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EXHIBIT 10.01
DISTRIBUTION AGREEMENT
BY AND BETWEEN
KANEB SERVICES, INC.
AND
KANEB SERVICES LLC AND SUBSIDIARIES
_______ __, 2001
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TABLE OF CONTENTS
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ARTICLE 1.........................................................................................................1
CERTAIN DEFINITIONS......................................................................................1
1.1 "Adjustment"..........................................................................1
1.2 "Administrative Services Agreement"...................................................1
1.3 "Affected Layers".....................................................................1
1.4 "Affiliate"...........................................................................1
1.5 "Agreement"...........................................................................2
1.6 "Allocated Shares"....................................................................2
1.7 "Annual Premiums".....................................................................2
1.8 "Aon".................................................................................2
1.9 "Business Day"........................................................................2
1.10 "CERCLA"..............................................................................2
1.11 "Code"................................................................................2
"Common Share Issuance"
1.13 "Distribution"........................................................................2
1.14 "Distribution Agent"..................................................................2
1.15 "Distribution Date"...................................................................2
1.16 "Employee Benefits Agreement".........................................................2
1.17 "Environmental Conditions"............................................................2
1.18 "Environmental Law" or "Environmental Laws"...........................................2
1.19 "Environmental Liabilities"...........................................................3
1.20 "Estimate"............................................................................3
1.21 "Group"...............................................................................3
1.22 "Income Tax"..........................................................................3
1.23 "Incremental Group Tax Liability".....................................................3
1.24 "Initial Policy Periods"..............................................................3
1.25 "Insured Party".......................................................................3
1.26 "KFC".................................................................................3
1.27 "KPL".................................................................................3
1.28 "KPL Contribution"....................................................................3
1.29 "KPLOP Partnership Agreement".........................................................3
1.30 "KPP Distributions"...................................................................4
1.31 "KPP Partnership Agreement"...........................................................4
1.32 "KSI".................................................................................4
1.33 "KSI Common Stock"....................................................................4
1.34 "KSI Employee Benefit Plan"...........................................................4
1.35 "KSI Insurance Policy"................................................................4
1.36 "KSL".................................................................................4
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1.37 "KSL Assets"..........................................................................4
1.38 "KSL Circumstance"....................................................................4
1.39 "KSL Common Shares"...................................................................4
1.40 "KSL Company".........................................................................4
1.41 "KSL Employee"........................................................................4
1.42 "KSL Employee Benefit Plan"...........................................................4
1.43 "KSL Former Employee".................................................................4
1.44 "KSL Group"...........................................................................4
1.45 "KSL Liabilities" ....................................................................4
1.46 "KSL Limited Liability Company Agreement".............................................6
1.47 "KSL Properties"......................................................................6
1.48 "KSL Taxes"...........................................................................6
1.49 "Lawsuit".............................................................................6
1.50 "Liability"...........................................................................6
1.51 "Liability Limit Trigger".............................................................6
1.52 "NYSE"................................................................................6
1.53 "Person"..............................................................................6
1.54 "Predecessor".........................................................................6
1.55 "Record Date".........................................................................6
1.56 "Redemption"..........................................................................6
1.57 "Reinstatement Premium"...............................................................7
1.58 "SEC".................................................................................7
1.59 "Subsidiary"..........................................................................7
1.60 "Tax Subsidiary"......................................................................7
1.61 "Taxes"...............................................................................7
1.62 "Transfer Agent"......................................................................7
1.63 "Voting Stock"........................................................................7
1.64 "Waste Materials".....................................................................7
ARTICLE 2.........................................................................................................8
CONTRIBUTIONS; CONVERSION; LINE OF CREDIT................................................................8
2.1 Pre-Distribution Transactions.........................................................8
2.2 Guarantees and Financial Assurances...................................................8
2.3 KSL Acknowledgments...................................................................8
2.4 Line of Credit........................................................................8
2.5 Letter of Credit......................................................................8
2.6 Covenant regarding KPP Distributions..................................................8
2.7 Covenant regarding Assignment.........................................................8
ARTICLE 3.........................................................................................................8
MECHANICS OF DISTRIBUTION................................................................................8
3.1 Mechanics of KSL Distribution.........................................................8
3.2 Timing of Distribution................................................................9
ARTICLE 4.........................................................................................................9
ALLOCATION OF INSURANCE OBLIGATIONS......................................................................9
4.1 Obligations during the Initial Policy Period..........................................9
4.2 Notification Requirements; Reinstatement of Liability Limits..........................9
4.3 Redetermination after Initial Policy Period..........................................10
4.4 Letter of Credit.....................................................................10
ARTICLE 5........................................................................................................10
5.1 Payment of Estimate and Incremental Group Tax Liability by KSL to KSI................10
5.2 Determination of Incremental Group Tax Liability.....................................10
5.3 Indemnity............................................................................11
5.4 Payment of Interest, Penalties and Expenses..........................................12
5.5 KSI as Agent.........................................................................12
5.6 Application of Article 5.............................................................12
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ARTICLE 6........................................................................................................12
INDEMNIFICATION.........................................................................................12
6.1 Indemnification Matters..............................................................12
6.2 Notice of KSL Circumstance...........................................................14
6.3 Payment..............................................................................15
6.4 Insurance............................................................................15
6.5 Scope of Indemnification.............................................................15
6.6 Indemnity for Certain Environmental Liabilities......................................15
ARTICLE 7........................................................................................................15
CONDITIONS TO OBLIGATIONS OF KSI........................................................................15
ARTICLE 8........................................................................................................16
MISCELLANEOUS...........................................................................................16
8.1 KSL Covenants........................................................................16
8.2 Governing Law........................................................................16
8.3 Notices..............................................................................16
8.4 Expenses.............................................................................17
8.5 Entire Agreement.....................................................................17
8.6 Waiver...............................................................................17
8.7 Binding Effect; Assignment; No Third Party Benefit...................................17
8.8 Counterparts.........................................................................17
8.9 References...........................................................................18
8.10 Terminology..........................................................................18
8.11 Severability.........................................................................18
8.12 Further Assurances...................................................................18
8.13 Amendments...........................................................................18
LIST OF ANNEXES
Annex A -- Administrative Services Agreement
Annex B -- Employee Benefits Agreement
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DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT (this "Agreement") is dated ______ __,
2001, by and among KANEB SERVICES, INC., a Delaware corporation ("KSI"), KANEB
SERVICES LLC, a Delaware limited liability company ("KSL"), and the Tax
Subsidiaries (as defined in Article 1) of KSL.
W I T N E S S E T H:
WHEREAS, KFC is the sole organizational member of KSL;
WHEREAS, KSI desires that all of the issued and outstanding shares of
capital stock of KPL be contributed to KSL in exchange for the Common Shares
Issuance; and
WHEREAS, KSI desires to distribute to its stockholders all of the KSL
Common Shares that it receives in the Common Share Issuance;
NOW, THEREFORE, in consideration of the premises and the mutual terms,
covenants and conditions herein contained, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
As used in this Agreement, the following terms have the following
respective meanings:
1.1 "Action" shall mean that action before the District Court of the
State of Texas in Dallas County, case number DF99-1315, in which Kaneb Services,
Inc. and Kaneb Management Company, Inc. are plaintiffs and
PricewaterhouseCoopers, LLP is defendant.
1.2 "Adjustment" shall mean the alteration of any item of income, gain,
loss, deduction or credit of the Group or any one or more Tax Subsidiaries of
KSI occurring after the filing of any return for any tax year through 2001,
whether incident to the filing of an amended return or pursuant to an
examination by a tax authority. In the latter case, a proposed Adjustment shall
become an Adjustment for purposes hereof when it is agreed by KSI (or affected
members of the Group), or is unagreed initially but is finally resolved
adversely to the affected members of the Group pursuant to an administrative
proceeding, judicial action or settlement.
1.3 "Administrative Services Agreement" shall mean the agreement to be
entered into by and between KSI and KSL, in substantially the form of Annex A
hereto.
1.4 "Affected Layers" shall mean, with respect to any Liability Limit
Trigger, those layers of liability coverage under the applicable KSI Insurance
Policies that the reserve established impacts.
1.5 "Affiliate" shall mean, with respect to KSI or KSL, any Person,
that directly or indirectly, is in control of, is controlled by, controls or is
under common control of KSI or KSL, as the case may be. For purposes of this
definition, control shall include the ownership of 50% or more of the legal or
beneficial interest in any Person or the power to direct or cause the direction
of the management and policies of such Person, whether through the ownership of
voting securities, by contract or otherwise. A Person who is an Affiliate shall
only be considered an Affiliate for so long as that Person meets the definition
of an Affiliate. An officer, director, general partner, managing member or
trustee of a Person or Affiliate of such Person
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shall not be considered to be an Affiliate unless such Person is under the
direct or indirect control or common control of KSI or KSL, as the case may be.
For purposes of clarity, KSI and KSL shall not be considered to be an Affiliate
of the other, nor shall any other company in which a director or officer of KSI
or KSL is also a director, officer or stockholder be considered an Affiliate of
KSI or KSL unless KSI or KSL, as the case may be, itself controls such company.
1.6 "Agreement" shall have the meaning specified in the preamble.
1.7 "Allocated Shares" shall mean that amount of each Annual Premium,
not including any Reinstated Premium, if applicable, for which KSL is agreeing
to pay to KSI for its respective shares of the various Annual Premiums, as
determined in accordance with Section 4.1(b).
1.8 "Annual Premiums" shall mean the premiums owed by KSI under the
various KSI Insurance Policies during the applicable Initial Policy Periods.
1.9 "Aon" shall mean Aon Risk Services of Texas, Inc., or such other
entity that serves as the insurance agent for KSI.
1.10 "Business Day" shall mean any day other than Saturday, Sunday or a
day on which commercial banks located in Dallas, Texas are required or
authorized by law to close.
1.11 "CERCLA" shall mean the Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C.ss.9601 et seq.
1.12 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.13 "Common Share Issuance" shall mean the issuance by KSL to KFC of a
number of KSL Common Shares equal to the quotient obtained by dividing (i) three
by (ii) the number of issued and outstanding shares of KSI Common Stock on the
Record Date.
1.14 "Distribution" shall mean the distribution by KSI to its
stockholders of all of the issued and outstanding shares of KSL Common Shares.
1.15 "Distribution Agent" shall mean American Stock Transfer & Trust
Company.
1.16 "Distribution Date" shall mean the time and date as of which the
Distribution is effective.
1.17 "Employee Benefits Agreement" shall mean the agreement entered
into by and between KSI and KSL, substantially in the form of Annex B hereto.
1.18 "Environmental Conditions" shall mean (i) any pollution,
contamination, degradation, damage or injury caused by, related to, arising from
or in connection with the generation, handling, use, treatment, storage,
transportation, disposal, discharge, release or emission of any Waste Materials
and (ii) any course of conduct or operating practice with respect to matters
governed by or regulated under Environmental Laws.
1.19 "Environmental Law" or "Environmental Laws" shall mean all laws,
rules, regulations, statutes, ordinances, decrees or orders of any governmental
entity now or at any time in the future in effect relating to (i) the prevention
or control of any potential pollutant or protection of the air, water or land,
(ii) solid, gaseous or liquid waste generation, handling, treatment, storage,
disposal, discharge, release or
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transportation and (iii) exposure to hazardous, toxic or other substances
alleged to be harmful. The term "Environmental Law" or "Environmental Laws"
includes, without limitation, (1) the terms and conditions of any license,
permit, approval or other authorization by any governmental entity and (2)
judicial, administrative or other regulatory decrees, judgments and orders of
any governmental entity. The term "Environmental Law" or "Environmental Laws"
includes, but is not limited to, the following statutes and the regulations
promulgated thereunder: the Clean Air Act, 42 U.S.C.ss.7401 et seq., the
Resource Conservation Recovery Act, 42 U.S.C.ss.6901 et seq., the Superfund
Amendments and Reauthorization Act, 42 U.S.C.ss.11011 et seq., the Toxic
Substances Control Act, 15 U.S.C.ss.2601 et seq., the Federal Water Pollution
Control Act (Clean Water Act), 33 U.S.C.ss.1251, et seq., the Safe Drinking
Water Act, 42 U.S.C.ss.300f et seq., CERCLA and any state, county or local laws
or regulations similar thereto.
1.20 "Environmental Liabilities" shall mean any and all liabilities,
responsibilities, claims, suits, losses, costs (including remediation, removal,
response, abatement, clean-up, investigative or monitoring costs and any other
related costs and expenses), other causes of action recognized now or at any
later time, damages, settlements, expenses, charges, assessments, liens,
penalties, fines, pre-judgment and post-judgment interest, attorney fees and
other legal fees imposed or incurred (i) pursuant to any agreement, order,
notice, requirement, responsibility or directive (including directives embodied
in Environmental Laws), injunction, judgment or similar documents (including
settlements) arising out of or in connection with any Environmental Laws, (ii)
pursuant to any claim by a governmental entity or other person or entity
pursuant to common law or statute for personal injury, property damage, damage
to natural resources, remediation, payment or reimbursement of response costs or
similar costs or expenses or (iii) as a result of Environmental Conditions.
1.21 "Estimate" shall mean the estimated liability of the Group for
Income Tax resulting from the Distribution and restructuring transactions
connected with it, and for operations in 2000 and 2001, taking into account the
Group's utilization of current-period net operating losses and carryforwards
(and other tax attributes and items) from prior years, at an amount equal to
$____________.
1.22 "Group" shall mean KSI, the Predecessors of KSL, the Tax
Subsidiaries of KSI, and other "includible corporations" within the meaning of
Section 1504 of the Code that are members of the affiliated group of which KSI
is the common parent.
1.23 "Income Tax" shall mean any federal, state or local tax based on
income (including Texas franchise tax if the basis for taxation is the "earned
surplus" of the affected taxpayer) that is imposed on the Group or any Tax
Subsidiary of KSI, including applicable penalty and interest.
1.24 "Incremental Group Tax Liability" shall have the meaning specified
in Section 5.2 hereof.
1.25 "Initial Policy Periods" shall mean the various policy periods for
each of the KSI Insurance Policies in effect on the date hereof.
1.26 "Insured Party" shall mean each of KSI, the KSI Companies, KSL and
the KSL Companies.
1.27 "KFC" shall mean Kaneb Financial Corporation, a Delaware
corporation.
1.28 "KPL" shall mean Kaneb Pipe Line Company LLC, a Delaware limited
liability company.
1.29 "KPL Contribution" shall mean the contribution by KFC of all of
the issued and outstanding limited liability company interests of KPL to KSL.
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1.30 "KPLOP Partnership Agreement" shall mean the Amended and Restated
Agreement of Limited Partnership of Kaneb Pipe Line Operating Partnership, L.P.
dated September 27, 1989.
1.31 "KPP Distributions" shall mean a distribution of cash made by
Kaneb Pipe Line Partners, L.P. to KSL or any other Subsidiary of KSL pursuant to
Section 5.3 of the KPP Partnership Agreement with respect to the second fiscal
quarter of 2001 and a distribution of cash made by Kaneb Pipe Line Operating
Partnership, L.P. to KSL or any other Subsidiary of KSL pursuant to Section 5.3
of the KPLOP Partnership Agreement with respect to the second fiscal quarter of
2001. Such KPP Distributions are expected to be made in August, 2001. For
purposes of this definition, a Subsidiary of KSL shall not include Kaneb Pipe
Line Partners, L.P. or Kaneb Pipe Line Operating Partnership, L.P. or any of
their respective Subsidiaries.
1.32 "KPP Partnership Agreement" shall mean the Amended and Restated
Agreement of Limited Partnership of Kaneb Pipe Line Partners, L.P. dated July
23, 1998.
1.33 "KSI" shall mean Kaneb Services, Inc., a Delaware corporation.
1.34 "KSI Common Stock" shall mean KSI's common stock, no par value.
1.35 "KSI Employee Benefit Plan" shall have the meaning specified in
the Employee Benefits Agreement.
1.36 "KSI Insurance Policy" shall mean those certain insurance policies
of Aon in which KSI is the named insured and all of the KSI Companies, KSL and
the KSL Companies are additional named insureds.
1.37 "KSL" for purposes of the assumption and indemnification
provisions of this Agreement, shall include Kaneb Services LLC and any and all
predecessors or successors thereto, whether by merger, purchase or other
acquisition of substantially all of the assets or otherwise, and any and all
predecessors or successors to such entities.
1.38 "KSL Assets" shall mean, collectively, all the property, assets
and rights, tangible and intangible, owned or operated by the KSL Companies on,
before or after the Distribution Date.
1.39 "KSL Circumstance" shall have the meaning specified in Section 5.3
hereof.
1.40 "KSL Common Shares" shall mean the Common Shares of KSL, as
defined in the KSL Limited Liability Company Agreement.
1.41 "KSL Company" shall mean any Subsidiary of KSL.
1.42 "KSL Employee" shall have the meaning specified in the Employee
Benefits Agreement.
1.43 "KSL Employee Benefit Plan" shall have the meaning specified in
the Employee Benefits Agreement.
1.44 "KSL Former Employee" shall have the meaning specified in the
Employee Benefits Agreement.
1.45 "KSL Group" shall mean KSL and its Tax Subsidiaries, and their
successors and assigns.
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1.46 "KSL Liabilities" shall mean any and all Liabilities and
Environmental Liabilities to which KSI or any of its respective Affiliates may
now or at any time in the future become subject (whether directly or indirectly,
including by reason of any KSL Company owning, controlling or operating any
business or assets), resulting from, arising out of or relating to (i) any KSL
Company, (ii) any KSL Taxes (except as provided otherwise in Article 5 of this
Agreement), (iii) any obligation, matter, fact, circumstance or action or
omission by any Person in any way relating to or arising from the business,
operations or assets of any KSL Company on, before or after the Distribution
Date, (iv) any product or service manufactured, sold or otherwise provided by
any KSL Company on, before or after the Distribution Date, (v) except as
provided herein, the KPL Contribution, the KPP Contribution, the Distribution or
any of the other transactions contemplated hereby or (vi) the KSL Assets. The
term "KSL Liabilities" shall also include, without limitation, the following:
(a) Any and all Liabilities and Environmental Liabilities
resulting from, arising out of or relating to (i) the current, former
or future assets, activities, operations, facilities, actions or
omissions of any KSL Company or any of their respective officers,
directors or employees (to the extent such officer, director or
employee is acting in his or her capacity as an officer, director or
employee of a KSL Company), independent contractors or agents (in their
capacity as such), (ii) any product liability claim, recall,
replacement, returns or customer allowances of or relating to any KSL
Company or (iii) any contract or permit of any KSL Company, regardless
of whether the contract or permit is assigned, conveyed or leased
hereunder or under any other agreement contemplated hereby;
(b) Any and all accounts and notes payable of any KSL Company;
(c) Any and all Liabilities and Environmental Liabilities to,
on behalf of, or which arise from or relate to active or inactive
employees (retired or otherwise) of KSL or any KSL Company for claims
occurring on, before or after the Distribution Date, including, without
limitation, (i) liability for any salaries, wages, tax equalization
payments, vacation pay, sick leave, personal leave, severance pay,
wrongful dismissal or discrimination claims; (ii) liability for or
under any employee benefit plan, policy or arrangement, including,
without limitation, retirement, pension, medical, dental, profit
sharing, unemployment, supplemental unemployment or disability plan
policy or arrangement; (iii) liability for any payroll taxes, social
security or similar taxes or withholding; (iv) liability arising from
claims or litigation and (v) liability arising from any injury, death,
loss, disability, occupational disease or claims under any workers'
compensation laws;
(d) Any and all Liabilities and Environmental Liabilities
resulting from, arising out of, relating to or occurring on the KSL
Properties, the operations on any of the KSL Properties or with regard
to any of the KSL Assets, and any off-site Environmental Liabilities
related to any of the foregoing or to any KSL Company, including,
without limitation, those under any indemnification agreement or
obligation of any KSL Company, KSI, or any Affiliate of KSI and any
documents related thereto;
(e) Any and all Liabilities of any KSL Company with respect to
any projects or transactions performed or engaged in by it on, before
or after the Distribution Date;
(f) Any and all litigation and claims against any KSL Company
existing as of the Distribution Date;
(g) Except as provided otherwise in Article 5 of this
Agreement, any and all Liabilities for KSL Taxes; and
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(h) Any and all legal, accounting, consulting and expert fees
and expenses incurred in investigating, preparing, defending, settling
or discharging any claim or action arising under, out of or in
connection with any of the KSL Liabilities or KSL Assets.
1.47 "KSL Limited Liability Company Agreement" shall mean that certain
limited liability company agreement of KSL dated ____________, 2001.
1.48 "KSL Properties" shall mean the properties currently or previously
owned or operated by any KSL Company.
1.49 "KSL Taxes" shall mean any and all Taxes (i) to which any KSL
Company may be obligated pursuant to Article 5 of this Agreement or (ii)
relating to or arising from the KPL Contribution, the KPP Contribution and the
Distribution (including, without limitation, any transfer taxes or value added
taxes).
1.50 "Liability" shall mean any and all claims, demands, liabilities,
responsibilities, disputes, causes of action, losses, damages, assessments,
costs and expenses (including interest, awards, judgments, penalties,
settlements, fines, costs of remediation, diminutions in value, costs and
expenses incurred in connection with investigating and defending any claims or
causes of action (including, without limitation, attorneys' fees and expenses
and all fees and expenses of consultants and other professionals)) and
obligations of every nature whatsoever, liquidated or unliquidated, known or
unknown, matured or unmatured, or fixed or contingent.
1.51 "Liability Limit Trigger" shall mean the establishment by an
independent third-party claims adjuster, or a representative of the applicable
insurance carriers, of a reserve with respect to a claim or a possible claim
about which an Insured Party has notified the applicable insurance carrier or
carriers under a KSI Insurance Policy or KSI Insurance Policies and such reserve
exceeds any limit of liability coverage under the applicable KSI Insurance
Policy or KSI Insurance Policies.
1.52 "NYSE" shall mean The New York Stock Exchange, Inc.
1.53 "Person" shall mean an individual, partnership, corporation,
business trust, limited liability company, limited liability partnership, joint
stock company, trust, unincorporated association, joint venture, governmental
authority or other entity of whatever nature.
1.54 "Predecessor" shall mean, with respect to any Tax Subsidiary of
KSI (each a "Successor" for purposes of this definition), such Tax Subsidiary
(i) that is converted into the Successor pursuant to a state statute permitting
such conversion or (ii) that transfers substantially all of its assets to the
Successor by means of a merger, sale or election to become a "disregarded
entity" for federal (and state, if applicable) income tax purposes.
1.55 "Record Date" shall have the meaning specified in Section 3.1
hereof.
1.56 "Redemption" shall mean the redemption for cash by KSI of all of
KSI's issued and outstanding shares of Adjustable Rate Cumulative Class A
Preferred Stock.
1.57 "Reinstatement Premium" shall mean that optional premium required
under any KSI Insurance Policy to reinstate the maximum amount of any and all
limits of liability coverage under such KSI Insurance Policy.
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1.58 "SEC" shall mean the United States Securities and Exchange
Commission.
1.59 "Subsidiary" shall mean, with respect to any Person, (i) a
corporation a majority of whose Voting Stock is at the time, directly or
indirectly, owned by such Person, by one or more wholly owned subsidiaries of
such Person or by such Person and one or more wholly owned subsidiaries of such
Person, (ii) a partnership in which such Person or a wholly owned subsidiary of
such Person is, at the date of determination, a general or limited partner of
such partnership, but only if such Person or its wholly owned subsidiary is
entitled to receive more than fifty percent of the assets of such partnership
upon its dissolution or (iii) any other Person (other than a corporation or
partnership) in which such Person, a wholly owned subsidiary of such Person or
such Person and one ore more wholly owned subsidiaries of such Person, directly
or indirectly, at the date of determination thereof, has (x) at least a majority
ownership interest or (y) the power to elect or direct the election of a
majority of the directors or other governing body of such Person.
1.60 "Tax Subsidiary" shall mean, with respect to KSI or KSL as the
context may require, (i) any corporation or association taxable as a corporation
that is connected in an unbroken chain of stock ownership satisfying the
requirements of Section 1504(a) of the Code beginning with KSI or KSL as the
case may be (provided that, for this purpose, after the Distribution Date, KSL
shall be regarded as a corporation that is the common parent of the KSL Group);
(ii) any entity not a corporation that is a "disregarded" entity for federal
income tax purposes pursuant to Treasury Regulations ss.301.7701-3 and that is
owned by KSI, KSL or any Tax Subsidiary of either (determined after application
of clause (i) above) and (iii) any "disregarded" entity owned by KSI, KSL or any
Tax Subsidiary of either (determined after application of clauses (i) and (ii)
above).
1.61 "Taxes" shall mean all federal, state, local, foreign and other
taxes, duties, levies, imposts, customs or other assessments, including, without
limitation, all net income, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, profit share, license, value added,
withholding, payroll, employment, excise, estimated, severance, stamp,
occupation, premium, property, windfall profits or other taxes of any kind
whatsoever, together with any interest, penalties, additions to tax, fines or
other additional amounts imposed thereon or related thereto, and the term "Tax"
means any one of the foregoing Taxes.
1.62 "Transfer Agent" shall mean American Stock Transfer and Trust
Company.
1.63 "Voting Stock" shall mean, with respect to any Person, securities
of any class or classes of capital stock in such Person entitling the holders
thereof (whether at all times or only so long as no senior class of stock has
voting power by reason of any contingency) to vote in the election of the
members of the board of directors or other governing body of such Person.
1.64 "Waste Materials" shall mean any (i) toxic or hazardous materials
or substances; (ii) solid wastes, including asbestos, polychlorinated biphenyls,
mercury, buried contaminants, chemicals, flammable or explosive materials; (iii)
radioactive materials; (iv) petroleum wastes and spills or releases of petroleum
products; and (v) any other chemical, pollutant, contaminant, substance or waste
that is regulated by any governmental entity under any Environmental Law.
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ARTICLE 2
CONTRIBUTIONS; CONVERSION; LINE OF CREDIT
2.1 Pre-Distribution Transactions.
(a) KSI hereby agrees that it shall cause KFC to effect the
KPL Contribution and KSL hereby agrees that it shall cause the Common
Share Issuance to be made or occur, effective before the Distribution
Date.
(b) KSI hereby agrees that it shall cause KFC to distribute
all of the issued and outstanding KSL Common Shares held by KFC to KSI,
effective before the Distribution Date.
2.2 Guarantees and Financial Assurances. KSL agrees to use commercially
reasonable efforts to obtain the release of any guarantees or other financial
assurances provided by KSI or any of its Affiliates on behalf of any KSL
Company.
2.3 KSL Acknowledgments. KSL acknowledges that this Agreement is a
valid, binding and enforceable contract which has been approved by its sole
shareholder. KSL further acknowledges that this Agreement and the transactions
contemplated hereby are in the best interests of KSL.
2.4 Line of Credit. KSL hereby agrees that it will enter into a
revolving credit facility with KSI, on terms and conditions reasonably
satisfactory to KSI, under which KSI may borrow from KSI up to $____ million in
aggregate borrowings.
2.5 Letter of Credit. Within 30 after KSI requests, KSL shall cause a
financial institution, which shall be reasonably acceptable to KSI, to issue for
the benefit of KSI an irrevocable letter of credit in the amount of at least the
Estimate and upon terms and conditions otherwise reasonably satisfactory to KSI.
2.6 Covenant regarding KPP Distributions. KSL hereby agrees to pay to
KSI the full amount of any KPP Distributions within 10 Business Days after KSL
or any Subsidiary of KSL receives any KPP Distributions. For purposes of this
Section 2.6, a Subsidiary of KSL shall not include Kaneb Pipe Line Partners,
L.P. or Kaneb Pipe Line Operating Partnership, L.P. or any of their respective
Subsidiaries.
2.7 Covenant regarding Assignment. KSL hereby agrees that it will cause
Kaneb Management Company LLC to assign, effective prior to the Distribution
Date, to KSI (i) the rights to, interests in and rights to recover under the
Action and (ii) the rights to, interests in and rights to recover under any
claim that has arisen or hereafter arises out of any acts, transactions or
occurrences that formed the basis of the Action.
ARTICLE 3
MECHANICS OF DISTRIBUTION
3.1 Mechanics of KSL Distribution. The Distribution shall be effected
by the distribution to each holder of record of KSI Common Stock, as of the
record date designated for the Distribution by or pursuant to the authorization
of the Board of Directors of KSI (the "Record Date"), of one share of KSL Common
Shares for each three shares of KSI Common Stock held by such holder. No
fraction of a share of KSL Common Shares shall be issued, but in lieu thereof
KSI shall cause the Distribution Agent to aggregate all fractional shares that
would be issued but for this Section 3.1 and sell such aggregated fractional
shares in the public market and the aggregate net cash proceeds of those sales
shall be distributed
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ratably to those KSI stockholders who would otherwise have received the
fractional interests.
3.2 Timing of Distribution. The Board of Directors of KSI shall
formally declare the Distribution and shall authorize KSI to pay it upon the
satisfaction or waiver of the conditions set forth in Article 7, by delivery of
certificates for KSL Common Shares to the Transfer Agent for delivery to the
holders entitled thereto. The Distribution shall be deemed to be effective upon
notification by KSI to the Transfer Agent that the Distribution has been
declared and that the Transfer Agent is authorized to proceed with the
distribution of KSL Common Shares.
ARTICLE 4
ALLOCATION OF INSURANCE OBLIGATIONS
4.1 Obligations during the Initial Policy Period.
(a) Annual Premiums.
(i) KSI hereby agrees that it will pay the Annual Premiums
in accordance and in compliance with the terms and conditions of the various KSI
Insurance Policies.
(ii) KSL hereby agrees that it will pay to KSI its
Allocated Shares of the various Annual Premiums in the manner and when
reasonably necessary to allow KSI to meet its obligations in the payment of the
Annual Premiums under the KSI Insurance Policies.
(b) Allocated Share. Aon shall determine the Allocated Shares
of KSL during the Initial Policy Periods, which may be different for each Annual
Premium and which determination shall be based on the historical losses,
exposures to risk, projected expected losses and possible magnitude of losses of
KSI and KSL and their respective Subsidiaries. KSI and KSL hereby agree that
Aon's determination regarding the Allocated Shares of KSL shall be conclusive
absent manifest error.
4.2 Notification Requirements; Reinstatement of Liability Limits.
(a) KSI agrees that it will, and that it will cause all KSI
Companies to, comply with the notification requirements relating to possible and
known claims set forth in the KSI Insurance Policies. KSL agrees that it will,
and that it will cause all KSL Companies to, comply with the notification
requirements relating to possible and known claims set forth in the KSI
Insurance Policies.
(b) If a Liability Limit Trigger occurs relating to a claim or
a possible claim against KSI or a KSI Company, then, unless KSI obtains the
written consent of KSL, KSI shall (or shall cause such KSI Company to) (i) elect
to pay any Reinstatement Premiums relating to the Affected Layers within the
time period provided for in the applicable KSI Insurance Policy or KSI Insurance
Policies and (ii) pay such Reinstatement Premiums relating to the Affected
Layers in accordance with the terms of the relevant KSI Insurance Policy or KSI
Insurance Policies.
(c) If a Liability Limit Trigger occurs relating to a claim or
a possible claim against KSL or a KSL Company, then, unless KSL obtains the
written consent of KSI, KSL shall (or shall cause such KSL Company to) (i) elect
to pay any applicable Reinstatement Premiums relating to the Affected Layers
within the time period provided for in the applicable KSI Insurance Policy or
KSI Insurance Policies and (ii) pay such Reinstatement Premiums relating to the
Affected Layers in accordance with the terms of the relevant KSI Insurance
Policy or KSI Insurance Policies.
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4.3 Redetermination after Initial Policy Period. Each of KSL and KSI
hereby agree that the terms and conditions of this Article 4 shall be in full
force and effect, with respect to each KSI Insurance Policy, during such KSI
Insurance Policy's respective Initial Policy Period. Each of KSL and KSI hereby
agree that after, with respect to each KSI Insurance Policy, the termination of
such KSI Insurance Policy's Initial Policy Period, the terms of this Article 4
are subject to change and re-negotiation in full after such Initial Policy
Period, but only with respect to such KSI Insurance Policy. With respect to
periods after such Initial Policy Period, KSL and KSI hereby agree to
re-negotiate the terms of this Article 4 in full based on the changes in each
others' business, increases in the applicable Annual Premium and on the
recommendations of Aon with respect to the allocation of such Annual Premium,
but only with respect to the applicable KSI Insurance Policy whose Initial
Policy Period has expired. Upon the termination of such Initial Policy Period,
if the parties have not agreed on the terms and conditions of the allocations of
such Annual Premium or on the continuation, amendment, or termination of the
other terms and conditions contained in this Article 4, then the terms and
conditions of this Article 4 shall terminate and shall be of no further force
and effect with respect to, and only with respect to, such KSI Insurance Policy.
KSL and KSI hereby agree that this Section 4.3 shall have not have the effect of
reducing or minimizing the obligations of KSL under Section 4.4, and this
Section 4.3 is expressly subject to Section 4.4.
4.4 Letter of Credit. Notwithstanding anything contained in Section 4.3
to the contrary, within 15 calendar days after KSI requests, KSL shall cause a
financial institution, which is reasonably satisfactory to KSI, to issue for the
benefit of KSI a letter of credit to support the obligations of KSI under the
various issued and outstanding letters of credit that KSI has caused to be
issued for the benefit of various insurance carriers. However, such letter of
credit shall be in the amount reasonably determined by KSI to back that portion
of such issued and outstanding letters of credit that KSI allocates to the
businesses and operations of KSL and the KSL Companies. Such letter of credit
shall be on terms and conditions, other than amount, that KSI determines in its
sole discretion.
ARTICLE 5
LIABILITY FOR ESTIMATE
5.1 Payment of Estimate and Incremental Group Tax Liability by KSL to
KSI.
(a) KSL shall pay to KSI, on or before the fifteenth (15th)
day after written demand therefor, an amount equal to the Estimate. Demand for
payment by KSI may be made, at KSI's election, in lump-sum or installments. In
the event that transactions and operations occurring within the Group after the
Distribution Date would, in KSI's sole judgement, have reduced the amount of the
Estimate, KSI may, but shall not be required to, reduce KSL's obligation to pay
KSI. Such reduced amount shall be treated as the Estimate for all purposes
hereunder, and KSI shall make corresponding reductions in the relevant
components of the Estimate reflected in Section 5.2 (a) and (b), below.
(b) If an Incremental Group Tax Liability arises with respect
to any tax period ending on or before December 31, 2001, KSL shall pay to KSI an
amount equal to the Incremental Group Tax Liability, determined in accordance
with Section 5.2 hereof, such payment by KSL to be made to KSI no more than five
(5) business days after demand therefor.
5.2 Determination of Incremental Group Tax Liability. The Incremental
Group Tax Liability shall be one or more of the following amounts (provided,
however, that there shall be no duplication of amounts):
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(a) Tax Year 2001:
(i) Federal - the amount by which (i) the Group's
liability for Income Tax reflected on its consolidated federal income tax return
as filed exceeds (ii) $______________.
(ii) State - (A) the amount by which (i) the Group's
liability (whether reflected on one or more combined, consolidated or unitary
returns as filed or arising pursuant to an Adjustment) for state or local tax
that would not have been payable but for the Distribution exceeds (ii) zero;
plus (B) the amount by which (i) the Group's liability for Income Tax reflected
on the returns as filed for (or that include) KSL and/or any Tax Subsidiary of
KSL (or any predecessor of KSL or any such Tax Subsidiary), insofar as such
liability is reasonably allocable to KSL or any such Tax Subsidiary as
determined by KSI exceeds (ii) $____________.
(b) Tax Year 2000:
(i) Federal - the amount by which (i) the Group's
liability for Income Tax reflected on its consolidated federal income tax return
as filed exceeds (ii) zero.
(ii) State - the amount by which (i) the Group's liability
for Income Tax reflected on combined, consolidated or unitary returns, as filed,
for (or that include) KSL and/or any Tax Subsidiary of KSL (or any predecessor
of KSL or any such Tax Subsidiary), insofar as such liability is reasonably
allocable to KSL or any such Tax Subsidiary as determined by KSI exceeds (ii)
$____________.
(c) All Tax Years (including 2000 and 2001):
(i) Federal - the amount by which the Group's liability
for Income Tax is increased above the amount shown on any consolidated federal
income tax return by one or more Adjustments that increase income or decrease
deductions or credits (on a cumulative basis, taking into account carrybacks and
carryovers to tax years before and after any such Adjustment), which amount
shall be determined by calculating the Group's liability for Income Tax in the
applicable tax years with and without the Adjustment(s).
(ii) State - the amount by which the Group's liability for
Income Tax is increased by any Adjustment (on a cumulative basis, taking into
account carrybacks and carryovers to tax years before and after the Adjustment)
shown on any consolidated, combined or unitary return, as filed, for (or that
includes) KSL and/or any Tax Subsidiary of KSL (or any predecessor of KSL or any
such Tax Subsidiary), insofar as such increase is reasonably allocable to KSL or
any such Tax Subsidiary as determined by KSI. The foregoing amount of increased
Income Tax shall be determined by calculating the Group's liability for tax in
the applicable tax years with and without the Adjustment.
(d) Separate State Returns - State and local Income Tax
reflected on separate returns filed (or that were required to be filed) by or on
behalf of KSI, KSL or any Tax Subsidiary of either shall be the responsibility
of the entity whose operations are reflected on such return.
5.3 Indemnity. In the event KSI or KSL is required to pay to the
Internal Revenue Service, or any state or local taxing authority, any Income Tax
that is the responsibility of the other, KSI or KSL, as the case may be, shall
be entitled to reimbursement from the other party in the amount of such Income
Tax. The procedural mechanics for the enforcement of this Section 5.3 shall be
in accordance with Article 6.
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5.4 Payment of Interest, Penalties and Expenses. Interest, penalties
and expenses incurred by KSI in connection with the amendment of its tax returns
or those of its Tax Subsidiaries, and/or the examination of any such return by
the Internal Revenue Service or any state or local taxing authority, or any
subsequent administrative or judicial proceedings, shall be borne equitably by
those parties whose liability for Income Tax may be affected by such amendment,
examination or subsequent proceedings. No interest shall be charged to KSI or
KSL in connection with any liability for Income Tax payable under this
Agreement, however, unless interest is payable to the Internal Revenue Service
or any state or local taxing authority or to another member of the Group as a
result of any allocation of Income Tax.
5.5 KSI as Agent.
(a) KSL and its Tax Subsidiaries hereby appoint KSI as agent
and attorney-in-fact with full authority (i) to prepare and file any tax return
that reflects operations of KSL or any Tax Subsidiary, for all tax years ending
on or before December 31, 2001, (ii) to pay any liability for Income Tax shown
thereon, (iii) to represent KSL and its Tax Subsidiaries in connection with the
examination of any such return by the Internal Revenue Service or any state or
local taxing authority and (iv) to resolve disputes regarding liability for
Income Tax.
(b) KSL shall provide KSI with such data in its possession
that is necessary for the proper and timely filing of all federal, state and
local tax returns and forms. In the event KSL fails to provide such data in
proper form and within sufficient time to permit the timely filing of any such
tax return, any penalties or interest assessed by reason of a delay in filing
such tax return shall be payable by KSL. Any and all such data shall be
confidential and may be disclosed by KSI to third parties only to the extent
KSI, in the exercise of its reasonable business judgment, determines such
disclosure is necessary or appropriate to comply with its obligations under
applicable federal, state or local taxing provisions.
(c) The agency power of KSI, as described in this section,
shall extend to all periods during which KSL or any member of the KSL Group is a
member of the Group, and, after the Distribution Date, KSI shall retain the sole
power to make or change on behalf of KSL, or any Tax Subsidiary, any election or
other decision affecting Income Tax liabilities for such periods that KSL or
such Tax Subsidiary was a member of the Group.
5.6 Application of Article 5. This Article 5 shall be applicable to the
Group's tax year ending December 31, 2001, and to all prior tax years.
ARTICLE 6
INDEMNIFICATION
6.1 Indemnification Matters.
(a) KSL hereby agrees to indemnify, defend and hold KSI its
respective Affiliates and each of their respective officers, directors,
employees, agents and assigns (collectively, the "KSL Indemnified Parties")
harmless from and against any and all Liabilities or Environmental Liabilities
(including, without limitation, reasonable fees and expenses of attorneys,
accountants, consultants and experts) that the KSL Indemnified Parties incur,
suffer or realize, are subject to a claim for or are subject to, that are based
upon, arising out of, relating to or otherwise in respect of:
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(i) any breach of any covenant or agreement of any
KSL Company contained in this Agreement or any other agreement
contemplated hereby, including the Employee Benefits
Agreement;
(ii) the acts or omissions of any KSL Company or any
Affiliate of any KSL Company (other than KSI or its respective
Affiliates that are not KSL Companies after the Distribution)
or the conduct of any business by them or any predecessor
thereto before, on or after the Distribution Date;
(iii) the KSL Liabilities;
(iv) the KSL Assets;
(v)) any Tax for which KSL in responsible (except as
provided otherwise in Article 5 of this Agreement);
(vi) any and all amounts for which KSI may be liable
on account of any claims, administrative charges, self-insured
retentions, deductibles, retrospective premiums or fronting
provisions in insurance policies, including as the result of
any uninsured period, insolvent insurance carriers or
exhausted policies, arising from claims by any KSL Company or
any Affiliate of any KSL Company, or the employees of any of
the foregoing, or claims by insurance carriers of any KSL
Company for indemnity arising from or out of claims by or
against any KSL Company for acts or omissions of any KSL
Company, or related to any current or past business of any KSL
Company or any product or service provided by any KSL Company;
(vii) any Liability incurred under the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended, with
respect to any employees of KSI who become employees of any
KSL Company after the Distribution or their dependents;
(viii) any settlements or judgments in any litigation
commenced by one or more insurance carriers against KSI on
account of claims by any KSL Company or employees of any KSL
Company;
(ix) the on-site or off-site handling, storage,
treatment or disposal of any Waste Materials generated by any
KSL Company;
(x) any and all Environmental Conditions, known or
unknown, existing on, at or underlying any of the KSL
Properties or related to the operations on any of the KSL
Properties or with regard to any of the KSL Assets;
(xi) any acts or omissions of any KSL Company
relating to the ownership or operation of the business of any
KSL Company or the KSL Properties;
(xii) any and all Liabilities incurred by KSI or any
of its Affiliates relating to any guarantee or other financial
assurance provided by KSI or any of its Affiliates on behalf
of any KSL Company;
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(xiii) any Liability relating to any claim or demand
by any stockholder of KSI, any member of KSL or any other
Person with respect to the KPL Contribution, the KPP
Contribution, the Distribution or the transactions relating
thereto;
(xiv) any Liability relating to any KSL Employee
Benefit Plan; and
(xv) any Liability relating to any KSI Employee
Benefit Plan to the extent that the Liability relates to a KSL
Employee, a KSL Former Employee or a dependent or beneficiary
of a KSL Employee or a KSL Former Employee.
(b) Absolute Indemnity. NONE OF THE KSL INDEMNIFIED PARTIES
WILL BE OBLIGATED TO INSTITUTE ANY LEGAL PROCEEDINGS IN CONNECTION WITH
THE COLLECTION OR PURSUIT OF ANY INSURANCE TO EXERCISE AN
INDEMNIFICATION REMEDY UNDER THIS ARTICLE 6. UNLESS OTHERWISE
SPECIFICALLY EXPRESSED, THIS INDEMNITY OBLIGATION SHALL APPLY WITHOUT
REGARD TO WHETHER THE LIABILITY OR ENVIRONMENTAL LIABILITY WAS CAUSED
BY THE ORDINARY OR GROSS NEGLIGENCE OF ANY OF THE KSL INDEMNIFIED
PARTIES (WHETHER SUCH NEGLIGENCE BE SOLE, JOINT OR CONCURRENT OR ACTIVE
OR PASSIVE), OR WHETHER THE LIABILITY OR ENVIRONMENTAL LIABILITY IS
BASED ON STRICT LIABILITY, ABSOLUTE LIABILITY OR ARISES AS AN
OBLIGATION OF CONTRIBUTION OR INDEMNITY. KSL ACKNOWLEDGES THAT IT IS
AWARE OF VARIOUS THEORIES KNOWN AS THE "EXPRESS NEGLIGENCE" DOCTRINE
AND OTHER SIMILAR DOCTRINES AND THEORIES THAT MAY LIMIT INDEMNIFICATION
AND AGREES AND STIPULATES THAT THE PROVISIONS OF THIS AGREEMENT REFLECT
THE EXPRESS INTENT OF THE PARTIES THAT THE INDEMNIFICATION TO BE
PROVIDED BY KSL APPLY NOTWITHSTANDING THE FACT THAT THE LIABILITY OR
ENVIRONMENTAL LIABILITY (I) MAY NOT CURRENTLY BE KNOWN BY IT OR
MANIFEST ITSELF IN ANY REGARD, (II) MAY ARISE UNDER A STATUTE OR THEORY
THAT MAY NOT CURRENTLY EXIST OR BE KNOWN TO KSL, RESPECTIVELY, (III)
MAY ARISE AS A RESULT OF ANY ACT OR OMISSION BY ANY OF THE KSL
INDEMNIFIED PARTIES (WHETHER SUCH CONDUCT BE SOLE, JOINT OR CONCURRENT
OR ACTIVE OR PASSIVE) OR (IV) MAY CONSTITUTE A VIOLATION OF ANY
APPLICABLE CIVIL OR CRIMINAL LAW OR REGULATION.
6.2 Notice of KSL Circumstance. After receipt by KSI of notice, or
KSI's actual discovery, of any action, proceeding, claim, demand or potential
claim that could give rise to a right to indemnification from KSL pursuant to
any provision of this Agreement (any of which is individually referred to as a
"KSL Circumstance"), KSI shall give KSL written notice describing the KSL
Circumstance in reasonable detail; provided, however, that no delay by KSI in
notifying KSL shall relieve KSL from any Liability or Environmental Liability
hereunder. If KSL notifies KSI within 15 days after such notice that KSL is
assuming the defense thereof, except as otherwise provided in Article 5 of this
Agreement, (i) KSL will defend the KSL Indemnified Parties against the KSL
Circumstance with counsel of its choice, provided such counsel is reasonably
satisfactory to KSI, (ii) the KSL Indemnified Parties may retain separate
co-counsel at its or their sole cost and expense (except that KSL will be
responsible for the fees and expenses for the separate co-counsel to the extent
KSI concludes reasonably that the counsel KSL has selected has a conflict of
interest), (iii) the KSL Indemnified Parties will not consent to the entry of
any judgment or enter into any settlement with respect to the KSL Circumstance
without the written consent of KSL and (iv) KSL will not consent to the entry of
any judgment with respect to the KSL Circumstance, or enter into any settlement
that (x) requires any payments by or continuing obligations of an KSL
Indemnified Party, (y) requires a KSL
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Indemnified Party to admit any facts or liability that could reasonably be
expected to adversely affect a KSL Indemnified Party in any other matter or (z)
does not include a provision whereby the plaintiff or claimant in the matter
releases the KSL Indemnified Parties from all Liability with respect thereto,
without the written consent of KSI. If KSL does not notify KSI, within 15 days
after KSI has given notice of the KSL Circumstance that KSL is assuming the
defense thereof, then the KSL Indemnified Parties may defend against, or enter
into any settlement with respect to, the KSL Circumstance in any manner the KSL
Indemnified Parties reasonably may deem appropriate, at KSL's sole cost.
6.3 Payment. Payment of any amounts due pursuant to this Article 6
shall be made in United States dollars in immediately available funds, by wire
transfer to a bank account or accounts to be designated by KSL Indemnified Party
within ten Business Days after notice is sent by the KSL Indemnified Party. If
and to the extent the KSL Indemnified Party shall make written demand upon KSL
for indemnification pursuant to this Article 6 and KSL shall refuse or fail to
pay in full, within ten Business Days of such written demand, the amounts
demanded pursuant hereto and in accordance herewith, then the KSL Indemnified
Party may use any legal or equitable remedy to collect from KSL the amount
demanded.
6.4 Insurance. KSL shall not be obligated to indemnify the KSL
Indemnified Parties for amounts that shall have been covered and paid by
insurance of the KSL Indemnified Party; provided, however, insurance shall not
include deductibles or self-insured retentions.
6.5 Scope of Indemnification. INDEMNIFICATION UNDER THIS ARTICLE 6
SHALL BE IN ADDITION TO ANY REMEDIES KSI, KSL OR THE KSL INDEMNIFIED PARTY, AS
THE CASE MAY BE, MAY HAVE AT LAW OR EQUITY. THERE SHALL BE NO TIME LIMIT AS TO
KSL'S INDEMNIFICATION OBLIGATIONS HEREUNDER.
6.6 Indemnity for Certain Environmental Liabilities. It is the
intention of the parties that the indemnity provided herein with respect to
Environmental Liabilities under CERCLA and corresponding provisions of state law
is an agreement expressly not barred by 42 U.S.C.ss.9607(e)(i) or corresponding
provisions of any state law.
ARTICLE 7
CONDITIONS TO OBLIGATIONS OF KSI
The obligations of KSI to consummate the Distribution hereunder shall
be subject to the fulfillment of each of the following conditions:
(a) The Board of Directors of KSI shall be satisfied that, after giving
effect to the KPL Contribution and the KPP Contribution, (i) KSI will not be
insolvent and will not have unreasonably small capital with which to engage in
its businesses and (ii) the KSI surplus (as such term is defined by Delaware
General Corporation Law) will be sufficient to permit, without violation of
Delaware law, the Distribution.
(b) KSI and KSL shall have executed the Employee Benefits Agreement.
(c) KSI and KSL shall have executed the Administrative Services
Agreement.
(d) The KPL Contribution and Common Share Issuance shall have been
effected.
(e) The KSL Common Shares shall have been approved for listing by the
NYSE, and the NYSE shall not have (i) withdrawn its certification filed with the
SEC that the KSL Common Shares has been
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approved for listing, (ii) suspended trading in either the KSL Common Shares or
the KSI Common Stock or (iii) filed with the SEC a Form 25 to strike either the
KSL Common Shares or the KSI Common Stock from listing and registration thereof.
(f) KSL's Registration Statement on Form 10 shall have become effective
pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, and
the SEC shall not have commenced any action to prohibit or restrict the
Distribution in any way.
(g) The Board of Directors of KSI shall not have determined, in its
sole discretion, to abandon, defer or modify the Distribution or the terms
thereof.
ARTICLE 8
MISCELLANEOUS
8.1 KSL Covenants. To assure the performance of the obligations of KSL
under this Agreement, KSL hereby covenants and agrees that it will not, and will
cause its respective Subsidiaries not to, merge, convert into another entity,
engage in a share exchange for a majority of its shares, liquidate or transfer,
assign or otherwise convey or allocate, directly or indirectly, in one or more
transactions, whether or not related, a majority of its assets (determined in
good faith by a board resolution prior to the transaction on a fair value and
consolidated basis) to any Person unless the acquiring Person (i) expressly
assumes the obligations of it hereunder, (ii) executes and delivers to KSI an
agreement, in form and substance satisfactory to KSI, agreeing to be bound by
each and every provision of this Agreement and the Employee Benefits Agreement
as if it were KSL and (iii) has a net worth on a pro forma basis after giving
effect to the acquisition or business combination equal to or greater than that
of KSL (on a consolidated basis) and KSL's compliance with the provisions
Article 5 of this Agreement. Any such assumption of liability by the acquiring
Person shall not release KSL from its obligations under this Agreement.
8.2 Governing Law. All questions arising out of this Agreement and the
rights and obligations created herein, or its validity, existence,
interpretation, performance or breach, shall be governed by and construed in
accordance with the internals laws of the State of Texas, without regard to or
the application of the rules of conflicts of laws set forth in such laws.
8.3 Notices. All notices and other communications to be given or made
hereunder shall be in writing and shall be (a) personally delivered with signed
receipt obtained acknowledging delivery; (b) transmitted by postage prepaid
registered mail, return receipt requested (air mail if international); or (c)
transmitted by facsimile; to a party at the address set out below (or at such
other address as it may have provided notification for the purposes hereof to
the other party hereto in accordance with this Section).
If to KSL or to any of the Kaneb Services LLC
Tax Subsidiaries of KSL: 0000 Xxxxx Xxxxxxx Xxxxxxxxxx
Xxxxxxxxxx, Xxxxx 00000
Fax number: (000) 000-0000
Attention: President
With a copy to:
Fulbright & Xxxxxxxx L.L.P.
0000 XxXxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000-0000
Fax number: (000) 000-0000
Attention: Xxxx X. Xxxxxx
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If to KSI: Kaneb Services, Inc.
0000 Xxxxx Xxxxxxx Xxxxxxxxxx
Xxxxxxxxxx, Xxxxx 00000
Fax number: (000) 000-0000
Attention: President
With a copy to:
Fulbright & Xxxxxxxx L.L.P.
0000 XxXxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000-0000
Fax number: (000) 000-0000
Attention: Xxxx X. Xxxxxx
8.4 Expenses. Except as otherwise set forth herein or in any agreement
executed in connection herewith all costs and expenses related to the
Distribution and the transactions contemplated hereby shall be borne by KSL.
8.5 Entire Agreement. This Agreement, including the Schedules, Annexes
and other writings referred to herein or delivered pursuant hereto, constitutes
the entire agreement between KSI, KSL and the Tax Subsidiaries of KSL with
respect to the subject matter hereof and supersedes all other agreements,
representations, warranties, statements, promises and understandings, whether
oral or written, with respect to the subject matter hereof. This Agreement may
not be amended, altered or modified except by a writing signed by duly
authorized officers of KSI, KSL and the Tax Subsidiaries of KSL.
8.6 Waiver. No consent or waiver, express or implied, by a party hereto
to or of any breach or default by the other party hereto in the performance by
such other party of its obligations hereunder will be deemed or construed to be
a consent or waiver to or of any other breach or default in the performance by
such other party of the same or any other obligations of such other party
hereunder. Failure on the part of a party to complain of any act or failure to
act of the other party or to declare the other party in default, irrespective of
how long such failure continues, will not constitute a waiver by such party of
its rights hereunder. The giving of consent by a party in any one instance will
not limit or waive the necessity to obtain such party's consent in any future
instance.
8.7 Binding Effect; Assignment; No Third Party Benefit.
(a) This Agreement will be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and permitted assigns. None of the parties to this Agreement may
assign its rights under this Agreement without the prior written consent of all
of the other parties; provided, however, KSI may assign any of its rights and
obligations under this Agreement to any Subsidiary of KSI, without the consent
of any other party to this Agreement.
(b) Nothing in this Agreement, express or implied, is intended
to or shall confer upon any person other than KSL, KSI, the KSL Indemnified
Parties and the Tax Subsidiaries of KSL any rights, benefits or remedies of any
nature whatsoever under or by reason of this Agreement.
8.8 Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same agreement.
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8.9 References. All references in this Agreement to Articles, Sections
and other subdivisions refer to the Articles, Sections and other subdivisions of
this Agreement unless expressly provided otherwise. The words "this Agreement",
"herein", "hereof", "hereby", "hereunder" and words of similar import refer to
this Agreement as a whole and not to any particular subdivision unless expressly
so limited.
8.10 Terminology. All personal pronouns used in this Agreement, whether
used in the masculine, feminine or neuter gender, will include all other
genders; and the singular will include the plural and vice versa. The headings
of the Articles and Sections of this Agreement are included for convenience only
and will not be deemed to constitute part of this Agreement or to affect the
construction hereof or thereof.
8.11 Severability. Any provision of this Agreement that is determined
by arbitration as provided herein or a court of competent jurisdiction to be
invalid, illegal or unenforceable shall be ineffective to the extent of such
invalidity, illegality or unenforceability, without affecting in any way the
remaining provisions hereof in such jurisdiction or rendering that or any other
provision of this Agreement invalid, illegal or unenforceable, so long as the
material purposes of this Agreement can be determined and effectuated. Should
any provision of this Agreement be so declared invalid, illegal or
unenforceable, the parties shall agree on a valid provision to substitute for
it.
8.12 Further Assurances. Each party hereto agrees to do all acts and
things and to make, execute and deliver such written instruments, as will from
time to time be reasonably required to carry out the terms and provisions of
this Agreement.
8.13 Amendments. Any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived, only by a written
instrument executed by KSI, KSL and the Tax Subsidiaries of KSL.
[SIGNATURES ON FOLLOWING PAGE]
18
23
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth in the introduction to this Agreement.
KANEB SERVICES, INC.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
KANEB SERVICES LLC
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
[KSL TAX SUBSIDIARIES]
19
24
ANNEX A
[ADMINISTRATIVE SERVICES AGREEMENT]
A-1
25
ANNEX B
[EMPLOYEE BENEFITS AGREEMENT]
B-1
