transmission System; and (ii) all computer
software (to the extent transferable) and computer files used solely in
connection with the Transmission System.
PARTIES: Sellers and Buyers.
PARTY: KMI, KNGG, HSR or HSG.
PERMITTED ENCUMBRANCES: (a) the documents and instruments pursuant to
which any Right-of-Way or leased interest was created; (b) oil, gas or other
mineral reservations or interests; (c) the Master Equipment Lease and any other
agreement pursuant to which any leased asset is
9
leased; (d) any (i) undetermined or inchoate liens or charges constituting or
securing the payment of expenses that were incurred incidental to maintenance,
development or operation of the Gathering Assets or Transmission Assets and are
not more than 60 days past due or are being contested in good faith, and (ii)
materialmen's, mechanics', repairmen's, employees', contractors', operators' or
other similar liens or charges for amounts arising in the ordinary course of
business securing amounts that are not more than 60 days past due or are being
contested in good faith; (e) any liens for Taxes and assessments not yet
delinquent or, if delinquent, that are being contested in good faith in the
ordinary course of business; (f) any obligations or duties affecting the
Gathering Assets or Transmission Assets to any Governmental Authority with
respect to any franchise, grant, license or permit, and all applicable laws,
rules, regulations and orders of any Governmental Authority; (g) any easements,
rights-of-way, servitudes, permits, leases, and other rights for streets,
alleys, highways, pipelines, telephone lines, power lines, railways, grazing,
hunting, lodging, oil, gas or other mineral exploration and development, canals,
ditches, reservoirs and other activities and operations that are of record,
contained in the Books and Records, or evident on the ground and which do not
operate to interfere materially with the operation of the Wattenberg System as
currently operated; (h) third party consents to assignments or similar
agreements set forth in Section 1.1 of the Disclosure Schedule; (i) all rights
to consent by, required notices to, filings with or other actions by
governmental entities in connection with the sale or conveyance of any Gathering
Assets or Transmission Assets to the extent such consents are customarily
obtained after Closing; (j) the terms and conditions of the Contracts-Gathering
and Contracts-Transmission; and (k) all other Encumbrances on or exceptions that
are not substantial in amount and that do not substantially impair the use,
ownership, operation or value of the Wattenberg System as it is currently used
and operated.
PERMITS: all permits, certificates, registrations, licenses, franchises,
authorities, consents, and approvals of a Governmental Authority.
PERMITS-GATHERING: all Permits relating to or used in connection with
the Gathering System, the same being more particularly described in Schedule
1.1(d).
PERMITS-TRANSMISSION: all Permits relating to or used in connection with
the Transmission System, the same being more particularly described in Schedule
1.1(e).
PERSON: an individual, partnership, corporation (including a business
trust), joint venture, limited liability company or other entity, or a federal,
state or local governmental entity.
PERSONAL PROPERTY-GATHERING: all machinery, equipment, compressors,
tanks, pumps, pipe, engines, heaters, pipelines, meters, liquid handling
facilities, tools, fire equipment, parts, supplies, rolling stock, vehicles,
trailers, communications equipment, phones, radios, licenses, testing equipment,
and other equipment and tangible personal property owned or leased by, or held
for the benefit of, KNGG that is located in Weld, Adams, Larimer, Arapahoe,
Denver, and Boulder Counties, Colorado as of the date hereof relating to or used
in connection with the Gathering System, as listed in Schedule 1.1(f).
10
PERSONAL PROPERTY-TRANSMISSION: all machinery, equipment, compressors,
tanks, pumps, pipe, engines, heaters, pipelines, meters, liquid handling
facilities, tools, fire equipment, parts, supplies, rolling stock, vehicles,
trailers, communications equipment, phones, radios, licenses, testing equipment,
and other equipment and tangible personal property owned or leased by, or held
for the benefit of, KNWTLLC relating to or used in connection with the
Transmission System, as listed in Schedule 1.1(g).
PLANS: any "employee benefit plan," as such term is defined in Section
3(3) of ERISA, including each "multiemployer plan," as such term is described
4001(a)(3) and Section 3(37) of ERISA, and any terminated employee benefit plan.
PLANT: all real and personal property which comprise the BP Amoco
Wattenberg Gas Processing Plant located near Watkins, Colorado, being the plant
owned and operated pursuant to the Agreement for the Operation of the Wattenberg
Gas Processing Plant, Xxxxx County, Colorado dated January 1, 1977 between Amoco
Production Company and Xxxxxxxx Petroleum Company, as amended.
PLANT INTEREST: the 6.8728% undivided ownership interest in the Plant
owned by KNGG and all rights and interests associated therewith.
PLANT RIGHT OF FIRST REFUSAL: the right of first refusal to purchase the
Plant contained in Article XIII of that certain Gas Processing and Plant
Accounting Agreement dated March 5, 1993 between KN Front Range Gathering
Company and Amoco Production Company and owned by KNGG as successor to KN Front
Range Gathering Company.
PRIME RATE: a rate per annum equal to the lesser of (a) a varying rate
per annum that is equal to the interest rate publicly quoted by The Chase
Manhattan Bank, New York, New York from time to time as its prime commercial or
similar reference interest rate, with adjustments in that varying rate to be
made on the same date as any change in that rate or (b) the maximum rate
permitted by applicable law.
PROPOSED WORKING CAPITAL ADJUSTMENT: as defined in Section 2.6.
PURCHASED INTERESTS: the Gathering Assets, the Membership Interest and
the Plant Right of First Refusal.
REASONABLE EFFORTS: the efforts that a prudent person or entity desirous
of achieving a result would use in similar circumstances to ensure that such
result is achieved in a reasonably expeditious manner; provided, however, that
an obligation to use Reasonable Efforts under this Agreement does not require
the person or entity subject to that obligation to take actions that would incur
any unreasonable out-of-pocket cost or expense in connection therewith.
REAL PROPERTY-GATHERING: all land, buildings, structures, fixtures,
stations, facilities, improvements, surface and building leases, surface use
agreements, easements, Rights-of-Way, and other rights and interests in and to
real property and appurtenances thereto owned or leased
11
by, or held for the benefit of, KNGG and relating to or used in connection with
the Gathering System, all as more particularly described in Schedule 1.1(h).
REAL PROPERTY-TRANSMISSION: all land, buildings, structures, fixtures,
stations, facilities, improvements, surface and building leases, surface use
agreements, easements, Rights-of-Way, and other rights and interests in and to
real property and appurtenances thereto owned or leased by, or held for the
benefit of, KNWTLLC and relating to or used in connection with the Transmission
System, all as more particularly described in Schedule 1.1(i).
RECOVERY: any adjustment of Base Cash Consideration or other payments,
or monetary recoveries, liabilities or obligations from one Party to the other
under the provisions of Section 5.3.10(j) for Defective Environmental Conditions
and Article VII for Indemnification.
RETAINED LITIGATION: the litigation, claims and other matters described
in Section 3.1.8 of the Disclosure Schedule.
RIGHT-OF-WAY: any right-of-way, easement or prescriptive right that is
part of the Gathering Assets or the Transmission Assets.
SELLER: as defined in the preamble.
SELLERS: as defined in the preamble.
SELLER GROUP: as defined in Section 5.3.2(a).
SELLER INDEMNIFIED PARTIES: as defined in Section 7.2.
TAX CLASSIFICATION DATE: the first day of the month which includes the
day before the date of execution of this Agreement.
TAX CLASSIFICATION ELECTION: as defined in Section 5.3.2(h).
TAXES: all federal, state, local, and foreign taxes, assessments,
levies, or other governmental charges, including without limitation income,
gross receipts, license, payroll, employment, severance, ad valorem, property,
excise, stamp, premium, environmental, customs duties, capital stock, franchise,
profits, withholding, social security, unemployment, real property, personal
property, sales, use, transfer, registration, value added, minimum, estimated
taxes, together with any interest, penalties, additions to tax and other
assessments thereon or related thereto.
TAX ITEMS: as defined in Section 5.3.2(a)
TAX RETURN: any return, information return, or report with respect to
Taxes.
THIRD PARTY CLAIM: as defined in Section 7.4.1.
THIRD PARTY PERSONAL INJURY CLAIM: as defined in Section 7.4.1.
12
THIRD PARTY PROPERTY CLAIM: as defined in Section 7.4.1.
TRANSACTION THRESHOLD: as defined in Section 7.10.
TRANSMISSION ASSETS: the Real Property-Transmission, Personal
Property-Transmission, Line Pack-Transmission, Contracts-Transmission,
Permits-Transmission and Other Assets-Transmission, except for the Excluded
Assets.
TRANSMISSION INTERIM GROSS MARGIN: as defined in the Transmission System
Operating Services Agreement.
TRANSMISSION SYSTEM: all of the facilities owned or leased by KNWTLLC
and used to transport natural gas from the Gathering System to the Plant and
other delivery points, comprising approximately 58 miles of pipeline and 38,932
horsepower of site rated compression, located in Xxxxx, Denver, and Weld
Counties, Colorado as more fully depicted on the map attached hereto as Exhibit
A, as operated by or on behalf of KNWTLLC on the date hereof.
TRANSMISSION SYSTEM OPERATING SERVICES AGREEMENT. the Transmission
System Operating Services Agreement between KNWTLLC and HSG executed and
delivered simultaneously with the execution of this Agreement, as the same may
be modified or amended from time to time.
TRANSPORTATION AGREEMENT: the Interruptible Transportation Service
Agreement between KNWTLLC and Buyer dated July 1, 1992.
UNINSURED COST: as defined in Section 5.3.8.
WATTENBERG SYSTEM: the Gathering System and the Transmission System.
WORKING CAPITAL: an amount computed as the working capital of KNWTLLC as
of the close of business on the Closing Date as provided in Schedule 1.1(j).
WORKING CAPITAL ADJUSTMENT: as defined in Section 2.6.
WORKING CAPITAL STATEMENT: as defined in Section 2.6.
SECTION 1.2 TERMINOLOGY.
All article, section, subsection, schedule and exhibit references used
in this Agreement are to this Agreement unless otherwise specified. All
schedules and exhibits attached to this Agreement constitute a part of this
Agreement and are incorporated herein. Unless the context of this Agreement
clearly requires otherwise (a) the singular shall include the plural and the
plural shall include the singular wherever and as often as may be appropriate,
(b) the words "includes" or "including" shall mean "including without
limitation," and (c) the words "hereof," "herein," "hereunder," and similar
terms in this Agreement shall refer to this Agreement as a whole and not any
particular section or article in which such words appear. Currency amounts
referenced herein are in United States Dollars. References to "generally
accepted accounting principles" herein
13
shall refer to such principles in effect in the United States of America as of
the date of the statement to which such phrase refers.
ARTICLE II. PURCHASE AND SALE
SECTION 2.1 THE PURCHASE AND SALE.
(a) Subject to and in accordance with the terms and conditions of
this Agreement, KNGG agrees to sell, assign, convey and transfer the
Plant Right of First Refusal and the Gathering Assets to HSG, KMI agrees
to sell, assign, convey and transfer the Membership Interest to HSR, HSG
agrees to purchase and accept the Plant Right of First Refusal and the
Gathering Assets from KNGG, and HSR agrees to purchase and accept the
Membership Interest from KMI, all in exchange for the consideration
described in Section 2.1(b).
(b) The total consideration for the sale and transfer of the
Purchased Interests is the following: (i) the payment to Sellers by
Buyers of $1,000,000 (the "INITIAL PAYMENT"), which shall be
nonrefundable; (ii) the payment to Sellers by Buyers of $27,926,050 (the
"BASE CASH CONSIDERATION"), as such amount may be adjusted pursuant to
Sections 2.9(c), 2.10(d), 5.3.8, 5.3.10(j), 5.3.20 of this Agreement and
Section 3.2(e) of the Gathering System Operating Services Agreement (the
"CASH CONSIDERATION"), (iii) the execution, delivery and performance by
the applicable Parties of the Operating Services Agreements, including
without limitation, the payment by HSG to KNGG of the Gathering Interim
Gross Margin and to KNWTLLC of the Transmission Interim Gross Margin,
(iv) the payment by Buyers to Sellers of the Facility Fees, (v) the
execution, delivery and performance by the applicable Parties of the
Gathering and Transportation Agreements Extensions and the Amoco
Gathering and Transportation Agreements Amendments, and (vi) the payment
by HSR to KMI of the amount, if any, by which the Working Capital
exceeds zero, or the payment by KMI to HSR of the amount, if any, by
which the Working Capital is less than zero.
(c) The Initial Payment shall be paid by Buyers to Sellers
pursuant to Section 2.4(c) by means of a completed federal funds
transfer to the KMI Account for the further account of Sellers. The Cash
Consideration shall be paid by Buyers to Sellers at Closing by means of
a completed federal funds transfer to the KMI Account for the further
account of Sellers. The Gathering Interim Gross Margin and the
Transmission Interim Gross Margin shall be paid to KNGG and KNWTLLC,
respectively as provided in the applicable Operating Services Agreement.
The Facility Fees shall be paid by Buyers to Sellers on each Facility
Fee Payment Date as provided in Section 2.9(a) by means of a completed
federal funds transfer to the KMI Account for the further account of
Sellers.
(d) Buyers and Sellers agree to treat the purchases of the
Purchased Interests contemplated by this Agreement as closing on the
Closing Date for federal and applicable state tax purposes (the "Tax
Closing"), and shall take no Tax position contrary to such position,
provided that any Party may agree to a different position in settlement
of a
14
dispute or controversy with a taxing authority. HSR and KMI shall each
timely file with the Internal Revenue Service a single Form 8594 with
respect to the purchase under this Agreement of the Wattenberg System
in a manner consistent with the preceding sentence and in accordance
with the allocations set forth on Exhibit C. Buyers and Sellers agree
to report the federal, state and local income and other tax
consequences of the transactions contemplated herein in a manner
consistent with the preceding sentences and with the allocations set
forth on Exhibit C.
SECTION 2.2 CLOSING.
The closing of the purchase and sale of the Gathering Assets and the
Membership Interest (the "CLOSING") shall take place at a mutually agreed upon
location in the Denver metropolitan area (it being agreed that the offices of
Xxxxx, Xxxxxx & Xxxxxx shall be agreeable to the Parties) commencing at 10:00
a.m., local time, on December 15, 2001 or on such earlier date as may be
specified under Section 2.10, unless the conditions set forth in Sections 6.1
and 6.2 have not been fulfilled or waived by the applicable Parties or (ii) such
other date as the Parties shall agree in writing. The date on which the Closing
shall occur is referred to herein as the "CLOSING DATE."
SECTION 2.3 ACCESS TO BOOKS AND RECORDS; OTHER INFORMATION; ASSETS.
Sellers and each member of Seller Group shall grant to Buyer (or its
designees) access at all reasonable times to all of the Books and Records,
information and other data relating to KNWTLLC, the Transmission Assets and the
Gathering Assets within the possession or control of Sellers or any member of
Seller Group (including workpapers and correspondence with regulatory
authorities) that is not otherwise protected by legal privilege (other than
confidentiality afforded to tax returns under state law) or subject to legal
constraints or obligations of confidence to any third party (and shall be
advised of the general content of such protected, constrained or confidential
materials), and shall afford Buyers (or their designees) the right (at Buyers'
expense) to take abstracts therefrom and to make copies thereof, to the extent
reasonably necessary or appropriate to permit Buyers (or their designees) to
conduct due diligence with respect to this Agreement, to conduct negotiations
with regulatory authorities, to operate the Wattenberg System under the
Operating Services Agreements, and to otherwise conduct their business.
SECTION 2.4 ACTIONS UPON EXECUTION.
Simultaneously with the execution of this Agreement:
(a) HSG, KNGG and KNWTLCC shall execute and deliver the Operating
Services Agreements, and HSG shall take over operation of the Wattenberg
System pursuant to the terms thereof on the Operations Transfer Date;
(b) Buyers shall pay the following amounts to Sellers by means of
a completed federal funds transfer to the KMI Account for the further
account of Sellers:
(i) the Initial Payment, plus
15
(ii) $1,464,347 being the estimated net value of the
Imbalance Receivables-Gathering, Imbalance Payables-Gathering,
Imbalance Receivables-Transmission and Imbalance
Payables-Transmission as of September 30, 1999, and which amount
shall be subject to adjustment after the execution of this
Agreement as provided in Section 5.3.18, plus
(iii) the loan amounts payable by HSG to KNGG and KNWTLLC
pursuant to Section 5.3.20; less
(iv) the amounts due by Sellers to HSR pursuant to Section
5.1.1 (transaction cost reimbursements).
(c) HSR, KNGG and KNWTLLC shall execute and deliver the Gathering
and Transportation Agreements Extensions and the Amoco Gathering and
Transportation
Agreements Amendments;
(d) KNGG shall execute and deliver to HSG the Assignment of Plant
Right of First Refusal in a mutually agreed form;
(e) KMI shall execute and deliver to Buyers the LLC Membership
Interest Pledge Agreement in a mutually agreed form and such other
security instruments in form and substance satisfactory to each Party as
may be appropriate to grant Buyers a perfected security interest in the
Membership Interest to secure the obligations of KMI under this
Agreement;
(f) KMI shall execute and deliver the KMI Guarantee to Buyers;
(g) Although the Parties intend that ownership of the Membership
Interest and Gathering Assets not transfer from Sellers to Buyers until
the Closing, Buyers shall execute and deliver to Sellers mortgages,
liens, and security instruments in form and substance satisfactory to
each Party to xxxxx Xxxxxxx a perfected security interest in the
interest, if any, of Buyers in the Gathering Assets and the Membership
Interest to secure the obligations of Buyers under this Agreement and
the Operating Services Agreements;
(h) Sellers (or the appropriate Affiliates of Sellers) and HSG
shall execute and deliver the Tower Space License Agreement in a
mutually agreed form and the Assignment of FCC Licenses in a mutually
agreed form;
(i) KMI, KNGG, HSR and HSG and Chase Leasing shall each execute
and deliver the Master Equipment Lease Transfer Documents to which each
is a party;
(j) HSR shall execute and deliver the HSR Guarantee to Sellers
and KNWTLLC;
(k) Each Buyer shall each deliver to Sellers a certificate of
such Buyer's secretary or assistant secretary (or equivalent officer)
certifying as to the adoption of
16
resolutions of such Buyer authorizing this Agreement and the
transactions contemplated hereby and the incumbency of the officers of
such Buyer executing this Agreement and other documents contemplated
hereby;
(l) Each Seller shall each deliver to Buyers certificates of such
Seller's secretary or assistant (or equivalent officer) certifying as to
the adoption of resolutions of such Seller authorizing this Agreement
and the transactions contemplated hereby and the incumbency of the
officers of such Seller executing this Agreement and other documents
contemplated hereby;
(m) Sellers shall deliver an opinion of counsel in a mutually
agreed form; and
(n) Buyers shall deliver an opinion of counsel in a mutually
agreed form.
SECTION 2.5 CLOSING ACTIONS.
At the Closing, the following shall occur:
(a) Buyers shall pay the Cash Consideration to Sellers in
accordance with Section 2.1(c);
(b) KMI and HSR shall execute and deliver an Assignment of
Membership Interest to HSR effective as of the Effective Time in the
form attached hereto as Exhibit D;
(c) KNGG and HSG shall execute such Conveyance Documents as may
be appropriate to transfer the Gathering Assets to HSG, subject to the
Permitted Encumbrances, and without warranty, express or implied, except
as provided in this Agreement, effective as of the Effective Time and
containing such provisions as may be appropriate to cause HSG to assume
all obligations arising under the Intangibles attributable to the period
from and after the Effective Time; and taking into account any changes
in the Gathering Assets since the date hereof, such as additions
thereto, dispositions or terminations of any portion thereof,
amendments, new Contracts or Permits, change in Effective Time, exercise
by Sellers of the right to retain the Optional Excluded Assets, failure
to obtain any required consent to assignment from any third party or
other matters that may need to be taken into account in order that the
mutually agreed upon forms of the Conveyance Documents are appropriate
to transfer the Gathering Assets as they exist, and may be assigned, at
the time of the Closing to HSG and for HSG to assume all obligations
arising under the Intangibles as they exist at the time of Closing
attributable to the period from and after the Effective Time; in this
connection it is understood that, subject to Section 2.8, the
Rights-of-Way that are also used in connection with the Excluded Assets
will be transferred pursuant to the form of Partial Assignment attached
hereto as Exhibit E, the Plant Interest will be transferred pursuant to
the form of Assignment of Plant Interest attached hereto as Exhibit F,
the station site leases that are part of the Gathering Assets shall be
transferred pursuant to the form of
17
Assignment of Station Site Leasehold Interest attached hereto as Exhibit
G, the fee properties that are part of the Gathering Assets will be
transferred pursuant to the form of Deed attached hereto as Exhibit H,
and all other Gathering Assets shall be transferred pursuant to the form
of Assignment, Xxxx of Sale and Conveyance attached hereto as Exhibit I,
or variations thereof mutually acceptable to the Parties.
(d) HSG shall deliver to KNGG and KMI a full and complete release
of all their obligations under the Master Equipment Lease executed by
Master Equipment Lessor;
(e) Sellers shall deliver an affidavit of non-foreign ownership
and shall deliver to Buyers an executed Colorado Revenue Form 1083, or
the parties shall otherwise satisfy Colorado withholding tax
requirements;
(f) Sellers shall execute and deliver releases of the mortgages,
liens and security interests granted to Sellers pursuant to Section
2.4(g);
(g) Subject to the provisions of Section 2.11(a), (b), (c) and
(d), Sellers shall make available to Buyers at Sellers' offices any of
the Books and Records that have not previously been delivered to Buyers;
and
(h) Sellers shall pay, or cause to be paid, the outstanding
principal amount of the loans made by HSG to KNGG and KNWTLLC pursuant
to Section 5.3.20.
SECTION 2.6 DETERMINATION OF WORKING CAPITAL.
(a) On or before April 1, 2002, KMI shall submit to HSR a
statement (the "WORKING CAPITAL STATEMENT"), prepared and certified by
KMI, containing the computation of the Working Capital and setting forth
the payment due pursuant to Section 2.1(b)(vi) in connection therewith
(the "PROPOSED WORKING CAPITAL Adjustment"). If HSR disputes the
correctness of the Proposed Working Capital Adjustment, HSR shall notify
KMI of its objection in writing within 30 days after receipt of the
Proposed Working Capital Adjustment, which notice shall set forth in
reasonable detail the reasons for HSR's objections. If HSR fails to
deliver such notice within such 30-day period, HSR shall be deemed to
have accepted the Proposed Working Capital Adjustment. KMI and HSR shall
endeavor in good faith to resolve any disputed items within 20 days
after KMI's receipt of notice of HSR's objections. If they are unable to
do so, each Party shall have the right to refer the dispute to the
Auditor for resolution and determination of the adjustments, if any,
that are necessary for the Proposed Working Capital Adjustment to
present fairly in all material respects, the calculation of the Working
Capital as of the close of business on the date immediately preceding
the Effective Time on the basis of the accounting methods described in
Schedule 1.1(j). Such determination by the Auditor shall be conclusive
and binding on the Parties. The fees of the Auditor incurred in
resolving any such dispute shall be shared equally by KMI and XXX.
00
(b) The amount due pursuant to Section 2.1(b)(vi) as finally
determined pursuant to this Section 2.6 (whether by failure of HSR to
deliver notice of objection, by agreement of the Parties or by
determination by the Auditor) is referred to herein as the "WORKING
CAPITAL ADJUSTMENT". If the Working Capital Adjustment is an amount
payable by HSR to KMI, HSR shall pay such amount to KMI together with
interest on such amount at the Prime Rate from the Effective Time to,
but excluding, the date of payment. If the Working Capital Adjustment is
an amount payable by KMI to HSR, KMI shall pay such amount to HSR
together with interest on such amount at the Prime Rate from the
Effective Time to, but excluding, the date of payment. Any payment under
this Section 2.6 shall be made not later than two Business Days after
determination of the Working Capital Adjustment in immediately available
funds by wire transfer to a bank account designated by the Party
entitled to receive the payment.
SECTION 2.7 REVENUES AND EXPENSES.
(a) If the Closing occurs in accordance with the terms and
provisions hereof, the ownership of the Gathering Assets shall be
transferred from KNGG to HSG at the Closing, but effective as of the
Effective Time. All revenues and expenses attributable to the operation
of the Gathering System during the period from October 1, 1999 until the
Effective Time shall be subject to the terms of the Operating Services
Agreements. HSG shall be entitled to all revenues and shall be
responsible for the payment of all expenses attributable to the
operation of the Gathering Assets after the Effective Time. All ad
valorem, property and other similar Taxes shall be prorated between
Sellers and HSG as of the Effective Date.
(b) If the Closing occurs in accordance with the terms and
provisions hereof, the ownership of the Membership Interest shall be
transferred from KMI to Buyer as of the Closing, but effective as of the
Effective Time, and the Working Capital shall be adjusted as provided in
Section 2.6.
SECTION 2.8 NONASSIGNABLE GATHERING ASSETS.
KNGG will use Reasonable Efforts, and HSG shall use Reasonable Efforts
to cooperate with KNGG, to obtain all necessary consents or waivers to transfer
the Intangibles. KNGG shall not be obligated to incur more than $600,000 in the
aggregate in out of pocket costs to obtain such consents and cure items 1, 3,
and 4 of the title defects under Section 5.1.6. KNGG shall not be obligated to
transfer any Intangible (and related property that it is not feasible to
transfer in the absence of the transfer of such Intangible) where KNGG is unable
to obtain any necessary consent or waiver to transfer such Intangible. In the
event that KNGG shall not obtain any necessary consent or waiver with respect to
any Intangible, KNGG shall provide written notice thereof to HSG identifying
such Intangible and any such related property, and such Intangible and such
related property shall not be included in the Conveyance Documents executed by
KNGG pursuant to Section 2.5(c). To the extent KNGG is unable to obtain any
necessary consent or waiver for any Intangible, KNGG shall hold the Intangible
and any such related property for the benefit of HSG, its successors and assigns
and use Reasonable Efforts to (i) cooperate in any reasonable and
19
lawful arrangement designed to provide HSG with the benefits of such Intangible
and related property, and (ii) enforce, at the request of HSG, any rights of
KNGG arising from such Intangible and related property. At the request and
expense of HSG, KNGG will assist HSG in taking appropriate legal action to
enforce any right to obtain any such consent or waiver.
SECTION 2.9 CERTAIN CONTRACTUAL MATTERS.
(a) As part of the consideration for the execution of this
Agreement, HSG and KNGG or KNWTLLC, as applicable, will enter into the
Operating Services Agreements. The Operating Services Agreements grant
Buyer the right to manage and operate the Wattenberg System and make
improvements, additions and modifications thereto, all in accordance
with the terms thereof. In consideration of the rights granted to HSG
under the Operating Services Agreements, HSG agrees to pay to Sellers in
addition to all other amounts payable under the terms of the Operating
Services Agreements, an amount equal to $359,917 per month during the
period from January 1, 2000 through December 31, 2001 (the "FACILITY
FEES"), subject to Section 2.10. The Facility Fees for each month shall
be payable on or before the 5th day of each such month (the "FACILITY
FEES PAYMENT DATE") in accordance with Section 2.1(c).
(b) In connection with the sale of the Gathering Assets,
provided that the Closing occurs, HSG shall assume the obligations
arising under the Intangibles from and in connection with the period
after the Effective Time.
(c) At the Closing, the Base Cash Consideration shall be reduced
by the Principal Balance of the Master Equipment Lease, as such term is
defined therein, as of the Effective Time.
SECTION 2.10 ACCELERATION OF CLOSING.
(a) In the event that (i) HSG is in default in the performance of
its obligations under either Operating Services Agreement in such a
respect as may materially affect the value of the Wattenberg System or
may create material liability to Sellers or KNWTLLC and (A) HSG has
failed to cure such default within 60 days after notice in writing
thereof by Sellers specifying such default, or (B) if such cure cannot
be completed within the 60 day period, HSG fails to promptly upon
receipt of such notice commence such cure and to proceed diligently
thereafter to cure such default, or (ii) an Event of Default (as defined
in the Master Equipment Lease) occurs as a result of (A) any failure of
HSG to perform any obligation under the Master Equipment Lease for which
it is responsible under the terms of the Gathering System Operating
Services Agreement, (B) any failure of HSR or HSG to perform any of
their obligations under the Master Equipment Lease Transfer Documents,
(C) any material representation, warranty, statement or certification
made by HSR or HSG under any Master Equipment Lease Transfer Document or
other document or certification furnished to the Master Equipment Lessor
in connection with the Master Equipment Lease or Master Equipment Lease
Transfer Documents shall prove to be untrue or incorrect when made in
any material respect, or shall be breached in any material
20
respect, or (D) or the limited liability company existence of HSG shall
cease, or HSG shall, without the Master Equipment Lessor's prior written
consent, sell transfer or dispose of, or pledge or otherwise encumber,
all or substantially all of its assets or property, or consolidate or
merge with any other entity, or engage in any form of corporate
reorganization; or (iii) HSR or HSG shall become insolvent or bankrupt
or make an assignment for the benefit of creditors or consent to the
appointment of a trustee or receiver; or a trustee or a receiver shall
be appointed for HSR or HSG, or for a substantial part of the property
of either of them without their consent and shall not be dismissed for a
period of sixty 60) days; or any petition for the relief, reorganization
or arrangement of HSR or HSG or any other petition in bankruptcy or for
the liquidation, insolvency or dissolution of HSR or HSG shall be filed
by or against HSR or HSG and, if filed against HSR or HSG shall be
consented to or be pending and not dismissed for a period of sixty (60)
days; or an order for relief under any bankruptcy or insolvency law
shall be entered by any court or governmental authority of competent
jurisdiction with respect to HSR or HSG; or any execution or writ of
process shall be issued under any action or proceeding against HSR or
HSG whereby any item of the Purchased Interests may be taken or
restrained; or (iv) HSR shall default in the payment when due of any
principal of or interest on any of its other debt or obligations
aggregating $1,000,000 or more, or any event specified in any note,
agreement, lease, indenture or other document evidencing or relating to
any such debt or obligations shall occur if the effect of such event is
to cause, or (with the giving of any notice or the lapse of time or
both) to permit the holder or holders of such debt or obligations (or a
trustee or agent on behalf of such holder or holders) to cause, such
debt or obligations to become due prior to its stated maturity; then in
any such event at the option of Sellers, the Closing Date and the
Effective Time shall be accelerated to the first Business Day occurring
more than fifteen (15) days after Sellers' notice of exercise of its
option to so accelerate; provided that such acceleration shall occur
automatically in the case of an event described in Section 2.10(a)(iii).
(b) In the event that (i) KNGG is in default in any material
respect in the performance of its obligations under the Master Equipment
Lease for which it retains responsibility under the Gathering System
Operating Services Agreement and (A) KNGG has failed to cure such
default within 60 days after notice in writing thereof from Master
Equipment Lessor or HSG specifying such default, or (B) if such cure
cannot be completed within the 60 day period, KNGG fails to promptly
upon receipt of such notice commence such cure and to proceed diligently
thereafter to cure such default, (ii) an Event of Default (as defined in
the Master Equipment Lease) occurs as a result of (A) any failure of
KNGG to perform any obligation under the Master Equipment Lease for
which it retains responsibility under the terms of the Gathering System
Operating Services Agreement, (B) any failure of KMI or KNGG to perform
any of their obligations under the Master Equipment Lease Transfer
Documents, or (C) any material representation, warranty, statement or
certification made by KMI or KNGG under any Master Equipment Lease
Transfer Document or other document or certification furnished to the
Master Equipment Lessor in connection with the Master Equipment Lease or
Master Equipment
21
Lease Transfer Documents shall prove to be untrue or incorrect when made
in any material respect, or shall be breached in any material respect,
or (D) the corporate or limited liability company of KNGG or KMI
existence shall cease; or KMI or KNGG shall, without the Master
Equipment Lessor's prior written consent, sell transfer or dispose of,
or pledge or otherwise encumber, all or substantially all of its assets
or property, or consolidate or merge with any other entity, or engage in
any form of corporate reorganization; (iii) KMI or KNGG shall become
insolvent or bankrupt or make an assignment for the benefit of creditors
or consent to the appointment of a trustee or receiver; or a trustee or
a receiver shall be appointed for KMI or KNGG, or for a substantial part
of the property of either of them without its their consent and shall
not be dismissed for a period of sixty 60) days; or any petition for the
relief, reorganization or arrangement of KMI or KNGG or any other
petition in bankruptcy or for the liquidation, insolvency or dissolution
of KMI or KNGG shall be filed by or against KMI or KNGG and, if filed
against KMI or KNGG shall be consented to or be pending and not
dismissed for a period of sixty (60) days; or an order for relief under
any bankruptcy or insolvency law shall be entered by any court or
governmental authority of competent jurisdiction with respect to KMI or
KNGG or any execution or writ of process shall be issued under any
action or proceeding against KMI or KNGG whereby any item of the
Purchased Interests may be taken or restrained; or (iv) KMI shall
default in the payment when due of any principal of or interest on any
of its other debt or obligations aggregating $75,000,000 or more, or any
event specified in any note, agreement, lease, indenture or other
document evidencing or relating to any such debt or obligations shall
occur if the effect of such event is to cause, or (with the giving of
any notice or the lapse of time or both) to permit the holder or holders
of such debt or obligations (or a trustee or agent on behalf of such
holder or holders) to cause, such debt or obligations to become due
prior to its stated maturity, then in any such event at the option of
Buyers the Closing Date and the Effective Time shall be accelerated to
the first Business Day occurring more than fifteen (15) days after HSG's
notice of exercise of its option to so accelerate; provided that such
acceleration shall occur automatically in the case of an event described
in Section 2.10(b)(iii).
(c) Either Party's option to accelerate the Closing pursuant to
Section 2.10(a) or (b) must be exercised by such Party giving notice
thereof in accordance with this Agreement.
(d) If an accelerated Closing occurs:
(i) the Base Cash Consideration shall equal the
difference between (A) the net present value as of the
accelerated Closing Date of the following amounts calculated at a
discount rate equal to 10% per annum, and assuming that each such
amount was paid to or received by Sellers or KNWTLLC, as
applicable, at the time it would have been paid or received had
the Closing occurred on the date originally contemplated hereby:
the Base Cash Consideration, the Facilities Fees payable after
the accelerated Closing Date and the Target Amounts under the
Gathering System Operating Services Agreement for each month
after the
22
accelerated Closing Date, and (B) the net present value as of
the accelerated Closing Date of the following amounts calculated
at a discount rate equal to 10% per annum, and assuming that
each such amount was paid by KNGG or KNWTLLC, as applicable, at
the time it would have been paid had the Closing occurred on the
date originally contemplated hereby: the Base Fees under the
Gathering System Operating Services Agreement and the Operating
Services Fees under the Transmission System Operating Services
Agreement for each month after the accelerated Closing Date; and
(ii) the obligation of Buyers to pay the Facilities Fees
shall terminate as of such accelerated Closing Date.
SECTION 2.11 BOOKS AND RECORDS TRANSFER.
Sellers shall deliver all Books and Records in their possession that are
normally maintained by or on behalf of KNWTLLC or with respect to Gathering
Assets to HSG as soon as required by HSG to operate the Wattenberg System, but
in any event not later than January 3, 2000, subject to the following
provisions:
(a) Sellers may retain the originals of all Books and Records
that contain information relating to the Purchased Interests, but
principally relate to Sellers or their Affiliates other than the KNWTLLC
or the Gathering Assets (with Buyers to have access thereto), and
Sellers may retain copies of all Books and Records that are delivered to
Buyers;
(b) Sellers may retain (with Buyers to have access thereto) all
consolidating and consolidated financial information and all other
accounting Books and Records prepared or used in connection with (i) the
preparation of financial statements of Sellers and/or their Affiliates
and (ii) the preparation and filing of any Tax Returns;
(c) Sellers are not obligated to deliver those portions of files,
records or documents that are protected by legal privilege (other than
confidentiality afforded to tax returns under state law) or that relate
to matters or issues for which Sellers have retained sole
responsibility;
(d) It is understood that the operating manuals delivered by
Sellers to Buyers relating to the operation of the System also are
applicable to other pipeline operations of Sellers and their Affiliates
and constitute proprietary and confidential information of Sellers.
Sellers shall retain all proprietary rights in and to the operating
manuals delivered Buyer. Such operating manuals shall only be used in
connection with the operation of the System or in the preparation of
Buyers' own operating manuals and for no other purpose. Buyers shall
maintain the confidentiality of the operating manuals in accordance with
the provisions of the Confidentiality Agreement for a period of 4 years
after the date of this Agreement. Sellers make no representation or
warranty with regard to the content of the operating manuals, and Buyer
shall utilize and rely upon the operating manuals only at its sole risk.
Sellers shall have no obligation to furnish Buyers any updates or
revisions to the
23
operating manuals or to advise Buyers of any changes in any legal,
regulatory or other matter covered thereby. Nothing contained in or
omitted from the operating manuals shall in any way affect the indemnity
obligations of the Parties under Article VII.
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLERS
SECTION 3.1 REPRESENTATIONS AND WARRANTIES.
Each Seller hereby jointly and severally represents and warrants to
Buyers as of the date of this Agreement that:
3.1.1 ORGANIZATION AND GOOD STANDING.
KMI is a corporation duly organized and validly existing under the laws
of the State of Kansas and is in good standing under the laws of the State of
Kansas. KNGG is a corporation duly organized and validly existing under the laws
of the State of Colorado and is in good standing under the laws of the State of
Colorado. KMI is qualified to do business as a foreign corporation and is in
good standing under laws of the State of Colorado.
3.1.2 AUTHORITY OF EACH SELLER.
Each of Sellers has all requisite corporate power and authority to enter
into this Agreement and the other agreements contemplated herein or therein to
which it is a party, to consummate the transactions contemplated hereby and
thereby and to perform all the terms and conditions hereof and thereof to be
performed by it. The execution, delivery and performance of this Agreement and
the other agreements contemplated herein or therein to which a Seller is a party
by such Seller and the transactions contemplated hereby and thereby to be
consummated by such Seller have been duly authorized by all requisite corporate
action by that Seller. This Agreement and the other agreements contemplated
herein or therein to which a Seller is a party have been duly executed and
delivered by such Seller and constitute a valid and binding agreement of that
Seller enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency and other similar laws relating to or
affecting the enforcement of creditors' rights generally and to general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law).
3.1.3 NO VIOLATIONS.
The execution and delivery by each Seller of this Agreement and the
other agreements contemplated herein or therein to which it is a party does not
and the consummation of the transactions contemplated hereby in accordance with
the terms hereof will not:
(a) violate any provision of the articles of incorporation or
bylaws of such Seller;
(b) except as set forth in Section 3.1.3 of the Disclosure
Schedule, violate any provision of any Legal Requirement binding upon
such Seller;
24
(c) except as set forth in Section 3.1.3 of the Disclosure
Schedule, result in a breach of, constitute a default under, or require
any consent, or approval under, any Contract to which Sellers or KNWTLLC
is a party or by which any of their respective assets are subject, which
individually or in the aggregate would have a Material Adverse Effect or
prevent Sellers from consummating the transactions contemplated hereby;
or
(d) result in the creation or imposition of any Encumbrance on
the Gathering Assets or the Transmission Assets, except as contemplated
hereby.
3.1.4 COMPLIANCE WITH LAWS.
Except as set forth in Section 3.1.4 of the Disclosure Schedule, and for
such matters as would not, individually or in the aggregate, have a Material
Adverse Effect, to the Knowledge of Sellers, KNGG is not in violation of any
Legal Requirement applicable to the Gathering Assets and KNWTLLC is not in
violation of any Legal Requirement applicable to itself or the Transmission
Assets.
3.1.5 PERMITS.
Except as set forth in Section 3.1.5 of the Disclosure Schedule, and
except for matters that have not and would not, individually or in the
aggregate, have a Material Adverse Effect, to the Knowledge of Sellers: (i) KNGG
holds all Permits necessary for the operation of the Gathering System under
normal operating conditions and KNWTLLC holds all Permits necessary for the
operation of the Transmission System under normal operating conditions; (ii)
each such Permit is in full force and effect; and (iii) KNGG and KNWTLLC are in
compliance with all of their respective obligations under each such Permit, and
no event has occurred which permits, or upon the giving of notice or the lapse
of time would permit, modification, revocation or termination of any such
Permit.
3.1.6 ENVIRONMENTAL MATTERS.
Except as set forth in Section 3.1.6 of the Disclosure Schedule, and
except for matters that have not or would not, individually or in the aggregate,
have a Material Adverse Effect, to the Knowledge of Sellers:
(a) KNGG is not in violation of any Environmental Laws applicable
to its operations or the Gathering Assets, and KNWTLLC is not in
violation of any Environmental Laws applicable to its operations or the
Transmission Assets;
(b) Neither Sellers nor KNWTLLC has received any written notice
of violation or noncompliance, or notice of potential liability, from
any Governmental Authority pursuant to applicable Environmental Laws
with respect to the Gathering Assets, the Transmission Assets or
KNWTLLC;
25
(c) There have been no unremediated releases of Hazardous
Materials at or from the Gathering Assets or the Transmission Assets in
violation of applicable Environmental Laws;
(d) Neither Sellers nor KNWTLLC is subject to any existing,
pending or threatened civil, criminal or administrative action, suit,
Claim, notice of violation, investigation, notice of potential
liability, request for information, inquiry, demand or proceeding under
applicable Environmental Laws arising from or associated with the
ownership, operation or condition of the Gathering Assets or the
Transmission Assets;
(e) To the extent required by applicable Environmental Laws, all
Hazardous Materials generated by Sellers or KNWTLLC in connection with
their ownership or operation of the Gathering Assets or the Transmission
Assets have been handled, treated, transported and disposed only by
persons authorized under applicable Environmental Laws to so handle,
treat, dispose, or transport such Hazardous Materials;
(f) No release or cleanup of Hazardous Materials has occurred at,
under or on the Gathering Assets or the Transmission Assets which would
reasonably be expected to result in the assertion or creation of any
Encumbrance on such properties by any Governmental Authority with
respect thereto, nor has any such Encumbrance been asserted or made by
any Governmental Authority; and
(g) Sellers and KNWTLLC have made available to Buyers all
material internal and external environmental audits, studies, documents
and correspondence on Environmental Matters in the possession or control
of Sellers and KNWTLLC relating to the Gathering Assets and the
Transmission Assets, except to the extent protected by legal privilege.
3.1.7 CONTRACTS.
(a) To Sellers' Knowledge, Schedule 1.1(a) is a list of all
material Contracts relating to the Gathering Assets to which KNGG is a
party or to which the Gathering Assets are bound. Schedule 1.1(b) is a
list of all material Contracts to which KNWTLLC is a party or to which
its assets are bound.
(b) To Sellers' Knowledge, the Contracts listed in Schedules
1.1(a) and (b) are in full force and effect, and are valid and legally
binding on the parties thereto. To Sellers' Knowledge, except as set
forth in Section 3.1.7 of the Disclosure Schedule and except for such
defaults as have not and would not, individually or in the aggregate,
have a Material Adverse Effect, KNGG is not in default under any
Contract listed on Schedule 1.1(a), and KNWTLLC is not in default under
any Contract listed on Schedule 1.1(b).
(c) All payments due to KNGG for services performed on the
Gathering System and all payments due to KNWTLLC for services performed
on the Transmission
26
System that are more than $50,000 and more than 90 days past due are set
forth in Section 3.1.7 of the Disclosure Schedule.
3.1.8 LITIGATION.
Except as set forth in Sections 3.1.5, 3.1.6 and 3.1.8 of the Disclosure
Schedule, there are no actions, mediations, arbitrations, suits, investigations,
proceedings or Claims pending or, to the Knowledge of Sellers, threatened
against or specifically affecting the Gathering Assets, KNWTLLC or any of its
assets or operations before or by any federal, state, foreign or local court,
tribunal or other Governmental Authority or any arbitrator or mediator or other
quasi-judicial body.
3.1.9 GATHERING ASSETS AND TRANSMISSION ASSETS.
(a) Except for the Excluded Assets, the Gathering Assets and the
Transmission Assets constitute all of the properties and assets
necessary for the operation of the Wattenberg System as it is currently
operated.
(b) Sellers currently have insurance covering the Gathering
Assets and Transmission Assets in the types of coverages, amounts and
deductibles which are set forth in Section 3.1.9 of the Disclosure
Schedule.
(c) The computer software, licenses, or other intellectual
property comprising a portion of the Other Assets - Gathering and Other
Assets - Transmission are freely transferable to Buyers and the transfer
of such items will not violate or infringe upon the copyright or other
intellectual property rights of any third party, and any payment,
royalty or license transfer fee necessary to properly transfer such
assets has been paid or will be paid by Sellers.
3.1.10 TITLE TO GATHERING ASSETS AND TRANSMISSION ASSETS.
(a) Subject to the Permitted Encumbrances, and except as set
forth in Section 3.1.10 of the Disclosure Statement, KNGG has Defensible
Title to the Gathering Assets purported to be owned by it defensible
against the claims and demands of all persons claiming the same by,
through or under KNGG, but not otherwise. Subject to the Permitted
Encumbrances, KNWTLLC has Defensible Title to the Transmission Assets
purported to be owned by it, defensible against the claims and demands
of all persons claiming the same by, through or under KNWTLLC, but not
otherwise.
(b) Except as set forth on Section 3.1.10 of the Disclosure
Schedule, there are no preferential rights to purchase or similar
agreements and no third party consents to assignments or similar
agreements which will be invoked by the execution of this Agreement or
the consummation of the transactions contemplated hereunder.
27
3.1.11 NO BROKERS.
Sellers have no liability or obligation to pay any fees or commissions
to any broker, finder, or agent with respect to the transactions contemplated by
this Agreement that in any manner would be payable or binding on Buyers.
3.1.12 MASTER EQUIPMENT LEASE.
To the Knowledge of Sellers, all Instruments comprising the Master
Equipment Lease Transfer Documents are identified in Schedule 1.1(k). The Master
Equipment Lease is in full force and effect in accordance with its terms. Except
for such defaults as have not and would not have a Material Adverse Effect, KNGG
is not in default under the Master Equipment Lease, and to the Knowledge of
Sellers, no other party to the Master Equipment Lease is in default thereunder.
None of KMI, KNGG, KN Front Range Gathering Company or any Affiliate of KMI has
received any notice from Master Equipment Lessor or any Affiliate thereof
asserting a default by KN Front Range Gathering Company or KNGG under the Master
Equipment Lease or otherwise asserting any material dispute concerning the terms
thereof, or the rights, obligations or performance thereof by any of the parties
thereto.
3.1.13 TAXES.
(a) Each Seller and KNWTLLC has timely filed all Tax Returns that it was
required to file, and all such Tax Returns were correct and complete in all
material respects, and all Taxes owed by Sellers and KNWTLLC have been paid. The
Gathering Assets, the Membership Interest and the Plant Right of First Refusal
are not subject to any Encumbrances with respect to Taxes other than Taxes that
are not yet due and payable.
(b) KMI has consistently treated KNWTLLC as an association taxable as a
corporation for federal and applicable state income Tax purposes from April 1,
1995 to the effective date of the Tax Classification Election (and such
treatment has been in accordance with applicable law). Other than the Tax
Classification Election, KMI has not made an election on Form 8832 (or any
substitute therefor) with respect to the classification of KNWTLLC under Treas.
Reg. Section 301.7701-3. To Sellers' Knowledge, there is no reason why KNWTLLC
cannot elect to be disregarded as a separate entity for federal income tax
purposes effective as of the Tax Classification Date.
(c) Except as provided on the Section 3.1.13 Disclosure Schedule, (i)
there is no material dispute or Claim concerning any Tax Liability of KNWTLLC
either (A) claimed or raised by any authority in writing, or (B) as to which
Sellers have Knowledge, and (ii) there is not material dispute or Claim
concerning any Tax Liability of Sellers arising from or in connection with the
Purchased Interests either (A) claimed or raised by any authority in writing, or
(B) as to which Sellers have Knowledge.
(d) The provisions of this Section 3.1.13 shall not apply to any Tax
Returns or Taxes required to be filed or paid, respectively, by HSG on behalf of
KNGG or KNWTLLC pursuant to the Operating Services Agreements.
28
(e) No sales or use tax is payable with respect to amounts paid or to be
paid as basic payments, supplemental payments or additional supplemental
payments under the Master Equipment Lease. All required state and local sales
and use taxes were properly paid upon acquisition by Sellers or KNWTLLC, as
applicable, of the Gathering Assets and the Transmission Assets, and upon
transfer of title of any of such assets pursuant to the Master Equipment Lease.
(f) KNWTLLC is not a party to any tax allocation or sharing agreement,
and has no liability for the Taxes of any other person as a transferee or
successor, by contract, or otherwise. During the period that KNWTLLC was treated
as a corporation for federal income tax purposes, it has never been a member of
any consolidated group other than consolidated group of which KMI is the common
parent.
3.1.14 CERTAIN INFORMATION.
To Sellers' Knowledge, (i) the historical operating and maintenance
cost data concerning the Wattenberg System set forth in Schedule 3.1.14(i) of
the Disclosure Statement is accurate in all material respects, (ii) the
historical revenue and volume information set forth in Schedule 3.1.14 (ii) of
the Disclosure Schedule concerning the natural gas liquids recovered and sold
from the Wattenberg System is accurate in all material respects, (iii) the
historical net revenue information concerning the Plant Interest set forth in
Schedule 3.1.14(iii) of the Disclosure Statement is accurate in all material
respects, (iv) Sellers have made available for review by Buyers all material
records in Sellers' possession regarding the repair, maintenance and operation
of the Equipment that is part of the System, and (v) Sellers have made available
to Buyers a complete and accurate copy of the Tariff, all orders issued by FERC
directly applicable to the Transmission System, and KNWTLLC's certificate of
convenience and necessity from FERC and material documents associated with such
certificate.
3.1.15 FERC Matters.
Except as set forth in Section 3.1.15 of the Disclosure Schedule
and for matters as would not, individually or in the aggregate, have a Material
Adverse Effect, to the Knowledge of Sellers, Sellers have complied with all FERC
rules, regulations and orders with respect to the Purchased Interests.
3.1.16 Year 2000 Preparedness for Field Operations.
Sellers have a good faith belief that all of the field equipment,
pipelines, valve stations and metering facilities, compressors and other
equipment, including all imbedded technology therewith, associated with the
Gathering Assets and the Transmission Assets are operationally capable, from the
standpoint of all information technology, and taking into account contingency
plans, of flowing gas without material interruption upon commencement of the
year 2000 and through March 1, 2000. Sellers have prepared a year 2000
preparedness plan with regard to the Wattenberg System that includes such
contingency plans that Sellers believe are appropriate.
29
3.1.17 SELLERS' STATUS.
Neither of Sellers is a non-resident alien, foreign corporation, foreign
partnership, foreign trust or foreign estate (as those terms are defined in the
Code and the rules and regulations promulgated thereunder), and Sellers shall
deliver to Buyers at Closing affidavits of non-foreign ownership confirming such
ownership status at the Closing.
3.1.18 NO BANKRUPTCY.
There is no bankruptcy, reorganization, or arrangement proceedings
pending, being contemplated by or threatened against either of Sellers or
KNWTLLC.
3.1.19 LABOR MATTERS.
None of Sellers, KNWTLLC, or the Wattenberg System is a party to, or
bound by, any written or oral collective bargaining agreement or other
agreement with any labor union or organization that could affect HSG's
operation of the Wattenberg System. To the Knowledge of Sellers, there are
currently no union or other labor organization activities affecting Sellers,
KNWTLLC or the Wattenberg System.
SECTION 3.2 CERTAIN ADDITIONAL REPRESENTATIONS AND WARRANTIES CONCERNING
KNWTLLC.
KMI represents and warrants to Buyers as of the date of this Agreement
that:
3.2.1 ORGANIZATION AND GOOD STANDING.
KNWTLLC is a limited liability company duly organized and validly
existing under the laws of the State of Colorado and is in good standing under
the laws of the State of Colorado.
3.2.2 NO CONFLICT.
The execution and delivery of this Agreement by Sellers does not and the
consummation of the transactions contemplated hereby in accordance with the
terms hereof will not violate any provision of the organizational documents of
KNWTLLC.
3.2.3 CAPITALIZATION.
(a) The Membership Interest has been duly authorized and validly
issued. The Membership Interest constitutes all of the outstanding
membership interests in KNWTLLC.
(b) There are no contracts, agreements, commitments or other
arrangements obligating KMI or KNWTLLC to issue, sell, pledge, dispose
of or encumber, nor any options, warrants or rights of any kind to
acquire, nor any securities that are convertible
30
into or exercisable or exchangeable for, any membership interest in
KNWTLLC. There are no contracts, agreements, commitments or other
arrangements obligating KNWTLLC to redeem, purchase or acquire or offer
to acquire, nor any outstanding option, warrant or right to acquire, nor
any securities that are convertible into or exercisable or exchangeable
for, any membership interest in KNWTLLC. There are no contracts,
agreements, commitments or other arrangements obligating KNWTLLC to make
any dividend or distribution of any kind.
(c) There are no outstanding or authorized membership interest
appreciation, phantom ownership interests, profit participation, or
similar rights affecting the membership interests of KNWTLLC. There are
no voting trusts, proxies, or other agreements or understandings with
respect to the voting of the membership interests of KNWTLLC.
3.2.4 TITLE TO MEMBERSHIP INTEREST.
KMI has Defensible Title to the Membership Interest.
3.2.5 SUBSIDIARIES; INVESTMENTS.
KNWTLLC has no subsidiaries. KNWTLLC owns no interests, and has no
investments, in any assets other than the Transmission Assets and certain
Excluded Assets.
3.2.6 FINANCIAL STATEMENTS.
Section 3.2.6 of the Disclosure Schedule includes the unaudited balance
sheet as of September 30, 1999 of KNWTLLC (the "KNWTLLC BALANCE SHEET"). The
KNWTLLC Balance Sheet presents fairly in all material respects the financial
position of KNWTLLC. Since September 30, 1999, KNWTLLC has not incurred any
liabilities that in accordance with generally accepted accounting principles are
required to be set forth in the KNWTLLC Balance Sheet, other than liabilities
incurred in the ordinary course of business or liabilities that are disclosed in
Section 3.2.6 of the Disclosure Schedule.
3.2.7 EMPLOYEE MATTERS.
KNWTLLC does not have any employees.
3.2.8 NATURAL GAS ACT.
KNWTLLC is a "natural gas company" as defined in the Natural Gas Act.
3.2.9 EMPLOYEE BENEFIT PLANS AND POLICIES.
(a) KNWTLLC does not sponsor, maintain or contribute to or have
an obligation to contribute to, and has not at any time, sponsored,
maintained or contributed to or had an obligation to contribute to, any
Plan.
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(b) With respect to any Plan which is sponsored, maintained or
contributed to, or has been sponsored, maintained or contributed to
within six years prior to the date of this Agreement, by any
corporation, trade, business or entity under common control with
KNWTLLC, within the meaning of Section 414(b), (c) or (m) of the Code or
Section 4001 of ERISA ("COMMONLY CONTROLLED ENTITY"), (w) no withdrawal
liability, within the meaning of Section 4201 of ERISA, has been
incurred, which withdrawal liability has not been satisfied, (x) no
liability to the Pension Benefit Guaranty Corporation has been incurred
by any Commonly Controlled Entity, which liability has not been
satisfied, (y) no accumulated funding deficiency, whether or not waived,
within the meaning of Section 302 of ERISA or Section 412 of the Code
has been incurred, and (z) all contributions (including installments) to
such plan required by Section 302 of ERISA and Section 412 of the Code
have been timely made.
SECTION 3.3 CERTAIN REPRESENTATIONS AND WARRANTIES REPEATED AS OF CLOSING.
The representations and warranties of Sellers contained in Sections
3.1.1 through 3.1.4, 3.1.10(a), 3.1.11, 3.1.13, 3.1.17, 3.1.18, 3.2.1 through
3.2.5, 3.2.7 and 3.2.9 shall be deemed to have been repeated by Sellers as of
the Closing.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BUYERS
SECTION 4.1 REPRESENTATIONS AND WARRANTIES. Each Buyer hereby jointly and
severally represents and warrants to Sellers as of the date of this Agreement
that:
4.1.1 ORGANIZATION AND GOOD STANDING.
HSR is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. HSR is qualified to do
business as a foreign corporation in the State of Colorado. HSG is a limited
liability company duly organized, validly existing and in good standing under
the laws of the State of Colorado.
4.1.2 AUTHORITY OF BUYERS.
Each of Buyers has all requisite corporate or limited liability company
power and authority to enter into this Agreement and the other agreements
contemplated herein or therein to which it is a party, to consummate the
transactions contemplated hereby and thereby and to perform all the terms and
conditions hereof and thereof to be performed by it. The execution, delivery and
performance of this Agreement and the other agreements contemplated herein or
therein to which a Buyer is a party by such Buyer and the transactions
contemplated hereby and thereby to be consummated by such Buyer have been duly
authorized by all requisite corporate or limited liability company action by
that Buyer. This Agreement and the other agreements contemplated herein or
therein to which a Buyer is a party have been duly executed and delivered by
such Buyer and constitute a valid and binding agreement of that Buyer
enforceable against it in accordance
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with its terms, subject to applicable bankruptcy, insolvency, fraudulent
transfer and other similar laws relating to or affecting the enforcement of
creditors' rights generally and to general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law).
4.1.3 NO VIOLATIONS.
The execution and delivery by each Buyer of this Agreement and the other
agreements contemplated herein or therein to which it is a party does not and
the consummation of the transactions contemplated hereby in accordance with the
terms hereof will not:
(a) violate any provision of the certificate of incorporation,
bylaws or organizational documents of such Buyer;
(b) violate any provision of any Legal Requirement binding upon
such Buyer; or
(c) result in a breach of, or constitute a default under, or
require any consent, or approval under, any Contract to which either
Buyer is a party or by which any of its assets are subject, which
individually or in the aggregate would have a material adverse effect on
Buyer or prevent Buyers from consummating the transactions contemplated
hereby; or
(d) result in the creation or imposition of any Encumbrance on
the Gathering Assets or the Transmission Assets, except as contemplated
hereby.
4.1.4 ACQUISITION AS INVESTMENT.
Buyers are acquiring the Gathering Assets and the Membership Interest
for their own accounts as an investment without the present intent to sell,
transfer or otherwise distribute the Gathering Assets or Membership Interest to
any other person or entity.
4.1.5 BROKERAGE OR FINDERS FEES .
Buyers have no liability or obligation to pay any fees or commissions to
any broker, finder, or agent with respect to the transactions contemplated by
this Agreement that in any manner would be payable or binding on Sellers.
4.1.6 KNOWLEDGEABLE BUYERS.
Buyers (a) are represented by competent legal, tax and financial counsel
in connection with the negotiation, execution and delivery of this Agreement,
(b) have sufficient knowledge and experience in marketing energy and owning,
managing, and operating businesses similar to the Purchased Interests, and the
technical, commercial, financial, legal, regulatory, and other risks associated
with owning the Purchased Interests, (c) have had access to the Gathering
Assets, the Transmission Assets, the officers and employees of Sellers, and the
Books and Records and files
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of Sellers and KNWTLLC relating to the Purchased Interests, (d) in making the
decision to enter into this Agreement, have relied solely on the basis of their
own independent due diligence investigation and upon the representations and
warranties made herein, (e) are financially capable of owning the Purchased
Interests and performing their obligations under this Agreement and all
instruments executed pursuant to or in connection herewith, and (f) understand
that in connection with their operation and ownership of the Wattenberg System
they must comply with the rules and regulations of the FERC, including Order
497. Buyers acknowledge that Sellers have not made, and Sellers hereby expressly
disclaim and negate, any representation or warranty (other than those express
representations and warranties contained herein), express, implied, at common
law, by statute or otherwise, relating to the Purchased Interests. Buyers
acknowledge that they have reviewed Sellers' year 2000 preparedness plans
concerning the Wattenberg System and believe that such plans are adequate for
their purpose. Buyers also acknowledge that the implementation of such plans
will be under their control and direction pursuant to the Operating Services
Agreements.
4.1.7 APPROVAL BY MASTER EQUIPMENT LESSOR.
Master Equipment Lessor has consented to and approved (a) Buyers to operate the
Wattenberg System pursuant to the terms of the Operating Services Agreements and
(b) the assumption by Buyer of the Master Equipment Lease in accordance with
Section 2.9.
4.1.8 NO DEFAULT.
Buyers are not in default under any credit facility agreement lease or
any other loan agreement to which either is a party.
4.1.9 ORDER 497 PLANS.
Buyers have provided Sellers Buyers' plans for complying with FERC Order
497 to the extent applicable to the transactions contemplated hereby.
SECTION 4.2 CERTAIN REPRESENTATIONS AND WARRANTIES REPEATED AS OF CLOSING. .
The representations and warranties of Buyers contained in Sections 4.1.1
through 4.1.3 and 4.1.5 shall be deemed to have been repeated by Buyers as of
the Closing
ARTICLE V. ADDITIONAL AGREEMENTS AND COVENANTS
SECTION 5.1 COVENANTS OF SELLERS.
Sellers covenant and agree with Buyers as follows:
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5.1.1 TRANSACTION COSTS.
(a) Sellers shall bear and pay all of the costs, fees and expenses
incurred by them in connection with the transactions contemplated by this
Agreement, including any amounts payable to Bank of America Leasing & Capital,
LLC (as successor to NationsBanc Leasing Corporation) or Citizens Leasing
Corporation in connection with the transfer of the Master Equipment Lease to
Chase Leasing. In addition, Sellers will reimburse Buyers for 50% of the
advisory fees, syndication fees, legal fees and other transaction expenses that
Buyers pay or reimburse to Chase Leasing or any of its Affiliates in connection
with the acquisition of the Master Equipment Lease by Chase Leasing, not to
exceed a total reimbursement of $300,000 less the amounts paid to Bank of
America Leasing & Capital LLC and Citizens Leasing Corporation pursuant to the
preceding sentence as a prepayment or breakup fee of approximately $25,000. Such
reimbursement shall be made pursuant to Section 2.4(b) with respect to Sellers'
share of all such costs, fees and expenses incurred and accounted for prior to
the date of payment under such Section and to be made within 15 days after
receipt of invoice from Buyers with respect to Sellers' share any such costs,
fees and expenses thereafter accounted for or incurred.
(b) Sellers will reimburse Buyers for 50% of the Additional Supplemental
Payments as paid by HSG to Chase Leasing during the Interim Period under the
terms of the Supplemental Assumption Agreement described in Schedule 1.1(k), not
to exceed a total reimbursement of $300,000. Such reimbursements shall be made
within 15 days after receipt of invoice from Buyers with respect to Sellers'
share of such Additional Supplemental Payments.
5.1.2 INTRAGROUP BALANCES AND AGREEMENTS.
Prior to the Closing, Sellers and their Affiliates shall (i) pay or
otherwise satisfy all intragroup payables owed to Sellers or any of their
Affiliates by KNWTLLC, and (ii) terminate all intragroup agreements or other
arrangements between Sellers or their Affiliates, on the one hand, and KNWTLLC,
on the other hand.
5.1.3 SATISFACTION OF CERTAIN OBLIGATIONS.
Prior to Closing, KNGG will make all basic rent payments coming due in
respect of the Gathering Assets under the Master Equipment Lease. KMI shall take
such actions as may be necessary to pay or otherwise satisfy all Indebtedness of
KNWTLLC (other than payables due and payable in the ordinary course of business
and taken into account in determining Working Capital) so that KNWTLLC shall not
have any Indebtedness that under generally accepted accounting principles is
required to be recorded on the balance sheet of KNWTLLC as of the Closing or
other Indebtedness (other than accounts payable incurred in the ordinary course
of business).
5.1.4 COVENANTS CONCERNING THE MASTER EQUIPMENT LEASE.
(a) MODIFICATIONS OF THE MASTER EQUIPMENT LEASE. KNGG will not
agree or consent to any modifications of the Master Equipment Lease, and
KNGG will not waive
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any material rights thereunder without the prior written consent of HSG
which consent shall not be unreasonably withheld, conditioned or
delayed.
(b) PERFORMANCE OF THE MASTER EQUIPMENT LEASE. KNGG will perform
all of its obligations under the Master Equipment Lease in a timely and
complete manner in all material respects, subject to compliance by HSG
with the terms of the Operating Services Agreements.
(c) NOTICES CONCERNING THE MASTER EQUIPMENT LEASE. Sellers will
forthwith notify Buyers of (i) receipt by either Seller or any Affiliate
thereof, of any notice from Master Equipment Lessor or any successor or
assign thereof, asserting any failure by KNGG to comply with the terms
of the Master Equipment Lease, providing a copy of such notice, (ii) any
failure by KNGG to comply in any material respect with the terms of the
Master Equipment Lease, specifying in reasonable detail the nature of
any such failure, and (iii) any document hereafter executed by KNGG
amending or modifying the terms of the Master Equipment Lease.
(d) TRANSFERS; ENCUMBRANCES. KNGG will not directly or indirectly
(i) assign, transfer or otherwise convey, any portion of KNGG's rights
under the Master Equipment Lease, including its rights with respect to
the property subject thereto, except to any Affiliate of KMI that
assumes all of the obligations of KNGG hereunder in respect to the
assigned, transferred or conveyed rights or property and whose
obligations are guaranteed by KMI in accordance with the terms of a
guarantee agreement on substantially the same terms as the KMI Guaranty,
(ii) grant to any Person other than HSG or an Affiliate thereof the
right to acquire any interest in the Master Equipment Lease or any
property subject thereto, or (iii) grant or suffer any Encumbrance upon
KNGG's interests in the Master Equipment Lease or any property subject
thereto, other than any Permitted Encumbrance or any Encumbrance created
by virtue of the operations of HSG.
5.1.5 SUBROGATION.
To the extent transferable, KNGG will subrogate HSG to any warranty or
indemnification claim which KNGG may have against any third party, prior owner,
vendor or assignor with respect to the Gathering Assets, except for any such
claim that may relate to rights, liabilities or obligations retained by Sellers
under this Agreement.
5.1.6 Title Curative.
KNGG will use Reasonable Efforts, and HSG shall use Reasonable Efforts
to cooperate with KNGG, to cure the title defects described in Schedule 5.1.6
prior to Closing. KNGG shall not be obligated to incur more than $600,000 in the
aggregate in out of pocket costs to obtain consents under Section 2.8 and cure
the title defects listed as items 1, 3 and 4 in Schedule 5.1.6. To the extent
items 1, 3, and 4 listed on Schedule 5.1.6 cannot be cured prior to Closing
because a consent to assign from the surface owner cannot be obtained, Sellers
shall use Reasonable Efforts to (i) cooperate in any reasonable and lawful
arrangement designed to provide HSG with the benefits of ownership of such item
and related property, and (ii) enforce, at the request and
36
expense of HSG, any rights of Sellers arising from such item and related
property. At the request and expense of Buyers, Sellers will assist Buyers in
taking appropriate legal action to obtain marketable title to such item. In
addition, if Panhandle Eastern Pipe Line Company or its successors ("PEPL") is
holding title to these items for the benefit of Sellers because of the inability
to obtain consent to assign, Sellers shall use Reasonable Efforts to obtain from
PEPL written assurance that PEPL will hold the item for the benefit of Buyers
after the Closing.
5.1.7 EVIDENCE OF PAYMENT.
For each payment required to be made by Sellers under the Master
Equipment Lease Sellers shall provide Buyers notice that the payment has been
made within 2 Business Days after the due date for such payment.
SECTION 5.2 COVENANTS OF BUYERS.
Buyers covenant and agree with Sellers as follows:
5.2.1 TRANSACTION COSTS.
Subject to Section 5.1.1, Buyers shall bear and pay all of the costs,
fees and expenses incurred by them in connection with the transactions
contemplated by this Agreement, including without limitation, all costs, fees
and expenses for which Buyers or Sellers are required to pay or reimburse to
Chase Leasing or its Affiliates in connection with its acquisition of the Master
Equipment Lease. Buyers shall pay on or before the date due all amounts payable
to Chase Leasing under the Supplemental Assumption Agreement described in
Schedule 1.1(k).
SECTION 5.3 MUTUAL COVENANTS
Buyers and Sellers each covenant and agree as follows:
5.3.1 DISTRIBUTIONS.
Notwithstanding anything to the contrary in this Agreement, prior to the
Closing, KMI shall have the right to cause KNWTLLC to distribute to KMI or any
Affiliate of KMI (i) all cash, cash equivalents, and advances to associated
companies so as to reduce the Working Capital as of the Closing and (ii) subject
to the approval of the FERC as to certain assets, those Excluded Assets owned by
KNWTLLC. Sellers shall cause KNWTLLC to apply for and diligently pursue the
approval of the FERC to the distribution of the Excluded Assets owned by KNWTLLC
that cannot be transferred without the approval of FERC. Promptly after such
approval is obtained, Sellers shall cause KNWTLLC to transfer such Excluded
Assets to KMI or any Affiliate of KMI. In the event that prior to Closing the
FERC does not approve the transfer of all such Excluded Assets to KMI or its
Affiliate, KNWTLLC shall continue to hold said assets for the benefit of KMI and
HSR shall cause KNWTLLC to (a) cooperate in any reasonable and lawful
arrangement designed to provide KMI with the benefits of such Excluded Assets,
and (b) enforce, at the request of KMI, any rights of KNWTLLC arising in
connection with such Excluded Assets;
37
provided that KMI shall protect, defend, indemnify and hold harmless HSR and
KNWTLLC from any Losses in connection with any of the foregoing.
5.3.2 PREPARATION OF TAX RETURNS; RESPONSIBILITY FOR TAXES.
(a) KMI shall cause to be included in the consolidated federal
income Tax Returns (and the state income Tax Returns of any state that
permits consolidated, combined or unitary income Tax Returns, if any) of
the affiliated group of corporations filing a consolidated federal
income Tax Return of which KMI is a member (the "SELLER GROUP") for all
periods ending on or before the Tax Classification Date, all items of
income, gain, loss, deduction and credit and other tax items ("TAX
Items") of KNWTLLC which are required to be included therein, shall
cause such Tax Returns to be timely filed with the appropriate taxing
authorities, and shall be responsible for the timely payment (and
entitled to any refund) of all Taxes due with respect to the periods
covered by such Tax Returns.
(b) With respect to any Tax Return covering a taxable period
ending on or before the Closing Date that is required to be filed after
the date hereof with respect to KNWTLLC that is not described in Section
5.3.2(a), KMI shall cause such Tax Return to be prepared, shall cause to
be included in such Tax Return all Tax Items required to be included
therein, shall cause such Tax Return to be filed timely with the
appropriate taxing authority, and shall be responsible for the timely
payment (and entitled to any refund) of all Taxes due with respect to
the period covered by such Tax Return.
(c) With respect to any Tax Return covering a taxable period
beginning on or before the Closing Date and ending after the Closing
Date that is required to be filed after the Closing Date with respect to
KNWTLLC, HSR shall cause such Tax Return to be prepared, shall cause to
be included in such Tax Return all Tax Items required to be included
therein, shall furnish a copy of such Tax Return to KMI, shall file
timely such Tax Return with the appropriate taxing authority and,
subject to the following sentence, shall be responsible for the timely
payment (and entitled to any refund) of all Taxes due with respect to
the period covered by such Tax Return. KMI (determined by an interim
closing of the books as of the Closing Date except for ad valorem Taxes
which shall be prorated on a daily basis) shall be responsible for the
portion of the Tax due with respect to the period covered by such Tax
Return which is attributable to the portion of such taxable period
ending on the Closing Date and shall promptly pay to HSR such amount,
but in no event later than five days after HSR has provided KMI with
written notice that such Tax Return has been filed.
(d) Any Tax Return to be prepared pursuant to the provisions of
this Section 5.3.2 shall be prepared in a manner consistent with
practices followed by Sellers in prior years with respect to similar Tax
Returns, except for changes required by changes in law or fact.
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(e) HSR shall not file an amended Tax Return with respect to
KNWTLLC for any period ending on or prior to the Closing Date without
the consent of KMI.
(f) The Party responsible for filing a Tax Return shall provide
to the other Party drafts of each Tax Return required to be filed
pursuant to this Section 5.3.2 at least ten days prior to filing, and
shall provide copies to the other Party of all Tax Returns filed
pursuant to this Section 5.3.2 within five Business Days after filing.
(g) This Section 5.3.2 shall be subject to HSG's obligations to
file certain Tax Returns and pay certain Taxes on behalf of KNGG or
KNWTLLC, as applicable, under the Operating Services Agreements.
(h) Simultaneously with the execution of this Agreement KMI and
HSR will execute a Form 8832 "Entity Classification Election" pursuant
to which KNWTLLC will elect to be disregarded as a separate entity for
federal income tax purposes effective as of the Tax Classification Date
(the "Tax Classification Election"). Promptly after such execution KMI
shall file such Form 8832 and shall provide proof of such filing to HSR
promptly thereafter. Sellers and Purchaser shall report for federal and
applicable state income tax purposes in a manner consistent with the Tax
Classification Election.
5.3.3 SELLERS' ACCESS.
(a) Buyers shall maintain copies of all Books and Records
delivered to Buyers in connection with this Agreement relating to
KNWTLLC or the Purchased Interests and shall not destroy any of the same
without first allowing the Sellers, at Sellers' expense, the opportunity
to make copies of the same for a period of not less than five years
following the Closing (or if longer, the applicable statutes of
limitation period or the period required by applicable Legal Requirement
or Environmental Law). During such period, Buyers shall grant and shall
cause KNWTLLC to grant to Sellers (and their representatives) reasonable
cooperation, access and staff assistance at all reasonable times and
upon reasonable notice, to all of the information and Books and Records
relating to KNWTLLC or the Purchased Interests relating to the period
prior to the Closing or obligations or liabilities retained by Sellers
hereunder within the possession of Buyers or KNWTLLC (including
workpapers and correspondence with taxing authorities) that are not
otherwise protected by legal privilege, and shall afford Sellers (and
their representatives) the right (at Sellers' expense) to take extracts
therefrom and to make copies thereof, and to have access to the
employees of Buyers, all to the extent reasonably necessary or
appropriate for general business purposes, including the preparation of
Tax Returns and financial statements and the handling of tax audits,
disputes and litigation; provided that such requested cooperation,
access and assistance shall not unreasonably interfere with the normal
operations of Buyers.
(b) Sellers and their respective representatives, contractors,
agents and employees shall continue to have access at all reasonable
times to the Gathering Assets and the Transmission Assets for the
purpose of correcting any environmental conditions for which Sellers
retain responsibility under this Agreement. In addition, Buyers shall
39
grant and shall cause KNWTLLC to grant Panhandle Eastern Pipeline
Company, any successor to its obligations under the Consent Order issued
by the Colorado Oil & Gas Conservation Commission In The Matter of
Panhandle Eastern Pipe Line Company, dated December 17, 1992, and their
respective representatives, contractors, agents, and employees access to
the Gathering Assets and Transmission Assets in accordance with the
Temporary License Agreement Permitting Entry to Property dated March 3,
1993 between KN Front Range Gathering Company, KNWTLLC and Panhandle
Eastern Pipe Line Company.
5.3.4 TRANSFER TAXES.
Sellers shall be responsible for the payment and remittance of all state
and local transfer, sales, use or other similar Taxes resulting from the
transactions contemplated by this Agreement, including the assumption by HSG of
the Master Equipment Lease.
5.3.5 REASONABLE EFFORTS.
Subject to the terms and conditions of this Agreement, each Party will
use its Reasonable Efforts to take, or cause to be taken, all actions and to do,
or cause to be done, all things necessary, proper, or advisable under applicable
laws and regulations to consummate the transactions contemplated by this
Agreement, including satisfying the conditions to Closing, and not taking any
actions which would be inconsistent with the intent of this Agreement.
5.3.6 CERTAIN FILINGS.
(a) Buyers and Sellers shall cooperate with one another (i) in
determining whether any action by or in respect of, or filing with, any
Governmental Authority is required, or any actions, consents, approvals,
or waivers are required to be obtained from parties to any material
Contracts, in connection with the consummation of the transactions
contemplated by this Agreement, and (ii) in taking such actions or
making such filings, furnishing information required in connection
therewith and seeking timely to obtain such actions, consents,
approvals, or waivers.
(b) Within ten Business Days following execution of this
Agreement, Buyers and Sellers will make filings under the HSR Act with
respect to the consummation of the transactions contemplated by this
Agreement. Buyers and Sellers shall use all Reasonable Efforts to obtain
early termination of the waiting period under the HSR Act. Buyers and
Seller will file or cause to be filed as promptly as practicable with
the United States Federal Trade Commission ("FTC") and the United States
Department of Justice ("JUSTICE DEPARTMENT") any supplemental
information which may be requested pursuant to the HSR Act. All filings
referred to in this Section 5.3.6(b) shall comply in all material
respects with the requirements of the respective laws pursuant to which
they are made. The Parties will make such subsequent filings as are
necessary to comply with Legal Requirements prior to Closing. The
Parties shall share equally any filing fees in connection with the
obligations under this Section 5.3.6(b).
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(c) Without limiting the generality or effect of Section
5.3.6(b), and notwithstanding any provision herein to the contrary, each
of the Parties will (i) use Reasonable Efforts to comply as
expeditiously as possible with all lawful requests of Governmental
Authorities for additional information and documents pursuant to the HSR
Act, (ii) not (A) extend any waiting period under the HSR Act or (B)
enter into any voluntary agreement with any Governmental Authorities not
to consummate the transactions contemplated by this Agreement, in either
case except with the prior consent of the other Parties, and (iii)
cooperate with each other and use Reasonable Efforts to obtain the
requisite approval of the FTC and Justice Department, including, without
limitation, (A) the execution, delivery, and performance by the
appropriate entity of such divestiture agreements or other actions, as
the case may be, as may be necessary to secure the expiration or
termination of the applicable waiting periods under the HSR Act, (B) the
removal, dissolution, stay, or dismissal of any temporary restraining
order, preliminary injunction or other judicial or administrative order
which prevents the consummation of the transactions contemplated by this
Agreement or requires as a condition thereto that all or any part of the
Purchased Interests be held separate or (C) the pursuit of necessary
litigation or administrative proceedings (including, if necessary,
participation in proceedings through the trial court level). In the
event that the FTC or Justice Department imposes conditions with respect
to any consent or approval that are not reasonably satisfactory to a
Party, then such Party shall promptly provide the other Party with
written notice of such objection and thereafter either Party may
terminate this Agreement pursuant to Section 8.1(b).
5.3.7 NOTICES OF CERTAIN EVENTS.
Each of Buyers and Sellers shall promptly notify the other Party of:
(a) any notice or other communication from any Person alleging
that the consent of such Person is or may be required in connection with
the transactions contemplated by this Agreement;
(b) any notice or other communication from any Governmental
Authority in connection with the transactions contemplated by this
Agreement or the Purchased Interests;
(c) any Claim commenced or, to its knowledge, threatened against,
relating to, or involving or otherwise affecting such Party that, if
pending on the date of this Agreement, would have been required to have
been disclosed pursuant to any provision of this Agreement or that
relates to the consummation of the transactions contemplated by this
Agreement; and
(d) (i) the discovery by such Party that any representation or
warranty of that Party contained in this Agreement is untrue or
inaccurate in any material respect, (ii) the occurrence or failure to
occur of any event which occurrence or failure to occur would be likely
to cause any of the representations or warranties in this Agreement to
be untrue or
41
incorrect in any material respect as of the date made, and (iii) any
material failure on its part to comply with or satisfy 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 5.3.7 shall not limit or otherwise affect the remedies available
hereunder to the Party receiving such notice.
5.3.8 DAMAGE OR CONDEMNATION.
Buyers shall assume all risk of loss with respect to, and any change in
the condition of, the Wattenberg System from the date hereof until Closing. If
prior to the Closing any part of the Wattenberg System shall be damaged or
destroyed by fire or other casualty or if any part of the Wattenberg System
shall be taken in condemnation or under the right of eminent domain ("CASUALTY
LOSS"), such event shall not excuse Buyers from any of their obligations under
this Agreement or give rise to any right to terminate this Agreement, and
subject to the terms of the Master Equipment Lease, all insurance proceeds,
condemnation proceeds, Claims, awards and other payments arising out of such
Casualty Loss ("Casualty Proceeds") shall be paid to or retained by Sellers. If
Buyers repair or replace the damaged, destroyed or condemned property to a
condition at least as good as its condition immediately prior to such Casualty
Loss, at the request of Buyers, Sellers with the consent and approval of Master
Equipment Lessor, shall apply any such Casualty Proceeds held by Sellers to
reimburse Buyers for the cost of such repair or replacement and shall cooperate
with Buyers in requesting that Master Equipment Lessor apply any such Casualty
Proceeds held by it to such reimbursement of Buyers. If Buyers do not repair or
replace the damaged, destroyed or condemned property to a condition at least as
good as its condition immediately prior to such Casualty Loss, the Casualty
Proceeds received by Sellers shall be applied as follows: (i) first, to reduce
the Base Cash Consideration; (ii) then, to reduce the Facility Fees in the
reverse order that they are payable; (iii) then, to reduce the Gathering Interim
Gross Margin payable to KNGG under the Gathering System Operating Services
Agreement and (iv) then, to reduce the Transmission Interim Margin payable to
KNWTLLC under the Transmission System Operating Services Agreement. If Buyers
repair or replace the damaged, destroyed or condemned property to its condition
immediately prior to such Casualty Loss, and the total amount of Casualty
Proceeds exceed the costs to repair or replace the damaged, destroyed or
condemned property, the excess Casualty Proceeds shall be paid to Buyers.
Sellers or KNWTLLC shall not voluntarily compromise, settle or adjust any
amounts payable by reason of a Casualty Loss without first obtaining the written
consent of Buyers, which consent shall not be unreasonably withheld, conditioned
or delayed. If any Casualty Loss is caused by the negligence, willful misconduct
or gross negligence of Sellers or KNWTLLC and the cost to repair or replace the
damaged or destroyed property to a condition at least as good as its condition
immediately preceding such Casualty Loss exceeds the Casualty Proceeds received
in connection therewith (such excess being the "Uninsured Cost"), the Base Cash
Consideration shall be reduced by the percentage of such Uninsured Cost that
equals the percentage that the negligence, willful misconduct or gross
negligence of Sellers or KNWTLLC that contributed to the cause of such Casualty
Loss bears to all causes that contributed thereto.
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5.3.9 CONTINUED OPERATION.
From and after the date hereof until the Operations Transfer Date,
Sellers shall:
(a) continue to operate the Wattenberg System in a working order,
condition and repair, that is substantially the same as on the date hereof
(normal wear and tear excepted) and consistent with Sellers' past practices;
(b) cooperate with Buyers to effect an orderly transition in the
operatorship of the Wattenberg System;
(c) keep Buyers fully advised as to all material decisions and operating
activities with respect to the Wattenberg System;
(d) allow Buyers' personnel to accompany Sellers' personnel in all
material meetings and activities concerning the operation of the Wattenberg
System and the Plant;
(e) use Reasonable Efforts to communicate to appropriate personnel of
Buyers all relevant information regarding Sellers' method of operation of the
Wattenberg System, including documentation, practices and procedures, regulatory
procedures, health, safety and environmental manuals and other relevant matters;
and
(f) without the consent of Buyers, which consent will not be
unreasonably withheld, conditioned or delayed, take no material action
concerning the Wattenberg System, except for routine operations, maintenance and
such actions as are required by Contract, Legal Requirements or Environmental
Laws or to respond to an emergency.
5.3.10 ENVIRONMENTAL REVIEW.
(a) Sellers consent to and shall reasonably cooperate with Buyers
concerning the performance of, and Buyers shall cause to be performed on or
before February 15, 2000, an environmental assessment ("ENVIRONMENTAL
ASSESSMENT") of the Gathering Assets and the Transmission Assets for the
existence of Defective Environmental Conditions associated with or arising from
their condition, ownership or operation prior to the Operations Transfer Date
and agree to allow Buyers and L.T. Environmental, Inc., Terracon, Environmental
and Health and Safety, Inc. or other environmental consultants or technical
representatives that have been approved by Sellers (which approval shall not be
unreasonably withheld, conditioned or delayed) (the "BUYERS' ENVIRONMENTAL
CONSULTANTS") to have access to the Gathering Assets and the Transmission Assets
for this purpose at any reasonable time or times prior to February 15, 2000 (the
"ASSESSMENT PERIOD").
(b) The scope of work for the Environmental Assessment shall be in
writing and mutually agreed upon by Buyers and Sellers, provided that the
agreement of Sellers shall not be unreasonably withheld, conditioned or delayed.
Buyers and Buyers' Environmental Consultants will confer with Sellers before
conducting any work, shall perform any work in a safe manner and
43
shall comply with all of Sellers' safety and operations requirements in
connection with the Environmental Assessment. Prior to conducting any such work
associated with the Plant Interest, Buyers shall obtain the consent of BP Amoco
plc, the operator of the Plant, and Buyers shall comply with any requirements of
such operator with respect thereto. Buyers shall be responsible for obtaining
any other third party consents that are required in order to perform any
Environmental Assessment work, and Buyers shall consult with Sellers prior to
seeking any third party consent.
(c) Buyers shall bear all costs associated with the Environmental
Assessment. Sellers understand and acknowledge that the Environmental Assessment
may involve testing of soil, groundwater, subsurface media and surface water at,
on, in or under the Gathering Assets and Transmission Assets and may involve
soil borings and the collection of samples by hydropunch, geoprobe, monitoring
xxxxx or similar means. Buyers shall be responsible for disposing of any soil
cuttings or other waste generated by this testing in accordance with applicable
Environmental Laws and shall restore the Gathering Assets and Transmission
Assets at the end of the Assessment Period to their condition prior to the
performance of the Environmental Assessment. No excavation other than soil
borings or the installation of groundwater xxxxx approved by Sellers pursuant to
this Section 5.3.10(b) shall be undertaken without the prior consent of Sellers,
which consent shall not be unreasonably withheld, conditioned or delayed. Buyers
and Buyers' Environmental Consultants shall use low-flow sampling techniques
whenever any groundwater samples are collected.
(d) Unless otherwise required by law, Buyers agree to treat
confidentially all reports prepared for Buyers by Buyers' Environmental
Consultants in connection with the performance of the Environmental Assessment,
and the factual data and other information contained in such reports
(collectively, referred to herein as the "ENVIRONMENTAL Information"). The
Environmental Information may only be used by Buyers, Sellers and KNWTLLC in
connection with the transactions contemplated by this Agreement or as may be
appropriate in connection with the discharge of their respective legal
obligations. If Buyers or their representatives become legally compelled to
disclose any of the Environmental Information, Buyers shall provide Sellers and
KNWTLLC with prompt notice prior to any such disclosure so that they, if they
disagree with this obligation to disclose, may seek a protective order or other
appropriate remedy and/or waive compliance with the applicable provisions of
this Section 5.3.10(d). If this Agreement is terminated pursuant to any of the
provisions of Article VIII, the factual data within the Environmental
Information shall be delivered to and become the property of Sellers provided
Buyers shall be entitled to retain a copy of such portions of the Environmental
Information as is reasonable to allow Buyers to defend or prosecute any legal
proceeding covering matters relevant to such Information.
(e) Buyers shall make the factual data within the Environmental
Information available to Sellers and KNWTLLC and provide Sellers and KNWTLLC
copies thereof without charge.
(f) Sellers and KNWTLLC shall have the right to have a representative or
representatives accompany Buyers and Buyers' Environmental Consultants at all
times during the Environmental Assessment, subject to the availability of any
necessary third party consents, and
44
Buyers agree to give Sellers verbal notice not more than 7 days and not less
than 48 hours before any visits by Buyers or Buyers' Environmental Consultants
to the Gathering Assets, the Transmission Assets or areas potentially affected
by them. Buyers agree to take and provide to Sellers split samples of all
sampling performed during the Environmental Assessment at which Sellers or their
representatives are present to take custody of split samples, subject to the
availability of any necessary third party consents. Buyers shall use their
Reasonable Efforts to obtain any third party consents that may be required in
order for Sellers, KNWTLLC and their representatives to exercise their rights
under this Section 5.3.10(f).
(g) To establish the existence of one or more Defective Environmental
Conditions, Buyers shall deliver to Sellers a notice (an "ENVIRONMENTAL DEFECT
NOTICE") on or before February 15, 2000, asserting the existence of a Defective
Environmental Condition and including (i) the written conclusion of Buyers'
Environmental Consultants that a Defective Environmental Condition exists, which
conclusion shall be reasonably substantiated by the factual data gathered in the
Environmental Assessment, (ii) a separate citation of the specific provisions of
Environmental Laws implicated, and the related facts, that substantiate the
Defective Environmental Condition, and (iii) Buyers' estimate of the
Environmental Costs and Environmental Defect NPV associated with the Defective
Environmental Condition, including basis for such estimate. Such Environmental
Defect Notice must contain a site plan showing the location of all sampling
events, boring logs and other field notes describing the sampling methods
utilized and the field conditions observed, chain-of-custody documentation,
laboratory reports, and the anticipated procedures to correct the Defective
Environmental Condition.
(h) On or before March 15, 2000, Sellers shall provide Buyers with
written notice as to whether they acknowledge the existence of each Defective
Environmental Condition asserted by Buyers in an Environmental Defect Notice
delivered pursuant to the terms hereof. If Sellers do not provide Buyers on or
before said time with a written notice that Sellers reject the conclusion in the
Environmental Defect Notice as to the existence of any Defective Environmental
Condition, Sellers shall be deemed to have acknowledged the existence of such
Defective Environmental Condition.
(i) If Sellers timely reject the existence of any Defective
Environmental Condition asserted by Buyers in any Environmental Defect Notice,
then the Parties shall attempt in good faith to resolve the matter by mutual
written agreement. If the matter is not resolved by mutual written agreement,
Buyers shall have thirty (30) days after the receipt of Seller's notice of
rejection to institute arbitration proceedings under Article IX to resolve the
matter. If Buyers do not institute such arbitration proceedings within this
30-day time period and the matter has not been resolved by mutual written
agreement, Buyers shall be deemed to have acknowledged that no Defective
Environmental Condition exists with respect to those matters rejected by
Sellers.
(j) Sellers shall have the right, but not the obligation, to correct any
Defective Environmental Condition. Within 60 days after all Defective
Environmental Conditions asserted by Buyers have been finally established
pursuant to Sections 5.3.10(h) or (i), including under the provisions of Article
IX if applicable, Sellers shall notify Buyers of those Defective Environmental
Conditions for which Sellers elect to retain responsibility to correct and those
Defective
45
Environmental Conditions for which Sellers elect that Buyers assume
responsibility for correcting. With respect to each Defective Environmental
Condition for which Sellers elect to retain responsibility to correct pursuant
to the preceding sentence and that is not corrected by Sellers prior to Closing,
Sellers shall notify Buyers not less than 30 days prior to the Closing whether
Sellers elect to continue to retain responsibility after the Closing for
correcting such Defective Environmental Condition or elect that Buyers assume
responsibility for completing the correction of such Defective Environmental
Condition after Closing. Subject to the Transaction Threshold, the Base Cash
Consideration shall be reduced by the aggregate Environmental Defect NPV
computed as of the Closing of all Environmental Costs (whether incurred before
or after Closing) of the Defective Environmental Conditions that Sellers elect
that Buyers assume responsibility for correcting pursuant to the second sentence
of this Section 5.3.10(j), plus the aggregate Environmental Defect NPV computed
as of the Closing of all Environmental Costs to be incurred after Closing with
respect to the Defective Environmental Conditions for which Sellers elect that
Buyers assume responsibility for correcting pursuant to the third sentence of
this Section 5.3.10(j), but if Sellers shall have given Buyers the notice
provided for in the first sentence of Section 5.3.10(k), the Base Cash
Consideration shall not be reduced pursuant to this Section 5.3.10(j) by more
than $6,000,000.
(k) If the aggregate Environmental Costs of all Defective Environmental
Conditions asserted by Buyers in Environmental Defect Notices submitted by
Buyers (excluding the first $400,000 of Environmental Defect NPV for Defective
Environmental Conditions associated with the matters described in Part II of
Section 3.1.6 of the Disclosure Schedule) exceeds $6,000,000, Sellers shall have
30 days after February 15, 1999 to notify Buyers that Sellers elect to terminate
this Agreement if Buyers do not agree to assume responsibility for all
Environmental Costs for all asserted Defective Environmental Conditions in
excess of such amount. If within 10 days after receipt of Sellers' notification
pursuant to the pursuant to the preceding sentence, Buyers do not notify Sellers
that Buyers agree to assume responsibility for any Environmental Costs in excess
of such amount, then this Agreement shall automatically terminate.
(l) The Party responsible for correcting any Defective Environmental
Condition under Section 5.3.10 (j) shall proceed in a reasonably expeditious
manner in accordance with industry accepted practices to correct such Defective
Environmental Condition in accordance with Section 5.3.10(m). Buyers will
cooperate with Sellers in implementing any remedial activities for which Sellers
retain responsibility hereunder.
(m) To correct a Defective Environmental Condition involving a violation
of Environmental Laws or a violation disclosed in Part I of Section 3.1.6 of the
Disclosure Schedule, and in either case not involving the release of Hazardous
Materials into the soil, subsurface media, groundwater or surface water, the
Party responsible for correcting such Defective Environmental Condition under
the provisions of Sections 5.3.10(j), or Sellers in the case of a matter
disclosed in said Part I of Section 3.1.6, shall correct the violation or
condition and provide reasonable evidence to the other Party substantiating that
the violation or condition has been corrected. To correct a Defective
Environmental Condition involving the release of Hazardous Materials into the
soil, subsurface media, groundwater or surface water, or a matter disclosed in
Part I of
46
Section 3.1.6 of the Disclosure Schedule involving the release of Hazardous
Materials into the soil, subsurface media, groundwater or surface water, the
responsible Party shall perform, or cause to be performed, the type of response
action that a prudent operator would perform (including, if applicable under the
criteria described in the definition of Environmental Costs, non permanent
response actions such as those referenced in the definition of Environmental
Costs) and shall provide the other Party with written assurance from the
appropriate Governmental Authority that no further action is required in
connection with the Defective Environmental Condition, or if no such written
assurance is typically extended by the Governmental Authority or customarily
obtained under normal procedures observed by prudent operators, and a
certification from a qualified consultant that the appropriate response action
has been performed and that no further response is required under applicable
Environmental Laws. The "Governmental Authority" referred to in this Section
5.3.10(m) means Colorado agencies in the first instance, and other agencies only
if the other agencies affirmatively and appropriately assert jurisdiction.
(n) In the event of any Dispute regarding the Environmental Costs or
Environmental Defect NPV of any Defective Environmental Condition for which
Sellers elect that Buyers assume responsibility for correcting under Section
5.3.10(j), the Dispute shall be resolved in accordance with Article IX. The
resolution of any such Dispute shall not delay the Closing and no adjustment
shall be made at Closing with respect to any Environmental Costs or
Environmental Defect NPV in Dispute in excess of the portion thereof that the
Parties have agreed upon. After any such Dispute is finally resolved pursuant to
Article IX, then subject to the Transaction Threshold and the last sentence of
this Section 5.3.10(n), Sellers shall pay to Buyers any amount that the
arbitrators have determined to be owed by Sellers to Buyers in excess of the
amount credited to Buyers at the Closing with respect thereto. Buyers shall not
assert in any arbitration proceeding any claim for Environmental Defect NPV in
connection with any Defective Environmental Condition in excess of the amount
set forth in its Environmental Defect Notice with respect to such Defective
Environmental Condition, and the arbitrators under Article IX shall not award
any Environmental Defect NPV in connection with any Defective Environmental
Condition in excess of the amount set forth in the Environmental Defect Notice
with respect to such Defective Environmental Condition.
(o) Sellers shall provide Buyers all factual data Sellers acquire
(promptly after such data is acquired) regarding any Environmental Matter for
which responsibility for correcting is retained by Seller under the provisions
hereof.
5.3.11 CONDUCT OF BUSINESS.
Each of Sellers jointly and severally covenant and agree with Buyers
that, from the date of this Agreement until the Closing Date, subject to the
Operating Services Agreements and applicable regulatory requirements, it will
conduct its business only in the ordinary and usual course consistent with past
business practices insofar as such practices relate to the Wattenberg System and
the Purchased Interests. Notwithstanding the preceding sentence, Sellers jointly
and severally covenant and agree with Buyers that, except as specifically
contemplated in this Agreement, from the date of this Agreement until Closing
(unless another date is specifically
47
stated below), without the prior written consent of Buyers, which consent shall
not be unreasonably withheld, conditioned or delayed:
(a) Sellers will not, and will cause KNWTLLC not to, (i) amend
the operating agreement or other formation documents of KNWTLLC; (ii)
split, combine or reclassify any of the Membership Interest of KNWTLLC;
(iii) issue, sell or agree to issue or sell any securities in KNWTLLC,
including the Membership Interest, any rights, options or warrants to
acquire membership interests in KNWTLLC, or securities convertible into
or exchangeable or exercisable for a membership interest in KNWTLLC;
(iv) merge or consolidate KNWTLLC with, or transfer all or substantially
all of the assets of KNWTLLC to, another business entity; (v) liquidate,
wind-up or dissolve KNWTLLC (or suffer any liquidation or dissolution of
KNWTLLC); or (vi) enter into any contract, agreement, commitment or
arrangement with respect to any of the foregoing.
(b) Sellers will cause KNWTLLC not to (i) acquire any
corporation, partnership or other business entity or any interest
therein; (ii) sell, lease or sublease, transfer or otherwise dispose of
or mortgage, pledge or otherwise encumber any Transmission Assets,
except for Permitted Encumbrances; (iii) except for advances to
Affiliates in the ordinary course of business consistent with past
practices, make any material loans, advances or capital contributions
to, or investments in, any third party or Affiliate; or (iv) enter into
any contract, agreement, commitment or arrangement with respect to any
of the foregoing.
(c) Sellers will cause KNWTLLC not to (i) incur any Indebtedness
for borrowed money, other than amounts payable to Affiliates incurred in
the ordinary course of business consistent with past practices and
amounts incurred pursuant to Section 5.3.20; (ii) voluntarily incur any
other obligation (other than obligations incurred in the ordinary course
of business and consistent with past practices); (iii) assume, endorse
(other than endorsements of negotiable instruments in the ordinary
course of business), guarantee or otherwise voluntarily become liable or
responsible (whether directly, contingently or otherwise) for the
liabilities or obligations of any third party or Affiliate; or (iv)
enter into any contract, agreement, commitment or arrangement with
respect to any of the foregoing.
(d) Sellers will cause KNWTLLC not to (i) enter into, or
otherwise become liable or obligated under or pursuant to, (1) any
employee benefit, pension or other plan (whether or not subject to
ERISA), (2) any other stock option, stock purchase, incentive or
deferred compensation plans or arrangements or other fringe benefit
plan, or (3) any consulting, employment, severance, termination or
similar agreement with any third person, or amend or extend any such
plan, arrangement or agreement; (ii) grant, or otherwise become liable
for or obligated to pay, any severance or termination payments, bonuses
or increases in compensation or benefits to, or forgive any Indebtedness
of, any consultant; or (iii) enter into any contract, agreement,
commitment or arrangement to do any of the foregoing.
48
(e) Sellers will cause KNWTLLC to keep and maintain accurate
Books and Records in the same manner as such Books and Records are kept
and maintained currently and which are consistent with its past
practices.
(f) Sellers will not, and will cause KNWTLLC not to, voluntarily
create, incur, assume or permit to exist any Encumbrance, other than any
Permitted Encumbrance, on any of the Purchased Interests.
(g) Sellers, for the benefit of KNWTLLC, will maintain in full
force and effect until the Operations Transfer Date the policies or
binders of insurance described in Section 3.1.9 of the Disclosure
Schedule.
5.3.12 PRESS RELEASE.
Prior to the Closing and for thirty (30) days thereafter, Sellers and
Buyers will consult with each other before issuing any press release or
otherwise making any public statements with respect to the transactions
contemplated by this Agreement; provided, however, the foregoing shall not
prevent either Party from making a public disclosure it believes in good faith
is required by applicable law or any listing or trading agreement concerning its
publicly-traded securities.
5.3.13 NO SOLICITATION.
Sellers will not, and will cause KNWTLLC not to, solicit, initiate or
knowingly encourage the submission of any offer or proposal to acquire all or
any part of the Purchased Interests or the Transmission Assets whether by
merger, purchase of assets, tender offer, exchange offer or otherwise nor will
Sellers negotiate concerning or provide any data to any Person in furtherance of
such an offer or proposal.
5.3.14 SIGNS.
Within ninety (90) days of Closing, Buyers shall cause the name of
Sellers or any reference to Sellers, to be removed from any signs located on or
about any of the Purchased Interests.
5.3.15 REMOVAL OF INVENTORY.
Without the prior consent of Buyers which shall not be unreasonably
withheld, conditioned or delayed, Sellers will not remove, sell, transfer or
exchange any of the personal property and equipment constituting part of the
Purchased Interests or the Transmission Assets.
5.3.16 FERC.
HSG shall operate the Transmission Assets in a manner consistent with
the Tariff as it may be amended or supplemented from time to time, and otherwise
in accordance with the regulations of the FERC under the Natural Gas Act.
Sellers will advise Buyers of any material discussions with FERC with respect to
the Wattenberg System. Without the prior written consent of Buyers which shall
not be unreasonably withheld, conditioned or delayed, Sellers will not amend the
Tariff in any material respect, except as may be required to comply with rules,
regulations or orders of FERC.
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5.3.17 NEW AGREEMENTS.
Without the prior written consent of Buyers which shall not be
unreasonably withheld, conditioned or delayed, KNGG will not enter into any new
gathering agreement with any third party for service through the Gathering
Assets, or amend or terminate any existing gathering agreement.
5.3.18 PAYMENT FOR IMBALANCES.
Section 5.3.18 of the Disclosure Schedule is a schedule (the "Imbalance
Schedule") setting forth by party the estimated amount of all Imbalance
Payables-Gathering, Imbalance Payables-Transmission, Imbalance
Receivables-Gathering and Imbalance Receivables-Transmission as of September 30,
1999. The amount of the imbalances reflected in the Imbalance Schedule have been
valued at a price of $2.52 per MMBTU for the purposes of computing the amount
paid by Seller to Buyers pursuant to Section 2.4(b)(ii) and shall be valued at
such price for all purposes of this Section 5.3.18. It is understood that as
additional information becomes available and adjustments are made in the
ordinary course of business prior to March 31, 2000, the amount of the
imbalances and the resulting value of such imbalances as of such date may
change. Sellers shall provide such information with respect to such imbalances
and any adjustments thereto from time to time as Buyers may reasonably request.
If on or before March 31, 2000 either Party determines, but subject to the right
of the other Party to Dispute such determination pursuant to Article IX hereof,
that the sum of the value (based on the price set forth above) of the Imbalance
Receivables-Gathering plus the Imbalance Receivables-Transmission less the
Imbalance Payables-Gathering less the Imbalance Payables-Transmission is more
than the amount paid by Buyers pursuant to Section 2.4(b)(ii) as such payment
may have previously been adjusted by payments made pursuant to this Section
5.3.18, Buyers shall promptly pay the difference to Sellers. If it is determined
that the sum of the value (based on the price set forth above) of the Imbalance
Receivables-Gathering plus the Imbalance Receivables-Transmission less the
Imbalance Payable-Gathering less the Imbalance Payable-Transmission is less than
the amount paid by Buyers pursuant to Section 2.4(b)(ii) as such payment may
have previously been adjusted by payments made pursuant to this Section 5.3.18,
Sellers shall promptly pay the difference to Buyers. Effective as of October 1,
1999, Buyers shall assume and be responsible for, and shall be entitled to the
benefit of the Imbalance Payables-Gathering, Imbalance Payables-Transmission,
Imbalance Receivables-Gathering and Imbalance Receivables-Transmission. Any gas
imbalances arising after October 1, 1999 in connection with the operation of the
System shall be the sole responsibility of Buyers.
5.3.19 OPTIONAL EXCLUDED ASSETS. Sellers shall have the right at any
time prior to Closing to elect to retain all or any portion of the Optional
Excluded Assets. If Sellers elect to retain any of the Optional Excluded Assets,
Sellers shall at their sole cost and expense perform or cause to be performed
the work described in Schedule 5.3.19 within six months after the Closing Date
with respect to the Optional Excluded Assets that Sellers have elected to
retain.
5.3.20 MODIFICATIONS AND LOANS RELATED THERETO. HSG shall advance to
KNGG and KNWTLLC as loans the amount of all costs and expenses incurred by them
in making any
50
Modifications to the System since October 1, 1999. Such loans with respect to
all amounts incurred by KNGG or KNWTLLC prior to execution of this Agreement
shall be advanced pursuant to Section 2.4(b), and with respect to all other
amounts incurred by KNGG or KNWTLLC as such amounts are incurred by either of
them. The Direct Costs of all Modifications made after the Operations Transfer
Date that satisfy the requirements of Section 3.3 of the Operating Services
Agreements shall be paid directly by HSG under the Operating Services
Agreements, and treated by each Party as loans from HSG to KNGG or KNWTLLC, as
applicable. The loans made pursuant to this Section 5.3.20 shall bear no
interest prior to maturity. The principal amount of all loans made pursuant to
this Section 5.3.20 shall be payable in full on the earlier of termination of
this Agreement or the Closing Date. Such loans shall constitute unsecured
obligations and HSG waives and releases any lien or security interest, express
or implied, to secure payment of such amounts. The Base Cash Consideration shall
be increased by the amount of the loans made pursuant to this Section 5.3.20.
5.3.21 NO WARRANTY AND DISCLAIMERS.
BUYERS ACKNOWLEDGE THAT EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT
SELLERS HAVE NOT MADE, AND SELLERS HEREBY EXPRESSLY DISCLAIM AND NEGATE, AND
BUYERS HEREBY EXPRESSLY WAIVE, ANY REPRESENTATION OR WARRANTY, EXPRESS, IMPLIED,
AT COMMON LAW, BY STATUTE OR OTHERWISE RELATING TO (A) THE QUALITY, QUANTITY OR
VOLUME OF THE RESERVES OF HYDROCARBONS, IF ANY, THAT MAY BE SERVICED BY THE
GATHERING ASSETS OR THE TRANSMISSION ASSETS, (B) WHETHER OR NOT ANY "GAPS" EXIST
IN THE RIGHTS-OF-WAY THAT ARE PART OF THE GATHERING ASSETS AND TRANSMISSION
ASSETS, OR (C) THE ACCURACY, COMPLETENESS OR MATERIALITY OF ANY INFORMATION,
DATA OR OTHER MATERIALS (WRITTEN OR ORAL), HERETOFORE FURNISHED TO BUYERS BY OR
ON BEHALF OF A SELLER. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, SELLERS
EXPRESSLY DISCLAIM AND NEGATE, AND BUYERS HEREBY WAIVE, AS TO PERSONAL PROPERTY,
EQUIPMENT AND FIXTURES CONSTITUTING A PART OF THE GATHERING ASSETS OR
TRANSMISSION ASSETS (I) ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, (II)
ANY IMPLIED OR EXPRESS WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, (III) ANY
IMPLIED OR EXPRESS WARRANTY OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS,
(IV) ANY RIGHTS OF PURCHASERS UNDER APPROPRIATE STATUTES TO CLAIM DIMINUTION OF
CONSIDERATION, (V) ANY CLAIMS BY BUYERS FOR DAMAGES BECAUSE OF ANY LATENT OR
PATENT DEFECTS OR OTHER DEFECTS, WHETHER KNOWN OR UNKNOWN, AND (VI) ANY AND ALL
IMPLIED WARRANTIES EXISTING UNDER APPLICABLE LAW; IT BEING THE EXPRESS INTENTION
OF BUYERS AND SELLERS THAT EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, THE
PERSONAL PROPERTY, EQUIPMENT AND FIXTURES INCLUDED WITHIN THE GATHERING ASSETS
AND TRANSMISSION ASSETS ARE HEREBY CONVEYED TO BUYERS IN THEIR PRESENT CONDITION
AND STATE OF REPAIR, "AS IS" AND "WHERE IS" WITH ALL FAULTS, AND THAT BUYERS
HAVE MADE OR CAUSED TO BE MADE SUCH INSPECTIONS AS BUYERS DEEM APPROPRIATE.
SELLERS AND BUYERS AGREE THAT, TO THE EXTENT REQUIRED BY APPLICABLE LAW TO BE
EFFECTIVE, THE DISCLAIMERS OF CERTAIN WARRANTIES CONTAINED IN THIS SECTION ARE
"CONSPICUOUS" DISCLAIMERS FOR THE PURPOSES OF ANY APPLICABLE LEGAL REQUIREMENT.
51
5.3.22 FT. XXXXXX AIR PERMITS.
(a) Buyers shall operate the Ft. Xxxxxx station equipment at its present
throughput and load (i.e., reduced from its full throughput and load) until all
Permit modifications that may be required to authorize current or changed
emission limits are finalized and in-place.
(b) Within 90 days after the Operations Transfer Date, Buyers shall
notify Sellers in writing identifying the Permit modification strategy Buyers
desire Sellers to pursue to address the conditions disclosed in Section 3.1.5
(I) of the Disclosure Schedule. In the event Sellers determine prior to the
Operations Transfer Date as a matter of federal or state law, or if at any time
an appropriate government agency so indicates, that an application for Permit
modifications is necessary to mitigate damages or liability associated with
potential enforcement related to the conditions disclosed in Section 3.1.5(I) of
the Disclosure Schedule, Buyers acknowledge that Sellers may expediently
initiate appropriate Permit modifications to conform the facility air Permit
limitations to its present reduced operating throughputs and engine loads.
Sellers shall consult with Buyers before initiating any such modification
procedure with a Governmental Authority and shall allow Buyers an opportunity to
comment on the actions that Sellers wishes to take. Seller shall fairly consider
Buyers recommendations in connection therewith.
(c) Sellers shall cooperate with Buyers in perfecting the Permit or
facility modifications elected by Buyers in accordance with subsection (b)
above. Sellers shall be the primary contact with the appropriate Governmental
Authorities regarding any such Permit modifications elected by Buyers. Buyers
and Sellers shall confer prior to all meetings with a Governmental Authority in
this regard and Buyers may attend any such meetings with Sellers. Sellers shall
be the primary entity responsible for obtaining approval of the Permit
modifications requested by Buyer pursuant to subsection (b) above. In fulfilling
its obligations in this subsection, Sellers shall incur and be responsible for
its internal personnel costs, consultant fees, or agency review fees, as
incurred, not to exceed $10,000 for consultant fees and agency review fees in
the aggregate. Buyers shall be responsible for any and all other costs related
to obtaining the Permit modifications, including but not limited to their own
internal direct and indirect costs and expenses, or any capital expenditures for
facilities or equipment to meet the requirements of the Permit modifications,
and Buyers shall reimburse Sellers for any consultant fees and agency review
fees incurred by Sellers in connection with this subsection in excess of
$10,000.
(d) Sellers shall obtain any necessary Permit modifications to address
any Permit deviations reflected in the October 15, 1999, Semi-Annual Compliance
Certification for the Fort Xxxxxx facility as noted in Section 3.1.5 (II) of the
Disclosure Schedule, including a Permit modification to correct the carbon
monoxide emission limitation for one engine to conform with the accurate
limitation as reflected in the original construction Permit for that engine.
(e) Sellers shall indemnify, defend, and hold the Buyer Indemnified
Parties harmless from and against all Claims, including administrative fines or
penalties, that arise from or relate to (i) obtaining the limited necessary
Permit modifications to conform the facility air Permit limitations to the
facility's present reduced operating throughputs and engine loads necessary to
address the conditions in Section 3.1.5 (I) of the Disclosure Schedule, or (ii)
the Permit deviations reflected in
52
the October 15, 1999, Semi-Annual Compliance Certification for the Fort Xxxxxx
facility as noted in Section 3.1.5 (II) of the Disclosure Schedule. Buyers shall
indemnify, defend, and hold harmless the Seller Indemnified Parties from and
against any and all other Claims, including administrative fines or penalties,
that arise from or relate to obtaining Permit modifications to address the
conditions in Section 3.1.5 of the Disclosure Schedule, excluding however any
matters covered by Section 7.1(f) which shall continue to apply. The
indemnifications contained in this Section 5.3.22 shall be in lieu of and
supercede in their entirety any indemnification that would otherwise be
available under Sections 7.1 and 7.2 relating to the conditions disclosed in
Section 3.1.5 of the Disclosure Schedule, excepting the indemnities set forth in
Section 7.1(f).
ARTICLE VI. CONDITIONS TO CLOSINGS
SECTION 6.1 CONDITIONS TO BUYERS' OBLIGATION TO CLOSE.
Buyers' obligation to close under this Agreement is subject to the
fulfillment on the Closing Date, of each of the following conditions (except to
the extent that Buyers shall have hereafter agreed in writing to waive one or
more of such conditions):
6.1.1 LITIGATION.
There shall not be pending any litigation or proceeding (filed by a
person or entity other than Buyers or their Affiliates) to restrain or prohibit
any material portion of the transactions contemplated by this Agreement or to
obtain material damages or other material relief in connection with the
consummation of such transactions.
6.1.2 PERFORMANCE OF CERTAIN OBLIGATIONS.
Sellers shall have performed in all material respects all obligations
required by this Agreement to be performed by Sellers at the Closing.
6.1.3 HSR ACT.
The applicable waiting period under the HSR Act with respect to the
transactions contemplated hereby shall have expired or been terminated, and the
consent or approval of the FTC and the Justice Department, if any, shall be in
form and substance reasonably satisfactory to Buyers.
6.1.4 RESIGNATION OF OFFICERS.
Sellers shall deliver to Buyers resignations of the managers, members of
the board of directors and all officers of KNWTLLC.
53
6.1.5 REGULATORY MATTERS .
Any Governmental Authority shall have asserted that any consent or
approval is required by it in connection with the transactions contemplated
hereby, other than the consents and approvals required pursuant to the HSR Act,
and Buyers shall have determined in good faith after consulting with counsel
that (a) if such consent or approval has been obtained, the conditions
associated with such consent or approval are unacceptable, or (b) if such
consent or approval has not been obtained, that the risks of Closing without
such consent or approval are unacceptable.
SECTION 6.2 CONDITIONS TO SELLERS' OBLIGATION TO CLOSE.
The obligation of Sellers to close under this Agreement is subject to
the fulfillment on the Closing Date of each of the following conditions (except
to the extent that Sellers shall have hereafter agreed in writing to waive one
or more of such conditions):
6.2.1 LITIGATION.
There shall not be pending any litigation or proceeding (filed by a
person or entity other than Sellers or their Affiliates) to restrain or prohibit
any material portion of the transactions contemplated by this Agreement or to
obtain material damages or other material relief in connection with the
consummation of such transactions.
6.2.2 PERFORMANCE OF CERTAIN OBLIGATIONS.
Buyers shall have paid to Sellers and KNWTLLC all amounts to be paid to
them on or before the Closing under the terms of this Agreement and the
Operating Services Agreements and shall have performed in all material respects
all other obligations required by this Agreement to be performed by Buyers at
the Closing.
6.2.3 HSR ACT.
All applicable waiting periods under the HSR Act with respect to the
transactions contemplated hereby shall have expired or been terminated, and the
consent or approval of the FTC and the Justice Department, if any, shall be in
form and substance reasonably satisfactory to Sellers.
6.2.4 REGULATORY MATTERS.
Any Governmental Authority shall have asserted that any consent or
approval is required by it in connection with the transactions contemplated
hereby, other than the consents and approvals required pursuant to the HSR Act,
and Sellers shall have determined in good faith after consulting with counsel
that (a) if such consent or approval has been obtained, the conditions
associated with such consent or approval are unacceptable, or (b) if such
consent or approval has not been obtained, that the risks of Closing without
such consent or approval are unacceptable.
54
ARTICLE VII. INDEMNIFICATION
SECTION 7.1 INDEMNIFICATION OF BUYERS.
Subject to Sections 7.3 and 7.6, Sellers shall jointly and severally
indemnify and defend Buyers, their Affiliates and their directors, officers,
employees, contractors, agents and other representatives ("BUYER INDEMNIFIED
PARTIES") against, and hold each Buyer Indemnified Party harmless from any loss,
liability, damage, cost, expense, action, award, suit, proceedings, hearing,
investigation, charge, complaint, Claim, demand, injunction, judgment, order,
decree, ruling, taxes, liens, dues, or environmental response action obligation
(including reasonable costs of defense and investigations, settlements, and
fees, including court costs and reasonable attorneys' and witness fees) or
penalties or fines (collectively "LOSSES") that such Buyer Indemnified Party
incurs to the extent arising out of or resulting from any of the following, and
in each case whether known or unknown (unless and to the extent as to particular
warranties and representations such matter is expressly limited herein by
Knowledge), each of the following (a) through (i) being an independent cause for
indemnification not affected or limited by any other such cause:
(a) the failure of any of the representations and warranties of
either of Sellers contained in this Agreement to be true and correct as
of the date made (including the Closing Date for those representations
and warranties that are also made as of the Closing Date);
(b) the failure of either of Sellers to perform in any material
respect any covenant of Sellers herein or in the Operating Services
Agreements;
(c) the ownership, operation or use of the Gathering Assets or
Transmission Assets (other than any event, condition or Claim relating
to Environmental Laws or the protection of the environment or health or
safety (an "ENVIRONMENTAL MATTER") and any title matter), prior to the
Operations Transfer Date, to the extent a Claim is asserted with respect
thereto prior to January 1, 2002;
(d) each Environmental Matter described in Part I of Section
3.1.6 of the Disclosure Schedule until such Environmental Matter is
corrected in accordance with Section 5.3.10(m), any Third Party Property
Claim arising out of any such Environmental Matter for which a Claim
Notice is received by Sellers prior to two (2) years after such
Environmental Matter is so corrected, and any Third Party Personal
Injury Claim arising out of any such Environmental Matter for which a
Claim Notice is received by Sellers prior to 4 years after such
Environmental Matter is so corrected;
(e) (i) each Defective Environmental Condition for which Sellers
retain responsibility pursuant to the second or third sentence of
Section 5.3.10(j) until (1) the same is corrected by Sellers in
accordance with Section 5.3.10(m) or (2) Buyers assume responsibility
for such Defective Environmental Condition pursuant to the third
sentence of Section 5.3.10(j);
55
(ii) any Third Party Claim arising out of any such Defective
Environmental Condition managed under clause (i)(1) of this Section
7.1(e) for which a Claim Notice is received by Sellers prior to (A) two
(2) years after such Defective Environmental Condition is corrected in
the case of any Third Party Property Claim, and (B) 4 years after such
Defective Environmental Condition is corrected in the case of any Third
Party Personal Injury Claim, and
(iii) any Third Party Claim arising out of any such Defective
Environmental Condition managed under clause (i)(2) of this Section
7.1(e) for which a Claim Notice is received by Sellers prior to (A)
January 1, 2004, in the case of any Third Party Property Claim and (B)
January 1, 2006, in the case of any Third Party Personal Injury Claim;
(f) fines or penalties imposed as a result of any asserted
criminal violation of a Legal Requirement or an Environmental Law by
Sellers, their Affiliates or their predecessors by merger that relate to
actions or inactions (1) prior to the Operations Transfer Date, or (2)
on or after the Operations Transfer Date to the extent arising out of a
Defective Environmental Condition for which Sellers retain
responsibility for correcting pursuant to the second or third sentences
of Section 5.3.10(j) or Environmental Matters disclosed in Part 1 of
Section 3.1.6 for which Sellers retain responsibility for correcting, to
the extent the fines and penalties relate to the period of time prior to
correction and do not result from any actions or inactions of HSG under
the Operating Services Agreements;
(g) administrative fines or penalties imposed as a result of any
asserted violation of a Legal Requirement or any Environmental Law by
Sellers, their Affiliates or their predecessors by merger that relate to
actions or inactions:
(1) prior to the Operations Transfer Date for which a
Claim Notice is received by Sellers prior to January 1, 2003 (excluding
matters for which Sellers retain correction responsibility as set forth
in (g)(2)), or
(2) before or after the Operations Transfer Date arising
out of a Defective Environmental Condition for which Sellers retain
responsibility pursuant to correct pursuant to the second or third
sentences of Section 5.3.10(j) or matters described in Part I of Section
3.1.6 of the Disclosure Schedule for which Sellers retain responsibility
to correct (i) to the extent the fines or penalties relate to the period
of time prior to correction (except to the extent resulting from the
action or inactions of HSG under the Operating Services Agreements), and
(ii) for which a Claim Notice is received by Sellers prior to two years
after such Defective Environmental Condition or matter described in Part
I of Section 3.1.6 of the Disclosure Schedule is corrected pursuant to
Section 5.3.10(m);
(h) the disposal prior to the Operations Transfer Date at a site
other than the Real Property-Gathering, Real Property-Transmission or
real property associated with the Plant Interest of any Hazardous
Material used in or generated from the operation of the Wattenberg
System, but not including Losses arising from the passive migration of
any
56
Hazardous Material from the Real Property-Gathering, Real
Property-Transmission or real property associated with the Plant
Interest to any other property;
(i) the Retained Litigation;
(j) any act or omission of Sellers, their representatives or
environmental consultants taken in connection with the matters disclosed
on Part I of Section 3.1.6 of the Disclosure Schedule or any Defective
Environmental Condition for which Sellers retain responsibility to
correct pursuant to the second or third sentence of Section 5.3.10(j);
(k) the Excluded Assets;
(l) the matter described in Section 3.1.13 of the Disclosure
Schedule; and
(m) fines, penalties or Claims associated with the absence of
Process Safety Management Plans, if required as a matter of law,
assessed with respect to the period of time ending 90 days after the
Operations Transfer Date and for which a Claims Notice is received by
Sellers, in the case of any fines or penalties, within 2 years after the
end of such period, or in the case of any other Claims, within 4 years
after the end of such period.
SECTION 7.2 INDEMNIFICATION OF SELLERS.
Subject to Sections 7.3 and 7.6 and except as to Losses with respect to
which Sellers indemnify Buyer Indemnified Parties pursuant to Section 7.1
(meaning that in the event of an apparent overlap or inconsistency between the
provision of Section 7.1 and Section 7.2, the provision of Section 7.1 shall
prevail), Buyers shall jointly and severally indemnify and defend Sellers and
their Affiliates (including KNWTLLC if the Closing does not occur) and their
directors, officers, employees, contractors, agents and other representatives
("SELLER INDEMNIFIED PARTIES") against, and hold each Seller Indemnified Party
harmless from any Loss that such Seller Indemnified Party incurs, to the extent
arising out of or resulting from any of the following and in each case whether
known or unknown:
(a) the failure of any of the representations and warranties of
either of Buyers contained in this Agreement to be true and correct as
of the date made (including the Closing Date for those representations
and warranties that are also made as of the Closing Date);
(b) the failure of either of Buyers to perform in any material
respect any covenant of such Buyer herein, in the Operating Services
Agreements or in any other document executed in connection herewith;
(c) any act or omission of Buyers, their representatives or
Buyers' Environmental Consultants during the performance of the
Environmental Assessment;
(d) any act or omission reasonably taken in good faith by Sellers
or at the direction of Buyers pursuant to the terms of Section 2.8;
57
(e) the ownership, operation or use of the Gathering Assets or
Transmission Assets (other than any Environmental Matter) prior to the
Operations Transfer Date, to the extent a Claim is asserted with respect
thereto for the first time on or after, but not before, January 1, 2002;
(f) the ownership, operation or use of the Gathering Assets or
Transmission Assets after the Operations Transfer Date including any
Environmental Matter arising solely as a result of any event or
condition occurring after, and not before, the Operations Transfer Date;
(g) any Environmental Matter occurring with respect to operations
prior to the Operations Transfer Date and that is not described in Part
I of Section 3.1.6 of the Disclosure Statement and does not constitute a
Defective Environmental Condition, to the extent the Claim is asserted
for the first time on or after, and not before, the date for submitting
an Environmental Defect Notice under Section 5.3.10(g);
(h) any Environmental Matter described in Part I of Section 3.1.6
of the Disclosure Schedule after such Environmental Matter is corrected
in accordance with Section 5.3.10(m), and any Third Party Property Claim
arising out of any such Environmental Matter and not subject to a Claim
Notice delivered to Sellers prior to two (2) years after such
Environmental Matter is so corrected;
(i) each Defective Environmental Condition for which Buyers
assume responsibility pursuant to the second or third sentence of
Section 5.3.10(j), and any Third Party Property Claim arising out of any
such Defective Environmental Condition and not subject to a Claim Notice
delivered to Sellers prior to January 1, 2004;
(j) (i) each Defective Environmental Condition for which Sellers
retain responsibility pursuant to the second or third sentence of
Section 5.3.10(j) after (1) the same is corrected by Sellers in
accordance with Section 5.3.10(m) or (2) if applicable, Buyers assume
responsibility for such Defective Environmental Condition pursuant to
the third sentence of Section 5.3.10(j),
(ii) any Third Party Property Claim arising out of any such
Defective Environmental Condition managed under clause (i)(1) of this
Section 7.2(j) and not subject to a Claim Notice delivered to Sellers
prior to two (2) years after such Defective Environmental Condition is
corrected pursuant to Section 5.3.10(m), and
(iii) any Third Party Property Claim arising out of any such
Defective Environmental Condition managed under clause (i) (2) of this
Section 7.2(j) and not subject to a Claim Notice delivered to Sellers
prior to January 1, 2004;
(k) the Imbalance Payables-Gathering, Imbalance
Payables-Transmission, Imbalance Receivables-Gathering and Imbalance
Receivables-Transmission and any gas
58
imbalances arising in connection with the operation of the Wattenberg
System after September 30, 1999; or
(l) any obligation to physically abandon (including without
limitation any further or additional abandonment requirements in the
case of Gathering Assets or Transmission Assets that have already been
abandoned necessary to comply with any change in Environmental Laws or
other applicable laws, rules or regulations occurring after the date
hereof) all pipelines and other facilities now or hereafter part of the
Gathering Assets and Transmission Assets in accordance with the
requirements of all applicable Governmental Authorities and the terms of
all applicable Contracts and Rights of Way.
SECTION 7.3 CERTAIN LIMITATIONS ON INDEMNIFICATION.
Notwithstanding anything to the contrary in this Agreement, the
Indemnities under this Agreement are limited by the following:
(a) no Recoveries with respect to indemnity obligations arising
on account of the breach of a representation and warranty shall be
required or permitted unless the Claim Notice or Indemnity Notice
relevant thereto is delivered to the Indemnifying Party prior to the end
of the survival period with respect to such representation and
warranties as set forth in Section 7.8;
(b) the indemnity obligations of Sellers arising under or with
respect to the following provisions, shall be subject to the Transaction
Threshold:
(i) Section 7.1(a) as to the warranties and representations
in the following Sections:
SECTION NO. TITLE OF SECTION
3.1.3(b) and (c) No Violations
3.1.4 Compliance with Laws
3.1.5 Permits
3.1.6 Environmental Matters
3.1.7 Contracts
3.1.9 Gathering Assets and Transmission
Assets
3.1.10 Title
(i) Sections 7.1(c) and (e)
(c) no Recoveries in favor of Buyer Indemnified Parties under
Sections 7.1(a), (c), or (d) shall be required or permitted in an
aggregate amount in excess of $35 million;
59
(d) no Recoveries in favor of Seller Indemnified Parties under
Sections 7.2(a), (c), (e), or (g) shall be required or permitted in an
aggregate amount in excess of $35 million;
(e) no Recoveries in favor of (i) any Buyer Indemnified Party
shall be made for (A) any fines or penalties imposed as a result of any
asserted criminal violation of a Legal Requirement or Environmental Law
by such Buyer Indemnified Party, its Affiliates or their predecessors by
merger or (B) any Losses to the extent caused by a breach of this
Agreement or either Operating Services Agreement by such Buyer
Indemnified Party, its Affiliates or their predecessors by merger, or
(ii) any Seller Indemnified Party shall be made for (A) any fines or
penalties imposed as a result of any asserted criminal violation of a
Legal Requirement or Environmental Law by such Seller Indemnified Party,
its Affiliates or their predecessors by merger or (B) any Losses to the
extent caused by a breach of this Agreement or either Operating Services
Agreement by such Seller Indemnified Party, its Affiliates or their
predecessors by merger; and
(f) no Recoveries shall be made by any Seller Indemnified Party
under Sections 7.2(g), (h), (i) or (j) for any Third Party Personal
Injury Claim except to the extent such Third Party Personal Injury Claim
resulted from the breach by Buyers of any of their obligations under
this Agreement, and no Recoveries shall be made by any Buyer Indemnified
Party under Section 7.1(e)(iii) for any Third Party Claim to the extent
such Third Party Claim resulted from the breach by Buyers of any of
their obligations under this Agreement.
SECTION 7.4 INDEMNIFICATION PROCEDURES.
All Claims for indemnification under this Agreement shall be asserted
and resolved as follows:
7.4.1 CLAIM NOTICE.
A Party claiming indemnification under this Agreement (an "INDEMNIFIED
PARTY") with respect to any third-party Claim or Claims asserted against the
Indemnified Party ("Third Party CLAIM") for personal injury ("THIRD PARTY
PERSONAL INJURY CLAIM") or property damage ("THIRD PARTY PROPERTY DAMAGE CLAIM")
that could give rise to a right of indemnification under this Agreement shall
promptly (a) notify the Party from whom indemnification is sought (the
"INDEMNIFYING PARTY") of the Third Party Claim and (b) transmit to the
Indemnifying Party a written notice ("CLAIM NOTICE") describing in reasonable
detail the nature of the Third Party Claim, a copy of all papers served with
respect to such Third Party Claim (if any), the Indemnified Party's estimate of
the amount of damages attributable to the Third Party Claim and the basis of the
Indemnified Party's request for indemnification under this Agreement. Subject to
Section 7.4.2, failure to provide such Claim Notice shall not affect the right
of the Indemnified Party's indemnification hereunder except to the extent the
Indemnifying Party is materially prejudiced thereby. Within 60 days after
receipt of any Claim Notice (the "ELECTION PERIOD"), the Indemnifying Party
shall notify the Indemnified Party whether the Indemnifying Party desires to
defend the Indemnified Party against such Third Party Claim; provided that if
the Indemnifying
60
Party fails to so notify the Indemnified Party during the Election Period, the
Indemnifying Party shall be deemed to have elected to dispute such liability.
7.4.2 DEFENSE BY INDEMNIFYING PARTY.
If the Indemnifying Party notifies the Indemnified Party within the
Election Period that the Indemnifying Party elects to assume the defense of the
Third Party Claim, then the Indemnifying Party shall have the right to defend,
at its sole cost and expense, such Third Party Claim by all appropriate
proceedings, which proceedings shall be prosecuted diligently by the
Indemnifying Party to a final conclusion or settled at the discretion of the
Indemnifying Party in accordance with this Section 7.4.2. The Indemnifying Party
shall have full control of such defense and proceedings, including any
compromise or settlement thereof; provided that the Indemnifying Party shall not
enter into any settlement agreement providing for a finding of responsibility or
liability on the part of the Indemnified Party or providing any material
sanction or material restriction upon the conduct of any business by the
Indemnified Party, without the Indemnified Party's consent, which consent shall
not unreasonably be withheld, conditioned or delayed. The Indemnified Party is
hereby authorized, at the sole cost and expense of the Indemnifying Party (but
only if the Indemnified Party is actually entitled to indemnification
hereunder), to file, during the Election Period, any motion, answer or other
pleadings which the Indemnified Party shall deem necessary or appropriate to
protect its interests or those of the Indemnifying Party and not materially
prejudicial to the Indemnifying Party (it being understood and agreed that if an
Indemnified Party takes any such action, the Indemnifying Party shall be
relieved of its obligations hereunder with respect to such Third Party Claim to
the extent that such action prejudiced the Indemnifying Party). If requested by
the Indemnifying Party, the Indemnified Party agrees, at the sole cost and
expense of the Indemnifying Party, to cooperate with the Indemnifying Party and
its counsel in contesting any Third Party Claim which the Indemnifying Party
elects to contest, including the making of any related counterclaim against the
person or entity asserting the Third Party Claim or any cross-complaint against
any person or entity. The Indemnified Party may participate in, but not control,
any defense or settlement or any Third Party Claim controlled by the
Indemnifying Party pursuant to this Section 7.4, and the Indemnified Party shall
bear its own costs and expenses with respect to such participation.
7.4.3 INDEMNIFIED PARTY RIGHT TO DEFEND.
If the Indemnifying Party fails to notify the Indemnified Party within
the Election Period that the Indemnifying Party elects to defend the Indemnified
Party pursuant to Section 7.4.2, or if the Indemnifying Party elects to defend
the Indemnified Party pursuant to Section 7.4.2 but fails to diligently defend
the Third Party Claim, then the Indemnified Party shall have the right to
defend, at the sole cost and expense of the Indemnifying Party (but only if the
Indemnified Party is actually entitled to indemnification hereunder), the Third
Party Claim by all appropriate proceedings, which proceedings shall be promptly
and vigorously prosecuted by the Indemnified Party to a final conclusion or
settled. The Indemnified Party shall have full control of such defense and
proceedings; provided, however, that the Indemnified Party may not enter into,
without the Indemnifying Party's consent, which consent shall not be
unreasonably withheld, conditioned or delayed, any compromise or settlement of
such Third Party Claim. The
61
Indemnifying Party may participate in, but not control, any defense or
settlement controlled by the Indemnified Party pursuant to this Section 7.4.3,
and the Indemnifying Party shall bear its own costs and expenses with respect to
such participation.
7.4.4 INDEMNITY NOTICE.
In the event any Indemnified Party should have a Claim against any
Indemnifying Party hereunder which does not involve a Third Party Claim, the
Indemnified Party shall promptly transmit to the Indemnifying Party a written
notice (the "INDEMNITY NOTICE") describing in reasonable detail the nature of
the Claim, the Indemnified Party's best estimate of the amount of damages
attributable to such Claim and the basis of the Indemnified Party's request for
indemnification under this Agreement. If the Indemnifying Party does not notify
the Indemnified Party within 30 days from its receipt of the Indemnity Notice
that the Indemnifying Party disputes such Claim, the Indemnifying Party shall be
deemed to have disputed such Claim. If the Indemnifying Party has disputed (or
is deemed to have disputed) such Claim, such dispute shall be resolved by
arbitration in accordance with Section 9.1. The Indemnifying Party shall pay
amounts required to be paid to the extent not disputed within 30 days following
the notice to such Party of the Claim.
SECTION 7.5 NEGLIGENCE.
Subject to Sections 7.6 and 7.9, an Indemnified Party shall be entitled
to indemnification hereunder in accordance with the terms hereof, regardless of
whether the loss or Claim giving rise to such indemnification obligation is the
result of the sole, joint, concurrent or comparative negligence, strict
liability or violation of any Legal Requirement or Environmental Law of or by
such Indemnified Party, but not for the gross negligence or willful misconduct
of the Indemnified Party.
SECTION 7.6 LIMITATION ON LIABILITIES.
BUYERS AND SELLERS (I) AGREE THAT ONLY ACTUAL DAMAGES SHALL BE
RECOVERABLE UNDER THIS AGREEMENT AND (II) HEREBY WAIVE ANY RIGHT TO RECOVER, AND
AGREE THAT THE TERM LOSSES SHALL NOT COVER, SPECIAL, PUNITIVE, CONSEQUENTIAL,
INCIDENTAL OR EXEMPLARY DAMAGES (WHETHER BASED ON STATUTE, CONTRACT, TORT OR
OTHERWISE, AND WHETHER OR NOT ARISING FROM THE INDEMNIFYING PARTY'S SOLE, JOINT
OR CONCURRENT NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT) EXCEPT TO THE EXTENT
ANY SUCH PARTY SUFFERS SUCH DAMAGES TO AN UNAFFILIATED THIRD-PARTY IN CONNECTION
WITH A THIRD-PARTY CLAIM, IN WHICH EVENT SUCH DAMAGES SHALL BE RECOVERABLE.
SECTION 7.7 REMEDIES EXCLUSIVE.
THE PARTIES ACKNOWLEDGE AND AGREE THAT THE REMEDIES SET FORTH IN THIS
AGREEMENT, INCLUDING THE LIABILITY LIMITS, SURVIVAL PERIODS, DISCLAIMERS AND
LIMITATIONS ON REMEDIES, ARE INTENDED TO BE, AND SHALL BE, THE EXCLUSIVE
REMEDIES
62
WITH RESPECT TO ANY ASPECT OF THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT EXCEPT FRAUD. EACH PARTY HEREBY RELEASES, WAIVES AND DISCHARGES, AND
COVENANTS NOT TO XXX WITH RESPECT TO, ANY CAUSE OF ACTION OR CLAIM NOT EXPRESSLY
PROVIDED FOR IN THIS AGREEMENT INCLUDING, WITHOUT LIMITATION, CLAIMS UNDER STATE
OR FEDERAL SECURITIES LAWS, AVAILABLE AT COMMON LAW OR BY STATUTE.
SECTION 7.8 SURVIVAL.
The representations and warranties in Articles III and IV shall survive
only for the periods stated below:
--------------------- ---------------------------------------------------- ---------------------
WARRANTY AND SECTION TITLE SURVIVAL PERIOD:
REPRESENTATION FROM EXECUTION
HEREOF UNTIL THE
DATE SHOWN BELOW
SECTION NO.
--------------------- ---------------------------------------------------- ---------------------
3.1.4 Compliance with Laws December 1, 2000
--------------------- ---------------------------------------------------- ---------------------
3.1.5 Permits December 1, 2000
--------------------- ---------------------------------------------------- ---------------------
3.1.9 Gathering Assets and Transmission Assets December 1, 2000
--------------------- ---------------------------------------------------- ---------------------
3.1.14 Certain Information December 1, 2000
--------------------- ---------------------------------------------------- ---------------------
3.1.16 Year 2000 Compliance for Field Operations December 1, 2000
--------------------- ---------------------------------------------------- ---------------------
3.1.6 Environmental Matters January 1, 2002
--------------------- ---------------------------------------------------- ---------------------
3.1.7 Contracts January 1, 2002
--------------------- ---------------------------------------------------- ---------------------
3.1.8 Litigation January 1, 2002
--------------------- ---------------------------------------------------- ---------------------
3.1.10 Title to Gathering Assets and Transmission January 1, 2002
Assets
--------------------- ---------------------------------------------------- ---------------------
3.1.15 FERC Matters January 1, 2003
--------------------- ---------------------------------------------------- ---------------------
3.1.1 Organization and Good Standing 3 years after Closing
--------------------- ---------------------------------------------------- ---------------------
3.1.2 Authority of Each Seller 3 years after Closing
--------------------- ---------------------------------------------------- ---------------------
3.1.3 No Violations 3 years after Closing,
except January 1, 2002
as to 3.1.3(c)
--------------------- ---------------------------------------------------- ---------------------
3.1.11 No Brokers 3 years after Closing
--------------------- ---------------------------------------------------- ---------------------
3.1.12 Master Equipment Lease 3 years after Closing
--------------------- ---------------------------------------------------- ---------------------
3.1.13 Taxes 3 years after Closing
as
--------------------- ---------------------------------------------------- ---------------------
63
--------------------- ---------------------------------------------------- ---------------------
WARRANTY AND SECTION TITLE SURVIVAL PERIOD:
REPRESENTATION FROM EXECUTION
HEREOF UNTIL THE
DATE SHOWN BELOW
SECTION NO.
--------------------- ---------------------------------------------------- ---------------------
to (a) - (e) and
until expiration of
the applicable statute
of limitations as to
(f)
--------------------- ---------------------------------------------------- ---------------------
3.1.17 Sellers' Status 3 years after Closing
--------------------- ---------------------------------------------------- ---------------------
3.1.18 No Bankruptcy 3 years after Closing
--------------------- ---------------------------------------------------- ---------------------
3.1.19 Labor Matters January 1, 2002
--------------------- ---------------------------------------------------- ---------------------
3.2 (.1-.9) Certain Additional Representations and 3 years after Closing
Warranties Concerning KNWTLLC
--------------------- ---------------------------------------------------- ---------------------
4.1 Organization and Good Standing 3 years after Closing
--------------------- ---------------------------------------------------- ---------------------
4.2 Authority of Buyers 3 years after Closing
--------------------- ---------------------------------------------------- ---------------------
4.3 No Violations 3 years after Closing
--------------------- ---------------------------------------------------- ---------------------
4.4 Acquisition as Investment 3 years after Closing
--------------------- ---------------------------------------------------- ---------------------
4.5 Brokerage or Finders Fees 3 years after Closing
--------------------- ---------------------------------------------------- ---------------------
4.6 Knowledgeable Buyers 3 years after Closing
--------------------- ---------------------------------------------------- ---------------------
The covenants contained in this Agreement shall survive the Closing in
accordance with their terms.
SECTION 7.9 DETERMINATION OF LOSSES.
The Parties shall make appropriate adjustments for tax consequences,
insurance coverage and recoveries from third parties and take into account the
time cost of money (using 10% as the discount rate) in determining Losses for
purposes of this Article VII. No Person shall be entitled to indemnification for
Losses to the extent that the Person or any of its Affiliates negligently or
intentionally took actions after an event or condition giving rise to Losses
occurred that materially exacerbated the Losses associated with such event or
condition.
SECTION 7.10 TRANSACTION THRESHOLD
Buyers shall not be entitled to any Recovery under provisions hereof
that by their express terms are subject to the Transaction Threshold, unless the
combined value of such Recoveries exceeds $1,000,000, at which point, from first
dollar, the limitations of this Section 7.10 and the
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Transaction Threshold shall not apply to such Recoveries. The term "Transaction
Threshold" means the $1,000,000 referred to above and the effect of the above
provisions of this Section 7.10.
ARTICLE VIII. TERMINATION RIGHTS
SECTION 8.1 TERMINATION.
This Agreement may be terminated and the transactions contemplated
hereby abandoned as follows:
(a) by the mutual written consent of Buyers and Sellers at any
time prior to the Closing;
(b) by either Buyers or Sellers pursuant to Section 5.3.6(c);
(c) pursuant to the provisions of Section 5.3.10(k);
(d) by written notice from Sellers at any time prior to the
Closing if the Closing shall not have occurred on or before December 31,
2001 (or if Section 2.10 is applicable, 10 days after the Closing Date
specified pursuant thereto) by reason of a failure of any condition
precedent under Section 6.2 unless the failure results primarily from
the breach by Sellers of any covenant to be performed at Closing
contained in this Agreement or the Operating Services Agreements; or
(e) by written notice from Buyers at any time prior to the
Closing if the Closing shall not have occurred on or before December 31,
2001 (or if Section 2.10 is applicable, 10 days after the Closing Date
specified pursuant thereto) by reason of a failure of any condition
precedent under Section 6.1, unless the failure results primarily from
the breach by Buyers of any covenant to be performed at Closing
contained in this Agreement or the Operating Services Agreements.
SECTION 8.2 EFFECT OF TERMINATION.
8.2.1 UNWINDING.
If this Agreement is terminated pursuant to any of the provisions of
Section 8.1, the following provisions shall apply:
(a) the Gathering and Transportation Agreements Extensions, if
previously executed, shall terminate simultaneously with the termination
of this Agreement, unless such termination resulted primarily from the
breach by Buyers of any covenant to be performed at Closing contained in
this Agreement or the Operating Services Agreements;
(b) the Operating Services Agreements, if previously executed,
shall terminate 90 days after the termination of this Agreement and
during such 90 day period Buyers will
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cooperate with Sellers to effect an orderly transition of the
operatorship of the Wattenberg System to KNGG, return all Books and
Records, including any additions thereto made by Buyers, and the Tower
Space License Agreement shall terminate at the same time as the
Operating Services Agreements terminate and Buyers shall reassign the
FCC Licenses simultaneously with such termination to the Person
designated by Sellers by notice in writing to Buyers;
(c) (i) Buyers shall execute and deliver to Sellers releases in
forms reasonably satisfactory to Sellers of the liens and security
interests granted to Buyers pursuant to Section 2.4(e), unless such
termination resulted primarily from the breach by Sellers of any
covenant to be performed at Closing contained in this Agreement or the
Operating Services Agreements;
(ii) Sellers and Buyers shall execute a notice of termination of
this Purchase and Sale Agreement and the Operating Services Agreements
in recordable form, provided that if such termination resulted primarily
from the breach by Buyers of any covenant to be performed at Closing
contained in this Agreement or the Operating Services Agreement, such
instrument shall expressly reserve to Sellers their rights under the
liens and security interests created pursuant to Section 2.4(g).
(d) Sellers shall pay, or cause to be paid, to HSG the
outstanding amount of the loans made by HSG pursuant to Section 5.3.20,
unless such termination resulted primarily from the breach by Buyers of
any covenant to be performed at Closing contained in this Agreement or
the Operating Services Agreements in which event such loans shall be
offset against amounts owed by Buyers;
(e) Sellers shall pay to Buyers the net present value of the
Facility Fees theretofore paid by Buyers to Sellers calculated at a
discount rate equal to 10% per annum, unless such termination resulted
primarily from the breach by Buyers of any covenant to be performed at
Closing contained in this Agreement or the Operating Services
Agreements;
(f) if such termination occurs after the payment under Section
2.4(b) has been paid and the net gas imbalance associated with the
Wattenberg System as of the termination date is a net gas receivable,
Sellers shall pay to Buyers the amount of such net receivable valued at
the index price per MMBtu for the CIG Rocky Mountain Index published in
the first issue of Inside F.E.R.C. for the month in which the
termination occurred, unless such termination resulted primarily from
the breach by Buyers of any covenant to be performed at Closing
contained in this Agreement or the Operating Services Agreements; and if
such termination occurs after the payment under Section 2.4(b) has been
paid and the net gas imbalance associated with the System as of the
termination date is a net gas payable, Buyers shall pay to Seller the
amount of such net payable valued at the index price per MMBtu for the
CIG Rocky Mountain Index published in the first issue of Inside F.E.R.C.
for the month in which the termination occurred, unless such termination
resulted primarily from the breach by Sellers of any covenant to be
performed at Closing contained in this Agreement or the Operating
Services Agreements;
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(g) if such termination occurs after July 1, 2000, and such
termination did not result primarily from the breach by either Sellers
or Buyers of any covenant to be performed at Closing contained in this
Agreement or the Operating Services Agreements, Sellers shall pay to
Buyers the amount determined as follows: the quantity (measured in
MMBtu) of gas transported on the Wattenberg System pursuant to the
Gathering Agreement after July 1, 2000 and prior to such termination
multiplied by $0.13 per MMBtu (it being understood that this Section
8.1(g) shall not be considered as an adjustment to any fees paid under
the Gathering Agreement and shall not prejudice the right of any Party
to assert in connection with any termination of this Agreement resulting
primarily from any breach by either Sellers or Buyers that the Losses
actually incurred by Buyers relating to the costs of gathering and
transporting its gas as a result of such termination are more or less
than the amount provided in this Section 8.1(g));
(h) if such termination did not result primarily from the breach
by Buyers of any covenant to be performed at Closing in this Agreement
or the Operating Services Agreements, and the aggregate net amount of
Incentive Amounts under the Operating Services Agreements attributable
to the period prior to such termination reduced the Operating Services
Fees from the amount that would have been payable with respect to such
period had such aggregate Incentive Amounts been zero, Sellers shall pay
Buyers the aggregate net amount of such Incentive Amounts; and if such
termination did not result primarily from the breach by Sellers of any
covenant to be performed at Closing in this Agreement or the Operating
Services Agreements, and the aggregate net amount of Incentive Amounts
under the Operating Services Agreements attributable to the period prior
to such termination increased the Operating Services Fees from the
amount that would have been payable with respect to such period had such
aggregate Incentive Amounts been zero, Buyers shall pay Sellers the
aggregate net amount of such Incentive Amounts;
(i) if such termination results primarily from the breach by
Sellers of any covenant to be performed at Closing in this Agreement or
the Operating Services Agreements, and as a result of such termination
Buyers actually incur any Losses other than those that Buyers are
entitled to recover pursuant to the foregoing provisions, then, subject
to the provisions of Article VII, Buyers shall be entitled to recover
such other Losses from Seller;
(j) if such termination results primarily from the breach by
Buyers of any covenant to be performed at Closing in this Agreement or
the Operating Services Agreements, and the Losses actually incurred by
Sellers as a result of such termination exceed the amounts retained by
Sellers pursuant to such Sections 8.1 (d), (e) and (f), but not (g) that
Sellers would not have retained had such termination not resulted from
such breach by Buyers, then subject to the provisions of Article VII,
Sellers shall be entitled to recover such excess Losses from Buyers; or
if such termination results primarily from the breach by Buyers of any
covenant to be performed at Closing in this Agreement or the Operating
Services Agreements, and the Losses actually incurred by Sellers as a
result of such termination are less than the amounts that Sellers retain
pursuant to the provisions of
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Sections 8.1 (d),(e) and (f), but not (g) that Sellers would not have
retained had such termination not resulted from such breach by Buyers,
then Sellers shall return such excess to Buyers ; it being understood
that the terms of this Section 8.2.1(k), shall not preclude Buyers from
proving its damages, if any, for gathering fee considerations paid if
the termination results primarily from the breach of Sellers;
(k) Sections 8.2.2 and 8.2.3 shall survive termination of this
Agreement in accordance with their terms;
(l) the provisions of Article VII shall survive such termination;
and
(m) except as provided in this Article VIII, no Party shall have
any obligation or liability to any other Party under or in connection
with this Agreement or the Operating Services Agreements.
8.2.2 AMOCO GATHERING AND TRANSPORTATION AGREEMENTS AMENDMENTS.
The Amoco Gathering and Transportation Agreements Amendments shall
automatically terminate simultaneously with termination of this Agreement, and
the terms of the Amoco Gathering Agreement and the Amoco Transportation
Agreement shall revert to those in effect immediately prior to the execution and
delivery of such Amendment, in the event that this Agreement terminates for any
reason other than the following: (a) all of the conditions to Sellers'
obligation to Close set forth in Section 6.2 have been satisfied and Sellers are
obligated pursuant to the terms hereof to Close the transactions contemplated
hereby; and (b) Sellers have failed in any material respect to perform their
obligations under Sections 2.5(b), (c) and (d); and (c) if such failure results
from the actions of any third party, Sellers have failed to use their Reasonable
Efforts to overcome such actions; and (d) a determination has been made pursuant
to Article IX that Sellers had no reasonable basis under this Agreement for
asserting that they were not obligated to perform such Closing obligations; it
being understood and agreed that such Amendment is intended to survive
termination of this Agreement only in the most extraordinary circumstances, and
not in the event that a reasonable difference of opinion exists as to whether
Sellers are in fact obligated pursuant to the terms of this Agreement to Close
the transactions contemplated hereby or where Sellers despite using their
Reasonable Efforts to Close were unable to do so. This Section 8.2.2 shall not
be evidence of any Loss suffered by Buyers in the event of termination of this
Agreement in any circumstance other than the circumstances described herein in
which such Amendment would not terminate.
8.2.3 WAIVER OF RIGHT OF FIRST REFUSAL
In consideration of the execution and delivery of this Agreement by
Sellers, Buyers hereby waive and release the rights granted to Buyers in Section
17.2 of the Gathering Agreement, and KNGG and Buyers hereby agree that the
Gathering Agreement is hereby amended to delete Section 17.2 thereof in its
entirety. This waiver, release and amendment shall be irrevocable and the
provision of Section 17.2 shall not apply to any sale or transfer of the System
by Sellers in the event of termination of this Agreement, except that in the
event that termination of this
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Agreement results for any reason other than the breach by Buyers of any
representation, warranty or covenant contained in this Agreement or the
Operating Services Agreements, this Section 8.2.3 shall terminate and the
provisions of Section 17.2 of the Gathering Agreement shall be reinstated
effective as of the date of such termination.
8.2.4 MASTER EQUIPMENT LEASE. If this Agreement is terminated for any
reason other than the breach by Buyers of any covenant to be performed at
Closing contained in this Agreement, Sellers shall (i) terminate the Master
Equipment Lease or (ii) assume all of the obligations of Buyers under the
Supplemental Assumption Agreement described in Schedule 1.1(k).
ARTICLE IX. ARBITRATION
SECTION 9.1 ARBITRATION.
(a) Except as provided in the last sentence of this Section
9.1(a), any and all Claims, disputes, controversies, and other matters
in question arising out of or relating to this Agreement, any provision
hereof, the alleged breach of any such provision, or in any way relating
to the subject matter of this Agreement or the relationship between the
Parties created by this Agreement, involving the Parties and/or their
respective representatives (all of which are referred to herein as
"Disputes"), even though some or all of such Disputes allegedly are
extra-contractual in nature, whether such Disputes sound in contract,
tort, or otherwise, at law or in equity, under State or federal law,
whether provided by statute or the common law, for damages or any other
relief, shall be resolved by binding arbitration in accordance with this
Section 9.1.
(b) It is the intention of the Parties that the arbitration shall
be conducted pursuant to the Federal Arbitration Act, as such Act is
modified by this Agreement. The validity, construction, and
interpretation of this Section 9.1, and all procedural aspects of the
arbitration conducted pursuant to this Section 9.1, including but not
limited to, the determination of the issues that are subject to
arbitration (i.e., arbitrability), the scope of the arbitrable issues,
allegations of "fraud in the inducement" to enter into this Agreement,
or this arbitration provision, allegations of waiver, laches, delay or
other defenses to arbitrability, and the rules governing the conduct of
the arbitration (including the time for filing an answer, the time for
the filing of counterclaims, the times for amending the pleadings, the
specificity of the pleadings, the extent and scope of discovery, the
issuance of subpoenas, the times for the designation of experts, whether
the arbitration is to be stayed pending resolution of related litigation
involved third parties not bound by this Agreement, the receipt of
evidence, and the like), shall be decided by the arbitrators. The
arbitration rules shall include the optional rules for emergency
measures and, if the amount in dispute exceeds $1 million, the rules for
large and complex cases. The arbitration shall be administered by the
American Arbitration Association (the "AAA"), and shall be conducted
pursuant to the Commercial Arbitration Rules of the AAA, as modified by
the Agreement. In deciding the substance of the Parties' Disputes, the
arbitrators shall refer to the substantive laws of the State of Colorado
for guidance (excluding Colorado
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choice-of-law principles that might call for the application of some
other state's law). Notwithstanding any other provision in this Section
9.1 to the contrary, the Parties expressly agree that the arbitrators
shall have absolutely no authority to award incidental, special, treble,
exemplary or punitive damages of any type under any circumstances
regardless of whether such damages may be available under Colorado law,
the law of any other State, or federal law, or under the Federal
Arbitration Act, or under the Commercial Arbitration Rules of the AAA,
the Parties hereby waiving their right, if any, to recover incidental,
special, treble, exemplary or punitive damages in connection with any
such Disputes.
(c) The arbitration proceeding shall be conducted in Denver,
Colorado before a panel of three arbitrators appointed in accordance
with the Commercial Arbitration Rules of the AAA consisting of persons
from any of the following categories: (i) attorneys having practiced in
the area of natural resources law for at least ten (10) years, (ii)
engineers and environmental consultants, with at least ten (10) years of
experience in the oil and/or natural gas industry, or (iii) accountants
with at least ten (10) years of experience in the natural gas
transportation industry. The arbitrators shall conduct a hearing as soon
as reasonably practicable after appointment of the third arbitrator, and
a final decision completely disposing of all Disputes that are the
subject of the arbitration proceedings shall be rendered by the
arbitrators as soon as reasonably practicable after the hearing. There
shall be no transcript of the hearing before the arbitrators. The
arbitrators' ultimate decision after final hearing shall be in writing,
but shall be as brief as possible, but the arbitrators shall assign
reasons for their ultimate decision. In case the arbitrators award
monetary damages to either Party, the arbitrators shall certify in their
award that they have not included any incidental, special, treble,
exemplary or punitive damages.
(d) The fees and expenses of the arbitrators shall be borne
equally by the Parties, but the decision of the arbitrators may include
such award of the arbitrators' fees and expenses and of other costs and
attorneys' fees as the arbitrators determine appropriate (provided that
such award of costs and fees may not exceed the amount of costs and fees
incurred by the losing Party in the arbitration).
(e) To the fullest extent permitted by law, the arbitration
proceeding and the arbitrators' award shall be maintained in confidence
by the Parties.
(f) The award of the arbitrators shall be binding upon the
Parties and final and nonappealable to the maximum extent permitted by
law, and judgment thereon may be entered in a court of competent
jurisdiction and enforced by any Party as a final judgment of such
court.
(g) The arbitrators shall permit and facilitate such discovery as
they determine is appropriate in the circumstances, taking into account
the needs of the Parties and the desirability of making discovery
expeditious and cost-effective. Such discovery may include prehearing
depositions, particularly depositions of witnesses who will not appear
personally to testify, if there is a demonstrated need therefore. The
arbitrators may issue
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orders to protect the confidentiality of proprietary information, trade
secrets and other sensitive information disclosed in discovery.
(h) Arbitration hearing:
(i) Time limitations and schedules. The proceedings
shall be conducted in an expeditious manner and, to the extent
possible, with the goal of having the final award rendered as
soon as reasonably practicable after the selection of the
arbitrators has been competed. The panel is empowered to impose
time limitations it considers reasonable for each phase of the
proceeding including but not limited to limitations on the time
allotted to each Party for the presentation of its case and
rebuttal.
(ii) Management of proceedings. The arbitrators shall
actively manage the proceedings as they deem best so as to make
the proceedings fair, expeditious, economical and less
burdensome than litigation. To provide for speed and efficiency,
the arbitrators may: (A) limit issues so as to focus on the core
of the conflict; (B) limit the time allotted to each Party for
presentation of its case; and (C) exclude testimony and other
evidence they deem irrelevant or cumulative.
ARTICLE X. GENERAL
SECTION 10.1 EXCLUSIVE AGREEMENT; DISCLOSURE SCHEDULE.
This Agreement and the attached exhibits and Schedules and Disclosure
Schedule the Employee Letter Agreement, the agreements and documents to be
executed pursuant to hereto set forth the entire agreement and understanding of
the Parties in respect of the transactions contemplated hereby and supersede all
prior agreements, arrangements and undertakings (oral or written) relating to
the subject matter hereof, including without limitation the non-binding letter
of intent (including any extensions or amendments thereto) dated September 2,
1999 between KN, KMI, and Buyers. Matters reflected in the Disclosure Schedule
are not necessarily limited to matters required by this Agreement to be
reflected in the Disclosure Schedule. Such additional matters are set forth for
information purposes only, do not necessarily include other matters of a similar
nature and do not change the representations, warranties and covenants of the
Parties under this Agreement. No representation, promise, inducement or
statement of intention has been made by any Party which is not embodied in or
superseded by this Agreement or in the agreements and documents to be executed
pursuant hereto, and no Party shall be bound by or liable for any alleged
representation, promise, inducement or statement of intention not so set forth.
SECTION 10.2 SUCCESSORS AND ASSIGNS.
All of the terms, covenants, representations, warranties and conditions
of this Agreement shall be binding upon, and inure to the benefit of, and be
enforceable by, the Parties and their
71
respective successors by merger and permitted assigns (and in the case of
indemnities to the benefit of all persons indemnified). This Agreement and the
rights and obligations hereunder shall not be assigned or delegated by any Party
hereto without the prior written consent of the other Parties, except that (i)
Sellers may assign and delegate their rights and obligations hereunder in whole
or in part to one or more Affiliates of KMI to which all or any portion of the
Purchased Interests are assigned or transferred, provided that each such
Affiliate assumes and agrees to perform the obligations of Sellers under this
Agreement applicable to the assigned or transferred Purchased Interests and KMI
guarantees the performance of such obligations pursuant to a form of guaranty
substantially in the same form as the KMI Guarantee, and (ii) Buyers may assign
and delegate its rights and obligations hereunder to any Affiliate of Buyers or
to any purchaser of all or substantially all of the assets of HSR and its
Affiliates in the Denver-Julesberg Basin, provided that such Affiliate or
purchaser assumes and agrees to perform the obligations of Buyers under this
Agreement and Buyer guarantees the performance of such obligations pursuant to a
form of guaranty substantially in the same form as the HSR Guarantee. HSG may
not delegate their duties under the Operating Services Agreements without the
consent of Sellers, which consent will not be unreasonably withheld, conditioned
or delayed.
SECTION 10.3 AMENDMENTS; ETC.
This Agreement may be amended, modified, superseded or canceled, and any
of the terms, covenants, representations, warranties or conditions hereof may be
waived, only by a written instrument executed by the Parties, or, in the case of
a waiver, by or on behalf of the Party waiving compliance. The failure of any
Party at any time or times to require performance of any provisions hereof shall
in no manner affect the right at a later time to enforce the same. No waiver by
any Party of any condition, or of any breach of any term, covenant,
representation or warranty contained in this Agreement, in any one or more
instances, shall be deemed to be or construed as a further or continuing waiver
of any such condition or breach or a waiver of any other condition or of any
breach of any other term, covenant, representation or warranty. Buyers and
Sellers have participated in the drafting of this Agreement, and no provision of
this Agreement shall be construed against any Party on the basis that such Party
drafted all or any portion of this Agreement.
SECTION 10.4 FURTHER ASSURANCES; SPECIFIC PERFORMANCE.
(a) Each Party agrees to execute such further instruments or documents
as any other Party may from time to time reasonably request in order to confirm
or carry out the transactions contemplated in this Agreement; provided that no
such instrument or document shall expand a Party's liability beyond that
contemplated in this Agreement.
(b) Considering the unique and certain nature of the Gathering Assets
and the Transmission Assets, the peculiar circumstances surrounding this
Agreement, the substantial reliance of each Party under this Agreement to its
detriment, and the inadequacy of other remedies that may be available to each
Party, in addition to any other remedies, any Party shall be entitled to
specific performance by the other Parties of their obligations and performance
under this Agreement.
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SECTION 10.5 NOTICES.
All notices, requests, demands and other communications (collectively,
"NOTICES") required or permitted to be given hereunder shall be in writing and
delivered personally, or by facsimile transmission or mailed first class,
postage prepaid, registered or certified mail, as follows:
If to Buyers, to:
HS Resources, Inc.
HS Gathering, L.L.C.
0000 Xxxxxxxx, Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000
Attention: General Counsel
Facsimile Number: 000-000-0000
If to Sellers, to:
Xxxxxx Xxxxxx, Inc.
KN Gas Gathering, Inc.
000 Xxx Xxxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxx
Attention: Xxxxxx Xxxxxxx
Facsimile Number: 303/914-7447
All Notices shall be effective upon receipt. Any Party may change its
Notice address by giving written Notice to the other in the manner specified
above.
SECTION 10.6 GOVERNING LAW.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the state of Colorado without regard to conflict of
law principles.
SECTION 10.7 SEVERABILITY.
In the event any of the provisions hereof are held to be invalid or
unenforceable under any Legal Requirement, the remaining provisions hereof shall
not be affected thereby. In such event, the Parties hereto agree and consent
that such provisions and this Agreement shall be modified and reformed so as to
effect the original intent of the Parties as closely as possible with respect to
those provisions which were held to be invalid or unenforceable.
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SECTION 10.8 COUNTERPARTS.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute but one agreement.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have duly executed this instrument the
day and year first above written.
SELLERS:
XXXXXX XXXXXX, INC. KN GAS GATHERING, INC.
By: /s/ Xxxx X. Xxxxxxx By: /s/ Xxxx X. Xxxxxxx
--------------------------- ------------------------------
Name: Xxxx X. Xxxxxxx Name: Xxxx X. Xxxxxxx
Title: Vice President and Treasurer Title: Vice President and Treasurer
BUYERS:
HS RESOURCES, INC. HS GATHERING, L.L.C.
By: /s/ Xxxxxxxx Xxxxxxx By: HS Resources, Inc.
--------------------------- Its Sole Member
Name: Xxxxxxxx Xxxxxxx
Title: Vice President By: /s/ Xxxxxxxx Xxxxxxx
------------------------------
Name: Xxxxxxxx Xxxxxxx
Title: Vice President
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