-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, GSSX47IB0FA7yqUhmxzP0hpEVdrLvo5XzB41sGaok/48yvg38xFu+J06u4CGYC+i jMLpTi2zqqY/mTvnXWqEZA== 0000950109-95-000666.txt : 19950615 0000950109-95-000666.hdr.sgml : 19950615 ACCESSION NUMBER: 0000950109-95-000666 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950224 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19950313 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KANEB SERVICES INC CENTRAL INDEX KEY: 0000054441 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ENGINEERING SERVICES [8711] IRS NUMBER: 751191271 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-05083 FILM NUMBER: 95520421 BUSINESS ADDRESS: STREET 1: 2400 LAKESIDE BLVD CITY: RICHARDSON STATE: TX ZIP: 75082 BUSINESS PHONE: 2146994000 MAIL ADDRESS: STREET 1: P.O. BOX 650283 CITY: DALLAS STATE: TX ZIP: 75265-0283 FORMER COMPANY: FORMER CONFORMED NAME: KANEB PIPE LINE CO DATE OF NAME CHANGE: 19710610 8-K 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8 - K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): FEBRUARY 24, 1995 KANEB SERVICES, INC. - ----------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE - ----------------------------------------------------------------------------- (State or other jurisdiction of incorporation) 1-5083 74-1191271 (Commission File Number) (IRS Employer Identification No.) 2435 N. Central Expressway, Seventh Floor, Richardson, Texas 75080 - ----------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (214) 699-4000 ------------------------- ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. On February 24, 1995, Registrant, through its wholly-owned subsidiary, Kaneb Pipe Line Company, as general partner for and on behalf of Kaneb Pipe Line Partners, L.P. and its operating partnership, Kaneb Pipe Line Operating Partnership, L.P., acquired the refined petroleum product pipeline assets of Wyco Pipe Line Company ("Wyco") for $27.1 million in cash. Wyco was owned 60% by a subsidiary of GATX Terminals Corporation and 40% by a subsidiary of Amoco Pipe Line Company. There is no material relationship between these companies and the Registrant or any of its affiliates, directors or officers or associates of any such directors or officers. The assets consist of approximately 550 miles of 8" and 6" pipeline originating in Casper, Wyoming, running south to a truck loading terminal at Cheyenne, Wyoming, another truck loading terminal at Dupont, Colorado and terminating at a truck loading terminal at Fountain, Colorado. A branch line runs from Douglas Junction, Wyoming to a truck loading terminal at Rapid City, South Dakota. Included are approximately 1,700,000 barrels of tankage at the terminals, 11 pump stations and all of the other equipment associated with a working product pipeline system. The system supplies various grades of motor gasoline, heating oil, and diesel oil at the terminal truck racks from origin points at Casper/Strouds station, Mule Creek, and Cheyenne, Wyoming and Commerce City, Colorado. Registrant intends to continue the business of Wyco. The transaction was financed by the sale of first mortgage notes to three insurance companies. The notes are due February 24,2002 and bear interest at the rate of 8.37%. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial statements of business acquired. Report of Independent Accountants. Statement of Income and Retained Earnings - Years Ended December 31, 1994 and 1993; Statement of Financial Position - December 31, 1994 and 1993; Statement of Cash Flows - Years Ended December 31, 1994 and 1993. (b) Pro forma financial information. (c) Exhibits. 10.1. Agreement for Sale and Purchase of Assets by and between Wyco Pipe Line Company and Kaneb Pipe Line Operating Partnership, L.P. dated February 19, 1995. 10.2. Note Purchase Agreement dated as of December 22, 1994. 23.1. Consent of Independent Accountants. SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. KANEB SERVICES, INC. -------------------- (Registrant) Date: March 13, 1995 /s/ Tony M. Regan ------------------- Tony M. Regan Controller WYCO PIPE LINE COMPANY ---------------------- FINANCIAL STATEMENTS -------------------- DECEMBER 31, 1994 AND 1993 -------------------------- REPORT OF INDEPENDENT ACCOUNTANTS --------------------------------- January 27, 1995, except as to Note 8, which is as of February 17, 1995 To the Board of Directors of Wyco Pipe Line Company In our opinion, the accompanying statement of financial position and the related statements of income and retained earnings and of cash flows present fairly, in all material respects, the financial position of Wyco Pipe Line Company at December 31, 1994 and 1993, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. These financial statements are the responsibility of Wyco Pipe Line Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP WYCO PIPE LINE COMPANY ---------------------- STATEMENT OF INCOME AND RETAINED EARNINGS -----------------------------------------
Year Ended December 31, ----------------------- 1994 1993 ---- ---- Revenues Transportation revenue, including amounts billed to affiliated companies of $1,068,465 and $1,475,862, respectively $12,806,828 $11,585,336 Rent revenue, including $458,333 in 1994 from affiliated company 511,283 10,823 Interest and other income, net 376,240 171,681 Gain on the sale of assets - 5,005,781 ---------- ---------- 13,694,351 16,773,651 ---------- ---------- Costs and expenses Operating expense 2,357,214 2,119,276 Maintenance expense 2,770,777 2,395,215 General expense 780,555 663,791 Depreciation 1,042,054 840,792 Taxes, other than income taxes 365,432 321,123 Interest expense - 13,091 Casualty and other losses 1,642,218 1,003,714 ---------- ---------- 8,958,250 7,357,002 ---------- ---------- Income before provision for income taxes 4,736,101 9,416,649 ---------- ---------- Provision for income taxes Federal Current 2,487,349 1,847,870 Deferred (802,338) 1,373,274 State 164,618 113,366 ---------- ---------- 1,849,629 3,334,510 ---------- ---------- Net income 2,886,472 6,082,139 Retained earnings at beginning of year 10,312,551 8,535,412 Dividends declared - $124.10 and $123.00 per share, respectively (4,343,500) (4,305,000) ---------- ---------- Retained earnings at end of year $ 8,855,523 $10,312,551 ========== ========== Earnings per share of common stock: $88.04 $173.78
The accompanying notes are an integral part of this financial statement. -2- WYCO PIPE LINE COMPANY ---------------------- STATEMENT OF FINANCIAL POSITION -------------------------------
December 31, ------------ 1994 1993 ---- ---- ASSETS - ------ Current Assets Cash (Unrestricted) $ 28,078 $ 723,201 Marketable equity securities - at cost, which approximates market 400,000 0 Accounts receivable - affiliated companies 570,152 120,314 Accounts receivable - trade 1,805,969 1,131,626 Materials and supplies 50,141 50,141 Prepaid expenses and other current assets 221,004 531,853 Deferred tax assets 785,000 272,000 ----------- ----------- Total current assets 3,860,344 2,829,135 ----------- ----------- Cash (Restricted) - 6,622,662 Deferred charges and miscellaneous assets 6,817 11,459 Property and equipment - at cost, less accumulated depreciation of $19,916,471 and $18,864,550, respectively 15,571,385 10,269,874 ----------- ----------- Total Assets $19,438,546 $19,773,130 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Current Liabilities Accounts payable - trade $ 715,645 $ 960,571 Accounts payable - affiliated companies 451,481 210,552 Income taxes payable 217,503 418,090 Other taxes payable 363,885 317,571 Accrued liabilities 2,960,681 1,396,100 ---------- ----------- Total current liabilities 4,709,195 3,302,884 ---------- ----------- Deferred rental income 296,970 300,000 Deferred income taxes 3,476,858 3,717,695 ----------- ----------- Total deferred liabilities 3,773,828 4,017,695 ----------- ----------- Commitments and Contingencies (See Note 8) Shareholders' Equity Common stock, no par value - Authorized - 50,000 shares Issued and outstanding - 35,000 shares at $60.00 per share 2,100,000 2,100,000 Retained earnings 8,855,523 10,312,551 ----------- ----------- Total shareholders' equity 10,955,523 12,412,551 ----------- ----------- Total Liabilities and Shareholders' Equity $19,438,546 $19,733,130 =========== ===========
The accompanying notes are an integral part of this financial statement. -3- WYCO PIPE LINE COMPANY ---------------------- STATEMENT OF CASH FLOWS -----------------------
Year Ended December 31, ----------------------- 1994 1993 ---- ---- Cash flows from operating activities: Net income $2,886,472 $6,082,139 Adjustments to reconcile net income to cash provided by operating activities: Gain on sale of assets - (5,005,781) Depreciation 1,042,054 840,792 Increase in payables and accrued liabilities 1,406,311 1,387,782 (Increase) Decrease in receivables (1,124,181) 172,518 Decrease (Increase) in prepaid expenses and other current assets 310,849 (472,437) Net change in deferred taxes and other items (752,218) 1,945,282 --------- --------- Net cash provided by operating activities 3,769,287 4,950,295 --------- --------- Cash flows from investing activities: Proceeds from sale of assets 212,000 6,600,000 Cash restricted as to use 6,622,662 (6,622,662) Capital expenditures (6,555,572) (13,204) --------- --------- Net cash used in investing activities 279,090 (35,866) --------- ---------- Cash flows from financing activities: Repayment of line of credit - (300,000) Cash dividends paid (4,343,500) (4,305,000) --------- --------- Net cash used in financiing activities (4,343,500) (4,605,000) --------- --------- Decrease in cash and marketable securities (295,123) 309,429 Cash and cash equivalents - - beginning of year 723,201 413,772 ---------- --------- Cash and cash equivalents - - end of year $ 428,078 $ 723,201 ========== =========
The accompanying notes are an integral part of this financial statement. -4- WYCO PIPE LINE COMPANY ---------------------- NOTES TO FINANCIAL STATEMENTS ----------------------------- DECEMBER 31, 1994 AND 1993 -------------------------- NOTE 1- OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Wyco Pipe Line Company (the Company) owns and operates a 552-mile pipeline from Wyoming and South Dakota to Colorado and owns and leases a 30-mile pipeline in North Dakota. The Company is an interstate common carrier pipeline under the Interstate Commerce Act of 1887. The Federal Energy Regulatory Commission (FERC) has regulatory authority over the rates, shipping regulations and other practices of common carrier pipelines and are empowered to regulate the accounting for operations. Cash and cash equivalents, for purposes of reporting cash flows, consist of short-term highly liquid securities held to maturity and are stated at cost, which approximates fair value. Acquisitions of properties and significant betterments to existing properties are capitalized. Expenditures for repairs and maintenance are charged to expense as incurred. The Company computes depreciation for financial reporting purposes on a straight-line basis over lives prescribed by the Federal Energy Regulatory Commission (FERC). Depreciation taken for income tax purposes is based on accelerated methods and lives authorized by the Internal Revenue Code. During 1993 the Company adopted Financial Accounting Standard No. 109, "Accounting for Income Taxes". Adoption of the Standard did not affect the Company's 1993 financial statements. The principal temporary differences giving rise to deferred taxes at December 31, 1994 and 1993 were depreciation and provisions for environmental and litigation-related costs. Earnings per share of common stock is based on the number of shares of common stock outstanding during the year, which amounted to 35,000 shares in each year. -5- NOTE 2- CASH FLOW INFORMATION: For purposes of the statement of cash flows, cash and cash equivalents include cash and marketable securities, all of which have a maturity of three months or less when acquried. Net cash provided by operating activities reflects cash payments for interest and income taxes as follows:
Year Ended December 31, ----------------------- 1994 1993 ---- ---- Interest paid $ - $ 13,091 Income taxes paid $2,832,000 $1,607,584
NOTE 3- RESTRICTED CASH AND SALE OF PIPELINE: On August 30, 1993, the Company sold an idle ten-inch diameter pipeline segment in Wyoming, with a net book value of $1,594,000, for $6,600,000. The Company realized an after-tax gain of $3,254,000 on this sale. The proceeds were recorded as restricted cash at December 31, 1993 as the Company intended to use the proceeds to effect a like-kind exchange. See Note 4. NOTE 4- PROPERTY AND EQUIPMENT: Property and equipment consisted of the following:
December 31, ------------ 1994 1993 ---- ---- Gross Net Net ----- --- --- (in thousands) Pipelines $15,860 $ 6,454 $ 2,532 Buildings 1,509 658 610 Land 190 190 190 Machinery, equipment and other 17,417 7,757 6,670 Construction work in progress 512 512 268 ------ ------ ------ $35,488 $15,571 $10,270 ====== ====== ======
Property and equipment at December 31, 1994 includes assets with an original cost of $5,834,000 and accumulated depreciation of $194,500 relating to a pipeline purchased from Amoco Pipeline Company (Amoco), a shareholder, in 1994. This pipeline was leased back to Amoco under an agreement which expires on February 24, 1996. Rental income in 1994 under this lease totaled $458,333 and future rentals total $541,667. See also Note 9. -6- NOTE 5- RELATED PARTIES: The Company is operated and managed by Amoco in accordance with an operating agreement dated May 31, 1977. Effective January 1, 1989, the Company entered into two separate agreements with Amoco to provide Control Center operations which monitor and control pipeline flow and allow satellite communications from the locations on the Pipeline System to the Control Center. Charges to the Company in 1994 and 1993 under these agreements were as follows:
Year Ended December 31, ----------------------- 1994 1993 ---- ---- Management and operating fee $ 488,448 $ 502,296 Control center 246,024 242,840 Satellite communication fee 68,000 68,000 Other Operating costs 1,869,096 1,493,585 --------- --------- $2,671,568 $2,306,721 ========= =========
Other operating costs consist primarily of employee wages and related payroll costs and include charges relating to employee benefit plans, which are calculated as a percentage of total salaries. As specified in the operating agreement, this percentage represents the average ratio of benefit plan costs to total salaries of Amoco employees. Accounts receivable - affiliated companies includes $466,000 receivable from Amoco Pipeline. This amount was paid to Amoco Pipeline in anticipation of the receipt of assets as part of the like-kind exchange executed in 1994 (see Note 3) which were not received. See Note 4 concerning other transactions with Amoco during 1994. NOTE 6- CREDIT AGREEMENTS: On April 15, 1994, the Company entered into a credit agreement with its shareholders, GATX Pipeline Company and Amoco Pipeline Company, which provides for borrowings of up to $1,000,000 at a prime rate of interest through April 15, 1995. Also, on December 30, 1994, the Company entered into a credit agreement with one of its shareholders, Amoco Pipeline Company, which provides for borrowings of up to $5,000,000 at a prime rate of interest over renewable one-year terms. There were no borrowings outstanding under these agreements at December 31, 1994. -7- NOTE 7 - ENVIRONMENTAL ACCRUAL: In 1994, the Company recorded a charge of $1,200,000 for environmental remediation. This amount is net of expected insurance recoveries of $200,000. The accrual for remediation totaled $1,400,000 at December 31, 1994 and represents management's best estimate of such costs. Additional accruals, if any, are not expected to have a material adverse effect on the Company's financial position. NOTE 8 - LITIGATION: In December 1991, the Company was named in a lawsuit (Joseph Kramer et al. v. Wyco Pipe Line Company), which alleged that the Company's activities resulted in the hydrocarbon contamination of the groundwater and soil on the plaintiffs' property and asserts losses of at least $5,570,000. The plaintiffs also seek punitive and emotional distress damages and statutory interest. The Company is currently undertaking remediation efforts. The Company provided $300,000 and $800,000 related to this lawsuit and the remediation efforts in 1994 and 1993, respectively. The Company does not believe that the ultimate resolution of this matter will have a material adverse impact on its financial position. NOTE 9 - SALE OF PIPELINE: The Company anticipates that it will sell its 552-mile pipeline in 1995. The net book value of property and equipment relating to this pipeline approximated $9,931,500 at December 31, 1994. The Company expects to realize a significant gain on the sale and to reinvest the proceeds in other pipeline-related property. -8- KANEB SERVICES, INC. PRO FORMA FINANCIAL STATEMENTS (Unaudited) In February 1995, Kaneb Services, Inc. ("Kaneb") acquired, through its interest in Kaneb Pipe Line Partners, L.P., the refined petroleum product pipeline assets of Wyco Pipe Line Company ("Wyco") for $27.1 million. Wyco was owned 60% by a subsidiary of GATX Terminals Corporation and 40% by a subsidiary of Amoco Pipe Line Company. The acquisition was financed by the sale of $27 million of first mortgage notes to three insurance companies. The following unaudited pro forma financial statements for Kaneb have been derived from the audited historical financial statements of Kaneb and Wyco for the year ended December 31, 1993 and the unaudited financial statements for the nine month period ended September 30, 1994. The following unaudited pro forma financial statements have been compiled as if Kaneb acquired the pipeline assets of Wyco on the date of the balance sheet or as of the beginning of the period for income statement purposes. The unaudited pro forma financial statements should be read in conjunction with the notes accompanying such unaudited pro forma financial statements and with the audited historical financial statements and related notes of Kaneb and Wyco. The unaudited pro forma financial statements may not be indicative of the results that would have occurred if Kaneb had acquired the pipeline assets of Wyco on the dates indicated or which will be obtained in the future. KANEB SERVICES, INC. PRO FORMA STATEMENTS OF INCOME YEAR ENDED DECEMBER 31, 1993 (In Thousands, except per unit amounts) (Unaudited)
Kaneb Wyco Acquisition Pro Historical Historical Adjustments Forma -------------- ------------- ------------- -------------- Revenues $ 198,549 $ 16,602 $ ( 5,006) (a) $ 210,145 -------------- ------------- ------------- -------------- Costs and expenses: Operating costs 153,231 5,839 - 159,070 Depreciation 11,655 841 (137) (b) 12,359 General and administrative 4,133 664 - 4,797 -------------- ------------- ------------- -------------- Total costs and expenses 169,019 7,344 (137) 176,226 -------------- ------------- ------------- -------------- Operating income 29,530 9,258 (4,869) 33,919 Interest income 307 43 - 350 Other income (expense) (514) 129 - (385) Interest expense (13,559) (13) (2,247) (c) (15,819) Amortization of excess of cost over fair value of net assets of acquired business (1,845) - - (1,845) -------------- ------------- ------------- -------------- Income before minority interest, income taxes and gain on issuance of units by partnership 13,919 9,417 (7,116) 16,220 Minority interest in net income (10,989) - - (10,989) Income taxes (1,898) (3,335) 3,222 (d) (2,011) Gain on issuance of units by partnership 15,122 - - 15,122 -------------- ------------- ------------- -------------- Net income $ 16,154 $ 6,082 $ (3,894) $ 18,342 ============== ============= ============= ============== Earnings per common share - primary and fully diluted $ 0.46 $ 0.53 ============== ==============
KANEB SERVICES, INC. PRO FORMA STATEMENTS OF INCOME NINE MONTHS ENDED SEPTEMBER 30, 1994 (In Thousands, except per unit amounts) (Unaudited)
Kaneb Wyco Acquistion Pro Historical Historical Adjustments Forma ------------ ------------ ------------- ------------ Revenues $ 156,460 $ 9,461 $ - $ 165,921 ------------ ------------ ------------ ------------ Costs and expenses: Operating costs 119,549 3,438 - 122,987 Depreciation 9,352 629 (101) (b) 9,880 General and administative 3,061 909 - 3,970 ------------ ------------ ------------ ------------ Total costs and expenses 131,962 4,976 (101) 136,837 ------------ ------------ ------------ ------------ Operating income 24,498 4,485 101 29,084 Other income (expense) 78 583 - 661 Interest expense (10,033) - (1,695) (c) (11,728) Amortization of excess of cost over fair value of net assets of acquired business (1,386) - - (1,386) ------------ ------------ ------------ ------------ Income before minority interest and income taxes 13,157 5,068 (1,594) 16,631 Minority interest in net income (9,400) - - (9,400) Income taxes (1,835) (1,965) (1,808) (d) (1,992) ------------ ------------ ------------ ------------ Net income $ 1,922 $ 3,103 $ 214 $ 5,239 ============ ============ ============ ============ Earnings per common share - primary and fully diluted $ 0.03 $ 0.13 ============ ============
KANEB SERVICES, INC. PRO FORMA BALANCE SHEETS SEPTEMBER 30, 1994 (In Thousands) (Unaudited)
Kaneb Acquistion Pro Historical Adjustments Forma ------------- ------------- ---------------- ASSETS Current assets: Cash and cash equivalents $ 13,472 $ 2,047 (e) $ 15,519 Accounts receivable, trade 31,597 31,597 Inventories 5,775 - 5,775 Prepaid expenses and other current assets 6,631 - 6,631 ------------- ------------- ---------------- Total current asstes 57,475 2,047 59,522 ------------- ------------- ---------------- Property and equipment, net 162,930 28,161 (a) 191,091 ------------- ------------- ---------------- Excess of cost over fair value of net assets of acquired business 67,338 - 67,338 ------------- ------------- ---------------- Other assets 4,953 - 4,953 ------------- ------------- ---------------- $ 292,696 $ 30,208 $ 322,904 ============= ============= ================ LIABILITIES AND EQUITY Current Liabilities: Current portion of long-term debt $ 14,847 $ - $ 14,847 Accounts payable 11,608 - 11,608 Accrued expenses 24,607 $ 1,296 (f) 25,903 Accrued distribution payable 4,021 - 4,021 ------------- ------------- ---------------- Total current liabilities 55,083 1,296 56,379 ------------- ------------- ---------------- Long-term debt, less current portion 146,265 27,000 (g) 173,265 ------------- ------------- ---------------- Net liabilities of discontinued operations 4,342 - 4,342 ------------- ------------- ---------------- Deferred income taxes and other liabilities 5,730 1,912 (h) 7,642 ------------- ------------- ---------------- Minority interest 62,633 - 62,633 ------------- ------------- ---------------- Commitments and contingencies Stockholders' equity 18,643 - 18,643 ------------- -------------- ---------------- $ 292,696 $ 30,208 $ 322,904 ============= ============== ================
Kaneb Services, Inc. Notes to Pro Forma Financial Statements (a) Represents the preliminary allocation of the estimated fair market value of the acquired assets and elimination of the historical gain on an asset sale in 1993, however, the internal valuation of the assets is not complete as of the date of this filing. (b) Adjusts the depreciation of the acquired assets. (c) Reflects interest expense on $27 million of acquisition debt. (d) Federal income tax expense has been eliminated. (e) Represents cash received from seller to settle liabilities acquired. (f) Represents liabilities assumed and accrued acquisition costs (g) Reflects the issuance of $27 million of long-tern debt, incurred in connection with the Wyco acquisition. (h) Represents liabilities assumed in connection with the acquisition. EX-10.1 2 AGRMNT FOR SALE/PUR ASST Exhibit 10.1 AGREEMENT FOR SALE AND PURCHASE OF ASSETS ----------------------------------------- This Agreement for Sale and Purchase of Assets ("Agreement") is made and entered into as of this 19th day of February, 1995 by and between WYCO PIPE LINE COMPANY, a Delaware corporation having its principal office at One Mid America Plaza, Suite 300, Oakbrook Terrace, Illinois 60181-7423 (referred to herein as "Seller") and KANEB PIPE LINE OPERATING PARTNERSHIP, L.P., a Delaware limited partnership having its principal office at 2435 North Central Expressway, Suite 700, Richardson, Texas 75080 (referred to herein as "Buyer"). W I T N E S S E T H: WHEREAS, Seller is the owner of a petroleum liquids pipeline running from Casper, Wyoming to near Fountain, Colorado and from Douglas, Wyoming to Rapid City, South Dakota, as shown on the map attached hereto and made a part hereof as Schedule 1.1(a), together with the Related Property (as such term is defined in Section 1.1(c) hereof), certain associated valves, pump stations, tanks, metering facilities, and equipment located on the Related Property or used in connection with the pipeline, and certain other assets related to or used in connection with the pipeline; WHEREAS, Seller desires to sell to Buyer and Buyer desires to purchase from Seller, the pipeline and certain other assets related to the pipeline, upon the terms and conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the foregoing premises and of the mutual covenants, conditions and agreements set forth herein, the parties hereby agree as follows: ARTICLE I - PURCHASE AND SALE OF ASSETS --------------------------------------- 1.1 Assets To Be Transferred. Subject to, and upon the terms and ------------------------ conditions of this Agreement, Seller shall sell, transfer, convey, assign, set over, and deliver to Buyer, and Buyer shall purchase, acquire and receive from Seller, at the Closing (as such term is defined in Section 11.1 hereof), the assets listed and described in subsections (a) through (g) below (collectively referred to herein as the "Assets"): (a) Pipeline. The pipeline as shown on Schedule 1.1(a) hereof (the -------- "Pipeline"). (b) Pipeline Equipment. Subject to Section 1.2 hereof and subject to ------------------ rights or interests of third parties reflected in the Contracts (as such term is defined in Section 1.1(e) hereof), all facilities, equipment and other personal property listed in Schedule 1.1(b) attached hereto and made a part hereof (the "Pipeline Equipment"), except for items that 2 are listed in Schedule 1.1(b) as "Excluded Items". The Pipeline Equipment together with the Pipeline is collectively referred to herein as the "Pipeline System". (c) Related Property. Subject to Sections 1.3 and 1.5 hereof, the real ---------------- property and buildings and improvements located thereon, and the leaseholds, easements, rights-of-way, permits, licenses, grants and other real property rights, related to or used in the operation of the Pipeline System in the six (6) months preceding the date hereof, all as more fully described in Schedule 1.1(c) attached hereto and made a part hereof (the "Related Property"). (d) Licenses and Permits. Subject to Sections 1.2 and 1.6 hereof, all of -------------------- Seller's rights under all governmental permits, licenses and approvals (other than such which are Related Property, which are covered in Section 1.1(c)) listed in Schedule 1.1(d) attached hereto and made a part hereof (the "Permits"), except for items that are listed in Schedule 1.1(d) as "Excluded Items". (e) Contracts. Subject to Sections 1.2 and 1.6 hereof, and to the --------- contract assignment and assumption agreement to be executed by the parties pursuant to Section 1.4(d) and Article XI hereof, all of Seller's rights in all of the executory contracts, agreements, leases and commitments listed in Schedule 1.1(e) attached hereto and made a part hereof (the "Contracts"), except for items that are listed in Schedule 1.1(e) as "Excluded Items". 3 (f) Records. Except as otherwise provided in Section 1.2 hereof, all ------- records, documents, contracts, correspondence, legal documents, lease, land and title records, health, safety and environmental records, drawings, specifications, designs, plans, technical data, and maintenance and repair records relating to the assets described in the foregoing subsections 1.1(a) through (e) and necessary to or useable in the operation of the Pipeline System after the Closing (the "Records"), except for items that are identified on Schedule 1.1(f) as "Excluded Items"; it being understood that Seller has the right to retain copies of any such Records. (g) Trade Name. All of the right and interest in the name "Wyco" that ---------- Seller possesses and has the right to transfer (the "Trade Name"). 1.2 Excluded Assets. The following rights, properties and assets (the --------------- "Excluded Assets") are not included in the Assets and their exclusion from sale hereunder shall not affect the Purchase Price (as defined in Section 2.1 hereof) and shall not prevent or delay the Closing: (a) Unassignable Assets. Subject to the provisions of Section 1.6 hereof, ------------------- those leases, contracts, licenses, permits, approvals, consents, agreements and commitments included as an Asset but which by their express or implied terms or by operation of law are not freely assignable by Seller to Buyer, and any other assets, properties, rights or information that Seller and Buyer may prior to the Closing agree in writing to exclude from the sale, provided, however, that no Related Property shall be an Excluded Asset. 4 (b) Records. All (i) records prepared specifically for use in connection ------- with the sale of the Assets, including bids received from third parties and information related to such bids, (ii) records identified on Schedule 1.1(f) attached hereto as Excluded Items, and (iii) records which relate solely to any liabilities which Buyer does not assume pursuant to Article III of this Agreement. (c) Third Party Product. Except as provided in Section 8.1(c) hereof, all ------------------- line fill, tank and other inventories of petroleum liquids related to the Pipeline System. (d) Mandan Line. The 8" pipeline extending from Lignite, North Dakota to ----------- Black Slough, North Dakota and the 6" pipeline extending from Battleview, North Dakota to Ramberg Junction, North Dakota, together with associated licenses, permits, valves, fittings, meters, pumps, engines, electrical equipment, other equipment, pump stations, tanks, metering facilities, easements, rights-of-way, leases, other real property interests, contracts, accounts receivables and records (the "Mandan Line"). (e) Accounts Receivable. All accounts receivable and notes receivable ------------------- related to the Pipeline System, the Related Property, the Permits or the Contracts ("Accounts Receivable") insofar as the event, matter or performance giving rise to the receivable occurred prior to the Closing. (f) Cash. All of Seller's cash on hand or on deposit. ---- 5 (g) Other. The items identified on Schedules 1.1(b), 1.1(d) and 1.1(e) as ----- Excluded Items. 1.3 Unassignable and Missing Related Property. To the extent that Buyer ----------------------------------------- identifies in writing (i) any Related Property which by its express or implied terms or by operation of law is not capable of being validly assigned or transferred by Seller to Buyer without the consent or waiver of the owner or issuer thereof or the other party thereto, or any third person (including a government or governmental unit), or (ii) any portion of the Pipeline System for which Seller does not own valid rights-of-way, easements, permits, licenses, grants, leaseholds or other real property rights necessary for the operation thereof as conducted during the six (6) months preceding the date hereof, Seller at its sole cost shall (1) with respect to those matters identified by Buyer pursuant to clause (i) above, use its best efforts to obtain prior to the Closing such consents and waivers in principle subject to verification of the Closing having occurred, by means of letters substantially in the form of Schedule 1.3 attached hereto and made a part hereof (with no material changes thereto), and (2) with respect to those matters identified by Buyer pursuant to clause (ii) above, use its best efforts to obtain such rights-of-way, easements, permits, licenses, grants, leaseholds or other real property rights, prior to the Closing. Seller shall not be obligated to pay any presently existing periodic costs or fees associated with such Related Property which accrue for periods after the Closing in order to obtain such consents and waivers in principle; Seller shall, however, pay all other administrative and processing costs required, whether before or after the Closing, in order for Buyer to obtain after the Closing the formal consents and waivers described in the consents and waivers in principle. 6 1.4 Instruments of Conveyance, Transfer and Assignment. In order to -------------------------------------------------- accomplish the sale, assignment, transfer and conveyance contemplated herein, Seller shall execute and deliver at the Closing deeds, bills of sale and other documents or instruments of assignment, transfer and conveyance (the "Transfer Documents") appropriate to transfer to Buyer the Assets, subject to Section 1.2, as follows: (a) Fee owned Related Property, by special warranty deed, in the form of Exhibit A attached hereto and made a part hereof; (b) Leasehold, easement, right-of-way and other interests in Related Property (that are not customarily transferred by deed) by an assignment and conveyance in the form of Exhibit B attached hereto and made a part hereof; (c) Pipeline, Pipeline Equipment, Records and Trade Name, by a bill of sale in the form of Exhibit C attached hereto and made a part hereof; (d) Contracts, by a contract assignment and assumption agreement in the form of Exhibit D attached hereto and made a part hereof; and (e) Permits, by an assignment in the form of Exhibit E attached hereto and made a part hereof and such documents of transfer or assignment as the appropriate authorities or parties may require. 7 1.5 Title to Related Property. ------------------------- (a) Subject to the provisions of this Section 1.5, Seller shall convey to Buyer, and Buyer shall accept from Seller, the Related Property subject to, and only subject to: (i) all easements, covenants, conditions, restrictions, exceptions, reservations and encumbrances (other than liens, except for liens for real estate taxes not yet due and payable) of record; (ii) all building, zoning, and other applicable ordinances and regulations of any municipal, county, state or federal authority having jurisdiction over the Related Property; (iii) ad valorem real and personal property taxes and general and special assessments for the then current period as are not due and payable prior to the Closing; (iv) all encroachments, overlaps, and other matters which would be disclosed by an accurate current survey; (v) title defects consisting of survey exceptions and other recorded easements, licenses, rights-of-way or other restrictions as to the use of the Related Property; (vi) rights or interests of third parties in or to the Related Property which are reflected in the Contracts (not including items listed in Schedule 1.1(e) as Excluded Items); and (vii) such facts as would be revealed by an inspection of the Related Property (the items described in clauses (i) through (vii) above collectively referred to herein as "Title Exceptions"). (b) Buyer shall be entitled to obtain prior to the Closing, at Buyer's option and sole cost, metes and bounds surveys made by a registered surveyor setting forth the location of all 8 buildings and permanent structures and the location of all recorded and ascertainable easements and rights-of-way. Seller agrees to cooperate with Buyer's efforts to obtain the surveys, including furnishing Buyer promptly upon request copies of all surveys which Seller may have in its possession. (c) Buyer shall be entitled to obtain prior to the date of the Closing, at its option, a title insurance commitment agreeing to issue to Buyer, upon recording of the deed and assignment to Buyer, owner's policies of title insurance in an amount to be determined by Buyer, insuring the title of Buyer to the Related Property subject only to the ALTA standard printed exceptions in a policy issued by a title insurance company reasonably acceptable to Buyer and to Title Exceptions which do not prevent the current use of the Related Property. To the extent that such title insurance commitment covers fee owned Related Property, the costs of same shall be shared equally by Buyer and Seller; all other costs of any such title insurance, including endorsements and title insurance policies, shall be borne by Buyer. After the date hereof and until the Closing, Seller shall not permit to be filed of record any instrument affecting title to the Related Property without the consent of Buyer, such consent not to be unreasonably withheld. (d) After the Closing, Buyer shall be responsible for recording, at its sole cost, the conveyance of the Related Property hereunder. 9 (e) Nothing in this Section 1.5 shall limit the representations of Seller set forth in Article VII below. 1.6 Restrictions on Transfer of Permits, Licenses, Leases and Contracts. ------------------------------------------------------------------- (a) To the extent that any lease, contract, license, permit, approval, consent, or other agreement or commitment (but not including such which are Related Property) included as an Asset to be transferred to Buyer is by its express or implied terms or by operation of law not capable of being validly assigned or transferred without the consent or waiver of the issuer thereof or the other party thereto, or any third person (including a government or governmental unit), or if such assignment, transfer or attempted assignment or transfer would constitute a termination or breach thereof or a violation of any law, decree, order, regulation or other governmental edict or is otherwise not practicable, this Agreement shall not constitute an assignment or transfer thereof, or an attempted assignment or transfer thereof. Any such lease, contract, license, permit, approval, consent, agreement or commitment (but not including such which are Related Property) identified by Buyer in writing prior to the Closing is referred to herein as a "Restricted Asset". (b) Seller shall be under no obligation to transfer, or attempt to obtain necessary consents and waivers, with respect to any Restricted Asset which is a Permit that is not capable of being assigned. Seller is not obligated to transfer to Buyer any other 10 Restricted Asset (an "Other Restricted Asset") without Seller and Buyer first having obtained all necessary consents and waivers. Seller shall use reasonable efforts for a twelve (12) month period, commencing on the date hereof, and Buyer shall cooperate with Seller, to obtain the consents and waivers necessary for Seller to convey to Buyer any such Other Restricted Asset as soon as practicable; provided, however, that neither party shall be obligated to pay any consideration therefor to the party from whom the consent or waiver is requested. (c) To the extent that the consents and waivers for Other Restricted Assets referred to in Section 1.6(b) hereof are not obtained by Seller, or until the impracticalities of transfer referred to therein are resolved, Seller shall, during the twelve (12) month period commencing on the date hereof or such longer period as Seller may desire (but, as to any particular Other Restricted Asset, not longer than the term thereof, including renewal options), use its reasonable efforts to (i) provide to Buyer at Buyer's request the benefits of any Other Restricted Asset, but only to the extent necessary to permit Buyer's ownership or use of the Assets to the same or similar extent as owned or used by Seller in the six (6) months immediately prior to the Closing, and (ii) cooperate in any reasonable and lawful arrangement designed to provide such benefits to Buyer. After Seller has fulfilled Seller's obligations set forth in Section 1.6(b) hereof, Seller shall have no further obligations hereunder with respect to assignment of such Other Restricted Asset, and the failure to obtain any necessary consent or waiver with respect thereto shall not be a breach of this Agreement. In no event shall Seller's obligations under this 11 Section 1.6 include any obligation to commence or prosecute litigation against any third party. Buyer agrees to reimburse promptly Seller for its reasonable costs incurred in connection with this Section 1.6(c). (d) To the extent that Buyer is provided the benefits pursuant to Section 1.6(c) hereof of any Other Restricted Asset, Buyer shall perform, for the benefit of the issuer thereof or the other party or parties thereto, the obligations of Seller thereunder or in connection therewith, but only to the extent that (i) such action by Buyer would not result in any default thereunder or in connection therewith, and (ii) such obligation would have been assumed by Buyer pursuant to Article III hereof or pursuant to the contract assignment and assumption agreement to be executed by the parties pursuant to Section 1.4(d) and Article XI hereof, but for the nonassignability or nontransferability thereof. If Buyer shall fail to perform to the extent required herein, Seller shall cease to be obligated under this Section 1.6 in respect of the instrument which is the subject of such failure to perform unless and until such situation is remedied, and Buyer shall indemnify, defend and hold Seller harmless from the consequences of Buyer's failure to perform in accordance with the provisions of Section 12.2 of this Agreement. 1.7 Destruction of the Assets. ------------------------- (a) In the event any of the Assets material to the operation of the Pipeline System are damaged or destroyed by fire or other casualty, or are condemned or threatened to be 12 condemned, after the date hereof and prior to the Closing, Seller shall promptly notify Buyer in writing of such, including reasonable detail regarding the facts related thereto known to Seller. (b) If in Seller's good faith judgment repair or replacement of such Assets can be made at a cost not to exceed $1,355,000, then Seller, at Seller's sole cost, shall promptly commence and diligently pursue the repair or replacement of such Assets to Buyer's reasonable satisfaction and return of the Pipeline System to its normal operating condition as operated in the six (6) months preceding the date hereof. If in Seller's good faith judgment the cost of such replacement or repair of such Assets may exceed $1,355,000, then Seller shall elect to: (i) terminate this Agreement, or (ii) subject to any rights of Buyer in Section 1.7(c), become obligated to Buyer, at Seller's sole cost, promptly to commence and diligently pursue the repair or replacement of such Assets to Buyer's reasonable satisfaction and return of the Pipeline System to its normal operating condition as operated in the six (6) months preceding the date hereof. Seller shall notify Buyer of Seller's repair and replacement cost estimate and, if applicable, its election under the preceding sentence within ten (10) days of such loss, destruction, condemnation or threat of condemnation, which notice shall include reasonable detail supporting such cost estimate. (c) In the event any of the Assets material to the operation of the Pipeline System are damaged or destroyed by fire or other casualty, or are condemned or threatened to be 13 condemned, after the date hereof and prior to the Closing and in Buyer's good faith judgment the repair or replacement of such Assets and return of the Pipeline System to its normal operating condition as operated in the six (6) months preceding the date hereof may (i) exceed $4,065,000 in cost, or (ii) take longer than ninety (90) days, then Buyer may elect to terminate this Agreement by sending written notice of such election to Seller within ten (10) days of Seller's notice under Section 1.7(b). (d) If such loss, destruction, condemnation or threat of condemnation occurs within the ten (10) day period prior to the Closing, the Closing shall be delayed to the date ten (10) days after the giving of Seller's notice under Section 1.7(b), to enable the applicable elections to be made, or if such tenth (10th) day is a Saturday, Sunday or legal holiday in which banks in Chicago, Illinois are not open for business, the Closing shall be delayed to the first business day after such tenth (10th) day. If (i) any damage, destruction, condemnation or threat of condemnation of any of the Assets occurs after the date hereof and prior to the Closing, (ii) Seller is obligated or elects to repair or replace such Assets pursuant to this Section 1.7, (iii) Buyer does not exercise any right of termination of this Agreement pursuant to this Section 1.7, and (iv) the repair or replacement has not been completed prior to the scheduled time and date for the Closing, then Buyer may, at its option, elect to either (1) delay the Closing until the fifth (5th) business day after all the repairs and replacements have been completed to Buyer's reasonable satisfaction and the Pipeline System has been returned to its normal operating condition as operated in the six (6) months preceding the date hereof, or (2) close the 14 transactions contemplated by this Agreement on the scheduled date for the Closing and require Seller to complete the repairs and replacements contemplated by this Section 1.7 after the Closing. ARTICLE II - PURCHASE PRICE --------------------------- 2.1 Purchase Price. In consideration of the transfer of the Assets at the -------------- Closing and the other undertakings of Seller hereunder, Buyer shall pay to Seller at the Closing twenty seven million, one hundred thousand dollars ($27,100,000.00) (the "Purchase Price"). 2.2 Payment. At the Closing, Buyer shall deposit the Purchase Price in ------- immediately available funds by bank wire transfer in an account or accounts (but not more than two (2) accounts) at a national bank or banks located in the United States designated by Seller. Seller shall give notice to Buyer of the account or accounts and any other wire transfer instructions at least three (3) days before the day of the Closing. 2.3 Prorations. ---------- (a) The following items relating to the Assets shall be prorated at the Closing between Buyer and Seller and final payment made to the party to whom it is due based on the respective period in which the parties own the Assets during the calendar year which includes the Closing (the "Prorations"): 15 (i) all real estate, personal property and other ad valorem taxes and assessments (excluding penalties and interest) assessed or levied against the Related Property; (ii) charges, if any, for utilities servicing the Pipeline System and the Related Property; (iii) payments, if any, under service and similar Contracts that are assumed by Buyer; (iv) prepaid rent, prepaid property taxes, prepaid supplies, advances and other prepaid costs and deposits related to the Pipeline System, the Related Property, the Permits or the Contracts; and (v) all other charges and fees related to the Assets customarily prorated and adjusted in similar transactions. For purposes of making such prorations, Seller shall be deemed to have conveyed the Assets as of 11:59 p.m. the day before the Closing. In the event that accurate prorations and other adjustments cannot be made because current bills are not obtainable at the Closing, the parties shall prorate on the best available information, subject to the Post-Closing Adjustment set forth in Section 2.4 below. 16 (b) At the Closing, Seller shall pay Buyer four hundred eighty thousand, six hundred eighty five dollars and twenty cents ($480,685.20) as a good faith estimate by the parties of the amount to be reimbursed to Buyer for the Prorations, subject to the Post-Closing Adjustment set forth in Section 2.4 below. At the Closing, Seller shall deposit the aforementioned amount in immediately available funds by bank wire transfer in an account at a national bank located in the United States designated by Buyer. Buyer shall give notice to Seller of the account and any other wire transfer instructions at least three (3) days before the day of the Closing. 2.4 Post-Closing Adjustment. ----------------------- (a) Buyer will provide to Seller copies of any invoices paid by Buyer after the Closing that relate to Prorations. Within one hundred and twenty (120) days after the Closing, Seller shall provide Buyer with a statement of prorations based on final invoices or other final amounts setting forth the prorations required by Section 2.3, certified by an officer of Seller ("Statement of Prorations"). Seller shall also provide any supporting documentation reasonably requested by Buyer. If the Statement of Prorations indicates that Buyer paid an excess amount at the Closing with respect to the Prorations required by Section 2.3, the Statement of Prorations shall be accompanied by a check in payment of the excess to Buyer, plus interest from the later of (i) the date of the Closing or (ii) the date of payment of the expense that is subject to proration, through the date of payment of such excess to Buyer, calculated at an interest rate equal to the most recently 17 quoted (at the time of payment of such excess to Buyer) one month LIBOR rate, compounded annually until paid. (b) Within thirty (30) days of receipt of the Statement of Prorations and any supporting documentation reasonably requested by Buyer, final payment shall be made to the party to whom it is due for the difference between (i) the good faith estimate of the Prorations paid at the Closing pursuant to Section 2.1 herein, and (ii) the corresponding amounts reflected in the Statement of Prorations, plus interest from the later of (i) the date of the Closing or (ii) the date of payment of the expense that is subject to proration, through the date of payment of such difference, calculated at an interest rate equal to the most recently quoted (at the time of payment of such difference) one month LIBOR rate, compounded annually until paid. (c) Buyer shall have the right to conduct an audit of the relevant books and records of Seller for the purpose of determining the accuracy of the Statement of Prorations, provided that any audit must be completed and written notice of contest of the Statement of Prorations must be given within three (3) months after receipt of the Statement of Prorations by Buyer or the Statement of Prorations as delivered by Seller shall be deemed to be conclusive and binding on the parties. If as the result of any such audit Buyer contests any portion of the Statement of Prorations within such three (3) month period, Buyer and Seller shall cooperate in good faith to reach agreement on a final Statement of Prorations. If Buyer and Seller cannot agree within thirty (30) days of the date of the 18 written notice of contest, the parties will submit the issue to binding arbitration by a single arbitrator under the then-existing commercial arbitration rules of the American Arbitration Association. 2.5 Like-Kind Exchange. ------------------ (a) It is Seller's intention to exchange the Assets that are the subject of this Agreement for other property of like-kind in a non-simultaneous exchange ("Non-Simultaneous Exchange") under such terms and conditions as qualify for nonrecognition of gain pursuant to Section 1031 of the Internal Revenue Code of 1986, as amended. At Seller's election, made to Buyer prior to the transfer of the Assets to Buyer at the Closing and pursuant to an assignment in the form of Exhibit F attached hereto and made a part hereof (the "Assignment"), Buyer's obligation to pay to Seller at the Closing the Purchase Price shall be fulfilled by Buyer's deposit of such amount at the Closing in immediately available funds by bank wire transfer in a trust established with Chicago Title and Trust Company as trustee, pursuant to an exchange trust agreement between Seller and Chicago Deferred Exchange Corporation. (b) Buyer agrees to execute a copy of the Assignment and return such copy to Seller solely for the purpose of acknowledging receipt of the notice from Seller that Seller intends to effectuate the Non-Simultaneous Exchange. 19 2.6 Payments Between Parties. In the event either party ("Recipient") ------------------------ receives payments or refunds to which the other party ("Beneficiary") is entitled in whole or in part under this Agreement, the Recipient shall within fifteen (15) days from the date of such receipt pay such amount to the Beneficiary. All payments to be made under this Section 2.6 or under other provisions of this Agreement (including Exhibits to be executed and delivered pursuant to the Agreement) requiring a payment to be made at a time other than the Closing, shall be made by check or wire transfer in immediately available funds. ARTICLE III - ALLOCATION OF LIABILITIES --------------------------------------- 3.1 Known Pre-Closing Liabilities. Seller has knowledge of certain ----------------------------- liabilities and obligations relating to or arising from the ownership, operation, maintenance or use of the Assets by Seller prior to the Closing. Such known liabilities and obligations shall be allocated as follows: (a) Seller shall retain, without limit as to time or amount, all liability and obligation relating to or arising from Kramer et al. v. Wyco Pipe Line ------------------------------- Company, Civil Action No. 91CV2019, District Court, County of Adams, State ------- of Colorado (the "Kramer Case"). (b) Seller shall retain, without limit as to time or amount, all liability and obligation relating to or arising from the "Off-Site Dupont Plume", as such term is defined in Schedule 3.1(b) attached hereto and made a part hereof, and all liability and obligation 20 relating to or arising from the "Rocky Mountain Arsenal Leak Site", as such term is defined in Schedule 3.1(b) attached hereto and made a part hereof, provided, however, that Seller shall not be liable or obligated for any incremental liability or obligation relating to the Off-Site Dupont Plume or the Rocky Mountain Arsenal Leak Site to the extent attributable to (i) any failure by Buyer to implement the Agreed Remediation Plan (as such term is defined in Section 3.1(c) hereof) in accordance with the time schedules set forth in such plan, or negligence in the performance of the Agreed Remediation Plan, or (ii) any release, spill, leak, discharge or other emission affecting the soil or groundwater attributable to Buyer's operations after the Closing. Such incremental liability or obligation shall be Buyer's sole liability. (c) The matters set forth on Schedule 3.1(c)1 attached hereto and made a part hereof (the matters so set forth referred to herein as the "Known Pre- Closing Contamination") are instances of contamination on the surface or in the subsurface or groundwater of the Related Property, in existence on or prior to the Closing and attributable to the ownership, operation, maintenance or use of the Assets by Seller prior to the Closing, of which Seller has sufficient knowledge to develop a plan of remediation. Seller has shared such knowledge with Buyer, and Seller and Buyer have agreed to a plan of remediation to be followed for the Known Pre-Closing Contamination, which is set forth in Schedule 3.1(c)2 attached hereto and made a part hereof (the "Agreed Remediation Plan"), and to the estimated costs associated with such Agreed Remediation Plan, which are set forth in Schedule 3.1(c)3 attached hereto and made a part hereof. At the Closing, 21 Seller and Buyer shall each execute and deliver to the other a remediation agreement covering remediation of the Known Pre-Closing Contamination, substantially in the form attached hereto and made a part hereof as Exhibit G (the "Remediation Agreement"). (d) The matters set forth on Schedule 3.1(d)1 attached hereto and made a part hereof are instances of contamination on the surface or in the subsurface or groundwater of the Related Property, in existence on or prior to the Closing and attributable to the ownership, operation, maintenance or use of the Assets by Seller prior to the Closing, of which Seller has some knowledge, but insufficient knowledge to fully develop a plan of remediation (the "Schedule 3.1(d) Contamination"). Seller has shared such knowledge with Buyer, and Seller and Buyer have preliminarily devised a provisional plan of remediation for the Schedule 3.1(d) Contamination, which is set forth in Schedule 3.1(d)2 attached hereto and made a part hereof, and have preliminarily estimated the costs associated with such provisional remediation plan as set forth in Schedule 3.1(d)3 attached hereto and made a part hereof. The present value of such estimated costs (using a discount rate of 10%) is seven hundred sixty six thousand and two hundred dollars ($766,200). At such time as, in the case of the Cheyenne Terminal contamination reflected on Schedule 3.1(d)1, the relevant State of Wyoming Environmental Agency approves a plan of remediation, but in no event later than eighteen (18) months after the date of the Closing, and in the case of the Rapid City contamination reflected on Schedule 3.1(d)1, the relevant State of South Dakota Environmental Agency approves a plan of remediation, but in no event later than eighteen (18) months after the date of the 22 Closing, Seller and Buyer shall agree as to the plan of remediation to be followed for the Schedule 3.1(d) Contamination and as to the estimated costs associated with such plan of remediation (including amounts spent since the Closing). If Seller and Buyer are unable to so agree within eighteen (18) months of the date of the Closing, the parties will submit the unresolved issues to binding arbitration by a single arbitrator under the then-existing commercial arbitration rules of the American Arbitration Association. The plan of remediation with respect to the Schedule 3.1(d) Contamination and the estimated costs associated with such plan (including amounts spent since the Closing), as agreed or determined by arbitration, shall be reduced to writing and signed by representatives of Seller and Buyer (the "3.1(d) Remediation Plan"), and such writing when so signed shall be deemed a part of this Agreement. At the Closing, Seller and Buyer shall each execute and deliver to the other a remediation agreement covering remediation of the Schedule 3.1(d) Contamination, substantially in the form attached hereto and made a part hereof as Exhibit G (the "Remediation Agreement"). 3.2 Unknown Pre-Closing and Other Liabilities. For purposes of this ----------------------------------------- Agreement, the term "Unknown Liability" shall refer collectively to the items described in clauses (i), (ii) and (iii) below, specifically, (i) liability or obligation relating to or arising from or as a result of a violation of or a remedial or regulatory obligation imposed under Environmental Law (as such term is defined in the Remediation Agreement) relating to or arising from or as a result of an act, event or contamination that occurred or existed at or prior to the Closing and was attributable or related to the ownership or use of the Assets prior to the Closing ("Unknown 23 Environmental Liability"); (ii) liability or obligation relating to or arising from the breach of any representation, warranty, covenant or other obligation of Seller contained in this Agreement, including but not limited to the Remediation Agreement; and (iii) all other liabilities or obligations of Seller relating to or arising from the Assets, including, but not limited to, liability or obligation for third party claims for personal injury or property damage, which personal injury or property damage was caused by the ownership or use of the Assets by Seller prior to the Closing, but excluding liabilities and obligations assumed under the Contracts assigned to Buyer pursuant to the contract assignment and assumption agreement to be executed by the parties pursuant to Section 1.4(d) and Article XI hereof, and excluding obligations to be performed by Buyer pursuant to Section 1.6(d) hereof (the liabilities and obligations included in this clause (iii) being referred to herein as "Other Liability"); provided that Unknown Liability, Unknown Environmental Liability and Other Liability shall not include any of the liabilities or obligations retained by Seller pursuant to Sections 3.1(a) or (b) hereof or any of the costs for remediation or fines or penalties assumed by or allocated to Buyer under the Remediation Agreement that are not designated as an Unknown Environmental Liability under the Remediation Agreement. This Section 3.2 sets forth the extent to which and the conditions under which Seller shall retain liability for Unknown Liability. (a) With respect to Unknown Environmental Liability, if within four and one-half (4 1/2) years after the Closing, (i) an Environmental Order (as such term is defined in the Remediation Agreement) is issued, the effect of which, if not contested, would be to impose a legal obligation to perform remediation or to impose other legal liability or 24 obligation pursuant to Environmental Law with respect to any Unknown Environmental Liability (or with respect to Known Pre-Closing Contamination as set forth in Section 1 of the Remediation Agreement or with respect to Schedule 3.1(d) Contamination as set forth in Section 2 of the Remediation Agreement) (collectively, an "Order"), or (ii) a third party delivers a written statement of claim, the clear purport of which is to assert liability or damages against Seller or Buyer relating to any Unknown Environmental Liability (a "Claim"), Seller shall retain liability under Environmental Law in effect as of the date of the Closing, directly relating to or arising from any such Order or to the third party making such Claim (except in the case of an Order under the Remediation Agreement, Seller shall retain liability only for the incremental cost necessary to comply fully with such Order), subject to the following and also to subsections (e), (f) and (g) of Section 3.2 hereof and to Section 3.3 hereof: (i) Promptly upon becoming aware of any facts which have not yet but may give rise to such an Order or Claim, Buyer shall provide Seller with written notice thereof and the opportunity to participate in discussions with the relevant Environmental Agencies (as such term is defined in the Remediation Agreement) or third parties relating to such facts, and in Seller's sole discretion and at its sole cost to appeal any preliminary determination or finding of such Environmental Agencies, provided that, subject to clause (ii) below, any delay or failure to provide such notice promptly will not limit Seller's liability hereunder except to the extent Seller is damaged or prejudiced by such delay or failure; and 25 (ii) For Seller to have any liability or obligation for any such Unknown Environmental Liability, Buyer must give written notice of any such Order or Claim, including copies thereof, in no event later than four and one-half (4 1/2) years after the Closing (unless Seller otherwise has received written notice of such Order or Claim, including a copy thereof, prior to the end of such four and one-half (4 1/2) year period, in which event Seller shall retain liability and obligation directly relating to or arising from such Order or to the third party making such Claim as set forth above, subject to subsections (e), (f) and (g) of Section 3.2 and to Section 3.3 hereof, and shall promptly give notice of such Order or Claim to Buyer). If such written notice is given after the expiration of such four and one-half (4 1/2) year period, Seller shall have no liability or obligation for such Unknown Environmental Liability, regardless of whether Buyer could reasonably have known of such Unknown Environmental Liability within such four and one-half (4 1/2) year period (unless Seller otherwise has received written notice of such Order or Claim, including a copy thereof, prior to the end of such four and one-half (4 1/2) year period, in which event Seller shall retain liability and obligation directly relating to or arising from such Order or to the third party making such Claim as set forth above, subject to subsections (e), (f) and (g) of Section 3.2 and to Section 3.3 hereof, and shall promptly give notice of such Order or Claim to Buyer); and (iii) If Buyer, subsequent to the Closing, sells, transfers, conveys, assigns, sets over, leases or otherwise disposes of any of the Assets or any part thereof to any person other than an Affiliate of Buyer (as such term is defined in Section 15.14(ii) hereof) 26 ("Resold Assets"), notwithstanding the foregoing, Seller shall have no liability or obligation relating to or arising from Unknown Environmental Liability associated with such Resold Assets, even if such sale, transfer, or other disposition occurs within four and one-half (4 1/2) years after the Closing; and (iv) With respect to any particular such Unknown Environmental Liability of which (1) Buyer has given written notice to Seller or Seller has otherwise received written notice in accordance with clauses (i) and (ii) above, and (2) Seller has agreed in writing that such Unknown Environmental Liability is an Unknown Environmental Liability for which Seller has retained liability in accordance with and subject to the provisions of this Agreement, to the extent Seller is fully liable for such Unknown Environmental Liability under this Section 3.2, Seller shall have the right to perform or have performed at its cost (subject to Section 3.2(f) below) any required remediation, including dealing with any Environmental Agency or Agencies with regard to the corrective action required, clean-up standards and appropriate work plans. With respect to any required remediation that Seller elects to perform, Seller may select, subject to approval by Buyer (such approval not to be unreasonably withheld), one or more environmental consultants to investigate and characterize all environmental contamination potentially subject to remediation, and to design and perform any required remediation. Buyer shall have the right, at its cost, to participate in the planning and design of any required remediation, and Buyer shall be provided, for review and comment, a draft of any study, workplan, report or similar document to be submitted to an Environmental 27 Agency at least ten (10) working days before Seller intends to submit it. Seller will consider in good faith any comments made by Buyer with respect to any such study, workplan, report or similar document and, to the extent practicable, will incorporate such comments into the document submitted to the Environmental Agency. Any required remediation will be designed and performed by Seller in a manner that complies with all Environmental Laws, minimizes any potential future liability of the site owner/operator, is commercially reasonable and cost effective and does not unreasonably interfere with Buyer's operations. Seller shall provide Buyer a copy of all reports, plans and correspondence submitted to an Environmental Agency with respect to an Unknown Environmental Liability or any required remediation thereof. In addition, Buyer shall have the right, at its cost, to attend and participate in any meetings, conferences or other sessions with the Environmental Agency concerning the required remediation and will be provided at least ten (10) days' notice of any such meetings (or the maximum number of days as is practicable if the meeting date is not set at least ten (10) days prior to the meeting). With respect to any remediation performed by or on behalf of Seller pursuant to this clause (iv), Seller shall be the generator of any wastes generated in connection with such remediation and shall prepare all documents associated with such remediation in a manner that clearly identifies Seller as the generator of the waste, including, but not limited to, the use of identification numbers issued to Seller. Upon completion of the required remediation, Seller shall provide Buyer written confirmation that the remediation plan designed as set forth above has been completed. To the extent that, pursuant to this clause (iv), Seller or its representatives or consultants are provided access to Buyer's 28 properties or the Pipeline System, Seller shall reimburse Buyer for, and defend, indemnify and hold harmless Buyer from and against, any and all loss, damage, costs (including reimbursement of all reasonable attorney fees and other costs of defense), liability, claim or suit, whether for bodily injury or death of any person (including Seller's employees, agents and representatives), damage to or destruction or loss of property (including damage to Buyer's property), or otherwise, arising in any manner whatsoever out of Seller or its representatives or consultants being given access to Buyer's properties or the Pipeline System, whether or not based upon strict liability or caused by the sole or concurrent negligence (ordinary or gross) of Buyer or any other person or entity, unless such loss, damage, cost, liability, claim or suit was occasioned solely by the negligence or intentional tort of Buyer or any officer, director or agent thereof. With respect to remediation that Seller has a right to perform pursuant to this clause (iv), within ninety (90) days of notice to Seller under clause (ii) above, Seller shall notify Buyer whether Seller will perform the remediation itself. If Seller decides to perform the remediation itself, Buyer shall cooperate with Seller to effectuate such remediation in accordance with this clause (iv), including granting reasonable access to the area requiring remediation. If Seller decides not to perform the remediation itself, Buyer shall perform or have performed the remediation and invoice Seller for reasonable and necessary costs incurred for such remediation (such invoices to include supporting documentation). With respect to any remediation performed by or on behalf of Buyer 29 in respect of any Unknown Environmental Liability. Buyer shall be the generator of any wastes generated in connection with such remediation and shall prepare all documents associated with such remediation in a manner that clearly identifies Buyer as the generator of the waste, including, but not limited to, the use of identification numbers issued to Buyer. Subject to Section 3.2(f) below, Seller shall pay properly submitted invoices within thirty (30) days of receipt, and any such invoice not paid within thirty (30) days shall bear interest calculated at a rate equal to the most recently quoted (at the time such thirty (30) days expires) one month LIBOR rate, compounded annually from the thirtieth (30th) day after receipt of the invoice until paid; and (v) Notwithstanding the foregoing, any incremental liability or obligation relating to Unknown Environmental Liability to the extent attributable to any release, spill, leak, discharge or other emission into the environment attributable to Buyer's operations after the Closing, shall not be an Unknown Environmental Liability but shall be Buyer's sole liability. (b) With respect to liability or obligation relating to or arising from the breach of any representation, warranty, covenant or other obligation of Seller contained in this Agreement, including but not limited to the Remediation Agreement, Seller shall retain such liability and obligation, subject to the following and also to subsections (e), (f) and (g) of Section 3.2 hereof and to Section 3.3 hereof, except that any breach of any 30 covenant or other obligation of Seller contained in this Agreement and to be performed by Seller after the Closing shall not be subject to subsection (f) of this Section 3.2: For Seller to have any liability or obligation for any such breach of any representation, warranty, covenant or other obligation of Seller contained in this Agreement, (i) there must be a Buyer Loss (as such term is defined in Section 12.1 hereof) attributable to the breach, (ii) Buyer must give written notice of any such breach, setting forth the basis of such breach known to Buyer at such time in reasonable detail, promptly after Buyer has knowledge of such breach, provided that, subject to clause (iii) below, any delay or failure to provide such notice promptly will not limit Seller's liability hereunder except to the extent Seller is damaged or prejudiced by such delay or failure, and (iii) Buyer must give written notice of any such breach (other than a breach of any covenant or other obligation of Seller contained in this Agreement and to be performed by Seller after the Closing) in no event later than four and one-half (4 1/2) years after the Closing; if such written notice is given after the expiration of such four and one-half (4 1/2) year period, Seller shall have no liability or obligation for such breach (other than a breach of any covenant or other obligation of Seller contained in this Agreement and to be performed by Seller after the Closing), regardless of whether Buyer could reasonably have known of such breach within such four and one-half (4 1/2) year period. 31 (c) With respect to Other Liability, if within four and one-half (4 1/2) years after the Closing, a third party delivers a written statement of claim, the clear purport of which is to assert liability or damages against Seller or Buyer relating to any Other Liability (a "Demand"), Seller shall retain liability and obligation to the third party making such Demand, subject to the following and also to subsections (e), (f) and (g) of Section 3.2 hereof and to Section 3.3 hereof: For Seller to have any liability for any such Other Liability, (i) promptly upon becoming aware of any facts which have not yet but may give rise to such a Demand, Buyer shall provide Seller with written notice thereof and the opportunity to participate in discussions with the relevant third parties relating to such facts, provided that, subject to clause (ii) below, any delay or failure to provide such notice promptly will not limit Seller's liability hereunder except to the extent Seller is damaged or prejudiced by such delay or failure, and (ii) Buyer must give written notice of any such Demand, including a copy thereof, in no event later than four and one-half (4 1/2) years after the Closing (unless Seller otherwise has received written notice of such Demand, including a copy thereof, prior to the end of such four and one-half (4 1/2) year period, in which event Seller shall retain liability and obligation to the third party making such Demand as set forth above, subject to subsections (e), (f) and (g) of Section 3.2 and to Section 3.3 hereof, and shall promptly give notice of such Demand to Buyer); if such written notice is given after the expiration of such four and one-half (4 1/2) year period, Seller shall have no liability or obligation for such Other Liability, regardless of whether Buyer could 32 reasonably have known of such Other Liability within such four and one-half (4 1/2) year period (unless Seller otherwise has received written notice of such Demand, including a copy thereof, prior to the end of such four and one-half (4 1/2) year period, in which event Seller shall retain liability and obligation to the third party making such Demand as set forth above, subject to subsections (e), (f) and (g) of Section 3.2 and to Section 3.3 hereof, and shall promptly give notice of such Demand to Buyer). (d) Notwithstanding the foregoing, except to the extent, if any, that any breach by Seller of its representations set forth in Sections 7.1(n) and (o) hereof relates to the physical condition or configuration of the Assets, Seller shall retain no liability or obligation (i) for the physical condition or configuration of the Pipeline System as of the Closing, or (ii) with respect to any liability or obligation that accrues after the Closing and that relates to the physical condition or configuration of the Pipeline System as of the date of the Closing, including but not limited to any liability or obligation to repair, replace, correct, upgrade, refurbish, add to, move, supplement or change any part of the Pipeline System. (e) Any and all liabilities and obligations retained by Seller in accordance with Sections 3.2(a) through (d) above, before taking into account subsections (f) and (g) below, shall be referred to herein as "Assigned Liabilities". 33 (f) Notwithstanding subsections (a) through (d) above, Seller shall have no liability or obligation with respect to any Assigned Liabilities until the aggregate cost thereof exceeds one hundred and fifty thousand dollars ($150,000); the first one hundred and fifty thousand dollars ($150,000) of cost of Assigned Liabilities shall be paid by Buyer. After the aggregate cost of all Assigned Liabilities exceeds one hundred and fifty thousand dollars ($150,000), as supported with appropriate documentation provided to Seller by Buyer, Seller shall be liable and obligated for such Assigned Liabilities to the extent, but only to the extent, that the aggregate cost of such Assigned Liabilities exceeds $150,000, provided that Seller and Buyer shall share equally each dollar of the next nine hundred thousand dollars ($900,000.00) of cost of Assigned Liabilities that are Unknown Environmental Liability, and provided further that Seller shall not be liable or obligated for Assigned Liabilities (including without limitation Assigned Liabilities that are Unknown Environmental Liability) to the extent the aggregate cost therefor exceeds two million, nine hundred and fifty thousand dollars ($2,950,000) plus one-half of the first (after the above-mentioned $150,000 is exceeded) $900,000 of Assigned Liabilities that are Unknown Environmental Liability (the "Ceiling"). Seller shall not be liable or obligated, and Buyer shall be liable and obligated (except for those matters for which Seller has retained liability pursuant to Section 3.3 (a)(i)-(vi) below), for the first $150,000 of Assigned Liabilities and for all Assigned Liabilities in excess of the Ceiling, except only if Buyer's aggregate cost for Assigned Liabilities, as supported with appropriate documentation provided to Seller by Buyer, reaches an amount equal to the Purchase Price. 34 The maximum liability and obligation of Seller for Assigned Liabilities shall be the Ceiling, except only if Buyer's aggregate liability and obligation for Assigned Liabilities reaches an amount equal to the Purchase Price, as supported with appropriate documentation provided to Seller by Buyer, at which point liability and obligation for further Assigned Liabilities to the extent above an amount equal to the Purchase Price shall revert to and be retained by Seller. The maximum liability and obligation of Buyer for Assigned Liabilities shall be an amount equal to the Purchase Price. Liabilities and obligations assumed or incurred by Buyer related to the Assets that are not Assigned Liabilities shall not count towards either the $150,000 deductible provided for in this subsection (f) or towards the Purchase Price cap on Buyer's liability and obligation for Assigned Liabilities. At such time, if any, as Buyer reasonably determines that its aggregate liability and obligation for Assigned Liabilities will reach an amount equal to the Purchase Price, it shall provide Seller with written notice thereof and shall make available to Seller supporting documentation reasonably satisfactory to Seller. Notwithstanding the foregoing, the Ceiling shall not apply to any Assigned Liabilities relating to or arising from the breach of Section 7.1(d). Notwithstanding the foregoing, the Ceiling and the one hundred and fifty thousand dollar ($150,000) deductible provided for in this subsection (f) shall not apply to any Assigned Liabilities relating to or arising from any breach by Seller of any covenant or other obligation of Seller contained in this Agreement and to be performed by Seller after the Closing. Notwithstanding any required notice provisions in Section 3.2(a), (b) or (c), any 35 individual Assigned Liability that is paid by Buyer within four and one- half (4 1/2) years after the Closing, in an amount less than ten thousand dollars ($10,000), and for which notice was not given in accordance with Section 3.2(a), (b) or (c), whichever applies, but for which Buyer could have given the required notice to Seller within four and one-half (4 1/2) years after the Closing, will be counted toward the one hundred and fifty thousand dollar ($150,000) deductible provided for in this subsection (f) if proper notice thereof is given to Seller at the time Buyer requests payment by Seller hereunder of Assigned Liabilities. For purposes of this Agreement, time expended by personnel of Seller or Buyer, or affiliates of either, in connection with Assigned Liabilities shall not be considered a cost of Assigned Liabilities. Reasonable attorneys' and consultants' fees incurred in connection with an Assigned Liability by the party that, pursuant to the provisions of this Agreement, is responsible for dealing with the Assigned Liability, shall be considered a cost of Assigned Liabilities for purposes of this Agreement; otherwise attorneys' fees and consultants' fees shall not be considered a cost of Assigned Liabilities. (g) Other than liability and obligation for Assigned Liabilities within the limitations set forth in subsections (a) through (f) above, and for liability and obligation retained by Seller under either Section 3.1, Section 3.3 or the Remediation Agreement, Seller shall have no liability or obligation relating to or arising from the Assets, or the ownership, 36 operation or use thereof, including without limitation Unknown Environmental Liability and Unknown Liability. 3.3 Liabilities Assumed by Buyer; Liabilities of Buyer. -------------------------------------------------- (a) Buyer hereby assumes all liabilities and obligations of Seller relating to or arising from the Assets, whether such liabilities and obligations are to a governmental body or any other person, firm or entity, whether based in whole or in part on strict liability, willful or intentional misconduct, or ordinary or gross negligence, and whether known or unknown, current or future, absolute or contingent, liquidated or unliquidated, or due or to become due, and whether relating to the period prior to or after the Closing, except those liabilities and obligations expressly retained by Seller under this Agreement; provided that notwithstanding any other provision of this Agreement, Buyer shall not assume or be deemed to have assumed, and Seller shall retain liability for and indemnify Buyer against, all liabilities, damages, costs (including reasonable attorneys' fees) arising from or related to the following, without limit as to time or amount: (i) liabilities or obligations of Seller that are not Unknown Liability as hereinabove defined; (ii) liabilities or obligations of Seller for taxes based on income or related penalties, interest, assessments or liabilities; 37 (iii) liabilities or obligations of Seller under contracts, agreements, leases, commitments, and governmental permits, licenses and approvals, or portions thereof, that have not been disclosed and delivered to Buyer as provided for in this Agreement; (iv) liabilities or obligations of Seller or Amoco Pipeline Company under any employee welfare or benefit plans or under the Employee Retirement Income Security Act of 1974 or for other employee related liabilities except as set forth in Article V hereof; (v) except as set forth in the Services Agreement (as such term is defined in Article VI hereof), liabilities or obligations of Seller relating to or arising from acts or omissions of Seller or its affiliates, employees, representatives or agents after the Closing, provided that the indemnity of Seller with respect to such acts or omissions that constitute a breach of any representation or warranty of Seller contained in this Agreement shall be limited as set forth in subsections (e), (f) and (g) of Section 3.2 hereof; and (vi) liabilities or obligations of Seller relating to or arising from wilful or intentional violation of laws, rules, regulations or governmental directives or pronouncements by Seller or its affiliates, employees, representatives or agents. (b) All liabilities and obligations directly or indirectly relating to or arising from Buyer's ownership, operation, maintenance or use of the Assets after the Closing, including without limitation all liabilities and obligations under Environmental Law relating to or 38 arising from Buyer's acts, events or omissions, or contamination, occurring after the Closing, shall be liabilities and obligations of Buyer. 3.4 Notice by Seller. If Seller, or either of its shareholders, Amoco ---------------- Pipeline Holding Company and GATX Pipeline Company, receives a Claim or a Demand from a third party, Seller shall promptly send a copy of such to Buyer and shall provide to Buyer such reasonable detail of information relating to the matters set forth in such Claim or Demand as is available to Seller. ARTICLE IV - TAXES ------------------ 4.1 Cooperation. Buyer and Seller agree to furnish or cause to be ----------- furnished to each other, upon request, as promptly as practicable, such information and assistance relating to the Assets as is reasonably necessary for the filing of all tax returns, the preparation for any audit by any taxing authority, and the prosection or defense of any claim, suit or proceeding relating to any tax return. Seller and Buyer shall cooperate with each other in the conduct of any audit or other proceeding related to taxes involving the Assets. 4.2 Transfer Taxes. If and to the extent that any transfer, sales, -------------- excise, use and other non-income taxes are or become due and payable upon transfer of the Assets pursuant to this Agreement, such taxes shall be paid by Buyer. In no event, however, shall Buyer be liable for any income, franchise or similar tax on the income of the Seller or its shareholders resulting 39 from the transactions contemplated by this Agreement. Buyer shall also pay all fees for any recording of instruments of conveyance relating to transfer of the Assets pursuant to this Agreement. 4.3 Other Taxes. All ad valorem, real and personal property taxes and ----------- general and special assessments (excluding penalties and interest) levied or assessed against the Assets shall be prorated as of the Closing pursuant to Section 2.3 hereof. ARTICLE V - EMPLOYEES --------------------- 5.1 Offers of Employment. Certain employees of Amoco Pipeline Company -------------------- ("APL"), the operator of the Pipeline System, are currently engaged full-time or part-time in the operation of the Pipeline System (herein referred to as the "Employees"). Schedule 5.1 attached hereto and made a part hereof sets forth a list of the Employees. Buyer may make offers of full-time regular employment to such Employees. If any of the Employees are not offered employment by Buyer, or are offered employment but do not accept, and such Employees are terminated by APL, Buyer shall have no liability for any severance costs or other costs relating to termination of such Employees, except that if, within one hundred and twenty (120) days of the Closing, Buyer hires any Employee who received severance payments from APL, Buyer shall reimburse APL for any severance payments made by APL to any such hired Employees if the Employee does not return such severance payments to APL as required by the APL severance plan (which is set forth in Schedule 5.2 attached hereto and made a part hereof). 40 5.2 Severance Benefits. Buyer shall provide severance benefits at least ------------------ as generous as those provided in Schedule 5.2 attached hereto and made a part hereof to any Employee hired by Buyer whose employment with Buyer is terminated within twelve (12) months after the Closing as a result of the following circumstances only: (i) any reduction in force effected by Buyer; (ii) any plant or office location closing effected by Buyer; (iii) any relocation of the Employee outside the Pipeline System without such Employee's consent; or (iv) any reduction of personnel; but excluding any termination for "cause". For purposes hereof, "cause" shall mean: (A) the failure of the Employee to perform his or her duties at a level reasonably acceptable to Buyer; or (B) the commission by the Employee of an act of fraud, embezzlement, violence or other misconduct against Buyer or any of its employees or the Employee having been convicted of a felony involving moral turpitude. For purposes of determining "Credited Service" in Schedule 5.2, a severed Employee shall be credited with service with APL and its affiliates in addition to such Employee's service with Buyer and its affiliates in the amounts set forth in Schedule 5.2 for such Employee. ARTICLE VI - ANCILLARY TRANSACTIONS ----------------------------------- At the Closing, APL and Buyer shall each execute and deliver to the other an agreement, substantially in the form attached hereto as Exhibit H (the "Services Agreement"), pursuant to which APL will provide to Buyer at Buyer's cost certain post-Closing services relating to the operation of the Pipeline System for a period not to exceed nine (9) months. 41 ARTICLE VII - REPRESENTATIONS AND WARRANTIES -------------------------------------------- 7.1 Seller's Representations and Warranties. Seller represents and --------------------------------------- warrants to Buyer as follows: (a) Corporate Organization. Seller is as of the date of this Agreement, ---------------------- and will be at the Closing, a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and is qualified as a foreign corporation in each jurisdiction in which the character of its business or the location of its assets makes such qualification necessary (except for those jurisdictions in which the failure to be so qualified would not, taken in the aggregate, have a material adverse effect on the Seller's ability to consummate the transactions herein or in the Transfer Documents, or perform its obligations hereunder or thereunder). (b) Authorization. Seller has requisite corporate power and authority to ------------- execute and deliver this Agreement and the Transfer Documents and to consummate the transactions and perform its obligations hereunder and under the Transfer Documents. The execution and delivery by the Seller of this Agreement and the Transfer Documents and the consummation of the transactions and the performance by the Seller of the obligations contemplated hereby and thereby have been duly authorized by all requisite corporate 42 action on the part of Seller. This Agreement has been, and the Transfer Documents will be, duly executed and delivered by Seller, and this Agreement constitutes, and each of the Transfer documents when fully executed and delivered will constitute, legal, valid and binding obligations of Seller, enforceable in accordance with their respective terms, except (i) as limited by bankruptcy, insolvency, rearrangement, reorganization, or similar debtor relief legislation affecting the rights of creditors generally from time to time in effect, and (ii) that the remedy of specific performance and injunctive and other forms of equitable relief are subject to certain equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. (c) No Violation. Subject to (i) compliance with the requirements of the ------------ Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the regulations promulgated thereunder (the "HSR Act"), (ii) the Wyoming PSC and Colorado PUC consents referred to in Section 8.1(d) hereof, and (iii) any approvals required for the transfer of any Restricted Asset, neither the execution and delivery by Seller of this Agreement or the Transfer Documents, nor the performance by Seller of its obligations under this Agreement or the Transfer Documents, nor the consummation of the transactions contemplated by this Agreement and the Transfer Documents shall: (A) conflict with any provision of the Articles of Incorporation or By-Laws of Seller; 43 (B) result in a breach or default of, or result in the creation or imposition of any lien or encumbrance upon the Assets under, any agreement or commitment to which Seller is a party or by which Seller or any of the Assets is bound; or (C) to the knowledge of Seller, violate any statute or law or any judgment, decree, order, regulation or rule of any court or governmental authority to which Seller or any of the Assets is subject; which violation, conflict, breach or default would (i) affect Seller's ability to consummate the transactions contemplated by this Agreement and the Transfer Documents or (ii) have an adverse effect on the Assets or the operation of the Pipeline System. (d) Title to Certain Assets. Seller has good and marketable title to the ----------------------- Pipeline, Pipeline Equipment and Records free and clear of any security interests, liens or encumbrances, except for materialmen's liens, mechanic's liens and other liens arising in the ordinary course of business, all of which liens are listed on Schedule 7.1(d) and all of which liens will be discharged and released at or prior to the Closing, and for any consents necessary to transfer Restricted Assets. (e) Litigation/Condemnation. Except as otherwise indicated in Section ----------------------- 3.1(a) or set forth in Schedule 7.1(e) attached hereto and made a part hereof, (i) Seller is not a party to any pending suit or proceeding before any court, governmental agency or arbitrator, 44 (ii) Seller has no knowledge of any threatened suit or proceeding before any court, governmental agency or arbitrator, (iii) there is no outstanding order, judgment or decree by any court, governmental authority or arbitrator against Seller, (iv) Seller has no knowledge of any acts, events, omissions or circumstances not otherwise disclosed in the Schedules attached hereto and made a part hereof that Seller, as of the date of this representation, reasonably anticipates will give rise to a suit or proceeding before any court, governmental agency or arbitrator, and (v) there is no pending, or to Seller's knowledge threatened, condemnation or similar proceedings with respect to any of the Assets. (f) Inclusion of all Assets. Except for Excluded Assets and Restricted ----------------------- Assets, the Assets include all assets and properties used in the operation of the Pipeline System in the six (6) months preceding the date hereof, except for items consumed or disposed of in the ordinary course of business of the Pipeline System. Seller has made available to Buyer all material records that either (i) were created by Seller or the Employees, or (ii) are in Seller's possession, which would ordinarily be expected to bear directly on the physical condition of the Pipeline System and Related Property, including, but not limited to, hydrostatic test and corrosion records and environmental reports, and such records are true, accurate and complete. 45 (g) Third Party Product. None of the products being transported in the ------------------- Pipeline System or stored in connection with the Assets are owned by Seller, and all of such items are owned by customers of the Pipeline System. (h) Financial Statements. Seller has delivered to Buyer copies of the -------------------- following financial statements for Seller, all of which financial statements are included in Schedule 7.1(h) attached hereto and made a part hereof: (i) unaudited transportation revenue and volumes by origin to destination as of December 31, 1994, unaudited comparative income statement as of December 31, 1994, and detailed income statement for the twelve month period ending on December 31, 1994; and (ii) audited balance sheets, income statements and statements of changes in financial position for each of Seller's three (3) fiscal years ending December 31, 1991, 1992 and 1993. The financial statements referred to in (i) above present fairly, in all material respects, the financial position of Seller at December 31, 1994, and the results of its operations and its cash flows for the time period indicated in conformity with generally accepted accounting principles, with the following qualifications: (1) such financial statements assume a going concern principle; (2) such financial statements do not contain footnotes and related disclosures, and year-end adjustments, normally required under generally accepted accounting principles; (3) such financial statements do not reflect 46 future remediation costs for identified environmental contamination, that are reasonably estimable; and (4) such financial statements include income related to the Mandan Line, which is an Excluded Asset (Section 1.2(d)). The financial statements referred to in (ii) above present fairly, in all material respects, the financial position of Seller at the dates indicated, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles, with the following qualifications: (1) such financial statements assume a going concern principle; and (2) such financial statements are subject to certain notes and related disclosures contained therein. (i) Governmental Returns. To Seller's knowledge, there is no pending or -------------------- threatened suit, action, proceeding, investigation or claim with respect to any tax return or other return or filing, required to be filed by Seller by any governmental agency prior to the date of this Agreement. (j) Employee Matters. Except for personnel based in Tulsa, Oklahoma, ---------------- Oakbrook Terrace, Illinois and Chicago, Illinois, the Employees (listed in Schedule 5.1) are all full-time and part-time personnel engaged as of the date hereof in the operation of the Pipeline System. Buyer will have no liability with respect to any employee welfare or benefit plans of APL or Seller, as a result of the transactions contemplated by this Agreement. The Employees are not now nor have they ever been covered by, and Seller 47 does not now nor has it ever contributed to, a "multiemployer plan" as defined in section 4001(a)(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") with regard to any Employee which would result in any liability to Buyer. Neither Seller nor such employer nor any trustee, administrator, fiduciary, agent or employee thereof has at anytime been involved in a transaction that would constitute a "prohibited transaction" within the meaning of Section 406 of ERISA which would subject the Buyer or any of its affiliates or any of its or their officers, directors or employees to any taxes, penalties or other liabilities under section 4975 of ERISA or under Sections 409 or 502(i) of ERISA. To the best knowledge of Seller, no union-initiated work stoppages are pending or threatened as of the date of this Agreement. (k) Contracts and Agreements. Except for items listed in Schedule 1.1(e) ------------------------ as Excluded Items, the Contracts include all of the binding written contracts and agreements (except for such which are Related Property) that have been used in or relate to the operation of the Pipeline System in the six (6) months preceding the date hereof, except for contracts and agreements that have expired or been terminated in the ordinary course of business of the Pipeline System. Except as set forth on Schedule 7.1(k) attached hereto and made a part hereof, (i) all the Contracts are valid, binding and in full force and effect as against Seller in accordance with their terms, and to Seller's knowledge all the Contracts are valid, binding and in full force and effect as against the other parties to the Contracts ("Third Parties") in accordance with their terms; (ii) there is no existing default by Seller and Seller has no knowledge of any default by any Third Party with respect to any of the 48 Contracts, which default would have an adverse effect on Seller's business or the Assets; and (iii) copies of all the Contracts have been delivered to Buyer, and such copies are true, complete and accurate. (l) Intangible Property. The operation of the Assets as conducted as of ------------------- the date hereof by Seller does not violate or infringe upon any patents, inventions, trademarks, trade names, brand names, service marks or copyrights owned by third parties. (m) Licenses and Permits. Except for items listed on Schedule 1.1(d) as -------------------- Excluded Items, the Permits are all of the governmental licenses and permits (other than such which are Related Property) that have been part of or relate to the operation of the Pipeline System in the six (6) months preceding the date hereof, except for licenses or permits that have expired or been terminated in the ordinary course of business of the Pipeline System. All the Permits are validly issued to Seller, are in its name, and as of the date of this Agreement are in full force and effect. True, correct and complete copies of all the Permits have been delivered to Buyer. There is no present violation in respect of the Permits, to Seller's knowledge no proceeding is pending or threatened seeking the revocation or limitation of any of the Permits or alleging a violation of any of the Permits, and to Seller's knowledge no acts, events, omissions or circumstances exist or have occurred that Seller, as of the date of this representation, reasonably anticipates will constitute a violation of any of the Permits or will give rise to revocation or limitation of any of the Permits. 49 (n) Compliance with Governmental Requirements. To Seller's knowledge, and ----------------------------------------- except as set forth in Schedule 7.1(n) attached hereto and made a part hereof, as of the date of this representation Seller is not in violation of any applicable local, state or federal laws, rules or regulations ("Governmental Requirements") (except for matters related to Environmental Law, which are covered by Section 7.1(o)). (o) Environmental Law. Except for those matters set forth on Schedules ----------------- 3.1(b), 3.1(c)1, 3.1(d)1 and 7.1 (o) attached hereto and made a part hereof, to Seller's knowledge (i) there does not exist, as of the date of this representation, any violation of any Environmental Law with respect to the Assets, and (ii) no acts, events or contaminations have occurred on or prior to the date of this representation that Seller, as of the date of this representation, reasonably anticipates will give rise to any violations of or remedial obligations under Environmental Law with respect to the Assets. (p) Easements. Except as set forth in Schedule 7.1(p) attached hereto and --------- made a part hereof, Seller is not in receipt of any written notice from any third party contesting the validity of any easement, right-of-way, leasehold or other permit, license, grant or other right constituting a right to use or operate a pipeline across any real property used in the operation of the Pipeline System during the six (6) months preceding the date hereof (collectively, the "Easements"). Except as set forth in Schedule 7.1(p) attached hereto and made a part hereof, Seller has no knowledge of any matter or circumstance that Seller, as of the date of this representation, reasonably anticipates will adversely affect, 50 impair, limit or encumber any Easement. Seller has made available to Buyer all material records relating to the Easements and such records are true, accurate and complete. 7.2 Buyer's Representations and Warranties. Buyer represents and warrants -------------------------------------- to Seller as follows: (a) Organization. Buyer is as of the date of this Agreement, and will be ------------ at the Closing, a limited partnership duly organized, validly existing and in good standing under the laws of the State of Delaware, and is qualified as a foreign entity in each jurisdiction in which the character of its business or the location of its assets makes such qualification necessary (except for those jurisdictions in which the failure to be so qualified would not, taken in the aggregate, have a material adverse effect on the Buyer's ability to consummate the transactions herein or in the Transfer Documents or perform its obligations hereunder or thereunder). (b) Authorization. Buyer has requisite power and authority to execute and ------------- deliver this Agreement and the Transfer Documents to which Buyer is a party, and to consummate the transactions and perform its obligations hereunder and under the Transfer Documents to which Buyer is a party. The execution and delivery by the Buyer of this Agreement and the Transfer Documents to which Buyer is a party and the consummation of the transactions and the performance of the obligations contemplated hereby and by the Transfer Documents to which Buyer is a party have been authorized by all requisite 51 action on the part of the Buyer. This Agreement has been, and the Transfer Documents to which Buyer is a party will be, duly executed and delivered by Buyer, and this Agreement constitutes, and each of the Transfer Documents to which Buyer is a party when fully executed and delivered will constitute, legal, valid and binding obligations of Buyer, enforceable in accordance with their respective terms, except (i) as limited by bankruptcy, insolvency, rearrangement, reorganization, or similar debtor relief legislation affecting the rights of creditors generally from time to time in effect, and (ii) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. (c) No Violation. Subject to (i) compliance with the requirements of the ------------ HSR Act, (ii) the Wyoming PSC and Colorado PUC consents referred to in Section 8.1(d) hereof, and (iii) any approvals required for the transfer of any Restricted Asset, neither the execution and delivery by the Buyer of this Agreement or the Transfer Documents to which Buyer is a party, nor the performance by Buyer of its obligations under this Agreement or the Transfer Documents to which Buyer is a party, nor the consummation of the transactions contemplated by this Agreement and the Transfer Documents to which Buyer is a party shall: (A) conflict with any provision of the limited partnership agreement of Buyer; or (B) to the knowledge of Buyer, violate any statute or law or any judgment, decree, order, regulation or rule of any court of governmental authority to which Buyer is subject; 52 which violation or conflict would affect Buyer's ability to consummate the transactions contemplated by this Agreement and the Transfer Documents. 7.3 Disclaimer of Warranties. Buyer acknowledges and affirms that prior ------------------------ to the Closing, Buyer has had a full opportunity to conduct whatever due diligence Buyer has deemed appropriate to apprise itself of the Assets, including without limitation, inspection, investigation, analysis and evaluation of Seller's operations, maintenance and other business records, the environmental condition of the Pipeline System and the Related Property and the other rights and properties and liabilities to be transferred to or assumed by Buyer hereunder. EXCEPT FOR THE EXPRESS REPRESENTATIONS AND WARRANTIES CONTAINED IN SECTION 7.1 HEREOF, THE ASSETS TRANSFERRED HEREUNDER ARE SOLD AS IS, WHERE IS, WITH ALL FAULTS, LIMITATIONS AND DEFECTS (HIDDEN AND APPARENT) AND SELLER MAKES NO WARRANTY, EXPRESS OR IMPLIED AND SPECIFICALLY MAKES NO WARRANTY (1) OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR (2) WITH REGARD TO THE ACCURACY, COMPLETENESS, SUITABILITY OR COMPLIANCE WITH APPLICABLE LAW OF ANY MANUALS (AS SUCH TERM IS DEFINED IN SCHEDULE 1.1(f) HERETO), AND NONE SHALL BE IMPLIED. ALL REPRESENTATIONS AND WARRANTIES OTHER THAN THOSE SET FORTH IN SECTION 7.1 HEREOF, EXPRESS OR IMPLIED, ARE EXCLUDED. SELLER DISCLAIMS ALL LIABILITY AND RESPONSIBILITY FOR ANY OTHER REPRESENTATION, WARRANTY, STATEMENT OR INFORMATION MADE OR COMMUNICATED (ORALLY OR IN WRITING) TO BUYER. 53 7.4 Survival of Representations and Warranties. The representations and ------------------------------------------ warranties contained in this Article VII shall survive the Closing only to the extent indemnification for breach thereof is provided in Article XII (directly or as a result of the allocation of liabilities set forth in Article III). ARTICLE VIII - COVENANTS ------------------------ 8.1 Seller's Covenants. Seller covenants and agrees as follows: ------------------ (a) Operation of the Pipeline System -- Negative Covenants. Except to the ------------------------------------------------------ extent expressly permitted by this Agreement, or as otherwise consented to by an instrument in writing signed by Buyer (which consent shall not be unreasonably withheld), Seller shall not, from the date hereof until the Closing: (i) operate the Pipeline System or use the Assets other than in the ordinary course of business; (ii) subject the Assets, or any part thereof, to any lien, claim, encumbrance, right or other interest or suffer such to be imposed other than as may arise in the ordinary course of business; (iii) enter into any transaction other than in the ordinary course of business; 54 (iv) dispose of any of the Assets other than in the ordinary course of business; or (v) increase or decrease, or apply for approval for any increase or decrease, of any tariffs, fees or other charges to customers related to the Pipeline System. (b) Operation of the Pipeline System -- Affirmative Covenants. Except as --------------------------------------------------------- otherwise expressly provided by this Agreement, or as otherwise consented to by an instrument in writing signed by Buyer, Seller shall, from the date hereof until the Closing: (i) afford to Buyer and Buyer's authorized representatives, subject to the Confidentiality Agreement (as defined in Section 15.7 hereof) previously executed and delivered by Buyer, reasonable access during normal business hours to the Pipeline System and the Related Property (including, but not limited to, access for environmental inspection and audits), and to the officers, management, properties, books and records related to the operation of the Pipeline System and will furnish and make available to Buyer such additional financial and operating data and other information related to the operation of the Pipeline System as Buyer may reasonably request; provided, however, Seller shall have no obligation to disclose any of the items identified on Schedule 1.1(f) as Excluded Items or any of the items covered under Section 1.2(b), and provided further that Buyer shall reimburse Seller for, and defend, indemnify and hold harmless Seller 55 from and against, any and all loss, damage, costs (including reimbursement of all reasonable attorney fees and other costs of defense), liability, claim or suit, whether for bodily injury or death of any person (including Buyer's employees, agents and representatives), damage to or destruction or loss of property (including damage to Seller's property), or otherwise, arising in any manner whatsoever out of Buyer or its representatives being given access to the Pipeline System and the Related Property, whether or not based upon strict liability or caused by the sole or concurrent negligence (ordinary or gross) of Seller or any other person or entity, unless such loss, damage, cost, liability, claim or suit was occasioned solely by the negligence or intentional tort of Seller or any officer, director or agent thereof; (ii) if any of the representations or warranties of Seller hereunder are determined by Seller to have been incorrect when made, or are determined by Seller to be incorrect as of any date subsequent to the date hereof until the Closing, or if any of the covenants of Seller contained in this Agreement have not been complied with timely, promptly notify Buyer to such effect (provided that such notice shall not limit Buyer's rights under this Agreement); and (iii) use commercially reasonable efforts to maintain and preserve the business of Seller conducted with the Assets and retain its present customers and suppliers. 56 (c) Third Party Product. At the Closing, the custody of all line fill, ------------------- tank and other petroleum liquids inventories will be transferred to Buyer and Buyer shall become responsible as of the Closing to applicable shippers for such inventories, in accordance with the procedures set forth on Schedule 8.1(c) attached hereto and made a part hereof. (d) Wyoming Public Service Commission/Colorado Public Utilities ----------------------------------------------------------- Commission. In connection with consummating the transactions contemplated ---------- by this Agreement, Seller shall file with the Public Service Commission of Wyoming (referred to herein as "Wyoming PSC") an application seeking the Wyoming PSC's authority for the sale of those facilities encompassed by this Agreement which are subject to the Wyoming PSC's jurisdiction, shall file with the Public Utilities Commission of Colorado (referred to herein as the "Colorado PUC") an application seeking the Colorado PUC's authority for the sale of those facilities encompassed by this Agreement which are subject to the Colorado PUC's jurisdiction, and will diligently pursue approval of such applications. Seller shall comply with Colorado PUC Decision No. C95-44 adopted on January 11, 1995 in Docket No. 94A-610. (e) Buyer's Access to Records Post-Closing. For a period of five (5) -------------------------------------- years after the Closing, subject to the execution by Buyer of reasonable confidentiality undertakings, Seller will furnish to Buyer and its authorized representatives, upon the reasonable request of Buyer and at Buyer's sole cost, copies of written financial and operating information relating to the Assets, contained in Seller's books and records not transferred 57 to Buyer, to the extent that such information has not been destroyed and is required by Buyer or its authorized representatives for financial reporting, tax or similar purposes, or for purposes of investigating matters which may be the subject of litigation or administrative proceedings with third parties or governmental agencies, so long as such disclosure would not violate the terms of any agreement to which Seller is bound or any applicable law or regulation or result in the loss of any attorney-client or attorney work-product privilege. Seller will use reasonable efforts in accordance with Seller's normal record maintenance procedures to keep and maintain such written financial and operating information relating to the Assets for a period of five (5) years from the Closing or longer as required by statute. At the end of such five (5) year period or such longer period as may be required by statute, if Seller wishes to destroy any of such records, it shall first give sixty (60) days prior written notice to Buyer. Buyer shall then have the right, at its option, prior to the expiration of such sixty (60) day period, to notify Seller in writing of Buyer's election to take possession, at Buyer's cost, of said records or portions thereof, except for records or portions thereof with respect to which disclosure would violate the terms of any agreement to which Seller is bound or any applicable law or regulation or result in the loss of any attorney-client or attorney work product privilege. In the event Buyer does not notify Seller that Buyer is exercising its option to acquire documents hereunder, Seller may destroy such records without further obligation hereunder. 58 (f) Antitrust Notification. As soon as practicable, Seller shall file or ---------------------- cause to be filed with the United States Federal Trade Commission and the United States Department of Justice the notification and report form required for the transactions contemplated hereby and any supplemental or additional information which may reasonably be requested in connection therewith pursuant to the HSR Act and shall comply in all material respects with the requirements of the HSR Act. (g) Use of "Wyco" Name. Within a reasonable time after the Closing, ------------------ Seller shall amend its Articles of Incorporation to remove "Wyco" and all derivatives thereof from its name, and shall also file all necessary documents to amend its authorizations to do business in all jurisdictions where it is so authorized, to remove "Wyco" from its name, and shall also cease using the name "Wyco" and all derivatives thereof except as necessary to complete required governmental filings. (h) Medical Review Officer Records. Within a reasonable time after the ------------------------------ Closing, and in cooperation with Buyer, Seller shall cause its Medical Review Officer to deliver to Buyer's Medical Review Officer possession of the Medical Review Officer records for Employees that have accepted offers of full-time or temporary employment from Buyer. (i) Records. Within a reasonable time after the Closing, Seller shall ------- deliver to Buyer possession of those Records sold to Buyer hereunder that are not located on the Related Property. 59 8.2 Buyer's Covenants. Buyer covenants and agrees as follows: ----------------- (a) Consents. Buyer shall take all appropriate steps in support of -------- Seller's efforts pursuant to Sections 1.6(b) and 8.1(d) hereof. (b) Third Party Product. At the Closing, Buyer shall accept and shall ------------------- become responsible as of the Closing to applicable shippers for inventories transferred to Buyer's custody by Seller pursuant to Section 8.1(c) hereof. (c) Seller's Access to Properties and Records Post-Closing. For a period ------------------------------------------------------ of five (5) years after the Closing, subject to reasonable advance notice of time and purpose and to the execution by Seller of reasonable confidentiality undertakings, Buyer will afford to Seller and its authorized representatives, upon the reasonable request of Seller and at Seller's sole cost, reasonable access during normal business hours to the properties transferred to Buyer, and to books and records relating to the Assets transferred to Buyer (to the extent that such information has not been destroyed), and Buyer will furnish to Seller such additional information, and will cooperate with Seller in such other respects, as Seller may reasonably request, to the extent that such access and cooperation are required by Seller or its authorized representatives for financial reporting, tax or similar purposes, or for purposes of removing books and records not transferred to Buyer pursuant to this Agreement or for purposes of investigating matters which may be the 60 subject of litigation or administrative proceedings with third parties or governmental agencies so long as such disclosure would not violate the terms of any agreement to which Buyer is bound or any applicable law or regulation or result in the loss of any attorney-client or attorney work product privilege. Buyer will use reasonable efforts in accordance with Buyer's normal record maintenance procedures to keep and maintain all books and records transferred to Buyer hereunder for a period of five (5) years from the Closing or longer as may be required by statute. At the end of such five (5) year period or such longer period as may be required by statute, if Buyer wishes to destroy any of such records, it shall first give sixty (60) days prior written notice to Seller. Seller shall then have the right at its option, prior to the expiration of such sixty (60) day period, to notify Buyer in writing of Seller's election to take possession, at Seller's cost, of said records or portions thereof, except for records or portions thereof with respect to which disclosure would violate the terms of any agreement to which Buyer is bound or any applicable law or regulation or result in the loss of any attorney-client or attorney work product privilege. In the event Seller does not notify Buyer that Seller is exercising its option to reacquire documents hereunder, Buyer may destroy such records without further obligation hereunder. (d) Antitrust Notification. As soon as practicable, Buyer shall file or ---------------------- cause to be filed with the United States Federal Trade Commission and the United States Department of Justice the notification and report form required for the transactions contemplated hereby and any supplemental or additional information which may reasonably be requested in 61 connection therewith pursuant to the HSR Act and shall comply in all material respects with the requirements of the HSR Act. (e) Reporting. If at any time within four and one-half (4 1/2) years --------- after the Closing, Buyer becomes obligated to report, or in fact reports, to any federal, state or local governmental agency any release, outage, spill, leak, discharge, disposal, treatment, emission of or exposure to, hazardous waste, hazardous substances, pollutants, contaminants, materials, products or by-products relating to the Pipeline System or the Related Property, Buyer shall send a copy of such report to Seller at the same time it sends the report to the governmental agency. Buyer shall, upon request by Seller, provide Seller with copies of all correspondence with any Environmental Agency relating to any such release, outage, spill, leak, discharge, disposal, treatment, emission or exposure. In addition, for an additional two and one-half (2 1/2) years beyond the four and one-half (4 1/2) years specified above, with respect to the Dupont Terminal, if Buyer becomes obligated to report any hydrocarbon release on the Dupont Terminal property to any State of Colorado or Adams County, Colorado governmental agency, and such report is available to the public under State of Colorado law, Buyer shall send a copy of such report to Seller at the same time it sends the report to the governmental agency. Further, Seller shall be permitted to furnish copies of any reports it receives pursuant to the previous two sentences to the plaintiffs in the Kramer Case, if but only if such reports (i) were given to any State of Colorado or Adams County, Colorado 62 governmental agency, (ii) relate to the Dupont Terminal, and (iii) are available to the public under State of Colorado law. (f) Licenses and Permits. Buyer shall use reasonable efforts to obtain by -------------------- the Closing all governmental licenses and permits necessary for its operation of the Pipeline System after the Closing (as distinct from licenses and permits which are Related Property), and if Buyer is unable to obtain any such licenses or permits, it shall give notice to that effect to Seller within a reasonable period of time after Buyer has knowledge of such inability and prior to the Closing. (g) Pipeline Bridge. As of the date of this Agreement, a portion of the --------------- six inch (6") segment of the Pipeline System is located on a pipeline bridge over the North Platte River north of the Amoco Oil Company Casper Refinery site (the "Pipeline Bridge"). The Pipeline Bridge also supports a portion of the eight inch (8") pipeline segment of Sinclair Oil Corporation ("Sinclair"), previously sold by Seller to Sinclair, and a water pipeline owned by Amoco Oil Company. In selling the 8" segment to Sinclair, Seller gave certain rights to Sinclair with respect to the Pipeline Bridge. All of those rights are set forth in Section 7.04 of the Agreement for Sale and Purchase and Lease of Pipeline System by and between Seller and Wal-Mart Stores, Inc., entered into as of the 30th day of August, 1993 (all of Wal- Mart's rights, interests and obligations under such were assigned by Wal- Mart to Sinclair), which Section 7.04 is attached hereto and made a part hereof as Schedule 8.2(g) (it being understood that "Seller" in such Section 7.04 is 63 "Seller" herein and "Buyer" in such Section 7.04 is Sinclair). Buyer herein agrees that it purchases, acquires and receives the Pipeline Bridge subject to the rights of Sinclair contained in such Section 7.04, and subject to the rights of Amoco Oil Company contained in that Contract which is item no. 18 on Schedule 1.1(e) hereto (the "Amoco Oil Contract"), and further agrees that it assumes all rights, duties, liabilities and obligations of Seller in, under or pursuant to such Section 7.04 and in, under or pursuant to such Amoco Oil Contract, and agrees to perform, discharge and comply with all terms and conditions of or under such Section 7.04 and of or under such Amoco Oil Contract, including without limitation performance of all obligations to be performed thereunder, and Seller shall have no further duty or obligation thereunder. (h) Environmental Notification to Sinclair. In recognition of the fact -------------------------------------- that the Pipeline and a pipeline segment previously sold by Seller to Sinclair to a certain extent both run in the same Related Property (as more particularly described in the Lease Agreement between Seller and Sinclair which is item no. 14 on Schedule 1.1(e)), Buyer agrees to cooperate with Sinclair in regard to environmental matters affecting said Related Property and to inform Sinclair within twenty-four (24) hours of any release, spill, leak, or discharge of any kind which might affect the environment. In the event that Buyer decides to change the direction or type of material through the Pipeline, or alter in any material way the Pipeline or its operations, Buyer agrees that it will inform Sinclair in writing of any such plans as far in advance as is practicable. The obligations of Buyer 64 contained in this subsection (h) shall terminate at such time as Buyer enters into its own agreement with Sinclair covering the subject matter of this subsection. 8.3 Mutual Covenants. Seller and Buyer covenant and agree as follows: ---------------- (a) Testing and Gauging. Seller and/or Buyer shall conduct sampling and ------------------- testing of batches of liquids entering the Pipeline System, and gauging of tanks, in accordance with the procedures set forth on Schedule 8.3(a) attached hereto and made a part hereof. (b) FERC Tariffs. It is Buyer's intent to file an adoption of Seller's ------------ Federal Energy Regulatory Commission ("FERC") tariffs governing the transportation of materials in the Pipeline System. Seller and Buyer will cooperate to coordinate such filings or publishings with the FERC necessary to accomplish such, provided that in no event shall the Closing be affected. (c) State Tariffs. It is Buyer's intent to file adoptions of Seller's ------------- state tariffs governing the transportation of materials in the Pipeline System. Seller and Buyer will cooperate to coordinate such filings or publishings with appropriate state agencies necessary to accomplish such, provided that in no event shall the Closing be affected. 65 ARTICLE IX - CONDITIONS TO BUYER'S OBLIGATIONS ---------------------------------------------- The obligations of Buyer under this Agreement to close the transactions contemplated hereunder shall be subject to the satisfaction, on or prior to the Closing, of each of the following conditions, any one or more of which may be waived in writing, in whole or in part, by Buyer: 9.1 Accuracy of Representations and Warranties. The representations ------------------------------------------ and warranties of Seller contained in this Agreement shall be in all material respects true and accurate as of the date hereof and at and as of the date of the Closing as though such representations and warranties were made at and as of such date, and Seller shall have delivered to Buyer a certificate to such effect executed by a duly authorized officer of Seller. 9.2 Performance. Seller shall have performed and complied with, in ----------- all material respects, all of its covenants, agreements and conditions contained in this Agreement which Seller must perform or comply with at or prior to the Closing, and Seller shall have delivered to Buyer a certificate to such effect executed by a duly authorized officer of Seller. 9.3 Litigation. No injunction or any similar legal order prohibiting ---------- or restraining consummation of the transactions herein contemplated shall be in effect. 9.4 Wyoming PSC/Colorado PUC. The consent of the Wyoming PSC for ------------------------ Seller to sell to Buyer those facilities encompassed by this Agreement which are subject to the Wyoming 66 PSC's jurisdiction, and of the Colorado PUC for Seller to sell to Buyer those facilities encompassed by this Agreement which are subject to the Colorado PUC's jurisdiction, shall have been obtained. 9.5 HSR Act. All necessary filings and notifications under the HSR ------- Act shall have been made, and the waiting period referred to in such Act applicable to the transactions contemplated hereby shall have expired or been terminated. 9.6 Due Execution and Delivery of Closing Documents. The documents ----------------------------------------------- to be executed and delivered by Seller at the Closing shall have been properly executed and delivered. 9.7 Legal Matters. All actions, proceedings, instruments and ------------- documents required of Seller to carry out this Agreement and to consummate the transactions contemplated hereby shall have been taken in a manner reasonably satisfactory in form and substance to counsel for Buyer. 9.8 Unassignable Related Property. With respect to all Related ----------------------------- Property identified by Buyer in writing pursuant to Section 1.3(i), consents and waivers in principle contemplated by Section 1.3 shall have been obtained. With respect to all portions of the Pipeline System identified by Buyer in writing pursuant to Section 1.3(ii), all rights-of-way, easements, permits, licenses, grants and leaseholds contemplated by Section 1.3 hereof shall have been obtained. 67 9.9 No Material Adverse Change. No material adverse change in the -------------------------- Assets or the operations thereof or the business of the Pipeline System shall have occurred since the date hereof until the Closing. 9.10 Licenses and Permits. Buyer shall have obtained all -------------------- governmental licenses and permits necessary for its operation of the Pipeline System (as distinct from licenses and permits which are Related Property), provided that Buyer shall have used reasonable efforts to obtain by the Closing all such licenses and permits. 9.11 Guarantee. Both of the shareholders of Seller shall have --------- executed and delivered to Buyer a guarantee substantially in the form of Exhibit I attached hereto and made a part hereof (the "Guarantee"). 9.12 Mortgages. Seller and Buyer shall have executed and delivered a --------- letter agreement relating to the two mortgages on the Mule Creek Station Related Property, satisfactory to Buyer. ARTICLE X - CONDITIONS TO SELLER'S OBLIGATIONS ---------------------------------------------- The obligations of Seller under this Agreement to close the transactions contemplated hereunder shall be subject to the satisfaction, on or prior to the Closing, of each of the following conditions, any one or more of which may be waived in writing, in whole or in part, by the Seller: 68 10.1 Accuracy of Representations and Warranties. The representations ------------------------------------------ and warranties of Buyer contained in this Agreement shall be in all material respects true and accurate as of the date hereof and at and as of the date of the Closing as though such representations and warranties were made at and as of such date, and Buyer shall have delivered to Seller a certificate to such effect executed by a duly authorized officer of Buyer. 10.2 Performance. Buyer shall have performed and complied with, in ----------- all material respects, all of its covenants, agreements, and conditions contained in this Agreement which Buyer must perform or comply with at or prior to the Closing, and Buyer shall have delivered to Seller a certificate to such effect executed by a duly authorized officer of Buyer. 10.3 Litigation. No injunction or any similar legal order prohibiting or ---------- restraining consummation of the transactions herein contemplated shall be in effect. 10.4 Wyoming PSC/Colorado PUC. The consent of the Wyoming PSC for Seller ------------------------ to sell to Buyer those facilities encompassed by this Agreement which are subject to the Wyoming PSC's jurisdiction, and of the Colorado PUC for Seller to sell to Buyer those facilities encompassed by this Agreement which are subject to the Colorado PUC's jurisdiction, shall have been obtained. 69 10.5 HSR Act. All necessary filings and notifications under the HSR ------- Act shall have been made, and the waiting period referred to in such Act applicable to the transactions contemplated hereby shall have expired or been terminated. 10.6 Due Execution and Delivery of Closing Documents. The documents ----------------------------------------------- to be executed and delivered by Buyer at the Closing shall have been properly executed and delivered. 10.7 Legal Matters. All actions, proceedings, instruments and ------------- documents required of Buyer to carry out this Agreement and to consummate the transactions contemplated hereby shall have been taken in a manner reasonably satisfactory in form and substance to counsel for Seller. ARTICLE XI - CLOSING -------------------- 11.1 Closing. The closing of the transactions contemplated hereby ------- ("Closing") shall take place on February 24, 1995, at the offices of Seller in Oakbrook Terrace, Illinois at 10:00 a.m. local time (or at such other place, time or date as the parties may mutually agree in writing). Subject to Section 1.6 hereof, and unless otherwise agreed in writing between the parties, the transfer of title to the Assets from Seller to Buyer shall be effective as of the Closing. 70 11.2 Seller's Obligations. At the Closing, Seller shall deliver to -------------------- Buyer the following: (a) Conveyancing Documents. Executed Transfer Documents with respect to ---------------------- the Assets. (b) Services Agreement. An executed Services Agreement. ------------------ (c) Remediation Agreement. An executed Remediation Agreement and payment --------------------- of the amounts specified in the Remediation Agreement for payment at the Closing in accordance with the Remediation Agreement. (d) Opinion of Counsel. An opinion of an attorney for Amoco Pipeline ------------------ Company as counsel to Seller in connection with this transaction, dated as of the Closing, addressed to Buyer, substantially in the form of Exhibit J attached hereto and made a part hereof, an opinion of an attorney for Amoco Pipeline Holding Company related to the Guarantee, dated as of the Closing, addressed to Buyer, substantially in the form of Exhibit J1 attached hereto and made a part hereof, and an opinion of an attorney for GATX Pipeline Company related to the Guarantee, dated as of the Closing, addressed to Buyer, substantially in the form of Exhibit J2 attached hereto and made a part hereof. (e) Board Resolutions. A certified copy of the resolutions of Seller's ----------------- Board of Directors authorizing the transactions contemplated hereunder and under the Transfer Documents. 71 (f) Receipts. Appropriate receipts for the Purchase Price to be paid by -------- Buyer at the Closing. (g) Certificates. The certificates referred to in Sections 9.1 and 9.2. ------------ (h) Acceptance of Transfer. An executed acceptance of transfer in the ---------------------- form required by the Colorado PUC, and an executed explanation of change in account and transfer of experience rate in the form required by the Wyoming Department of Employment. (i) Drug Testing Records. Possession of all DOT drug testing records for -------------------- Employees that have accepted offers of full-time or temporary employment from Buyer. (j) Guarantee. The Guarantee executed by both of Seller's shareholders. --------- (k) Computer Contract Payment. Payment in immediately available funds by ------------------------- bank wire transfer in an account at a national bank located in the United States designated by Buyer, of the actual balance due as of the Closing (supported by reasonable documentation) under that Contract which is item no. 23 on Schedule 1.1(e) hereto, which is presently estimated to be three hundred fifty six thousand, four hundred and seventy three dollars ($356,473) for Buyer's assumption of that Contract which is item no. 23 on Schedule 1.1(e) hereto pursuant to the contract assignment and assumption agreement to be executed by the parties pursuant to Section 1.4(d) and Article XI hereof. 72 Buyer shall give notice to Seller of the account and any other wire transfer instructions at least three (3) days before the day of the Closing. (l) Prorations. Payment of the amount specified in Section 2.3(b) hereof ---------- in accordance with Section 2.3(b). 11.3 Buyer's Obligations. At the Closing, Buyer shall deliver to Seller: ------------------- (a) Purchase Price. The Purchase Price in accordance with Article II. -------------- (b) Services Agreement. An executed Services Agreement. ------------------ (c) Remediation Agreement. An executed Remediation Agreement. --------------------- (d) Instruments of Assumption. Executed Transfer Documents to which Buyer ------------------------- is a party. (e) Non-Simultaneous Exchange. An executed assignment in the form of ------------------------- Exhibit F attached hereto and made a part hereof. 73 (f) Opinion of Counsel. An opinion of Stephen M. Hoffner, counsel to ------------------ Buyer, dated as of the Closing, addressed to Seller, substantially in the form of Exhibit K attached hereto and made a part hereof. (g) Board Resolutions. A certified copy of the resolutions of the Board ----------------- of Directors of Buyer's general partner authorizing the transactions contemplated hereunder and under the Transfer Documents. (h) Certificates. The certificates referred to in Sections 10.1 and 10.2. ------------ (i) Acceptance of Transfer. An executed acceptance of transfer in the ---------------------- form required by the Colorado PUC, and an executed explanation of change in account and transfer of experience rate in the form required by the Wyoming Department of Employment. ARTICLE XII - INDEMNIFICATION ----------------------------- 12.1 Indemnification by Seller. ------------------------- (a) From and after the Closing, but subject to the conditions and limitations set forth in this Agreement, Seller shall indemnify Buyer, together with Buyer's parent companies, shareholders, partners, subsidiaries, affiliates, officers, directors, employees and agents, and defend and hold each of them harmless from and against, any and all costs, claims, 74 damages (including punitive damages), suits, losses, fines, penalties, causes of action, proceedings, judgments (including pre- and post-judgment interest), obligations and liabilities (including reasonable attorneys' fees and consultants' fees incurred in connection with any of the foregoing) asserted against, incurred or required to be paid by Buyer, its parent companies, shareholders, partners, subsidiaries, affiliates, officers, directors, employees or agents (all of the foregoing collectively referred to herein as a "Buyer Loss"), regardless of whether based in whole or in part on strict liability, willful or intentional misconduct, or ordinary or gross negligence of any indemnitee, which arise out of, relate to or are caused by any liability or obligation retained by Seller under this Agreement. Seller's obligation of indemnification in this Section 12(a) is subject to the allocation of liability set forth in Article III hereof. (b) From and after the Closing, but subject to Section 12.3 hereof, Seller shall indemnify Buyer, together with Buyer's parent companies, shareholders, partners, subsidiaries, affiliates, officers, directors, employees and agents, and defend and hold each of them harmless from and against, any and all costs, claims, damages (including punitive damages), suits, losses, fines, penalties, causes of action, proceedings, judgments (including pre- and post-judgment interest), obligations and liabilities (including reasonable attorneys' fees and consultants' fees incurred in connection with any of the foregoing) asserted against, incurred or required to be paid by Buyer, its 75 parent companies, shareholders, partners, subsidiaries, affiliates, officers, directors, employees or agents, as a result of any claim of adverse possession landowner Richard Cross may make with respect to Related Property at Douglas Station, subject to the following: (i) there must be a Buyer Loss attributable to such claim of adverse possession; (ii) Buyer must give written notice of such Buyer Loss promptly after Buyer has knowledge of such Buyer Loss, provided that any delay or failure to provide such notice promptly will not limit Seller's liability hereunder except to the extent Seller is damaged or prejudiced by such delay or failure; and (iii) Seller's maximum liability under this Section 12(b) shall be twenty five thousand dollars ($25,000). 12.2 Indemnification by Buyer. From and after the Closing, but subject to ------------------------ the conditions and limitations set forth in this Agreement, Buyer shall indemnify Seller, together with Seller's parent companies, shareholders, subsidiaries, affiliates, officers, directors, employees and agents, and defend and hold each of them harmless from and against, any and all costs, claims, damages (including punitive damages), suits, losses, fines, penalties, causes of action, proceedings, judgments (including pre- and post-judgment interest), obligations and liabilities (including reasonable attorneys' fees and consultants' fees incurred in connection with 76 any of the foregoing) asserted against, incurred or required to be paid by Seller, its parent companies, shareholders, subsidiaries, affiliates, officers, directors, employees or agents, regardless of whether based in whole or in part on strict liability, willful or intentional misconduct, or ordinary or gross negligence of any indemnitee, which arise out of, relate to or are caused by: (a) the breach of any representation, warranty, covenant or other obligation of Buyer contained in this Agreement, including but not limited to the Remediation Agreement and the contract assignment and assumption agreement to be executed by the parties pursuant to Section 1.4(d) and Article XI hereof; (b) any duty, liability or obligation assumed or had by Buyer pursuant to Section 3.1, Section 3.2, Section 3.3 or Section 8.2(g) hereof, or pursuant to the Remediation Agreement or pursuant to the contract assignment and assumption agreement to be executed by the parties pursuant to Section 1.4(d) and Article XI hereof; (c) the ownership, use, maintenance, condition or operation of the Assets by Buyer from and after the Closing (except to the extent relating to or arising from the breach by Seller of any representation, warranty, covenant or other obligation of Seller contained in this Agreement); or (d) liabilities or obligations to the extent attributable to (i) actions of Buyer or its agents, consultants or representatives in the implementation or performance of the Agreed Remediation Plan or the 3.1(d) Remediation Plan, as they may be modified with the consent of Buyer and Seller, or (ii) any failure by Buyer to implement the Agreed Remediation Plan or the 3.1(d) Remediation Plan, as they may be modified with the consent of Buyer and Seller, in accordance with the time schedules set forth in such plans, or negligence in the performance of the Agreed Remediation Plan or the 3.1(d) Remediation Plan, as they may be modified with the consent of Buyer and Seller. 77 It is understood and agreed that Buyer's obligation to indemnify Seller, its parent companies, shareholders, subsidiaries, affiliates, officers, directors, employees and agents as set forth above in this Section 12.2 shall survive the Closing without limit as to time or amount, except as limited by Sections 3.2(f) and 3.3 hereof. Buyer's obligation of indemnification in this Article XII is subject to the allocation of liability set forth in Article III hereof. 12.3 Procedure for Third Party Claims. -------------------------------- (a) If any third party shall notify Seller or Buyer (the "Indemnified Party") with respect to any matter which may give rise to a claim for indemnification against the other party under this Agreement (the "Indemnifying Party") then the Indemnified Party shall notify the Indemnifying Party thereof promptly in writing; provided, however, that, -------- ------- subject to Article III, no delay in giving notice of such matter shall relieve the Indemnifying Party from any obligation hereunder unless (and then solely to the extent) the Indemnifying Party is thereby damaged or the defense of any matter for which indemnification is claimed is prejudiced. The Indemnifying Party shall notify the Indemnified Party in writing within fifteen (15) days of receiving such notice whether the Indemnifying Party accepts responsibility for such matter. If (i) the Indemnified Party does not receive timely written notice that the Indemnifying Party accepts responsibility for such matter, or (ii) if the Indemnifying Party accepts responsibility but fails to diligently defend the Indemnified Party in such matter, or (iii) if in the reasonable opinion of the Indemnified Party the Indemnifying Party may lack the financial resources necessary to comply with 78 its indemnity obligations in connection with such matter, then the Indemnified Party may defend against or enter into any settlement with respect to, such matter as it deems appropriate without relieving the Indemnifying Party of any of its indemnification obligations with respect to such matter. If the Indemnifying Party assumes responsibility for the matter, then (A) the Indemnifying Party will defend the Indemnified Party against the matter with counsel and consultants of its choice reasonably satisfactory to the Indemnified Party, (B) the Indemnifying Party shall have, subject to this Section 12.3, exclusive control of the defense and settlement of the matter, (C) the Indemnified Party may retain separate co- counsel and consultants at its sole cost, and (D) the Indemnifying Party will not consent to the entry of any judgment or enter into any settlement with respect to the matter which does not include a provision whereby the plaintiff or claimant in the matter releases the Indemnified Party from all liability with respect thereto at no cost to, and with no actions required by and no future obligations imposed on, the Indemnified Party except for such as may be agreed to in writing by the Indemnified Party. (b) The Indemnified Party and the Indemnifying Party shall use their reasonable efforts to cooperate, without prejudice to any rights they may have against each other, in the compromise or defense of any third party claim which is not entirely subject to indemnification by a single Indemnifying Party. 79 12.4 Exclusive Remedy. The provisions of this Article XII, the provisions ---------------- of Article III, and the corresponding provisions in the Transfer Documents, if any, are intended to be the exclusive remedy between the parties for the matters covered by such provisions, and no party shall seek recovery from the other party with respect to such matters under theories of strict liability, negligence or other theory of recovery, whether under contract (other than under this Article XII, Article III or the corresponding provisions of any Transfer Document) or tort or at law or in equity. ARTICLE XIII - BULK SALES LAW ----------------------------- Buyer hereby waives compliance by Seller with any bulk sales law which may be applicable. ARTICLE XIV - TERMINATION ------------------------- 14.1 Grounds for Termination. This Agreement may be terminated at any ----------------------- time prior to the Closing: (a) By the mutual written agreement of Seller and the Buyer; 80 (b) By Seller or by Buyer if the purchase and sale contemplated hereby shall not have closed by March 15, 1995, if the failure to close on or before such date is not caused by any fault of the party electing to terminate pursuant to this Section 14.1(b); (c) By Seller or by Buyer if the purchase and sale of the Assets would violate any nonappealable final order, decree or judgment of any United States court or governmental body having competent jurisdiction; (d) By notice from Seller to Buyer or Buyer to Seller pursuant to Section 1.7 hereof, electing to terminate this Agreement; or (e) By notice from either party to the other if the conditions to such party's obligations to close as set forth in Article IX and X, respectively, are not satisfied or waived on or prior to the scheduled date for the Closing. 14.2 Effect of Termination. If this Agreement is terminated by Seller or --------------------- by Buyer as permitted under Section 14.1 hereof, such termination shall not terminate (i) the rights or remedies of either party with respect to the breach of any provision of this Agreement prior to termination, including breach of the obligation to close, or (ii) the obligations of the parties under the Confidentiality Agreement. 81 ARTICLE XV - MISCELLANEOUS -------------------------- 15.1 Further Assurance. ----------------- (a) After the Closing, Seller shall from time to time, at Buyer's request and without further cost to Buyer, prepare, execute and deliver to Buyer such other instruments of conveyance and transfer (including without limitation, additional assignments suitable for recording) and take such other action (including but not limited to delivery of possession of Assets for which title has passed hereunder) as Buyer may reasonably request so as more effectively to sell, transfer, assign, deliver and vest in Buyer title to and possession of the Assets as provided in this Agreement, and to implement the covenants hereunder that are to be performed by Seller after the Closing. (b) After the Closing, Buyer shall from time to time, at Seller's request and without further cost to Seller, prepare, execute and deliver to Seller such other instruments of assumption and take such other action as Seller may reasonably request so as to more effectively assume the contracts, agreements, leases and commitments assumed by Buyer hereunder and to implement the covenants hereunder that are to be performed by Buyer after the Closing. 15.2 Brokers. Each of the parties hereto represents and warrants to the ------- other that no broker or finder has acted on its behalf in connection with the transactions contemplated by this 82 Agreement. Each of the parties agrees to indemnify, defend and hold the other party harmless, in accordance with the provisions of Article XII hereof, from any claim or demand for any commission, compensation or other payment by any broker, finder or similar agent claiming to have been or that was in fact employed by or on behalf of the first party. 15.3 Costs. Whether or not the transactions contemplated hereby are ----- consummated, each party shall pay its own respective costs (including, without limitation, the fees, disbursements and costs of its attorneys, accountants and consultants if any) in connection with the negotiation, preparation and execution of this Agreement and the transactions contemplated hereby, except as otherwise provided in this Agreement. 15.4 Counterparts. This Agreement may be executed in one or more ------------ counterparts, each of which shall be deemed an original instrument, but all such counterparts together shall constitute but one agreement. 15.5 Schedules. All Schedules and Exhibits attached hereto, with the --------- exception of Exhibit H (the Services Agreement), are incorporated herein and expressly made a part of this Agreement as fully as though completely set forth herein. 15.6 Waiver. The failure of any party at any time or times to enforce or ------ require performance of any provision hereof shall in no way operate as a waiver or affect the right of such party at a later time to enforce the same. No waiver by any party of any condition or the 83 breach of any term, covenant, representation or warranty contained in this Agreement, whether by conduct or otherwise, 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 contained in this Agreement. Any waiver of an obligation, agreement or condition contained herein shall be valid and effective only if in writing and signed by the party to whom such compliance is owed. 15.7 Confidentiality Agreement. The letter agreement entered into between ------------------------- Seller and Buyer, dated April 6, 1992 relating to disclosure of Seller information pertaining to the Assets (the "Confidentiality Agreement"), shall terminate as of the Closing or according to its terms, whichever shall last occur. From and after the Closing, Seller shall, and shall cause its shareholders and the employees, agents and representatives of Seller and its shareholders to not disclose to any third party not affiliated with Seller any information regarding the Assets or the operation thereof in such party's possession, except to the extent required by applicable law or court order. 15.8 Notices. All notices and other communications hereunder shall be in ------- writing and shall be deemed effective and given only upon receipt, when delivered personally, by facsimile transmission, by overnight courier, by telex or by registered or certified mail (return receipt requested), postage prepaid, to the parties at the following addresses (or at such other addresses 84 for a party as shall be specified by like notice; provided that notices of a change of address shall be effective only upon receipt thereof): If to Seller to: Wyco Pipe Line Company Attn.: Manager, Business Development One Mid America Plaza, Suite 300 Oakbrook Terrace, IL 60181-4723 Facsimile No.: (708) 990-4985 with a copy to: GATX Terminals Corporation Attn.: President 500 West Monroe Street Chicago, IL 60661-3676 Facsimile No.: (312) 621-6647 If to Buyer to: Kaneb Pipe Line Operating Partnership, L.P. Attn: Edward D. Doherty 2435 North Central Expressway Suite 700 Richardson, Texas 75080 Facsimile No.: (214) 699-1894 with copies to: Kaneb Pipe Line Operating Partnership, L.P. Attn: Leon B. Hutchens 100 N. Broadway, Suite 550 Wichita, Kansas 67202 Facsimile No.: (316) 262-0726 and Kenneth L. Stewart, Esq. Fulbright & Jaworski 2200 Ross Avenue 28th Floor Dallas, Texas 75201 Facsimile No.: (214) 855-8200 85 15.9 Entire Agreement. This Agreement, including the Schedules and ---------------- Exhibits hereto, the Transfer Documents, the Confidentiality Agreement and the letter agreement relating to the two mortgages on the Mule Creek Station Related Property constitute the entire agreement between the parties hereto pertaining to the subject matter hereof and supersede all prior agreements, understandings, negotiations and discussions, whether oral or written, of the parties relating to the subject matter hereof. There are no warranties, representations or other agreements between the parties in connection with the subject matter hereof except as specifically set forth herein or in the Schedules and Exhibits hereto or in the Transfer Documents or the Confidentiality Agreement. No supplement, modification, waiver or termination of this Agreement or any Schedule or Exhibit shall be binding unless executed in writing by the party to be bound thereby. 15.10 Severability. If any provision of this Agreement shall hereafter be ------------ held to be invalid or unenforceable for any reason, that provision shall be reformed to the maximum extent permitted to come as close as possible in its effects to the invalid or unenforceable provision, failing which, it shall be ineffective to the extent of such invalidity or unenforceability only, with the balance of the provision and of the Agreement continuing in full force and effect. Such occurrence shall not have the effect of rendering the provision in question invalid in any other jurisdiction or in any other case or circumstances, or of rendering invalid any other provisions contained herein to the extent that such other provisions are not themselves actually in conflict with any applicable law. 86 15.11 Knowledge. Except as otherwise specifically provided for herein, --------- whenever a matter is expressed "to the knowledge of" a party or to a party's "knowledge", or whenever it is said that a party has or does not have "knowledge" of a matter, such knowledge shall mean to the knowledge as of the date of this Agreement (and as of the Closing with respect to the truth and accuracy of the representations and warranties set forth in this Agreement to be certified pursuant to Sections 9.1 and 10.1), of the directors, officers and employees of the party serving in such capacities as of the date of this Agreement (and as of the Closing with respect to the truth and accuracy of the representations and warranties set forth in this Agreement to be certified pursuant to Sections 9.1 and 10.1) and, with repect to Seller, those persons listed on Schedule 5.1. 15.12 Transfer. Seller and Buyer shall cooperate and take such action as -------- may be reasonably requested by the other to effect an orderly transfer of the Assets with a minimum of disruption to the operations of the parties and their employees. 15.13 Publicity. Any public announcements with respect hereto or the --------- transactions contemplated hereby shall be made at such time and in such manner as Seller and Buyer shall mutually agree; provided, however, that nothing herein shall prevent any party from making such public announcements as such party may consider necessary to satisfy such party's legal or contractual obligations but in such event the party intending to make such disclosure shall advise the other party in advance of such disclosure and provide such other party with a copy of the text of the information to be disclosed; and further provided that nothing in this Section 87 15.13 shall in any way limit or restrict Seller's or Buyer's communications with its employees, customers, or suppliers. 15.14 Assignment. Except for ---------- (i) an assignment by Seller in connection with a Non-Simultaneous Exchange, as referred to in Section 2.5 hereof, which Seller may make at its election, and (ii) an assignment by Buyer of this Agreement in its entirety only (prior to the Closing) or in whole or in part (after the Closing), to any entity that controls, is controlled by or is under common control with Buyer (an "Affiliate"), which Buyer may make at its election, provided that Buyer shall not be relieved thereby of its obligations hereunder, neither party to this Agreement shall assign this Agreement, directly or indirectly, or any part thereof without the prior written consent of the other party, and any attempt to do so will be of no force or effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. For purposes of the foregoing, "control" shall mean ownership of more than fifty percent (50%) of the issued voting rights or interests of the entity or entities in question. 15.15 Captions. The captions in this Agreement are for convenience only -------- and shall not be considered a part of or affect the construction or interpretation of any provision of this Agreement. 88 15.16 Gender. Whenever appropriate herein, the singular number shall ------ include the plural, the plural shall include the singular, and the use of any gender shall include all genders. 15.17 No Third Party Beneficiaries. Nothing in this Agreement shall ---------------------------- entitle any person other than Seller or Buyer and their respective successors and assigns permitted hereby to any claim, cause of action, remedy or right of any kind. 15.18 Governing Law. This Agreement and the legal relations between the ------------- parties shall be governed by and construed in accordance with the law of the State of Delaware, excluding any choice of law rules which may direct the application of the laws of any other jurisdiction. 15.19 Force Majeure. Neither party shall be liable to the other for ------------- failure to carry out the terms and provisions of this Agreement to the extent such failure arises out of, relates to or is caused by strikes, fire, acts of God, or other causes, whether similar or dissimilar to the foregoing, beyond the reasonable control of such party. 15.20 Telecopy Execution and Delivery. A facsimile, telecopy or other ------------------------------- reproduction of this Agreement may be executed by one or more parties hereto, and an executed copy of this Agreement may be delivered by one or more parties hereto by facsimile or similar instantaneous electronic transmission device pursuant to which the signature of or on behalf of such party can be seen, and such execution and delivery shall be considered valid, binding and effective for all 89 purposes. At the request of either party hereto, all parties hereto agree to execute an original of this Agreement as well as any facsimile, telecopy or other reproduction hereof. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed. WYCO PIPE LINE COMPANY By: /s/ TM Brogan -------------------------------- Title: Director -------------------------- KANEB PIPE LINE OPERATING PARTNERSHIP, L.P. By Kaneb Pipe Line Company, General Partner By: /s/ Edward D. Doherty ---------------------------------- Title: Chairman --------------------------- 90 EX-10.2 3 NOTE PURCHASE AGREEMENT Exhibit 10.2 - -------------------------------------------------------------------------------- KANEB PIPE LINE OPERATING PARTNERSHIP, L.P. Series A Issuer STANTRANS, INC. Series B Issuer KANEB PIPE LINE PARTNERS, L.P. and SUPPORT TERMINAL SERVICES, INC. and SUPPORT TERMINALS OPERATING PARTNERSHIP, L.P. as Guarantors ____________________________ NOTE PURCHASE AGREEMENT dated as of December 22, 1994 ____________________________ FIRST MORTGAGE NOTES OF KANEB PIPE LINE OPERATING PARTNERSHIP, L.P. (Series A) 8.05% FIRST MORTGAGE NOTES OF STANTRANS, INC. DUE December 22, 2001 (Series B) TABLE OF CONTENTS -----------------
Page ---- NOTE PURCHASE AGREEMENT............................................ 1 SECTION 1. THE NOTES AND NOTE AGREEMENTS..................... 1 ----------------------------- 1.1 Series A Notes...................................... 1 1.2 Series B Notes...................................... 2 1.3 Acquisition for Investment; ERISA................... 4 SECTION 2. REPRESENTATIONS AND WARRANTIES.................... 4 ------------------------------ 2.1 Financial Statements................................ 4 2.2 Private Placement Memorandum........................ 4 2.3 No Material Adverse Change.......................... 5 2.4 Subsidiaries; Organization, Authority and Good Standing....................................... 5 2.5 Title to Properties; Liens and Leases; Existing Debt and Investments....................... 6 2.6 Licenses............................................ 6 2.7 Binding Obligations................................. 7 2.8 Litigation; Compliance with Laws.................... 7 2.9 No Burdensome Provisions............................ 7 2.10 Compliance with Other Instruments, etc............. 8 2.11 Use of Proceeds; Federal Reserve Board Regulations......................................... 8 2.12 ERISA.............................................. 9 2.13 Tax Liability...................................... 9 2.14 Governmental Action................................ 10 2.15 Offering of Notes.................................. 10 2.16 Environmental Matters.............................. 11 2.17 Disclosure......................................... 11 2.18 Solvency........................................... 12 2.19 Status Under Certain Statutes...................... 12 SECTION 3. CONDITIONS OF CLOSING............................. 12 -------------------- 3.1 Conditions to Purchase and Sale of Series B Notes............................................... 12 3.2 Conditions to Purchase and Sale of Series A Notes............................................... 15 SECTION 4. PREPAYMENTS AND PAYMENTS OF THE NOTES............. 17 ------------------------------------- 4.1 Optional Prepayments................................ 17 4.2 Allocation of Prepayments........................... 18 4.3 Acquisition of Notes; No Reissuance................. 18 SECTION 5. FINANCIAL STATEMENTS, ETC......................... 18 -------------------------- SECTION 6. INSPECTION; CONFIDENTIALITY....................... 22 --------------------------- SECTION 7. AFFIRMATIVE COVENANTS............................. 23 --------------------- 7.1 Maintenance of Office or Agency..................... 23 7.2 To Keep Books....................................... 23 7.3 Payment of Taxes; Corporate Existence; Maintenance of Properties........................... 23
i 7.4 To Insure........................................... 24 7.5 Compliance with Laws................................ 25 SECTION 8. NEGATIVE COVENANTS................................ 25 ----------------- 8.1 Funded Debt......................................... 25 8.2 Liens............................................... 26 8.3 Restricted Payments................................. 28 8.4 Merger or Consolidation............................. 29 8.5 Disposition of Assets............................... 30 8.6 Investments......................................... 30 8.7 Sale and Leaseback.................................. 30 8.8 Transactions with Affiliates........................ 31 8.9 Fiscal Year......................................... 31 8.10 Subsidiaries....................................... 31 8.11 Restricted Subsidiaries............................ 31 SECTION 9. DEFINITIONS AND ACCOUNTING........................ 32 -------------------------- SECTION 10. SECURITY......................................... 45 10.1 The Security....................................... 45 10.2 Agreement to Deliver Security Documents............ 45 10.3 Perfection and Protection of Security Interests and Liens................................. 45 10.4 Additional Secured Debt............................ 45 SECTION 11. DEFAULTS AND REMEDIES............................ 47 --------------------- 11.1 Events of Default.................................. 47 11.2 Suits for Enforcement.............................. 51 11.3 Remedies Cumulative................................ 51 11.4 Remedies Not Waived................................ 51 11.5 Indemnity.......................................... 51 SECTION 12. CONSENTS, WAIVERS AND AMENDMENTS................. 53 -------------------------------- SECTION 13. SPECIAL RIGHTS OF PURCHASER...................... 54 13.1 Method of Payment; Indemnity....................... 55 13.2 Expenses........................................... 55 SECTION 14. REGISTRATION, TRANSFER OR EXCHANGE OF ------------------------------------ NOTES.................................................... 56 ------ 14.1 Note Register...................................... 56 14.2 Surrender for Transfer............................. 56 14.3 Loss, Theft, Destruction or Mutilation of Notes............................................... 57 14.4 Holders............................................ 57 SECTION 15. SURVIVAL OF REPRESENTATIONS AND ------------------------------- WARRANTIES; SUCCESSORS AND ASSIGNS....................... 57 ---------------------------------- SECTION 16. NOTICES AND OTHER COMMUNICATIONS................. 57 --------------------------------
ii SECTION 17. SEVERABILITY..................................... 58 ------------ SECTION 18. REFERENCES AND TITLES............................ 58 --------------------- SECTION 19. COUNTERPARTS..................................... 58 ------------ SECTION 20. GOVERNING LAW.................................... 59 ------------- SECTION 21. LIMITATION ON INTEREST........................... 59 ----------------------
EXHIBIT A - FORM OF SERIES A NOTE EXHIBIT B - FORM OF SERIES B NOTE EXHIBIT C - FORM OF SOLVENCY CERTIFICATE EXHIBIT D - FORM OF INSTRUMENT OF TRANSFER EXHIBIT E - FORM OF OPINION OF NEW YORK COUNSEL EXHIBIT F - FORM OF OPINION OF COUNSEL OF THE KPP COMPANIES SCHEDULE 1 - LIST OF SERIES A NOTES AND HOLDERS SCHEDULE 2 - LIST OF SERIES B NOTES AND HOLDERS SCHEDULE 3 - SECURITY SCHEDULE SCHEDULE 4 - LIST AND DESIGNATION OF SUBSIDIARIES SCHEDULE 5 - LIST OF DEBT AND LIENS SCHEDULE 6 - LIST OF INVESTMENTS SCHEDULE 7 - LIST OF LITIGATION AND JUDGMENTS SCHEDULE 8 - ENVIRONMENTAL DISCLOSURES SCHEDULE 9 - LIST OF CHIEF EXECUTIVE OFFICES SCHEDULE 10 - LIST OF FACILITIES TO BE CLOSED SCHEDULE 11 - INSURANCE SCHEDULE 12 - DEFINITION OF AVAILABLE CASH SCHEDULE 13 - UNRESTRICTED SUBSIDIARIES iii KANEB PIPE LINE OPERATING PARTNERSHIP, L.P. STANTRANS, INC. 2400 Lakeside Boulevard Richardson, Texas 75082 NOTE PURCHASE AGREEMENT Richardson, Texas As of December 22, 1994 To the Holder Identified on the Signature Page at the End of this Agreement Ladies and Gentlemen: The undersigned, Kaneb Pipe Line Operating Partnership, L.P., a Delaware limited partnership ("KPOP"), StanTrans, Inc., a Delaware corporation ("STI"), Kaneb Pipe Line Partners, L.P., a Delaware limited partnership (the "Partnership"), Support Terminal Services, Inc., a Delaware corporation ("STS"), and Support Terminals Operating Partnership, L.P., a Delaware limited partnership ("STOP") hereby agree with you as follows: SECTION 1. THE NOTES AND NOTE AGREEMENTS. ----------------------------- 1.1 Series A Notes. (a) KPOP has duly authorized the issue to the -------------- institutional purchasers named on Schedule 1 hereto of KPOP's First Mortgage Notes due seven years from the date of issuance (the "Series A Final Maturity Date") in the aggregate principal amount of $27,000,000 to be dated the date of issuance, to mature on the Series A Final Maturity Date and to be substantially in the form set forth in Exhibit A hereto, with only such revisions, deletions and amendments as shall be acceptable to you and the other purchasers of Series A Notes under the Note Agreements. The term "Note Agreements" as used herein refers collectively to this Note Purchase Agreement (this "Agreement") and to the other Note Purchase Agreements of even date herewith with the various institutional purchasers named on Schedules 1 and 2 hereto. The term "Series A Notes" as used herein refers collectively to the Series A Notes delivered pursuant to the provisions of this Agreement and the other Note Agreements, and also to each Series A Note delivered in substitution or exchange for or in lieu of any such Series A Note. KPOP hereby represents and warrants that concurrently herewith it is entering into each of the other Note Agreements in a form identical hereto except for the signature of the purchaser thereunder at the end thereof. (b) The unpaid principal amount of the Series A Notes shall bear interest at the Series A Contract Rate from the date of 1 issuance thereof until such unpaid principal amount shall have become due and payable. Any principal amount of the Series A Notes and any Applicable Premium Amount, as the case may be, not paid when due, and (to the extent permitted by law) any due and unpaid interest accrued thereon, shall bear interest at the Series A Overdue Rate for the period that the same is overdue. The Series A Overdue Rate (herein so called) is equal to the greater of (i) two percent per annum (2.0%) plus the Series A Contract Rate, and (ii) two percent per annum (2.0%) plus the Prime Rate; provided that the Series A Overdue Rate shall in no event exceed the maximum rate permitted by applicable law. Interest at the Series A Contract Rate and the Series A Overdue Rate shall be computed on the basis of a 360-day year of twelve 30-day months. Interest at the Series A Overdue Rate shall, to the extent permitted by law, be compounded monthly. Interest at the Series A Contract Rate shall be payable semi-annually as it accrues on the sixth month and annual anniversary date of the Series A Closing Date of each year (or if any such date shall not be a Business Day, the immediately following Business Day), beginning on the sixth month anniversary date of the Series A Closing Date and continuing regularly thereafter until the Series A Notes are paid in full. Interest at the Series A Overdue Rate shall be payable upon demand and, whether or not demand is made, on the last day of each calendar month. All interest on the Series A Notes, if not already due and payable, shall be due and payable on the Series A Final Maturity Date. (c) Subject to the terms and conditions of this Agreement, KPOP will sell to you, and you will purchase from KPOP, on or before January 30, 1995, or such other date agreed to by you and KPOP (the "Series A Closing Date"), a duly executed Series A Note dated the Series A Closing Date in the principal amount set forth opposite your name on Schedule 1, registered in your name, at the purchase price of 100% of the principal amount thereof. Delivery of the Series A Note so to be purchased by you shall be made on the Series A Closing Date at the offices of Thompson & Knight, P.C., your special counsel, at 1700 Pacific Avenue, Suite 3300, Dallas, Texas 75201. Such delivery shall be made against payment to KPOP of the purchase price for such Series A Note by wire transfer of immediately available funds in such amount to the account of KPOP at Texas Commerce Bank, ABA No. 111001150, Account No. 0880-5043997. 1.2 Series B Notes. (a) STI has duly authorized the issue to the -------------- institutional purchasers named on Schedule 2 hereto of STI's 8.05% First Mortgage Notes due December 22, 2001 (the "Series B Final Maturity Date") in the aggregate principal amount of $33,000,000 to be dated the date of issuance, to mature on the Series B Final Maturity Date and to be substantially in the form set forth in Exhibit B hereto, with only such revisions, deletions and amendments as shall be acceptable to you and the other purchasers of Series B Notes under the Note Agreements. The term "Series B Notes" as used herein refers collectively to the Series B Notes delivered pursuant to the provisions of this 2 Agreement and the other Note Agreements, and also to each Series B Note delivered in substitution or exchange for or in lieu of any such Series B Note. The term "Notes" as used herein refers collectively to the Series A Notes and the Series B Notes delivered pursuant to the provisions of this Agreement and the other Note Agreements, and also to each such Note delivered in substitution or exchange for or in lieu of any such Note. STI hereby represents and warrants that concurrently herewith it is entering into each of the other Note Agreements in a form identical hereto except for the signature of the purchaser thereunder at the end thereof. (b) The unpaid principal amount of the Series B Notes shall bear interest at the rate of 8.05% per annum (the "Series B Contract Rate") from the date of issuance thereof until such unpaid principal amount shall have become due and payable. Any principal amount of the Series B Notes and any Applicable Premium Amount, as the case may be, not paid when due, and (to the extent permitted by law) any due and unpaid interest accrued thereon, shall bear interest at the Series B Overdue Rate for the period that the same is overdue. The Series B Overdue Rate (herein so called) is equal to the greater of (i) 10.05% per annum and (ii) two percent (2.0%) per annum plus the Prime Rate; provided that the Series B Overdue Rate shall in no event exceed the maximum rate permitted by applicable law. Interest at the Series B Contract Rate and the Series B Overdue Rate shall be computed on the basis of a 360-day year of twelve 30-day months. Interest at the Series B Overdue Rate shall, to the extent permitted by law, be compounded monthly. Interest at the Series B Contract Rate shall be payable semi-annually as it accrues on the 22nd dayof June and December of each year (or if any such date shall not be a Business Day, the immediately following Business Day), beginning June 22, 1995 and continuing regularly thereafter until the Series B Notes are paid in full. Interest at the Series B Overdue Rate shall be payable upon demand and, whether or not demand is made, on the last day of each calendar month. All interest on the Series B Notes, if not already due and payable, shall be due and payable on the Series B Final Maturity Date. (c) Subject to the terms and conditions of this Agreement, STI will sell to you, and you will purchase from STI, on December 22, 1994, or such other date agreed to by you and STI (the "Series B Closing Date"), a duly executed Series B Note dated the Series B Closing Date in the principal amount set forth opposite your name on Schedule 2, registered in your name, at the purchase price of 100% of the principal amount thereof. Delivery of the Series B Note so to be purchased by you shall be made on the Series B Closing Date at the offices of Thompson & Knight, P.C., your special counsel, at 1700 Pacific Avenue, Suite 3300, Dallas, Texas 75201. Such delivery shall be made against payment by wire transfer of immediately available funds to Trustee, for the benefit of STI, to (i) pay Existing Term Lenders in the amount of $22,566,796.88 to pay the Existing Term Debt in full, which Existing Term Debt will be modified, renewed and extended by, and 3 thereafter evidenced by, the Series B Notes, and (ii) pay STI in the amount of $10,000,000. 1.3 Acquisition for Investment; ERISA. This Agreement is made with you in --------------------------------- reliance upon your representation to each of KPOP and STI (which, by your acceptance hereof you confirm) that (a) you are an "accredited investor" within the meaning of Rule 501 under the Securities Act of 1933, as amended (in this section, the "Act"); (b) each Note which you are acquiring is being acquired for your own account for investment, and not with a view to the sale or distribution thereof, nor with any present intention of selling or distributing such Note, but subject, nevertheless, to your right to have the disposal of all or any part of your property (including such Note) at all times be within your control; and (c) no employee benefit plan accounts for 10% or more of the assets allocated to any separate account (as defined in ERISA) maintained by you which is a source of funds being used by you for the acquisition of such Note. By your acceptance hereof you further acknowledge that such Note has not been registered under the Act or the securities laws of any state on the ground that the original sale contemplated hereby is exempt from registration under the Act and such state securities laws, and you agree that in the absence of such registration such Note will be sold or disposed of only pursuant to an exemption from registration under the Act and such state securities laws. SECTION 2. REPRESENTATIONS AND WARRANTIES. Each of the KPP Companies ------------------------------ hereby represent and warrant that: 2.1 Financial Statements. The Partnership has delivered to you a copy of -------------------- (i) its audited Consolidated financial statements for the years ended December 31, 1989, 1990, 1991, 1992 and 1993 which contain balance sheets as of the end of each year and statements of income, of cash flows and of changes in partners' capital for each such year, (ii) its unaudited Consolidated interim financial statements for the nine-month period ending September 30, 1994, which contain a balance sheet as of the end of such period and a statement of income and of cash flows for such period and (iii) its unaudited Consolidated statements of income for the three-month period ending September 30, 1994. Such financial statements fairly present the Consolidated financial condition of the Partnership as of the respective dates of the balance sheets and the results of its operations and cash flows for the periods ending on such dates and in the case of statements of income, the three month period ending on such dates, except as otherwise stated therein or in the notes thereto, such financial statements have been prepared in accordance with GAAP consistently applied, subject, in the case of such interim financial statements, to normal year end adjustments. 2.2 Private Placement Memorandum. The KPP Companies have delivered to ---------------------------- you a copy of the Private Placement Memorandum dated September 1994 (the "Private Placement Memorandum"). The 4 information contained in the Private Placement Memorandum was, as of the date thereof, true and correct in all material respects and fairly describes generally the business, operations and principal properties of the KPP Companies and their Subsidiaries as of the date thereof and hereof, except as supplemented by the most recent form 10Q and projections provided to you in writing prior to the date hereof. Any estimated amounts included in projections or assumptions in projections provided in the Private Placement Memorandum are based upon the best information available in light of all conditions existing as of the date thereof and hereof, except as supplemented by projections provided to you in writing prior to the date hereof. 2.3 No Material Adverse Change. There has been no material adverse change -------------------------- in the business, operations, properties, assets or condition, financial or otherwise, of KPOP or STI individually or the KPP Companies and their Subsidiaries taken as a whole, since December 31, 1993, and none of the KPP Companies nor any of their Subsidiaries have any material liabilities (contingent or otherwise) which are not disclosed either in the Private Placement Memorandum, or in one of the balance sheets referred to in Section 2.1. 2.4 Subsidiaries; Organization, Authority and Good Standing. (a) ------------------------------------------------------- Schedule 4 hereto sets forth a complete and correct list of all Subsidiaries of the Partnership, together with the name of each Subsidiary, its jurisdiction of incorporation, the percentage of its shares or partnership units owned by a KPP Company or another of their Subsidiaries. Except as set forth on Schedule 4: (i) all outstanding shares or partnership units issued by any KPP Companies or any of their Subsidiaries have been validly issued, are fully paid and non- assessable, and are owned beneficially by the record owner thereof, and (ii) there are no outstanding options, warrants or other rights to acquire shares in any KPP Company or in any of their Subsidiaries. (b) Each KPP Company and each of their Subsidiaries is a partnership or corporation duly formed or organized and validly existing in good standing under the laws of its jurisdiction of organization or incorporation (which is a state of the United States of America) and has full partnership or corporate power and authority to own or lease the properties and assets it purports to own or hold under lease, and to conduct the business which it now conducts. (c) Each of STI, KPOP and STOP is duly qualified and in good standing as a foreign corporation or partnership in each jurisdiction within the United States wherein the character of the properties owned or held by it or the nature of the business transacted by it makes such qualification necessary. Each KPP Company (other than STI, KPOP and STOP) and each of their Subsidiaries is duly qualified and in good standing as a foreign corporation or partnership in each jurisdiction in which the 5 failure to be qualified would materially and adversely affect the business, operations, properties, assets or condition, financial or otherwise of such KPP Company, such Subsidiary or the KPP Companies and their Subsidiaries taken as a whole. (d) Each of the KPP Companies has duly authorized the execution and delivery of the Note Agreements, the Notes and the other Note Purchase Documents to which it is a party and the performance of its obligations hereunder and thereunder. The issuance and sale of the Notes are within the partnership and corporate power and authority of each of KPOP and STI. 2.5 Title to Properties; Liens and Leases; Existing Debt and Investments. -------------------------------------------------------------------- (a) The KPP Companies and their Subsidiaries each (i) have good and marketable title to all properties it purports to own, free and clear of all Liens, other than those permitted under Section 8.2, and (ii) enjoys peaceful and undisturbed possession under all leases necessary for the conduct of its business, and all such leases are valid and subsisting and in full force and effect. (b) Schedule 5 hereto sets forth a list, complete and correct in all respects, of all outstanding Debt of the KPP Companies and their Subsidiaries, together with the outstanding principal amount of each such item of Debt, the name of its obligor (including any guarantor), the names of the holders thereof, its interest rate and maturity date and a brief description of the properties (if any) securing such Debt and the priority of the Lien on such properties. (c) None of the KPP Companies, nor any of their Subsidiaries, hold any Restricted Investments. Schedule 6 hereto sets forth a list, complete and correct in all respects, of all outstanding Permitted Investments of the KPP Companies and their Subsidiaries (other than Permitted Investments described in subparagraphs (a), (b), (d), (e), (f) and (g) of the definition of Permitted Investments contained herein), together with the outstanding amount of each such Permitted Investment, the name of the Person in which such investment is made and a brief description of the terms of such investment. 2.6 Licenses. Each KPP Company and its Subsidiaries owns or has the right -------- to use all trademarks, trade names, service marks, copyrights, patents, computer software and other technology rights and licenses, governmental licenses, franchises, certificates, consents, permits and approvals necessary to enable it to own the properties and assets and to conduct the business which it now owns and conducts, without known conflict with the rights of others (except where such conflicts are not material) and has made all of the filings with respect thereto with the appropriate state and federal governmental agencies and authorities to protect its rights therein. To the best knowledge of each of the KPP Companies and their Subsidiaries, all such trademarks, trade names, service 6 marks, copyrights, patents, computer software and other technology rights and licenses, governmental licenses, franchises, certificates, consents, permits and approvals are valid and subsisting. 2.7 Binding Obligations. The Note Agreements constitute, and the Notes ------------------- and the other Note Purchase Documents, when issued, executed and delivered, will constitute, the legal, valid and binding obligations of each KPP Company which is a party thereto enforceable in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally or by the availability of equitable remedies. 2.8 Litigation; Compliance with Laws. (a) Schedule 7 hereto sets forth a -------------------------------- list, complete and correct in all material respects, of all actions, suits or proceedings (whether or not purportedly on behalf of any KPP Company, any of their Subsidiaries or any of their Affiliates) pending (or, to the knowledge of any Responsible Officer, threatened) against or affecting any KPP Company or any of their Subsidiaries at law or in equity or before or by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, or before any arbitrator of any kind: (i) which involves any of the transactions herein contemplated, or (ii) which would materially and adversely affect the business, operations, properties, assets or condition, financial or otherwise, of KPOP or STI individually, the KPP Companies and their Subsidiaries taken as a whole, or any KPP Company's ability to perform under the Note Agreements or under the Notes or the other Note Purchase Documents. (b) Except as disclosed in Schedule 7, none of the KPP Companies nor any of their Subsidiaries is in default, event of default or violation of any law, judgment, order, writ, injunction, decree, award, rule or regulation of any court, arbitrator or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, which default, event of default or violation would materially and adversely affect (i) the business, operations, properties, assets or condition, financial or otherwise, of KPOP or STI individually, or the KPP Companies and their Subsidiaries taken as a whole, or (ii) any KPP Company's ability to perform under this Note Agreement or under the Notes or the other Note Purchase Documents or to perform any of the transactions contemplated herein or therein. 2.9 No Burdensome Provisions. None of the KPP Companies nor any of their ------------------------ Subsidiaries is a party to any agreement or instrument or subject to any charter or other corporate restriction which materially and adversely affects the business, operations, properties, assets or condition, financial or otherwise, of KPOP or STI individually, the KPP Companies and their Subsidiaries taken as a whole or any KPP Company's ability 7 to perform under the Note Agreements or under the Notes or the other Note Purchase Documents. 2.10 Compliance with Other Instruments, etc. None of the KPP Companies --------------------------------------- nor any of their Subsidiaries is in default or event of default in, and no temporary waiver of default or event of default is in effect with respect to, the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in (a) any bond, debenture, note or other evidence of Debt of any KPP Company or any of their Subsidiaries, (b) any agreement or instrument under or pursuant to which any such bond, debenture, note or other evidence of Debt has been issued or made and delivered, or (c) any agreement or instrument pursuant to which any properties of any KPP Company or any of their Subsidiaries are subject, which default or event of default would materially and adversely affect the business, operations, properties, assets or condition, financial or otherwise, of KPOP or STI individually, the KPP Companies and their Subsidiaries taken as a whole or any KPP Company's ability to perform under the Note Agreements or under the Notes or the other Note Purchase Documents. Neither the execution and delivery of the Note Agreements, the Notes or the other Note Purchase Documents by the KPP Companies to which each is a party, nor the consummation of the transactions herein and therein contemplated, nor compliance with the terms, conditions and provisions hereof and thereof by the KPP Companies, will conflict with or result in a breach of any of the terms, conditions or provisions of the partnership agreement, charter or by-laws of any KPP Company or any of their Subsidiaries or of any material agreement or instrument to which any of them is now a party or by which any of them or any of their properties is or may be bound, or constitute a default or event of default thereunder, or result in the creation or imposition of any Lien upon any of their material properties or assets. None of the KPP Companies nor any of their Subsidiaries is in default or event of default in the performance of any of the covenants and agreements contained herein. No event has occurred and is continuing which constitutes, or which with the lapse of time would constitute, a Default or Event of Default. 2.11 Use of Proceeds; Federal Reserve Board Regulations. The proceeds -------------------------------------------------- from the sale of the Series A Notes will be used by KPOP first, to the extent thereof, to finance the acquisition of the assets of WYCO and second, for general corporate purposes. The proceeds from the sale of the Series B Notes will be used by STI first, to the extent thereof, to repay approximately $33,000,000 of the outstanding indebtedness owing by STI and KPOP to Texas Commerce Bank National Association and second, for general corporate purposes. None of the proceeds received by either KPOP or STI from the sale of the Notes will be used for the purpose of purchasing or carrying any "margin stock" as defined in Regulation G of the Board of Governors of the Federal Reserve System ("Margin Stock") or for the purpose of reducing or retiring any indebtedness which was originally incurred to 8 purchase or carry any Margin Stock or for any other purpose which might constitute this transaction a "purpose credit" within the meaning of said Regulation G. None of the transactions contemplated herein or in the Notes will (i) violate or result in a violation of Section 7 of the Securities Exchange Act of 1934, as amended, or any regulations issued pursuant thereto, including Regulations G, T and X of the Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter II or (ii) require any Holder to complete a Federal Reserve System form G-3. Margin Stock does not, and no KPP Company intends or foresees that Margin Stock will at any time, constitute a substantial part of such KPP Company's assets. 2.12 ERISA. (a) The issuance and delivery by KPOP or STI of each Note ----- purchased by you will not involve any prohibited transaction within the meaning of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code"). The representation by the KPP Companies in this Section 2.12(a) is made in reliance upon and subject to the accuracy of your representation in Section 1.3 as to the source of the funds to be used by you to acquire such Note. (b) Based upon ERISA and the regulations and published interpretations thereunder, each of the KPP Companies and its ERISA Affiliates is in compliance in all material respects with the applicable provisions of ERISA. No Reportable Event has occurred with respect to any Plan (other than a Reportable Event for which the 30 days' notice requirement with respect to such Reportable Event has been waived by the PBGC). None of the KPP Companies and their ERISA Affiliates has incurred any liability to the PBGC under Section 4062 of ERISA or to any Plan. None of the KPP Companies nor any of their Subsidiaries is currently obligated to contribute to a multi-employer plan, as defined in Section 4001(a)(3) of ERISA. (c) The term "Reportable Event" shall mean any of the events set forth in Section 4043(b) of ERISA. The term "Plan" shall mean any plan defined in Section 4021(a) of ERISA in respect of which the KPP Companies or any of their ERISA Affiliates is an "employer" or a "substantial employer" as such terms are defined in Sections 3(5) and 4001(a)(2), respectively, of ERISA. The term "PBGC" shall mean the Pension Benefit Guaranty Corporation, or any governmental agency or agencies substituted therefor, and the term "ERISA Affiliate" shall mean any Person which is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Code) as the KPP Companies or is under common control (within the meaning of Section 414(c) of the Code) with the KPP Companies. 2.13 Tax Liability. (a) All federal income tax returns which are ------------- required to be filed by each of the KPP Companies or any of their Subsidiaries have been filed. The federal income tax liabilities of the KPP Companies and their Subsidiaries have 9 not been subject to a notice of audit by the Internal Revenue Service and accordingly has been finally determined and paid for all fiscal years up to and including the fiscal year ended December 31, 1989. (b) All state and local income and franchise tax returns which are required to be filed by any KPP Company or any of their Subsidiaries have been filed by it or on its behalf, to the extent, if any, that it files combined or consolidated returns. (c) All taxes shown on such returns have been paid to the extent that such taxes have become due, except those taxes, assessments, charges, levies or claims the amount, applicability or validity of which is currently being contested in good faith by it and which in respect thereof, such KPP Company or any such Subsidiary shall have set aside on its books reserves deemed adequate in the reasonable opinion of such KPP Company or such Subsidiary. In the opinion of the KPP Companies, all tax liabilities of the KPP Companies and their Subsidiaries were adequately provided for as of December 31, 1993, and are now so provided for on the books of the KPP Companies and their Subsidiaries. 2.14 Governmental Action. No action of any governmental or public body or ------------------- authority (i.e., no consent, transfer license, etc.) is required to authorize, or is otherwise required in connection with, the execution, delivery and performance of the Note Agreements, the Notes or the other Note Purchase Documents. 2.15 Offering of Notes. None of the KPP Companies nor any agents acting ----------------- on their behalf have, either directly or indirectly, sold or offered for sale or disposed of, or attempted or offered to dispose of, the Notes or any part thereof, or any similar obligation of the KPP Companies, to, or has solicited any offers to buy any of the Notes or any part thereof, or any similar obligation of the KPP Companies from, or has otherwise approached or negotiated in respect of the Notes or any part thereof, or any similar obligation of the KPP Companies, with any Person or Persons other than you and not more than twenty-one other accredited institutional investors, each of whom had a pre- existing business relationship with one or more of the KPP Companies or their directors, officers, employees or agents (including, without limitation, the KPP Companies' investment banker placing the Notes), was known to be regularly engaged in the business of evaluating and making investments in instruments similar to the Notes and was provided with a Private Placement Memorandum and was given access to all other material financial and other pertinent information about the KPP Companies; during the twelve month period preceding the date hereof, none of the KPP Companies nor any agents acting on their behalf have, either directly or indirectly, issued or sold any securities of the KPP Companies that are of the same or similar class to the Notes in a transaction exempt from the provisions of Section 5 of the Securities Act of 1933, as amended; and the KPP Companies agree 10 that neither they nor any agent acting on their behalf will sell or offer for sale or dispose of, or attempt or offer to dispose of, any of the Notes or any part thereof to, or any similar obligation of the KPP Companies, or solicit any offers to buy any of the Notes or any part thereof from, or otherwise approach or negotiate in respect of the Notes or any part thereof, or any similar obligation of the KPP Companies with, any Person or Persons so as thereby to bring the issuance or sale of the Notes within the provisions of Section 5 of the Securities Act of 1933, as amended. 2.16 Environmental Matters. Except as disclosed in Schedule 8: --------------------- (a) each of the KPP Companies and each of their Subsidiaries is in compliance with all applicable federal, state and local laws and regulations relating to pollution control and environmental contamination, including all laws and regulations governing the generation, use, collection, treatment, storage, transportation, recovery, removal, discharge or disposal of Hazardous Materials and all laws and regulations with regard to record keeping, notification and reporting requirements respecting Hazardous Materials; (b) none of the KPP Companies nor any of their Subsidiaries has been alleged to be in violation of, or to have any obligation for remediation under, or has been subject to any administrative or judicial proceeding pursuant to, such laws or regulations, nor has any Claim under CERCLA, RCRA or any other federal, state or local environmental statute or regulation been asserted against any KPP Company or any Subsidiary, except in each case as to matters that have been finally and fully resolved (with any judgment, fine or other payment owing by any KPP Company or any of their Subsidiaries in connection therewith having been paid in full); and (c) there are no facts or circumstances that the KPP Companies reasonably believe form the basis, or could form the basis, for the assertion of any Claim against any KPP Company or any of their Subsidiaries relating to any environmental matter that would materially and adversely affect the business, operations, properties, assets or condition, financial or otherwise, of KPOP or STI individually or the KPP Companies and their Subsidiaries taken as a whole, including any Claim arising from past or present environmental practices asserted under CERCLA, RCRA or any other federal, state or local environmental statute or regulation. 2.17 Disclosure. None of the Note Agreements, the Notes, the other Note ---------- Purchase Documents, the Private Placement Memorandum nor any of the instruments, certificates or statements furnished to you by any KPP Company or any of their Subsidiaries in connection with the transactions contemplated hereby or thereby, contains any untrue statement of a material fact or 11 omits to state any material fact necessary in order to make the statements contained therein, in the light of the circumstances under which they were made, not misleading. There is no fact peculiar to any KPP Company or their respective Subsidiaries which has not been disclosed to you in writing which materially adversely affects or, as far the KPP Companies can reasonably foresee, will materially adversely affect the properties, business, profits or condition (financial or otherwise) of KPOP or STI individually or the KPP Companies and their Subsidiaries taken as a whole. 2.18 Solvency. No KPP Company is, and upon giving effect to the issuance -------- of the Notes no KPP Company will be, "insolvent", as such term is used in Section 24.003 of the Texas Business and Commerce Code or 11 U.S.C. 101 (32)(a). 2.19 Status Under Certain Statutes. No KPP Company is an "investment ----------------------------- company" or a Person directly or indirectly "controlled" by or "acting on behalf of" an investment company within the meaning of the Investment Company Act of 1940, as amended. No KPP Company nor any of their Subsidiaries is a "national" of any foreign country designated in the Foreign Assets Control Regulations, the Transaction Control Regulations, the Foreign Funds Control Regulations, the Iranian Assets Control Regulations, the Cuban Assets Control Regulations, the Nicaraguan Trade Control Regulations, the Iraqi Sanctions Regulations, the Haitian Transactions Regulations or the Libyan Sanctions Regulations of the United States Treasury Department (31 CFR Subtitle B, Chapter V, as amended). None of the proceeds of the sale of the Notes will be used, directly or indirectly, for the purpose of engaging in any transaction which violates any of such Regulations or which violates the Foreign Funds Control Regulations or the Transaction Control Regulations of the United States Treasury Department (31 CFR Subtitle B, Chapter V, as amended), or any regulation or ruling issued thereunder. SECTION 3. CONDITIONS OF CLOSING. --------------------- 3.1 Conditions to Purchase and Sale of Series B Notes. Your obligation to ------------------------------------------------- purchase and pay for the Series B Notes to be purchased by you on the Series B Closing Date, as provided in Section 1.2(c), shall be subject to the performance by each of the KPP Companies of all its agreements theretofore or simultaneously to be performed hereunder and under the Series B Notes, to the accuracy of its representations and warranties contained herein and in the Series B Notes, and to the satisfaction, on or prior to such purchase, of the following further conditions: (a) Opinion of Counsel. You shall have received from Hutton, Ingram, ------------------ Yuzek, Gaines, Carroll & Bertolotti, New York counsel for the KPP Companies, and from Stephen Hoffner, general counsel for the KPP Companies favorable opinions in form and substance acceptable to you as to the matters set forth on 12 Exhibits E and F, and from your own special counsel, Thompson & Knight, P.C., a favorable opinion in form and substance acceptable to you. (b) Schedules. All Schedules hereto shall be true and correct as of the --------- Series B Closing Date. (c) Proceedings and Documents. All proceedings to be taken in connection ------------------------- with the transactions contemplated by this Agreement and the other Note Purchase Documents, and all documents incident thereto, shall be reasonably satisfactory in form and substance to you; and you shall have received copies of the following documents in form and substance satisfactory to you: (i) your Series B Note; (ii) copies of the other Note Agreements; (iii) the Security Documents; (iv) the Intercreditor Agreement; (v) a Solvency Certificate of the chief financial officer of STI and KPL as general partner of KPOP in the form of Exhibit C hereto; (vi) certificates of due formation and good standing in each of the KPP Companies' and their Subsidiaries' states of organization; (vii) certificates of due qualification and good standing in each state in which any KPP Company (other than STOP) or any of their Subsidiaries owns property; (viii) an "Officers' Certificate" of the Secretary and of the Chairman of the Board or President of each KPP Company or its general partner, which shall contain the names and signatures of the officers of such KPP Company or its general partner authorized to execute Note Purchase Documents and which shall certify to the truth, correctness and completeness of the following exhibits attached thereto: (i) a copy of resolutions duly adopted by the Board of Directors of such KPP Company or its general partner and in full force and effect at the time this Agreement is entered into, authorizing the execution of this Agreement and the other Note Purchase Documents delivered or to be delivered in connection herewith and the consummation of the transactions contemplated herein and therein, (ii) a copy of the charter documents or partnership agreement of such KPP Company and all amendments, thereto, certified by the appropriate official of such KPP 13 Company's state of organization, and (iii) a copy of any bylaws of such KPP Company; (ix) confirmation from the KPP Companies' investment bankers as to matters discussed in Section 2.15; (x) environmental site assessment reports prepared by Pilko & Associates as of a date not earlier than sixty (60) days prior to the Series B Closing Date, which update the environmental site assessment reports prepared by Pilko & Associates as of March, 1993, and cover both the real property pledged pursuant to the Mortgage and the real property owned by STI; (xi) a true and correct copy of each Bank Debt Document; (xii) evidence of insurance required pursuant to Section 7.4; and all other documents and other evidence which you may reasonably request in connection with such transactions, including without limitation all records of corporate proceedings in connection therewith. (d) Legality of Notes. The Series B Note being acquired by you on the ----------------- Series B Closing Date, shall then qualify as a legal investment for insurance companies under the laws of any jurisdiction to which you may be subject (without resort to any "basket" or "leeway" provision of any such law, permitting limited investments by you without restriction as to the character of the particular investment) and such purchase shall not subject you to any penalty or other onerous condition under or pursuant to any applicable law or government regulation; and you shall have received such certificates or other evidence as you may reasonably request to establish compliance with this condition. (e) Private Placement Number. The Series B Notes shall have been assigned ------------------------ a private placement number by Standard and Poor's CUSIP Service Bureau. (f) Fees Payable at Closing. You and your special counsel shall have ----------------------- received the fees and expenses required to be paid or reimbursed by the KPP Companies, as provided in Section 13.2, in connection with the preparation and review of the Note Agreements, the Series B Notes, the other Note Purchase Documents and the other documents and instruments relating thereto, the negotiations thereof and other matters in connection therewith. The KPP Companies shall have paid all fees and expenses of Pilko & Associates with respect to the site assessment described in Section 3.1(c)(x). The KPP Companies shall have paid you a fee in the amount of $8,595.07. 14 (g) Representations and Warranties. All representations and warranties ------------------------------ made by any KPP Company or its Subsidiaries in any Note Purchase Document shall be true on and as of the Series B Closing Date as if such representations and warranties had been made as of the Series B Closing Date (or where a representation or warranty is given as of a specified date, the date so specified). 3.2 Conditions to Purchase and Sale of Series A Notes. Your obligation to ------------------------------------------------- purchase and pay for the Series A Notes to be purchased by you on the Series A Closing Date, as provided in Section 1.1(c), shall be subject to the performance by each of the KPP Companies of all its agreements theretofore or simultaneously to be performed hereunder and under the Series A Notes, to the accuracy of its representations and warranties contained herein and in the Series A Notes, and to the satisfaction, on or prior to such purchase, of the following further conditions: (a) Opinion of Counsel. You shall have received from Hutton, Ingram, ------------------ Yuzek, Gaines, Carroll & Bertolotti, New York counsel for the KPP Companies, and from Stephen Hoffner, general counsel for the KPP Companies as to the matters set forth on Exhibits E and F, and from your own special counsel, Thompson & Knight, P.C., a favorable opinion in form and substance acceptable to you. (b) Schedules. All Schedules hereto shall be true and correct as of the --------- Series A Closing Date. (c) Proceedings and Documents. All proceedings to be taken in connection ------------------------- with the transactions contemplated by this Agreement and the other Note Purchase Documents, and all documents incident thereto, shall be reasonably satisfactory in form and substance to you; and you shall have received copies of the following documents in form and substance satisfactory to you: (i) your Series A Note; (ii) a Solvency Certificate of the chief financial officer of STI and KPL as general partner of KPOP in the form of Exhibit C hereto; (iii) certificates of due formation and good standing in each of the KPP Companies' and their Subsidiaries' states of organization; (iv) certificates of due qualification and good standing in each state in which the any KPP Company (other than STOP) or any of their Subsidiaries owns property; (v) an "Officers' Certificate" of the Secretary and of the Chairman of the Board or President of each KPP Company 15 or its general partner, which shall contain the names and signatures of the officers of such KPP Company or its general partner authorized to execute Note Purchase Documents and which shall certify to the truth, correctness and completeness of the following exhibits attached thereto: (i) a copy of resolutions duly adopted by the Board of Directors of such KPP Company or its general partner and in full force and effect at the time this Agreement is entered into, authorizing the execution of this Agreement and the other Note Purchase Documents delivered or to be delivered in connection herewith and the consummation of the transactions contemplated herein and therein, (ii) a copy of the charter documents or partnership agreement of such KPP Company and all amendments, thereto, certified by the appropriate official of such KPP Company's state of organization, and (iii) a copy of any bylaws of such KPP Company; (vi) confirmation from the KPP Companies' investment bankers as to matters discussed in Section 2.15; (vii) evidence of insurance required pursuant to Section 7.4; (viii) copies of all documents, which shall be in form and substance acceptable to you, executed in connection with the acquisition by KPOP of the assets of WYCO; and all other documents and other evidence which you may reasonably request in connection with such transactions, including without limitation all records of corporate proceedings in connection therewith. (d) Legality of Notes. The Series A Note being acquired by you on the ----------------- Series A Closing Date, shall then qualify as a legal investment for insurance companies under the laws of any jurisdiction to which you may be subject (without resort to any "basket" or "leeway" provision of any such law, permitting limited investments by you without restriction as to the character of the particular investment) and such purchase shall not subject you to any penalty or other onerous condition under or pursuant to any applicable law or government regulation; and you shall have received such certificates or other evidence as you may reasonably request to establish compliance with this condition. (e) Private Placement Number. The Series A Notes shall have been assigned ------------------------ a private placement number by Standard and Poor's CUSIP Service Bureau. (f) Fees Payable at Closing. You and your special counsel shall have ----------------------- received the fees and expenses required to be paid or reimbursed by the KPP Companies, as provided in Section 13.2, in connection with the preparation and review of the Note 16 Agreements, the Series A Notes, the other Note Purchase Documents and the other documents and instruments relating thereto, the negotiations thereof and other matters in connection therewith. (g) WYCO Acquisition. The acquisition by KPOP of the assets of WYCO, upon ---------------- terms acceptable to you, shall have been completed prior to, or contemporaneously with, the closing of the Series A Notes. (h) Series B Closing. The closing for the Series B Notes shall have been ---------------- completed prior to, or contemporaneously with, the closing of the Series A Notes and all documents described in Section 3.1(c) shall have been delivered to you on the Series B Closing Date. (i) Representations and Warranties. All representations and warranties ------------------------------ made by any KPP Company or its Subsidiaries in any Note Purchase Document shall be true on and as of the Series A Closing Date, both before and after giving effect to the Wyco Acquisition, as if such representations and warranties had been made as of the Series A Closing Date (or where a representation or warranty is given as of a specified date, the date so specified). SECTION 4. PREPAYMENTS AND PAYMENTS OF THE NOTES. ------------------------------------- 4.1 Optional Prepayments. (a) From time to time each of KPOP and STI may -------------------- at its option prepay its Notes then outstanding, in whole or in part, so long as the aggregate amount of all partial prepayments of principal concurrently paid on such Notes equals $500,000 or any higher integral multiple of $100,000, by giving each Holder written notice thereof not less than 30 days nor more than 60 days prior to the date fixed for such prepayment (the "Prepayment Date", which date shall be a Business Day), which notice shall also specify the principal amount of the Notes held by such Holder so to be prepaid and an estimate of the Applicable Premium Amount of the Notes to be so prepaid and accrued interest due thereon, along with the computation thereof set forth in reasonable detail. (b) The KPP Companies shall deliver to all Holders, by facsimile transmission, with copies delivered by overnight delivery service with proof of delivery, on the second Business Day preceding the Prepayment Date a certificate signed by a principal financial officer of the Partnership setting forth the Applicable Premium Amount of the Notes held by all Holders to be so prepaid, which certificate shall set forth in reasonable detail the computation thereof. If the KPP Companies do not timely deliver such certificate to all Holders or if less than the Requisite Holders agree with the Partnership's calculation of the Applicable Premium Amount contained in such certificate, the Requisite Holders may calculate or recalculate, as the case may be, the Applicable Premium Amount of the Notes held by all 17 Holders to be so prepaid, which calculation shall be binding upon the KPP Companies and the other Holders absent manifest error. (c) On the Prepayment Date, either KPOP or STI, as applicable, shall prepay to each Holder the principal amount of the Notes held by such Holder to be so prepaid, the interest accrued on such principal amount to the Prepayment Date, and the Applicable Premium Amount, if any. 4.2 Allocation of Prepayments. In the event of any prepayment of less ------------------------- than all of the outstanding Notes of a series pursuant to Section 4.1, the KPP Companies will allocate the principal amount to be so prepaid, together with interest thereon and the Applicable Premium Amount related thereto, if any, among the Holders of Notes of such series in proportion, as nearly as may be, to the respective unpaid principal amounts of the Notes of such series held by them. 4.3 Acquisition of Notes; No Reissuance. No KPP Company will, nor will it ----------------------------------- permit any Subsidiary or Affiliate to, directly or indirectly prepay, redeem, retire, purchase or otherwise acquire any Note of a series, except pursuant to (a) Section 4.1, or (b) an offer to all Holders of Notes of such series to prepay, redeem, retire, purchase or otherwise acquire the Notes held by them on the same terms and conditions and in proportion, as nearly as may be, to the respective unpaid principal amounts of the Notes of such series held by them. Any Note prepaid in full pursuant to Section 4.1 or otherwise acquired by any KPP Company or any of their Subsidiaries shall be surrendered to the KPP Companies for cancellation, shall not be reissued and shall not be deemed outstanding, and no Note shall be issued in lieu of any principal amount of any Note so prepaid. SECTION 5. FINANCIAL STATEMENTS, ETC. Each KPP Company covenants and -------------------------- agrees that the KPP Companies will furnish to each Holder: (a) as soon as practicable, and in any event within 65 days after the end of each quarterly period in each fiscal year of KPL and the KPP Companies, the unaudited Consolidated statements of income, of cash flows and of partners' capital of KPL and the Partnership, the unaudited consolidating statement of income of each of the KPP Companies and their Subsidiaries (indicating which Subsidiaries are Unrestricted Subsidiaries) and the unaudited Consolidated statements of income, of cash flows and of partners' capital of the KPP Companies and their Restricted Subsidiaries in each case for such period and for that part of the fiscal year ended with such quarterly period, and the Consolidated and consolidating balance sheet of KPL and of the KPP Companies and their Subsidiaries as at the end of each such fiscal period (indicating which Subsidiaries are Unrestricted Subsidiaries) and the unaudited Consolidated balance sheet of the KPP Companies and their Restricted Subsidiaries as at the end of each such fiscal period, in each case setting forth in 18 comparative form the corresponding figures for the corresponding period or part of the preceding fiscal year, all in reasonable detail, prepared in conformity with GAAP applied on a basis consistent with that of the previous year (except as otherwise stated therein or in the notes thereto) and certified by the chief financial officers of KPL, KPOP and STI as (x) having been prepared in conformity with GAAP applied on a basis consistent with that of the previous year (except as otherwise stated therein or in the notes thereto) and (y) presenting fairly the financial condition and results of operations of KPL and of the KPP Companies and their Subsidiaries, as at the end of and for the fiscal periods to which they relate, subject to normal year-end adjustments; (b) as soon as practicable, and in any event within 95 days after the end of each fiscal year of KPL and the KPP Companies, the audited Consolidated statements of income, of cash flows and of changes in partners' capital of KPL and of the Partnership, the unaudited consolidating statement of income of each of the KPP Companies and their Subsidiaries (indicating which Subsidiaries are Unrestricted Subsidiaries) and the unaudited Consolidated statements of income, of cash flows and of partners' capital of the KPP Companies and their Restricted Subsidiaries as at the end of and for such year, and the audited Consolidated and unaudited consolidating balance sheet of KPL and of the KPP Companies and their Subsidiaries as at the end of such year (indicating which Subsidiaries are Unrestricted Subsidiaries) and the unaudited Consolidated balance sheet of the KPP Companies and their Restricted Subsidiaries as at the end of each such year, in each case setting forth in comparative form the corresponding figures of the previous fiscal year, all in reasonable detail, prepared in conformity with GAAP applied on a basis consistent with that of the previous year (except as otherwise stated therein or in the notes thereto) and certified by the chief financial officer of the Partnership as (x) having been prepared in conformity with GAAP applied on a basis consistent with that of the previous year (except as otherwise stated therein or in the notes thereto) and (y) presenting fairly the financial condition and results of operations of KPL and the KPP Companies and their Subsidiaries as at the end of such fiscal year, and accompanied by a report or opinion of Price Waterhouse (or other independent certified public accountants which have a recognized national standing) stating that such financial statements present fairly the consolidated financial condition and results of operations of KPL and the KPP Companies and their Subsidiaries, in accordance with GAAP consistently applied (except for changes in application with which such accountants concur) and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards; (c) concurrently with the financial statements delivered pursuant to Section 5(b), a letter that conforms to professional pronouncements promulgated by the American Institute of Certified 19 Public Accountants from the firm of independent certified accountants that reported on such financial statements to the effect that in the course of, and based solely upon, their audit of such financial statements, nothing has come to their attention to cause them to believe that there existed on the date of such statements any Default or Event of Default, provided that, if in the opinion of such accountants any such Default or Event of Default exists, such accountants shall describe its nature and the length of time it has existed; (d) concurrently with the financial statements delivered pursuant to Sections 5(a) and (b), a certificate of the chief financial officers of KPOP and STI (i) setting forth, as of the end of the respective fiscal period, the extent to which the KPP Companies have complied, and have caused their Subsidiaries to comply, with the requirements of Section 8, including, in the case any Debt, merger or consolidation, Permitted Investment, Lien securing Debt, Restricted Payment, sale and leaseback, Transfer or sale incurred or made during such fiscal period, all necessary computations reflecting the manner in which such compliance was determined and a reference to the source of each number included in such computations, (ii) stating that the activities of the KPP Companies and their Subsidiaries during such fiscal period have been monitored under such officer's supervision to determine whether the KPP Companies have fulfilled all of their obligations under the Note Agreements, the Notes and the other Note Purchase Documents, and (iii) stating that no Default or Event of Default existed as of the end of such fiscal period, on the date of such certificate or at any time during the period covered by such financial statements, or, if any Default or Event of Default exists or existed, specifying such Default, Defaults, Event of Default or Events of Default, the nature and status thereof, and what action the KPP Companies have or are taking or propose to take with respect thereto; (e) concurrently with the sending or filing thereof (or promptly thereafter), copies of all such financial statements, proxy statements and reports as Kaneb Services, Inc., KPL or any KPP Company shall send to its stockholders or partnership unitholders pursuant to SEC requirements, including all registration statements, annual reports on form 10-K, quarterly reports on form 10-Q, current reports on form 8-K and other regular periodic reports which Kaneb Services, Inc., KPL or any KPP Company or any of their Subsidiaries may file with the SEC; (f) promptly but in any event not later than 3 Business Days after a Responsible Officer of any KPP Company becomes aware of the existence of a Default or an Event of Default or a default or an event of default or a claimed default, whether or not waived, under any other Debt of any KPP Company or any of their Subsidiaries which Debt is in an aggregate principal amount of $1,000,000 or more, a written notice to each Holder, the Trustee and each other creditor under the Intercreditor Agreement, specifying the nature and period of existence thereof and what 20 action such KPP Company or such Subsidiary, as the case may be, is taking or proposes to take with respect thereto; (g) promptly but in any event not later than 3 Business Days after receipt thereof by any KPP Company or any of their Subsidiaries, any notice from any governmental agency asserting (i) any violation by, or possible remedial obligation owed by, any KPP Company or any of their Subsidiaries under CERCLA, RCRA or any other federal, state or local environmental statute or regulation, or (ii) any Claim against any KPP Company or any of its Subsidiaries relating to any environmental matter (including any Claim arising from past or present environmental practices asserted under CERCLA, RCRA or any other federal, state or local environmental statute or regulation) if such violation or Claim could reasonably result in any KPP Company or any of their Subsidiaries incurring liability, including but not limited to fines and remediation costs, of $1,000,000 or more, and promptly (but in any event not later than 30 days after receipt thereof by such KPP Company or Subsidiary) to be followed by the KPP Companies' statement of what action the KPP Companies or such Subsidiary, as the case may be, is taking or proposes to take with respect thereto; (h) promptly but in any event not later than 3 Business Days after a Responsible Officer of any KPP Company becomes aware thereof, a written notice of the existence of any condition or occurrence of any event which, in the opinion of such officer, would have a material and adverse effect on (i) the business, operations, properties, assets or condition, financial or otherwise, of KPOP or STI individually or the KPP Companies and their Subsidiaries taken as a whole or (ii) on the ability of any KPP Company or any of its Subsidiaries to perform under this Note Agreement, the Notes or any other Note Purchase Document or to perform any of the transactions contemplated herein or therein; (i) immediately upon becoming aware of the occurrence of any (i) "reportable event", as such term is defined in Section 4043(b) of ERISA, (ii) "accumulated funding deficiency", as such term is defined in Section 302 of ERISA, or (iii) "prohibited transaction", as such term is defined in Section 4975 of the Code, in connection with any pension plan or trust created thereunder, a written notice specifying the nature thereof, what action the KPP Companies are taking or propose to take with respect thereto, and, when known, any action by the Internal Revenue Service with respect thereto; and (j) promptly upon reasonable request by you or any subsequent Holder, copies of all other information relating in any way to any KPP Company or any of its Subsidiaries, including any information required in connection with a proposed sale of any of the Notes under Rule 144A. SECTION 6. INSPECTION; CONFIDENTIALITY. (a) Upon reasonable notice to the --------------------------- KPP Companies, any Holder of any portion 21 of the Notes at the time outstanding shall have the right to visit and inspect (at the expense of such Holder) during normal business hours, any of the offices or properties of any KPP Company or any of its Subsidiaries, to examine any of their books of account, make copies therefrom and photocopies and photographs thereof, and to write down and record any information obtained therefrom, and to discuss their affairs, finances and accounts with their officers and independent public accountants, as often as such Holder may reasonably request. Notwithstanding the foregoing, any visit or inspection by or on behalf of any Holder during the continuance of any Default or Event of Default shall be at the expense of the KPP Companies. (b) Each Holder will keep in confidence, in accordance with its normal, customary practices, any information, including financial information, which is marked by the KPP Companies as being non-public and confidential or proprietary in nature that is disclosed to such Holder by any of the KPP Companies (as a result of any examination of the books and records of the KPP Companies and their Subsidiaries or otherwise); provided, however, that you or such other -------- ------- Holder may disclose any such information: (i) to your employees and representatives, including without limitation, your attorneys and accountants who would ordinarily have access to such information in the normal course of performance of their duties, in confidence in accordance with your normal, customary practices; (ii) to another Holder, (iii) to actual or prospective purchasers of the Notes or any participations therein or any successor, assignee or Affiliate of yours with respect to the Notes; (iv) such third parties as you may, in your discretion, deem reasonably necessary or desirable in connection with or in response to: (A) compliance with any law, ordinance or governmental order, regulation, rule, policy, investigation or regulatory authority (including, without limitation, The National Association of Insurance Commissioners, its successors, or any other insurance industry regulatory authority) requirement or request, (B) any order, decree, judgment, subpoena, notice of discovery or similar request or testimony, or pleading issued, filed, served or purported on its face to be issued, filed or served (x) by or under authority of any court, tribunal, arbitration board, any governmental or industry agency, commission, authority, board or similar entity or (y) in connection with any proceeding, case or matter pending (or on its face purported to be pending) in any court, tribunal, arbitration board, or any governmental agency, commission, authority, board or similar entity, (C) the enforcement of your rights hereunder and under the Notes during the continuance of a Default or Event of Default or (D) the filing of any documents which are necessary or appropriate, in your opinion, for the protection of any security interest or collateral relative to the Note Purchase Documents and the transactions contemplated herein; (v) any Person holding your debt or securities who shall have requested to inspect such information in its capacity as a holder of such debt or securities; and (vi) any rating agency or service who rates your debt or claims paying ability or any entity which 22 you regularly report to as a member of any industry of which you are a part. SECTION 7. AFFIRMATIVE COVENANTS. Each KPP Company covenants and agrees --------------------- that so long as any Note shall be outstanding: 7.1 Maintenance of Office or Agency. Each KPP Company will maintain its ------------------------------- chief executive office and principal place of business at the respective addresses set forth on Schedule 9 hereto (or such other place in the United States of America as such KPP Company may designate in writing to the Holders at least twenty Business Days prior to the date it moves such chief executive office and principal place of business) and will keep its books and records regarding the Collateral at the respective addresses set forth on Schedule 9 hereto (or such other place in the United States of America as such KPP Company may designate in writing to the Holders at least twenty Business Days prior to the date it moves such books and records). No KPP Company will, nor will it permit any of its Subsidiaries to, change its name (except to such name as such KPP Company may designate in writing to the Holders at least twenty Business Days prior to the date it changes its name). Each notice given under this Section 7.1 must specifically state that such notice is given pursuant to this Agreement. 7.2 To Keep Books. Each KPP Company will, and will cause its Subsidiaries ------------- to, keep proper books of record and account in accordance with GAAP. 7.3 Payment of Taxes; Corporate Existence; Maintenance of Properties. ---------------------------------------------------------------- Each KPP Company will, and will cause its Subsidiaries to, (a) pay and discharge promptly all taxes, assessments and governmental charges or levies imposed upon it, its income or profits or its property before the same shall become in default, as well as all lawful claims and liabilities of any kind (including claims and liabilities for labor, materials and supplies) which, if unpaid, might by law become a Lien upon its property; provided that none of the KPP Companies and their Subsidiaries shall be required to pay any such tax, assessment, charge, levy or claim if (i) the amount, applicability or validity thereof shall currently be contested in good faith by appropriate and lawful proceedings diligently conducted, (ii) such KPP Company or Subsidiary shall have set aside on its books reserves in respect thereof deemed adequate in the reasonable opinion of such KPP Company or such Subsidiary and (iii) any Lien placed upon any property of any KPP Company or any of its Subsidiaries as a result thereof will not impair the operation of such property by the KPP Companies; (b) subject to Sections 8.4 and 8.5, do all things necessary to preserve and keep in full force and effect the 23 corporate or partnership existence, rights (charter and statutory) and franchises of each KPP Company and of each of their Subsidiaries; (c) maintain the general nature of its operations and businesses in the refined petroleum products storage, terminaling and transportation industry; and (d) maintain and keep all the properties, except for those facilities which are listed on Schedule 10 hereto, of the KPP Companies and their Subsidiaries which are used or useful in the conduct of their respective businesses in good condition, repair and working order and supplied with all necessary equipment and make all necessary repairs, renewals, replacements, betterments and improvements thereof, all as may be reasonably necessary so that the business carried on in connection therewith may be conducted at all times. 7.4 To Insure. Each KPP Company will, and will cause its Subsidiaries to, --------- (a) keep all of its insurable properties owned by it insured against all risks usually insured against by Persons operating like properties in the localities where the properties are located, all in amounts sufficient to prevent such KPP Company or Subsidiary, as the case may be, from becoming a coinsurer within the terms of the policies in question, but in any event in amounts not less than the amounts set forth on Schedule 11 hereto or if greater, the amounts which would be maintained by a prudent company in the same industry and location; (b) maintain public liability insurance against claims for personal injury, death or property damage suffered by others upon or in or about any premises occupied by it or occurring as a result of its maintenance or operation of any airplanes, automobiles, trucks or other vehicles or other facilities (including any machinery used therein or thereon) or as the result of the use of products sold by it or services rendered by it; (c) maintain such other types of insurance with respect to its business as are usually carried by Persons of comparable size engaged in the same or a similar business and similarly situated, including business interruption insurance; and (d) maintain all such workmen's compensation or similar insurance as may be required under the laws of any State or jurisdiction in which it may be engaged in business. All such insurance shall be maintained in amounts consistent with the practices of prudent Persons of comparable size and established reputation engaged in the same or a similar business and similarly situated and in compliance with any applicable laws; provided, however, such insurance shall at a minimum be in such 24 amounts, against such risks and with such deductible limits as set forth on Schedule 11. All insurance herein provided for shall be effected under a valid and enforceable policy or policies issued by reputable and financially sound insurers. Any insurance policies covering Collateral shall be (i) endorsed to provide for payment of losses to Trustee as its interests may appear, pursuant to a mortgage clause (without contribution) of standard form made part of the applicable policy, (ii) provide that such policies may not be cancelled, reduced or affected in any manner for any reason without fifteen days prior notice to Trustee and (iii) provide for any other matters specified in any applicable Security Document or which Trustee may reasonably require. In the event that any KPP Company or any of its Subsidiaries shall fail to maintain all insurance in accordance with this Section 7.4, any Holder and/or the Trustee shall have the right (but shall be under no obligation) to procure such insurance and the KPP Companies agree to reimburse such Holder or the Trustee, as the case may be, for all costs and expenses of procuring such insurance. 7.5 Compliance with Laws. Each KPP Company and its Subsidiaries will -------------------- conduct their respective operations, and will obtain all environmental, health and safety permits, licenses and other authorizations necessary for their respective operations and will maintain such authorizations in full force and effect, in compliance in all material respects with applicable federal, state and local laws and regulations, including without limitation the Occupational Safety and Health Act of 1970, as amended, ERISA and all laws and regulations relating to pollution control and environmental contamination, those governing the generation, use, collection, treatment, storage, transportation, recovery, removal, discharge or disposal of Hazardous Materials, and all laws and regulations relating to record keeping, notification and reporting requirements respecting Hazardous Materials. Each KPP Company will, and will cause its Subsidiaries to, keep their respective properties free and clear of any Liens imposed pursuant to CERCLA, RCRA or any other federal, state or local environmental statute or regulation. SECTION 8. NEGATIVE COVENANTS. Each KPP Company covenants and agrees that ------------------ so long as any Note shall be outstanding: 8.1 Funded Debt. No KPP Company shall, nor shall permit any of its ----------- Restricted Subsidiaries to, create, assume, incur, guarantee or otherwise become or be liable in respect of, or maintain or otherwise allow to exist, any Funded Debt, except for the following: (a) Funded Debt represented by the Notes and the Guaranties; 25 (b) Funded Debt of the KPP Companies outstanding on the Series B Closing Date, as set forth in Schedule 5 hereto and amendments or modifications thereof (but excluding any extension in the maturity of or any increase in the principal amount of such Funded Debt and any refunding, refinancing or renewal of such Funded Debt which extends the maturity of or increases the principal amount of such Funded Debt); and (c) other Funded Debt of any of the KPP Companies, provided that at the time of, and immediately after giving effect to, the incurrence (including the incurrence of any extension in the maturity of or any increase in the principal amount of such Funded Debt and any refunding, refinancing or renewal of such Funded Debt which extends the maturity of or increases the principal amount of such Funded Debt) thereof and giving effect to the contemporaneous application of any proceeds thereof to retire other Funded Debt, (i) no Default or Event of Default has occurred and is continuing and (ii) Consolidated Funded Debt shall not equal or exceed 3.15 times Consolidated Cash Flow for a 12 calendar month period ending not more than 3 months prior to the date on which such KPP Company incurs such additional Funded Debt. 8.2 Liens. No KPP Company shall, nor shall permit its Restricted ----- Subsidiaries to: (i) create, assume or otherwise incur or suffer to exist any Lien upon (or, whether by Transfer to any KPP Company or any of its Restricted Subsidiaries or otherwise, subject, or permit any KPP Company or any of its Restricted Subsidiaries to subject, to the prior payment of any obligations, indebtedness or claim other than KPOP's and STI's obligation under the Notes) any property or assets (real or personal, tangible or intangible, including any stock or other securities) of any KPP Company or any of its Restricted Subsidiaries, whether now owned or hereafter acquired, or any income or profits therefrom, (ii) own or acquire or agree to acquire any property or assets (real or personal, tangible or intangible, including any stock or other securities) subject to or encumbered by any Lien, or (iii) suffer to exist any obligations, indebtedness or claim of any KPP Company or any of its Restricted Subsidiaries or claims or demands against any KPP Company or any of its Restricted Subsidiaries, which obligations, indebtedness, claims or demands, if unpaid, would (in the hands of the holder thereof or anyone who shall have guaranteed the same or who has any right or obligation to purchase the same), by law or upon bankruptcy or insolvency or otherwise, be given any priority whatsoever over its general creditors; provided that the foregoing restrictions (I) shall not apply to Liens under the Security Documents or Liens arising by rights of offset securing the Bank Debt which are subject to the Intercreditor Agreement and (II) shall not prevent: (a) the KPP Companies or any of their Restricted Subsidiaries from suffering to exist any Liens existing on the Series B Closing Date, as set forth in Schedule 5 hereto, which 26 secure Funded Debt permitted under Section 8.1(b) and renewals, extensions and refundings (but not increases in principal amount) thereof which are permitted under Section 8.1(c), provided that such Liens are not extended to cover additional property; or (b) the KPP Companies or any of their Restricted Subsidiaries from creating, assuming, incurring or suffering to exist any Liens which are incidental to its normal conduct of business or ownership of its properties or assets, provided that such Liens do not secure Debt and do not materially impair the use of such properties or assets in the operation of the KPP Companies' and their Restricted Subsidiaries' businesses; or (c) any KPP Company or any of its Restricted Subsidiaries from creating, assuming or incurring or suffering to exist: (i) Liens for taxes not yet due and payable or the nonpayment of which is permitted by Section 7.3(a), (ii) survey exceptions, encumbrances, easements or reservations of, or rights of others for, rights of way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real properties, and rights of eminent domain, which Liens, exceptions, encumbrances, easements, reservations, rights and restrictions do not in the aggregate have a material adverse effect on such KPP Company or Restricted Subsidiary or materially impair their use in the operation of their businesses, or (iii) mechanics Liens and materialman's Liens for services or materials for which payment is not yet due and payable and which do not materially impair the use by such KPP Company or Restricted Subsidiary in the operation of its businesses; or (d) any KPP Company or any of its Restricted Subsidiaries from creating, assuming, incurring or suffering to exist Liens in respect of property acquired by such KPP Company or Restricted Subsidiary after the date hereof to secure Debt assumed or incurred to finance all or any part of the purchase price, provided that: (i) each such Lien shall at all times apply solely to the property so acquired and the improvements thereon which are to become fixtures or accessions thereto, (ii) the principal amount of Debt secured by any such Lien in respect of any such property shall at no time exceed the fair market value of such property at the time of acquisition thereof by such KPP Company or Restricted Subsidiary or, if less, the cost of such acquisition, (iii) each such Lien shall be either existing at the time of acquisition or created within 120 days thereafter, and (iv) the Debt secured by such Lien is permitted by Sections 8.1 at the time such Debt is incurred; or 27 (e) any KPP Company or any of its Restricted Subsidiaries from creating, assuming or incurring or suffering to exist the following Liens if (i) the validity, applicability or amount thereof is being contested in good faith and by appropriate and lawful proceedings diligently conducted, (ii) the KPP Company or its Restricted Subsidiary in question shall have set aside on its books, reserves in respect thereof which are deemed adequate in the reasonable opinion of such KPP Company or such Restricted Subsidiary, (iii) levy and execution thereof continue to be stayed, (iv) any of which Liens covering any Collateral are subordinate to the Liens in favor of the Holders, and (v) such Liens do not in the aggregate materially detract from the value of the property of the KPP Company or its Restricted Subsidiary in question, or materially impair the use of that property in the operation of its business: (A) claims and Liens of mechanics, materialmen, warehousemen (other than those claims and Liens described in Section 8.2(c)(iii)), and (B) adverse judgments or orders on appeal for the payment of money not in excess of the aggregate amount of $25,000,000; or (f) any KPP Company or any of its Restricted Subsidiaries from creating, assuming, incurring or suffering to exist Liens permitted by Section 10.4; or (g) any KPP Company or any of its Restricted Subsidiaries from creating, assuming, incurring or suffering to exist other Liens, on property which is not Collateral, securing Debt permitted by Section 8.1, provided that the aggregate amount of Debt so secured shall at no time exceed ten percent (10%) of Partners' Capital. 8.3 Restricted Payments. No KPP Company shall, nor shall it permit any of ------------------- its Restricted Subsidiaries to, make any Restricted Payment (or incur any liability to make any Restricted Payment), except (i) KPOP may make Restricted Payments in cash where on the date such Restricted Payment is made and immediately after giving effect thereto no Default or Event of Default has occurred and is continuing, or will occur with the passage of time, and such Restricted Payment does not exceed "KPOP Available Cash" for the fiscal quarter immediately preceding the quarter in which such Restricted Payment is paid, (ii) the Partnership may make Restricted Payments in cash where on the date such Restricted Payment is made and immediately after giving effect thereto no Default or Event of Default has occurred and is continuing, or will occur with the passage of time, and such Restricted Payment does not exceed "Partnership Available Cash" for the fiscal quarter immediately preceding the quarter in which such Restricted Payment is paid, and (iii) payments in an aggregate amount not to exceed $5,000,000 made by KPOP under the Repurchase Agreement prior to June 30, 1995. For purposes of this Section 8.3, the terms "KPOP Available Cash" and "Partnership Available Cash" shall have the meaning set forth on Schedule 12. 28 8.4 Merger or Consolidation. No KPP Company shall, nor shall permit any ----------------------- of its Restricted Subsidiaries to, consolidate with or merge into any Person, or permit any Person to merge into it, except that any KPP Company or any of its Restricted Subsidiaries may take any of the following actions: (a) any Restricted Subsidiary may be merged into or consolidated with any KPP Company or any other Wholly Owned Restricted Subsidiary so long as a KPP Company or a Wholly Owned Restricted Subsidiary is the surviving Person; and (b) any KPP Company or any Restricted Subsidiary may merge or consolidate with another corporation, partnership or limited liability company if: (i) both prior to and after taking the effects of the merger or consolidation into account, no Default, or Default with the passage of time that will become an Event of Default, Event of Default has occurred and is continuing; (ii) following the merger or consolidation the successor formed thereby is a corporation, partnership or limited liability company which (A) is duly organized and existing under the laws of the United States of America or any State thereof, (B) is not "insolvent" (as defined in 11 U.S.C. 101(32)(A) or Section 24.003 of the Texas Business and Commerce Code) and (C) maintains substantially all of its assets in the United States of America; (iii) the due and punctual performance and observance of all the obligations, terms, covenants, agreements and conditions of the Note Agreements, the Notes and the other Note Purchase Documents to be performed or observed by such KPP Company shall, by written instrument in form and substance satisfactory to the Requisite Holders and furnished to each Holder, be expressly assumed by such successor (if other than such KPP Company), and such successor (if other than the KPP Company) shall expressly confirm, by written instrument in form and substance satisfactory to the Requisite Holders and furnished to each Holder, that the Notes constitute a senior secured obligation of such successor; (iv) following the merger or consolidation an additional $1 of Funded Debt could be incurred in compliance with Section 8.1(c); and (v) immediately prior to such merger or consolidation, you receive a certificate of Responsible Officers of the KPP Companies certifying that such merger or consolidation complies with all requirements set forth in this Section 8.4, and an opinion of outside counsel in form and substance satisfactory to the Holders, stating that the successor is a corporation, partnership or limited liability company which 29 is duly organized and existing under the laws of the United States of America or any State thereof and will upon consummation of the merger or consolidation succeed to the assets and liabilities of the KPP Company or Restricted Subsidiary that is a party thereto. 8.5 Disposition of Assets. No KPP Company shall, nor shall it permit any --------------------- of its Subsidiaries to, Transfer any Collateral. No KPP Company shall, nor shall permit any of its Restricted Subsidiaries to, Transfer any of its other properties and assets (including securities of its Restricted Subsidiaries) at any time except: (a) a Transfer in the ordinary course of business (including any Transfer of obsolete or worn-out assets); or (b) a Transfer pursuant to a transaction in compliance with Section 8.4 or Section 8.7; or (c) a Permitted Transfer. No KPP Company will, nor will permit any of its Restricted Subsidiaries to, issue or sell shares of its capital stock to any Person other than a KPP Company or another Wholly-Owned Restricted Subsidiary of the KPP Companies, other than new issuances of limited partnership units of the Partnership in exchange for cash or property representing fair consideration in the determination of the Board of Directors of KPL. No KPP Company will, nor will permit any of its Subsidiaries to, Transfer any capital stock of a Restricted Subsidiary other than (i) a merger or consolidation which complies with the provisions of Section 8.4, (ii) a contribution of capital stock of a Restricted Subsidiary to a joint venture, provided that following the contribution of such capital stock an additional $1 of Funded Debt could be incurred by the KPP Companies in compliance with Section 8.1(c), or (iii) a Permitted Transfer. 8.6 Investments. No KPP Company shall, nor shall permit any of its ----------- Restricted Subsidiaries to, make or acquire any Restricted Investment. 8.7 Sale and Leaseback. No KPP Company shall, nor shall permit any of its ------------------ Restricted Subsidiaries to, sell and lease-back any of its properties or assets; provided, however, that within 180 days following the acquisition of any property or asset, the KPP companies may sell to and lease-back from another Person such property or asset so long as no Default or Event of Default exists at the time of and after giving effect to such transaction. 8.8 Transactions with Affiliates. No KPP Company shall, nor shall permit ---------------------------- any of its Restricted Subsidiaries to, engage in any transaction with an Affiliate on terms less favorable to such KPP Company or Restricted Subsidiary than would have been 30 obtainable in arm's length dealing in the ordinary course of business with a Person not an Affiliate. 8.9 Fiscal Year. No KPP Company shall, nor shall permit any of its ----------- Subsidiaries to, change its fiscal year to anything other than the calendar year. 8.10 Subsidiaries. No KPP Company shall have or own any Subsidiary unless ------------ such Subsidiary shall either (i) not be a Restricted Subsidiary or (ii) be a Guarantor of the Notes and be a Restricted Subsidiary. No KPP Company may become an Unrestricted Subsidiary. No KPP Company will, or will permit any Restricted Subsidiary to, directly or indirectly, enter into, create, or otherwise allow to exist any contract or other consensual restriction (other than as may exist pursuant to the partnership agreements of the Partnership and KPOP) on the ability of any Restricted Subsidiary of any KPP Company to pay distributions to any KPP Company or any of its Restricted Subsidiaries, to redeem equity interests in it held by any KPP Company or any of its Restricted Subsidiaries, to repay loans owing by it to any KPP Company or any of their Restricted Subsidiaries or to transfer any of its assets to any KPP Company or any of its Restricted Subsidiaries. Each KPP Company shall, and shall cause its Restricted Subsidiaries to, provide notice of the Guaranties to any holder of Debt of such KPP Company or such Restricted Subsidiary. 8.11 Restricted Subsidiaries. (a) As used herein the term "Restricted ----------------------- Subsidiary" means any Subsidiary of any KPP Company other than an Unrestricted Subsidiary. The term "Unrestricted Subsidiary" means any Subsidiary of any KPP Company which the KPP Companies have designated as such, provided that the KPP Companies will not designate any Subsidiary as an Unrestricted Subsidiary unless at the time of such designation and immediately after giving effect thereto (i) no Default or Event of Default shall have occurred and be continuing and (ii) an additional $1 of Funded Debt could be incurred in compliance with Section 8.1(c). (b) The KPP Companies may redesignate any Unrestricted Subsidiary as a Restricted Subsidiary so long as at the time of such redesignation and immediately after giving effect thereto (i) no Default or Event of Default shall have occurred and be continuing and (ii) an additional $1 of Funded Debt could be incurred in compliance with Section 8.1(c). To the extent that any Unrestricted Subsidiary becomes a Restricted Subsidiary hereunder, such Subsidiary shall always remain a Restricted Subsidiary. (c) On Schedule 13, the KPP Companies shall designate which Subsidiaries they designate as Unrestricted Subsidiaries as of the Series B Closing Date in accordance with the provisions of this Section. Thereafter, promptly upon any Subsidiary being designated by the KPP Companies as a Restricted Subsidiary or an 31 Unrestricted Subsidiary, the KPP Companies shall deliver to each Holder a certificate of the chief financial officer of the Partnership setting forth the name of the Subsidiary, its jurisdiction of incorporation or formation and a brief description of its business and properties, certifying the status of such Subsidiary as an Unrestricted Subsidiary or a Restricted Subsidiary pursuant to the provisions of this Section. SECTION 9. DEFINITIONS AND ACCOUNTING. For all purposes of this Note -------------------------- Agreement, except as otherwise expressly provided or unless the context otherwise requires: "Affiliate" means any Person (other than the KPP Companies or any of their --------- Restricted Subsidiaries) which, directly or indirectly, controls or is controlled by or is under common control with the KPP Companies or their Subsidiaries or which beneficially owns or holds or has the power to direct the voting of 10% or more of any class of Voting Stock (or in the case of a Person which is not a corporation, 10% or more of its equity interest) of any KPP Company or any of its Subsidiaries or which has 10% or more of its Voting Stock (or in the case of a Person which is not a corporation, 10% or more of its equity interest) beneficially owned or held, directly or indirectly, by any KPP Company or any of its Subsidiaries. For purposes of this definition, "control" means the power to direct the management and policies of a Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Agreement" has the meaning specified in Section 1.1(a). --------- "Applicable Premium Amount" shall mean, with respect to any prepayment of ------------------------- principal owing under the Notes pursuant to Section 4.1 or any acceleration of principal owing under the Notes pursuant to Section 11.1 (such prepaid or accelerated principal amount being herein called the "Called Principal"), an ---------------- amount equal to the greater of (i) zero, and (ii) the excess of the Discounted Value of such Called Principal over the amount of such Called Principal. As used in this definition: "Discounted Value" of any Called Principal means the sum of: ---------------- (a) the amount obtained by discounting such Called Principal from the scheduled maturity date of such Called Principal to (i) in the case of Called Principal which is prepaid pursuant to Section 4.1, the related Prepayment Date, or (ii) in the case of Called Principal which is accelerated pursuant to Section 11.1, the date of acceleration (either such date being herein called the "Settlement Date" for such Called Principal), --------------- plus (b) the amounts obtained by discounting each remaining payment of interest that would be due on such Called 32 Principal from the date on which such payment would be made to the Settlement Date for such Called Principal, with all such discounting being made in accordance with accepted financial practice and at a discount factor (applied on a semi-annual basis) equal to the Reinvestment Yield with respect to such Called Principal. "Reinvestment Yield" means, with respect to any Called Principal, one-half ------------------ of one percent (0.5%) per annum plus the yield to maturity for the actively traded marketable United States Treasury fixed interest rate security with a maturity equal to the scheduled maturity of the Called Principal of the Notes as of the Settlement Date, as set forth on the display designated as "Page 678" on the Telerate Access Service (or such other display as may replace Page 678 on Telerate Access Service or if Telerate Access Service is not available, then any other nationally recognized trading screen reporting on-line intraday trading in United States Treasury fixed interest rate securities) at 11:00 A.M. (New York City time) as of the second Business Day preceding the date such Applicable Premium Amount becomes due and payable. In the event that no such nationally recognized trading screen reporting on-line trading in the United States Treasury fixed interest rate securities is available, "Treasury Rate" shall mean the yield to maturity implied by the Treasury Constant Maturity Series yields reported, for the latest day for which such yields shall have been so reported as of the second Business Day preceding such Settlement Date, in Federal Reserve Statistical Release H.15 (519) (or any comparable successor publication) for actively traded United States treasury securities having a constant maturity equal to the period from such Settlement Date to the scheduled maturity date of such Called Principal. Such implied yield shall be determined, if necessary, by (a) converting United States treasury bill quotations to bond-equivalent yields in accordance with accepted financial practice and (b) interpolating linearly between reported yields. "Bankruptcy Default" has the meaning specified in Section 11.1. ------------------ "Bank Debt" means indebtedness, which has an original principal amount not --------- in excess of $15,000,000, of KPOP owing to Texas Commerce Bank National Association and Bank of Montreal and their respective successors or assigns, under or pursuant to the Bank Debt Documents. "Bank Debt Documents" means that certain Restated Credit Agreement of even ------------------- date herewith by and among KPOP, Texas Commerce Bank National Association, as Agent and Lenders which are a party thereto, as such agreement may be amended, restated, supplemented or refinanced from time to time. 33 "Business Day" means any day on which banks are required to be open to ------------ carry on their normal business in the States of Iowa, New York and Texas. "Capitalized Lease" means and includes at any time any lease of property ----------------- (real, personal or mixed) which in accordance with GAAP would at such time be required to be capitalized on a balance sheet of the lessee. "Capitalized Lease ----------------- Obligation" means at any time the capitalized amount of the rental commitment - ---------- under a Capitalized Lease which in accordance with GAAP would at such time be required to be shown on a balance sheet of the lessee. "CERCLA" has the meaning specified below in the definition of "Hazardous ------ Materials". "Claim" means any and all claims, demands, causes of action, suits, ----- proceedings, administrative proceedings, losses, judgments, decrees, debts, damages, liabilities, court costs and attorneys' fees and other expenses incurred, assessed or sustained by or against any KPP Company or any of its Subsidiaries. "Code" has the meaning specified in Section 2.12(a). ---- "Collateral" means all property of any kind which is subject to a Lien in ---------- favor of Holders or which, under the terms of any Security Document, is purported to be subject to such a Lien. "Consolidated" refers to the consolidation of any Person, in accordance ------------ with GAAP, with its properly consolidated subsidiaries. References herein to a Person's Consolidated financial statements, financial position, financial condition, liabilities, etc. refer to the consolidated financial statements, financial position, financial condition, liabilities, etc. of such Person and its properly consolidated subsidiaries. "Consolidated Cash Flow" means for the period in question, the sum of (i) ---------------------- Consolidated Net Income for such period, plus (ii) depreciation and amortization, deferred taxes, other non-cash charges and interest expense (including without duplication, interest expense related to Capitalized Leases), for such period that was taken into account in determining such Consolidated Net Income but which did not involve a current expenditure of funds; provided that: -------- (a) The determination of Consolidated Cash Flow for a particular 12 month period shall exclude earnings taken into account in determining Consolidated Cash Flow which are attributable to any of the following which have occurred or will have occurred after giving effect to the transaction which necessitates the determination of whether additional Consolidated Funded Debt may be incurred: (i) discontinued operations; (ii) operations represented by properties or assets Transferred or to 34 be Transferred; (iii) a Subsidiary which ceases to be a Consolidated Subsidiary; (iv) minority interests created in a Subsidiary; or (v) the interest in a Subsidiary attributable to capital stock Transferred or to be Transferred. (b) Solely for the purpose of determining whether (i) Funded Debt may be assumed or incurred, pursuant to Section 8.1, to finance all or any part of the purchase price of property or (ii) a KPP Company may merge or consolidate pursuant to Section 8.4, or may assume or incur Funded Debt, pursuant to Section 8.1, in connection with such merger or consolidation, the determination of Consolidated Cash Flow for a particular 12 month period shall include the Consolidated Cash Flow which is attributable solely to the property to be so purchased or the Person with whom the KPP Company is to merge or consolidate for such 12 month period, after elimination of the portions of earnings included in such Consolidated Cash Flow that are or may be attributable to (A) operations to be discontinued, (B) sources of revenues that will not or may not be available to the KPP Companies after the purchase, merger or consolidation, (C) the gain (net of any tax effect) resulting from the sale of any capital assets other than in the ordinary course of business, (D) the aggregate amount of unusual or nonrecurring gains (net of any tax effect) and (E) other adjustments (such as additional or increased expenses) appropriate to reflect the earnings that would have been realized by the KPP Companies had the purchase of property or the merger or consolidation occurred at the inception of such 12 month period; provided that Holders shall have received a certificate of the chief financial - -------- officer of the Partnership, or its general partner, in form and scope satisfactory to each Holder, reflecting the determination of the earnings so attributable to such property or Person, which certificate must specifically be based upon, reference and attach either (x) audited financial statements that reflect the earnings figures used in such determination and any other source of information used in such certificate or (y) unaudited financial statements that reflect the earnings figures used in such determination which must be prepared in accordance with GAAP (and be accompanied by a certificate of such chief financial officer certifying that they were so prepared), be in form and detail acceptable to Requisite Holders and be otherwise acceptable to Required Holders in their reasonable discretion. "Consolidated Funded Debt" means the aggregate, after eliminating all ------------------------ intercompany items, of all Funded Debt of the Partnership and its Consolidated Subsidiaries, consolidated in accordance with GAAP. Without limiting the foregoing, an obligations that may be Funded Debt of more than one of the KPP Companies and their Subsidiaries shall not be counted more than once in determining Consolidated Funded Debt. "Consolidated Net Income" means, for the period in question, the ----------------------- Consolidated net income of the Partnership and its Consolidated Subsidiaries (after eliminating all intercompany 35 items and portions of earnings properly attributable to minority interests, but without eliminating the portion of earnings attributable to KPL's 1% general partnership interest in KPOP), all as determined in accordance with GAAP excluding (A) any net loss or undistributed net income, as determined in - --------- accordance with GAAP, of any Person in which any KPP Company or any of their Consolidated Subsidiaries has an ownership interest, but which is not a Consolidated Subsidiary, (B) the net income or loss of any Consolidated Subsidiary for any time period included in the computation of such net income prior to the date it became a Consolidated Subsidiary (except in the limited circumstances set forth in paragraph (b) of the definition of Consolidated Cash Flow), (C) the gain or loss (net of any tax effect) resulting from the sale of any capital assets other than in the ordinary course of business, and (D) the aggregate amount of unusual or nonrecurring gains or losses (net of any tax effect). "Debt" of any Person on any date means, without duplication, (a) any ---- obligation of such Person for borrowed money or which was incurred for the purchase price of assets or services, (b) any indebtedness or obligation secured by or constituting a Lien existing on property owned by such Person, whether or not such Person is directly liable for such indebtedness or obligation, (c) the face amount of all letters of credit, bankers acceptances or other similar facilities, whether drawn or undrawn, for which such Person is the account party, (d) all Capitalized Lease Obligations of such Person, (e) the net amount payable for settlement of interest rate swaps of such Person as determined in respect thereof as of the end of the most recently ended fiscal quarter of such Person, based on the assumption that such swaps had terminated at the end of such fiscal quarter, and (f) all Guaranty Liabilities by such Person. "Default" means any event which, with notice or lapse of time or both, ------- would constitute an Event of Default. "ERISA" has the meaning specified in Section 2.12(a). ----- "ERISA Affiliate" has the meaning specified in Section 2.12(c). --------------- "Event of Default" has the meaning specified in Section 11.1. ---------------- "Existing Term Debt" means the Debt of STI under the "Tranche A Term ------------------ Facility", pursuant to the Credit Agreement dated as of March 1, 1993, as heretofore modified and amended, among KPOP, STI, Texas Commerce Bank National Association (successor by merger with Texas Commerce Bank, National Association) as Primary Agent and Funding Agent and the lenders (including the Existing Term Lenders) parties thereto. "Existing Term Lenders" means, collectively, Texas Commerce Bank National --------------------- Association (successor by merger with Texas 36 Commerce Bank, National Association), Bank of Montreal, The Bank of Nova Scotia, The First National Bank of Boston, Bank One, Texas, N.A., and First Interstate Bank of Texas, N.A. "Funded Debt" of any Person on any date means, without duplication, (a) any ----------- obligation of such Person for borrowed money or which was incurred for the purchase price of assets or services, in each case having a final maturity of one or more than one year from the date such obligation was incurred (or which is renewable or extendable at the option of such Person to a maturity beyond one year from the date of incurrence thereof), including all payments in respect thereof that are required to be made within one year from the date of any determination of Funded Debt, whether or not the obligation to make such payments shall constitute a current liability of such Person under GAAP, (b) any indebtedness or obligation secured by or constituting a Lien existing on property owned by such Person, whether or not such Person is directly liable for such indebtedness or obligation, (c) the face amount of all letters of credit, bankers acceptances or other similar facilities, whether drawn or undrawn, for which such Person is the account party and which have a final maturity of one or more than one year from the date such letter of credit was issued, (d) all Capitalized Lease Obligations of such Person, (e) the net amount payable for settlement of interest rate swaps of such Person as determined in respect thereof as of the end of the most recently ended fiscal quarter of such Person, based on the assumption that such swaps had terminated at the end of such fiscal quarter, and (f) all Guaranty Liabilities by such Person in respect of Funded Debt of another Person. "GAAP" means those generally accepted accounting principles and practices ---- which are recognized as such by the Financial Accounting Standards Board (or any generally recognized successor). "Guaranties" means, collectively, the guaranties of even date herewith ---------- given by each of KPOP, STI, the Partnership, STS and STOP for the benefit of the Holders, as from time to time amended, modified or restated, and all other guaranties hereafter delivered to Holders in connection with the transactions contemplated herein. "Guaranty Liabilities" of any Person on any date means, without -------------------- duplication, (a) any guarantee or endorsement by such Person of obligations of another (other than endorsements for purposes of collection in the ordinary course of business), (b) any obligation of such Person to purchase goods, services, notes or securities for the purpose of supplying funds for the purchase, payment or satisfaction of, or measured by, obligations of another, (c) any other contingent obligation of such Person in respect of, or to purchase or otherwise acquire or service, obligations of another, (d) any obligation of such Person, whether or not contingent, in respect of the obligations of a general or limited partnership of which such Person is a general 37 partner, unless the holder of such obligation has agreed to waive all recourse to such Person for such obligation, and (e) every obligation of such Person for obligations of another which such Person has in effect guaranteed by an agreement, contingent or otherwise, to make a loan, advance or capital contribution to or other investment in such debtor for the purpose of assuring or maintaining a minimum equity, asset base, working capital or other balance sheet condition for such debtor on any date, or to provide funds for the payment of any liability, dividend or stock liquidation payment of or by such debtor, or otherwise to supply funds to or in any manner invest in such debtor for such purpose. "Hazardous Materials" means materials defined as "hazardous substances", ------------------- "hazardous wastes", "hazardous constituents" or "solid wastes" in (a) the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. (S)(S) 9601 et seq. and any amendments thereto and regulations thereunder ("CERCLA"), (b) the Resource Conservation and Recovery Act, 42 U.S.C. (S)(S) 6901 et seq. and any amendments thereto and regulations thereunder ("RCRA") and (c) any other federal, state or local environmental statute or regulation. "Holder" means a Person to whom any Note is originally issued and any ------ subsequent holder of a Note shown in the register of either KPOP or STI to hold such Note. "Intercreditor Agreement" means that certain Collateral Trust and ----------------------- Intercreditor Agreement dated of even date herewith by and among Texas Commerce Bank National Association, Bank of Montreal, each Holder listed on Schedule 1 and Schedule 2 and Texas Commerce Bank National Association, as Trustee as such agreement may be amended, restated or supplemented from time to time. "KPL" means Kaneb Pipe Line Company, a Delaware corporation. --- "KPOP" means Kaneb Pipe Line Operating Partnership, L.P., a Delaware ---- limited partnership. "KPP Companies" means, collectively, KPOP, STI, the Partnership, STS, STOP, ------------- and, subject to Section 8.4, their successors and assigns. "Lien" means, with respect to any property or assets, any right or interest ---- therein of a creditor to secure obligations, indebtedness or claims owed to him or any other arrangement with such creditor which provides for the payment of such obligation, indebtedness or claim out of such property or assets or which allows him to have such obligation, indebtedness or claim satisfied out of such property or assets prior to the general creditors of any owner thereof, including any lien, mortgage, security interest, pledge, deposit, production payment, rights of a vendor under any title retention or conditional sale agreement or lease substantially equivalent thereto, tax lien, mechanic's 38 or materialman's lien, any other charge or encumbrance for security purposes, whether arising by law or agreement or otherwise. "Lien" also means any filed financing statement, any registration of a pledge (such as with an issuer of unregistered securities), or any other arrangement or action which would serve to perfect a Lien described in the preceding sentence, regardless of whether such financing statement is filed, such registration is made, or such arrangement or action is undertaken before or after such Lien exists. "Margin Stock" has the meaning specified in Section 2.11. ------------ "Mortgage" means that certain Mortgage and Security Agreement dated of -------- event date herewith, executed by KPOP and KPL. "Note Agreements" has the meaning specified in Section 1.1(a). --------------- "Note Purchase Documents" means this Agreement, the other Note Agreements, ----------------------- the Notes, the Security Documents, the Intercreditor Agreement, and all other agreements, certificates, documents, instruments and writings at any time delivered in connection herewith or therewith. "Notes" has the meaning specified in Section 1.2(a). ----- "Partners' Capital" means, at the time in question, the partners' capital ----------------- of the Partnership, as consolidated with its Subsidiaries, as determined in accordance with GAAP, including without limitation, the elimination of minority interests. "Partnership" means Kaneb Pipe Line Partners, L.P., a Delaware limited ----------- partnership. "PBGC" has the meaning specified in Section 2.12(c). ---- "Permitted Investment" means any investment by any KPP Company or any of -------------------- their Restricted Subsidiaries in any other Person, whether by acquisition of stock or Debt, by loan, advance, guarantee, or transfer of property out of the ordinary course of business, by capital contribution, by extension of credit or otherwise by any KPP Company or any of their Restricted Subsidiaries in any of the following: (a) any marketable obligation maturing not later than one year after the date of acquisition thereof, issued or guaranteed by the United States of America or by any agency of the United States of America which has the full faith and credit of the United States of America; (b) commercial paper which is rated "A-1" by Standard & Poor's Corporation or "P-1" by Moody's Investor Service, Inc., and maturing not later than one year after the date of acquisition thereof, issued by any corporation organized 39 under the laws of the United States or any state thereof and which has capital, surplus and undivided profits of at least $100,000,000; (c) any demand deposit or time deposit (including certificates of deposit and money market or sweep accounts) with a commercial bank or trust company organized under the laws of the United States or any state thereof and having capital, surplus and undivided profits of at least $100,000,000 whose senior debt securities are rated "A" or higher by Standard & Poor's Corporation or "A-2" or higher by Moody's Investor Service, Inc., provided that such deposit must either be payable on demand or mature not later than twelve months from the date of investment therein; (d) any demand deposit with a commercial bank or trust company organized under the laws of the United States of America or any state thereof maintained for use in the ordinary course of business; (e) any tax-exempt security which is rated "A" or higher by Standard & Poor's Corporation or "A-2" or higher by Moody's Investor Services, Inc., maturing not later than one year from the date of acquisition thereof and which is issued by any institution having capital, surplus and undivided profits of at least $100,000,000; (f) any advance to directors, officers or employees of any KPP Company in the ordinary course of business which has been approved by such KPP Company, provided that the aggregate amount of all such advances outstanding at any one time may not exceed $1,000,000; (g) all accounts receivables on normal trade terms which arise from the sale of goods or services in the ordinary course of business; (h) intercompany advances, loans or extensions of credit by any KPP Company or any of their Wholly Owned Restricted Subsidiaries to any other KPP Company or any of their Wholly Owned Restricted Subsidiaries provided that such intercompany advances, loans or extensions of credit shall be subordinated to the Notes and the Guaranties upon terms satisfactory to the Holders; (i) investments, other than pursuant to the preceding clause (h) (by transfer of property, capital contribution or otherwise) in the Partnership, KPOP, STS, STI or STOP or any other Person provided that such Person is or shall immediately therewith become a Guarantor and a Wholly Owned Restricted Subsidiary of the KPP Companies; and (j) any other investment so long as the aggregate book value of such investments does not at any time exceed ten 40 percent (10%) of the Partners' Capital as of the end of the fiscal year immediately preceding the date in question. "Permitted Transfer" means a Transfer of property or assets or a Transfer ------------------ of capital stock or partnership units of a Subsidiary of any KPP Company (other than a Subsidiary that is one of the KPP Companies other than STOP) if: (a) at the time of such Transfer, and immediately after giving effect thereto: (i) such Transfer is for fair market value and in the best interests of the Person making such Transfer, (ii) no Default or Event of Default has occurred and is continuing or would exist after giving effect thereto, or (iii) all such Transfers which are to be treated as "Permitted Transfers" under this subsection (a) in any fiscal year shall consist of properties or assets or of capital stock of a Subsidiary which do not in the aggregate have a book value (determined with regard to each such property or asset or such capital stock at the time the same is Transferred) of more than ten percent (10%) of the Partners' Capital as of the end of the immediately preceding fiscal year; or (b) any other Transfer for cash provided that within one year from the date of such Transfer, the KPP Companies or their Subsidiaries use the full amount of the proceeds received therefrom, net of all expenses of the KPP Companies or their Subsidiaries incurred in connection with such Transfer, either (or in combination): (i) to acquire property or assets used in the storage, terminaling, pipeline and transportation business, or (ii) to pay Funded Debt of the KPP Companies. (c) the Transfer is to any other KPP Company or any of their Wholly Owned Restricted Subsidiaries. "Person" means an individual, a corporation, a partnership, a trust, a ------ joint venture, an unincorporated organization or a government or any agency or political subdivision thereof. "Plan" has the meaning specified in Section 2.12(c). ---- "Prepayment Date" has the meaning specified in Section 4.1. --------------- "Prime Rate" means, on any day, the rate quoted by J. P. Morgan Company as ---------- its prime rate, base rate or similar reference 41 for such day; or, if such rate is no longer quoted by J. P. Morgan Company, such other similar reference rate for such day readily available as selected by the Requisite Holders to be the Prime Rate. "Private Placement Memorandum" has the meaning specified in Section 2.2. ---------------------------- "RCRA" has the meaning specified in the above definition of "Hazardous ---- Materials". "Reportable Event" has the meaning specified in Section 2.12(c). ---------------- "Repurchase Agreement" means the Put Agreement dated as of October 11, -------------------- 1993, between the Partnership and Texas Commerce Bank National Association pursuant to which the Partnership agreed to repurchase upon demand by Texas Commerce Bank National Association certain of its partnership units issued to KPL. "Requisite Holders" means the Holder or Holders of not less than 51% in ----------------- aggregate principal amount of all Notes at the time outstanding, exclusive of any Notes held by the KPP Companies, any of their Subsidiaries or any Affiliate of such Persons. "Responsible Officer" means any of the following officers, agents or ------------------- employees of any KPP Company, or in the case of a partnership, of the Managing General Partner of such KPP Company: the Chairman, the President, the Chief Executive Officer, the Chief Operating Officer and, and the Chief Financial Officer (and any Person who performs one of the same functions under a different title). "Restricted Investment" means any investment by any KPP Company or any of --------------------- their Restricted Subsidiaries in any other Person, whether by acquisition of stock or Debt, by loan, advance, guarantee, or transfer of property out of the ordinary course of business, by capital contribution, by extension of credit or otherwise; provided that the term "Restricted Investment" shall not include any Permitted Investment. "Restricted Payment" means (a) any dividend on, or other distribution in ------------------ respect of, shares of class of capital stock of, or partnership or other interest in any KPP Company or any of their Subsidiaries (other than a dividend or other distribution payable solely in capital stock of such company or a dividend or other distribution payable solely to KPOP or to one of its Wholly- Owned Restricted Subsidiaries), (b) any payment on account of the purchase, redemption or other retirement of any such shares of capital stock or partnership interest, or of any warrant, option or other right to acquire shares of capital stock or partnership interest in, KPL, Kaneb Services, Inc., any KPP Company or any of their Subsidiaries, or (c) any other distribution made to a holder of any such shares of capital stock 42 or partnership interest, either directly or indirectly (other than a distribution payable solely in capital stock of any KPP Company), including any forgiveness of debt owed by such shareholder or partner to KPL, any KPP Company or any of their Subsidiaries. "Restricted Subsidiary" has the meaning given it in Section 8.11. --------------------- "Rule 144A" means Rule 144A promulgated by the SEC, as amended from time to --------- time. "SEC" means the Securities and Exchange Commission, or any governmental --- agency or agencies substituted therefor. "Security Documents" means the Guaranties, all other instruments listed in ------------------ the Security Schedule and all other security agreements, deeds of trust, mortgages, chattel mortgages, pledges, guaranties, financing statements, continuation statements, extension agreements and other agreements or instruments now, heretofore, or hereafter delivered by any Person to Holders or the Trustee in connection with this Note Agreement or any transaction contemplated hereby to secure or guarantee the payment of any part of the Note or the performance of the KPP Companies' or any other Person's other duties and obligations under the Note Purchase Documents. "Security Schedule" means Schedule 3 hereto. ----------------- "Series A Closing Date" has the meaning specified in Section 1.1(c). --------------------- "Series A Contract Rate" means the per annum rate of interest equal to one ---------------------- percent (1.0%) per annum plus the interpolated yield to maturity of an obligation with a seven year maturity and average life, interpolating based upon the yield to maturity of the five-year United States Treasury Notes due November 1999 or such later issue of on-the-run five-year United States Treasury Notes issued prior to such date of determination and are reflected on the display designated as "Page 500" on the Telerate Access Service (or such other display as may replace Page 500 on Telerate Access Service or if Telerate Access Service is not available, any other nationally recognized trading screen reporting on- line intraday trading in United States Treasury fixed interest rate securities) and the yield to maturity of the ten-year United States Treasury Notes due November 2004 or such later issue of on-the-run ten-year United States Treasury Notes issued prior to such date of determination and are reflected on such display, at 11:00 A.M. (New York City time) as of the fifth Business Day preceding the Series A Closing Date, as determined by the Requisite Holders on or prior to the Series A Closing Date. 43 "Series A Final Maturity Date" has the meaning specified in Section 1.1(a). ---------------------------- "Series A Overdue Rate" has the meaning specified in Section 1.1(b). --------------------- "Series B Closing Date" has the meaning specified in Section 1.2(c). --------------------- "Series B Contract Rate" has the meaning specified in Section 1.2(b). ---------------------- "Series B Final Maturity Date" has the meaning specified in Section 1.2(a). ---------------------------- "Series B Overdue Rate" has the meaning specified in Section 1.2(b). --------------------- "STI" means StanTrans, Inc., a Delaware corporation. --- "STOP" means Support Terminals Operating Partnership, L.P., a Delaware ---- limited partnership. "STS" means Support Terminal Services, Inc., a Delaware corporation. --- "Subsidiary" means, with respect to any KPP Company, any corporation, ---------- association or other business entity in which such KPP Company or one or more of its Subsidiaries owns sufficient equity or voting interests to enable it or them (as a group) ordinarily, in the absence of contingencies, to elect a majority of the directors (or Persons performing similar functions) of such entity, and any partnership or joint venture if more than a 50% interest in the profits or capital thereof is owned by such KPP Company or one or more of its Subsidiaries or such KPP Company and one or more of its Subsidiaries (unless such partnership can and does ordinarily take major business actions without the prior approval of such KPP Company or one or more of its Subsidiaries). "Transfer" means to sell, lease, transfer or otherwise dispose. -------- "Trustee" means the Trustee appointed and acting pursuant to the ------- Intercreditor Agreement. "Unrestricted Subsidiary" has the meaning given it in Section 8.11. ----------------------- "Voting Stock" of a Person means the issued and outstanding capital stock ------------ of such Person with the power to elect, appoint or cause the election or appointment of the members of its board of directors. 44 "Wholly Owned Restricted Subsidiary" means, at any time, any Restricted ---------------------------------- Subsidiary one hundred percent (100%) of all the equity interests, voting interests and Debt of which are owned by any one or more of the KPP Companies and their other Wholly Owned Restricted Subsidiaries at such time. "WYCO" means WYCO Pipe Line Company, a Delaware corporation. ---- SECTION 10. SECURITY. -------- 10.1 The Security. The Notes will be secured by the Security Documents ------------ listed in the Security Schedule and any additional Security Documents hereafter delivered by any Person and accepted by Requisite Holders. 10.2 Agreement to Deliver Security Documents. Each KPP Company agrees to --------------------------------------- deliver and to cause its Subsidiaries to deliver, to further secure the Notes whenever requested by Requisite Holders in their sole and absolute discretion, deeds of trust, mortgages, chattel mortgages, security agreements, financing statements and other Security Documents in form and substance satisfactory to Requisite Holders for the purpose of granting, confirming, and perfecting first and prior liens in the Collateral. Each KPP Company also agrees to deliver and to cause its Subsidiaries to deliver, whenever Requisite Holders determine in their sole and absolute discretion, reasonably exercised, that any of the matters described below is in question, favorable opinions from legal counsel acceptable to the Requisite Holders as to such matter (a) confirming that such properties and interests are subject to Security Documents securing the Notes that constitute and create legal, valid and duly perfected first deed of trust liens, or mortgage liens or security interests in such properties and interests and the proceeds thereof, (b) stating that such properties and interests are free and clear of all Liens except those in favor of Trustee and that such Person has good and defensible title thereto, and (c) covering such other matters as Requisite Holders may request. 10.3 Perfection and Protection of Security Interests and Liens. The KPP --------------------------------------------------------- Companies will from time to time deliver to the Trustee financing statements, continuation statements, extension agreements and other documents, properly completed and executed (and acknowledged when required) by the KPP Companies or any of their Subsidiaries in form and substance satisfactory to the Requisite Holders. 10.4 Additional Secured Debt. (a) Funded Debt for money borrowed by KPOP ----------------------- with respect to which all of the following are true is herein called "Qualifying ---------- Debt": (i) such Debt is permitted to be incurred by Section 8.1(c) at the time - ---- such Debt is incurred, (ii) such Debt is permitted to be incurred pursuant to the terms of each document or instrument governing other Debt of any of the KPP Companies or any of their Subsidiaries (or a written consent given thereunder), (iii) such Debt is permitted 45 to be secured on a pari passu basis with all other Debt which is secured by the Collateral pursuant to the terms of each document or instrument governing such Debt that is secured by the Collateral (or a written consent given thereunder), (iv) the initial holders of such Debt are Financial Institutions, (v) such Debt is not guarantied in any manner by any Person and is not secured by any Lien unless any such guaranty or Lien shall concurrently benefit and secure all Notes on a pari passu basis, (vi) any consent or approval of any governmental or public body or authority which is required for the incurrence of such Debt has been obtained, and (vii) KPOP has given an officer's certificate addressed to each Holder of KPOP's intent to secure such Debt with the Collateral, which certificate shall have been given not less than 30 days prior to the incurrence of such Debt and shall contain representations, warranties and covenants (in form and substance approved by the Trustee) that such Debt complies with each of the provisions of this Section 10.4. To the extent that the principal amount of the Notes exceeds $60,000,000 or the amount of loans, letters of credit or commitments to make loans or issue letters of credit under the Bank Debt Documents exceeds $15,000,000 (exclusive of the amount of premium, interest, expenses, fees, indemnifications and similar amounts that may be incurred in respect of such amount), such excess principal amount or excess loans, letters of credit or commitments shall not be treated as Funded Obligations under the Intercreditor Agreement unless the same shall be Qualifying Debt. As used in this Section 10.4, "Financial Institution" shall mean a commercial bank --------------------- chartered under, or duly authorized to operated a branch in the United States under, the law of the United States or any state thereof, or an insurance company or commercial finance company organized under the laws of any State of the United States, in each case with capital and surplus in excess of $100,000,000 at the time it shall become a creditor hereunder, or a separate account administered by such an insurance company. (b) The Trustee shall be authorized to execute amendments or supplements to the Security Documents reasonably acceptable to the Trustee and the KPP Companies to provide for the securing of Qualifying Debt on a pari passu basis with the Notes, subject to and on the conditions that (i) the KPP Companies and the holder of the Qualifying Debt shall have complied with such conditions as the Trustee may reasonable require to assure that such Debt is Qualifying Debt on the date so secured and (ii) the holders of such Qualifying Debt shall have executed a written agreement agreeing to be bound by all of the terms and conditions of the Intercreditor Agreement in the form attached thereto as Exhibit B. Notwithstanding anything to the contrary contained in this Agreement, any Note Purchase Document or Bank Debt Document, the Intercreditor Agreement shall at all times provide that, to the extent (i) the Liens upon the Collateral securing any such Qualifying Debt are or become subject or subordinate to any claims or Liens of any other Person to which the Notes are not similarly subject or subordinate or (ii) the Qualifying Debt, or 46 the Liens upon the Collateral securing the Qualifying Debt, shall become subject or subordinate to claims of any other Person or defenses of any of the KPP Companies or any other Person (including without limitation avoidability by a trustee in any bankruptcy or insolvency proceeding) to which any of the Notes are not subject (each an "Intervening Claim"), any amount which must be applied against such Intervening Claim shall be deducted from the amount allocable to such Qualifying Debt by the Trustee or any Holder pursuant to the provisions of the Intercreditor Agreement. SECTION 11. DEFAULTS AND REMEDIES. --------------------- 11.1 Events of Default. If one or more of the following events (each an ----------------- "Event of Default") shall occur for any reason whatsoever (and whether such occurrence shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (a) default in the payment of principal of any Note when and as the same shall become due and payable, or default in the payment of the Applicable Premium Amount of any Note when and as the same shall become due and payable; or (b) default in the payment of any interest upon any Note when such interest becomes due and payable and continuance of such default for a period of 5 Business Days; or (c) default in the performance or observance of any covenant, agreement or condition contained in Section 8 hereof which shall not have been remedied, waived or cured by the 30th day after the occurrence of such default; or (d) default in the performance or observance of any covenant, agreement or condition contained in the Notes, in the Note Agreements or in any other Note Purchase Document (other than specified in subsections (a), (b) or (c) above) which shall not have been remedied, waived or cured by the 30th day after the earlier of the date on which (i) any KPP Company receives notice of such default from a Holder or (ii) a Responsible Officer otherwise obtains knowledge of such default; or (e) (i) any default occurs in the payment when due of any principal, premium or interest on the Bank Debt or any "Qualifying Debt" secured by Liens on the Collateral and any applicable grace period thereof has expired, or (ii) any other default or event of default occurs in respect of the Bank Debt or any such Qualifying Debt or under any agreement relating to such obligation or indebtedness, and any such default or event of default has not been cured or permanently waived prior to the expiration of any applicable grace period, or (iii) any default occurs in the payment when due of any principal, premium or interest on any Debt of any KPP Company or any of their 47 Subsidiaries (other than the Notes and the Bank Debt or such Qualifying Debt) which Debt exceeds $5,000,000 in the aggregate and any applicable grace period thereof has expired, or (iv) any other default or event of default occurs in respect of such Debt described in (e)(iii) or under any agreement relating to such obligation or indebtedness, and any such default or event of default has not been cured or permanently waived prior to the expiration of any applicable grace period; or (f) any KPP Company or any of their Subsidiaries shall file a petition seeking relief for itself under Title 11 of the United States Code, as now constituted or hereafter amended, or an answer consenting to, admitting the material allegations of or otherwise not controverting, or shall fail to timely controvert, a petition filed against such Company or Subsidiary seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended; or any KPP Company or any of their Subsidiaries shall file such a petition or answer with respect to relief under the provisions of any other now existing or future bankruptcy, insolvency or other similar law of the United States of America or any State thereof or of any other country or jurisdiction providing for the reorganization, winding-up or liquidation of corporations or an arrangement, composition, extension or adjustment with creditors; or (g) a court of competent jurisdiction shall enter an order for relief which is not stayed within 90 days from the date of entry thereof against any KPP Company or any of their Subsidiaries under Title 11 of the United States Code, as now constituted or hereafter amended; or there shall be entered an order, judgment or decree by operation of law or by a court having jurisdiction in the premises which is not stayed within 90 days from the date of entry thereof adjudging any KPP Company or any of their Subsidiaries as bankrupt or insolvent, or ordering relief against any KPP Company or any of their Subsidiaries, or approving as properly filed a petition seeking relief against any KPP Company or any of their Subsidiaries, under the provisions of any other now existing or future bankruptcy, insolvency or other similar law of the United States of America or any State thereof or of any other country or jurisdiction providing for the reorganization, winding-up or liquidation of corporations or an arrangement, composition, extension or adjustment with creditors, or appointing a receiver, liquidator, assignee, sequestrator, trustee, custodian or similar official of any KPP Company or any of their Subsidiaries or of any part of the Collateral or a substantial part of any of its other property, or ordering the reorganization, winding-up or liquidation of its affairs; or any involuntary petition against any KPP Company or any of their Subsidiaries seeking any of the relief specified in this clause shall not be dismissed within 90 days of its filing; or (h) any KPP Company or any of their Subsidiaries shall make a general assignment for the benefit of its creditors; or any KPP Company or any of their Subsidiaries shall consent to the 48 appointment of or taking possession by a receiver, liquidator, assignee, sequestrator, trustee, custodian or similar official of such KPP Company or Subsidiary or of any part of the Collateral or any substantial part of its other property; or any KPP Company or any of their Subsidiaries shall have admitted to its insolvency or inability to pay, or shall have failed to pay, its debts generally as such debts become due; or any KPP Company or any of their Subsidiaries or their directors or majority stockholders shall take any action looking to the dissolution or liquidation of such KPP Company or Subsidiary (other than as contemplated by Section 8.4 or Section 8.5); or (i) there shall remain in force, undischarged, unsatisfied, unbonded and unstayed, for more than 30 consecutive days final judgments, decrees or orders for the payment of money in excess of an aggregate amount of $25,000,000 against any KPP Company or any of their Subsidiaries; or (j) (i) any KPP Company or any ERISA Affiliate shall incur any liability in excess of $5,000,000 to a Plan or to the Internal Revenue Service or the Pension Guaranty Benefit Corporation with respect to a Plan or (ii) a statutory Lien shall be placed on the property of any KPP Company or any ERISA Affiliate pursuant to ERISA which secures obligations in excess of $5,000,000; or (k) any representation or warranty by or on behalf of the KPP Companies in the Note Agreements, the Notes, any other Loan Document or in any certificate or instrument furnished in connection therewith proves to have been false or misleading in any material respect as of the date given or made; then (i) upon the occurrence of any Event of Default described in subsections (f), (g) or (h) of this section with respect to either KPP or STI (each a "Bankruptcy Default"), all of the Notes shall automatically become immediately due and payable; (ii) upon the occurrence with respect to any Note of any Event of Default described in subsection (a) or (b), the Holder of any Note may at any time during its continuance, by written notice to the KPP Companies, declare its Note to be due and payable, whereupon such Note shall forthwith mature and become due and payable; or (iii) upon the occurrence of any other Event of Default, the Requisite Holders may at any time during its continuance, by written notice to the KPP Companies, declare all of the Notes to be due and payable, whereupon in each case all of the Notes shall forthwith mature and become due and payable. The amount payable upon the occurrence of a Bankruptcy Default shall be, to the extent permitted by law, the entire unpaid principal amount of the Notes, together with interest accrued thereon, and such amount shall be payable without presentment, demand, protest or other requirement of any kind, all of which are expressly waived by the KPP Companies and their Subsidiaries. The amount payable upon an acceleration based on 49 any other Event of Default shall be, to the extent permitted by law, the entire unpaid principal amount of the Notes so accelerated, the interest accrued thereon to the date of acceleration, and the Applicable Premium Amount, and such amount shall be payable without presentment, demand, protest or further notice, all of which are expressly waived by the KPP Companies. On any date on which the Requisite Holders give written notice to the KPP Companies declaring all of the Notes to be due and payable pursuant to Section 11.1(iii), the Requisite Holders shall give written notice to the KPP Companies and to all the other Holders of the amount of the Applicable Premium Amount of the Notes so accelerated, which notice shall set forth in reasonable detail the computation thereof. Within five Business Days after Requisite Holders receive notice that any other Holder has given written notice to the KPP Companies declaring its Note to be due and payable pursuant to Section 11.1(ii), the Holder of such Note shall give written notice to the KPP Companies of the amount of the Applicable Premium Amount of the Note so accelerated, which notice shall set forth in reasonable detail the computation thereof, and the KPP Companies shall provide written notice of such Applicable Premium Amount to the other Holders. The Applicable Premium Amount set forth in any such notice shall be binding on the KPP Companies and the Holders absent manifest error. If, at any time after any or all of the Notes shall have been declared due and payable pursuant to this Section 11.1 and before any judgment or decree for the payment of monies due shall have been obtained or entered, the KPP Companies shall pay in full the principal, interest and Applicable Premium Amount which shall have become due and payable in respect of the Notes otherwise than by such declaration, with interest upon all such overdue principal and the Applicable Premium Amount and (to the extent that payment of such interest is enforceable under applicable law) upon overdue interest at the Series A Overdue Rate and the Series B Overdue Rate, as applicable, to the date of such payment, and an additional amount sufficient to reimburse the Holders for their costs and expenses incurred in connection with any such declaration, and the KPP Companies shall remedy every other Event of Default, then the Requisite Holders, by written notice to the KPP Companies, may (but shall have no obligation to) rescind and annul such declaration and its consequences; but no such rescission or annulment shall extend to or shall affect any subsequent default or shall impair any right consequent thereon. 11.2 Suits for Enforcement. Subject to the exercise by Trustee of its --------------------- powers under the Security Documents, in case any one or more of the Events of Default specified in Section 11.1 shall occur and be continuing, the Holder of each Note may proceed to protect and enforce its rights by suit in equity, action at law or by other appropriate proceeding, whether for the specific performance (to the extent permitted by law) of any 50 covenant or agreement contained in such Note or the Note Agreements or any other Loan Document or in aid of the exercise of any power granted therein, or may proceed to enforce the payment of such Note or to enforce any other legal or equitable right of such Holder. If any Holder of a Note shall demand payment thereof or take any action in respect of a Default or an Event of Default, the KPP Companies will forthwith give written notice to the other Holders of Notes, specifying such action and the nature of the Default or Event of Default. The notice to each Holder shall also set forth the respective names and addresses of, and principal amounts of the Notes held by, the other Holders. In case of a Default or Event of Default, the KPP Companies will pay to each Holder such further amount as shall be sufficient to cover such Holder's costs and expenses of collection and enforcement, including attorneys' fees, to the extent provided in Section 13.2. 11.3 Remedies Cumulative. No remedy herein conferred upon any Holder is ------------------- intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise. 11.4 Remedies Not Waived. No course of dealing or unwritten agreement or ------------------- practice between the KPP Companies and any Holder shall operate as a waiver of any right of any Holder and no delay on the part of any Holder in exercising any right shall so operate. 11.5 Indemnity. Each KPP Company and their Subsidiaries, jointly and --------- severally, agrees to indemnify and reimburse each Holder, upon demand, against and for any and all liabilities, obligations, claims, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements (including reasonable fees of attorneys, accountants, experts and advisors) of any kind or nature whatsoever (in this section collectively called "liabilities and costs") which to any extent (in whole or in part) may be imposed on, incurred by, or asserted against such Holder growing out of, resulting from, or in any other way associated with the Note Agreements, the Notes, the other Note Purchase Documents or the transactions and events (including the enforcement or defense thereof) at any time associated herewith or therewith or contemplated herein or therein. THE FOREGOING INDEMNIFICATION AND REIMBURSEMENT OBLIGATIONS OF THE KPP COMPANIES SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND COSTS ARE IN ANY WAY OR TO ANY EXTENT CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY SUCH HOLDER, PROVIDED THAT: (a) Except as provided in the following subsection (b), no Holder shall be entitled under this section to 51 receive indemnification for (i) that portion of any final judgment for liabilities and costs which portion, determined in accordance with principles of comparative fault, is based upon a finding that such Holder has been grossly negligent or has engaged in willful misconduct, or (ii) the liabilities and costs representing that portion of any out-of-court settlement by a Holder which has been allocated by the parties to such settlement to a claim that such Holder has been grossly negligent or has engaged in willful misconduct. (b) Each Holder shall be entitled under this section to receive indemnification and reimbursement for any liabilities and costs arising from a final judgment in favor of an Outside Party to the effect that such Holder is somehow legally responsible (due to a theory of imputed negligence or otherwise) for the negligence or other acts or omissions of any KPP Company or any of their Affiliates. (c) Each KPP Company shall (upon demand as the same are incurred) indemnify and reimburse each Holder for all costs, expenses, and disbursements of any kind or nature whatsoever (including reasonable fees of attorneys, accountants, experts and advisors) which are incurred by such Holder in defending against any claim or allegation that such Holder has been grossly negligent or has engaged in willful misconduct. Each Holder agrees to reimburse the KPP Companies for amounts paid to such Holder under this Section 11.5(c) upon the determination in a final judgment that such Holder has been grossly negligent or has engaged in willful misconduct. (d) No Holder shall, without the consent of the KPP Companies, which consent shall not be unreasonably withheld, enter into any out-of-court settlement of any claim for liabilities and costs if the KPP Companies would be obligated under this section to indemnify such Holder for amounts paid by such Holder under such settlement. The KPP Companies will, however, consent to any settlement proposed by such Holder which is reasonable in light of the then existing circumstances. As used in this section: the term "Holder" shall refer not only to each Person who is the Holder of any Note at the time in question but also to any former Holder of such Note (or of any predecessor Note) and to each director, officer, agent, attorney, employee, representative and affiliate of such present or former Holder, and the term "Outside Party" shall refer, with respect to any Holder, to any Person other than such Holder, its owners, and the insurance or other regulatory authorities which exercise jurisdiction over its ability to purchase promissory notes and engage in transactions of the kind contemplated herein. 52 SECTION 12. CONSENTS, WAIVERS AND AMENDMENTS. Any term, covenant, -------------------------------- agreement or condition of the Notes or the Note Agreements or any other Loan Document may, with the consent of the KPP Companies, be amended or compliance therewith may be waived (either generally or in a particular instance and either retroactively or prospectively), but any such amendment or waiver must be made in writing by one or more instruments signed by the Requisite Holders; provided that: (a) no such amendment or waiver shall, without the consent of all Holders, (1) change the maturity of the principal of, or any installment of interest on, any of the Notes, or reduce the principal amount thereof or the interest thereon, or subordinate or otherwise modify the terms of payment of the principal thereof or interest or premium thereon including any extension of the time for, or change in the application or priority of, any such payment, or (2) give to any Note any preference over any other Note, or (3) reduce the percentage of the principal amount of Notes the Holders of which are required to approve any such amendment or effectuate any such waiver, or (4) except as provided in Section 10.4, amend any Guaranty or amend any other Security Document where the effect of such amendment releases any Collateral or adversely affects the perfection or priority of any Lien on the Collateral, or (5) amend or waive any of the provisions of this Section 12, (6) amend any of the provisions of the Intercreditor Agreement, and (b) no such waiver shall extend to or affect any obligation not expressly waived or impair any right consequent thereon. The KPP Companies will not, directly or indirectly, solicit, request or negotiate for or with respect to any proposed waiver or amendment of any of the provisions of this Agreement, the Notes or other Note Purchase Documents unless each Holder (irrespective of the amount of Notes then owned by it) shall concurrently be informed thereof by the KPP Companies and shall be afforded the opportunity of considering the same and shall be supplied by the KPP Companies with sufficient information, including but not limited to the making of updated representations and warranties comparable in scope to those set forth in Section 2, to enable it to make an informed decision with respect thereto. The KPP Companies will not, directly or 53 indirectly, pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, to any Holder as consideration for or as an inducement to the entering into by any Holder of any waiver or amendment of any of the terms and provisions of this Agreement or other Loan Document unless such remuneration is concurrently paid, on the same terms, ratably to each Holder of then outstanding Notes. The KPP Companies will not in connection with any solicitation, request or negotiation of any waiver or amendment, directly or indirectly, prepay or offer to prepay (and shall represent that they do not contemplate prepaying within the next twelve months) any series that would not be prepaid ratably with the Notes of the other series, and any prepayment made by the KPP Companies during the twelve months immediately following such waiver or amendment, must be pro rata between the Series A Notes and the Series B Notes, except for such difference in the offer price between Series A Notes and Series B Notes which reflects only the differences in the interest rates thereon and payment dates or maturity date thereof and is reasonably determined. Subject to the last sentence of this paragraph, any amendment or waiver pursuant to this Section 12 shall apply equally to all Holders and shall be binding upon them, upon each further Holder of any Note and upon the KPP Companies whether or not such Note shall have been marked to indicate such amendment or waiver. No such amendment or waiver shall extend to or affect any obligation not expressly amended or waived or impair any right related thereto. For purposes of determining whether the Holders of the requisite aggregate principal amount of Notes at any time have agreed or consented to any amendment or waiver pursuant to the provisions of this Section 12, any Notes held by any KPP Company, any of their Subsidiaries or any Affiliate shall not be deemed outstanding. Any consent made by a Holder that has transferred or has agreed to transfer its Notes to a KPP Company, any of their Subsidiaries or any Affiliate thereof and has provided or has agreed to provide such written consent as a condition to such transfer shall be void and of no force and effect except solely as to such Holder, and any amendments effected or waivers granted or to be effected or granted that would not have been or would not be so effected or granted but for such consent (and the consent of all other Holders that were acquired under the same or similar conditions) shall be void and of no force and effect retroactive to the date such amendment or waiver initially took or takes effect, except solely as to such Holder. SECTION 13. SPECIAL RIGHTS OF PURCHASER. --------------------------- 13.1 Method of Payment; Indemnity. Anything contained in the Notes to the ---------------------------- contrary notwithstanding, in the case of each Note held by you, KPOP and STI will make all payments in respect of its Notes (including the final payment) of principal thereof and the Applicable Premium Amount (if any) and interest thereon by wire transfer in immediately available funds not later than 54 11:00 a.m. (local time at your address for payment specified on Schedule 1 or Schedule 2, as appropriate), on the date each such payment is due pursuant to the terms hereof and the terms of the Notes, to the account specified under your name on Schedule 1 or Schedule 2, as appropriate (or in such other manner or at such other address or account in the United States as you may from time to time designate to the KPP Companies in writing), each such payment being accompanied by the reference number specified on Schedule 1 or Schedule 2, as appropriate, and by such other information as is necessary to identify the source and application thereof, and all without any presentment or surrender of such Note and without any notation of such payment being made thereon. You agree that in the event you shall sell or transfer such Note you will notify the KPP Companies of that fact and will prior to the delivery of such Note make, or cause to be made, a notation thereon of all principal, if any, theretofore paid on such Note and of the date to which interest has been paid on such Note. The KPP Companies agree that, in the event that any Note held by you is lost, stolen or destroyed and application is made, pursuant to the provisions of Section 14.3, for the execution and delivery of a new Note in lieu thereof, an unsecured indemnity agreement signed by you shall constitute indemnity satisfactory to the KPP Companies. 13.2 Expenses. Whether or not the transactions contemplated herein shall -------- be consummated, the KPP Companies shall pay all of your and the Trustee's expenses, including out-of-pocket expenses, arising in connection therewith, including the fees and disbursements of your special counsel and Trustee's special counsel for all services incident to the preparation and negotiation of the Note Agreements, the Notes, the other Note Purchase Documents and all other documents and instruments delivered in connection therewith. The KPP Companies shall also pay all compensation to the Trustee and any and all costs, expenses or disbursements (including reasonable fees of attorneys, accountants, experts and advisers) of any kind or nature whatsoever which is incurred by the Trustee resulting from or in any other way associated with any of the Collateral, the Note Purchase Documents and the transactions and events (including the enforcement or defense thereof) at any time associated therewith or contemplated therein. The KPP Companies shall also pay, and save you harmless from, any and all liabilities with respect to the assignment of a private placement number from Standard and Poor's CUSIP Service Bureau, trustee's fees and expenses, environmental assessment charges, title charges, survey costs, filing, registration and recording fees, mortgage recording taxes, stamp and other taxes, duties, imposts, assessments and other charges which may be payable or deemed to be payable in connection with the execution and delivery of this Note Agreement, the Notes and the other Note Purchase Documents. The KPP Companies agree, to the extent permitted by applicable law, to pay and indemnify you against any costs and expenses, including reasonable attorneys' and accountants' fees, incurred by you, any subsequent Holder or the Trustee in evaluating (in 55 connection with any controversy or potential controversy) and enforcing, exercising or defending any rights or remedies under this Agreement, the Notes and the other Note Purchase Documents or in responding to any subpoena or other legal process issued in connection with this Agreement or the transactions contemplated hereby or by reason of your or any subsequent Holder's having acquired any Note, including without limitation, costs and expenses incurred in any bankruptcy case. Without limiting the foregoing, to the extent permitted by applicable law, the KPP Companies also will pay the reasonable fees, expenses and disbursements of an investment bank or other firm acting as adviser (which fees, expenses and disbursements may include, without limitation, reasonable legal and accounting fees) to the Holders of the Notes following the occurrence and during the continuance of a Default or an Event of Default or in connection with any such amendment or waiver proposed in connection with any potential Default or Event of Default or any workout, restructuring or similar negotiations relating to this Agreement, the Notes and the other Note Purchase Documents or any other Holder. The obligations of the KPP Companies under this Section 13.2 shall survive the transfer of any Note or portion thereof or interest therein by you or any subsequent Holder and the payment of any Note. SECTION 14. REGISTRATION, TRANSFER OR EXCHANGE OF NOTES. ------------------------------------------- 14.1 Note Register. The KPP Companies shall keep at their office or ------------- agency maintained as provided in Section 7.1 a register in which the KPP Companies shall provide for the registration of Notes and for the registration of transfer and exchange of Notes. 14.2 Surrender for Transfer. The Holder of each Note at its option may ---------------------- either in person or by duly authorized attorney surrender the same for registration of transfer or exchange at such office or agency of the KPP Companies and, without expense to such Holder (other than for transfer taxes, if any), receive in exchange therefor a Note or Notes, each in the face amount of at least $900,000 (or if the outstanding principal amount of a Note being so transferred or exchanged is less than $900,000 at such time, then in the face amount of amount then outstanding), dated as of the date to which interest has been paid on the surrendered Note, and registered in the name of such Person or Persons as may be designated by such Holder, for the same aggregate principal amount as the then unpaid principal amount of such surrendered Note. Every Note presented or surrendered for registration of transfer or exchange shall be accompanied by a written instrument of transfer in the form of Exhibit D to this Agreement, duly executed by the Holder of such Note or his attorney duly authorized in writing. Every Note so made and delivered in exchange for any surrendered Note shall in all other respects be in the same form and have the same terms as such surrendered Note. No transfer or exchange of any Note shall be valid unless made in the foregoing manner at such office or agency. 56 14.3 Loss, Theft, Destruction or Mutilation of Notes. Upon receipt of ----------------------------------------------- evidence reasonably satisfactory to the KPP Companies of the loss, theft, destruction or mutilation of any Note, and, in the case of any such loss, theft or destruction, upon receipt of indemnity or instrument reasonably satisfactory to the KPP Companies which may include unsecured corporate obligations in the case of any institutional investor, or in the case of any such mutilation, upon surrender and cancellation of the mutilated Note, the KPP Companies will make and deliver, in lieu of such lost, stolen, destroyed or mutilated Note, a new Note of like tenor and unpaid principal amount, dated as of the date to which interest has been paid on such earlier Note. 14.4 Holders. Provided that the KPP Companies have complied with their ------- obligation to register any transfer or exchange of a Note under Section 14.2, the KPP Companies may deem and treat the Holder of each Note as the owner and holder of such Note for the purpose of receiving payment of principal and interest on such Note and for all other purposes whatsoever, whether or not such Note shall be overdue. SECTION 15. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; SUCCESSORS AND ---------------------------------------------------------- ASSIGNS. All covenants, agreements, representations and warranties made herein, - ------- in the Notes, and in any documents and certificates delivered pursuant hereto shall be deemed to have been relied upon by you, notwithstanding any investigation heretofore or hereafter made by you or on your behalf, and shall survive the issuance and delivery of the Notes and your purchase thereof and payment therefor and shall continue in full force and effect so long as any Note is outstanding and unpaid. In addition, the KPP Companies' obligations under Sections 11.5 and 13.2 hereof shall survive the payment of the Notes. Whenever in this Agreement either of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party, and all covenants, agreements, representations and warranties in this Agreement contained by or on behalf of the KPP Companies, or by or on behalf of you, shall bind and inure to the benefit of the respective successors and assigns of the parties hereto; provided that the KPP Companies may not assign any of their rights under this Agreement or any other Loan Document without your written consent. SECTION 16. NOTICES AND OTHER COMMUNICATIONS. All notices and other -------------------------------- communications provided for under the Note Agreements or under the Notes or the other Note Purchase Documents shall be in writing and either delivered by overnight delivery service with proof of delivery, or sent by facsimile transmission, with copies delivered by overnight delivery service with proof of delivery: (a) if to any Holder, at its address (or addresses) specified on Schedule 1 or Schedule 2, as appropriate; and 57 (b) if to the KPP Companies, at: 2400 Lakeside Boulevard Richardson, Texas 75082 Telecopier No.: (214) 699-1894 Attention: Edward D. Doherty or at such other address as each party referred to in this section may hereafter designate by like notice to the other parties. Any such notice or communication shall be deemed to have been given (i) in the case of overnight delivery service, as of the date of first attempted delivery at the address provided herein, and (ii) in the case of facsimile transmission, when actually received. SECTION 17. SEVERABILITY. If any term or provision hereof or of the Notes ------------ shall be determined to be illegal or unenforceable all other terms and provisions hereof and of the Notes shall nevertheless remain effective and shall be enforced to the fullest extent permitted by applicable law. SECTION 18. REFERENCES AND TITLES. All references in this Agreement to --------------------- Exhibits, Schedules, sections, subsections and other subdivisions refer to the Exhibits, Schedules, sections, subsections and other subdivisions of this Agreement and the other Note Agreements unless expressly provided otherwise. Titles appearing at the beginning of any subdivisions are for convenience only and do not constitute any part of such subdivisions and shall be disregarded in construing the language contained in such subdivisions. The words "this Agreement", "this instrument", "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. The phrases "this section" and "this subsection" and similar phrases refer only to the sections or subsections hereof in which such phrases occur. The word "or" is not exclusive, and the word "including" (in its various forms) means "including without limitation". Pronouns in masculine, feminine and neuter genders shall be construed to include any other gender, and words in the singular form shall be construed to include the plural and vice versa, unless the context otherwise requires. SECTION 19. COUNTERPARTS. This Agreement may be separately executed in ------------ any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to constitute one and the same Agreement. SECTION 20. GOVERNING LAW. THIS AGREEMENT, THE NOTES, THE OTHER NOTE ------------- PURCHASE DOCUMENTS, AND ALL OTHER DOCUMENTS AND INSTRUMENTS EXECUTED IN CONNECTION HEREWITH OR THEREWITH SHALL BE DEEMED CONTRACTS AND INSTRUMENTS MADE UNDER THE INTERNAL LAWS OF THE STATE OF NEW YORK AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF 58 NEW YORK AND THE LAWS OF THE UNITED STATES OF AMERICA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. SECTION 21. LIMITATION ON INTEREST. The Holders and the KPP Companies ---------------------- intend to contract in strict compliance with applicable usury law from time to time in effect. In furtherance thereof such Persons stipulate and agree that none of the terms and provisions contained herein or in the Notes shall ever be construed to provide for interest in excess of the maximum amount of interest permitted to be charged by applicable law from time to time in effect. No KPP Company nor any of their Subsidiaries nor any present or future guarantors, endorsers, or other Persons hereafter becoming liable for payment of any obligations hereunder or under the Notes shall ever be liable for unearned interest thereon or shall ever be required to pay interest thereon in excess of the maximum amount that may be lawfully charged under applicable law from time to time in effect, and the provisions of this paragraph shall control over all other provisions herein or in the Notes which may be in conflict or apparent conflict herewith. THIS WRITTEN NOTE AGREEMENT, THE NOTES AND THE OTHER NOTE PURCHASE DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS OF THE PARTIES. 59 Upon your signing the form of acceptance on the enclosed counterpart of this Agreement and returning such counterpart to the KPP Companies, this Agreement shall become a binding agreement between you and the KPP Companies. Very truly yours, KANEB PIPE LINE OPERATING PARTNERSHIP, L.P. By: Kaneb Pipe Line Company, its General Partner By: /s/ Edward D. Doherty -------------------------------- Name: Edward D. Doherty Title:Chairman STANTRANS, INC. By: /s/ Edward D. Doherty -------------------------------- Name: Edward D. Doherty Title:Chairman KANEB PIPE LINE PARTNERS, L.P By: Kaneb Pipe Line Company, its General Partner By: /s/ Edward D. Doherty -------------------------------- Name: Edward D. Doherty Title:Chairman SUPPORT TERMINAL SERVICES, INC. By: /s/ Edward D. Doherty -------------------------------- Name: Edward D. Doherty Title:Chairman The foregoing agreement is agreed to and accepted by: PRINCIPAL MUTUAL LIFE INSURANCE COMPANY By: /s/ JAMES C. FIFIELD -------------------------------- Name: JAMES C. FIFIELD Title: Counsel By: /s/ STEPHEN G. SKRIVANEK -------------------------------- Name: STEPHEN G. SKRIVANEK Title: Counsel SUPPORT TERMINAL OPERATING PARTNERSHIP, L.P. By: Support Terminal Services, Inc., its General Partner By: /s/ Edward D. Doherty -------------------------------- Name: Edward D. Doherty Title:Chairman EX-23.1 4 CONSENT OF PRICE WATERHOUSE LLP EXHIBIT 23.1 Consent of Independent Accountants We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statement on Form S-3 (No. 33-35624) and Registration Statements on Forms S-8 (No. 2-90929, No. 33-41181, No. 33-41295 and No. 33-54027) of Kaneb Services, Inc. of our report dated January 27, 1995, except as to Note 8, which is as of February 17, 1995, relating to the financial statements of Wyco Pipe Line Company, which appears in the Current Report on Form 8-K of Kaneb Services, Inc. dated March 13, 1995. Price Waterhouse LLP Chicago, Illinois March 10, 1995 -----END PRIVACY-ENHANCED MESSAGE-----