-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N/LXaRN5lDqDz6hSzQC2rF29F+udK4Xso9BlaJYLPghocjym7NR5U4GSj7QN0Xks A2fE/5qr8fI0IIapefeMwA== 0000054502-99-000012.txt : 19991108 0000054502-99-000012.hdr.sgml : 19991108 ACCESSION NUMBER: 0000054502-99-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991105 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KINDER MORGAN INC CENTRAL INDEX KEY: 0000054502 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS TRANSMISSION & DISTRIBUTION [4923] IRS NUMBER: 480290000 STATE OF INCORPORATION: KS FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-06446 FILM NUMBER: 99742481 BUSINESS ADDRESS: STREET 1: 370 VAN GORDON ST STREET 2: PO BOX 281304 CITY: LAKEWOOD STATE: CO ZIP: 80228-8304 BUSINESS PHONE: 3039891740 MAIL ADDRESS: STREET 1: 370 VAN GORDON STREET STREET 2: P O BOX 281304 CITY: LAKEWOOD STATE: CO ZIP: 80228-8304 FORMER COMPANY: FORMER CONFORMED NAME: K N ENERGY INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: KN ENERGY INC DATE OF NAME CHANGE: 19920430 FORMER COMPANY: FORMER CONFORMED NAME: KANSAS NEBRASKA NATURAL GAS CO INC DATE OF NAME CHANGE: 19830403 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 ------------------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------------- ------------------ Commission File Number 1-6446 ------------------------------------------- KINDER MORGAN, INC. - ----------------------------------------------------------------- (Exact name of registrant as specified in its charter) Kansas 48-0290000 - ----------------------------------------------------------------- (State or other Jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1301 McKinney, Suite 3400, Houston, Texas 77010 - ----------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (713) 844-9500 - ----------------------------------------------------------------- (Registrant's telephone number, including area code) K N ENERGY, INC., 370 Van Gordon Street, P.O. Box 281304, - ----------------------------------------------------------------- Lakewood, Colorado, 80228-8304 - ----------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common stock, $5 par value; authorized 150,000,000 shares; - ----------------------------------------------------------------- outstanding 112,559,793 shares as of October 22, 1999. - ------------------------------------------------------ 2 Form 10-Q KINDER MORGAN, INC. (FORMERLY K N ENERGY, INC.) AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1999 Contents PART I.FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Page Number ----------- Consolidated Balance Sheets............................ 3 & 4 Consolidated Statements of Income...................... 5 Consolidated Statements of Cash Flows.................. 6 Notes to Consolidated Financial Statements............. 7 - 19 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 20 - 33 Item 3. Quantitative and Qualitative Disclosures About Market Risk............................................ 33 PART II OTHER INFORMATION Item 1. Legal Proceedings....................................... 34 Item 2. Changes in Securities and Use of Proceeds............... 34 Item 4. Submission of Matters to a Vote of Security Holders..... 35 Item 5 Other Information....................................... 35 & 36 Item 6. Exhibits and Reports on Form 8-K........................ 36 & 37 SIGNATURE......................................................... 38 3 Form 10-Q PART I - FINANCIAL INFORMATION Item 1. Financial Statements CONSOLIDATED BALANCE SHEETS (Unaudited) Kinder Morgan, Inc. (Formerly K N Energy, Inc.) and Subsidiaries (Dollars in Thousands)
September 30 December 31 1999 1998 ------------- ------------- ASSETS: Current Assets: Cash and Cash Equivalents $ 22,459 $ 21,955 Restricted Deposits 7,461 9,096 U.S. Government Securities - 1,092,415 Accounts Receivable 660,988 693,044 Inventories 134,209 144,831 Gas Imbalances 84,477 85,349 Other 51,265 46,812 ---------- ---------- 960,859 2,093,502 ---------- ---------- Investments 257,570 252,543 ---------- ---------- Property, Plant and Equipment 7,767,790 7,767,332 Less Accumulated Depreciation and Amortization 880,768 744,156 ---------- ---------- 6,887,022 7,023,176 ---------- ---------- Deferred Charges and Other Assets 246,690 242,991 ---------- ---------- Total Assets $8,352,141 $9,612,212 ========== ==========
The accompanying notes are an integral part of these statements. 4 Form 10-Q CONSOLIDATED BALANCE SHEETS (Unaudited) Kinder Morgan, Inc. (Formerly K N Energy, Inc.) and Subsidiaries (Dollars in Thousands)
September 30 December 31 1999 1998 ------------- ------------- LIABILITIES AND STOCKHOLDERS' EQUITY: Current Liabilities: Current Maturities of Long-term Debt $ 7,167 $ 10,167 Notes Payable 578,700 297,000 Substitute Note - 1,394,846 Accounts Payable 543,811 489,414 Accrued Taxes 28,474 18,914 Gas Imbalances 68,925 74,857 Payable for Purchase of Thermo Companies 43,762 86,799 Other 201,385 247,465 ---------- ---------- 1,472,224 2,619,462 ---------- ---------- Other Liabilities and Deferred Credits: Deferred Income Taxes 1,696,908 1,699,072 Other 321,354 431,565 ---------- ---------- 2,018,262 2,130,637 ---------- ---------- Long-term Debt 3,298,484 3,300,025 ---------- ---------- KMI-Obligated Mandatorily Redeemable Preferred Capital Trust Securities of Subsidiary Trusts Holding Solely Debentures of KMI 275,000 275,000 ---------- ---------- Minority Interests in Equity of Subsidiaries 64,213 63,267 ---------- ---------- Stockholders' Equity: Preferred Stock, Class A, 0 and 70,000 Shares Outstanding - 7,000 ---------- ---------- Common Stock- Authorized - 150,000,000 Shares, Par Value $5 Per Share Outstanding - 70,893,517 and 68,597,308 Shares, Respectively, After Deducting 73,936 and 48,598 Shares Held in Treasury 354,837 343,230 Additional Paid-in Capital 731,199 694,223 Retained Earnings 141,663 193,925 Other (3,741) (14,557) ---------- ---------- Total Common Stockholders' Equity 1,223,958 1,216,821 ---------- ---------- Total Stockholders' Equity 1,223,958 1,223,821 ---------- ---------- Total Liabilities and Stockholders' Equity $8,352,141 $9,612,212 ========== ==========
The accompanying notes are an integral part of these statements. 5 Form 10-Q CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Kinder Morgan, Inc. (Formerly K N Energy, Inc.) and Subsidiaries (In Thousands Except Per Share Amounts)
Three Months Ended Nine Months Ended September 30 September 30 ------------------------------ ------------------------------ 1999 1998 1999 1998 ---- ---- ---- ---- Operating Revenues: Upstream Gathering and Processing $ 187,668 $ 156,674 $ 485,364 $ 447,084 Midstream Sales, Transportation and Storage 445,116 414,717 1,177,494 1,089,397 Downstream Retail and Marketing 1,136,678 656,629 2,740,341 2,112,923 Intersegment Eliminations (310,773) (181,803) (699,181) (384,341) ---------- ---------- ---------- ---------- Total Operating Revenues 1,458,689 1,046,217 3,704,018 3,265,063 ---------- ---------- ---------- ---------- Operating Costs and Expenses: Gas Purchases and Other Costs of Sales 1,233,615 792,289 2,995,953 2,526,966 Operations and Maintenance 70,072 60,659 199,963 190,354 General and Administrative 32,039 31,977 103,799 92,769 Depreciation and Amortization 40,990 52,999 147,993 142,198 Taxes, Other Than Income Taxes 13,611 14,449 41,274 39,736 Merger-related and Severance Costs 10,962 - 10,962 5,763 ---------- ---------- ---------- ---------- Total Operating Costs and Expenses 1,401,289 952,373 3,499,944 2,997,786 ---------- ---------- ---------- ---------- Operating Income 57,400 93,844 204,074 267,277 ---------- ---------- ---------- ---------- Other Income and (Deductions): Interest Expense, Net (69,734) (64,507) (210,505) (178,340) Minority Interests (5,636) (4,394) (16,789) (11,390) Other, Net 15,202 14,861 36,607 28,032 ---------- ---------- ---------- ---------- Total Other Income and (Deductions) (60,168) (54,040) (190,687) (161,698) ---------- ---------- ---------- ---------- Income (Loss) from Continuing Operations Before Income Taxes (2,768) 39,804 13,387 105,579 Income Taxes (Benefit) (1,079) 14,730 5,221 39,067 ---------- ---------- ---------- ---------- Income (Loss) from Continuing Operations (1,689) 25,074 8,166 66,512 ---------- ---------- ---------- ---------- Discontinued Operations, Net of Tax (Note 6): Loss from Discontinued Operations (1,350) (599) (6,491) (2,840) Loss on Disposal of Discontinued Operations (11,479) - (11,479) - ---------- ---------- ---------- ---------- Total Loss from Discontinued Operations (12,829) (599) (17,970) (2,840) ---------- ---------- ---------- ---------- Net Income (Loss) (14,518) 24,475 (9,804) 63,672 Less - Preferred Stock Dividends - 88 129 263 Less - Premium Paid on Preferred Stock Redemption - - 350 - ---------- ---------- ---------- ---------- Earnings (Loss) Available For Common Stock $ (14,518) $ 24,387 $ (10,283) $ 63,409 ========== ========== ========== ========== Number of Shares Used in Computing Basic Earnings Per Common Share 70,914 67,493 70,363 62,534 ========== ========== ========== ========== Basic Earnings (Loss) Per Common Share: Continuing Operations $ (0.02) $ 0.37 $ 0.11 $ 1.06 Discontinued Operations $ (0.02) $ (0.01) $ (0.09) $ (0.05) Disposal of Discontinued Operations $ (0.16) $ - $ (0.17) $ - ---------- ---------- ---------- ---------- Total Basic Earnings (Loss) Per Common Share $ (0.20) $ 0.36 $ (0.15) $ 1.01 ========== ========== ========== ========== Number of Shares Used in Computing Diluted Earnings Per Common Share 70,914 67,991 70,441 63,225 ========== ========== ========== ========== Diluted Earnings (Loss) Per Common Share: Continuing Operations $ (0.02) $ 0.37 $ 0.11 $ 1.05 Discontinued Operations $ (0.02) $ (0.01) $ (0.09) $ (0.05) Disposal of Discontinued Operations $ (0.16) $ - $ (0.17) $ - ---------- ---------- ---------- ---------- Total Diluted Earnings (Loss) Per Common Share $ (0.20) $ 0.36 $ (0.15) $ 1.00 ========== ========== ========== ========== Dividends Per Common Share $ 0.20 $ 0.19 $ 0.60 $ 0.56 ========== ========== ========== ==========
The accompanying notes are an integral part of these statements. 6 Form 10-Q CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Kinder Morgan, Inc. (Formerly K N Energy, Inc.) and Subsidiaries Increase (Decrease) in Cash and Cash Equivalents (In Thousands)
Nine Months Ended September 30 ---------------------------------- 1999 1998 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Income from Continuing Operations $ 8,166 $ 66,512 Adjustments to Reconcile Income from Continuing Operations to Net Cash Flows from Operating Activities: Depreciation and Amortization, Excluding Amortization of Gas Plant Acquisition Adjustment 78,915 71,137 Deferred Income Taxes (1,607) 13,867 Deferred Purchased Gas Costs 5,799 13,151 Net Gains on Sales of Facilities (30,942) (18,424) Proceeds from Buyout of Contractual Gas Purchase Obligations - 27,500 Change in Gas in Underground Storage 12,437 (69,478) Changes in Other Working Capital Items (Note 9) 61,177 (57,160) Changes in Deferred Revenues (10,520) 14,567 Other, Net 12,769 (49,732) ---------- ---------- Net Cash Flows From Continuing Operations 136,194 11,940 Net Cash Flows From Discontinued Operations (12,647) (8,845) ---------- ---------- NET CASH FLOWS FROM OPERATING ACTIVITIES 123,547 3,095 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital Expenditures (84,126) (205,320) Cash Paid for Acquisition of MidCon, Net of Cash Acquired - (2,181,954) Other Acquisitions (39,810) (15,327) Investments - Continuing Operations (40,643) (9,248) Investments - Discontinued Operations (6,088) (9,900) Sale of U.S. Government Securities 1,092,415 1,093,591 Purchase of U.S. Government Securities - (2,182,192) Purchase of U.S. Government Securities as Collateral for Thermo Purchase Obligation - (34,028) Proceeds from Sale of Tom Brown, Inc. Preferred Stock 28,650 - Proceeds from Sales of Other Assets 89,562 28,795 ---------- ---------- NET CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES 1,039,960 (3,515,583) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Short-term Debt, Net (1,113,146) 425,812 Long-term Debt - Issued - 2,350,000 Long-term Debt - Retired (5,167) (23,627) Common Stock Issued in Public Offering - 650,000 Other Common Stock Issued 5,590 11,694 Mandatorily Redeemable Trust Securities Issued - 175,000 Preferred Stock Redeemed (7,350) - Treasury Stock Acquired (309) (580) Cash Dividends, Common and Preferred (42,458) (37,903) Minority Interests, Net 934 16,844 PEPS Contract Fees (1,097) - Securities Issuance Costs - (52,142) ---------- ---------- NET CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES (1,163,003) 3,515,098 ========== ========== Net Increase in Cash and Cash Equivalents 504 2,610 Cash and Cash Equivalents at Beginning of Period 21,955 22,471 ---------- ---------- Cash and Cash Equivalents at End of Period $ 22,459 $ 25,081 ========== ==========
For supplemental cash flow information, see Note 9. The accompanying notes are an integral part of these statements. 7 Form 10-Q NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. General ------- Effective with K N Energy, Inc.'s acquisition of Kinder Morgan, Inc., a Delaware corporation ("Kinder Morgan Delaware"), K N Energy, Inc. changed its name to Kinder Morgan, Inc. As used herein, "Kinder Morgan", "KMI" or the "Company" refers to Kinder Morgan, Inc. (a Kansas corporation and formerly K N Energy, Inc.) and its consolidated subsidiaries unless the context otherwise requires (see Note 2). In the opinion of Management, all adjustments necessary for a fair presentation of the results for the unaudited interim periods have been made. Except as explicitly noted, these adjustments consist solely of normal recurring accruals. Certain prior period amounts have been reclassified to conform to the current presentation. 2. Business Combinations --------------------- On July 8, 1999, K N Energy, Inc. announced the signing of an agreement and plan of merger to acquire Kinder Morgan Delaware, the sole stockholder of the general partner of Kinder Morgan Energy Partners, L. P. ("KMEP"). KMEP is the nation's largest pipeline master limited partnership. It owns and operates one of the largest product pipeline systems in the United States, serving customers in sixteen states with more than 5,000 miles of pipeline and over twenty associated terminals. KMEP also operates 24 bulk terminal facilities which transload over 40 million tons of coal, petroleum coke and other products annually. In addition, KMEP owns 51 percent of Plantation Pipe Line Company and 20 percent of Shell CO2 Company, Ltd. This merger was completed on October 7, 1999. Pursuant to the terms of the merger agreement, K N Energy, Inc. issued approximately 41.5 million shares of its common stock in exchange for all of the outstanding shares of Kinder Morgan Delaware. On October 7, 1999, the Company issued 200,000 shares of its common stock to Petrie Parkman (the "Petrie Shares") pursuant to the terms of the engagement letter between Petrie Parkman and the Company dated as of June 24, 1999, as amended as of August 20, 1999, in consideration for Petrie Parkman's advisory services rendered in connection with the acquisition of Kinder Morgan Delaware. The issuance of the Petrie Shares was exempt from registration under Section 4(2) of the Securities Act of 1933, as amended. Upon closing of the transaction, Richard D. Kinder, Chairman and Chief Executive Officer of Kinder Morgan Delaware, was named Chairman and Chief Executive Officer of the Company, which was renamed Kinder Morgan, Inc. This merger will be recorded as a purchase for accounting purposes, with the Company's general and limited partnership interests in KMEP reported as an investment in the statement of financial position. On February 22, 1999, Sempra Energy ("Sempra") and the Company announced that their respective boards of directors had unanimously approved a definitive agreement under which Sempra and the Company would combine in a stock-and-cash transaction valued in the aggregate at $6.0 billion. On June 21, 1999, Sempra and the Company announced that they had mutually agreed to terminate the merger agreement. Sempra reimbursed the Company $5.95 million for expenses incurred in connection with the proposed merger. During the third quarter of 1998, the Company completed its acquisition of interests in four independent power plants in Colorado from the Denver-based Thermo Companies ("Thermo"), representing approximately 380 megawatts of electric generation capacity and access to approximately 130 Bcf of natural gas reserves. These generating facilities are located in Ft. Lupton, Colorado (272 megawatts) and Greeley, Colorado (108 megawatts) and sell their power output to Public Service Company of Colorado under long-term agreements. Payments for these interests are being made over a two-year period, with the initial payment of 689,810 shares 8 Form 10-Q (1,034,715 shares adjusted for the December 1998 three-for-two stock split) of the Company's common stock having been made on October 21, 1998. Additional payments were made on January 4, 1999, consisting of 833,623 shares of the Company's common stock and $15 million in cash, and on April 20, 1999, consisting of 1,232,286 shares of the Company's common stock and $20 million in cash. The remaining payment, due in 2000, is expected to be made in a combination of cash and common stock as agreed to by the Company and Thermo, with the default mix being 50 percent stock and 50 percent cash. This transaction was accounted for as a purchase. On January 30, 1998, pursuant to a definitive stock purchase agreement (the "MidCon Agreement"), the Company acquired all of the outstanding shares of capital stock of MidCon Corp. ("MidCon") from Occidental Petroleum Corporation ("Occidental") for $2.1 billion in cash and the assumption of a $1.4 billion note (the "Substitute Note"), at which time MidCon became a wholly owned subsidiary of K N Energy, Inc. (the "Acquisition"). The Substitute Note bore interest at 5.798% and was required to be collateralized by U.S. government securities, letters of credit or a combination thereof. The Substitute Note was paid in full on January 4, 1999. In conjunction with the Acquisition, the Company also assumed MidCon's obligation to lease the MidCon Texas intrastate pipeline system under a 30-year operating lease, requiring average annual lease payments of approximately $30 million. The Acquisition was initially financed through a combination of credit agreements (see Note 11). The Acquisition was accounted for as a purchase for accounting purposes and, accordingly, the MidCon assets acquired and liabilities assumed were recorded at their respective estimated fair market values as of the acquisition date. The allocation of purchase price resulted in the recognition of a gas plant acquisition adjustment of approximately $3.9 billion, principally representing the excess of the assigned fair market value of the assets of Natural Gas Pipeline Company of America ("NGPL"), a wholly owned subsidiary of MidCon, over the historical cost for ratemaking purposes. This gas plant acquisition adjustment, none of which is currently being recognized for rate-making purposes, is being amortized over 55 years (see Note 4), approximately the estimated remaining useful life of NGPL's interstate pipeline system. For the three months ended September 30, 1999 and 1998, $14.6 million and $26.7 million of such amortization, respectively, was charged to expense. For the nine months ended September 30, 1999 and 1998, $69.1 million and $71.1 million, respectively, was charged to expense. The assets, liabilities and results of operations of MidCon are included with those of the Company beginning with the January 30, 1998 acquisition date. For the nine months ended September 30, 1998, operating revenues, net income, diluted earnings per common share and number of shares used in computing diluted earnings per share, on a pro forma basis to reflect the acquisition of MidCon, were $3,519.3 million, $67.6 million, $1.07 and 63.225 million, respectively. 3. Merger-related and Severance Costs ---------------------------------- In anticipation of the completion of the transaction with Kinder Morgan Delaware, during the third quarter the Company terminated the employment of a number of its officers and certain other employees. In conjunction with these terminations, the Company agreed to provide certain severance benefits and incurred certain legal and other associated costs. These amounts, totaling approximately $11.0 million pre-tax ($6.7 million after tax or $0.09 per diluted share) are included in the accompanying interim Consolidated Statements of Income under the caption "Merger- related and Severance Costs" for the three months and nine months ended September 30, 1999. The $5.8 million pre-tax ($3.6 million after tax or $0.06 per diluted share) included under the same caption for the nine months ended September 30, 1998 represents costs associated with the Company's January 30, 1998 acquisition of MidCon Corp. For additional information on these business combinations, see Note 2. 9 Form 10-Q In addition, the Company has notified a number of additional employees that their employment will be terminated as a result of cost saving initiatives implemented following the closing of the Kinder Morgan Delaware transaction. The substantial majority of these employees will be terminated during 1999, with the remainder during early 2000. A significant amount of severance and associated costs for these employees will be recorded during the fourth quarter of 1999. 4. Change in Accounting Estimate ----------------------------- Pursuant to a revised study of the useful lives of the underlying assets by an independent third party, in July 1999, the Company changed the depreciation rates associated with the gas plant acquisition adjustment recorded in conjunction with the acquisition of MidCon Corp. This change had the effect of decreasing "Depreciation and Amortization" by approximately $12.4 million and increasing "Income from Continuing Operations" and "Net Income" for the quarter and nine months ended September 30, 1999 by approximately $7.6 million or $0.11 per diluted share. 5. Investments and Sales --------------------- On September 30, 1999, the Company sold its interests in Stingray Pipeline Company, L.L.C., an offshore pipeline that gathers natural gas, and West Cameron Dehydration Company, L.L.C., which dehydrates natural gas for shippers on the Stingray Pipeline. The Company received approximately $24 million in cash from the sale and recorded a pre-tax gain of $11.4 million (approximately $6.9 million after tax or $0.10 per diluted share). With this sale, the Company completed its divestiture of its major offshore interests. On September 3, 1999, the Company sold 1,000,000 shares of Tom Brown, Inc. preferred stock for approximately $29 million in cash, realizing a pre-tax gain of $2.2 million (approximately $1.3 million after tax or $0.02 per diluted share). The preferred stock was originally issued to the Company in 1996 as part of Tom Brown, Inc.'s acquisition of K N Production Company. The preferred stock was convertible into 1,666,000 shares of Tom Brown, Inc. common stock, and paid dividends quarterly at an annual rate of $1.75 per share. The Company retained ownership of approximately 918,000 shares of Tom Brown, Inc. common stock. In September 1999, Thunder Creek Gas Services, LLC, a joint venture owned 25 percent by the Company and 75 percent by Devon Energy Corporation, placed into service a 126-mile-long-trunkline natural gas gathering system extending from Glenrock, Wyoming to approximately 12 miles north of Gillette, Wyoming. The trunkline has an initial capacity of 450 million cubic feet of natural gas per day. The gathering system is located in the Powder River Basin of northeast Wyoming and is expected to be fully operational before year-end 1999, after installation of a carbon dioxide removal plant. The expected total cost of the system is approximately $100 million. On June 30, 1999, the Company sold its interests in the HIOS and UTOS offshore pipeline systems and related laterals to Leviathan Gas Pipeline Partners, L. P. The Company received approximately $51 million in cash in conjunction with the sale and recorded a pre-tax gain of $17.5 million (approximately $10.7 million after tax or $0.15 per diluted share). In May 1999, the Company announced plans to build the Horizon Pipeline, a 129-mile-long natural gas pipeline from Joliet, Illinois, to Hales Corners, Wisconsin. Construction is expected to be completed by the fall of 2001. The estimated cost of the project is $150 million to $250 million, depending on shipper response and design capacity, which is expected to be from 630 million cubic feet up to 1.2 billion cubic feet per day. The Company plans to jointly own the pipeline with one or more other partners. An open season closed in June 1999 with 10 Form 10-Q service requests from shippers of more than 800 MMcf of natural gas per day, including 300 MMcf per day from Nicor Gas. The project is expected to be funded through a combination of non-recourse debt securities and equity contributions. On March 31, 1999, the TransColorado Gas Transmission Company ("TransColorado"), an enterprise jointly owned by the Company and Questar Corp., placed in service a 280-mile-long natural gas pipeline, which includes two compressor stations and extends from near Rangely, Colorado, to its southern terminus at the Blanco Hub near Aztec, New Mexico. The pipeline has a design transmission capacity of approximately 300 million cubic feet of natural gas per day. On October 14, 1998, TransColorado entered into a $200 million revolving credit agreement with a group of commercial banks. The Company provides a corporate guarantee for one-half of all amounts borrowed under the agreement. In September 1998, the Company sold certain of its microwave towers and associated land and equipment to American Tower Corp. for $14.6 million. The sale resulted in a pre-tax gain of $10.9 million ($6.7 million after tax or $0.10 per diluted share) that is included in the accompanying interim Consolidated Statements of Income under the caption "Other, Net." In March 1998, the Company sold its Kansas retail natural gas distribution properties, located in 58 Kansas communities and serving approximately 30,000 residential, commercial and industrial customers, to Midwest Energy, Inc., a customer-owned cooperative based in Hays, Kansas. The Company received approximately $24 million in cash in conjunction with the sale and recorded a pre-tax gain of approximately $8.5 million (approximately $5.2 million after tax or $0.08 per diluted share). Concurrently with the sale, the Company received $27.5 million in cash in exchange for the release of the purchaser from certain contractual gas purchase obligations, which amount will be amortized as an offset to gas purchases over a period of years as the associated volumes are sold. 6. Discontinued Operations ----------------------- During the third quarter, the Company adopted a plan to discontinue the direct marketing of non-energy products and services (principally under the "Simple Choice" brand), which activities had been carried on largely through the Company's en*able joint venture with PacifiCorp. In accordance with the provisions of Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations -- Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," ("APB 30"), the Company has segregated the results of operations of this line of business for all periods presented and reported such results (net of associated tax benefit of $0.9 million and $0.4 million for the three months ended September 30, 1999 and 1998, respectively, and $4.1 million and $1.7 million for the nine months ended September 30, 1999 and 1998, respectively) as "Discontinued Operations, Net of Tax" in the accompanying interim Consolidated Statements of Income. The Company intends to discontinue the operations of en*able and sell en*able's interest in Orcom Solutions, a wholly owned subsidiary of en*able. The principal assets of this discontinued line of business remaining as of September 30, 1999 consisted of an investment in en*able and an indirect investment in Orcom Solutions (a provider of custom software and outsource billing solutions for utilities). The expected loss (net of tax benefit of $7.3 million) from disposal of this business, including both the expected losses from the sale of assets and the estimated operating losses until the disposal is completed (currently expected no later than the first quarter of 2000), are reported in the accompanying interim Consolidated Statements of Income as "Loss on Disposal of Discontinued Operations, Net of Tax." This estimated loss is subject to uncertainty with respect to the proceeds to be received from the 11 Form 10-Q sale of assets (among other factors) and, accordingly, the actual loss may differ materially from the estimate. In accordance with the provisions of APB 30, any such difference will be recognized in the period in which it is identified, and classified in the same manner as the original estimated loss. Additionally, the Company previously announced its intention to dispose of certain other non-core assets. Following the acquisition by merger of Kinder Morgan Delaware in early October 1999 (see Note 2), the Company has both identified additional assets for potential disposition including, most recently, its commodity marketing business, and continued to develop plans for accomplishing these potential divestitures. For at least the substantial majority of all non-core businesses identified for disposition, the Company currently expects that, during the fourth quarter, it will meet the APB 30 requirements for a "measurement date," requiring that the Company (i) reclassify the results of operations for such assets to discontinued operations for all periods presented and (ii) record an estimate of the losses expected to the projected disposal date and the loss (if any) expected upon disposition. In addition, as discussed in the Company's 1999 second quarter report on Form 10-Q, certain other assets may be required to be written down as a result of becoming subject to the provisions of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." While the ultimate effect of these matters cannot yet be determined with a high degree of accuracy due to, among other factors, (i) uncertainty as to the form of disposition and the proceeds to be generated therefrom and (ii) the fact that projected losses on disposal are estimated and recognized while projected gains are recognized only when realized, the Company currently expects that a significant fourth- quarter loss will be recorded. 7. Accounts Receivable Sales Facility ---------------------------------- In September 1999, certain wholly owned subsidiaries ("Originators") of the Company entered into a five-year agreement to sell all of their accounts receivable, on a revolving basis, to KN Receivables Corporation ("KNRC"), a wholly owned subsidiary of the Company. KNRC was formed prior to the execution of that receivables agreement for the purpose of buying and selling accounts receivable and has been determined to be bankruptcy remote. Also in September 1999, KNRC entered into a five-year agreement with a financial institution whereby KNRC can sell, on a revolving basis, an undivided percentage ownership interest in certain eligible accounts receivable, as defined, up to a maximum of $150 million. This transaction is accounted for as a sale of receivables in accordance with Statement of Financial Accounting Standards No. 125, "Accounting for Transfer and Servicing of Financial Assets and Extinguishment of Liabilities." Accordingly, the Company's accompanying interim Consolidated Balance Sheet reflects the portion of receivables transferred to the financial institution as a reduction of Accounts Receivable. Gains and losses from the sale of these receivables are included in "Other, Net" in the accompanying interim Consolidated Statements of Income. The Company receives compensation for servicing that is approximately equal to the amount an independent servicer would receive. Accordingly, no servicing assets or liabilities have been recorded. The full amount of the allowance for possible losses has been retained by KNRC. The fair value of this recourse liability approximated the allocated allowance for doubtful accounts given the short-term nature of the transferred receivables. The Company received $150 million in proceeds from the sale of receivables on September 30, 1999. The proceeds were subsequently used to retire outstanding notes payable of Kinder Morgan Delaware at the time of its acquisition by the Company. The net effect of the loss associated with the sale of receivables was not material to the Company's 1999 operating results for the quarter or nine months ended September 30, 1999. Cash flows associated with this program are included with "Accounts Receivable" under "Cash Flows from Operating Activities" in the accompanying interim Statements of Consolidated Cash Flows. 12 Form 10-Q 8. Stock Option Program -------------------- On October 8, 1999, the Company's Board of Directors approved the creation of the Kinder Morgan, Inc. All Employee Stock Option Program, a broadly based non-qualified stock option program for all regular full-time employees. However, no options were allocated to Richard Kinder and William Morgan. Of the 5.5 million non- qualified stock options available for grant under the program, on October 8, 1999, grants totaling approximately 4.7 million stock options, all priced at $23.8125 per share, the closing price of the Company's common stock on October 8, 1999, were awarded. These options vest in 25 percent increments on the anniversary of the grant over a four-year period from the date of grant. All options granted under the program have a 10-year life, and must be granted at the fair market value of the Company's common stock at the close of trading on the date of grant. On October 8, 1999, the Company's Board of Directors approved the granting of 12,500 options to each non-employee director of the Company under the 1992 Stock Option Plan for Non-Employee Directors. All of the options vest in six months and have an exercise price of $23.8125 per share, the closing price of the Company's common stock on October 8, 1999. 9. Supplemental Cash Flow Information ----------------------------------
Nine Months Ended September 30 ---------------------------------- 1999 1998 ---- ---- (In Thousands) CHANGES IN OTHER WORKING CAPITAL ITEMS (Net of Effects of Acquisitions and Sales) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS Accounts Receivable $ (12,889) 1 $ 184,721 Materials and Supplies Inventory 4,318 (13,783) Other Current Assets (2,250) (7,720) Accounts Payable 98,849 (235,512) Other Current Liabilities (26,851) 15,134 --------- --------- $ 61,177 $ (57,160) ========= ========= SUPPLEMENTAL CASH FLOW INFORMATION Cash Paid During the Period for: Interest, Net of Amount Capitalized $ 250,598 $ 184,855 ========= ========= Distributions on Preferred Capital Trust Securities $ 10,956 $ 4,280 ========= ========= Income Taxes $ 5,449 $ 37,877 ========= ========= 1 Reflects the impact of the Company's receivable sale program, see Note 7.
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. "Other, Net," presented as a component of "Net Cash Flows from Operating Activities" in the accompanying interim Consolidated Statements of Cash Flows includes, among other things, the amortization of the gas plant acquisition adjustment recorded in conjunction with the acquisition of MidCon (see Note 2), equity in undistributed earnings of unconsolidated subsidiaries and joint ventures and other non-cash charges and credits to income. In the third quarter of 1998, the Company purchased interests in four independent power plants in Colorado from the Thermo Companies. Payments for this purchase were made in October 1998 with the Company's common stock and in January and April 1999 with a combination of cash and the Company's common stock. The remaining payment is expected to be made with a combination of cash and the Company's common stock. 13 Form 10-Q A portion of the Company's January 1998 acquisition of MidCon was financed through the assumption of a note. For additional information on these transactions, see Note 2. 10. Business Segments ----------------- The Company has segregated its activities into three business segments, "Upstream", "Midstream" and "Downstream", based on where in the value stream such activities are conducted. In general, these segments are also differentiated by the nature of their processes, their principal suppliers, and their target markets and customers. The Company's Upstream operations consist of (i) natural gas gathering, (ii) natural gas processing and (iii) natural gas liquids ("NGLs") extraction and marketing; Midstream operations consist of transportation, storage and bundled sales transactions for the Company's interstate and intrastate pipelines; Downstream operations principally consist of energy marketing, regulated natural gas distribution and electric power generation and sales. The Company expects that, as a result of its fourth-quarter 1999 acquisition by merger of Kinder Morgan Delaware and its currently developing plans for disposition of certain non-core businesses (see Note 6), its future segment reporting will be revised. The accounting policies applied in the generation of segment information are generally the same as those described in the summary of significant accounting policies in the Company's Report on Form 10-K for the year ended December 31, 1998. In general, items below the "Operating Income" line are either not allocated to business segments or are not considered by Management in its evaluation of business segment performance. In addition, certain items included in operating income (such as general and administrative, merger-related and severance costs incurred) are not allocated to individual business segments. With adjustment for these items, the Company currently evaluates business segment performance primarily based on operating income in relation to the level of capital employed. In general, intersegment sales are accounted for at market prices, while asset transfers are made at either market value or, in some instances, book value. The following table excludes the operations of en*able, which have been accounted for as discontinued operations (see Note 6). 14 Form 10-Q
Three Months Ended September 30, 1999 -------------------------------------------------------------------- Upstream Midstream Downstream Other Consolidated -------- --------- ---------- ----- ------------ (In Millions) Revenues from External Customers $ 166.3 $ 401.3 $ 891.1 $1,458.7 Intersegment Revenues $ 21.4 $ 43.8 $ 245.6 310.8 Operating Income (Loss) Before Corporate Expenses $ 14.7 $ 87.8 $ (2.1) 100.4 General and Administrative Expenses (32.0) Merger-related and Severance Costs (11.0) Other Income and (Deductions) (60.2) -------- Loss from Continuing Operations Before Income Taxes $ (2.8) ======== Total Assets at September 30, 1999 $ 749.6 $6,400.3 $1,172.3 $ 29.9 (1) $8,352.1 Three Months Ended September 30, 1998 -------------------------------------------------------------------- Upstream Midstream Downstream Other Consolidated -------- --------- ---------- ----- ------------ (In Millions) Revenues from External Customers $ 120.7 $ 339.5 $ 586.0 $1,046.2 Intersegment Revenues $ 36.0 $ 75.2 $ 70.6 181.8 Operating Income Before Corporate Expenses $ 2.4 $ 105.9 $ 17.5 125.8 General and Administrative Expenses (32.0) Other Income and (Deductions) (54.0) -------- Income from Continuing Operations Before Income Taxes $ 39.8 ======== Nine Months Ended September 30, 1999 -------------------------------------------------------------------- Upstream Midstream Downstream Other Consolidated -------- --------- ---------- ----- ------------ (In Millions) Revenues from External Customers $ 412.1 $ 1,024.4 $ 2,267.5 $3,704.0 Intersegment Revenues $ 73.3 $ 153.1 $ 472.8 699.2 Operating Income Before Corporate Expenses $ 24.7 $ 281.0 $ 13.2 318.9 General and Administrative Expenses (103.8) Merger-related and Severance Costs (11.0) Other Income and (Deductions) (190.7) -------- Income from Continuing Operations Before Income Taxes $ 13.4 ======== Nine Months Ended September 30, 1998 -------------------------------------------------------------------- Upstream Midstream Downstream Other Consolidated -------- --------- ---------- ----- ------------ (In Millions) Revenues from External Customers $ 365.7 $ 872.9 $ 2,026.5 $3,265.1 Intersegment Revenues $ 81.4 $ 216.5 $ 86.4 384.3 Operating Income Before Corporate Expenses $ 5.5 $ 309.6 $ 50.7 365.8 General and Administrative Expenses (92.7) Merger-related and Severance Costs (5.8) Other Income and (Deductions) (161.7) -------- Income from Continuing Operations Before Income Taxes $ 105.6 ======== (1) Corporate assets represent cash and restricted deposits.
15 Form 10-Q 11. Financing --------- The total amount of funds required by the Company to complete the acquisition of MidCon, pay related fees and expenses and to repay borrowings under the Company's existing credit facility was approximately $2.5 billion, financed through borrowings under credit agreements dated January 30, 1998 (the "Bank Facility") among the Company, Morgan Guaranty Trust Company of New York and a syndicate of other lenders. A working capital facility replaced the revolving credit agreement previously in place (the "Pre-Acquisition Facility"). An acquisition facility was also part of the overall Bank Facility structure. See Note 7(A) of Notes to Consolidated Financial Statements on pages 42-43 of the Company's Annual Report on Form 10-K for the year ended December 31, 1998, for additional information regarding the Bank Facility and the Pre-Acquisition Facility. In addition to the working capital and acquisition components of the Bank Facility described preceding, the Company assumed a short-term note for $1.4 billion due January 1999 (the "Substitute Note") which, pursuant to the MidCon Agreement, was initially collateralized by letters of credit issued under a commitment for that purpose within the Bank Facility. The acquisition facility was repaid in its entirety and canceled on March 10, 1998. The Substitute Note was repaid on January 4, 1999. On January 5, 1999, the Company canceled the remaining letters of credit used to collateralize the Substitute Note. In March 1998, the Company received net proceeds of approximately $624.6 million from a public offering of 12.5 million shares (18.75 million shares after adjustment for the December 1998 three-for-two stock split) of its common stock and approximately $2.34 billion from the concurrent public offerings of senior debt securities of varying maturities with principal totaling $2.35 billion. The net proceeds from these offerings were used to refinance borrowings under the Bank Facility and to purchase U.S. government securities to replace a portion of the letters of credit that collateralized the Substitute Note. In April 1998, the Company sold $175 million of 7.63% Capital Trust Securities (the "Capital Securities") maturing on April 15, 2028, in an underwritten public offering. The sale was effected through a wholly owned business trust, K N Capital Trust III. The Company used the net proceeds from the offering to purchase U.S. government securities to replace a portion of the letters of credit that collateralized the Substitute Note. In November 1998, the Company completed an underwritten public offering of $400 million of three-year senior notes (the "Senior Notes") bearing an interest rate of 6.45 percent. The net proceeds of approximately $397.4 million were used to retire a portion of the Company's then-outstanding short-term borrowings. Concurrently with the Senior Notes offering, the Company sold $460 million principal amount of premium equity participating security units ("PEPS") in an underwritten public offering. The PEPS essentially are contracts (i) requiring the holders to purchase the Company's common stock at the end of a three-year period coinciding with the maturity of the Senior Notes and (ii) providing for payment of a contract fee of 2.375 percent to the PEPS holders by the Company during the three-year period. The net cash proceeds from the sale of the PEPS, together with additional funds provided by the Company, were used to purchase U.S. treasury securities on behalf of the PEPS owners. For a description of the accounting for these securities, see Note 7(B) of Notes to Consolidated Financial Statements on pages 51-53 of the Company's 1998 Annual Report on Form 10-K. 12. Preferred Stock --------------- On April 13, 1999, the Company sent notices to holders of its Class A $5.00 Cumulative Preferred Stock, of its intent to redeem these shares on May 14, 1999. Holders of 70,000 preferred shares were advised that on April 13, 1999, funds were deposited with the First National Bank of Chicago to pay the redemption price of $105 per share plus accrued but unpaid dividends. Under the terms of the Company's Articles of Incorporation, 16 Form 10-Q upon deposit of funds to pay the redemption price, all rights of the preferred stockholders ceased and terminated except the right to receive the redemption price upon surrender of their stock certificates. 13. Common Stock Split and Dividend Action -------------------------------------- On November 9, 1998, the Board of Directors of the Company (the "Board") approved a 7.1 percent increase in the quarterly dividend and a three-for-two split of the Company's common stock. The quarterly dividend was declared at $0.30 per common share, an increase from $0.28 per common share. Giving effect to the stock split, the quarterly dividend is currently $0.20 per common share. However, as previously announced, the Board (prior to the acquisition by merger of Kinder Morgan Delaware) has recommended to the post-merger Board that the dividend be decreased to $0.05 per quarter. The stock split was distributed and the increase in dividend was paid concurrently on December 31, 1998, to shareholders of record at the close of business on December 15, 1998. The par value of the stock did not change. Weighted-average shares outstanding and all per share amounts (except as otherwise noted) in the accompanying interim consolidated financial statements and these notes have been restated to reflect the stock split. 14. Regulatory Matters ------------------- On January 23, 1998, K N Interstate Gas Transmission Co. ("KNI"), a wholly owned subsidiary of Kinder Morgan, filed a general rate case with the Federal Energy Regulatory Commission ("FERC") requesting a $30.2 million increase in annual revenues. As a result of the FERC's action, KNI was allowed to place its rates into effect on August 1, 1998, subject to refund, and provisions for refund have been recorded based on expected ultimate resolution. By a subsequent order, the FERC required KNI to remove costs associated with the Pony Express project and to refund the associated dollars. The interim refund, associated with the ordered removal of the Pony Express facilities' costs from KNI's rates, amounts to approximately $13 million, and has yet to be refunded. KNI has filed for rehearing of the FERC's orders that addressed Pony Express. As a result of a settlement conference held on October, 27, 1999, KNI has filed a comprehensive Stipulation and Agreement on November 3, 1999, which, if approved by the FERC, will resolve this proceeding. On December 29, 1998, Rocky Mountain Natural Gas Company ("RMNG"), a wholly owned subsidiary of Kinder Morgan, received a "show cause" order from the Colorado Public Utilities Commission (the "Commission"). RMNG has reached settlement on the issue, and a Stipulation and Agreement memorializing the settlement with the Staff of the Commission and the Office of Consumer Counsel has been filed and approved. As part of this settlement, RMNG agreed to reduce its sales and transportation rates effective June 1, 1999. The settled rate reduction is anticipated to reduce RMNG's annual revenues by approximately $0.9 million per year. 15. Comprehensive Income -------------------- Statement of Financial Accounting Standards No. 130, "Reporting of Comprehensive Income," effective for fiscal years beginning after December 15, 1997, requires that enterprises report a total for comprehensive income. Currently, the only difference between "net income" and "comprehensive income" for the Company is the unrealized gain or loss on its investment in available-for-sale securities which is recorded directly to stockholders' equity. For the quarters ended September 30, 1999 and 1998, the respective unrealized after-tax investment loss was $(0.5) million and $(3.8) million, resulting in comprehensive income (loss) of $(15.0) million and $20.7 million, respectively. For the nine month periods ended September 30, 1999 and 1998, the unrealized after-tax investment gain (loss) was $2.5 million and $(4.0) million, resulting in comprehensive income (loss) of $(7.3) million and $59.6 million, respectively. 17 Form 10-Q 16. Accounting for Derivative Instruments and Hedging Activities ------------------------------------------------------------ In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (the "Statement"). The Statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The Statement requires that changes in the derivatives' fair value be recognized currently in earnings unless specific hedge accounting criteria are met. If the derivatives meet these criteria, the Statement allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company formally designate a derivative as a hedge and document and assess the effectiveness of derivatives associated with transactions that receive hedge accounting. The Statement, as amended by Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133," is effective for fiscal years beginning after June 15, 2000. A company may also implement the Statement as of the beginning of any fiscal quarter after issuance (that is, fiscal quarters beginning June 16, 1999 and thereafter). The Statement cannot be applied retroactively. The Statement must be applied to (i) derivative instruments and (ii) all applicable derivative instruments embedded in hybrid contracts or, at the company's election, only those derivatives embedded in hybrid contracts that were issued, acquired, or substantively modified after either January 1, 1998 or January 1, 1999. The Company has not yet quantified the impacts of adopting the Statement on its financial position or results of operations and has not determined the timing of or method of adoption of the Statement. 17. Interest Expense, Net --------------------- "Interest Expense, Net" as presented in the accompanying interim Consolidated Statements of Income is net of (i) the debt component of the allowance for funds used during construction ("AFUDC - Interest") and (ii) interest income related to government securities associated with the acquisition of MidCon ("Interest Income"), as shown in the following table. Three Months Ended Nine Months Ended September 30 September 30 ------------------ ------------------ (In Millions) 1999 1998 1999 1998 ---- ---- ---- ---- AFUDC - Interest $ 0.8 $ 2.6 $ 1.2 $ 4.3 Interest Income $ - $15.8 $ 0.5 $31.7 As discussed in Note 2, in conjunction with the January 30, 1998, acquisition of MidCon Corp., the Company was required by the MidCon Agreement to assume the $1.4 billion Substitute Note and to collateralize the Substitute Note with bank letters of credit, a portfolio of U.S. government securities or a combination of the two. As a result, the Company had interest income associated with the issuance of the Substitute Note, which has been reported together with the related interest expense as described preceding. 18. Equity in Earnings of Equity Method Investments ----------------------------------------------- Equity in earnings (losses) of investments accounted for under the equity method totaling $1.3 million and $6.6 million for the three months ended September 30, 1999 and 1998, and $11.9 million and $17.8 million for the nine months ended September 30, 1999 and 1998, respectively, are included in operating revenues (within the 18 Form 10-Q appropriate business segment) in the accompanying interim Consolidated Statements of Income and in the segment data contained in Note 10. 19. Accounts Receivable The caption "Accounts Receivable" in the accompanying interim Consolidated Balance Sheets is presented net of allowances for doubtful accounts of $12.5 million at September 30, 1999, and $10.8 million at December 31, 1998 and, at September 30, 1999, is net of receivables sold (see Note 7). 20. Earnings Per Share Basic earnings or loss from continuing operations per common share is computed, as applicable, using earnings after reduction for preferred stock dividends and premiums paid on preferred stock redemptions. The number of shares used in basic earnings per share calculations is the actual weighted average shares outstanding for each period presented. Diluted earnings per share calculations, in addition to the earnings and shares utilized in computing basic earnings per share, give effect to the assumed exercise of options (utilizing the treasury stock method) to the extent that such exercise has a dilutive effect on the calculation. The calculation of diluted earnings per share excludes potential share issuances which would be anti-dilutive for the periods presented, including (i) options for which the exercise price exceeds the average market price during the period and (ii) shares which will be issuable upon maturity of the Company's outstanding premium equity participating securities (see Note 11). 21. Environmental and Legal Matters (A) Environmental Matters On June 17, 1999, the EPA published in the Federal Register a final rule to limit emissions of hazardous air pollutants ("HAPs") from oil and natural gas production as well as from natural gas transmission and storage facilities. This is a Maximum Achievable Control Technology ("MACT") standard, and is mandated under section 112 of the 1990 Amendments to the Clean Air Act. The MACT standard requires that the affected facilities reduce emissions of HAPs by 95 percent. This new standard will require the Company to achieve this reduction either by process modifications or by installing new emissions control technology. The MACT standard will affect the Company and its competitors in a like manner. The rule allows most affected sources three years from the publication date to come into compliance. The Company is conducting a detailed analysis of the final rule to determine its overall effect. While additional capital costs are likely to result from this rule, the Company believes that the rule will not have a material adverse effect on the Company's business, financial position or results of operations. See Note 4(A) of Notes to Consolidated Financial Statements on pages 46-47 of the Company's Annual Report on Form 10-K for the year ended December 31, 1998, for additional information regarding environmental matters. (B) Legal Matters On July 26, 1996, the Company and RMNG, along with over 70 other natural gas companies, were served by Jack J. Grynberg, acting on behalf of the Government of the United States, with a Civil False Claims Act lawsuit filed in Washington, D.C. alleging mismeasurement of the heating content and volume of natural gas on Federal and Native American land resulting in underpayment of royalties to the federal government. The 19 Form 10-Q Company and the other named companies filed a motion to dismiss the lawsuit on grounds of improper joinder and lack of jurisdiction. The motion was granted in 1997. Mr. Grynberg appealed the dismissal of the action based on improper joinder, and the D.C. Court of Appeals affirmed the joinder decision in October 1998. Mr. Grynberg has now filed over 70 new cases against over 350 defendants in nine separate Federal Courts. The action against the Company, modified somewhat from his original action, was filed in Federal District Court, District of Colorado, and the Company was served in this action on May 25, 1999. The Department of Justice decided not to intervene in these cases in support of Grynberg's complaint. On October 21, 1999, the Panel on the Multi-District Litigation consolidated all of these cases in the Federal District Court of Wyoming. On September 23, 1999, a complaint styled as the First Amended Class Action Petition regarding "Quinque Operating Company, et al. v. Gas Pipelines, et al.," Case No. 99-C-30, Stevens County District Court, Kansas, was filed. The complaint names over 200 natural gas companies including the Company, K N Interstate Gas Transmission Co., K N Natural Gas, Inc., MidCon Corporation, MidCon Gas Services Corporation, MidCon Marketing Corporation, MidCon Texas Pipeline Operator, Inc., Natural Gas Pipeline Company of America, Northern Gas Company, Rocky Mountain Natural Gas Company, TCP Gathering Company, and Westar Transmission Co. The complaint contains allegations of mismeasurement of the heating content and volume of natural gas on non-Federal and non- Native American lands similar to the allegations contained in the above-referenced False Claim Act lawsuit dealing with Federal and Native American land. On September 24, 1999, Defendant Northern Natural Gas Company filed a Notice of Removal to the United States District Court for the District of Kansas, Case No. 99- 1390-MLB. Subsequently, Defendants notified the Panel on Multi- District Litigation of the existence of this case and requested that it be consolidated as a "tag-a-long" action with the above- referenced False Claim Act case in Wyoming. The Company believes it has meritorious defenses to all lawsuits and legal proceeds in which it is a defendant and will vigorously defend against them. Based on its evaluation of the above matters, and after consideration of reserves established, the Company believes that the resolution of such matters will not have a material adverse effect on the Company's business, financial position or results of operations. See Note 4(B) of Notes to Consolidated Financial Statements on pages 47-48 of the Company's Annual Report on Form 10-K for the year ended December 31, 1998, for additional information regarding legal matters. 20 Form 10-Q Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations General - ------- The following discussion should be read in conjunction with (i) the accompanying interim Consolidated Financial Statements and related Notes and (ii) the Consolidated Financial Statements, related Notes and Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's 1998 Report on Form 10-K. Due to the seasonal variation in energy demand, among other factors, the interim results which follow may not be indicative of the results to be expected for an entire year. As discussed in Notes 2 and 5 of Notes to the accompanying interim Consolidated Financial Statements, the Company has engaged in acquisition and divestiture transactions (and may engage in additional such transactions) which may affect the comparison of results of operations between periods. All per share amounts following reflect the impact of the December 31, 1998, three-for-two common stock split. Certain information contained herein may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although the Company believes that these statements are based upon reasonable assumptions, it can give no assurance that its goals will be achieved. Important factors that could cause actual results to differ materially from those in the forward- looking statements contained herein include, among other factors, the pace of deregulation of retail natural gas and electricity markets in the United States, federal, state and international regulatory developments, the timing and extent of changes in commodity prices for oil, natural gas, natural gas liquids ("NGLs"), electricity, certain agricultural products and interest rates, the extent of success in acquiring natural gas facilities, the timing and success of efforts to develop power, pipeline and other projects, political developments in foreign countries, weather-related factors, the Company's success in implementing the Year 2000 Plan described elsewhere herein, the effectiveness of the Year 2000 Plan and the Year 2000 readiness of vendors and suppliers and conditions of capital markets and equity markets during the periods covered by the forward-looking statements. All of these factors are difficult to predict and many are beyond the Company's control. On July 8, 1999, the Company announced the signing of an agreement and plan of merger to acquire Kinder Morgan Delaware. On October 7, 1999, this merger was completed. Pursuant to the terms of the merger agreement, the Company issued approximately 41.5 million shares of common stock in return for all of the outstanding shares of Kinder Morgan Delaware. On October 7, 1999, the Company issued 200,000 shares of common stock, par value of $5.00 per share, of the Company to Petrie Parkman (the ("Petrie Shares") pursuant to the terms of the engagement letter between Petrie Parkman and the Company dated as of June 24, 1999, as amended as of August 20, 1999, in consideration for Petrie Parkman's advisory services rendered in connection with the acquisition of Kinder Morgan Delaware. The issuance of the Petrie Shares was exempt from registration under Section 4(2) of the Securities Act of 1933, as amended. Upon closing of the transaction, Richard D. Kinder, Chairman and Chief Executive Officer of Kinder Morgan Delaware, was named Chairman and Chief Executive Officer of the Company, and the Company was renamed Kinder Morgan, Inc. (see Note 2 of Notes to the accompanying interim Consolidated Financial Statements). In conjunction with the merger, the Company has announced plans intended to increase profitability and decrease leverage, see "Plan for the Combined Kinder Morgan" elsewhere herein and Note 6 of Notes to the accompanying interim Consolidated Financial Statements. During the third quarter, the Company adopted a plan to discontinue the direct marketing of non-energy products and services (principally under the "Simple Choice" brand), which activities had been carried on 21 Form 10-Q largely through the Company's en*able joint venture with PacifiCorp (see Note 6 of Notes to the accompanying interim Consolidated Financial Statements and "Discontinued Operations" elsewhere herein). Consolidated Financial Results - ------------------------------
Three Months Ended September 30 Nine Months Ended September 30 ---------------------------------- ---------------------------------- (In Millions Except Per Share Amounts) Increase Increase 1999 1998 (Decrease) 1999 1998 (Decrease) ---- ---- ---------- ---- ---- ---------- Operating Revenues $1,458.7 $1,046.2 $ 412.5 $3,704.0 $3,265.1 $ 438.9 Gross Margin 225.1 253.9 (28.8) 708.1 738.1 (30.0) Operating Income 57.4 93.8 (36.4) 204.1 267.3 (63.2) Income (Loss) From Continuing Operations (1.7) 25.1 (26.8) 8.2 66.5 (58.3) Loss From Discontinued Operations, Net of Tax (1.3) (0.6) (0.7) (6.5) (2.8) (3.7) Loss on Disposal of Discontinued Operations, Net of Tax (11.5) - (11.5) (11.5) - (11.5) Diluted Earnings (Loss) Per Share: Continuing Operations (0.02) 0.37 (0.39) 0.11 1.05 (0.94) Discontinued Operations (0.02) (0.01) (0.01) (0.09) (0.05) (0.04) Disposal of Discontinued Operations $ (0.16) $ - $ (0.16) $ (0.17) $ - $ (0.17)
In comparison to the corresponding period of 1998, the Company's consolidated results of continuing operations for the three months ended September 30, 1999, reflect an increase of 39.4 percent in operating revenues and a decrease of 11.3 percent in gross margin. Additionally, 1999 results reflect decreases of 27.2 percent in operating income and 80.1 percent in income from continuing operations, in each case before the reduction, in 1999, for merger-related and severance costs. Diluted earnings per common share from continuing operations of $(0.02) for 1999 represented a decline of $0.39 from 1998, reflecting, in addition to the decline in 1999 income from continuing operations, an increase of 4.3 percent in the number of diluted shares used to calculate earnings per share. This increase in shares was largely due to the issuance of 3.1 million shares as partial consideration for the purchase of interests in power plants from the Thermo Companies (see Note 2 of Notes to the accompanying interim Consolidated Financial Statements). In comparison to the corresponding period of 1998, the Company's consolidated results of continuing operations for the nine months ended September 30, 1999, reflect an increase of 13.4 percent in operating revenues and a decrease of 4.1 percent in gross margin. Additionally, 1999 results reflect decreases of 21.2 percent in operating income and 78.8 percent in income from continuing operations, in each case before the reduction in 1999 and 1998, for merger-related and severance costs. Diluted earnings per common share from continuing operations for 1999 declined by 89.5 percent from 1998 reflecting, in addition to the decline in 1999 income from continuing operations, an increase of 11.4 percent in the number of diluted shares used to calculate earnings per share. This increase in shares was largely due to (i) the March 1998 common stock issuance associated with the acquisition of MidCon (see Notes 2 and 11 of Notes to the accompanying interim Consolidated Financial Statements) and (ii) the issuance of 3.1 million shares as partial consideration for the purchase of interests in power plants from the Thermo Companies as described preceding. Operating income or loss for each of the Company's business segments, as well as corporate expenses, interest expense, other income and deductions and income taxes were affected by various factors which are described within the corresponding individual discussions which follow, see "Upstream Gathering and Processing," "Midstream Sales, Transportation and Storage," "Downstream Retail and Marketing," "Corporate Expenses," "Other Income and (Deductions)" and "Income Taxes on Continuing Operations" elsewhere herein. 22 Form 10-Q Results of Continuing Operations The Company has segregated its results of operations into "Upstream," "Midstream" and "Downstream" components. The Company's Upstream operations consist of (i) natural gas gathering, (ii) natural gas processing and (iii) NGLs extraction and marketing activities. Midstream operations consist of transportation, storage and bundled sales transactions for the Company's interstate and intrastate pipelines. Downstream activities principally consist of energy marketing, regulated natural gas distribution and electric power generation and sales. The following segment data are before intersegment eliminations, and exclude discontinued operations, general and administrative expenses and severance and expenses related to the 1998 MidCon acquisition and the acquisition of Kinder Morgan Delaware. The Company expects that, as a result of the fourth-quarter acquisition of Kinder Morgan Delaware and its plans for disposition of certain non-core businesses, its future segment reporting will be revised (see Note 10 of Notes to the accompanying interim Consolidated Financial Statements).
Three Months Ended September 30 Nine Months Ended September 30 --------------------------------- -------------------------------- (Dollars in Millions Except Per Gallon Amounts) Increase Increase Upstream Gathering and Processing 1999 1998 (Decrease) 1999 1998 (Decrease) - --------------------------------- ---- ---- ---------- ---- ---- ---------- Operating Revenues Gas Sales $ 59.4 $ 55.4 $ 4.0 $ 171.5 $ 154.5 $ 17.0 Natural Gas Liquids Sales 91.0 67.3 23.7 208.3 193.0 15.3 Gathering and Other 37.3 34.0 3.3 105.6 99.6 6.0 ------- ------- ------- ------- ------- ------- 187.7 156.7 31.0 485.4 447.1 38.3 Less - Gas Purchases and Other Costs of Sales 140.7 123.1 17.6 366.2 342.5 23.7 ------- ------- ------- ------- ------- ------- Gross Margin 47.0 33.6 13.4 119.2 104.6 14.6 ------- ------- ------- ------- ------- ------- Operating Expenses Operations and Maintenance 22.7 21.0 1.7 65.7 69.9 (4.2) Depreciation and Amortization 7.0 7.0 - 20.7 19.9 0.8 Taxes, Other Than Income Taxes 2.6 3.2 (0.6) 8.1 9.3 (1.2) ------- ------- ------- ------- ------- ------- 32.3 31.2 1.1 94.5 99.1 (4.6) ------- ------- ------- ------- ------- ------- Operating Income Before Corporate Expenses $ 14.7 $ 2.4 $ 12.3 $ 24.7 $ 5.5 $ 19.2 ======= ======= ======= ======= ======= ======= Systems Throughput (Trillion Btus) Gas Sales 23.8 30.3 (6.5) 87.5 79.8 7.7 Gathering 84.0 90.1 (6.1) 249.8 262.8 (13.0) ------- ------- ------- ------- ------- ------- 107.8 120.4 (12.6) 337.3 342.6 (5.3) ======= ======= ======= ======= ======= ======= Natural Gas Liquids Sales Sales (Million Gallons) 237.5 254.7 (17.2) 679.6 672.8 6.8 ======= ======= ======= ======= ======= ======= Average Sales Price/Gallon $ 0.38 $ 0.26 $ 0.12 $ 0.31 $ 0.29 $ 0.02 ======= ======= ======= ======= ======= =======
Upstream's operating income before corporate expenses improved by $12.3 million from $2.4 million for the three months ended September 30, 1998, to $14.7 million for the third quarter of 1999. The Upstream segment was positively impacted in 1999, relative to 1998, by (i) approximately $12 million of increased processing margins resulting largely from higher NGLs prices, (ii) the fact that 1998 results included operating losses associated with gas processing facilities that were sold in the fourth quarter of 1998 and (iii) improved 1999 basis differentials on the Pony Express Pipeline which positively affected joint venture marketing activities. These positive impacts were partially offset by approximately $3 million of increased 1999 operations, maintenance and depreciation expenses associated with the Company's remaining gathering and processing systems. Upstream's operating income before corporate expenses improved by $19.2 million from $5.5 million for the nine months ended September 30, 1998, to $24.7 million for the first nine months of 1999. The Upstream segment was positively affected in 1999, relative to 1998, by (i) approximately $13 million of increased 23 Form 10-Q processing margins resulting largely from higher NGLs prices, (ii) the fact that 1998 results included operating losses associated with gas processing facilities that were sold in the fourth quarter of 1998 and (iii) increased 1999 gathering revenues resulting primarily from higher rates. These positive impacts were partially offset by approximately $1.5 million of reduced 1999 operating income from the Company's K N Field Services and Compressor Pump & Engine subsidiaries.
Three Months Ended September 30 Nine Months Ended September 30 --------------------------------- --------------------------------- (Dollars in Millions) Midstream Sales, Transportation - ------------------------------- Increase Increase and Storage 1999 1998 (Decrease) 1999 1998 (Decrease) ----------- ---- ---- ---------- ---- ---- ---------- Operating Revenues Transportation and Storage $ 149.9 $ 169.8 $ (19.9) $ 475.1 $ 477.9 $ (2.8) Gas Sales 292.6 237.9 54.7 688.7 594.1 94.6 Other 2.6 7.0 (4.4) 13.7 17.4 (3.7) ------- ------- ------- ------- ------- ------- 445.1 414.7 30.4 1,177.5 1,089.4 88.1 Less - Gas Purchases and Other Costs of Sales 276.5 218.3 58.2 637.0 541.7 95.3 ------- ------- ------- ------- ------- ------- Gross Margin 168.6 196.4 (27.8) 540.5 547.7 (7.2) ------- ------- ------- ------- ------- ------- Operating Expenses Operations and Maintenance 40.6 39.3 1.3 114.0 101.3 12.7 Depreciation and Amortization 30.7 41.8 (11.1) 116.9 111.3 5.6 Taxes, Other Than Income Taxes 9.5 9.4 0.1 28.6 25.5 3.1 ------- ------- ------- ------- ------- ------- 80.8 90.5 (9.7) 259.5 238.1 21.4 ------- ------- ------- ------- ------- ------- Operating Income Before Corporate Expenses $ 87.8 $ 105.9 $ (18.1) $ 281.0 $ 309.6 $ (28.6) ======= ======= ======= ======= ======= ======= Systems Throughput (Trillion Btus) 648.4 604.2 44.2 1,924.9 1,691.7 233.2 ======= ======= ======= ======= ======= =======
Midstream operating income before corporate expenses decreased by $18.1 million from $105.9 million for the three months ended September 30, 1998, to $87.8 million for the third quarter of 1999. The Midstream segment was negatively impacted in 1999, relative to 1998, by (i) approximately $42 million of decreased margins, primarily from the segment's interstate pipeline systems, due to reduced per unit margins and (ii) increased operations and maintenance expenses. The reduced margins were largely due to decreased basis differentials resulting principally from the two recent mild winters, including the resultant high levels of gas in underground storage. In addition, competitive pressures have increased in Midwest markets due to actual or projected increased supply. These negative impacts were partially offset by the positive impacts of (i) approximately $19 million of increased margins attributable to increased 1999 throughput volumes and (ii) reduced depreciation and amortization expense, largely attributable to the change in the amortization period for the gas plant acquisition adjustment recorded in conjunction with the acquisition of MidCon (see Note 4 of Notes to the accompanying interim Consolidated Financial Statements). The businesses included in this segment will be affected in the future by, among other factors, the September 30, 1999 sale of the Company's interest in Stingray Pipeline Company LLC (see Note 5 of Notes to the accompanying interim consolidated financial statements) and the sale of certain NGPL transportation capacity to Aquila Energy as announced on September 27, 1999. Midstream operating income before corporate expenses decreased by $28.6 million from $309.6 million for the nine months ended September 30, 1998, to $281.0 million for the first nine months of 1999. The Midstream segment was negatively impacted in 1999, relative to 1998, primarily by reduced per unit margins due to the factors described preceding. This impact was partially offset by (i) the fact that 1999 results include nine months of the operations of MidCon, while 1998 results include only eight months, (ii) increased 1999 throughput and (iii) the reduction in the 1999 depreciation and amortization rate beginning in the third quarter as described preceding. 24 Form 10-Q
Three Months Ended September 30 Nine Months Ended September 30 --------------------------------- --------------------------------- (Dollars in Millions) Increase Increase Downstream Retail and Marketing 1999 1998 (Decrease) 1999 1998 (Decrease) - ------------------------------- ---- ---- ---------- ---- ---- ---------- Operating Revenues Gas Sales $1,114.9 $ 615.6 $ 499.3 $2,671.4 $2,042.8 $ 628.6 Transportation and Other 21.8 41.0 (19.2) 68.9 70.1 (1.2) -------- ------- ------- -------- -------- ------- 1,136.7 656.6 480.1 2,740.3 2,112.9 627.4 Less - Gas Purchases and Other Costs of Sales 1,124.8 626.2 498.6 2,684.5 2,018.7 665.8 -------- ------- ------- -------- -------- ------- Gross Margin 11.9 30.4 (18.5) 55.8 94.2 (38.4) -------- ------- ------- -------- -------- ------- Operating Expenses Operations and Maintenance 9.2 6.9 2.3 27.6 27.6 - Depreciation and Amortization 3.3 4.2 (0.9) 10.4 11.0 (0.6) Taxes, Other Than Income Taxes 1.5 1.8 (0.3) 4.6 4.9 (0.3) -------- ------- ------- -------- -------- ------- 14.0 12.9 1.1 42.6 43.5 (0.9) -------- ------- ------- -------- -------- ------- Operating Income (Loss) Before Corporate Expenses $ (2.1) $ 17.5 $ (19.6) $ 13.2 $ 50.7 $ (37.5) ======= ======= ======= ======== ======== ======= Gas Sales (Trillion Btus) 438.1 325.3 112.8 1,210.2 936.7 273.5 ======= ======= ======= ======== ======== =======
Downstream's operating results before corporate expenses decreased by $19.6 million from $17.5 million of income for the three months ended September 30, 1998, to a loss of $2.1 million for the third quarter of 1999. Downstream results were negatively impacted in 1999, relative to 1998, by (i) approximately $8.6 million of reduced sales and transport margins from retail gas distribution, primarily due to the weather- related reduction in 1999 irrigation demand, (ii) reduced 1999 per unit margins from commodity marketing resulting from lower 1999 demand for relatively high margin electric generation and irrigation load in the Texas market areas, (iii) higher operations and maintenance expenses related to the Nebraska Choice Gas program and (iv) higher fuel and maintenance costs at the Company's electric generating facilities. In April 1999, Commodity Marketing became a principal gas supplier to Texas intrastate affiliate pipelines, which resulted in a 35 percent increase in third quarter 1999 sales volumes. Downstream's operating income before corporate expenses decreased by $37.5 million from $50.7 million for the nine months ended September 30, 1998 to $13.2 million for the first nine months of 1999. Downstream results were negatively impacted in 1999, relative to 1998, by (i) approximately $10 million of reduced margins from commodity marketing, (ii) approximately $17 million of reduced margins from retail gas sales and transportation, due primarily to weather-related factors, lower unit margins resulting from the Nebraska Choice Gas program and adjustments to deferred purchased gas costs and (iii) the inclusion in 1998 earnings of (a) $5.4 million in margins from sales of storage gas, (b) income related to the favorable resolution of certain above market gas purchase contracts and (c) first quarter 1998 operating income from the Company's Kansas gas distribution properties which were sold on March 31, 1998. These negative impacts were partially offset by income from the Thermo assets in 1999 (see Note 2 of Notes to the accompanying interim Consolidated Financial Statements). As noted above, the significant increase in 1999 gas sales volumes reflects Commodity Marketing's role as a gas supplier to Texas intrastate affiliates; additionally, 1998 volumes include only eight months of MidCon commodity marketing activity.
Three Months Ended September 30 Nine Months Ended September 30 ---------------------------------- ---------------------------------- (In Millions) Increase Increase Corporate Expenses 1999 1998 (Decrease) 1999 1998 (Decrease) - ------------------ ---- ---- ---------- ---- ---- ---------- General and Administrative $ 32.0 $ 32.0 $ - $ 103.8 $ 92.8 $ 11.0 Merger-related and Severance Costs 11.0 - 11.0 11.0 5.8 5.2 ------ ------ ------ ------- ------- ------ $ 43.0 $ 32.0 $ 11.0 $ 114.8 $ 98.6 $ 16.2 ====== ====== ====== ======= ======= ======
25 Form 10-Q The merger-related and severance costs in 1999 represent costs (principally severance) related to the K N Energy, Inc. acquisition by merger of Kinder Morgan Delaware. The merger- related and severance costs in 1998 represent costs related to the MidCon acquisition. See Note 2 of Notes to the accompanying interim Consolidated Financial Statements for more information regarding these business combinations. The increase in general and administrative expenses for the nine months ended September 30, 1999, over the same period in 1998, was due principally to (i) the fact that 1999 results include nine months of the operations of MidCon, while 1998 results include only eight months and (ii) reduced 1999 capitalization of overhead due to a reduced level of capital spending.
Three Months Ended September 30 Nine Months Ended September 30 ---------------------------------- ---------------------------------- (In Millions) Earnings Earnings Increase Increase Other Income and (Deductions) 1999 1998 (Decrease) 1999 1998 (Decrease) - ----------------------------- ---- ---- ---------- ---- ---- ---------- Interest Expense, Net $(69.8) $(64.5) $ (5.3) $(210.5) $(178.3) $(32.2) Minority Interests (5.6) (4.4) (1.2) (16.8) (11.4) (5.4) Other, Net 15.2 14.9 0.3 36.6 28.0 8.6 ------ ------ ------ ------- ------- ------ $(60.2) $(54.0) $ (6.2) $(190.7) $(161.7) $(29.0) ====== ====== ====== ======= ======= ======
The increase of $5.3 million in "Interest Expense, Net" for the three months ended September 30, 1999, over the corresponding period of 1998, was largely due to the cumulative impact of reduced 1998 and 1999 cash flows from operations and associated increases in debt levels, resulting from the depressed pricing environment and unfavorable weather experienced during the twelve months ended September 30, 1999, as described preceding. The factors were partially offset by decreased capital spending and increased proceeds from asset sales, see "Liquidity and Capital Resources" elsewhere herein. The increase in net expense associated with "Minority Interests" in 1999, relative to 1998, principally reflects improved operating results from the Company's 55 percent-owned Wildhorse joint venture. The minor increase in "Other, Net" from 1998 to 1999 was principally due to the net impact of (i) the September 1999 pre-tax gain of $11.4 million from the sale of the Company's interest in the Stingray Pipeline Company, L.L.C. and West Cameron Dehydration Company, L.L.C. and (ii) the September 1998 pre-tax gain of $10.9 million from the Company's sale of certain microwave towers and associated facilities. The increase of $32.2 million in "Interest Expense, Net" for the nine months ended September 30, 1999, over the corresponding period of 1998, was largely due to the factors affecting the quarters as described preceding, and to the financing associated with the January 30, 1998 acquisition of MidCon. The increase in net expense associated with "Minority Interests" in 1999, relative to 1998, was principally due to dividend requirements associated with the $175 million of Capital Trust Securities issued in April 1998 (see Note 11 of Notes to the accompanying interim Consolidated Financial Statements). The $8.6 million increase in "Other, Net" from 1998 to 1999 was principally due to the net impact of (i) the June, 1999 pre-tax gain of $17.5 million from the sale of the Company's interests in the HIOS and UTOS offshore pipeline systems, (ii) the September, 1999 pre-tax gain of $11.4 million from the sale of the Company's interest in Stingray Pipeline Company, L.L.C. and West Cameron Dehydration Company, L.L.C., (iii) the March 1998 pre-tax gain of $8.5 million from the Company's sale of its Kansas natural gas distribution properties and (iv) the September 1998 pre-tax gain of $10.9 million from the Company's sale of certain microwave towers and facilities.
Three Months Ended September 30 Nine Months Ended September 30 ---------------------------------- ---------------------------------- (Dollars In Millions) Income Taxes on Continuing - -------------------------- Increase Increase Operations 1999 1998 (Decrease) 1999 1998 (Decrease) ---------- ---- ---- ---------- ---- ---- ---------- Provision (Benefit) $ (1.1) $ 14.7 $ (15.8) $ 5.2 $ 39.1 $(33.9) ====== ====== ======= ====== ====== ====== Effective Tax Rate 39.0% 37.0% 2.0% 39.0% 37.0% 2.0% ====== ====== ======= ====== ====== ======
26 Form 10-Q The $15.8 million net decrease in income tax expense from continuing operations for the three months ended September 30, 1999 from the corresponding period of 1998 is principally attributable to the decrease in 1999 pre-tax income. The $33.9 million net decrease in income tax expense from continuing operations for the nine months ended September 30, 1999 from the corresponding period of 1998 reflected a decrease of approximately $34.1 million attributable to a decrease in 1999 pre-tax income and an increase of approximately $0.2 million attributable to a change in the effective tax rate. Discontinued Operations - ----------------------- During the third quarter, the Company adopted a plan to discontinue the direct marketing of non-energy products and services (principally under the "Simple Choice" brand), which activities had been carried on largely through the Company's en*able joint venture with PacifiCorp (see Note 6 of Notes to the accompanying interim Consolidated Financial Statements). The principal assets of this discontinued line of business remaining as of September 30, 1999 consisted of an investment in en*able and an indirect investment in Orcom Solutions (a provider of custom software and outsource billing solutions for utilities and a wholly owned subsidiary of en*able). The results of these operations and projected costs of disposal, net of tax, have been reported under the captions "Loss from Discontinued Operations" and "Loss on Disposal of Discontinued Operations," respectively, in the accompanying interim Consolidated Statements of Income. The Company currently expects that it will record additional charges to discontinued operations in the fourth quarter of 1999, see Note 6 of Notes to the accompanying interim Consolidated Financial Statements. Liquidity and Capital Resources - ------------------------------- The following table illustrates the sources of the Company's invested capital. These balances reflect the incremental capital associated with the acquisition of MidCon, including the post- acquisition refinancings completed in 1998 (see Notes 2 and 11 of Notes to the accompanying interim Consolidated Financial Statements). The Company's capital structure will change materially from that shown as of September 30, 1999, as a result of common stock issued in conjunction with the Company's October 7, 1999 acquisition of Kinder Morgan Delaware (see Note 2 of Notes to the accompanying Interim Consolidated Financial Statements). 27 Form 10-Q
September 30 December 31 -------------------------- ----------------------------------------- (Dollars in Thousands) 1999 1998 1998 1997 1996 ---- ---- ---- ---- ---- Long-Term Debt $3,298,484 $ 2,905,688 $ 3,300,025 $ 553,816 $ 423,676 Common Equity 1,223,958 1,263,544 1,216,821 606,132 519,794 Preferred Stock - 7,000 7,000 7,000 7,000 Capital Trust Securities 275,000 275,000 275,000 100,000 - ---------- ----------- ----------- ----------- ----------- Capitalization 4,797,442 4,451,232 4,798,846 1,266,948 950,470 Short-Term Debt 585,867 2,167,297 1 1,702,013 1 359,951 156,271 ---------- ----------- ----------- ----------- ----------- Invested Capital $5,383,309 $ 6,618,529 $ 6,500,859 $ 1,626,899 $ 1,106,741 ========== =========== =========== =========== =========== Capitalization: - --------------- Long-Term Debt 68.8% 65.2% 68.8% 43.7% 44.6% Common Equity 25.5% 28.4% 25.4% 47.8% 54.7% Preferred Stock - 0.2% 0.1% 0.6% 0.7% Capital Trust Securities 5.7% 6.2% 5.7% 7.9% - Invested Capital: - ----------------- Total Debt 72.2% 76.6% 76.9% 56.2% 52.4% Equity, Including Capital Trust Securities 27.8% 23.4% 23.1% 43.8% 47.6% (1)Includes the $1,394,846 Substitute Note assumed in conjunction with the acquisition of MidCon, which Note was repaid in January 1999.
The following discussion of cash flows should be read in conjunction with the accompanying Consolidated Statements of Cash Flows and related supplemental disclosures. Net Cash Flows From Operating Activities - ---------------------------------------- The net cash inflow from operating activities increased from $3.1 million for the nine months ended September 30, 1998, to $123.5 million for the first nine months of 1999, an increase of $120.4 million. Excluding the impact of discontinued operations, cash flow increased by $124.3 million, from $11.9 million in 1998 to $136.2 million in 1999. These increases are primarily attributable to the net impact of (i) the September 1999 sale of $150 million of accounts receivable (see Note 7 of Notes to the accompanying Consolidated Financial Statements), (ii) approximately $82 million of increased 1999 cash flow from changes in levels of gas in underground storage, (iii) the inclusion in 1998 results of $27.5 million of proceeds from the buyout of certain contractual gas purchase obligations, (iv) increased 1999 interest payments and (v) the decrease in 1999 earnings before non-cash charges and credits. Net Cash Flows From Investing Activities - ---------------------------------------- The net cash inflow from investing activities for the nine months ended September 30, 1999, consisted principally of (i) $1.1 billion of proceeds from the sale of U.S. government securities, which were used, together with additional short-term borrowings, to repay the Substitute Note (see "Net Cash Flows From Financing Activities" following), (ii) $170.7 million of net cash outflows for capital expenditures, acquisitions and investments, (iii) proceeds of $28.7 million from the sale of Tom Brown, Inc. preferred stock and (iv) $89.6 million of proceeds from sales of other assets. The net cash outflow from investing activities for the nine months ended September 30, 1998 consisted principally of (i) $2.2 billion in cash paid to Occidental for the purchase of MidCon, (ii) net purchases of $1.1 billion of U.S. government securities as collateral for the Substitute Note and as collateral for the Thermo purchase obligation, (iii) $239.8 million of net cash outflows for capital expenditures, other acquisitions and investments and (iv) $28.8 million of proceeds from sales of other assets. 28 Form 10-Q On August 3, 1999, the Company announced plans to divest itself of certain non-strategic assets. In addition, the Company continues to evaluate its asset base for potential additional divestitures, (see Note 6 of Notes to the accompanying interim Consolidated Financial Statements). Net Cash Flows From Financing Activities - ---------------------------------------- The net cash outflow for financing activities for the nine months ended September 30, 1999, was principally attributable to the January 4, 1999, repayment of the Substitute Note (see Notes 2 and 11 of Notes to the accompanying interim Consolidated Financial Statements). The note was repaid using the proceeds of approximately $1.1 billion from the sale of U.S. government securities which had been held as collateral, with the balance of the funds provided by an increase in short-term borrowings. In addition, 1999 cash flows include (i) the payment of $42.5 million of common and preferred dividends, (ii) the payment of $7.4 million to redeem preferred stock, (iii) payments of $5.2 million for the retirement of long-term debt and (iii) receipt of $5.6 million for common stock issued. The Company has announced the fact that future dividends are expected to decrease, see "Plan for the Combined Kinder Morgan" elsewhere herein. The net cash inflow from financing activities of $3.5 billion for the nine months ended September 30, 1998, was principally the result of financing activities in conjunction with the purchase of MidCon (see Notes 2 and 11 of Notes to the accompanying interim Consolidated Financial Statements). In March 1998, the Company issued 12.5 million shares (18.75 million shares after adjustment for the December 1998 three-for-two stock split) of common stock in an underwritten public offering, receiving net proceeds of approximately $624.6 million. Also in March 1998, the Company issued $2.35 billion principal amount of debt securities of varying maturities and interest rates in an underwritten public offering, receiving net proceeds of approximately $2.34 billion. The net proceeds from these two offerings were used to refinance borrowings under the MidCon acquisition financing arrangements and to purchase U.S. government securities to collateralize a portion of the Substitute Note. In April 1998, the Company sold $175 million of 7.63% Capital Securities due April 15, 2028, in an underwritten offering, with the net proceeds of $173.1 million used to purchase U.S. government securities to further collateralize the Substitute Note. In addition, 1998 results include (i) the payment of $37.9 million of common and preferred dividends, (ii) payments of $23.6 million to retire long-term debt, (iii) receipt of $11.7 million for other common stock issued, and (iv) $16.8 million of minority interest contributions. The Company's principal sources of short-term liquidity are its revolving bank facilities totaling $1 billion. At September 30, 1999, the Company had $578.7 million of bank borrowings and commercial paper (which is backed by the bank facilities) issued and outstanding. The corresponding amount outstanding was $606.4 million at October 22, 1999. After inclusion of applicable letters of credit, the remaining available borrowing capacity under the bank facilities was $405.5 million and $377.8 million at September 30, 1999 and October 22, 1999, respectively. As described in the Company's Report on Form 10-K for the year ended December 31, 1998, the Company's bank facilities and certain of its operating lease arrangements contain covenants related to the Company's ratio of debt to total capitalization, consolidated net worth and debt ratings. In addition, in September 1999, the Company established a receivables sales facility that provides up to $150 million of additional liquidity. In accordance with this agreement, proceeds of $150 million were received on September 30, 1999 and subsequently were used to retire debt obligations of Kinder Morgan, Inc. outstanding at the time of its acquisition by the Company (see Note 7 of Notes to the accompanying interim Consolidated Financial Statements). In accordance with authoritative accounting guidelines, cash flows associated with this facility are included with "Cash flows from Operating Activities" in the accompanying interim Consolidated Statements of Cash Flows. 29 Form 10-Q Regulation - ---------- On January 23, 1998, K N Interstate Gas Transmission Co. ("KNI"), a wholly owned subsidiary of the Company, filed a general rate case with the Federal Energy Regulatory Commission ("FERC") requesting a $30.2 million increase in annual revenues. As a result of the FERC's action, KNI was allowed to place its rates into effect on August 1, 1998, subject to refund, and provisions for refund have been recorded based on its expectation of ultimate resolution. By a subsequent order, the FERC required KNI to remove costs associated with the Pony Express project and to refund the associated dollars. The interim refund, associated with the ordered removal of the Pony Express facilities' costs from KNI's rates, amounts to approximately $13 million, and has yet to be refunded. KNI has filed for rehearing of the FERC's orders that addressed Pony Express. As a result of a settlement conference held on October, 27, 1999, KNI has filed a comprehensive Stipulation and Agreement on November 3, 1999, which, if approved by the FERC, will resolve this proceeding. On December 29, 1998, Rocky Mountain Natural Gas Company ("RMNG"), a wholly owned subsidiary of Kinder Morgan, received a "show cause" order from the Colorado Public Utilities Commission (the "Commission"). RMNG has reached settlement on the issue, and a Stipulation and Agreement memorializing the settlement with the Staff of the Commission and the Office of Consumer Counsel has been filed and approved. As part of this settlement, RMNG agreed to reduce its sales and transportation rates effective June 1, 1999. The settled rate reduction is anticipated to reduce RMNG's annual revenues by approximately $0.9 million per year. Environmental and Legal Matters - ------------------------------- See Note 21 of Notes to the accompanying interim Consolidated Financial Statements for information regarding environmental and legal matters. Plan for the Combined Kinder Morgan - ------------------------------------ In conjunction with the Company's completed acquisition by merger of Kinder Morgan Delaware, the Company has announced plans to institute a "back to basics" strategy to improve the Company's financial performance. As part of this strategy, the Company has or intends to: * Focus on and enhance utilization of core assets. The Company's current plans contemplate that core businesses will include interstate natural gas pipelines and associated assets, interstate refined products pipelines, bulk terminals, retail natural gas distribution and power development. * Sell non-core assets to de-leverage the balance sheet. The Company has previously reported the identification of a number of assets for potential divestiture and the process is continuing (see Note 6 of Notes to the accompanying interim Consolidated Financial Statements). In total, the sale of non-strategic assets is currently expected to reduce debt and long-term leases by $750 million to $1 billion. * Sell select core assets for fair value to Kinder Morgan Energy Partners (NYSE:ENP), a publicly traded master limited partnership. Any such assets sold must qualify for the partnership and be accretive to distributions per unit. By selling assets to KMEP, the Company will continue to participate in their future growth through its general and limited partner interests. 30 Form 10-Q * Reduce corporate overhead costs by $65 million to $70 million annually starting in 2000. Approximately one-third of the savings is expected to come from payroll reductions. Nearly all of the cost cuts will occur at the corporate level as opposed to field operations. Regulated operations and services will not be adversely affected by the cost reductions. * Align employee and shareholder incentives. Richard Kinder and William Morgan, who became the two largest individual shareholders of the merged company upon closing, are the top two executives of the Company and receive a salary of $1 per year. In addition, all full-time employees (other than Richard Kinder and William Morgan) have been issued stock options under a newly created stock option program (see Note 8 of Notes to the accompanying interim Consolidated Financial Statements). * Recommend to the new board of the combined company a reduction of the dividend from $0.80 per share to $0.20 per share annually. This measure would save nearly $70 million in cash annually that could be used to reduce debt and fuel growth initiatives. The Company is committed to increasing the dividend as the Company's financial performance improves. * Aggressively seek accretive acquisitions and expansions in core businesses. For example, the Company will pursue power development and retail natural gas distribution opportunities, as well as strategic growth projects along its interstate pipeline systems. Readiness for Year 2000 - ----------------------- The following is a discussion of the Year 2000 problem and its potential impact on the Company. The Securities and Exchange Commission ("SEC") has issued specific guidelines for public companies regarding their disclosure of the Year 2000 problem. The guidelines require more detailed disclosure of each company's analysis of and approach to the Year 2000 problem. As a result, the Company is providing the following disclosure; however, the length and detail contained in this disclosure, relative to the other disclosures contained herein, is not an indication of the Company's view of the relative risk of the Year 2000 problem to the Company. Some computers and programs, and some devices containing computer chips ("embedded chips") store or process dates containing the Year 2000 as "00" and they may fail to recognize the Year 2000 as a leap year. This can result in inaccurate date-related calculations. It is expected that once the Year 2000 arrives, computers, computer programs and devices with embedded chips that have not been identified, and if necessary modified to correct this problem, may not function normally. The Company relies on a number of automated systems to conduct its operation's and to transact its business, as is common among large diversified energy companies. In addition, certain of the Company's pipelines and processing equipment and related systems contain electric controls or other devices containing embedded chips. These controls may also be adversely affected by this problem. Similarly, third party vendors and servicers also have automated systems that may be adversely affected by this problem. In 1997, the Audit Committee of the Company's Board of Directors (the "Audit Committee") established a Year 2000 project to address the Year 2000 problem. In that year, the Company established a Year 2000 Executive Steering Committee (the "Year 2000 Committee") and a Year 2000 Project Management Office (the "Year 2000 Project Management Office"). The Year 2000 project is an ongoing effort monitored by the Audit Committee. 31 Form 10-Q The Audit Committee has adopted a Year 2000 Plan (the "Plan") and will oversee its implementation by receiving periodic reports from the Year 2000 Committee and directly from management. The Audit Committee is prepared to require management to make additional efforts, including amending the Plan as necessary, to fulfill the Audit Committee's goal of taking reasonable steps to minimize injury to people, damage to property, disruption to the Company's delivery of products and services, supporting systems and business operations, and other risks associated with the Year 2000 problem. The Year 2000 Committee is charged with directing the implementation of the Plan in accordance with resolutions of the Audit Committee and under the direction of the Company's designated senior executives. The Year 2000 Committee oversees the Year 2000 Project Management Office, headed by the Year 2000 Project Coordinator. The Year 2000 Committee keeps the Audit Committee informed of the Company's progress in implementing the Plan and of significant updates that are made to the Plan. The Year 2000 Committee communicates the Audit Committee's directives concerning the Plan to management and executives, and oversees the implementation of those directives. The Year 2000 Project Management Office works closely with the Company's Readiness Teams comprised of members of the Company's operating units. The teams have been organized to further implement the Plan throughout the Company. The Project Management Office, among other things, promotes exchange of information about Year 2000 problems and solutions, assists in disseminating information about the Company's policies governing communications concerning Year 2000 issues and serves as a conduit between the various Readiness Teams and the Year 2000 Committee. The aim of the Plan is to take reasonable steps to prevent the Company's mission critical functions from being impaired due to the Year 2000 problem. "Mission critical" describes those systems, devices, functions and external entities that are of material importance to maintaining the Company's capacity to deliver and account for products and services without interruption, and to maintain the Company's supporting business operations with no material disruption or diminution in quality. Each of the Company's operating units is in various stages of implementing the Plan to address the Year 2000 problem. These efforts include: * an inventory of systems and areas which may need to be corrected; * an assessment of potential problems; * remediation and implementation, with priority given to mission critical items; * the testing of such systems and devices; and * the development of contingency plans in case the Company cannot correct the problem in time, or in the event certain facets of the Year 2000 problem go undetected or do not manifest themselves until after January 1, 2000. Specifically, the Company is in the process of correcting programmable code, replacing non-Year 2000-ready embedded chips, installing Year 2000-ready releases of certain vendor-supplied computer systems and, in some cases, replacing existing systems with new internally or externally developed software in advance of December 31, 1999. The process of inventorying, assessing, remediating, and testing in anticipation of the Year 2000 is necessarily an ongoing and continuing process. As the Company learns more about the Year 2000 problem and its effects on the Company, the process of evaluation, remediation and testing is repeated continuously. The Company anticipates that it will be necessary to continue this process into the Year 2000 as new problems are identified, as well as to repeat the process for problems that can only reasonably be identified after December 31, 1999. 32 Form 10-Q As of October 21, 1999, the Company and all of its business units were at various points in implementation of the Plan. The Company tracks its progress towards implementing the Plan in the following categories: (i) internal software applications and systems, which includes the Company's information technology applications and programs ("IT Systems"), (ii) field systems, which includes the various automated systems that are used to gather, process and transport the Company's natural gas ("Automation") and measurement accounting, which includes the Company's systems to measure the gas flow ("Measurement"), (iii) desktop systems, which includes the internal computers utilized by the Company's employees, and (iv) external entities, which includes an assessment of the Company's critical vendors and suppliers and their Year 2000 readiness ("External Entities"). The chart below shows the dates that the Company has completed or expects to complete, as applicable, the stages in the listed categories:
Stages ---------------------------------------------------------------------------- Categories Contingency Year 2000 Inventory Assessment Remediation Testing Planning Ready --------- ---------- ----------- ------- -------- ----- IT Systems 12/97 4/98 10/99 10/99 9/99 11/99 Field Systems: Automation 12/98 6/99 11/99 8/99 7/99 11/99 Measurement 12/98 3/99 10/99 8/99 7/99 10/99 Desktop 7/99 8/99 10/99 10/99 6/99 10/99 External Entities 10/98 8/99 N/A* N/A* 9/99 9/99 *Not Applicable
The Company will continue to closely monitor its progress in these categories and revise the estimated completion dates as applicable. For the Company's Plan to be successful, the Company must rely for some purposes on outside contractors. There is a risk that those contractors will not complete their work prior to the Year 2000. The Company is developing alternative ways to conduct its business if such deadlines are not met. However, any alternative may involve additional expense and may not be implemented in time to avoid the Year 2000 problem. Ultimately, these alternatives may not be successful. The Company also relies on suppliers, business partners and other External Entities that may or may not be addressing their own problems associated with the Year 2000 problem. The Company has sent out questionnaires to External Entities to determine what steps they have taken to correct any Year 2000 problems they may have. The Company has no control over such External Entities' efforts, so the Company has developed contingency plans in case such External Entities do not complete their efforts before the Year 2000. The contingency plans developed by the Company will address the fact that despite the Company's good faith reasonable efforts, the Company may not be able to remediate all of its mission critical systems. In addition, External Entities that do business with the Company may not be Year 2000 ready. The Company's contingency plans call for teams of employees to be available in the evening of December 31, 1999 and on other key dates such as February 29, 2000, to respond rapidly to any Year 2000-related problem that occurs or affects the Company's mission critical systems. The contingency plans call for an on-going assessment of the Year 2000 problem following January 1, 2000 and procedures for remediating any problems that arise. 33 Form 10-Q The Company estimates that the direct costs the Company has incurred or will incur in 1998, 1999 and 2000 associated with assessing, inventorying, remediating and testing internally developed computer applications, hardware and equipment, including embedded chip systems and third-party developed software, to be between $5 million and $7 million. In addition, as part of the integration of the Company's systems with the systems of MidCon, the Company has begun modifying certain of its computer systems for the combined company or purchasing computer systems from third parties. These computer systems will address the Year 2000 problem. The costs for these computer systems are expected to be between $23 million and $25 million, the majority of which will be capitalized. The SEC's guidelines also require the Company to address the most reasonably likely worst case scenarios resulting from the Year 2000 problem. As a result of the Year 2000 problem, the Company may be faced with: failure of electrical, gas and similar services and supplies from utilities, disruption of telecommunications facilities, interruptions in the nation's transportation systems, failure of a substantial number of the Company's mission critical computer hardware and software systems, including mission critical internal systems as well as systems that control operational facilities such as pipeline, electric generation, transmission and distribution systems, re- coding errors due to the failure to fix all of the Company's computer code, failure to discover or fix all embedded chips and sabotage. In addition, the Company's key suppliers or customers may experience their own Year 2000 problems in a way that materially adversely affects the Company's ability to do business without interruption or disruption. The Company could also face substantial claims from customers for loss of revenues due to service interruptions, for the Company's inability to account for revenues, for inaccurate customer billing, or for unfulfilled contractual obligations. The Company could face substantial expenses from Year-2000 related litigation, for fixing problems following the failure of mission critical systems and for executing the contingency plans. As a result of the cumulative impact of these events, the Company's business may be materially adversely affected. The adverse impact of these events occurring can not be quantified at this time. In addition to the Plan, the Company is in the process of developing contingency plans to address issues associated with the reasonably likely worst case scenarios. The Company has completed such contingency plans for field operations, and is in the process of developing contingency plans for mission critical systems Company-wide and expects to have such plans completed in advance of January 1, 2000. The Company does not believe that the direct costs associated with the Year 2000 problem will be material to its business, financial position or results of operations. Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes in market risk exposures that would affect the quantitative and qualitative disclosures presented as of December 31, 1998, in the "Risk Management" section of Management's Discussion and Analysis of Financial Condition and Results of Operations on page 25 of the Company's Annual Report on Form 10-K for the year ended December 31, 1998. 34 Form 10-Q PART II - OTHER INFORMATION Item 1. Legal Proceedings On July 26, 1996, the Company and RMNG, along with over 70 other natural gas companies, were served by Jack J. Grynberg, acting on behalf of the Government of the United States, with a Civil False Claims Act lawsuit filed in Washington, D.C. alleging mismeasurement of the heating content and volume of natural gas on Federal and Native American land resulting in underpayment of royalties to the federal government. The Company and the other named companies filed a motion to dismiss the lawsuit on grounds of improper joinder and lack of jurisdiction. The motion was granted in 1997. Mr. Grynberg appealed the dismissal of the action based on improper joinder, and the D.C. Court of Appeals affirmed the joinder decision in October 1998. Mr. Grynberg has now filed over 70 new cases against over 350 defendants in nine separate Federal Courts. The action against the Company, modified somewhat from his original action, was filed in Federal District Court, District of Colorado, and the Company was served in this action on May 25, 1999. The Department of Justice decided not to intervene in these cases in support of Grynberg's complaint. On October 21, 1999, the Panel on the Multi-District Litigation consolidated all of these cases in the Federal District Court of Wyoming. On September 23, 1999, a complaint styled as the First Amended Class Action Petition regarding "Quinque Operating Company, et al. v. Gas Pipelines, et al.," Case No. 99-C-30, Stevens County District Court, Kansas, was filed. The complaint names over 200 natural gas companies including the Company, K N Interstate Gas Transmission Co., K N Natural Gas, Inc., MidCon Corporation, MidCon Gas Services Corporation, MidCon Marketing Corporation, MidCon Texas Pipeline Operator, Inc., Natural Gas Pipeline Company of America, Northern Gas Company, Rocky Mountain Natural Gas Company, TCP Gathering Company, and Westar Transmission Co. The complaint contains allegations of mismeasurement of the heating content and volume of natural gas on non-Federal and non- Native American lands similar to the allegations contained in the above-referenced False Claim Act lawsuit dealing with Federal and Native American land. On September 24, 1999, Defendant Northern Natural Gas Company filed a Notice of Removal to the United States District Court for the District of Kansas, Case No. 99- 1390-MLB. Subsequently, Defendants notified the Panel on Multi- District Litigation of the existence of this case and requested that it be consolidated as a "tag-a-long" action with the above- referenced False Claim Act case in Wyoming. The Company believes it has meritorious defenses to all lawsuits and legal proceeds in which it is a defendant and will vigorously defend against them. Based on its evaluation of the above matters, and after consideration of reserves established, the Company believes that the resolution of such matters will not have a material adverse effect on the Company's business, financial position or results of operations. Item 2. Changes in Securities and Use of Proceeds On October 7, 1999, the Company issued 200,000 shares of common stock, par value of $5.00 per share, of the Company to Petrie Parkman (the "Petrie Shares") pursuant to the terms of the engagement letter between Petrie Parkman and the Company dated as of June 24, 1999, as amended as of August 20, 1999, in consideration for Petrie Parkman's advisory services rendered in connection with the acquisition of Kinder Morgan Delaware. The issuance of the Petrie Shares was exempt from registration under Section 4(2) of the Securities Act of 1933, as amended. 35 Form 10-Q Item 4. Submission of Matters to a Vote of Security Holders a.) The Company held a Special Meeting of Stockholders on September 28, 1999 (the "Special Meeting"). b.) Proxies for the Special Meeting were solicited pursuant to Regulation 14A of the Securities Exchange Act of 1934. c.) The matters set forth below were voted on at the Special Meeting: (i) A proposal to approve the issuance of approximately 41,500,000 shares of Company common stock in connection with the proposed merger pursuant to which Kinder Morgan Delaware will become a wholly owned subsidiary of the Company, was approved and the number of affirmative votes, negative votes and abstentions with respect to this matter were as follows: For: 53,280,108 Against: 488,072 Abstain: 270,964 (ii) A proposal to approve an amendment to the Company's articles of incorporation to change the Company's name to "Kinder Morgan, Inc.," was approved and the number of affirmative votes, negative votes and abstentions were respect to this matter were as follows: For: 52,486,616 Against: 1,317,030 Abstain: 235,498 Item 5. Other Information On October 7, 1999, the Company consummated its acquisition of Kinder Morgan Delaware pursuant to the terms of the merger agreement. Also, on October 7, 1999, upon the consummation of the transactions contemplated by the merger agreement, David W. Burkholder, Robert H. Chitwood, Howard P. Coghlan, Jordan L. Haines and James C. Taylor resigned from the Company's Board of Directors. In addition, upon consummation of the merger, the Company entered into Governance Agreements with each of Richard D. Kinder and Morgan Associates, Inc. On October 8, 1999, the number of directors constituting the Company's Board of Directors was set at ten and the remaining directors, in accordance with the Governance Agreements described above, appointed Richard D. Kinder, William V. Morgan, Fayez Sarofim and Ted A. Gardner to fill the vacancies on the Company's Board of Directors. On August 5, 1999, John F. Riordan resigned from the Board of Directors. Effective July 31, 1999, Clyde McKenzie, Chief Financial Officer, Mort Aaronson, Chief Marketing Officer, and John DiNardo, Executive Vice President of K N Gas Gathering, left the company as part of a corporate reorganization. Effective July 8, 1999, Larry D. Hall resigned his post as Chairman and Chief Executive Officer of the Company. At that time, Stewart Bliss, an independent member of the Company's Board of Directors, assumed the Chairman and CEO positions on an interim basis. Upon closing of the acquisition by merger of Kinder Morgan Delaware, Richard D. Kinder, Chairman and CEO of Kinder Morgan Delaware, was named Chairman 36 Form 10-Q and CEO of the Company. For more information concerning the acquisition of Kinder Morgan Delaware, see Note 2 of Notes to the interim Consolidated Financial Statements, included elsewhere herein. On June 24, 1999, Richard D. Kinder resigned from the Board of Directors to pursue the transaction between the Company and Kinder Morgan Delaware. On June 20, 1999, David M. Carmichael resigned from the Company's Board of Directors to pursue another business venture. Item 6. Exhibits (A) Exhibits 2.1 Agreement and Plan of Merger dated July 8, 1999, among the Company, Rockies Merger Corp. and Kinder Morgan Delaware (incorporated by reference to Exhibit 2.1 to the Company's Registration Statement on Form S-4 filed on August 23, 1999 (File No. 333-85747)). 2.2 First Amendment to the Agreement and Plan of Merger dated August 20, 1999, among the Company, Rockies Merger Corp. and Kinder Morgan Delaware (incorporated by reference to Exhibit 2.2 to the Company's Registration Statement on Form S-4 filed on August 23, 1999 (File No. 333-85747)). *3.1 Certificate of Amendment to the Restated Articles of Incorporation of the Company as filed on October 7, 1999, with the Secretary of State of Kansas. *3.2 Bylaws of the Company as amended to October 7, 1999. *4.1 Amendment No. 2 to Rights Agreement of the Company dated July 8, 1999, between the Company and First Chicago Trust Company of New York. 10.1 Governance Agreement dated October 7, 1999, between the Company and Richard D. Kinder (incorporated by reference to Exhibit 99.C of the Schedule 13D filed by Mr. Kinder on October 8, 1999). 10.2 Governance Agreement dated October 7, 1999, between the Company and Morgan Associates, Inc. (incorporated by reference to Exhibit 99.C of the Schedule 13D filed by Morgan Associates, Inc. and William V. Morgan on October 8, 1999). 10.3 Employment Agreement dated October 7, 1999, between the Company and Richard D. Kinder (incorporated by reference to Exhibit 99.D of the Schedule 13D filed by Mr. Kinder on October 8, 1999). *10.4 Receivables Purchase Agreement dated September 28, 1999, among KN Receivables Corporation, as Seller, Falcon Asset Securitization Corporation, International Securitization Corporation and The Financial Institutions Party Hereto, as Investors and Bank One, NA, as Agent. 37 Form 10-Q *10.5 Receivables Sale Agreement dated September 28, 1999, between K N Energy, Inc., as the Originator, and other Originators specified herein and KN Receivables Corporation, as Buyer. *27.1 Financial Data Schedule * filed herewith (B) Reports on Form 8-K Current Report on Form 8-K dated July 14, 1999, was filed July 14, 1999, pursuant to Items 5 and 7 of that form. The following was disclosed pursuant to Item 5 of that form: 1) K N Energy, Inc. entered into an Agreement and Plan of Merger (the "Merger Agreement") dated as of July 8, 1999, by and among K N Energy, Inc. and Rockies Merger Corp., a wholly owned subsidiary of K N Energy, Inc., and Kinder Morgan Delaware. 2) Certain stockholders of Kinder Morgan Delaware entered into a Voting Agreement (the "Voting Agreement") whereby they agreed, among other things, to vote their shares of Kinder Morgan Delaware common stock in favor of the merger. 3) On June 20, 1999, David M. Carmichael resigned from the Company's Board of Directors to pursue another business venture. On June 24, 1999, Richard D. Kinder resigned from K N Energy, Inc.'s Board of Directors. On July 8, 1999, Larry D. Hall resigned his post as Chairman and Chief Executive Officer of K N Energy, Inc. 4) Stewart A. Bliss, a director of the Company, assumed the Company Chairman and CEO positions on an interim basis. Upon consummation of the merger, Mr. Kinder will be named Chairman and Chief Executive Officer of the Company. Pursuant to Item 7 of that form, the Merger Agreement, the Voting Agreement and a joint press release of K N Energy, Inc. and Kinder Morgan, Inc. issued July 8, 1999, announcing the merger were filed as exhibits. Current Report on Form 8-K dated September 15, 1999, was filed September 15, 1999, pursuant to Item 5 and Item 7 of that form. A press release outlining the strategies that the Company plans to implement following the completion of the merger in which Kinder Morgan Delaware will become a wholly owned subsidiary of the Company was disclosed pursuant to Item 5. The press release was attached as an exhibit pursuant to Item 7. Current Report on Form 8-K dated September 29, 1999, was filed on September 29, 1999, pursuant to Item 5 and Item 7 of that form. A press release announcing that the Company's stockholders had approved the issuance of shares of the Company's common stock in connection with the merger of a wholly owned subsidiary of the Company with and into Kinder Morgan Delaware and that the Company's stockholders had approved an amendment to the Company's Articles of Incorporation to change the Company's name to Kinder Morgan, Inc. upon completion of the Merger was disclosed pursuant to Item 5. The press release was attached as an exhibit pursuant to Item 7. 38 Form 10-Q SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. KINDER MORGAN, INC. (Registrant) November 5, 1999 /s/ Jack W. Ellis II ----------------------------------- Jack W. Ellis II Vice President and Controller (On Behalf of the Registrant and as Principal Accounting Officer) EXHIBIT INDEX 2.1 Agreement and Plan of Merger dated July 8, 1999, among the Company, Rockies Merger Corp. and Kinder Morgan Delaware (incorporated by reference to Annex A-1 of the Company's Registration Statement on Form S-4 filed on August 23, 1999 (File No. 333-85747)). 2.2 First Amendment to the Agreement and Plan of Merger dated August 20, 1999, among the Company, Rockies Merger Corp. and Kinder Morgan Delaware (incorporated by reference to Exhibit 2.2 to the Company's Registration Statement on Form S-4 filed on August 23, 1999 (File No. 333-85747)). *3.1 Certificate of Amendment to the Restated Articles of Incorporation of the Company as filed on October 7, 1999, with the Secretary of State of Kansas. *3.2 Bylaws of the Company as amended to October 7, 1999. *4.1 Amendment No. 2 to Rights Agreement of the Company dated July 8, 1999, between the Company and First Chicago Trust Company of New York. 10.1 Governance Agreement dated October 7, 1999, between the Company and Richard D. Kinder (incorporated by reference to Exhibit 99.C of the Schedule 13D filed by Mr. Kinder on October 8, 1999). 10.2 Governance Agreement dated October 7, 1999, between the Company and Morgan Associates, Inc. (incorporated by reference to Exhibit 99.C of the Schedule 13D filed by Morgan Associates, Inc. and William V. Morgan on October 8, 1999). 10.3 Employment Agreement dated October 7, 1999, between the Company and Richard D. Kinder (incorporated by reference to Exhibit 99.D of the Schedule 13D filed by Mr. Kinder on October 8, 1999). *10.4 Receivables Purchase Agreement dated September 28, 1999, among KN Receivables Corporation, as Seller, Falcon Asset Securitization Corporation, International Securitization Corporation and The Financial Institutions Party Hereto, as Investors and Bank One, NA, as Agent. *10.5 Receivables Sale Agreement dated September 28, 1999, between K N Energy, Inc., as the Originator, and other Originators specified herein and KN Receivables Corporation, as Buyer. *27.1 Financial Data Schedule * filed herewith EX-3.1 2 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF RESTATEMENT OF ARTICLES OF INCORPORATION OF K N ENERGY, INC. The undersigned, K N Energy, Inc., a Kansas corporation (the "Corporation"), for the purpose of amending the Certificate of Restatement of Articles of Incorporation of the Corporation, in accordance with the Kansas General Corporation Code, does hereby make and execute this Certificate of Amendment of the Certificate of Restatement of Articles of Incorporation and does hereby certify that: 1. The amendment of the Certificate of Restatement of Articles of Incorporation proposed by the directors and adopted by the stockholders of the Corporation is as follows: RESOLVED, that Article First of the Restated Articles of Incorporation of the Corporation be, and it hereby is, superseded and replaced in its entirety with the following: FIRST The name of the Corporation shall be Kinder Morgan, Inc. 2. Such amendment has been duly adopted in accordance with the provisions of Section 17-6602 of the Kansas Statutes Annotated. IN WITNESS WHEREOF, this Certificate of Amendment has been executed by the Corporation by its Chairman and Chief Executive Officer and attested by its Assistant Secretary on the 7th day of October, 1999. K N ENERGY, INC. By: /s/ Stewart A. Bliss ------------------------------------ Stewart A. Bliss Chairman and Chief Executive Officer ATTEST: /s/ Michael S. Richards - ------------------------------ Michael S. Richards, Assistant Secretary STATE OF COLORADO ) )ss COUNTY OF JEFFERSON ) BE IT REMEMBERED, that on this 7TH day of October, 1999, before me, the undersigned, a Notary Public in and for said County and State, personally appeared Stewart A. Bliss and Michael S. Richards, who declared that they are the Chairman and Chief Executive Officer and Assistant Secretary, respectively, of the corporation named in the foregoing certificate, and acknowledged that they executed the foregoing certificate on behalf of the corporation. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year last above written. /s/ Marcia L. Keppy ----------------------------------- Notary Public My Commission Expires: 4/21/99 - --------------- [SEAL] 13792 / 33919 JEPIE 704984 EX-3.2 3 KINDER MORGAN, INC. (Formerly K N Energy, Inc.) ---ooOoo--- B Y - L A W S As Amended to October 7, 1999 Effective October 7, 1999 ---ooOoo--- ARTICLE I OFFICES Section 1. Offices. The registered office shall be at 205 F Street in the City of Phillipsburg, County of Phillips, State of Kansas. The Company's principal executive office shall be at 370 Van Gordon Street, Lakewood, Colorado 80228-8304 (mailing address: Post Office Box 281304, Lakewood, Colorado 80228-8304). Section 2. Additional Offices. The corporation may also have offices at such other places both within and without the State of Kansas as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE II MEETING OF STOCKHOLDERS Section 1. Time and Place. The annual meeting of the shareholders for the election of directors and all special meetings of shareholders for that or for any other purpose may be held at such time and place within or without the State of Kansas as shall be stated in the notice of the meeting, or in a duly executed waiver of notice thereof. Section 2. Annual Meeting. The annual meeting of the shareholders shall be held each year at a time to be determined by the Board of Directors, at which meeting the shareholders shall elect a Board of Directors, and transact such other business as may be properly brought before the meeting. Section 3. Special Meetings. Special meetings of the shareholders, for any purpose or purposes, unless otherwise prescribed by statute may be called by the Chairman of the Board, if any, the President or the Board of Directors, and shall be called by the President or the Secretary at the request in writing of a majority of the directors, or at the request in writing of shareholders owning at least fifty-one percent (51%) in amount of the shares of the Corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. Section 4. Notice. Written notice of the place, date and hour of any annual or special meeting of shareholders shall be given personally or by mail to each shareholder entitled to vote thereat, not less than ten (10) nor more than fifty (50) days prior to the meeting. The notice shall state in addition, the purpose or purposes for which the meeting is called, and by, or at whose direction it is being issued. Section 5. Quorum. Except as otherwise provided by the Articles of Incorporation, the holders of a majority of the shares of the Corporation issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall be necessary to and shall constitute a quorum for the transaction of business at all meetings of the shareholders. If, however, such quorum shall not be present or represented at any meeting of the shareholders, the shareholders entitled to vote thereat present in person or represented by proxy shall have power to adjourn the meeting from time to time, but not for more than thirty (30) days, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. Section 6. Voting. At any meeting of the shareholders every shareholder having the right to vote shall be entitled to vote in person, or by proxy. Except as otherwise provided by law or the Articles of Incorporation, each shareholder of record shall be entitled, as to each proposal, to one vote for each share of stock standing in his name on the books of the Corporation on the date fixed as the record date for the determination of its shareholders entitled to vote. All elections of directors shall be by written ballot and shall be determined by a plurality vote, and, except as otherwise provided by law or the Articles of Incorporation, all other matters shall be determined by vote of a majority of the shares present or represented at such meeting and voting on such questions. Section 7. Proxies. Every proxy must be executed in writing by the shareholder or by his attorney-in-fact. No proxy shall be valid after the expiration of eleven (11) months from the date thereof, unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the shareholder executing it, except in those cases where an irrevocable proxy is permitted by law. Section 8. Consents. Whenever by any provision of law or of the Articles of Incorporation, the vote of shareholders at a meeting thereof is required or permitted to be taken in connection with any corporate action, the meeting and vote of shareholders may be dispensed with, if all the shareholders who would have been entitled to vote upon the action if such meeting were held, shall consent in writing to such corporate action being taken. Section 9. Presiding Officer. Meetings of the shareholders shall be presided over by the Chairman of the Board, if any, or if he is not present, by the President, or, if he is not present, by a Vice President or, if neither the Chairman of the Board, the President nor a Vice President is present, by a chairman to be chosen at the meeting. The Secretary of the Company or, if he is not present, an Assistant Secretary of the Company or, if neither the Secretary nor an Assistant Secretary is present, a secretary to be chosen at the meeting, shall act as secretary of the meeting. Section 10. Notice of Shareholder Business. At an annual meeting of shareholders, only such business shall be conducted as shall have been properly brought before the meeting (a) by or at the direction of the Board of Directors or (b) by a shareholder who is a shareholder of record at the time of giving such notice, who shall be entitled to vote at such meeting and who complies with the notice procedures set forth in this Section. For business to be properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the Secretary. To be timely, a shareholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation, not less than 40 days prior to the meeting. A shareholder's notice to the Secretary shall set forth as to each matter the shareholder proposes to bring before the annual meeting (a) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and address, as they appear on the Corporation's books, of the shareholder proposing such business, (c) the class and number of shares of the Corporation which are beneficially owned by the shareholder, and (d) any material interest of the shareholder in such business. Nothwithstanding anything in these By-Laws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this Section. The Chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of this Section, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Notwithstanding the foregoing provisions of this Section, a shareholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended and the rules and regulations thereunder with respect to the matters set forth in this Section. ARTICLE III DIRECTORS Section 1. Number and Tenure. The whole Board of Directors of the Corporation shall consist of ten members. The directors shall be classified with respect to the time for which they shall severally hold office by dividing them into three classes, which were first approved at the annual meeting of shareholders in 1975; Class I shall consist of three directors whose initial term of office shall expire in 1994, Class II shall consist of four directors whose initial term of office shall expire in 1995, and Class III shall consist of three directors whose initial term of office shall expire in 1996. Each director shall hold office until his successor is duly elected and qualified or until his resignation in writing has been filed with the corporation. At each annual election, the successors of the class of directors whose terms shall expire that year shall be elected to hold office for a term of three years, so that the term of office of one class of directors shall expire in each year, except where the Board of Directors determines that a newly elected director shall be elected by the shareholders to fill a vacancy of a directorship created subsequent to the previous annual meeting, such director shall be elected to hold office for the balance of the term of the class of directors of which he is to be a member, as determined by the Board of Directors, and until his successor is elected and qualified. Section 2. Vacancies. A vacancy on the Board of Directors or a newly created directorship may be filled by a majority of the remaining directors, though less than a quorum, or by the sole director, by election of a new director, who at the time of his election shall be designated as a member of one of the classes of directors and shall hold office until the next election of the class of which he has become a member, unless his term of office is terminated by death, resignation, or otherwise. Section 3. Resignation, Retirement; Removal. Any director may resign at any time. Any director who experiences a change in his personal or business circumstances or principal employment shall immediately tender his resignation as a director of the Corporation to the Executive Committee of the Board of Directors. From and after the annual meeting of shareholders held in the year 2000, any director who is not an employee of the Corporation shall retire his position as a director at the annual meeting of the shareholders of the Corporation next occurring after such director attains the age of 72 years. The Board of Directors may by unanimous vote of other directors then in office, remove a director with or without cause. The shareholders entitled to vote for the election of directors may remove a director, with cause as provided in the Articles of Incorporation. Section 4. Advisory Directors and Directors Emeritus. The Board of Directors by a vote of a majority of the directors present and entitled to vote, at any regular or special meeting at which a quorum is present, may designate such number of persons as it may from time to time determine, as an "Advisory Director" or may designate a former member of the Board as a "Director Emeritus," if such former member is willing to so serve. Each Advisory Director and each Director Emeritus shall serve, subject to the pleasure of the regular Board of Directors, until the next succeeding annual meeting of the regular Board of Directors, following the annual meeting of the stockholders, at which such regular directors are elected, unless he shall have resigned. Each Advisory Director and each Director Emeritus shall be notified of all regular or special meetings of the regular Board of Directors, shall be entitled to attend and participate therein, but shall not be entitled to vote. Each Advisory Director and each Director Emeritus shall be reimbursed for any necessary expenses of attending directors' meetings. Section 5. Nomination of Director Candidates. (a) Eligibility to Make Nominations. Nominations of candidates for election as directors of the Corporation at any meeting of shareholders called for election of directors, in whole or in part (an "Election Meeting"), may be made by the Board of Directors or by any shareholder who is a shareholder of record at the time of giving notice, who shall be entitled to vote at such Election Meeting and who complies with the notice procedures set forth in this Section. (b) Procedure for Nominations by Shareholders. Nominations, other than those made by the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary. To be timely, shareholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than 40 days prior to the date of the Election Meeting. Such shareholder's notice shall set forth (i) the name, age, business address and residence address of each nominee proposed in such notice, (ii) the principal occupation or employment of each such nominee, (iii) the number of shares of capital stock of the Corporation which are beneficially owned by each such nominee and (iv) such other information concerning each such nominee as would be required, under the rules of the SEC, in a proxy statement soliciting proxies for the election of such nominees. Such notice shall include a signed consent to serve as a director of the Corporation, if elected, of each such nominee. Such notice shall also set forth as to the shareholder giving the notice (i) the name and address, as they appear on the Corpora tion's books, of such shareholder and (ii) the class and number of shares of the Corporation which are beneficially owned by such shareholder. (c) Meeting Procedures. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by this Section 5, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. (d) Substitution of Nominees. In the event that a person is validly designated as a nominee to the Board and shall thereafter become unable or unwilling to stand for election to the Board of Directors, the Board of Directors or the shareholder who proposed such nominee, as the case may be, may designate a substitute nominee. (e) Securities Exchange Act of 1934. Notwithstanding the foregoing provisions of this Section, a shareholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended and the rules and regulations thereunder with respect to the matters set forth in this Section. ARTICLE IV MEETINGS OF THE BOARD OF DIRECTORS Section 1. Place. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Kansas. Section 2. Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the Board. Section 3. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board, if any, or by the President on two days' notice to each director, either personally or by mail or by telegram; special meetings shall be called by the Chairman, President or Secretary in like manner and on like notice on the written request of two directors. Section 4. Quorum. At all meetings of the Board of Directors a majority of the entire Board shall be necessary to and constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the Articles of Incorporation. If a quorum shall not be present at any meeting of the Board of Directors the directors present thereat may adjourn the meeting from time to time until a quorum shall be present. Notice of such adjournment shall be given to any directors who were not present and, unless announced at the meeting, to the other directors. Section 5. Consents. Unless otherwise restricted by the Articles of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or of such committee as the case may be, consent thereto in writing and such written consent is filed with the minutes of the Board or committee. Such consents may be in counterpart so that each member will have signed a consent, but all members need not sign the same document. Section 6. Compensation. Directors, as such, shall not receive any stated salary for their services, but, by resolution of the Board of Directors an annual fee, plus a fee and expenses for attendance at meetings may be allowed, provided that nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Section 7. Presiding Officer. Meetings of the Board of Directors shall be presided over by the Chairman of the Board, if any, or, if he is not present, by the President or, if he is not present, by a chairman to be chosen at the meeting. The Secretary of the Company, or, if he is not present, an Assistant Secretary of the Company, or, if neither the Secretary nor an Assistant Secretary is present, a secretary to be chosen at the meeting, shall act as secretary of the meeting. ARTICLE V COMMITTEES OF DIRECTORS Section 1. Designation. The Board of Directors, by resolution adopted by a majority of the whole Board, may designate from among its members one or more committees, each consisting of two or more directors, each of which, to the extent provided in such resolution, shall have and may exercise the powers of the Board of Directors in the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. The Board may designate one or more directors as alternate members of any committee who may replace any absent or disqualified member at any meeting of the committee. Section 2. Tenure; Reports. Each such committee shall serve at the pleasure of the Board. It shall keep minutes of its meetings and report the same to the Board. ARTICLE VI EXECUTIVE COMMITTEE Section 1. Appointment and Authority. The Board of Directors may by resolution or resolutions passed by a majority of the whole Board create and designate an Executive Committee consisting of the officer who is designated as Chief Executive Officer and two or more other directors of the Company who shall hold office subject to the pleasure of the Board of Directors, and the Board shall have the power at any time to remove any of the members of the Executive Committee and to appoint to the Committee other directors in lieu of the directors so removed. The Chief Executive Officer shall serve as Chairman of the Executive Committee. During the intervals between the meetings of the Board of Directors the Executive Committee shall possess and may exercise the powers delegated by the Board of Directors, including the power to authorize the seal of the Company to be affixed to all papers which may require it, to authorize the payment of dividends, to authorize the issuance of stock, to serve as a nominating committee for the Board of Directors and to approve resolutions necessary for the day-to-day operations of the Company; provided, however, that the Executive Committee shall not have power to amend these By-Laws or to fill vacancies on the Board of Directors or to fill vacancies in, or to change the membership of, said Committee. The Executive Committee shall also have and may exercise all the powers of the Board of Directors except as aforesaid whenever a quorum of the Board shall fail to be present at any meeting of the Board. Section 2. Report of Action Taken. All action of the Executive Committee shall be reported to the Board of Directors at its meeting next succeeding such action, and shall be subject to revision and alteration by the Board, provided that no rights of third parties shall be affected by any such revision or alteration. Regular minutes of the proceedings of the Executive Committee shall be kept in a book provided for that purpose. Section 3. Quorum and Procedure. A majority of the members of the Executive Committee shall be necessary to constitute a quorum, and, in every case, an affirmative vote of a majority of the members shall be necessary for the passage of any resolution. It shall fix its own rules of procedure and shall meet as provided by such rules or by resolution of the Board, and it shall also meet at the call of the Chairman or of any two members of the Committee. Should the Executive Committee fail to fix its own rules therefor, the provisions of these By-Laws, pertaining to the calling of meetings and conduct of business by the Board of Directors, shall apply as nearly as may be. Section 4. Consent. Unless otherwise restricted by statute, the Articles of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Executive Committee thereof may be taken without a meeting, if a written consent thereto is signed by each member of the Executive Committee, and such written consent is filed with the minutes of proceedings of the Executive Committee. Such consents may be in counterpart so that each member will have signed a consent but all members need not sign the same document. ARTICLE VII NOTICES Section 1. Form; Delivery. Notices to directors and shareholders shall be in writing and delivered personally or mailed to the directors or shareholders at their addresses appearing on the books of the Corporation. Notice by mail shall be deemed to be given at the time when the same shall be mailed. Notice to directors may also be given by telegram. Section 2. Waiver. Whenever any notice is required to be given under the provisions of the statutes or of the Articles of Incorporation or of these By-Laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. In addition, any shareholder attending a meeting of shareholders in person or by proxy without protesting at the beginning of the meeting the lack of notice thereof to him, and any director attending a meeting of the Board of Directors without protesting prior to the meeting or at its commencement such lack of notice shall be conclusively deemed to have waived notice of such meeting. ARTICLE VIII OFFICERS Section 1. Executive Officers. The executive officers of the Corporation shall be a President and one or more Vice Presidents, a Secretary, a Treasurer and may include a Chairman of the Board. Section 2. Designation; Term of Office; Removal. All officers shall be elected by the Board of Directors and shall hold office for such term as may be prescribed by the Board or until their successors are chosen and qualified or until their resignation is filed in the office of the Secretary, whichever first occurs. Any officer elected by the Board may be removed with or without cause at any time by the Board. Section 3. Authority and Duties. All officers, as between themselves and the Corporation, shall have such authority and perform such duties in the management of the Corporation as may be provided in these By-Laws, or, to the extent not so provided, by the Board of Directors. Section 4. Compensation. The compensation of all officers of the Corporation shall be fixed by the Board of Directors and the compensation of agents shall either be so fixed or shall be fixed by officers thereunto duly authorized. Section 5. Vacancies. If an office becomes vacant for any reason, the Board of Directors shall fill such vacancy. Any officer so elected by the Board shall serve only until such time as the unexpired term of his predecessor shall have expired unless re-elected or reappointed by the Board. Section 6. The Chairman of the Board. The Chairman of the Board of Directors, if there be a Chairman, shall preside at all meetings of the shareholders and directors and shall have such other powers and duties as may from time to time be assigned by the Board including designation as Chief Executive Officer if the President is not so designated. Section 7. The President. The President shall be the Chief Executive Officer of the Corporation unless the Chairman of the Board is so designated, in which event the President shall be Chief Operating Officer of the Corporation. In the absence of the Chairman of the Board, or if there be no Chairman, he shall preside at all meetings of the shareholders and directors. The Chief Executive Officer, whether the Chairman of the Board or the President, shall be ex officio a member of all standing committees, shall have general and active management and control of the business and affairs of the Corporation subject to the control of the Board of Directors, and shall see that all orders and resolutions of the Board are carried into effect. Section 8. Vice Presidents. The Vice Presidents in the order of their seniority or in any other order determined by the Board, shall in the absence or disability of the President, perform the duties and exercise the powers of the President, and shall generally assist the President and perform such other duties as the Board of Directors or the President shall prescribe. Section 9. The Secretary. The Secretary shall attend all meetings of the Board and all meetings of the shareholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the shareholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or President, under whose supervision he shall act. He shall keep in safe custody the seal of the Corporation and, when authorized by the Board, affix the same to any instrument requiring it and, when so affixed, it shall be attested by his signature or by the signature of the Treasurer or an Assistant Secretary or Assistant Treasurer. He shall keep in safe custody the certificate books and shareholder records and such other books and records as the Board may direct and shall perform all other duties incident to the office of the Secretary. Section 10. Assistant Secretaries. The Assistant Secretaries, if any, in order of their seniority or in any other order determined by the Board shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties as the Board of Directors or the Secretary shall prescribe. Section 11. The Treasurer. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the Board of Directors. He shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and the Board of Directors at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as Treasurer and of the financial condition of the Corporation. He shall establish and execute programs for the provision of the capital required by the Company, including negotiating the procurement of capital and maintaining the required financial arrangements. He shall establish and maintain an adequate market for the Company's securities and, in connection therewith, maintain adequate liaison with investment bankers, financial analysts and shareholders. He shall maintain adequate sources for the Company's current borrowings from commercial banks and other lending institutions. He shall maintain banking arrangements to receive, have custody of and disburse the Company's moneys and securities. He shall invest the Company's funds as required and establish and coordinate policies for investment in pension and other similar trusts. Section 12. Assistant Treasurers. The Assistant Treasurers, if any, in the order of their seniority or in any other order determined by the Board, shall in the absence or disability of the Treasurer, perform the duties and exercise the power of the Treasurer and shall perform such other duties as the Board of Directors or the Treasurer shall prescribe. ARTICLE IX CERTIFICATE OF SHARES Section 1. Form; Signature. The certificates for shares of the Corporation shall be in such form as shall be determined by the Board of Directors and shall be numbered consecutively and entered in the books of the Corporation as they are issued. Each certificate shall exhibit the registered holder's name and the number and class of shares, and shall be signed by the President or a Vice President and the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary, and shall bear the seal of the Corporation or a facsimile thereof. Where any such certificate is countersigned by a transfer agent or by a registrar other than the Corporation, the signature of any such officer may be a facsimile signature. In case any officer who signed, or whose facsimile signature or signatures were placed on any such certificate shall have ceased to be such officer before such certificate is issued, it may nevertheless be issued by the Corporation with the same effect as if he were such officer at the date of issue. Section 2. Lost Certificates. The Board of Directors may direct a new share certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate to be lost or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificate or certificates, or his legal representative, to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost or destroyed. Section 3. Registration of Transfer. Upon surrender to the Corporation or any transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation, or such transfer agent to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 4. Registered Shareholders. Except as otherwise provided by law, the Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends or other distributions, and to vote as such owner, and to hold liable for calls a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or legal claim to or interest in such share or shares on the part of any other person. Section 5. Record Date. For the purpose of determining the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or to express consent to or dissent from any proposal without a meeting, or for the purpose of determining shareholders entitled to receive payment of any dividend or the allotment of any rights, or for the purpose of any other action affecting the interests of shareholders, the Board of Directors may fix, in advance, a record date. Such date shall not be more than sixty (60) nor less than ten (10) days before the date of any such meeting, nor more than sixty (60) days prior to any other action. In each such case, except as otherwise provided by law, only such persons as shall be shareholders of record on the date so fixed shall be entitled to notice of, and to vote at, such meeting and any adjournment thereof, or to express such consent or dissent, or to receive payment of such dividend, or such allotment of rights, or otherwise to be recognized as shareholders for the related purpose, notwithstanding any registration of transfer of shares on the books of the Corporation after any such record date so fixed. ARTICLE X GENERAL PROVISIONS Section 1. Dividends. Subject to the provisions of the Articles of Incorporation, if any, dividends upon the outstanding shares of the Corporation may be declared by the Board of Directors at any regular or special meeting, pursuant to law and may be paid in cash, in property, or in shares of the Corporation. Section 2. Reserves. Before payment of any dividends, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the directors shall think conducive to the interest of the Corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. Section 3. Annual Statement. The Board of Directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation. Section 4. Instruments Under Seal. All deeds, bonds, mortgages, contracts, and other instruments requiring a seal may be signed in the name of the Corporation by the President or by any other officer authorized to sign such instrument by the President or the Board of Directors. Section 5. Checks. All checks or demands for money and notes or other instrument evidencing indebtedness or obligation of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. Section 6. Fiscal Year. The fiscal year of the Corporation shall begin on the first day of January of each year and shall end on the thirty-first day of December following. Section 7. Seal. The corporate seal shall have inscribed thereon the name of the corporation and the words "Corporate Seal, Kansas 1927." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE XI AMENDMENTS Section 1. These By-Laws may be altered or repealed at any regular meeting of the Board of Directors, or at any special meeting of the Board of Directors if notice of such alteration or repeal be contained in the notice of such special meeting. ARTICLE XII SPECIAL MANAGEMENT PROVISIONS Section 1. General. The provisions of this Article XII of the By-Laws have been adopted by the Board of Directors of the Corporation pursuant to that certain Agreement of Merger by and between the Corporation, KNE Acquisition Corporation, a Delaware corporation, and American Oil and Gas Corporation, a Delaware corporation dated March 24, 1994 (the "Merger Agreement"). Capitalized terms used in this Article XII not otherwise defined herein shall have the meaning ascribed to them in the Merger Agreement. The provisions of this Article XII shall be effective from and after the Effective Time notwithstanding any other provisions of these By-Laws to the contrary. In the event of a conflict between the provisions of this Article XII and other provisions of the By-Laws, the provisions of this Article XII shall control. Section 2. Cabot Director. For so long as Cabot Corporation shall continue to own beneficially (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission) 10% or more of the issued and outstanding voting stock of the Corporation, Cabot Corporation shall have the right to designate one person to serve as an advisory director of the Corporation. In the event beneficial ownership of Cabot Corporation of the issued and outstanding voting stock of the Corporation falls below 10% but constitutes more than 5%, the Board of Directors shall appoint the Cabot Corporation advisory director as a full director, to serve the then remaining term of a Class II director. For so long as Cabot Corporation continues to own beneficially less than 10% but more than 5% of the issued and outstanding voting stock of the Corporation, the Board of Directors shall nominate a Cabot Corporation designee (provided that such nominee is otherwise qualified as required by these By- Laws) for election by the Corporation's stockholders as a director. The Corporation shall at all times during which Cabot Corporation shall beneficially own in excess 10% of the issued and outstanding voting stock of the Corporation, maintain a vacancy on its Board of Directors for such Cabot designee. Section 3. Vacancies in Certain Offices. Any vacancy arising following the Effective Time and prior to the Corporation's Annual Meeting of Stockholders in 1996, in the offices of the Chairman of the Board, Vice-Chairman of the Board, President, Chief Executive Officer or Chief Operating Officer, or on the Management Committee or the Chairman of the Management Committee, shall be filled by the Board of Directors upon recommendation by a Special Nominating Committee of the Board of Directors. The Board of Directors shall by majority vote establish a Special Nominating Committee in the event of a vacancy in any of the foregoing positions. The Special Nominating Committee shall consist of four directors, two of whom shall be designated by the Board of Directors from the directors of the Corporation who served as a director prior to the Effective Time, and two of whom shall be designated by the directors designated by American Oil and Gas Corporation in the Merger Agreement. Section 4. Continuation of Retirement Policy. The Corporation shall continue its present retirement policy that officers of the Corporation (including the Chairman of the Board, Vice-Chairman of the Board, President and Chief Executive Officer or Chief Operating Officer) shall be ineligible and cease to serve as an officer of the Corporation as of the first of the month coincident with or next following his or her 65th birthday. Section 5. Super-Majority Vote. For purposes of this Article XII, the term "Super-Majority Vote" shall mean the affirmative vote of at least 12 of a 14-member Board of Directors; at least 11 of a 13-member Board of Directors; at least 10 of a 12-member Board of Directors; at least 9 of an 11- member Board of Directors; or in all other cases, the affirmative vote of a number of directors equal to at least 85% of the total number of directors. A Super-Majority Vote shall be required for the following actions to be taken by the Board of Directors; (i) amendment, modification or revocation of any provision of this Article XII; (ii) amendment, modification or revocation of the current retirement policy of the Corporation; and (iii) any increase in the number of members to serve on the Board of Directors; provided that, no Super-Majority Vote shall be required for any such action taken by the Board of Directors from and after the date of the annual stockholders meeting for 1997. I hereby certify that the foregoing are the By-Laws of K N Energy, Inc. as the same were adopted at the meeting of the Board of Directors on May 20, 1975, and subsequently amended at meetings of the Board of Directors on November 20, 1975, November 8, 1978, August 5, 1983, November 11, 1983, November 16, 1984, January 9, 1988, March 24, 1989, August 10, 1989, January 20, 1991, November 10, 1993, June 24, 1994, July 13, 1994, April 11, 1996, February 10, 1998, March 9, 1999, and September 2, 1999, and are still in force and effect on this 7th day of October, 1999. /s/Michael S. Richards ------------------------------ Michael S. Richards Assistant Secretary EX-4.1 4 1 AMENDMENT NO. 2 TO RIGHTS AGREEMENT This Amendment No. 2 to Rights Agreement, dated as of July 8, 1999, by and between K N Energy, Inc., a Kansas corporation (the "Company"), and First Chicago Trust Company of New York (the "Rights Agent"). WHEREAS, the Board of Directors of the Company has authorized the execution and delivery by the Company of an Agreement and Plan of Merger, dated as of July 8, 1999, by and among the Company, Rockies Merger Corp., a Delaware corporation and wholly-owned subsidiary of the Company ("Merger Sub"), and Kinder Morgan, Inc., a Delaware corporation ("Kinder Morgan"), and in connection therewith the Board has determined in good faith that certain amendments set forth below to the Rights Agreement, dated as of August 21, 1995, as amended by Amendment No. 1 thereto dated as of September 8, 1998, between the Company and The Bank of New York, as the initial Rights Agent (the "Rights Agreement"), are desirable and, pursuant to Section 29 of the Rights Agreement, has duly authorized such amendments to the Rights Agreement. A duly authorized officer of the Company has executed and delivered this Amendment No. 2 to Rights Agreement (the "Amendment"). WHEREAS, First Chicago Trust Company of New York has succeeded The Bank of New York as Rights Agent. NOW THEREFORE, for good and valuable consideration, the parties hereby agree as follows: Section 1. Certain Definitions. For purposes of this Amendment, terms which are capitalized but not defined herein and which are defined in the Rights Agreement shall have the meanings ascribed to them in the Rights Agreement. Section 2. Amendment to Section 1 of the Rights Agreement. Section 1 of the Rights Agreement is hereby amended to add the following definitions: "Kinder Morgan" shall mean Kinder Morgan, Inc., a Delaware corporation. "Merger" shall mean the merger of Merger Sub with and into Kinder Morgan pursuant to the Merger Agreement. "Merger Agreement" shall mean the Agreement and Plan of Merger dated as of July 8, 1999, by and among the Company, Merger Sub and Kinder Morgan, as the same may be amended from time to time in accordance with its terms. "Merger Sub" shall mean Rockies Merger Corp., a Delaware corporation and a wholly owned subsidiary of the Company. Section 3. Restatement of the Definition of "Acquiring Person". The definition of "Acquiring Person" set forth in Section 1 of the Rights Agreement is hereby deleted in its entirety and replaced with the following definition: "Acquiring Person" shall mean any Person who or which, together with all Affiliates and Associates of such Person, shall be the Beneficial Owner of 20% or more of the Voting Shares of the Company then outstanding, but shall not include the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company or any trustee of or fiduciary with respect to any such plan when acting in such capacity. Notwithstanding the foregoing, no Person shall become an "Acquiring Person" as the result of an acquisition of Voting Shares by the Company which, by reducing the number of shares outstanding, increases the proportionate number of shares beneficially owned by such Person to 20% or more of the Voting Shares of the Company then outstanding; provided, however, that, if a Person shall become the Beneficial Owner of 20% or more of the Voting Shares of the Company then outstanding by reason of share purchases by the Company and shall, after such share purchases by the Company and at a time when such Person is the Beneficial Owner of 20% or more of the Voting Shares of the Company then outstanding, become the Beneficial Owner of any additional percentage of the outstanding Voting Shares of the Company, then such Person shall be deemed to be an "Acquiring Person." Notwithstanding the foregoing, (i) Cabot shall not become an "Acquiring Person" as the result of either its right to acquire, or its acquisition of, any Voting Shares underlying any Warrants and (ii) neither Richard D. Kinder nor Morgan Associates, Inc., in each case together with all Affiliates and Associates of such Person, individually or together as a group, shall become an "Acquiring Person" as a result of their respective rights to acquire, or their respective acquisition of, any Voting Shares. Notwithstanding the foregoing, if the Board of Directors of the Company determines in good faith that a Person who would otherwise be an "Acquiring Person", as defined pursuant to the foregoing provisions of this paragraph, has become such inadvertently, and such Person divests as promptly as practicable a sufficient number of Common Shares so that such Person would no longer be an "Acquiring Person," as defined pursuant to the foregoing provisions of this paragraph, then such Person shall not be deemed to be an "Acquiring Person" for any purposes of this Agreement. Section 4. Addition of Section 36 of Rights Agreement. The Rights Agreement is hereby amended to add thereto Section 36, which provides as follows: Section 36. The Merger Agreement. Notwithstanding anything in this Agreement to the contrary, no Distribution Date or Shares Acquisition Date shall be deemed to have occurred, neither Kinder Morgan nor any of its Affiliates or Associates shall be deemed to have become an Acquiring Person or have any obligation under this Rights Agreement, and no holder of any Rights Certificate shall be entitled to exercise the Rights evidenced thereby under, or be entitled to any rights or benefits pursuant to, this Rights Agreement, in each case by reason of (a) the approval, execution or delivery of the Merger Agreement or (b) consummation of any of the transactions contemplated thereby, including, without limitation, the Merger. Section 5. Effectiveness. This Amendment shall be deemed effective as of July 8, 1999 as if executed by both parties on such date. Except as expressly amended by this Amendment, the Rights Agreement shall remain in full force and effect. Section 6. Governing Law. This Amendment shall be deemed to be a contract made under the laws of the State of Kansas and for all purposes shall be governed by and construed and enforced in accordance with the laws of such State applicable to contracts to be made and performed entirely within such State. Section 7. Counterparts. This Amendment may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. Section 8. Severability. If any term, provision, covenant or restriction of this Amendment is held by a court of competent jurisdiction or other authority to be invalid, illegal or unenforceable, then the remainder of the terms, provisions, covenants or restrictions of this Amendment shall remain in full force and effect and shall in no way be affected, impaired or invalidated. Section 9. Descriptive Headings. Descriptive headings of the several Sections of this Amendment are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed, all as of the day and year first above written. K N ENERGY, INC. By: /s/ Stewart A. Bliss -------------------------------- Name: Stewart A. Bliss Title: Chairman and Chief Executive Officer FIRST CHICAGO TRUST COMPANY OF NEW YORK, Rights Agent By: /s/ Thomas McDonough ----------------------------- Name: Thomas McDonough Title: Assistant Vice President EX-10.4 5 RECEIVABLES PURCHASE AGREEMENT dated as of September 28, 1999 Among KN RECEIVABLES CORPORATION , as Seller, FALCON ASSET SECURITIZATION CORPORATION, INTERNATIONAL SECURITIZATION CORPORATION and THE FINANCIAL INSTITUTIONS PARTY HERETO, as Investors BANK ONE, NA, as Agent TABLE OF CONTENTS ARTICLE I PURCHASE ARRANGEMENTS 1 Section 1.1 Purchase Facility 1 Section 1.2 Increases 2 Section 1.3 Decreases 2 Section 1.4 Payment Requirements 2 ARTICLE II PAYMENTS AND COLLECTIONS 3 Section 2.1 Payments 3 Section 2.2 Collections Prior to Amortization 3 Section 2.3 Collections Following Amortization 4 Section 2.4 Application of Collections 4 Section 2.5 Seller's Interest 5 Section 2.6 Payment Rescission 6 Section 2.7 Purchaser Interests 6 ARTICLE III CONDUIT FUNDING 6 Section 3.1 CP Costs 6 Section 3.2 CP Costs Payments 6 Section 3.3 Calculation of CP Costs 7 ARTICLE IV FINANCIAL INSTITUTION FUNDING 7 Section 4.1 Financial Institution Funding 7 Section 4.2 Financial Institution Discount Payments 7 Section 4.3 Selection and Continuation of Tranche Periods 7 Section 4.4 Financial Institution Discount Rates 8 Section 4.5 Suspension of the LIBO Rate 8 ARTICLE V REPRESENTATIONS AND WARRANTIES 8 Section 5.1 Representations and Warranties of Seller Parties 8 Section 5.2 Financial Institution Representations and Warranties 12 ARTICLE VI CONDITIONS OF PURCHASES 13 Section 6.1 Conditions Precedent to Initial Incremental Purchase 13 Section 6.2 Conditions Precedent to All Purchases and Reinvestments 13 ARTICLE VII COVENANTS 14 Section 7.1 Affirmative Covenants of Seller 14 Section 7.2 Negative Covenants of Seller 21 ARTICLE VIII ADMINISTRATION AND COLLECTION 23 Section 8.1 Designation of Servicer 23 Section 8.2 Duties of Servicer 24 Section 8.3 Collection Notices 25 Section 8.4 Responsibilities of Seller 26 Section 8.5 Reports 26 Section 8.6 Servicing Fees 26 ARTICLE IX AMORTIZATION EVENTS 26 Section 9.1 Amortization Events 26 Section 9.2 Remedies 29 ARTICLE X INDEMNIFICATION 29 Section 10.1 INDEMNITIES BY SELLER 29 Section 10.2 Increased Cost and Reduced Return 33 Section 10.3 OTHER COSTS AND EXPENSES 34 ARTICLE XI THE AGENT 34 Section 11.1 Authorization and Action 34 Section 11.2 Delegation of Duties 35 Section 11.3 Exculpatory Provisions 35 Section 11.4 Reliance by Agent 35 Section 11.5 Non-Reliance on Agent and Other Purchasers 36 Section 11.6 Reimbursement and Indemnification 36 Section 11.7 Agent in its Individual Capacity 36 Section 11.8 Successor Agent 36 ARTICLE XII ASSIGNMENTS; PARTICIPATIONS 37 Section 12.1 Assignments 37 Section 12.2 Participations 38 ARTICLE XIII LIQUIDITY FACILITY 38 Section 13.1 Transfer to Financial Institutions 38 Section 13.2 Transfer Price Reduction Yield 39 Section 13.3 Payments to Conduits 39 Section 13.4 Limitation on Commitment to Purchase from Conduits 39 Section 13.5 Defaulting Financial Institutions 39 Section 13.6 Terminating Financial Institutions 40 ARTICLE XIV MISCELLANEOUS 41 Section 14.1 Waivers and Amendments 41 Section 14.2 Notices 42 Section 14.3 Ratable Payments 42 Section 14.4 Protection of Ownership Interests of the Purchasers 42 Section 14.5 Confidentiality 43 Section 14.6 Bankruptcy Petition 44 Section 14.7 Limitation of Liability 44 Section 14.8 CHOICE OF LAW 44 Section 14.9 CONSENT TO JURISDICTION 44 Section 14.10 WAIVER OF JURY TRIAL 45 Section 14.11 Integration; Binding Effect; Survival of Terms 45 Section 14.12 Counterparts; Severability; Section References 45 Section 14.13 Bank One Roles 45 Section 14.14 Characterization 46 EXHIBITS AND SCHEDULES Exhibit I Definitions Exhibit II Form of Purchase Notice Exhibit III Places of Business of the Seller Parties; Locations of Records; Federal Employer Identification Number(s) Exhibit IV Names of Collection Banks; Collection Accounts Exhibit V Form of Compliance Certificate Exhibit VI Form of Collection Account Agreement Exhibit VII Form of Assignment Agreement Exhibit VIII Credit and Collection Policy Exhibit IX Form of Contract(s) Exhibit X Form of Monthly Report Schedule A Commitments of Financial Institutions Schedule B Documents to be Delivered to the Agent RECEIVABLES PURCHASE AGREEMENT This Receivables Purchase Agreement dated as of September 28, 1999 is among KN Receivables Corporation, a Delaware corporation ("Seller"), the funding entities listed on Schedule A to this Agreement (together with any of their respective successors and assigns hereunder, the "Financial Institutions"), Falcon Asset Securitization Company ("FALCON") and International Securitization Corporation ("ISC"), (FALCON and ISC each being referred to individually as a "Conduit" and collectively as the "Conduits," and together with the Financial Institutions, the "Purchasers") and Bank One, NA, as agent for the Purchasers hereunder or any successor agent hereunder (together with its successors and assigns hereunder, the "Agent"). Unless defined elsewhere herein, capitalized terms used in this Agreement shall have the meanings assigned to such terms in Exhibit I. PRELIMINARY STATEMENTS Seller desires to transfer and assign Purchaser Interests to the Purchasers from time to time. The Conduits may, in their absolute and sole discretion, purchase Purchaser Interests from Seller from time to time. In the event that either Conduit declines to make any purchase, the Financial Institutions shall, at the request of Seller, purchase Purchaser Interests from time to time. In addition, the Financial Institutions have agreed to provide a liquidity facility to the Conduits in accordance with the terms hereof. Bank One, NA has been requested and is willing to act as Agent on behalf of Conduits and the Financial Institutions in accordance with the terms hereof. 1 ARTICLE PURCHASE ARRANGEMENTSARTICLE 2 PURCHASE ARRANGEMENTS 1.1 Section Purchase Facility . 1.2 (a) Upon the terms and subject to the conditions hereof, Seller may, at its option, sell and assign Purchaser Interests to the Agent for the benefit of one or more of the Purchasers. In accordance with the terms and conditions set forth herein, each Conduit may, at its option, instruct the Agent to purchase on its behalf, or if such Conduit shall decline to purchase, the Agent shall purchase, on behalf of the Financial Institutions, Purchaser Interests from time to time in an aggregate amount not to exceed at such time the lesser of (i) the Purchase Limit and (ii) the aggregate amount of the Commitments during the period from the date hereof to but not including the Facility Termination Date. (a) Seller may, upon at least 10 Business Days' notice to the Agent, terminate in whole or reduce in part, ratably among the Financial Institutions, the unused portion of the Purchase Limit; provided that each partial reduction of the Purchase Limit shall be in an amount equal to $5,000,000 or an integral multiple thereof. (b) 1.2 Section Increases . Seller shall provide the Agent with at least two Business Days' prior notice in a form set forth as Exhibit II hereto of each Incremental Purchase (a "Purchase Notice"). Each Purchase Notice shall be subject to Section 6.2 hereof and, except as set forth below, shall be irrevocable and shall specify the requested Purchase Price (which shall not be less than $10,000,000) and date of purchase (which, in the case of any Incremental Purchase (after the initial Incremental Purchase hereunder), shall only be on a Settlement Date) and, in the case of an Incremental Purchase to be funded by the Financial Institutions, the requested Discount Rate and Tranche Period. Following receipt of a Purchase Notice, the Agent will determine whether either Conduit individually or both Conduits collectively agree to make the entire proposed purchase. If the Conduits decline to make the entire proposed purchase, Seller may cancel the Purchase Notice or, in the absence of such a cancellation, the portion of the Incremental Purchase of Purchaser Interests that is not being made by the Conduits will be made by the Financial Institutions. On the date of each Incremental Purchase, upon satisfaction of the applicable conditions precedent set forth in Article VI, each purchasing Conduit or Financial Institution, as applicable, shall deposit to the Facility Account, in immediately available funds, no later than 12:00 noon (Chicago time), an amount equal to (i) in the case of a Conduit, such Conduit's share of the aggregate Purchase Price of the Purchaser Interests Conduits are purchasing and (ii) in the case of a Financial Institution, such Financial Institution's Pro Rata Share of the aggregate Purchase Price of the Purchaser Interests the Financial Institutions are purchasing. 1.3 1.4 Section Decreases . Seller shall provide the Agent with prior written notice in conformity with the Required Notice Period (a "Reduction Notice") of any proposed reduction of Aggregate Capital from Collections. Such Reduction Notice shall designate (i) the date (the "Proposed Reduction Date") upon which any such reduction of Aggregate Capital shall occur (which date shall give effect to the applicable Required Notice Period), and (ii) the amount of Aggregate Capital to be reduced which shall be applied ratably to the Purchaser Interests of the Conduits and the Financial Institutions in accordance with the amount of Capital (if any) owing to Conduits (ratably, based on their respective Conduit Shares), on the one hand, and the amount of Capital (if any) owing to the Financial Institutions (ratably, based on their respective Pro Rata Shares), on the other hand (the "Aggregate Reduction"). Only one (1) Reduction Notice shall be outstanding at any time. No Aggregate Reduction will be made following the occurrence of the Amortization Date without the consent of the Agent. 1.1 Section Payment Requirements . All amounts to be paid or deposited by Seller or Servicer pursuant to any provision of this Agreement shall be paid or deposited in accordance with the terms hereof no later than 11:00 a.m. (Chicago time) on the day when due in immediately available funds, and if not received before 11:00 a.m. (Chicago time) shall be deemed to be received on the next succeeding Business Day. If such amounts are payable to a Purchaser they shall be paid to the Agent, for the account of such Purchaser, at One Bank One Plaza, Chicago, Illinois 60670 until otherwise notified by the Agent. Upon notice to Seller, the Agent may debit the Facility Account for all amounts due and payable hereunder. All computations of Financial Institution Discount Rate, per annum fees calculated as part of any CP Costs, per annum fees hereunder and per annum fees under the Fee Letter shall be made on the basis of a year of 360 days for the actual number of days elapsed. If any amount hereunder shall be payable on a day which is not a Business Day, such amount shall be payable on the next succeeding Business Day. 1.2 1.3 2 ARTICLE PAYMENTS AND COLLECTIONSARTICLE 3 PAYMENTS AND COLLECTIONS 1.1 Section Payments . Notwithstanding any limitation on recourse contained in this Agreement, Seller shall immediately pay to the Agent when due, for the account of the relevant Purchaser or Purchasers on a full recourse basis, (i) such fees as set forth in the Fee Letter (which fees shall be sufficient to pay all fees owing to the Financial Institutions), (ii) all amounts payable as Deemed Collections (which shall be immediately due and payable by Seller and applied to reduce outstanding Aggregate Capital hereunder in accordance with Sections 2.2 and 2.3 hereof), (iii) all amounts payable pursuant to Article X, if any, (iv) all Servicer costs and expenses, including the Servicing Fee, in connection with servicing, administering and collecting the Receivables to the extent not paid directly to the Servicer, (v) all Broken Funding Costs and (vi) all Default Fees (collectively, the "Recourse Obligations"). If any Person fails to pay any of the Recourse Obligations when due, such Person agrees to pay, on demand, the Default Fee in respect thereof until paid. CP Costs and all amounts payable as Financial Institution Discount (collectively, the "Non-Recourse Obligations") are payable only to the extent of Available Funds as provided in Section 2.4. If the Non-Recourse Obligations are not paid when due, the Default Fee shall accrue on such unpaid amounts and shall be payable on the next date on which Non- Recourse Obligations are payable. Notwithstanding the foregoing, no provision of this Agreement or the Fee Letter shall require the payment or permit the collection of any amounts hereunder in excess of the maximum permitted by applicable law. If at any time Seller receives any Collections or is deemed to receive any Collections, Seller shall immediately pay such Collections or Deemed Collections to the Servicer for application in accordance with the terms and conditions hereof and, at all times prior to such payment, such Collections or Deemed Collections shall be held in trust by Seller for the exclusive benefit of the Purchasers and the Agent. 1.1 Section Collections Prior to Amortization . (a) On each day prior to the Amortization Date, the Servicer shall set aside and hold in trust the Purchasers' Collections for the payment of any accrued and unpaid Aggregate Unpaids pursuant to Section 2.4 or for a Reinvestment as provided in this Section 2.2. At any time any Collections or Deemed Collections are received by the Servicer prior to the Amortization Date, (i) the Servicer shall set aside such portion of the Purchasers' Collections as shall be required to pay the amounts specified pursuant to clauses first through eighth in Section 2.4, and (ii) Seller hereby requests and the Purchasers (other than any Terminating Financial Institutions) hereby agree to make, simultaneously with such receipt, a reinvestment (each a "Reinvestment") with that portion of the balance of each and every Collection or Deemed Collection received by the Servicer that is part of any Purchaser Interest (other than any Purchaser Interests of Terminating Financial Institutions), such that after giving effect to such Reinvestment, the amount of Capital of such Purchaser Interest immediately after such receipt and corresponding Reinvestment shall be equal to the amount of Capital immediately prior to such receipt. On each Settlement Date prior to the occurrence of the Amortization Date, the Servicer shall remit to the Agent's account the amounts set aside during the preceding Settlement Period that have not been subject to a Reinvestment. 1.2 1.3 (b) Amounts set aside pursuant to clause seventh of Section 2.4 to reduce the Capital of all Purchaser Interests of Terminating Financial Institutions shall be applied ratably to each Terminating Financial Institution according to its respective Termination Percentage. Each Terminating Financial Institution shall be allocated a ratable portion of the aggregate Purchasers' Collections from the date of any assignment by any Conduit pursuant to Section 13.6 (the "Termination Date") until such Terminating Financing Institution's Capital shall be paid in full. This ratable portion shall be calculated on the Termination Date of each Terminating Financial Institution as a percentage equal to (i) Capital of such Terminating Financial Institution outstanding on its Termination Date, divided by (ii) the Aggregate Capital outstanding on such Termination Date (the "Termination Percentage"). Each Terminating Financial Institution's Termination Percentage shall remain constant prior to the Amortization Date. On and after the Amortization Date, each Termination Percentage shall be disregarded, and each Terminating Financial Institution's Capital shall be reduced ratably with all Financial Institutions in accordance with Section 2.3. 1.4 1.5 Section Collections Following Amortization . On the Amortization Date and on each day thereafter, the Servicer shall set aside and hold in trust, for the holder of each Purchaser Interest, all the Purchasers' Collections. 1.6 1.7 Section Application of Collections . On each Settlement Date, the Servicer shall distribute all Available Funds with respect to the preceding Calculation Period in the following order of priority, based upon the instructions set forth in the Monthly Report prepared by the Servicer: 1.8 first, to the payment of the Servicer's reasonable out- of-pocket costs and expenses in connection with servicing, administering and collecting the Receivables incurred during the related Accrual Period, including the servicing fee, if Seller or one of its Affiliates is not then acting as the Servicer; second, any Available Funds remaining after the application in clause first shall be applied to the reimbursement of the Agent's costs of collection and enforcement of this Agreement incurred during the related Accrual Period; third, any Available Funds remaining after the applications in clauses first and second shall be applied ratably for the ratable payment of all Non-Recourse Obligations accrued during the related Accrual Period; fourth, if the aggregate Purchaser Interests exceed 100% as of the last day of the related Calculation Period, any Available Funds remaining after the applications in clauses first through third shall be paid to the Agent in reduction of Capital to the extent necessary to reduce the aggregate Purchaser Interests to 100%; fifth, if the Amortization Date occurs, any Available Funds remaining after the applications in clauses first through fourth shall be paid to the Agent in reduction of Capital to the extent necessary to reduce Capital to zero; sixth, any Available Funds remaining after the applications in clauses first through fifth shall be applied ratably for the ratable payment of all unpaid Recourse Obligations accrued during the related Accrual Period, provided that to the extent such Recourse Obligations relate to the payment of Servicer costs and expenses, including the Servicing Fee, when Seller or one of its Affiliates is acting as the Servicer, such costs and expenses will not be paid until after the payment in full of all other Recourse Obligations; seventh, if prior to the Amortization Date there are one or more Terminating Financial Institutions with Purchaser Interests greater than zero, an amount equal to the product of (A) the sum of the Termination Percentages for each of the Terminating Financial Institutions and (B) the Available Funds remaining after the applications in clauses first through sixth shall be paid to such Terminating Financial Institutions in accordance with Section 2.2(b) until such time as the Capital of all such Purchaser Interests have been reduced to zero; eighth, any Available Funds remaining after the applications in clauses first through seventh shall be applied ratably for the payment to the Servicer of the Servicing Fee specified in Section 8.6; and ninth, all remaining Available Funds shall (A) prior to the Amortization Date, be set aside and held in trust by the Servicer for a Reinvestment as provided in Section 2.2 and (B) on and after the Amortization Date, be paid to Seller. Collections applied to the payment of Aggregate Unpaids shall be distributed in accordance with the aforementioned provisions, and, giving effect to each of the priorities set forth in Section 2.4 above, shall be shared ratably (within each priority) among the Agent and the Purchasers in accordance with the amount of such Aggregate Unpaids owing to each of them in respect of each such priority. 1.1 Section Seller's Interest . The Servicer shall turn over to the Seller any Collections which do not constitute Purchasers' Collections, less all reasonable costs and expenses of the Servicer for servicing, collecting and administering the portion of the Receivables represented by such Collections. 1.2 1.3 Section Payment Rescission . No payment of any of the Aggregate Unpaids shall be considered paid or applied hereunder to the extent that, at any time, all or any portion of such payment or application is rescinded by application of law or judicial authority, or must otherwise be returned or refunded for any reason. Seller shall remain obligated for the amount of any payment or application so rescinded, returned or refunded, and shall promptly pay to the Agent (for application to the Person or Persons who suffered such recission, return or refund) the full amount thereof, plus the Default Fee from the date of any such recission, return or refunding; provided, however, that Seller shall not be obligated to make any such payment to the Agent to the extent that (i) such recission, return or refund arises in a bankruptcy or insolvency proceeding of an Obligor, (ii) such recission, return or refund relates to a Collection on a Receivable previously received by the Servicer and (iii) the Agent would not have received a corresponding payment out of other Collections in the normal course pursuant to Section 2.4 (and the computations of the amounts to be paid pursuant thereto) if such refunded Receivable (or portion thereof) had not been collected in the first instance. 1.4 1.5 Section Purchaser Interests . Seller shall ensure that the Purchaser Interests of the Purchaser shall at no time exceed in the aggregate 100%, unless and only to the extent that such excess results from a reduction in the Net Receivables Balance as a result of a Receivable being written off as uncollectible. If the aggregate of the Purchaser Interests of the Purchasers so exceeds 100%, Seller shall pay to the Agent within one (1) Business Day an amount to be applied to reduce the Aggregate Capital (as allocated by the Agent), such that after giving effect to such payment the aggregate of the Purchaser Interests equals or is less than 100% as so calculated. 1.6 1 ARTICLE CONDUIT FUNDINGARTICLE 2 CONDUIT FUNDING 1.1 Section CP Costs . To the extent of Available Funds as provided in clause third of Section 2.4, CP Costs shall accrue with respect to the Capital associated with each Purchaser Interest of each Conduit for each day that any Capital in respect of such Purchaser Interest is outstanding. Each Purchaser Interest of a Conduit funded substantially with Pooled Commercial Paper will accrue CP Costs each day on a pro rata basis, based upon the percentage share that the Capital in respect of such Purchaser Interest represents in relation to all assets held by such Conduit and funded substantially with Pooled Commercial Paper. 1.1 Section CP Costs Payments . On each Yield Settlement Date, the Servicer shall advance out of the Purchasers' Collections to the Agent (for the benefit of each Conduit) an aggregate amount equal to all accrued and unpaid CP Costs in respect of the Capital associated with all Purchaser Interests of such Conduit for the immediately preceding Accrual Period and all other Yield Settlement Obligations in accordance with Article II. The Servicer shall recoup such advance from the amounts set aside for such Yield Settlement Date Obligations pursuant to the applicable clause of Section 2.4. 1.2 1.3 Section Calculation of CP Costs . On the third Business Day immediately preceding each Yield Settlement Date, each Conduit shall calculate the aggregate amount of CP Costs for the applicable Accrual Period and Agent shall notify Seller of such aggregate amounts. 1.4 1 ARTICLE FINANCIAL INSTITUTION FUNDINGARTICLE 2 FINANCIAL INSTITUTION FUNDING 1.1 Section Financial Institution Funding . Each Purchaser Interest of the Financial Institutions shall accrue Financial Institution Discount for each day during its Tranche Period at either the LIBO Rate or the Base Rate in accordance with the terms and conditions hereof. Until Seller gives notice to the Agent of another Discount Rate in accordance with Section 4.4, the initial Discount Rate for any Purchaser Interest transferred to the Financial Institutions pursuant to the terms and conditions hereof shall be the Base Rate. If the Financial Institutions acquire by assignment from any Conduit any Purchaser Interest pursuant to Article XIII, each Purchaser Interest so assigned shall each be deemed to have a new Tranche Period commencing on the date of any such assignment. 1.1 Section Financial Institution Discount Payments . On the Yield Settlement Date for each Purchaser Interest of the Financial Institutions, the Servicer shall advance out of the Purchasers' Collections to the Agent (for the benefit of the Financial Institutions) an aggregate amount equal to the accrued and unpaid Financial Institution Discount for the entire Tranche Period of each such Purchaser Interest and all other Yield Settlement Obligations then due and owing to the Financial Institutions or the Agent in accordance with Article II. The Servicer shall recoup such advance from the amounts set aside for such Yield Settlement Date Obligations pursuant to the applicable clause of Section 2.4. 1.2 (a) Section Selection and Continuation of Tranche Periods . With consultation from (and approval not to be unreasonably withheld by) the Agent, Seller shall from time to time request Tranche Periods for the Purchaser Interests of the Financial Institutions, provided that, if at any time the Financial Institutions shall have a Purchaser Interest, Seller shall always request Tranche Periods such that at least one Tranche Period shall end on the date specified in Clause (A) of the definition of Settlement Date. (b) (c) Seller or the Agent, upon notice to and consent by the other received at least three (3) Business Days prior to the end of a Tranche Period (the "Terminating Tranche") for any Purchaser Interest, may, effective on the last day of the Termination Tranche: (i) divide any such Purchaser Interest into multiple Purchaser Interests, (ii) combine any such Purchaser Interest with one or more other Purchaser Interests that have a Terminating Tranche ending on the same day as such Terminating Tranche or (iii) combine any such Purchaser Interest with a new Purchaser Interest to be purchased on the day such Terminating Tranche ends, provided, that in no event may a Purchaser Interest of a Conduit be combined with a Purchaser Interest of the Financial Institutions. (d) 1.3 Section Financial Institution Discount Rates . Seller may select the LIBO Rate or the Base Rate for each Purchaser Interest of the Financial Institutions. Seller shall by 11:00 a.m. (Chicago time): (i) at least three (3) Business Days prior to the expiration of any Terminating Tranche with respect to which the LIBO Rate is being requested as a new Discount Rate and (ii) at least one (1) Business Day prior to the expiration of any Terminating Tranche with respect to which the Base Rate is being requested as a new Discount Rate, give the Agent irrevocable notice of the new Discount Rate for the Purchaser Interest associated with such Terminating Tranche. Until Seller gives notice to the Agent of another Discount Rate, the initial Discount Rate for any Purchaser Interest transferred to the Financial Institutions pursuant to the terms and conditions hereof shall be the Base Rate. 1.4 (a) Section Suspension of the LIBO Rate . If any Financial Institution notifies the Agent that it has determined that funding its Pro Rata Share of the Purchaser Interests of the Financial Institutions at a LIBO Rate would violate any applicable law, rule, regulation, or directive of any governmental or regulatory authority, whether or not having the force of law, or that (i) deposits of a type and maturity appropriate to match fund its Purchaser Interests at such LIBO Rate are not available or (ii) such LIBO Rate does not accurately reflect the cost of acquiring or maintaining a Purchaser Interest at such LIBO Rate, then the Agent shall suspend the availability of such LIBO Rate and require Seller to select the Base Rate for any Purchaser Interest accruing Financial Institution Discount Rate at such LIBO Rate. (b) (c) If less than all of the Financial Institutions give a notice to the Agent pursuant to Section 4.5, each Financial Institution which gave such a notice shall be obliged, at the request of Seller, any Conduit or the Agent, to assign all of its rights and obligations hereunder to (i) another Financial Institution or (ii) another funding entity nominated by Seller or the Agent that is acceptable to the Conduit and willing to participate in this Agreement through the Liquidity Termination Date in the place of such notifying Financial Institution; provided that (i) the notifying Financial Institution receives payment in full, pursuant to an Assignment Agreement, of an amount equal to such notifying Financial Institution's Pro Rata Share of the Capital and Financial Institution Discount owing to all of the Financial Institutions and all accrued but unpaid fees and other costs and expenses payable in respect of its Pro Rata Share of the Purchaser Interests of the Financial Institutions, and (ii) the replacement Financial Institution otherwise satisfies the requirements of Section 12.1(b). (d) 1 ARTICLE REPRESENTATIONS AND WARRANTIESARTICLE 2 REPRESENTATIONS AND WARRANTIES 1.1 Section Representations and Warranties of Seller Parties . Seller hereby represents and warrants to the Agent and the Purchasers, as to itself, as of the date hereof and as of the date of each Incremental Purchase and the date of each Reinvestment that: (a) Corporate Existence and Power. Such Seller is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation, and is duly qualified to do business and is in good standing as a foreign corporation, and has and holds all corporate power and all governmental licenses, authorizations, consents and approvals required to carry on its business in each jurisdiction in which its business is conducted except where a failure to do so will cause a Material Adverse Effect. (b) (c) Power and Authority; Due Authorization Execution and Delivery. The execution and delivery by Seller of this Agreement and each other Transaction Document to which it is a party, and the performance of its obligations hereunder and thereunder and, in the case of Seller, Seller's use of the proceeds of purchases made hereunder, are within its corporate powers and authority and have been duly authorized by all necessary corporate action on its part. This Agreement and each other Transaction Document to which Seller is a party has been duly executed and delivered by Seller. (d) (e) No Conflict. The execution and delivery by Seller of this Agreement and each other Transaction Document to which it is a party, and the performance of its obligations hereunder and thereunder do not contravene or violate (i) its certificate or articles of incorporation or by-laws, (ii) any law, rule or regulation applicable to it, (iii) any restrictions under any agreement, contract or instrument to which it is a party or by which it or any of its property is bound, or (iv) any order, writ, judgment, award, injunction or decree binding on or affecting it or its property, and do not result in the creation or imposition of any Adverse Claim on assets of Seller or its Subsidiaries (except as created hereunder); and no transaction contemplated hereby requires compliance with any bulk sales act or similar law. (f) (g) Governmental Authorization. Other than the filing of the financing statements required hereunder, no authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution and delivery by Seller of this Agreement and each other Transaction Document to which it is a party and the performance of its obligations hereunder and thereunder. (h) (i) Actions, Suits. There are no actions, suits or proceedings pending, or to the best of such Seller Party's knowledge, threatened, against or affecting Seller, or any of its properties, in or before any court, arbitrator or other body, that could reasonably be expected to have a Material Adverse Effect. Seller is not in default with respect to any order of any court, arbitrator or governmental body. (j) (k) Binding Effect. This Agreement and each other Transaction Document to which Seller is a party constitute the legal, valid and binding obligations of Seller enforceable against Seller in accordance with their respective terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws relating to or limiting creditors' rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). (l) (m) Accuracy of Information. All information heretofore furnished by Seller or any of its Affiliates to the Agent or the Purchasers for purposes of or in connection with this Agreement, any of the other Transaction Documents or any transaction contemplated hereby or thereby is, and all such information hereafter furnished by Seller or any of its Affiliates to the Agent or the Purchasers will be, true and accurate in every material respect on the date such information is stated or certified and does not and will not contain any material misstatement of fact or omit to state a material fact or any fact necessary to make the statements contained therein not misleading. (n) (o) Use of Proceeds. No proceeds of any purchase hereunder will be used (i) for a purpose that violates, or would be inconsistent with, Regulation T, U or X promulgated by the Board of Governors of the Federal Reserve System from time to time or (ii) to acquire any security in any transaction which is subject to Section 13 or 14 of the Securities Exchange Act of 1934, as amended. (p) (q) Good Title. Immediately prior to each purchase hereunder, Seller shall be the legal and beneficial owner of the Receivables and Related Security with respect thereto, free and clear of any Adverse Claim, except as created by the Transaction Documents. There have been duly filed all financing statements or other similar instruments or documents necessary under the UCC (or any comparable law) of all appropriate jurisdictions to perfect Seller's ownership interest in each Receivable, its Collections and the Related Security. (r) (s) Perfection. This Agreement, together with the filing of the financing statements contemplated hereby, is effective to, and shall, upon each purchase hereunder, transfer to the Agent for the benefit of the relevant Purchaser or Purchasers (and the Agent for the benefit of such Purchaser or Purchasers shall acquire from Seller) a valid and perfected first priority undivided percentage ownership or security interest in each Receivable existing or hereafter arising and in the Related Security and Collections with respect thereto, free and clear of any Adverse Claim, except as created by the Transactions Documents. There have been duly filed all financing statements or other similar instruments or documents necessary under the UCC (or any comparable law) of all appropriate jurisdictions to perfect the Agent's (on behalf of the Purchasers) ownership interest in the Receivables, the Related Security and the Collections. (t) (u) Places of Business and Locations of Records. The principal places of business and chief executive office of Seller and the offices where it keeps all of its Records are located at the address(es) listed on Exhibit III or such other locations of which the Agent has been notified in accordance with Section 7.2(a) in jurisdictions where all action required by Section 14.4(a) has been taken and completed. Seller's Federal Employer Identification Number is correctly set forth on Exhibit III. (v) (w) Collections. The conditions and requirements set forth in Section 7.1(j) and Section 8.2 have at all times been satisfied and duly performed. The names and addresses of all Collection Banks, together with the account numbers of the Collection Accounts of Seller at each Collection Bank and the post office box number of each Lock-Box, are listed on Exhibit IV. Seller has not granted any Person, other than the Agent as contemplated by this Agreement, dominion and control of any Lock- Box or Collection Account, or the right to take dominion and control of any such account at a future time or upon the occurrence of a future event. (x) (y) Material Adverse Effect. (i) The initial Servicer represents and warrants that since June 30, 1999, no event has occurred that would have a material adverse effect on the financial condition or operations of the initial Servicer and its Subsidiaries or the ability of the initial Servicer to perform its obligations under this Agreement, and (ii) Seller represents and warrants that since the date of this Agreement, no event has occurred that would have a material adverse effect on (A) the financial condition or operations of Seller, (B) the ability of Seller to perform its obligations under the Transaction Documents, or (C) the collectibility of the Receivables generally or any material portion of the Receivables. (z) (aa) Names. In the past five (5) years, Seller has not used any corporate names, trade names or assumed names other than the name in which it has executed this Agreement. (bb) (cc) Ownership of Seller. KNEI owns, directly or indirectly, 100% of the issued and outstanding capital stock of Seller, free and clear of any Adverse Claim. Such capital stock is validly issued, fully paid and nonassessable, and there are no options, warrants or other rights to acquire securities of Seller. (dd) (ee) Not a Holding Company or an Investment Company. Seller is not a "holding company" or a "subsidiary holding company" of a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended, or any successor statute. Seller is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or any successor statute. (ff) (gg) Compliance with Law. Seller has complied in all respects with all applicable laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject and with respect to which a failure to comply will cause a Material Adverse Effect. Each Receivable, together with the Contract related thereto, does not contravene any laws, rules or regulations applicable thereto (including, without limitation, laws, rules and regulations relating to truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy), and no part of such Contract is in violation of any such law, rule or regulation. (hh) (ii) Compliance with Credit and Collection Policy. Seller has complied in all material respects with the Credit and Collection Policy with regard to each Receivable and the related Contract, and has not made any change to such Credit and Collection Policy, except such material change as to which the Agent has been notified in accordance with Section 7.1(a)(vii). (jj) (kk) Payments to Originators. With respect to each Receivable transferred to Seller under the Receivables Sale Agreement, Seller has given reasonably equivalent value to the applicable Originator in consideration therefor and such transfer was not made for or on account of an antecedent debt. No transfer by the Originators of any Receivable under the Receivables Sale Agreement is or may be voidable under any section of the Bankruptcy Reform Act of 1978 (11 U.S.C. 101 et seq.), as amended. (a) Enforceability of Contracts. Each Contract with respect to each Receivable is effective to create, and has created, a legal, valid and binding obligation of the related Obligor to pay the Outstanding Balance of the Receivable created thereunder and any accrued interest thereon, enforceable against the Obligor in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws relating to or limiting creditors' rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). (b) (c) Eligible Receivables. Each Receivable included in the Net Receivables Balance as an Eligible Receivable on the date of its purchase under the Receivables Sale Agreement was an Eligible Receivable on such purchase date. (d) (e) Net Receivables Balance. Seller has determined that, immediately after giving effect to each purchase hereunder, the Net Receivables Balance is at least equal to the sum of (i) the Aggregate Capital, plus (ii) the Aggregate Reserves. (f) (g) Year 2000. Seller (i) has reviewed the areas within its business and operations which could be adversely affected by the Year 2000 Problem, (ii) has developed a Year 2000 Plan to address the Year 2000 Problem on a timely basis, (iii) is taking all actions reasonably necessary to meet the schedule and goals of the Year 2000 Plan and (iv) has established adequate reserves to implement the Year 2000 Plan. Seller does not reasonably anticipate that the Year 2000 Problem could have a Material Adverse Effect. (h) (i) Accounting. The manner in which Seller accounts for the transactions contemplated by this Agreement and the Receivables Sale Agreement does not jeopardize the true sale analysis. (j) (k) Type of Receivable. None of the Receivables transferred to Seller under the Receivables Sale Agreement resulted from the sale of an interest in minerals or the like (including oil and gas) before extraction or at the well head or the mine head. (l) 1.2 Section Financial Institution Representations and Warranties . Each Financial Institution hereby represents and warrants to the Agent and the Conduits that: 1.3 (a) Existence and Power. Such Financial Institution is a corporation or a banking association duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization, and has all corporate power to perform its obligations hereunder. (b) (c) No Conflict. The execution and delivery by such Financial Institution of this Agreement and the performance of its obligations hereunder are within its corporate powers, have been duly authorized by all necessary corporate action, do not contravene or violate (i) its certificate or articles of incorporation or association or by-laws, (ii) any law, rule or regulation applicable to it, (iii) any restrictions under any agreement, contract or instrument to which it is a party or any of its property is bound, or (iv) any order, writ, judgment, award, injunction or decree binding on or affecting it or its property, and do not result in the creation or imposition of any Adverse Claim on its assets. This Agreement has been duly authorized, executed and delivered by such Financial Institution. (d) (e) Governmental Authorization. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution and delivery by such Financial Institution of this Agreement and the performance of its obligations hereunder. (f) (g) Binding Effect. This Agreement constitutes the legal, valid and binding obligation of such Financial Institution enforceable against such Financial Institution in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws relating to or limiting creditors' rights generally and by general principles of equity (regardless of whether such enforcement is sought in a proceeding in equity or at law). (h) 1 ARTICLE CONDITIONS OF PURCHASESARTICLE 2 CONDITIONS OF PURCHASES (a) Section Conditions Precedent to Initial Incremental Purchase . The initial Incremental Purchase of a Purchaser Interest under this Agreement is subject to the conditions precedent that the Agent shall have received on or before the date of such purchase those documents listed on Schedule B and the Agent shall have received all fees and expenses required to be paid on such date pursuant to the terms of this Agreement and the Fee Letter. (a) Section Conditions Precedent to All Purchases and Reinvestments . Each purchase of a Purchaser Interest (other than pursuant to Section 13.1) and each Reinvestment shall be subject to the further conditions precedent that in the case of each such purchase or Reinvestment: (i) the Servicer shall have delivered to the Agent on or prior to the date of such purchase, in form and substance satisfactory to the Agent, all Monthly Reports as and when due under Section 8.5 and (ii) upon the Agent's request, the Servicer shall have delivered to the Agent at least three (3) Business Days prior to such purchase or Reinvestment an interim Monthly Report showing the amount of Eligible Receivables; the Facility Termination Date shall not have occurred; and (c) on the date of each such Incremental Purchase or Reinvestment, the following statements shall be true (and acceptance of the proceeds of such Incremental Purchase or Reinvestment shall be deemed a representation and warranty by Seller that such statements are then true): (b) (i) the representations and warranties set forth in Section 5.1 are true and correct on and as of the date of such Incremental Purchase or Reinvestment as though made on and as of such date; (ii) no event has occurred, or would result from such Incremental Purchase or Reinvestment, that will constitute an Amortization Event, and no event has occurred and is continuing, or would result from such Incremental Purchase or Reinvestment, that would constitute a Potential Amortization Event; and (iii) the Aggregate Capital does not exceed the Purchase Limit and the aggregate Purchaser Interests do not exceed 100%. It is expressly understood that each Reinvestment shall, unless otherwise directed by the Agent or any Purchaser, occur automatically on each day that the Servicer shall receive any Collections without the requirement that any further action be taken on the part of any Person and notwithstanding the failure of Seller to satisfy any of the foregoing conditions precedent in respect of such Reinvestment. The failure of Seller to satisfy any of the foregoing conditions precedent in respect of any Reinvestment shall give rise to a right of the Agent, which right may be exercised at any time on demand of the Agent, to rescind the related purchase and direct Seller to pay to the Agent for the benefit of the Purchasers an amount equal to the Collections prior to the Amortization Date that shall have been applied to the affected Reinvestment. 1 ARTICLE COVENANTSARTICLE 2 COVENANTS 1.1 Section Affirmative Covenants of Seller . Until the date on which the Aggregate Unpaids have been indefeasibly paid in full and this Agreement terminates in accordance with its terms, Seller hereby covenants, as to itself, as set forth below: (a) Financial Reporting. Seller will maintain, for itself and each of its Subsidiaries, a system of accounting established and administered in accordance with generally accepted accounting principles and furnish or cause to be furnished to the Agent: (b) (i) Annual Reporting. Within 100 days after the close of each of its respective fiscal years, financial statements for such fiscal year certified by an Authorized Officer of Seller, together with copies of the financial statements of KNEI delivered pursuant to Section 4.1(a)(i) of the Receivables Sale Agreement. (i) Quarterly Reporting. Within 50 days after the close of the first three (3) quarterly periods of each of its respective fiscal years, balance sheets as at the close of each such period and statements of income and retained earnings and a statement of cash flows for the period from the beginning of such fiscal year to the end of such quarter, all certified by an Authorized Officer of Seller, together with copies of the financial statements of KNEI delivered pursuant to Section 4.1(a)(ii) of the Receivables Sale Agreement. (i) Compliance Certificate. Together with the financial statements required to be furnished hereunder, a compliance certificate in substantially the form of Exhibit V signed by an Authorized Officer of Seller and dated the date of such annual financial statement or such quarterly financial statement, as the case may be together with copies of the Certificates of KNEI delivered pursuant to Section 4.1(a)(iii) of the Receivables Sale Agreement. (i) Notices under Transaction Documents. Promptly upon its receipt of any notice, request for consent, certification, report or other communication under or in connection with any Transaction Document from any Person other than the Agent or any Conduit, copies of the same. (i) Change in Credit and Collection Policy. At least thirty (30) days prior to the effectiveness of any material change in or material amendment to the Credit and Collection Policy, and promptly after the effectiveness of any other change in or amendment to the Credit and Collection Policy, a copy of the Credit and Collection Policy then in effect and a notice (A) indicating such change or amendment, and (B) if such proposed change or amendment would be reasonably likely to adversely affect the collectibility of the Receivables or decrease the credit quality of any newly created Receivables, requesting the Agent's consent thereto. (i) Other Information. Promptly, from time to time, such other information, documents, records or reports relating to the Receivables or the condition or operations, financial or otherwise, of Seller as the Agent may from time to time reasonably request in order to protect the interests of the Agent and the Purchasers under or as contemplated by this Agreement. (a) Notices. Seller will notify the Agent in writing of any of the following promptly upon learning of the occurrence thereof, describing the same and, if applicable, the steps being taken with respect thereto: (b) (i) Amortization Events or Potential Amortization Events. The occurrence of each Amortization Event and each Potential Amortization Event, by a statement of an Authorized Officer of Seller. (i) Judgment. The entry of any judgment or decree against Seller, or the entry of any judgment or decree against any Originator if the aggregate outstanding amount of all judgments and decrees against all Originators on a combined basis exceeds $60,000,000. (i) Litigation. The institution of any litigation, arbitration proceeding or governmental proceeding against Seller or to which Seller becomes party, or the institution of any litigation, arbitration or governmental proceeding against any Originator or in which such Originator becomes a party that remains unsettled for a period of thirty (30) days from the commencement thereof and involves claims of damages or any other relief which reasonably may be expected to cause a Material Adverse Effect. (i) Material Adverse Effect. The occurrence of any event or condition that has had, or could reasonably be expected to have, a Material Adverse Effect. (i) Termination Date. The occurrence of the "Termination Date" under and as defined in the Receivables Sale Agreement. (i) Defaults Under Other Agreements. The occurrence of a default or an event of default under any other financing arrangement pursuant to which Seller is a debtor or an obligor. (i) Downgrade. Any downgrade in the rating of any Indebtedness of any Originator by Standard and Poor's Ratings Group or by Moody's Investors Service, Inc., setting forth the Indebtedness affected and the nature of such change. (a) Compliance with Laws and Preservation of Corporate Existence. Seller will comply in all respects with all applicable laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject with respect to which a failure to comply may reasonably be expected to cause a Material Adverse Effect. Seller will preserve and maintain its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified in good standing as a foreign corporation in each jurisdiction where its business is conducted. (b) (c) Audits. Seller will furnish to the Agent from time to time such information with respect to it and the Receivables as the Agent may reasonably request. Seller will, from time to time, during regular business hours as requested by the Agent upon reasonable notice, permit the Agent, or its agents or representatives (and shall cause the Originators to permit the Agent or their agents or representatives), (i) to examine all Records in the possession or under the control of such Person relating to the Receivables and the Related Security, including, without limitation, the related Contracts, and (ii) to visit the offices and properties of such Person for the purpose of examining such materials described in clause (i) above, and to discuss matters relating to such Person's financial condition or the Receivables and the Related Security or any Person's performance under any of the Transaction Documents or any Person's performance under the Contracts and, in each case, with any of the officers or employees of Seller or the Servicer having knowledge of such matters. Seller shall reimburse Agent promptly for all of Agent's reasonable costs incurred in connection with (i) so long as no Amortization Event or Potential Amortization Event has occurred, not more than one such audit per calendar year and (ii) following the occurrence and during the continuance of an Amortization Event or a Potential Amortization Event, any such audit. (d) (e) Keeping and Marking of Records and Books. (f) (i) Seller will (and will cause the Originators to) maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing Receivables in the event of the destruction of the originals thereof), and keep and maintain all documents, books, records and other information reasonably necessary or advisable for the collection of all Receivables (including, without limitation, records adequate to permit the immediate identification of each new Receivable and all Collections of and adjustments to each existing Receivable). Seller will, and will require each Originator to, give the Agent notice of any material change in the administrative and operating procedures referred to in the previous sentence. (i) Seller will (and will cause the Originators to) (A) on or prior to the date hereof, mark its master data processing records relating to the Purchaser Interests with a legend, acceptable to the Agent, describing the Purchaser Interests and (B) following the occurrence and during the continuance of an Amortization Event, upon the request of the Agent (x) mark each Contract with a legend describing the Purchaser Interests and (y) deliver to the Agent all Contracts (including, without limitation, all multiple originals of any such Contract) relating to the Receivables. (a) Compliance with Contracts and Credit and Collection Policy. Seller will (and will cause the Originators to) timely and fully (i) perform and comply with all provisions, covenants and other promises required to be observed by it under the Contracts related to the Receivables with respect to which a failure to perform or comply may reasonably be expected to adversely affect the collectibility thereof, and (ii) comply in all material respects with the Credit and Collection Policy in regard to each Receivable and the related Contract. Seller will pay when due any taxes payable in connection with the Receivables, exclusive of taxes on or measured by income or gross receipts of the Conduits, the Agent or any Financial Institution. (b) (c) Performance and Enforcement of Receivables Sale Agreement. Seller will, and will require each Originator to, perform each of their respective obligations and undertakings under and pursuant to the Receivables Sale Agreement, will purchase Receivables thereunder in strict compliance with the terms thereof and will vigorously enforce the rights and remedies accorded to Seller under the Receivables Sale Agreement. Seller will take all actions to perfect and enforce its rights and interests (and the rights and interests of the Agent and the Purchasers as assignees of Seller) under the Receivables Sale Agreement as the Agent may from time to time reasonably request, including, without limitation, making claims to which it may be entitled under any indemnity, reimbursement or similar provision contained in the Receivables Sale Agreement. (d) (e) Ownership. Seller will (or will cause the Originators to) take all necessary action to (i) vest legal and equitable title to the Receivables, the Related Security and the Collections purchased under the Receivables Sale Agreement irrevocably in Seller, free and clear of any Adverse Claims other than Adverse Claims in favor of the Agent and the Purchasers (including, without limitation, the filing of all financing statements or other similar instruments or documents necessary under the UCC (or any comparable law) of all appropriate jurisdictions to perfect Seller's interest in such Receivables, Related Security and Collections and such other action to perfect, protect or more fully evidence the interest of Seller therein as the Agent may reasonably request), and (ii) establish and maintain, in favor of the Agent, for the benefit of the Purchasers, a valid and perfected first priority undivided percentage ownership interest (and/or a valid and perfected first priority security interest) in all Receivables, Related Security and Collections to the full extent contemplated herein, free and clear of any Adverse Claims other than Adverse Claims in favor of the Agent for the benefit of the Purchasers (including, without limitation, the filing of all financing statements or other similar instruments or documents necessary under the UCC (or any comparable law) of all appropriate jurisdictions to perfect the Agent's (for the benefit of the Purchasers) interest in such Receivables, Related Security and Collections and such other action to perfect, protect or more fully evidence the interest of the Agent for the benefit of the Purchasers as the Agent may reasonably request). (f) (g) Purchasers' Reliance. Seller acknowledges that the Purchasers are entering into the transactions contemplated by this Agreement in reliance upon Seller's identity as a legal entity that is separate from the Originators. Therefore, from and after the date of execution and delivery of this Agreement, Seller shall take all reasonable steps to maintain Seller's identity as a separate legal entity and to make it manifest to third parties that Seller is an entity with assets and liabilities distinct from those of the Originators and any Affiliates thereof and not just a division of any Originator or any such Affiliate. Without limiting the generality of the foregoing and in addition to the other covenants set forth herein, Seller will: (h) (A) conduct its own business in its own name and require that all full-time employees of Seller, if any, identify themselves as such and not as employees of any Originator (including, without limitation, by means of providing appropriate employees with business or identification cards identifying such employees as Seller's employees); (A) compensate all employees, consultants and agents directly, from Seller's own funds, for services provided to Seller by such employees, consultants and agents and, to the extent any employee, consultant or agent of Seller is also an employee, consultant or agent of any Originator or any Affiliate thereof, allocate the compensation of such employee, consultant or agent between Seller and such Originator or such Affiliate, as applicable, on a basis that reflects the services rendered to Seller and such Originator or such Affiliate, as applicable; (A) have a separate telephone number, which will be answered only in its name and separate stationery, invoices and checks in its own name; (A) conduct all transactions with the Originators (including, without limitation, any delegation of its obligations hereunder as Servicer) strictly on an arm's-length basis, allocate all overhead expenses (including, without limitation, telephone and other utility charges) for items shared between Seller and an Originator on the basis of actual use to the extent practicable and, to the extent such allocation is not practicable, on a basis reasonably related to actual use; (A) at all times have a Board of Directors consisting of three members, at least one member of which is an Independent Director; (A) observe all corporate formalities as a distinct entity, and ensure that all corporate actions relating to (A) the selection, maintenance or replacement of the Independent Director, (B) the dissolution or liquidation of Seller or (C) the initiation of, participation in, acquiescence in or consent to any bankruptcy, insolvency, reorganization or similar proceeding involving Seller, are duly authorized by unanimous vote of its Board of Directors (including the Independent Director); (A) maintain Seller's books and records separate from those of the Originators and any Affiliate thereof and otherwise readily identifiable as its own assets rather than assets of any Originator and any Affiliate thereof; (A) prepare its financial statements separately from those of the Originators and insure that any consolidated financial statements of the Originators or any Affiliate thereof that include Seller and that are filed with the Securities and Exchange Commission or any other governmental agency have notes clearly stating that Seller is a separate corporate entity and that its assets will be available first and foremost to satisfy the claims of the creditors of Seller; (A) except as herein specifically otherwise provided and other than any commingling in the Chase Collection Account which is provided for in Section 7.1(j) herein, maintain the funds or other assets of Seller separate from, and not commingled with, those of the Originators or any Affiliate thereof and only maintain bank accounts or other depository accounts to which Seller alone is the account party, into which Seller alone makes deposits and from which Seller alone (or the Agent hereunder) has the power to make withdrawals; (A) pay all of Seller's operating expenses from Seller's own assets (except for certain payments by an Originator or other Persons pursuant to allocation arrangements that comply with the requirements of this Section 7.1(i)); (A) operate its business and activities such that: it does not engage in any business or activity of any kind, or enter into any transaction or indenture, mortgage, instrument, agreement, contract, lease or other undertaking, other than the transactions contemplated and authorized by this Agreement and the Receivables Sale Agreement; and does not create, incur, guarantee, assume or suffer to exist any indebtedness or other liabilities, whether direct or contingent, other than (1) as a result of the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business, (2) the incurrence of obligations under this Agreement, (3) the incurrence of obligations, as expressly contemplated in the Receivables Sale Agreement, to make payment to the Originators thereunder for the purchase of Receivables from the Originators under the Receivables Sale Agreement, and (4) the incurrence of operating expenses in the ordinary course of business of the type otherwise contemplated by this Agreement; (A) maintain its corporate charter in conformity with this Agreement, such that it does not amend, restate, supplement or otherwise modify its Certificate of Incorporation or By-Laws in any respect that would impair its ability to comply with the terms or provisions of any of the Transaction Documents, including, without limitation, Section 7.1(i) of this Agreement; (A) maintain the effectiveness of, and continue to perform under the Receivables Sale Agreement, such that it does not amend, restate, supplement, cancel, terminate or otherwise modify the Receivables Sale Agreement, or give any consent, waiver, directive or approval thereunder or waive any default, action, omission or breach under the Receivables Sale Agreement or otherwise grant any indulgence thereunder, without (in each case) the prior written consent of the Agent; (A) maintain its corporate separateness such that it does not merge or consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions, and except as otherwise contemplated herein) all or substantially all of its assets (whether now owned or hereafter acquired) to, or acquire all or substantially all of the assets of, any Person, nor at any time create, have, acquire, maintain or hold any interest in any Subsidiary. (A) maintain at all times the Required Capital Amount (as defined in the Receivables Sale Agreement) and refrain from making any dividend, distribution, redemption of capital stock or payment of any subordinated indebtedness which would cause the Required Capital Amount to cease to be so maintained; and (A) take such other actions as are necessary on its part to ensure that the facts and assumptions set forth in the opinion issued by Vinson & Elkins, as counsel for Seller, in connection with the closing or initial Incremental Purchase under this Agreement and relating to substantive consolidation issues, and in the certificates accompanying such opinion, remain true and correct in all material respects at all times. (a) Collections. Seller will cause (1) all proceeds from all Lock-Boxes to be directly deposited by a Collection Bank into a Collection Account and (2) each Lock-Box and Collection Account to be subject at all times to a Collection Account Agreement that is in full force and effect. In the event any payments relating to Receivables are remitted directly to Seller or any Affiliate of Seller, Seller will remit (or will cause all such payments to be remitted) directly to a Collection Bank and deposited into a Collection Account within two (2) Business Days following receipt thereof and, at all times prior to such remittance, Seller will itself hold or, if applicable, will cause such payments to be held in trust for the exclusive benefit of the Agent and the Purchasers. Seller will maintain exclusive ownership, dominion and control (subject to the terms of this Agreement) of each Lock-Box and Collection Account and shall not grant the right to take dominion and control of any Lock-Box or Collection Account at a future time or upon the occurrence of a future event to any Person, except to the Agent as contemplated by this Agreement. Within 60 days following the Closing Date, Seller will cause the Servicer to either (a) notify all Obligors that are currently remitting payments to the Chase Collection Account to redirect payments to one of the other Collection Accounts (other than the Chase Collection Account) or to a newly established account which is subject to a Collection Account Agreement or (b) cease using the Chase Collection Account for any purpose other than receiving and processing Collections, and notify all Persons (other than Obligors) that are currently remitting payments to the Chase Collection Account to redirect payments to a newly established account. (b) (c) Minimum Net Worth. Seller shall at all times maintain Net Worth of not less than the Required Capital Amount. (d) 1.2 Section Negative Covenants of Seller . Until the date on which the Aggregate Unpaids have been indefeasibly paid in full and this Agreement terminates in accordance with its terms, Seller hereby covenants that: 1.3 (a) Name Change, Offices and Records. Seller will not change its name, identity or corporate structure (within the meaning of Section 9-402(7) of any applicable enactment of the UCC) or relocate its chief executive office or any office where Records are kept, unless it shall have: (i) given the Agent at least forty-five (45) days' prior written notice thereof and (ii) delivered to the Agent all financing statements, instruments and other documents requested by the Agent in connection with such change or relocation. (b) (c) Change in Payment Instructions to Obligors. Except as may be required by the Agent pursuant to Section 8.2(b), Seller will not add or terminate any bank as a Collection Bank, or make any change in the instructions to Obligors regarding payments to be made to any Lock-Box or Collection Account, unless the Agent shall have received, at least ten (10) days before the proposed effective date therefor, (i) written notice of such addition, termination or change and (ii) with respect to the addition of a Collection Bank or a Collection Account or Lock-Box, an executed Collection Account Agreement with respect to the new Collection Account or Lock-Box; provided, however, that Seller may make changes in instructions to Obligors regarding payments if such new instructions require such Obligor to make payments to another existing Collection Account. (d) (e) Modifications to Contracts and Credit and Collection Policy. Seller will not make any change to the Credit and Collection Policy that could adversely affect the collectibility of the Receivables or decrease the credit quality of any newly created Receivables. Except as provided in Section 8.2(d), Seller, acting as Servicer or otherwise, will not, and will not extend, amend or otherwise modify the terms of any Receivable or any Contract related thereto other than in accordance with the Credit and Collection Policy. (f) (g) Sales, Liens. Seller will not sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, or create or suffer to exist any Adverse Claim upon (including, without limitation, the filing of any financing statement) or with respect to, any Receivable, Related Security or Collections, or upon or with respect to any Contract under which any Receivable arises, or any Lock-Box or Collection Account, or assign any right to receive income with respect thereto (other than, in each case, the creation of the interests therein in favor of the Agent and the Purchasers provided for herein), and Seller will defend the right, title and interest of the Agent and the Purchasers in, to and under any of the foregoing property, against all claims of third parties claiming through or under Seller or the Originators. Seller will not create or suffer to exist any mortgage, pledge, security interest, encumbrance, lien, charge or other similar arrangement on any of its inventory. (h) (i) Nature of Business; Other Agreements; Other Indebtedness. Seller shall not engage in any business or activity of any kind or enter into any transaction or indenture, mortgage, instrument, agreement, contract, lease or other undertaking, in each case other than the transactions contemplated and authorized by this Agreement and the Receivables Sale Agreement. Without limiting the generality of the foregoing, Seller shall not create, incur, guarantee, assume or suffer to exist any Indebtedness or other liabilities, whether direct or contingent, other than: (j) (i) as a result of the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business, (i) the incurrence of obligations under this Agreement or any other Transaction Document, (i) the incurrence of obligations, as expressly contemplated in the Receivables Sale Agreement, to make payment to the Originators thereunder for the purchase of Receivables from the Originators under the Receivables Sale Agreement, and (i) the incurrence of operating expenses in the ordinary course of business of the type otherwise contemplated in Section 7.1(i) of this Agreement. Seller may pay expenses permitted by Section 8.2(e)(iv) with the proceeds of Subordinated Loans (to the extent that a Subordinated Loan could be borrowed without rendering Seller's Net Worth less than the Required Capital Amount). In the event Seller shall at any time receive a Subordinated Loan under the Receivables Sale Agreement, the obligations of Seller in connection therewith shall be subordinated to the obligations of Seller to the Purchasers and the Agent under this Agreement, on the terms provided for in the Subordinated Note and the Receivables Sale Agreement. (a) Amendments to Receivables Sale Agreement. Seller shall not, without the prior written consent of the Agent (which consent shall not be unreasonably withheld or delayed): (b) (i) cancel or terminate the Receivables Sale Agreement, (i) give any consent, waiver, directive or approval under the Receivables Sale Agreement, (i) waive any default, action, omission or breach under the Receivables Sale Agreement, or otherwise grant any indulgence thereunder, or (i) amend, supplement or otherwise modify any of the terms of the Receivables Sale Agreement. (a) Net Receivables Balance. At no time prior to the Amortization Date shall Seller permit the Net Receivables Balance to be less than an amount equal to the sum of (i) the aggregate Capital of all the Purchaser Interests plus (ii) the Aggregate Reserves. (b) (c) Termination Date Determination. Seller will not designate the Termination Date (as defined in the Receivables Sale Agreement), or send any written notice to Originator in respect thereof, without the prior written consent of the Agent, except with respect to the occurrence of such Termination Date arising pursuant to Section 6.1(d) of the Receivables Sale Agreement. (d) 1 ARTICLE ADMINISTRATION AND COLLECTIONARTICLE 2 ADMINISTRATION AND COLLECTION (a) Section Designation of Servicer . The servicing, administration and collection of the Receivables shall be conducted by such Person (the "Servicer") so designated from time to time in accordance with this Section 8.1. Seller is hereby designated as, and hereby agrees to perform the duties and obligations of, the Servicer pursuant to the terms of this Agreement. The Agent may at any time designate as Servicer any Person to succeed Seller or any successor Servicer. (a) Without the prior written consent of the Agent and the Required Financial Institutions, Seller shall not be permitted to delegate any of its duties or responsibilities as Servicer to any Person other than (i) K N Energy, Inc. ("KNEI") and (ii) with respect to certain Charged-Off Receivables, outside collection agencies in accordance with its customary practices. KNEI shall not be permitted to further delegate to any other Person any of the duties or responsibilities of the Servicer delegated to it by Seller. If at any time the Agent shall designate as Servicer any Person other than Seller, all duties and responsibilities theretofore delegated by Seller to KNEI may, at the discretion of the Agent, be terminated forthwith on notice given by the Agent to Seller. (b) (c) Notwithstanding the foregoing subsection (b), (i) Seller shall be and remain primarily liable to the Agent and the Purchasers for the full and prompt performance of all duties and responsibilities of the Servicer hereunder and (ii) the Agent and the Purchasers shall be entitled to deal exclusively with Seller in matters relating to the discharge by the Servicer of its duties and responsibilities hereunder. The Agent and the Purchasers shall not be required to give notice, demand or other communication to any Person other than Seller (with a copy to KNEI as provided below Seller's signature hereto) in order for communication to the Servicer and its sub-servicer or other delegate with respect thereto to be accomplished. Seller, at all times that it is the Servicer, shall be responsible for providing any sub-servicer or other delegate of the Servicer with any notice given to the Servicer under this Agreement. (a) Section Duties of Servicer . The Servicer shall take or cause to be taken all such actions as may be reasonably necessary or advisable to collect each Receivable from time to time, all in accordance with applicable laws, rules and regulations, with reasonable care and diligence, and in accordance with the Credit and Collection Policy. (b) (c) The Servicer will instruct all Obligors to pay all Collections directly to a Lock-Box or Collection Account. The Servicer shall effect a Collection Account Agreement substantially in the form of Exhibit VI with each bank party to a Collection Account at any time. In the case of any remittances received in any Lock-Box or Collection Account that shall have been identified, to the satisfaction of the Servicer, to not constitute Collections or other proceeds of the Receivables or the Related Security, the Servicer shall promptly remit such items to the Person identified to it as being the owner of such remittances. From and after the date the Agent delivers to any Collection Bank a Collection Notice pursuant to Section 8.3, the Agent may request that the Servicer, and the Servicer thereupon promptly shall instruct all Obligors with respect to the Receivables, to remit all payments thereon to a new depositary account specified by the Agent and, at all times thereafter, Seller and the Servicer shall not deposit or otherwise credit, and shall not permit any other Person to deposit or otherwise credit to such new depositary account any cash or payment item other than Collections. (d) (e) The Servicer shall administer the Collections in accordance with the procedures described herein and in Article II. The Servicer shall set aside and hold in trust for the account of Seller and the Purchasers their respective shares of the Collections in accordance with Article II. The Servicer shall, upon the request of the Agent, segregate, in a manner acceptable to the Agent, all cash, checks and other instruments received by it from time to time constituting Collections from the general funds of the Servicer or Seller prior to the remittance thereof in accordance with Article II. If the Servicer shall be required to segregate Collections pursuant to the preceding sentence, the Servicer shall segregate and deposit with a bank designated by the Agent such allocable share of Collections of Receivables set aside for the Purchasers on the first Business Day following receipt by the Servicer of such Collections, duly endorsed or with duly executed instruments of transfer. (f) (g) The Servicer may, in accordance with the Credit and Collection Policy, extend the maturity of any Receivable or adjust the Outstanding Balance of any Receivable as the Servicer determines to be appropriate to maximize Collections thereof; provided, however, that such extension or adjustment shall not alter the status of such Receivable as a Delinquent Receivable or Charged-Off Receivable or limit the rights of the Agent or the Purchasers under this Agreement. Notwithstanding anything to the contrary contained herein, upon the occurrence and during the continuance of an Amortization Event, the Agent shall have the absolute and unlimited right to direct the Servicer to commence or settle any legal action with respect to any Receivable or to foreclose upon or repossess any Related Security. (a) The Servicer shall hold in trust for Seller and the Purchasers all Records that (i) evidence or relate to the Receivables, the related Contracts and Related Security or (ii) are otherwise necessary or desirable to collect the Receivables and shall, as soon as practicable upon demand of the Agent following the occurrence and during the continuance of an Amortization Event, deliver or make available to the Agent copies of all such Records, at a place selected by the Agent. The Servicer shall, as soon as practicable following receipt thereof turn over to Seller any cash collections or other cash proceeds received with respect to Indebtedness not constituting Receivables. The Servicer shall, from time to time at the request of any Purchaser, furnish to the Purchasers (promptly after any such request) a calculation of the amounts set aside for the Purchasers pursuant to Article II. (b) (c) Any payment by an Obligor in respect of any indebtedness owed by it to any Originator or Seller shall, except as otherwise specified by such Obligor or otherwise required by contract or law and unless otherwise instructed by the Agent, be applied as a Collection of any Receivable of such Obligor (starting with the oldest such Receivable) to the extent of any amounts then due and payable thereunder before being applied to any other receivable or other obligation of such Obligor. (d) (e) 1.2 Section Collection Notices . The Agent is authorized at any time during the continuance of an Amortization Event to date and to deliver to the Collection Banks the Collection Notices. Seller hereby transfers to the Agent for the benefit of the Purchasers, effective when the Agent delivers such notice, the exclusive ownership and control of each Lock-Box and the Collection Accounts. In case any authorized signatory of Seller whose signature appears on a Collection Account Agreement shall cease to have such authority before the delivery of such notice, such Collection Notice shall nevertheless be valid as if such authority had remained in force. Seller hereby authorizes the Agent, and agrees that the Agent shall, following the occurrence and during the continuance of an Amortization Event, be entitled to (i) endorse Seller's name on checks and other instruments representing Collections, (ii) enforce the Receivables, the related Contracts and the Related Security and (iii) take such action as shall be necessary or desirable to cause all cash, checks and other instruments constituting Collections of Receivables to come into the possession of the Agent rather than Seller. 1.3 1.4 Section Responsibilities of Seller . Anything herein to the contrary notwithstanding, the exercise by the Agent and the Purchasers of their rights hereunder shall not release the Servicer or Seller from any of their duties or obligations with respect to any Receivables or under the related Contracts. The Purchasers shall have no obligation or liability with respect to any Receivables or related Contracts, nor shall any of them be obligated to perform the obligations of Seller. 1.1 Section Reports . The Servicer shall prepare and forward to the Agent (i) on the 20th day of each month and at such times as the Agent shall request, a Monthly Report and (ii) at such times as the Agent shall request, a listing by Obligor of all Receivables together with an aging of such Receivables. The Agent and the Purchasers acknowledge that Seller and the Servicer do not have all necessary data to enable them to compute certain ratios in respect of Defaulted Receivables and Dilutions prior to September 1, 1998. Accordingly, the Servicer shall be permitted to make any computations herein which pertain in part to periods prior to such date without reference to periods prior to such date. 1.2 1.3 Section Servicing Fees . In consideration of Seller's agreement to act as Servicer hereunder, the Purchasers hereby agree that, so long as Seller shall continue to perform as Servicer hereunder, Seller shall be entitled to receive a fee (the "Servicing Fee") on the first calendar day of each month, in arrears for the immediately preceding month equal to 1.0% per annum of the aggregate amount of outstanding Capital as compensation for its servicing activities, which fee shall be payable in accordance with the terms of Article III. 1.4 1 ARTICLE AMORTIZATION EVENTSARTICLE 2 AMORTIZATION EVENTS 1.1 Section Amortization Events . The occurrence of any one or more of the following events shall constitute an Amortization Event: (a) The Servicer (so long as any Affiliate of KNEI is the Servicer) or Seller shall fail (i) to make any payment or deposit required hereunder when due and, for any such payment or deposit which is not in respect of Capital, such failure continues for one (1) Business Day, or (ii) to perform or observe any covenant or agreement hereunder (other than as referred to in clause (i) of this paragraph (a)) and such failure shall continue for ten (10) Business Days after notice thereof has been given to the Servicer (so long as any Affiliate of KNEI is the Servicer) or Seller by the Agent. (b) (c) The Servicer (so long as any Affiliate of KNEI is the Servicer) or Seller shall fail to perform or observe any covenant contained in Article VII hereof and such failure shall continue for ten (10) Business Days after notice thereof has been given to the Servicer (so long as any Affiliate of KNEI is the Servicer) or Seller by the Agent. (d) (e) Any representation, warranty, certification or statement made by the Servicer (so long as any Affiliate of KNEI is the Servicer) or Seller in this Agreement, any other Transaction Document or in any other document delivered pursuant hereto or thereto shall prove to have been incorrect when made or deemed made. (f) (g) KNEI or any Subsidiary shall fail to make any payment in respect of any Material Financial Obligations when due or within any applicable grace period; provided, however, that if any such failure is cured by KNEI or such Subsidiary or is waived by the requisite percentage of holders of such Material Financial Obligations entitled to so waive, then the Amortization Event under this Agreement by reason of such failure shall be deemed to have been cured. (h) (i) Any event or condition shall occur which results in the acceleration of the maturity of any Material Debt or enables (or, with the giving of notice or lapse of time or both, would enable) the holder of such Debt or any Person acting on such holder's behalf to accelerate the maturity thereof; provided, however, that if any such acceleration is rescinded, or any such event or condition is cured by KNEI or any Subsidiary or is waived by the requisite percentage of holders of such Material Debt entitled to so waive, then the Amortization Event under this Agreement by reason of such acceleration, event or condition shall be deemed to have been cured. (j) (i) Seller or Servicer (so long as any Affiliate of KNEI is the Servicer) shall generally not pay its debts as such debts become due or shall admit in writing its inability to pay its debts generally or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against Seller or such Servicer or any of its Material Subsidiaries seeking to adjudicate it bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee or other similar official for it or any substantial part of its property and such proceeding shall not be dismissed within 60 days of the filing thereof or (ii) Seller, such Servicer or any of its Material Subsidiaries shall take any corporate action to authorize any of the actions set forth in clause (i) above in this subsection (e). (ii) (k) Seller shall fail to comply with the terms of Section 2.7 hereof. (l) (m) The Three-Month Average Dilution Ratio shall exceed 5% at any time. (n) The Three-Month Average Default Ratio shall exceed 5% at any time. (o) (p) The Three-Month Average Variance Ratio shall exceed 7% at any time. (q) (r) The Performance Guarantor's credit rating for its long term senior unsecured debt obligations shall be reduced below BB+ by Standard & Poor's Ratings Services or below Ba1 by Moody's Investors Service, Inc., or either such rating agency shall withdraw its rating. (s) (t) A Change of Control shall occur. (u) (v) KNEI ceases to own 100% of Seller. (w) (x) (i) Consolidated Debt of KNEI shall exceed 74.0% of Consolidated Total Capitalization at any time; (ii) total Debt of all Consolidated Subsidiaries (excluding Debt of a Consolidated Subsidiary of KNEI to KNEI or to another Consolidated Subsidiary of KNEI, shall exceed 10% of Consolidated Debt of KNEI at any time or (iii) Consolidated Debt of each Material Subsidiary shall exceed 65% of the Consolidated Total Capitalization of such Material Subsidiary at any time. (y) (z) Consolidated Net Worth of KNEI shall be less than an amount equal to the sum of (i) $1,236,000,000 plus (ii) 50% of Consolidated Net Income for each fiscal quarter of KNEI ending after December 30, 1998 and at or prior to such time (but only if such Consolidated Net Income for such fiscal quarter is a positive amount) at any time. (a) KNEI shall fail to perform or observe any term, covenant or agreement contained in the Credit Agreement and such failure shall continue unremedied beyond any applicable grace or cure period provided therein. (b) (c) One or more final judgments for the payment of money shall be entered against Seller on claims not covered by insurance or as to which the insurance carrier has denied its responsibility, and such judgment shall continue unsatisfied and in effect for thirty (30) consecutive days without a stay of execution. (d) (e) Performance Guarantor shall fail to perform or observe any term, covenant or agreement required to be performed by it under the Performance Guaranty, or the Performance Guaranty shall cease to be effective or to be the legally valid, binding and enforceable obligation of Performance Guarantor, or Performance Guarantor shall directly or indirectly contest in any manner such effectiveness, validity, binding nature or enforceability. (f) (g) The "Amortization Date" shall occur under the Receivables Sale Agreement or any Originator shall for any reason cease to transfer, or cease to have the legal capacity to transfer, or otherwise be incapable of transferring Receivables to Seller under the Receivables Sale Agreement. (h) (i) This Agreement shall terminate in whole or in part (except in accordance with its terms), or shall cease to be effective or to be the legally valid, binding and enforceable obligation of Seller, or the Agent for the benefit of the Purchasers shall cease to have a valid and perfected first priority ownership/security interest in the Receivables, the Related Security and the Collections with respect thereto and the Collection Accounts. (j) 1.2 Section Remedies . Upon the occurrence and during the continuation of an Amortization Event, the Agent may, or upon the direction of the Required Financial Institutions shall, take any of the following actions: (i) replace the Person then acting as Servicer if such Amortization Event arises from the actions of the Servicer, (ii) declare the Amortization Date to have occurred, whereupon the Amortization Date shall forthwith occur, without demand, protest or further notice of any kind, all of which are hereby expressly waived by Seller; provided, however, that upon the occurrence of Amortization Event described in Section 9.1(e), or of an actual or deemed entry of an order for relief with respect to Seller or the Servicer (so long as any Affiliate of KNEI is the Servicer) under the Federal Bankruptcy Code, the Amortization Date shall automatically occur, without demand, protest or any notice of any kind, all of which are hereby expressly waived by Seller, (iii) to the fullest extent permitted by applicable law, declare that the Default Fee shall accrue with respect to any of the Aggregate Unpaids outstanding at such time, (iv) deliver the Collection Notices to the Collection Banks, and (v) notify Obligors of the Purchasers' interest in the Receivables. The aforementioned rights and remedies shall be in addition to all other rights and remedies of the Agent and the Purchasers available under this Agreement, by operation of law, at equity or otherwise, all of which are hereby expressly preserved, including, without limitation, all rights and remedies provided under the UCC, all of which rights shall be cumulative. ARTICLE INDEMNIFICATION 1 ARTICLE INDEMNIFICATION 1.1 Section INDEMNITIES BY SELLER . WITHOUT LIMITING ANY OTHER RIGHTS THAT THE AGENT OR ANY PURCHASER MAY HAVE HEREUNDER OR UNDER APPLICABLE LAW, (A) SELLER HEREBY AGREES TO INDEMNIFY (AND PAY UPON DEMAND TO) THE AGENT AND EACH PURCHASER AND THEIR RESPECTIVE ASSIGNS, OFFICERS, DIRECTORS, AGENTS AND EMPLOYEES (EACH AN "INDEMNIFIED PARTY") FROM AND AGAINST ANY AND ALL DAMAGES, LOSSES, CLAIMS, TAXES, LIABILITIES, COSTS, EXPENSES AND FOR ALL OTHER AMOUNTS PAYABLE, INCLUDING REASONABLE ATTORNEYS' FEES (WHICH ATTORNEYS MAY BE EMPLOYEES OF THE AGENT OR SUCH PURCHASER) AND DISBURSEMENTS (ALL OF THE FOREGOING BEING COLLECTIVELY REFERRED TO AS "INDEMNIFIED AMOUNTS") AWARDED AGAINST OR INCURRED BY ANY OF THEM ARISING OUT OF OR AS A RESULT OF THIS AGREEMENT OR THE ACQUISITION, EITHER DIRECTLY OR INDIRECTLY, BY A PURCHASER OF AN INTEREST IN THE RECEIVABLES, AND (B) THE SERVICER HEREBY AGREES TO INDEMNIFY (AND PAY UPON DEMAND TO) EACH INDEMNIFIED PARTY FOR INDEMNIFIED AMOUNTS AWARDED AGAINST OR INCURRED BY ANY OF THEM ARISING OUT OF THE SERVICER'S ACTIVITIES AS SERVICER HEREUNDER EXCLUDING, HOWEVER, IN ALL OF THE FOREGOING INSTANCES UNDER THE PRECEDING CLAUSES (A) AND (B): (i) INDEMNIFIED AMOUNTS TO THE EXTENT A FINAL JUDGMENT OF A COURT OF COMPETENT JURISDICTION HOLDS THAT SUCH INDEMNIFIED AMOUNTS RESULTED FROM GROSS NEGLIGENCE OR WILLFUL MISCONDUCT ON THE PART OF THE INDEMNIFIED PARTY SEEKING INDEMNIFICATION; (i) INDEMNIFIED AMOUNTS TO THE EXTENT THE SAME INCLUDES LOSSES IN RESPECT OF RECEIVABLES THAT ARE UNCOLLECTIBLE ON ACCOUNT OF THE INSOLVENCY, BANKRUPTCY OR LACK OF CREDITWORTHINESS OF THE RELATED OBLIGOR; (i) TAXES IMPOSED BY THE JURISDICTION IN WHICH SUCH INDEMNIFIED PARTY'S PRINCIPAL EXECUTIVE OFFICE IS LOCATED, ON OR MEASURED BY THE OVERALL NET INCOME OF SUCH INDEMNIFIED PARTY TO THE EXTENT THAT THE COMPUTATION OF SUCH TAXES IS CONSISTENT WITH THE CHARACTERIZATION FOR INCOME TAX PURPOSES OF THE ACQUISITION BY THE PURCHASERS OF PURCHASER INTERESTS AS A LOAN OR LOANS BY THE PURCHASERS TO SELLER SECURED BY THE RECEIVABLES, THE RELATED SECURITY, THE COLLECTION ACCOUNTS AND THE COLLECTIONS; (i) INDEMNIFIED AMOUNTS TO THE EXTENT THE SAME ARE A RESULT OF A VIOLATION BY SUCH INDEMNIFIED PARTY OF ANY BANKING OR SECURITIES LAWS OR REGULATIONS; (i) INDEMNIFIED AMOUNTS TO THE EXTENT THEY INCLUDE COSTS AND EXPENSES OF A TYPE REFERRED TO IN SECTIONS 10.2 AND 10.3 HEREOF, EXCEPT TO THE EXTENT PROVIDED IN SECTIONS 10.2 AND 10.3; (i) INDEMNIFIED AMOUNTS TO THE EXTENT THEY CONSTITUTE STATE OR LOCAL FRANCHISE TAXES TO THE EXTENT THAT THE INDEMNIFIED PARTY IS SUBJECT TO TAXATION IN THE JURISDICTION IMPOSING SUCH FRANCHISE TAXES SOLELY FOR REASONS OTHER THAN THE TRANSACTIONS CONTEMPLATED BY THE TRANSACTION DOCUMENTS; AND (i) INDEMNIFIED AMOUNTS THAT UNDER THE TERMS OF CLAUSES (I) THROUGH (XVI) BELOW ARE EXPRESSLY EXCEPTED FROM THE INDEMNIFICATION PROVISIONS OF SUCH CLAUSES. PROVIDED, HOWEVER, THAT NOTHING CONTAINED IN THIS SENTENCE SHALL LIMIT THE LIABILITY OF SELLER OR LIMIT THE RECOURSE OF THE PURCHASERS TO SELLER FOR AMOUNTS OTHERWISE SPECIFICALLY PROVIDED TO BE PAID BY SELLER UNDER THE TERMS OF THIS AGREEMENT. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING INDEMNIFICATION, BUT SUBJECT TO THE LIMITATIONS SET FORTH IN CLAUSES (I) AND (II) OF THIS PREVIOUS SENTENCE, SELLER SHALL INDEMNIFY THE AGENT AND THE PURCHASERS FOR INDEMNIFIED AMOUNTS (INCLUDING, WITHOUT LIMITATION, LOSSES IN RESPECT OF UNCOLLECTIBLE RECEIVABLES, REGARDLESS OF WHETHER REIMBURSEMENT THEREFOR WOULD CONSTITUTE RECOURSE TO SELLER) RELATING TO OR RESULTING FROM: (i) ANY REPRESENTATION OR WARRANTY MADE BY SELLER OR ANY ORIGINATOR (OR ANY OFFICERS OF ANY SUCH PERSON) UNDER OR IN CONNECTION WITH THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENT OR ANY OTHER INFORMATION OR REPORT DELIVERED BY ANY SUCH PERSON PURSUANT HERETO OR THERETO, WHICH SHALL HAVE BEEN FALSE OR INCORRECT WHEN MADE OR DEEMED MADE; (i) THE FAILURE BY SELLER OR ANY ORIGINATOR TO COMPLY WITH ANY APPLICABLE LAW, RULE OR REGULATION WITH RESPECT TO ANY RECEIVABLE OR CONTRACT RELATED THERETO, OR THE NONCONFORMITY OF ANY RECEIVABLE OR CONTRACT INCLUDED THEREIN WITH ANY SUCH APPLICABLE LAW, RULE OR REGULATION OR ANY FAILURE OF ANY ORIGINATOR TO KEEP OR PERFORM ANY OF ITS OBLIGATIONS, EXPRESS OR IMPLIED, WITH RESPECT TO ANY CONTRACT; (i) ANY FAILURE OF SELLER OR ANY ORIGINATOR TO PERFORM ITS DUTIES, COVENANTS OR OTHER OBLIGATIONS IN ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT; (i) ANY PRODUCTS LIABILITY, PERSONAL INJURY OR DAMAGE SUIT, OR OTHER SIMILAR CLAIM ARISING OUT OF OR IN CONNECTION WITH MERCHANDISE, INSURANCE OR SERVICES THAT ARE THE SUBJECT OF ANY CONTRACT OR ANY RECEIVABLE; (i) ANY DISPUTE, CLAIM, OFFSET OR DEFENSE (OTHER THAN DISCHARGE IN BANKRUPTCY OF THE OBLIGOR) OF THE OBLIGOR TO THE PAYMENT OF ANY RECEIVABLE (INCLUDING, WITHOUT LIMITATION, A DEFENSE BASED ON SUCH RECEIVABLE OR THE RELATED CONTRACT NOT BEING A LEGAL, VALID AND BINDING OBLIGATION OF SUCH OBLIGOR ENFORCEABLE AGAINST IT IN ACCORDANCE WITH ITS TERMS), OR ANY OTHER CLAIM RESULTING FROM THE SALE OF THE MERCHANDISE OR SERVICE RELATED TO SUCH RECEIVABLE OR THE FURNISHING OR FAILURE TO FURNISH SUCH MERCHANDISE OR SERVICES; (i) COMMINGLING OF COLLECTIONS OF RECEIVABLES AT ANY TIME WITH OTHER FUNDS; (i) ANY INVESTIGATION, LITIGATION OR PROCEEDING RELATED TO OR ARISING FROM THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT, THE TRANSACTIONS CONTEMPLATED HEREBY, THE USE OF THE PROCEEDS OF AN INCREMENTAL PURCHASE OR A REINVESTMENT, THE OWNERSHIP OF THE PURCHASER INTERESTS OR ANY OTHER INVESTIGATION, LITIGATION OR PROCEEDING RELATING TO SELLER OR ANY ORIGINATOR IN WHICH ANY INDEMNIFIED PARTY BECOMES INVOLVED AS A RESULT OF ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY; (i) ANY INABILITY TO LITIGATE ANY CLAIM AGAINST ANY OBLIGOR IN RESPECT OF ANY RECEIVABLE AS A RESULT OF SUCH OBLIGOR BEING IMMUNE FROM CIVIL AND COMMERCIAL LAW AND SUIT ON THE GROUNDS OF SOVEREIGNTY OR OTHERWISE FROM ANY LEGAL ACTION, SUIT OR PROCEEDING; (i) ANY AMORTIZATION EVENT DESCRIBED IN SECTION 9.1(D); (i) ANY FAILURE OF SELLER TO ACQUIRE AND MAINTAIN LEGAL AND EQUITABLE TITLE TO, AND OWNERSHIP OF ANY RECEIVABLE AND THE RELATED SECURITY AND COLLECTIONS WITH RESPECT THERETO FROM ANY ORIGINATOR, FREE AND CLEAR OF ANY ADVERSE CLAIM (OTHER THAN AS CREATED HEREUNDER); OR ANY FAILURE OF SELLER TO GIVE REASONABLY EQUIVALENT VALUE TO ANY ORIGINATOR UNDER THE RECEIVABLES SALE AGREEMENT IN CONSIDERATION OF THE TRANSFER BY SUCH ORIGINATOR OF ANY RECEIVABLE, OR ANY ATTEMPT BY ANY PERSON TO VOID SUCH TRANSFER UNDER STATUTORY PROVISIONS OR COMMON LAW OR EQUITABLE ACTION; (i) ANY FAILURE TO VEST AND MAINTAIN VESTED IN THE AGENT FOR THE BENEFIT OF THE PURCHASERS, OR TO TRANSFER TO THE AGENT FOR THE BENEFIT OF THE PURCHASERS, LEGAL AND EQUITABLE TITLE TO, AND OWNERSHIP OF, A FIRST PRIORITY PERFECTED UNDIVIDED PERCENTAGE OWNERSHIP INTEREST (TO THE EXTENT OF THE PURCHASER INTERESTS CONTEMPLATED HEREUNDER) OR SECURITY INTEREST IN THE RECEIVABLES, THE RELATED SECURITY AND THE COLLECTIONS, FREE AND CLEAR OF ANY ADVERSE CLAIM (EXCEPT AS CREATED BY THE TRANSACTION DOCUMENTS); (i) THE FAILURE TO HAVE FILED, OR ANY DELAY IN FILING, FINANCING STATEMENTS OR OTHER SIMILAR INSTRUMENTS OR DOCUMENTS UNDER THE UCC OF ANY APPLICABLE JURISDICTION OR OTHER APPLICABLE LAWS WITH RESPECT TO ANY RECEIVABLE, THE RELATED SECURITY AND COLLECTIONS WITH RESPECT THERETO, AND THE PROCEEDS OF ANY THEREOF, WHETHER AT THE TIME OF ANY INCREMENTAL PURCHASE OR REINVESTMENT OR AT ANY SUBSEQUENT TIME; (i) ANY ACTION OR OMISSION BY SELLER WHICH REDUCES OR IMPAIRS THE RIGHTS OF THE AGENT OR THE PURCHASERS WITH RESPECT TO ANY RECEIVABLE OR THE VALUE OF ANY SUCH RECEIVABLE; (i) ANY ATTEMPT BY ANY PERSON TO VOID ANY INCREMENTAL PURCHASE OR REINVESTMENT HEREUNDER UNDER STATUTORY PROVISIONS OR COMMON LAW OR EQUITABLE ACTION; (i) THE YEAR 2000 PROBLEM INVOLVING SELLER, SERVICER (SO LONG AS ANY AFFILIATE OF KNEI IS THE SERVICER), ANY ORIGINATOR OR ANY OBLIGOR; AND (i) THE FAILURE OF ANY RECEIVABLE INCLUDED IN THE CALCULATION OF THE NET RECEIVABLES BALANCE AS AN ELIGIBLE RECEIVABLE TO BE AN ELIGIBLE RECEIVABLE AT THE TIME SO INCLUDED. 1.1 Section Increased Cost and Reduced Return . If any funding source shall be charged any fee, expense, or increased cost on account of the adoption if any applicable law, rule or regulation (including any applicable law, rule or regulation regarding capital adequacy) or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency, in each case occurring after the date hereof (a "Regulatory Change"): (i) that subjects any funding source to any charge or withholding on or with respect to any funding agreement or a funding source's obligations under a funding agreement, or on or with respect to receivables, or changes the basis of taxation of payments to any funding source of any amounts payable under any funding agreement (except for changes in the rate of tax on the overall net income of a funding source or taxes excluded by Section 10.1) or (ii) that imposes, modifies or deems applicable any reserve, assessment, insurance charge, special deposit or similar requirement against assets of, deposits with or for the account of a funding source, or credit extended by a funding source pursuant to a funding agreement or (iii) that imposes any other condition the result of which is to increase the cost to a funding source of performing its obligations under a funding agreement, or to reduce the ate of return on a funding source's capital as a consequence of its obligations under a funding agreement, or to reduce the amount of any sum received or receivable by a funding source under a funding agreement or to require any payment calculated by reference to the amount of interests or loans held or interest received by it, then, upon demand by the agent, seller shall pay to the agent, for the benefit of the relevant funding source, such amounts charged to such funding source or such amounts to otherwise compensate such funding source for such reduction. 1.2 1.3 Section OTHER COSTS AND EXPENSES . SELLER SHALL PAY TO THE AGENT AND THE CONDUITS ON DEMAND ALL COSTS AND OUT-OF-POCKET EXPENSES IN CONNECTION WITH THE PREPARATION, EXECUTION, DELIVERY AND ADMINISTRATION OF THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREBY AND THE OTHER DOCUMENTS TO BE DELIVERED HEREUNDER, INCLUDING WITHOUT LIMITATION, THE COST OF CONDUITS' AUDITORS AUDITING THE BOOKS, RECORDS AND PROCEDURES OF SELLER ONCE PER YEAR PRIOR TO THE OCCURRENCE OF AN AMORTIZATION EVENT AND AT ANY TIME UPON THE OCCURRENCE AND DURING THE CONTINUANCE OF AN AMORTIZATION EVENT, REASONABLE FEES AND OUT-OF-POCKET EXPENSES OF LEGAL COUNSEL FOR CONDUITS AND THE AGENT (WHICH SUCH COUNSEL MAY BE EMPLOYEES OF CONDUITS OR THE AGENT) WITH RESPECT THERETO AND WITH RESPECT TO ADVISING CONDUITS AND THE AGENT AS TO THEIR RESPECTIVE RIGHTS AND REMEDIES UNDER THIS AGREEMENT. SELLER SHALL PAY TO AGENT ON DEMAND ANY AND ALL COSTS AND EXPENSES OF THE AGENT AND THE PURCHASERS, IF ANY, INCLUDING REASONABLE COUNSEL FEES AND EXPENSES IN CONNECTION WITH THE ENFORCEMENT OF THIS AGREEMENT AND THE OTHER DOCUMENTS DELIVERED HEREUNDER AND IN CONNECTION WITH ANY RESTRUCTURING OR WORKOUT OF THIS AGREEMENT OR SUCH DOCUMENTS, OR THE ADMINISTRATION OF THIS AGREEMENT FOLLOWING AN AMORTIZATION EVENT; PROVIDED, HOWEVER, TO THE EXTENT FEASIBLE AND A CONFLICT OF INTEREST DOES NOT EXIST, THE PURCHASERS SHALL ALL USE THE SAME COUNSEL. 1.4 ARTICLE THE AGENT 1 ARTICLE THE AGENT 1.1 Section Authorization and Action . Each Purchaser hereby designates and appoints Bank One to act as its agent hereunder and under each other Transaction Document, and authorizes the Agent to take such actions as agent on its behalf and to exercise such powers as are delegated to the Agent by the terms of this Agreement and the other Transaction Documents together with such powers as are reasonably incidental thereto. The Agent shall not have any duties or responsibilities, except those expressly set forth herein or in any other Transaction Document, or any fiduciary relationship with any Purchaser, and no implied covenants, functions, responsibilities, duties, obligations or liabilities on the part of the Agent shall be read into this Agreement or any other Transaction Document or otherwise exist for the Agent. In performing its functions and duties hereunder and under the other Transaction Documents, the Agent shall act solely as agent for the Purchasers and does not assume nor shall be deemed to have assumed any obligation or relationship of trust or agency with or for any Seller or any of such Seller Party's successors or assigns. The Agent shall not be required to take any action that exposes the Agent to personal liability or that is contrary to this Agreement, any other Transaction Document or applicable law. The appointment and authority of the Agent hereunder shall terminate upon the indefeasible payment in full of all Aggregate Unpaids. Each Purchaser hereby authorizes the Agent to execute each of the Uniform Commercial Code financing statements, together with such other instruments or documents determined by the Agent to be necessary or desirable in order to perfect, evidence or more fully protect the interest of the Purchasers contemplated hereunder, on behalf of such Purchaser (the terms of which shall be binding on such Purchaser). 1.1 Section Delegation of Duties . The Agent may execute any of its duties under this Agreement and each other Transaction Document by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. 1.2 1.3 Section Exculpatory Provisions . Neither the Agent nor any of its directors, officers, agents or employees shall be (i) liable for any action lawfully taken or omitted to be taken by it or them under or in connection with this Agreement or any other Transaction Document (except for its, their or such Person's own gross negligence or willful misconduct), or (ii) responsible in any manner to any of the Purchasers for any recitals, statements, representations or warranties made by Seller contained in this Agreement, any other Transaction Document or any certificate, report, statement or other document referred to or provided for in, or received under or in connection with, this Agreement, or any other Transaction Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement, or any other Transaction Document or any other document furnished in connection herewith or therewith, or for any failure of Seller to perform its obligations hereunder or thereunder, or for the satisfaction of any condition specified in Article VI, or for the perfection, priority, condition, value or sufficiency of any collateral pledged in connection herewith. The Agent shall not be under any obligation to any Purchaser to ascertain or to inquire as to the observance or performance of any of the agreements or covenants contained in, or conditions of, this Agreement or any other Transaction Document, or to inspect the properties, books or records of Seller. The Agent shall not be deemed to have knowledge of any Amortization Event or Potential Amortization Event unless the Agent has received notice from Seller or a Purchaser. 1.4 1.5 Section Reliance by Agent . The Agent shall in all cases be entitled to rely, and shall be fully protected in relying, upon any document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to Seller), independent accountants and other experts selected by the Agent. The Agent shall in all cases be fully justified in failing or refusing to take any action under this Agreement or any other Transaction Document unless it shall first receive such advice or concurrence of the Conduits or the Required Financial Institutions or all of the Purchasers, as applicable, as it deems appropriate and it shall first be indemnified to its satisfaction by the Purchasers, provided that unless and until the Agent shall have received such advice, the Agent may take or refrain from taking any action, as the Agent shall deem advisable and in the best interests of the Purchasers. The Agent shall in all cases be fully protected in acting, or in refraining from acting, in accordance with a request of the Conduits or the Required Financial Institutions or all of the Purchasers, as applicable, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Purchasers. 1.6 1.7 Section Non-Reliance on Agent and Other Purchasers . Each Purchaser expressly acknowledges that neither the Agent, nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates has made any representations or warranties to it and that no act by the Agent hereafter taken, including, without limitation, any review of the affairs of Seller, shall be deemed to constitute any representation or warranty by the Agent. Each Purchaser represents and warrants to the Agent that it has and will, independently and without reliance upon the Agent or any other Purchaser and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, prospects, financial and other conditions and creditworthiness of Seller and made its own decision to enter into this Agreement, the other Transaction Documents and all other documents related hereto or thereto. 1.8 1.9 Section Reimbursement and Indemnification . The Financial Institutions agree to reimburse and indemnify the Agent and its officers, directors, employees, representatives and agents ratably according to their Pro Rata Shares, to the extent not paid or reimbursed by Seller (i) for any amounts for which the Agent, acting in its capacity as Agent, is entitled to reimbursement by Seller hereunder and (ii) for any other expenses incurred by the Agent, in its capacity as Agent and acting on behalf of the Purchasers, in connection with the administration and enforcement of this Agreement and the other Transaction Documents. 1.10 1.11 Section Agent in its Individual Capacity . The Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with Seller or any Affiliate of Seller as though the Agent were not the Agent hereunder. With respect to the acquisition of Purchaser Interests pursuant to this Agreement, the Agent shall have the same rights and powers under this Agreement in its individual capacity as any Purchaser and may exercise the same as though it were not the Agent, and the terms "Financial Institution," "Purchaser," "Financial Institutions" and "Purchasers" shall include the Agent in its individual capacity. 1.12 1.13 Section Successor Agent . The Agent may, upon five days' notice to Seller and the Purchasers, and the Agent will, upon the direction of all of the Purchasers (other than the Agent, in its individual capacity) resign as Agent. If the Agent shall resign, then the Required Financial Institutions during such five-day period shall appoint from among the Purchasers a successor agent. If for any reason no successor Agent is appointed by the Required Financial Institutions during such five- day period, then effective upon the termination of such five day period, the Purchasers shall perform all of the duties of the Agent hereunder and under the other Transaction Documents and Seller shall make all payments in respect of the Aggregate Unpaids directly to the applicable Purchasers and for all purposes shall deal directly with the Purchasers. After the effectiveness of any retiring Agent's resignation hereunder as Agent, the retiring Agent shall be discharged from its duties and obligations hereunder and under the other Transaction Documents and the provisions of this Article XI and Article X shall continue in effect for its benefit with respect to any actions taken or omitted to be taken by it while it was Agent under this Agreement and under the other Transaction Documents. 1.14 ARTICLE ASSIGNMENTS; PARTICIPATIONS 1 ARTICLE ASSIGNMENTS; PARTICIPATIONS (a) Section Assignments . Seller and each Financial Institution hereby agree and consent to the complete or partial assignment by each Conduit of all or any portion of its rights under, interest in, title to and obligations under this Agreement to the Financial Institutions pursuant to Section 13.1 or, with consent of the Seller, which consent shall not be unreasonably withheld to any other Person, and upon such assignment, such Conduit shall be released from its obligations so assigned. Further, Seller and each Financial Institution hereby agree that any assignee of the Conduits of this Agreement or all or any of the Purchaser Interests of the Conduits shall have all of the rights and benefits under this Agreement as if the term "Conduit" explicitly referred to such party, and no such assignment shall in any way impair the rights and benefits of the Conduits hereunder. Seller shall not have the right to assign its rights or obligations under this Agreement. (a) Any Financial Institution may at any time and from time to time assign to one or more Persons ("Purchasing Financial Institutions") all or any part of its rights and obligations under this Agreement pursuant to an assignment agreement, substantially in the form set forth in Exhibit VII hereto (the "Assignment Agreement") executed by such Purchasing Financial Institution and such selling Financial Institution. The consent of each Conduit shall be required prior to the effectiveness of any such assignment and, prior to an Amortization Event, the consent of the Seller (which consent shall not be unreasonably withheld) shall be required. Each assignee of a Financial Institution must have a short-term debt rating of A-1 or better by Standard & Poor's Ratings Group and P-1 by Moody's Investor Service, Inc. and must agree to deliver to the Agent, promptly following any request therefor by the Agent or any Conduit, an enforceability opinion in form and substance satisfactory to the Agent and each Conduit. Upon delivery of the executed Assignment Agreement to the Agent, such selling Financial Institution shall be released from its obligations hereunder to the extent of such assignment. Thereafter the Purchasing Financial Institution shall for all purposes be an Financial Institution party to this Agreement and shall have all the rights and obligations of an Financial Institution under this Agreement to the same extent as if it were an original party hereto and no further consent or action by Seller, the Purchasers or the Agent shall be required. (b) (c) Each of the Financial Institutions agrees that in the event that it shall cease to have a short-term debt rating of A-1 or better by Standard & Poor's Ratings Services and P-1 by Moody's Investors Service, Inc. (an "Affected Financial Institution"), such Affected Financial Institution shall be obliged, at the request of the Seller, any Conduit or the Agent, to assign all of its rights and obligations hereunder to (x) another Financial Institution or (y) another funding entity nominated by the Agent and acceptable to each Conduit, and willing to participate in this Agreement through the Liquidity Termination Date in the place of such Affected Financial Institution; provided that the Affected Financial Institution receives payment in full, pursuant to an Assignment Agreement, of an amount equal to such Financial Institution's Pro Rata Share of the Capital and Financial Institution Discount owing to the Financial Institutions and all accrued but unpaid fees and other costs and expenses payable in respect of its Pro Rata Share of the Purchaser Interests of the Financial Institutions. (d) 1.2 Section Participations . Any Financial Institution may, in the ordinary course of its business at any time sell to one or more Persons (each a "Participant") participating interests in its Pro Rata Share of the Purchaser Interests of the Financial Institutions, its obligation to pay each Conduit its Acquisition Amounts or any other interest of such Financial Institution hereunder. Notwithstanding any such sale by a Financial Institution of a participating interest to a Participant, such Financial Institution's rights and obligations under this Agreement shall remain unchanged, such Financial Institution shall remain solely responsible for the performance of its obligations hereunder, and Seller, the Conduits and the Agent shall continue to deal solely and directly with such Financial Institution in connection with such Financial Institution's rights and obligations under this Agreement. Each Financial Institution agrees that any agreement between such Financial Institution and any such Participant in respect of such participating interest shall not restrict such Financial Institution's right to agree to any amendment, supplement, waiver or modification to this Agreement, except for any amendment, supplement, waiver or modification described in Section 14.1(b)(i). 1.3 ARTICLE LIQUIDITY FACILITY 1 ARTICLE LIQUIDITY FACILITY 1.1 Section Transfer to Financial Institutions . Each Financial Institution hereby agrees, subject to Section 13.4, that immediately upon written notice from any Conduit delivered on or prior to the Liquidity Termination Date, it shall acquire by assignment from such Conduit, without recourse or warranty, its Pro Rata Share of one or more of the Purchaser Interests of such Conduit as specified by such Conduit. Each such assignment by a Conduit shall be made pro rata among all of the Financial Institutions, except for pro rata assignments to one or more Terminating Financial Institutions pursuant to Section 13.6. Each such Financial Institution shall, no later than 12:00 noon (Chicago time) on the date of such assignment, pay in immediately available funds (unless payment is otherwise agreed between such Conduit and any Financial Institution) to the Agent at an account designated by the Agent, for the benefit of such Conduit, its Acquisition Amount. Unless a Financial Institution has notified the Agent that it does not intend to pay its Acquisition Amount, the Agent may assume that such payment has been made and may, but shall not be obligated to, make the amount of such payment available to such Conduit in reliance upon such assumption. Each Conduit hereby sells and assigns to the Agent for the ratable benefit of the Financial Institutions, and the Agent hereby purchases and assumes from such Conduit, effective upon the receipt by such Conduit of the Conduit Transfer Price, the Purchaser Interests of such Conduit which are the subject of any transfer pursuant to this Article XIII. 1.1 Section Transfer Price Reduction Yield . If the Adjusted Liquidity Price is included in the calculation of the Conduit Transfer Price for any Purchaser Interest of a Conduit, each Financial Institution agrees that the Agent shall pay to the affected Conduit the Reduction Percentage of any Financial Institution Discount received by the Agent with respect to such Purchaser Interest. 1.2 1.3 Section Payments to Conduits . In consideration for the reduction of the Conduit Transfer Prices applicable to a Conduit by the Conduit Transfer Price Reductions applicable to such Conduit, effective only at such time as the aggregate amount of the Capital of the Purchaser Interests of the Financial Institutions acquired from such Conduit equals the Conduit Residual applicable to such Conduit, each Financial Institution hereby agrees that the Agent shall not distribute to the Financial Institutions and shall immediately remit to such Conduit any Yield, Collections or other payments received by it to be applied pursuant to the terms hereof or otherwise to reduce the Capital of the Purchaser Interests of the Financial Institutions. 1.4 1.5 Section Limitation on Commitment to Purchase from Conduits . Notwithstanding anything to the contrary in this Agreement, no Financial Institution shall have any obligation to purchase any Purchaser Interest from any Conduit, pursuant to Section 13.1 or otherwise, if: 1.6 (i) Such Conduit shall have voluntarily commenced any proceeding or filed any petition under any bankruptcy, insolvency or similar law seeking the dissolution, liquidation or reorganization of such Conduit or taken any corporate action for the purpose of effectuating any of the foregoing; or (i) involuntary proceedings or an involuntary petition shall have been commenced or filed against such Conduit by any Person under any bankruptcy, insolvency or similar law seeking the dissolution, liquidation or reorganization of such Conduit and such proceeding or petition shall have not been dismissed. 1.1 Section Defaulting Financial Institutions . If one or more Financial Institutions defaults in its obligation to pay its Acquisition Amount pursuant to Section 13.1 (each such Financial Institution shall be called a "Defaulting Financial Institution" and the aggregate amount of such defaulted obligations being herein called the "Conduit Transfer Price Deficit"), then upon notice from the Agent, each Financial Institution other than the Defaulting Financial Institutions (a "Non-Defaulting Financial Institution") shall promptly pay to the Agent, in immediately available funds, an amount equal to the lesser of (x) such Non- Defaulting Financial Institution's proportionate share (based upon the relative Commitments of the Non-Defaulting Financial Institutions) of the Conduit Transfer Price Deficit and (y) the unused portion of such Non-Defaulting Financial Institution's Commitment. A Defaulting Financial Institution shall forthwith upon demand pay to the Agent for the account of the Non- Defaulting Financial Institutions all amounts paid by each Non- Defaulting Financial Institution on behalf of such Defaulting Financial Institution, together with interest thereon, for each day from the date a payment was made by a Non-Defaulting Financial Institution until the date such Non-Defaulting Financial Institution has been paid such amounts in full, at a rate per annum equal to the Federal Funds Effective Rate plus two percent (2%). In addition, without prejudice to any other rights that the affected Conduit may have under applicable law, each Defaulting Financial Institution shall pay to such Conduit forthwith upon demand, the difference between such Defaulting Financial Institution's unpaid Acquisition Amount and the amount paid with respect thereto by the Non-Defaulting Financial Institutions, together with interest thereon, for each day from the date of the Agent's request for such Defaulting Financial Institution's Acquisition Amount pursuant to Section 13.1 until the date the requisite amount is paid to such Conduit in full, at a rate per annum equal to the Federal Funds Effective Rate plus two percent (2%). 1.2 1.3 Section Terminating Financial Institutions . 1.4 (a) Each Financial Institution hereby agrees to deliver written notice to the Agent not more than 30 Business Days and not less than 5 Business Days prior to the Liquidity Termination Date indicating whether such Financial Institution intends to renew its Commitment hereunder. If any Financial Institution fails to deliver such notice on or prior to the date that is 5 Business Days prior to the Liquidity Termination Date, such Financial Institution will be deemed to have declined to renew its Commitment (each Financial Institution which has declined or has been deemed to have declined to renew its Commitment hereunder, a "Non-Renewing Financial Institution"). The Agent shall promptly notify Conduits of each Non-Renewing Financial Institution and each Conduit, in its sole discretion, may (A) to the extent of Commitment Availability, declare that such Non-Renewing Financial Institution's Commitment shall, to such extent, automatically terminate on a date specified by such Conduit on or before the Liquidity Termination Date or (B) upon one (1) Business Days' notice to such Non-Renewing Financial Institution assign to such Non-Renewing Financial Institution on a date specified by such Conduit its Pro Rata Share of the aggregate Purchaser Interests then held by such Conduit, subject to, and in accordance with, Section 13.1. (b) (c) In addition, any Conduit may, in its sole discretion, at any time (x) to the extent of Commitment Availability, declare that any Affected Financial Institution's Commitment shall automatically terminate on a date specified by such Conduit or (y) assign to any Affected Financial Institution on a date specified by such Conduit its Pro Rata Share of the aggregate Purchaser Interests then held by such Conduit, subject to, and in accordance with, Section 13.1 (each Affected Financial Institution or each Non-Renewing Financial Institution is hereinafter referred to as a "Terminating Financial Institution"). The parties hereto expressly acknowledge that any declaration of the termination of any Commitment, any assignment pursuant to this Section 13.6 and the order of priority of any such termination or assignment among Terminating Financial Institutions shall be made by each Conduit in its sole and absolute discretion. (d) (e) Upon any assignment to a Terminating Financial Institution as provided in this Section 13.6, any remaining Commitment of such Terminating Financial Institution shall automatically terminate. Upon reduction to zero of the Capital of all of the Purchaser Interests of a Terminating Financial Institution (after application of Collections thereto pursuant to Sections 2.2 and 2.3) all rights and obligations of such Terminating Financial Institution hereunder shall be terminated and such Terminating Financial Institution shall no longer be a "Financial Institution" hereunder; provided, however, that the provisions of Article X shall continue in effect for its benefit with respect to Purchaser Interests held by such Terminating Financial Institution prior to its termination as a Financial Institution. (f) ARTICLE MISCELLANEOUS 1 ARTICLE MISCELLANEOUS (a) Section Waivers and Amendments . No failure or delay on the part of the Agent or any Purchaser in exercising any power, right or remedy under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or remedy preclude any other further exercise thereof or the exercise of any other power, right or remedy. The rights and remedies herein provided shall be cumulative and nonexclusive of any rights or remedies provided by law. Any waiver of this Agreement shall be effective only in the specific instance and for the specific purpose for which given. (a) No provision of this Agreement may be amended, supplemented, modified or waived except in writing in accordance with the provisions of this Section 14.1(b). Conduits, Seller and the Agent, at the direction of the Required Financial Institutions, may enter into written modifications or waivers of any provisions of this Agreement, provided, however, that no such modification or waiver shall: (b) (i) without the consent of each affected Purchaser, (A) extend the Liquidity Termination Date or the date of any payment or deposit of Collections by Seller or the Servicer, (B) reduce the rate or extend the time of payment of Financial Institution Discount or any CP Costs (or any component of Financial Institution Discount or CP Costs), (C) reduce any fee payable to the Agent for the benefit of the Purchasers, (D) except pursuant to Article XII hereof, change the amount of the Capital of any Purchaser, any Financial Institution's Pro Rata Share (except pursuant to Sections 13.1 or 13.5) or any Financial Institution's Commitment, (E) amend, modify or waive any provision of the definition of Required Financial Institutions or this Section 14.1(b), (F) consent to or permit the assignment or transfer by Seller of any of its rights and obligations under this Agreement, (G) change the definition of "Eligible Receivable," "Loss Reserve," "Conduit Transfer Price," "Purchaser Interest," "Deemed Collections" or "Net Receivables Balance" or (H) amend or modify any defined term (or any defined term used directly or indirectly in such defined term) used in clauses (A) through (G) above in a manner that would circumvent the intention of the restrictions set forth in such clauses; or (i) without the written consent of the then Agent, amend, modify or waive any provision of this Agreement if the effect thereof is to affect the rights or duties of such Agent. Notwithstanding the foregoing, (i) without the consent of the Financial Institutions, but with the consent of Seller, the Agent may amend this Agreement solely to add additional Persons as Financial Institutions hereunder and (ii) the Agent, the Required Financial Institutions and the Conduits may enter into amendments to modify any of the terms or provisions of Article XI, Article XII, Section 14.13 or any other provision of this Agreement without the consent of Seller, provided that such amendment has no negative impact upon Seller. Any modification or waiver made in accordance with this Section 14.1 shall apply to each of the Purchasers equally and shall be binding upon Seller, the Purchasers and the Agent. (i) Section Notices . Except as provided in this Section 14.2, all communications and notices provided for hereunder shall be in writing (including bank wire, telecopy or electronic facsimile transmission or similar writing) and shall be given to the other parties hereto at their respective addresses or telecopy numbers set forth on the signature pages hereof or at such other address or telecopy number as such Person may hereafter specify for the purpose of notice to each of the other parties hereto. Each such notice or other communication shall be effective if given by telecopy, upon the receipt thereof, if given by mail, three (3) Business Days after the time such communication is deposited in the mail with first class postage prepaid or if given by any other means, when received at the address specified in this Section 14.2. Seller hereby authorizes the Agent to effect purchases and Tranche Period and Discount Rate selections based on telephonic notices made by any Person whom the Agent in good faith believes to be acting on behalf of Seller. Seller agrees to deliver promptly to the Agent a written confirmation of each telephonic notice signed by an authorized officer of Seller; provided, however, the absence of such confirmation shall not affect the validity of such notice. If the written confirmation differs from the action taken by the Agent, the records of the Agent shall govern absent manifest error. (ii) 1.2 Section Ratable Payments . If any Purchaser, whether by setoff or otherwise, has payment made to it with respect to any portion of the Aggregate Unpaids owing to such Purchaser (other than payments received pursuant to Section 10.2 or 10.3) in a greater proportion than that received by any other Purchaser entitled to receive a ratable share of such Aggregate Unpaids, such Purchaser agrees, promptly upon demand, to purchase for cash without recourse or warranty a portion of such Aggregate Unpaids held by the other Purchasers so that after such purchase each Purchaser will hold its ratable proportion of such Aggregate Unpaids; provided that if all or any portion of such excess amount is thereafter recovered from such Purchaser, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest. 1.3 (a) Section Protection of Ownership Interests of the Purchasers . Seller agrees that from time to time, at its expense, it will promptly execute and deliver all instruments and documents, and take all actions, that may be necessary or desirable, or that the Agent may request, to perfect, protect or more fully evidence the Purchaser Interests, or to enable the Agent or the Purchasers to exercise and enforce their rights and remedies hereunder. At any time during the continuance of an Amortization Event, the Agent may, or the Agent may direct Seller or the Servicer to, notify the Obligors of Receivables, at Seller's expense, of the ownership or security interests of the Purchasers under this Agreement and may also direct that payments of all amounts due or that become due under any or all Receivables be made directly to the Agent or its designee. Seller shall, at any Purchaser's request, withhold the identity of such Purchaser in any such notification. (b) (c) If Seller fails to perform any of its obligations hereunder, the Agent or any Purchaser may (but shall not be required to) perform, or cause performance of, such obligation, and the Agent's or such Purchaser's costs and expenses incurred in connection therewith shall be payable by Seller as provided in Section 10.3. Seller irrevocably authorizes the Agent at any time and from time to time in the sole discretion of the Agent, and appoints the Agent as its attorney-in-fact, to act on behalf of Seller (i) to execute on behalf of Seller as debtor and to file financing statements necessary or desirable in the Agent's sole discretion to perfect and to maintain the perfection and priority of the interest of the Purchasers in the Receivables and (ii) to file a carbon, photographic or other reproduction of this Agreement or any financing statement with respect to the Receivables as a financing statement in such offices as the Agent in its sole discretion deems necessary or desirable to perfect and to maintain the perfection and priority of the interests of the Purchasers in the Receivables. This appointment is coupled with an interest and is irrevocable. (d) (e) Section Confidentiality . Seller and each Purchaser shall maintain and shall cause each of its employees and officers to maintain the confidentiality of this Agreement and the other confidential or proprietary information with respect to the Agent and Conduits and their respective businesses obtained by it or them in connection with the structuring, negotiating and execution of the transactions contemplated herein, except that Seller and such Purchaser and its officers and employees may disclose such information to Seller's and such Purchaser's external accountants and attorneys and as required by any applicable law or order of any judicial or administrative proceeding. (f) (g) In the event that Seller, the Servicer or any Affiliate of either of them (herein called "Subject Entities") provides to the Agent or any Purchaser information belonging to any of the Subject Entities, the Agent and the Purchasers shall thereafter maintain such information in confidence in accordance with the standards of care and diligence that each utilizes in maintaining its own confidential information. This obligation of confidence shall not apply to such portions of the information which (i) are disclosed to the Agent, the Financial Institutions or Conduits by each other, (ii) are disclosed by the Agent or the Purchasers to any prospective or actual assignee or participant of any of them, (iii) are disclosed by the Agent to any rating agency, Commercial Paper dealer or provider of a surety, guaranty or credit or liquidity enhancement to Conduits or any entity organized for the purpose of purchasing, or making loans secured by, financial assets for which Bank One acts as the administrative agent and to any officers, directors, employees, outside accountants and attorneys of any of the foregoing, (iv) are in the public domain, (v) hereafter become part of the public domain without the Agent or the Purchasers breaching their obligation of confidence to any Subject Entity, (vi) are previously known by the Agent or the Purchasers from some source other than any Subject Entity, (vii) are hereafter obtained by or available to the Agent or the Purchasers from a third party who owes no obligation of confidence to the Subject Entities with respect to such information or through any other means other than through disclosure by the Subject Entities, (viii) are disclosed with Seller's consent, (ix) must be disclosed to any Governmental Authority regulating the activities of the Agent or the Purchasers, or (x) as may be required by law or regulation or order of any Governmental Authority in any judicial, arbitration or governmental proceeding. (h) 1.4 Section Bankruptcy Petition . Seller, the Agent and each Financial Institution hereby covenants and agrees that, prior to the date that is one year and one day after the payment in full of all outstanding senior Indebtedness of any Conduit or any Financial Institution that is a special purpose bankruptcy remote entity, it will not institute against, or join any other Person in instituting against, such Conduit or any such entity any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceeding under the laws of the United States or any state of the United States. 1.5 1.6 Section Limitation of Liability . Except with respect to any claim arising out of the willful misconduct or gross negligence of Seller, the Servicer, any Originator or any Conduit, the Agent or any Financial Institution, no claim may be made by Seller, any Conduit, the Agent, any Financial Institution or any other Person against any such Person or their respective Affiliates, directors, officers, employees, attorneys or agents for any special, indirect, consequential or punitive damages in respect of any claim for breach of contract or any other theory of liability arising out of or related to the transactions contemplated by this Agreement, or any act, omission or event occurring in connection therewith; and each such party hereby waives, releases, and agrees not to sue upon any claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor. 1.7 1.8 Section CHOICE OF LAW . ALL PROVISIONS OF THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF TEXAS. 1.9 1.10 Section CONSENT TO JURISDICTION . SELLER HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR ILLINOIS STATE COURT SITTING IN CHICAGO, ILLINOIS IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY DOCUMENT EXECUTED BY SUCH PERSON PURSUANT TO THIS AGREEMENT AND EACH OF Seller HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE AGENT OR ANY PURCHASER TO BRING PROCEEDINGS AGAINST SELLER IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY SELLER AGAINST THE AGENT OR ANY PURCHASER OR ANY AFFILIATE OF THE AGENT OR A PURCHASER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT OR ANY DOCUMENT EXECUTED BY SELLER PURSUANT TO THIS AGREEMENT SHALL BE BROUGHT ONLY IN A COURT IN CHICAGO, ILLINOIS. 1.11 1.12 Section WAIVER OF JURY TRIAL . EACH PARTY HERETO HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT, ANY DOCUMENT EXECUTED BY SELLER PURSUANT TO THIS AGREEMENT OR THE RELATIONSHIP ESTABLISHED HEREUNDER OR THEREUNDER. 1.13 1.14 Section Integration; Binding Effect; Survival of Terms . 1.15 (a) This Agreement and each other transaction Document contains the final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and shall constitute the entire agreement among the parties hereto with respect to the subject matter hereof superseding all prior oral or written understandings. (b) (c) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns (including any trustee in bankruptcy). This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms and shall remain in full force and effect until terminated in accordance with its terms; provided, however, that the rights and remedies with respect to (i) any breach of any representation and warranty made by Seller pursuant to Article V, (ii) the indemnification and payment provisions of Article X, and Sections 14.5 and 14.6 shall be continuing and shall survive any termination of this Agreement. (d) 1.16 Section Counterparts; Severability; Section References . This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same Agreement. Any provisions of this Agreement which are prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Unless otherwise expressly indicated, all references herein to "Article," "Section," "Schedule" or "Exhibit" shall mean articles and sections of, and schedules and exhibits to, this Agreement. 1.17 1.18 Section Bank One Roles . Each of the Financial Institutions acknowledges that Bank One acts, or may in the future act, (i) as administrative agent for any Conduit or any Financial Institution, (ii) as issuing and paying agent for the Commercial Paper, (iii) to provide credit or liquidity enhancement for the timely payment for the Commercial Paper and (iv) to provide other services from time to time for any Conduit or any Financial Institution (collectively, the "Bank One Roles"). Without limiting the generality of this Section 14.13, each Financial Institution hereby acknowledges and consents to any and all Bank One Roles and agrees that in connection with any Bank One Role, Bank One may take, or refrain from taking, any action that it, in its discretion, deems appropriate, including, without limitation, in its role as administrative agent for Conduits, and the giving of notice to the Agent of a mandatory purchase pursuant to Section 13.1. 1.19 (a) Section Characterization . It is the intention of the parties hereto that each purchase hereunder shall constitute and be treated as an absolute and irrevocable sale, which purchase shall provide the applicable Purchaser with the full benefits of ownership of the applicable Purchaser Interest. Except as specifically provided in this Agreement, each sale of a Purchaser Interest hereunder is made without recourse to Seller; provided, however, that (i) Seller shall be liable to each Purchaser and the Agent for all representations, warranties, covenants and indemnities made by Seller pursuant to the terms of this Agreement, and (ii) such sale does not constitute and is not intended to result in an assumption by any Purchaser or the Agent or any assignee thereof of any obligation of Seller or any Originator or any other person arising in connection with the Receivables, the Related Security, or the related Contracts, or any other obligations of Seller or any Originator. (b) (c) It is further the express intent of the Seller, Agent and each Purchaser that Section 9.102(d) of the Texas Business and Commerce Code shall apply to all purchases and sales of Receivables and Purchaser Interests hereunder. Each of the Seller, Agent and each Purchaser agree that it will not account for the transaction contemplated herein other than as a sale of Receivables to the Purchasers, except that for purposes of all taxes, the transactions contemplated hereby shall be treated as a loan by the Purchasers (through the Agent) to the Seller that is secured by the Receivables. (d) (e) In the event that the characterization in Section 14.14(b) is not respected for any reason, in addition to any ownership interest which the Agent may from time to time acquire pursuant hereto, Seller hereby grants to the Agent for the ratable benefit of the Purchasers a valid and perfected security interest in all of Seller's right, title and interest in, to and under all Receivables now existing or hereafter arising, the Collections, each Lock-Box, each Collection Account, all Related Security, all other rights and payments relating to such Receivables, and all proceeds of any thereof prior to all other liens on and security interests therein to secure the prompt and complete payment of the Aggregate Unpaids. The Agent and the Purchasers shall have, in addition to the rights and remedies that they may have under this Agreement, all other rights and remedies provided to a secured creditor under the UCC and other applicable law, which rights and remedies shall be cumulative. (f) [SIGNATURE PAGES FOLLOW] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their duly authorized officers as of the date hereof. KN RECEIVABLES CORPORATION By: /s/ Rose M. Robeson ------------------------------- Title: Vice President and Treasurer Address: One Allen Center 500 Dallas Street, Suite 1000 Houston, TX 77002 with copy to: K N Energy, Inc. Address: 370 Van Gordon Street Lakewood, CO 80228-8304 Attn: _Rose M. Robeson FALCON ASSET SECURITIZATION CORPORATION By: /s/ Patrick Drennan -------------------------------- Authorized Signatory Address: c/o Bank One, NA, as Agent Asset Backed Finance Suite IL1-0079, 1-19 One Bank One Plaza Chicago, Illinois 60670-0079 Fax: (312) 732-1844 INTERNATIONAL SECURITIZATION CORPORATION By: /s/ Patrick Drennan ------------------------------- Authorized Signatory Address: c/o Bank One, NA, as Agent Asset Backed Finance Suite IL1-0079, 1-19 One Bank One Plaza Chicago, Illinois 60670-0079 Fax: (312) 732-1844 BANK ONE, NA, as a Financial Institution and as Agent By: /s/ Patrick Drennan ------------------------ Title: Director Address: Bank One, NA Asset Backed Finance Suite 0596, 1-21 One Bank One Plaza Chicago, Illinois 60670-0596 Fax: (312) 732-4487 EXHIBIT I DEFINITIONS As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Accrual Period" means (i) unless the Agent has designated a Special Settlement Date, each calendar month, provided that the initial Accrual Period hereunder means the period from (and including) the date of the initial purchase hereunder to (and including) the last day of the calendar month thereafter and (ii) if the Agent has designated any Special Settlement Date, such period of time commencing on the day following the last day of the preceding Accrual Period and ending on a day preceding such Special Settlement Date as specified by the Agent. "Acquisition Amount" means, on the date of any purchase from any Conduit of Purchaser Interests pursuant to Section 13.1, (i) with respect to any Financial Institution other than Bank One (but including Bank One if it is at any time a Terminating Financial Institution), the lesser of (a) such Financial Institution's Pro Rata Share of the Conduit Transfer Price and (b) such Financial Institution's unused Commitment and (ii) with respect to Bank One solely in the instant of a purchase from any Conduit of Purchaser Interests by all of the Financial Institutions, the difference between (a) the Conduit Transfer Price and (b) the aggregate amount payable by all other Financial Institutions on such date pursuant to clause (i) above. "Adjusted Liquidity Price" means, in determining the Conduit Transfer Price for any Purchaser Interest, an amount equal to RI~ LEFT [ (i)~DC~+~(ii)~ LEFT [ {NDR} over {1~+~(.50~x~ .10)} RIGHT] ~RIGHT ] where: RI = the undivided percentage interest evidenced by such Purchaser Interest. DC = the Deemed Collections. NDR = the Outstanding Balance of all Receivables as to which any payment, or part thereof, has not remained unpaid for sixty- one (61) days or more from the original due date for such payment. Each of the foregoing shall be determined from the most recent Monthly Report received from the Servicer. "Adverse Claim" means a lien, security interest, charge or encumbrance, or other right or claim in, of or on any Person's assets or properties in favor of any other Person. Security interests in favor of owners of interests in production provided by a Section 9-319 Statute shall not be considered "Adverse Claims" so long as the applicable Originators timely pay such interest owners in full all amounts due and owing to such interest owners. "Affected Financial Institution" has the meaning specified in Section 12.1(c). "Affiliate" means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, such Person or any Subsidiary of such Person. A Person shall be deemed to control another Person if the controlling Person owns 10% or more of any class of voting securities of the controlled Person or possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether through ownership of stock, by contract or otherwise. "Agent" has the meaning set forth in the preamble to this Agreement. "Aggregate Capital" means, on any date of determination, the aggregate amount of Capital of all Purchaser Interests outstanding on such date. "Aggregate Reduction" has the meaning specified in Section 1.3. "Aggregate Reserves" means, on any date of determination, the sum of the Loss Reserve, the Discount and Servicing Fee Reserve, the Variance Reserve and the Dilution Reserve. "Aggregate Unpaids" means, at any time, an amount equal to the sum of all, Aggregate Capital and all other unpaid Obligations (whether due or accrued) at such time. "Agreement" means this Receivables Purchase Agreement, as it may be amended or modified and in effect from time to time. "Amortization Date" means the earliest to occur of (i) the day on which any of the conditions precedent set forth in Section 6.2 are not satisfied, (ii) the Business Day immediately prior to the occurrence of an Amortization Event set forth in Section 9.1(f), (iii) the Business Day specified in a written notice from the Agent following the occurrence of any other Amortization Event, (iv) the date which is sixty (60) Business Days after the Agent's receipt of written notice from Seller that it wishes to terminate the facility evidenced by this Agreement, and (v) sixty (60) days following the date of assignment by any Conduit to all of the Financial Institutions pursuant to Section 13.1 hereof. "Amortization Event" has the meaning specified in Article IX. "Assignment Agreement" has the meaning set forth in Section 12.1(b). "Authorized Officer" means, with respect to any Person, its president, corporate controller, treasurer or chief financial officer. "Available Funds" shall mean, on any Settlement Date, the aggregate of (i) the aggregate Purchasers' Collections received with respect to Receivables during the related Calculation Period. "Bank One" means Bank One, NA, in its individual capacity and its successors. "Base Rate" means a rate per annum equal to the corporate base rate, prime rate or base rate of interest, as applicable, announced by the Reference Bank from time to time, changing when and as such rate changes. "Broken Funding Costs" means for any Purchaser Interest which: (X) (i) has its Capital reduced or terminated without compliance with the notice requirements hereunder or (ii) is assigned under Article XIII (other than assignments by Conduits at a time that no Amortization Event or Potential Amortization Event has occurred and is continuing) or terminated prior to the date it was originally scheduled, the excess, if any, of (A) the CP Costs or Financial Institution Discount (as applicable) that would have accrued during the remainder of the tranche periods for Commercial Paper determined by the Agent to relate to such Purchaser Interest subsequent to the date of such reduction, assignment or termination on the Capital of such Purchaser Interest if such reduction or termination had not occurred or such Reduction Notice had not been delivered, over (B) the sum of (x) to the extent all or a portion of such Capital is allocated to another Purchaser Interest, the CP Costs or Financial Institution Discount (as applicable) actually accrued during such periods on such Capital for the new Purchaser Interest, and (y) to the extent such Capital is not allocated to another Purchaser Interest, the income, if any, actually received during such periods by the holder of such Purchaser Interest from investing the portion of such Capital not so allocated or (Y) does not become subject to an Aggregate Reduction following the delivery of a Reduction Notice, the amount of CP Costs or Financial Institution Discount, swap costs or other interest expense that accrue for Commercial Paper or other funding sources determined by the Agent to relate to such Purchaser Interest subsequent to the date such Aggregate Reduction was designated to occur pursuant to the Reduction Notice in the Capital of such Purchaser Interest. In the event that the amount referred to in clause (B) exceeds the amount referred to in clause (A), the relevant Purchaser or Purchasers agree to pay to Seller the amount of such excess. All Broken Funding Costs shall be due and payable hereunder upon demand. "Business Day" means any day on which banks are not authorized or required to close in New York, New York or Chicago, Illinois and The Depository Trust Company of New York is open for business, and, if the applicable Business Day relates to any computation or payment to be made with respect to the LIBO Rate, any day on which dealings in dollar deposits are carried on in the London interbank market. "Calculation Period" means (i) unless the Agent has designated a Special Settlement Date, each calendar month or portion thereof which elapses during the term of the Agreement and (ii) if the Agent has designated any Special Settlement Date, such period of time commencing on the day following the last day of the preceding Calculation Period and ending on a day preceding such Special Settlement Date as specified by the Agent. The first Calculation Period shall commence on the date of the Purchase of Receivables hereunder and the final Calculation Period shall terminate on the Amortization Date. "Capital" of any Purchaser Interest means, at any time, (A) the Purchase Price of such Purchaser Interest, minus (B) the sum of the aggregate amount of Collections and other payments received by the Agent which in each case are applied to reduce such Capital in accordance with the terms and conditions of this Agreement; provided that such Capital shall be restored (in accordance with Section 2.5) in the amount of any Collections or other payments so received and applied if at any time the distribution of such Collections or payments are rescinded, returned or refunded for any reason. "Change of Control" means the acquisition by any Person, or two or more Persons acting in concert, of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of 30% or more of the outstanding shares of voting stock of any Seller. "Change in Ownership" means KNEI shall cease to own, free and clear of all Adverse Claims, all of the outstanding shares of voting stock of Seller on a fully-diluted basis. "Charged-Off Receivable" means a Receivable: (i) as to which the Obligor thereof has taken any action, or suffered any event to occur, of the type described in Section 9.1(f) (as if references to Seller therein refer to such Obligor); (ii) as to which the Obligor thereof, if a natural person, is deceased, (iii) which, consistent with the Credit and Collection Policy, would be written off Seller's books as uncollectible or (iv) which has been identified by Seller as uncollectible. "Chase Collection Account" means account number 323076947 maintained with Chase Manhattan Bank in the name of K N Energy, Inc. "Closing Date" means September 28, 1999. "Collection Account" means each concentration account, depositary account, lock-box account or similar account in which any Collections are collected or deposited and which is listed on Exhibit IV. "Collection Account Agreement" means an agreement substantially in the form of Exhibit VI among the Originator, Seller, the Agent and a Collection Bank. "Collection Bank" means, at any time, any of the banks holding one or more Collection Accounts. "Collection Notice" means a notice, in substantially the form of Annex A to Exhibit VI, from the Agent to a Collection Bank. "Collections" means, with respect to any Receivable, all cash collections and other cash proceeds in respect of such Receivable, including, without limitation, all CP Costs, Financial Institution Discount, Finance Charges or other related amounts accruing in respect thereof and all cash proceeds of Related Security with respect to such Receivable. "Commercial Paper" means promissory notes of any Conduit issued by such Conduit in the commercial paper market. "Commitment" means, for each Financial Institution, the commitment of such Financial Institution to purchase Purchaser Interests from (i) Seller and (ii) Conduits, in an amount not to exceed, (a) in the aggregate, the amount set forth opposite such Financial Institution's name on Schedule A to this Agreement, as such amount may be modified in accordance with the terms hereof (including, without limitation, any termination of Commitments pursuant to Section 13.6 hereof) and (b) with respect to any individual purchase hereunder, its Pro Rata Share of the Purchase Price therefor. "Commitment Availability" means at any time the positive difference (if any) between (a) an amount equal to the aggregate amount of the Commitments at such time minus (b) the Aggregate Capital at such time. "Concentration Limit" means, at any time, for any Obligor, 3.33% of the aggregate Capital of the Purchaser Interests, or such other higher amount (a "Special Concentration Limit") for such Obligor designated by the Agent; provided, that in the case of an Obligor and any Affiliate of such Obligor, the Concentration Limit shall be calculated as if such Obligor and such Affiliate are one Obligor; and provided, further, that Conduits or the Required Financial Institutions may, upon not less than three Business Days' notice to Seller, cancel any Special Concentration Limit. "Conduit Residual" means, for a Conduit, the sum of the Conduit Transfer Price Reductions for such Conduit. "Conduits" has the meaning set forth in the preamble to this Agreement. "Conduit Share" means, for each Conduit, a percentage equal to (i) the Capital invested by such Conduit in Purchaser Interests divided by (ii) the aggregate amount of all Capital invested by all Conduits in Purchaser Interests. "Conduit Transfer Price" means, with respect to the assignment by any Conduit of one or more Purchaser Interests to the Agent for the benefit of the Financial Institutions pursuant to Section 13.1 (except as otherwise agreed between such Conduit and any Financial Institution), the sum of (i) the lesser of (a) the Capital of each such Purchaser Interest and (b) the Adjusted Liquidity Price of each such Purchaser Interest and (ii) all accrued and unpaid CP Costs for each such Purchaser Interest. "Conduit Transfer Price Deficit" has the meaning set forth in Section 13.5. "Conduit Transfer Price Reduction" means in connection with the assignment of a Purchaser Interest by any Conduit to the Agent for the benefit of the Financial Institutions, the positive difference between (i) the Capital of such Purchaser Interest and (ii) the Adjusted Liquidity Price for such Purchaser Interest. "Consolidated Assets" means the total amount of assets appearing on the consolidated balance sheet of KNEI and its Consolidated Subsidiaries, prepared in accordance with generally accepted accounting principles as of the date of the most recent regularly prepared consolidated financial statements prior to the taking of any action for the purposes of which the determination is being made. "Consolidated Debt" of any Person means at any date the sum (without duplication) of (i) the Debt of such Person and its Consolidated Subsidiaries, determined on a consolidated basis as of such date plus (ii) the excess (if any) of the Trust Preferred Securities of such Person over 10% of the Consolidated Total Capitalization of such Person at such date. "Consolidated Net Income" means, for any period, the net income of KNEI and its Consolidated Subsidiaries before extraordinary items, determined on a consolidated basis for such period. "Consolidated Net Worth" of any Person means at any date the sum (without duplication) of (i) the consolidated stockholders' equity of such Person and its Consolidated Subsidiaries, determined as of such date plus (ii) the Mandatorily Convertible Preferred Stock of such Person plus (iii) the Trust Preferred Securities of such Person; provided that the amount of Trust Preferred Securities added pursuant to this clause (iii) shall not exceed 10% of Consolidated Total Capitalization of such Person at such date. "Consolidated Subsidiary" of any Person means at any date any Subsidiary or other entity the accounts of which would be consolidated with those of such Person in its consolidated financial statements if such statements were prepared as of such date. "Consolidated Total Capitalization" of any Person means at any date the sum of Consolidated Debt of such Person and Consolidated Net Worth of such Person, each determined as of such date. "Contingent Obligation" of a Person means any agreement, undertaking or arrangement by which such Person assumes, guarantees, endorses, contingently agrees to purchase or provide funds for the payment of, or otherwise becomes or is contingently liable upon, the obligation or liability of any other Person, or agrees to maintain the net worth or working capital or other financial condition of any other Person, or otherwise assures any creditor of such other Person against loss, including, without limitation, any comfort letter, operating agreement, take-or-pay contract or application for a letter of credit. "Contract" means, with respect to any Receivable, any and all instruments, agreements, invoices or other writings pursuant to which such Receivable arises or which evidences such Receivable. "CP Costs" means, for each day, the sum of (i) discount or yield accrued on Pooled Commercial Paper on such day, plus (ii) any and all accrued commissions in respect of placement agents and Commercial Paper dealers, and issuing and paying agent fees incurred, in respect of such Pooled Commercial Paper for such day, plus (iii) other costs associated with funding small or odd- lot amounts with respect to all receivable purchase facilities which are funded by Pooled Commercial Paper for such day, minus (iv) any accrual of income net of expenses received on such day from investment of collections received under all receivable purchase facilities funded substantially with Pooled Commercial Paper, minus (v) any payment received on such day net of expenses in respect of Broken Funding Costs related to the prepayment of any Purchaser Interest of any Conduit pursuant to the terms of any receivable purchase facilities funded substantially with Pooled Commercial Paper. In addition to the foregoing costs, if Seller shall request any Incremental Purchase during any period of time determined by the Agent in its sole discretion to result in incrementally higher CP Costs applicable to such Incremental Purchase, the Capital associated with any such Incremental Purchase shall, during such period, be deemed to be funded by Conduits in a special pool (which may include capital associated with other receivable purchase facilities) for purposes of determining such additional CP Costs applicable only to such special pool and charged each day during such period against such Capital. "Credit Agreement" means the $600,000,000 364-Day Credit Agreement dated as of January 8, 1999 among K N Energy, Inc., the banks listed therein and Morgan Guaranty Trust Company of New York as administrative agent (as amended, restated, supplemented or otherwise modified from time to time), or any successor facility. "Credit and Collection Policy" means Seller's credit and collection policies and practices relating to Contracts and Receivables existing on the date hereof and summarized in Exhibit VIII hereto, as modified from time to time in accordance with this Agreement. "Debt" of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable or deferred employee and director compensation arising in the ordinary course of business, (iv) all obligations of such Person as lessee which are capitalized in accordance with generally accepted accounting principles, (v) all non-contingent obligations of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit or similar instrument, (vi) all Debt secured by a Lien on any asset of such Person, whether or not such Debt is otherwise an obligation of such Person, and (vii) all Debt of others Guaranteed by such Person. "Deemed Collections" means the aggregate of all amounts Seller shall have been deemed to have received as a Collection of a Receivable. Seller shall be deemed to have received a Collection in full of a Receivable if at any time: (a) the Outstanding Balance of a Receivable is: (i) reduced as a result of any defective or rejected goods or services, any discount or any adjustment by an Originator or by the Servicer (other than cash Collections on account of the Receivables) or for any other reason not arising from the financial inability of the Obligor to pay, (ii) reduced or canceled as a result of a setoff in respect of any claim by any Person (whether such claim arises out of the same or a related transaction or an unrelated transaction and whether such claim relates to such Originator or any Affiliate thereof other than Seller), or (iii) is otherwise reduced as a result of any of the factors set forth in the definition of "Dilution," or (b) any of the representations and warranties set forth in Article V are no longer true with respect to any Receivable or any Receivable which was represented to be an Eligible Receivable on any date is determined by Seller or the Agent to not have been an Eligible Receivable on such date. "Default Fee" means with respect to any amount due and payable by Seller in respect of any Aggregate Unpaids, an amount equal to the greater of (i) $1000 and (ii) interest on any such unpaid Aggregate Unpaids at a rate per annum equal to 2% above the Base Rate, it being understood that a Default Fee shall not accrue on a Receivable by reason of such Receivable becoming a Defaulted Receivable. "Default Ratio" means, for any Calculation Period, a ratio (expressed as a percentage) equal to (i) the Outstanding Balance of all Receivables which are more than sixty-one (61) and less than ninety-one (91) days past due plus all Charged-Off Receivables (without duplication) written off during such period divided by (ii) the aggregate Original Balance of all Receivables generated during the Calculation Period which ended three (3) Calculation Periods prior to such Calculation Period. "Defaulted Receivable" means a Receivable: (i) as to which the Obligor thereof has taken any action, or suffered any event to occur, of the type described in Section 9.1(f) (as if references to Seller therein refer to such Obligor); (ii) as to which the Obligor thereof, if a natural person, is deceased, (iii) which, consistent with the Credit and Collection Policy, would be written off Seller's books as uncollectible, (iv) which has been identified by Seller as uncollectible in accordance with the Credit and Collection Policy or (v) as to which any payment, or part thereof, remains unpaid for sixty-one (61) days or more from the original due date for such payment. "Defaulting Financial Institution" has the meaning set forth in Section 13.5. "Delinquent Receivable" means a Receivable as to which any payment, or part thereof, remains unpaid for thirty-one (31) days or more from the original due date for such payment. "Derivatives Obligations" of any Person means all obligations of such Person in respect of any rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of the foregoing transactions) or any combination of the foregoing transactions. "Designated Obligor" means an Obligor indicated by the Agent to Seller in writing. "Dilution Horizon Ratio" means, as of any date as set forth in the most recent Monthly Report, a ratio computed by dividing (i) the aggregate Original Balance of all Receivables generated during the most recently ended Calculation Period by (ii) the aggregate Outstanding Balance of total Eligible Receivables as at the last day of the most recently ended Calculation Period. "Dilution Ratio" means, on any date, a percentage equal to a fraction (i) the numerator of which is the aggregate amount of Dilutions (excluding any positive Monthly Variance) which occurred during the Calculation Period most recently ended prior to such date, and (ii) the denominator of which is the aggregate Original Balance of the Receivables generated during the second full Calculation Period preceding such date. "Dilution Reserve" means, on any date, an amount equal to the product of (x) the greater of (i) 5% and (ii) the Dilution Reserve Ratio then in effect and (y) the Net Receivables Balance as of the close of business on the immediately preceding Business Day. "Dilution Reserve Ratio" means, as of any date, an amount calculated as follows: DRR = [(2.0 x ADR) + [(HDR-ADR) x (HDR/ADR]] x DHR where: DRR = the Dilution Reserve Ratio; ADR = the average of the Dilution Ratios for the past twelve Calculation Periods; HDR = the highest average of the Dilution Ratios for any three consecutive Calculation Periods during the most recent twelve months; and DHR = the Dilution Horizon Ratio. The Dilution Reserve Ratio shall be calculated monthly in each Monthly Report and such Dilution Reserve Ratio shall, absent manifest error, be effective from the corresponding Settlement Date until the next succeeding Settlement Date. "Dilutions" means, at any time, the aggregate amount of reductions in the Outstanding Balances of the Receivables as a result of any positive Monthly Variance, setoff, discount, rebate, trade-in credit, credit memo, inter-company entry, adjustment or otherwise, other than (i) Cash Collections on account of the Receivables and (ii) charge-offs. "Discount and Servicing Fee Reserve" means, on any date, two percent (2.0%) of the Net Receivables Balance. "Effective Date" means the date the Credit Agreement became effective in accordance with Section 3.01 thereof. "Eligible Receivable" means, at any time, a Receivable: (i) the Obligor of which (a) if a natural person, is a resident of the United States or, if a corporation or other business organization, is organized under the laws of the United States or any political subdivision thereof and has its chief executive office in the United States; (b) is not an Affiliate of any of the parties hereto; (c) is not a Designated Obligor; and (d) is not a government or a governmental subdivision or agency, (i) which is denominated and payable only in United States dollars in the United States, (i) which is not a Delinquent Receivable, (i) which is not a Charged-Off Receivable, (i) which by its terms is due and payable within 30 days of the original billing date therefor and has not had its payment terms extended, (i) which is an "account" within the meaning of Section 9-106 of the UCC of all applicable jurisdictions, (i) which is an account receivable representing all or part of the sales price of merchandise, insurance or services within the meaning of Section 3(c)(5) of the Investment Company Act of 1940, as amended, (i) which arises under a Contract that contains an obligation to pay a specified sum of money, contingent only upon the sale of goods or the provision of services by Seller, (i) which arises under a Contract in substantially the form of one of the form of contracts set forth on Exhibit IX hereto or otherwise approved by the Agent in writing, which, together with such Receivable, is in full force and effect and constitutes the legal, valid and binding obligation of the related Obligor enforceable by Seller and its assignees against such Obligor in accordance with its terms, (i) which arises under a Contract which (A) does not require the Obligor under such Contract to consent to the transfer, sale or assignment of the rights and duties of the Originator or any of its assignees under such Contract and (B) does not contain a confidentiality provision that purports to restrict the ability of any Purchaser to exercise its rights under this Agreement, including, without limitation, its right to review the Contract, (i) which, together with the Contract related thereto, does not contravene any law, rule or regulation applicable thereto (including, without limitation, any law, rule and regulation relating to truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy) and with respect to which no part of the Contract related thereto is in violation of any such law, rule or regulation, (i) which is not subject to any affirmatively asserted right of recission, set-off (in respect of all or any portion of the Outstanding Balance thereof then being proposed for inclusion in Net Receivables Balance as of any date), counterclaim, any other defense (including defenses arising out of violations of usury laws) of the applicable Obligor or Originator or any other Adverse Claim, and the Obligor thereon holds no right as against Originator to cause Originator to repurchase the goods or merchandise the sale of which shall have given rise to such Receivable (except with respect to sale discounts effected pursuant to the Contract, or defective goods returned in accordance with the terms of the Contract), (i) which satisfies all applicable requirements of the Credit and Collection Policy, (i) which was generated in the ordinary course of Originator's business, (i) which arises solely from the sale of goods or the provision of services to the related Obligor by Originator, and not by any other Person (in whole or in part), and (i) as to which the Agent has not notified Seller that the Agent has determined that such Receivable or class of Receivables is not acceptable as an Eligible Receivable, including, without limitation, because such Receivable arises under a Contract that is not acceptable to the Agent. (i) as to which Originator has satisfied and fully performed all obligations on its part with respect to such Receivable required to be fulfilled by it, and no further action is required to be performed by any Person with respect thereto other than payment thereon by the applicable Obligor, and (i) all right, title and interest to and in which has been validly transferred by Originator directly to Seller under and in accordance with the Receivables Sale Agreement, and Seller has good and marketable title thereto free and clear of any Adverse Claim. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "Facility Account" means Seller's Account No. 102-0403 at Bank One. "Facility Termination Date" means the earliest of (i) September 28, 2004, (ii) the Liquidity Termination Date and (iii) the Amortization Date. "Federal Bankruptcy Code" means Title 11 of the United States Code entitled "Bankruptcy," as amended and any successor statute thereto. "Federal Funds Effective Rate" means, for any period, a fluctuating interest rate per annum for each day during such period equal to (a) the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the preceding Business Day) by the Federal Reserve Bank of New York in the Composite Closing Quotations for U.S. Government Securities; or (b) if such rate is not so published for any day which is a Business Day, the average of the quotations at approximately 10:30 a.m. (Chicago time) for such day on such transactions received by the Reference Bank from three federal funds brokers of recognized standing selected by it. "Fee Letter" means that certain letter agreement dated as of the date hereof among Seller, the Originators and the Agent, as it may be amended or modified and in effect from time to time. "Finance Charges" means, with respect to a Contract, any finance, interest, late payment charges or similar charges owing by an Obligor pursuant to such Contract. "Financial Institution Discount" means for each respective Tranche Period relating to Purchaser Interests of the Financial Institutions, an amount equal to the product of the applicable Financial Institution Discount Rate for each Purchaser Interest multiplied by the Capital of such Purchaser Interest for each day elapsed during such Tranche Period, annualized on a 360 day basis. "Financial Institution Discount Rate" means, the LIBO Rate or the Base Rate, as applicable, with respect to each Purchaser Interest of the Financial Institutions. "Financial Institutions" has the meaning set forth in the preamble in this Agreement. "Funding Agreement" means this Agreement and any agreement or instrument executed by any Funding Source with or for the benefit of any Conduit. "Funding Source" means (i) any Financial Institution or (ii) any insurance company, bank or other funding entity providing liquidity, credit enhancement or back-up purchase support or facilities to any Conduit. "Guarantee" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for the purpose of assuring in any other manner the obligee of such Debt or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part), provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Incremental Purchase" means a purchase of one or more Purchaser Interests which increases the total outstanding Capital hereunder. "Indebtedness" of a Person means such Person's (i) obligations for borrowed money, (ii) obligations representing the deferred purchase price of property or services (other than accounts payable arising in the ordinary course of such Person's business payable on terms customary in the trade), (iii) obligations, whether or not assumed, secured by liens or payable out of the proceeds or production from property now or hereafter owned or acquired by such Person, (iv) obligations which are evidenced by notes, acceptances, or other instruments, (v) capitalized lease obligations, (vi) net liabilities under interest rate swap, exchange or cap agreements, (vii) Contingent Obligations and (viii) liabilities in respect of unfunded vested benefits under plans covered by Title IV of ERISA. "Independent Director" shall mean a member of the Board of Directors of Seller who is not at such time, and has not been at any time during the preceding five (5) years, (A) a director, officer, employee or affiliate of Seller, the Originators, or any of their respective Subsidiaries or Affiliates, or (B) the beneficial owner (at the time of such individual's appointment as an Independent Director or at any time thereafter while serving as an Independent Director) of any of the outstanding common shares of Seller, the Originators, or any of their respective Subsidiaries or Affiliates, having general voting rights; "KNEI" means K N Energy, Inc., a Kansas corporation, and its successors. "LIBO Rate" means the rate per annum equal to the sum of (i) (a) the rate at which deposits in U.S. Dollars are offered by the Reference Bank to first-class banks in the London interbank market at approximately 11:00 a.m. (London time) two Business Days prior to the first day of the relevant Tranche Period, such deposits being in the approximate amount of the Capital of the Purchaser Interest to be funded or maintained, divided by (b) one minus the maximum aggregate reserve requirement (including all basic, supplemental, marginal or other reserves) which is imposed against the Reference Bank in respect of Eurocurrency liabilities, as defined in Regulation D of the Board of Governors of the Federal Reserve System as in effect from time to time (expressed as a decimal), applicable to such Tranche Period plus (ii) 1.05% per annum. The LIBO Rate shall be rounded, if necessary, to the next higher 1/16 of 1%. "Liquidity Termination Date" means September 26, 2000. "Loan" has the meaning set forth in the Credit Agreement. "Lock-Box" means each locked postal box with respect to which a bank who has executed a Collection Account Agreement has been granted exclusive access for the purpose of retrieving and processing payments made on the Receivables and which is listed on Exhibit IV. "Loss Horizon Ratio" means, for any day, a fraction (calculated as a percentage) computed by dividing (i) the aggregate Original Balance of all Receivables generated during the two (2) most recently ended Calculation Periods by (ii) the aggregate Outstanding Balance of total Eligible Receivables as at the last day of the most recently ended Calculation Period. "Loss Reserve" means, on any date, an amount equal to the product of (x) the greater of (i) 10% and (ii) the Loss Reserve Ratio then in effect and (y) the Net Receivables Balance as of the close of business of the Servicer on the immediately preceding Business Day. "Loss Reserve Ratio" means, as of any date, an amount calculated as follows: LRR = 2.0 x DR x LHR, where LRR = the Loss Reserve Ratio; DR = the highest average of the Default Ratios for any three consecutive Calculation Periods during the most recently ended Calculation Period; and LHR = the Loss Horizon Ratio. The Loss Reserve Ratio shall be calculated monthly in each Monthly Report and such Loss Reserve Ratio shall, absent manifest error, be effective from the corresponding Settlement Date until the next succeeding Settlement Date. "Loss-to-Liquidation Ratio" means, as at the last day of any calendar month, a percentage equal to (i) the amount of Charged-Off Receivables which became Charged-Off Receivables during such month, divided by (ii) the aggregate amount of Collections during such month. "Mandatorily Convertible Preferred Stock" means, with respect to KNEI, preferred securities of a Subsidiary which are (i) mandatorily convertible into common equity securities of KNEI within approximately three years of their date of issuance, (ii) issued in conjunction with, and pledged to secure, an obligation to purchase common equity securities of KNEI within approximately three years for an equal amount or (iii) otherwise structured in a manner satisfactory to the Agent so as to ensure the issuance of incremental common equity securities of KNEI in a substantially equal amount within approximately three years. "Material Adverse Effect" means a material adverse effect on (i) the financial condition or operations of any Seller and its Subsidiaries, (ii) the ability of any Seller to perform its obligations under this Agreement, (iii) the legality, validity or enforceability of this Agreement or any other Transaction Document, (iv) any Purchaser's interest in the Receivables generally or in any significant portion of the Receivables, the Related Security or the Collections with respect thereto, or (v) the collectibility of the Receivables generally or of any material portion of the Receivables. "Material Debt" means Debt (other than (i) the Notes and (ii) Debt owing to KNEI or a Subsidiary) of KNEI and/or one or more of its Subsidiaries, arising in one or more related or unrelated transactions, in an aggregate principal or face amount exceeding $75,000,000. "Material Financial Obligations" means a principal or face amount of Debt (other than (i) the Notes and (ii) Debt owing to KNEI or a Subsidiary) and/or payment obligations in respect of Derivatives Obligations of KNEI and/or one or more of its Subsidiaries, arising in one or more related or unrelated transactions, exceeding in the aggregate $125,000,000. "Material Subsidiary" of a Person means any Subsidiary of such Person the consolidated assets of which constitute 10% or more of the Consolidated Assets of such Person. "Monthly Report" means a report, in substantially the form of Exhibit X hereto (appropriately completed), furnished by the Servicer to the Agent pursuant to Section 8.5. In addition to such other information as may be included therein, each Monthly Report shall set forth the amounts to be distributed pursuant to each clause of Section 2.4, as applicable. "Monthly Variance" means the aggregate Original Balance of all Receivables generated during a Calculation Period as determined on the last day of such Calculation Period minus the actual invoice amount for such Receivables. "Net Receivables Balance" means, at any time, the aggregate Outstanding Balance of all Eligible Receivables at such time reduced by the aggregate amount by which the Outstanding Balance of all Eligible Receivables of each Obligor and its Affiliates exceeds the Concentration Limit for such Obligor. "Non-Defaulting Financial Institution" has the meaning set forth in Section 13.5. "Non-Renewing Financial Institution" has the meaning set forth in Section 13.6(a). "Notes" means promissory notes of KNEI, substantially in the form of Exhibit A to the Credit Agreement, evidencing the obligation of KNEI to repay the Loans, and "Note" means any one of such promissory notes issued under the Credit Agreement. "Obligations" shall have the meaning set forth in Section 2.1. "Obligor" means a Person obligated to make payments pursuant to a Contract. "Original Balance" means, with respect to any Receivable, the Outstanding Balance of such Receivable on the date it was generated. "Originator" means K N Energy, Inc., a Kansas corporation, and each Person that becomes an Additional Originator pursuant to Section 1.8 of the Receivables Sale Agreement and who has not ceased to be a party to this Agreement and the Receivables Sale Agreement pursuant to Section 1.9 of the Receivables Sales Agreement. "Outstanding Balance" of any Receivable at any time means the then outstanding principal balance thereof. "Participant" has the meaning set forth in Section 12.2. "Performance Guarantor" means K N Energy, Inc., a Kansas corporation, and its successors. "Person" means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof. "Pooled Commercial Paper" means Commercial Paper notes of any Conduit subject to any particular pooling arrangement by such Conduit, but excluding Commercial Paper issued by such Conduit for a tenor and in an amount specifically requested by any Person in connection with any agreement effected by such Conduit. "Potential Amortization Event" means an event which, with the passage of time or the giving of notice, or both, would constitute an Amortization Event. "Proposed Reduction Date" has the meaning set forth in Section 1.3. "Pro Rata Share" means, for each Financial Institution, a percentage equal to (i) the Commitment of such Financial Institution, divided by (ii) the aggregate amount of all Commitments of all Financial Institutions, hereunder, adjusted as necessary to give effect to the application of the terms of Sections 13.5 or 13.6. "Purchase Limit" means $150,000,000. "Purchase Notice" has the meaning set forth in Section 1.2. "Purchase Price" means, with respect to any Incremental Purchase of a Purchaser Interest, the amount paid to Seller for such Purchaser Interest which shall not exceed the least of (i) the amount requested by Seller in the applicable Purchase Notice, (i) the unused portion of the Purchase Limit on the applicable purchase date and (i) the excess, if any, of the Net Receivables Balance (less the Aggregate Reserves) on the applicable purchase date over the aggregate outstanding amount of Aggregate Capital determined as of the date of the most recent Monthly Report, without taking into account such proposed Incremental Purchase. "Purchasers" means each Conduit and each Financial Institution, as applicable. "Purchasers' Collections" means, for any period, with respect to Receivables in existence prior to and on the Amortization Date, the product of the aggregate Purchaser Interest and the amount of Collections and Deemed Collections with respect to such Receivables during such period. "Purchaser Interest" means, at any time, an undivided percentage ownership interest (computed as set forth below) associated with a designated amount of Capital, selected pursuant to the terms and conditions hereof in (i) each Receivable arising prior to the time of the most recent computation or recomputation of such undivided interest, (ii) all Related Security with respect to each Receivable, and (iii) all Collections with respect to, and other proceeds of, each Receivable. Each such undivided percentage interest shall equal: C over {~NRB~-~AR} where: C = the Capital of such Purchaser Interest. AR = the Aggregate Reserves. NRB = the Net Receivables Balance. Such undivided percentage ownership interest shall be initially computed on its date of purchase. Thereafter, until the Facility Termination Date, each Purchaser Interest shall be automatically recomputed (or deemed to be recomputed) on each day prior to the Facility Termination Date. The variable percentage represented by any Purchaser Interest as computed ( or deemed recomputed) as of the close of the business day immediately preceding the Facility Termination Date shall remain constant at all times. "Purchasing Financial Institution" has the meaning set forth in Section 12.1(b). "Receivable" means all accounts (as defined in Article 9.106 of the UCC) owed to Seller or an Originator (at the time it arises, and before giving effect to any transfer or conveyance under the Receivables Sale Agreement or hereunder) or in which Seller or Originator has a security interest or other interest, including without limitation, any indebtedness, obligation or interest constituting an account under Article 9.102 of the UCC arising in connection with the sale of goods or the rendering of services by Originator, and further includes, without limitation, the obligation to pay any Finance Charges with respect thereto. Indebtedness and other rights and obligations arising from any one transaction, including, without limitation, indebtedness and other rights and obligations represented by an individual invoice, shall constitute a Receivable separate from a Receivable consisting of the indebtedness and other rights and obligations arising from any other transaction; provided further, that any indebtedness, rights or obligations referred to in the immediately preceding sentence shall be a Receivable regardless of whether the account debtor or Seller treats such indebtedness, rights or obligations as a separate payment obligation. "Receivables Sale Agreement" means that certain Receivables Sale Agreement, dated as of the date hereof, between the Originators and Seller, as the same may be amended, restated or otherwise modified from time to time. "Records" means, with respect to any Receivable, all Contracts and other documents, books, records and other information (including, without limitation, computer programs, tapes, disks, punch cards, data processing software and related property and rights) relating to such Receivable, any Related Security therefor and the related Obligor. "Reduction Notice" has the meaning set forth in Section 1.3. "Reduction Percentage" means, for any Purchaser Interest acquired by the Financial Institutions from any Conduit for less than the Capital of such Purchaser Interest, a percentage equal to a fraction the numerator of which is the Conduit Transfer Price Reduction for such Purchaser Interest and the denominator of which is the Capital of such Purchaser Interest. "Reference Bank" means Bank One or such other bank as the Agent shall designate with the consent of Seller. "Regulatory Change" has the meaning set forth in Section 10.2(a). "Reinvestment" has the meaning set forth in Section 2.2. "Related Security" means, with respect to any Receivable: (i) all of Seller's interest in the inventory and goods (including returned or repossessed inventory or goods), if any, the financing or lease of which by Seller gave rise to such Receivable, and all insurance contracts with respect thereto, (ii) all other security interests or liens and property subject thereto from time to time, if any, purporting to secure payment of such Receivable, whether pursuant to the Contract related to such Receivable or otherwise, together with all financing statements and security agreements describing any collateral securing such Receivable, (iii) all guaranties, insurance and other agreements or arrangements of whatever character from time to time supporting or securing payment of such Receivable whether pursuant to the Contract related to such Receivable or otherwise, (iv) all service contracts and other contracts and agreements associated with such Receivable, (v) all Records related to such Receivable, (vi) all of Seller's right, title and interest in, to and under the Receivables Sale Agreement in respect of such Receivable, and (vii) all proceeds of any of the foregoing. "Required Capital Amount" means the greater of (i) $4,500,000 and (ii) 3% of the Net Receivables Balance at such time. "Required Financial Institutions" means, at any time, Financial Institutions with Commitments in excess of 66-2/3% of the Purchase Limit. "Required Notice Period" means the number of days required notice set forth below applicable to the Aggregate Reduction indicated below: Aggregate Reduction Required Notice Period #$100,000,000 two Business Days $100,000,000 to $250,000,000 five Business Days "Section 9.319 Statute" means Section 9.319 of the Texas UCC (Texas Business and Commerce Code Annotated 9.319 (Vernon 1991); Section 9-319 of the Kansas UCC (Kansas Statutes Annotated 84-9-319 (Supp. 1994); Section 9-319 of the Wyoming UCC (Wyoming Statutes 34-1-9-319 (1991)); the Oklahoma Oil and Gas Owners' Lien Act (Oklahoma Statutes Annotated tit. 52 (West 1991); the Oil and Gas Products Lien Act of New Mexico (New Mexico Statutes Annotated 48-9-1 through 48-9-8 (Michie 1987)); the Mississippi Lien Act (Mississippi Code Annotated 53-3-41 (1990)), to the extent any such statute creates an Adverse Claim in favor of an interest owner which would have priority over any Purchaser's Purchaser Interest in the Receivables and any comparable law of any other jurisdiction that may now or hereafter be in effect. "Seller" has the meaning set forth in the preamble to this Agreement. "Seller Interest" means, at any time, an undivided percentage ownership interest of Seller in the Receivables, Related Security and all Collections with respect thereto equal to (i) one, minus (ii) the aggregate of the Purchaser Interests. "Seller Parties" has the meaning set forth in the preamble to this Agreement. "Servicer" means at any time the Person (which may be the Agent) then authorized pursuant to Article VIII to service, administer and collect Receivables. "Settlement Date" means (i) the 22nd day of each month, (ii) the last day of the relevant Tranche Period in respect of each Purchaser Interest of the Financial Institutions and (iii) following the Amortization Date, each additional day designated as a "Settlement Date" by the Agent by means of written notice to Seller (each, a "Special Settlement Date"). "Settlement Period" means (i) prior to the Amortization Date, in respect of each Purchaser Interest of Conduits, the immediately preceding Accrual Period, (ii) in respect of each Purchaser Interest of the Financial Institutions, the entire Tranche Period of such Purchaser Interest and (iii) following the Amortization Date, if the Agent designates any Special Settlement Date, any period commencing on the day following the last day of the preceding Settlement Period and ending on such day prior to such Special Settlement Date as is designated by the Agent. "Subject Entities" has the meaning set forth in Section 14.5(a) herein. "Subsidiary" of a Person means (i) any corporation more than 50% of the outstanding securities having ordinary voting power of which shall at the time be owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries, or (ii) any partnership, association, limited liability company, joint venture or similar business organization more than 50% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. Unless otherwise expressly provided, all references herein to a "Subsidiary" shall mean a Subsidiary of Seller. "Terminating Financial Institution" has the meaning set forth in Section 13.6(a). "Terminating Tranche" has the meaning set forth in Section 4.3(b). "Termination Date" has the meaning set forth in Section 2.2. "Termination Percentage" has the meaning set forth in Section 2.2. "Three-Month Average Default Ratio" means, as of the last day of any Calculation Period, the average of the Default Ratio for such Calculation Period and each of the two immediately preceding Calculation Periods. "Three-Month Average Dilution Ratio" means, as of the last day of any Calculation Period, the average of the Dilution Ratio for such Calculation Period and each of the two immediately preceding Calculation Periods. "Three-Month Average Variance Ratio" means, as of each Settlement Date, the average of the Variance Ratio for the Calculation Period most recently ended and each of the two immediately preceding Calculation Periods. "Tranche Period" means, with respect to any Purchaser Interest held by a Financial Institution: (a) if the Financial Institution Discount Rate for such Purchaser Interest is calculated on the basis of the LIBO Rate, a period of one, two, three or six months, or such other period as may be mutually agreeable to the Agent and Seller, commencing on a Business Day selected by Seller or the Agent pursuant to this Agreement. Such Tranche Period shall end on the day in the applicable succeeding calendar month which corresponds numerically to the beginning day of such Tranche Period, provided, however, that if there is no such numerically corresponding day in such succeeding month, such Tranche Period shall end on the last Business Day of such succeeding month; or (b) if the Financial Institution Discount Rate for such Purchaser Interest is calculated on the basis of the Base Rate, a period commencing on a Business Day selected by Seller and agreed to by the Agent, provided no such period shall exceed one month. If any Tranche Period would end on a day which is not a Business Day, such Tranche Period shall end on the next succeeding Business Day, provided, however, that in the case of Tranche Periods corresponding to the LIBO Rate, if such next succeeding Business Day falls in a new month, such Tranche Period shall end on the immediately preceding Business Day. In the case of any Tranche Period for any Purchaser Interest of which commences before the Amortization Date and would otherwise end on a date occurring after the Amortization Date, such Tranche Period shall end on the Amortization Date. The duration of each Tranche Period which commences after the Amortization Date shall be of such duration as selected by the Agent. "Transaction Documents" means, collectively, this Agreement, each Purchase Notice, the Receivables Sale Agreement, each Collection Account Agreement, the Fee Letter, the Subordinated Note (as defined in the Receivables Sale Agreement) and all other instruments, documents and agreements executed and delivered in connection herewith. "Trust Preferred Securities" means, with respect to KNEI, mandatorily redeemable capital trust securities of trusts which are Subsidiaries and the subordinated debentures of KNEI in which the proceeds of the issuance of such capital trust securities are invested, including, without limitation, $275,000,000 of such securities outstanding at the date of this Agreement. "UCC" means the Uniform Commercial Code as from time to time in effect in the specified jurisdiction. "Variance Ratio" means, on any date, a percentage equal to a fraction (i) the numerator of which is the absolute value of the Monthly Variance for the second full Calculation Period preceding such date and (ii) the denominator of which is the aggregate Original Balance of Receivables generated during such Calculation Period as determined on the last day of such Calculation Period. "Variance Reserve" means, on any date, an amount equal to the product of (x) the greater of (i) 5% and (ii) the product of (a) 2 and (b) the highest Three-Month Average Variance Ratio over the preceding twelve month period and (y) the Net Receivables Balance as of the close of business of the Servicer on the immediately preceding Business Day. "Year 2000 Plan" means a plan to prevent the Year 2000 Problem from having an adverse effect upon the business, financial condition, operations, property or prospects of a Person. "Year 2000 Problem" means, with respect to any Person, the risk that mission critical computer applications directly used by that Person cannot or will not: (a) handle date information involving any and all dates before, during and/or after January 1, 2000, including accepting input, providing output and performing date calculations in whole or in part; (b) operate accurately without interruption on and in respect of any and all dates before, during and/or after January 1, 2000; and (c) store and provide date input information without creating any ambiguity as to the century. "Yield Settlement Date" means the 5th day of each month (or if any such day is not a Business Day, the Yield Settlement Date shall occur on the next succeeding Business Day). "Yield Settlement Date Obligations" means all Obligations other than amounts payable as Deemed Collections and Servicing Fees payable to Seller or an Affiliate of Seller (each of which, unless otherwise stated herein, shall be due and owing on the first Yield Settlement Date after such obligation arises). All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles. All terms used in Article 9 of the UCC in the State of Illinois, and not specifically defined herein, are used herein as defined in such Article 9. EXHIBIT II FORM OF PURCHASE NOTICE [Date] Bank One, NA, as Agent One Bank One Plaza, 21st Floor Asset-Backed Finance Chicago, Illinois 60670-0596 Attention: [Ann Somers] Re: PURCHASE NOTICE Ladies and Gentlemen: Reference is hereby made to the Receivables Purchase Agreement, dated as of _________, [19__, by and among ___________________, a ___________ corporation (the "Seller"), ______________________, as Servicer, the Financial Institutions, Falcon Asset Securitization Corporation and International Securitization Corporation ("Conduits"), and Bank One, NA, as Agent (the "Receivables Purchase Agreement"). Capitalized terms used herein shall have the meanings assigned to such terms in the Receivables Purchase Agreement. The Agent is hereby notified of the following Incremental Purchase: Purchase Price: $ Date of Purchase: Requested Discount Rate: [LIBO Rate] [Base Rate] [Pooled Commercial Paper rate] Please credit the Purchase Price in immediately available funds to our Facility Account [and then wire-transfer the Purchase Price in immediately available funds on the above-specified date of purchase to: [Account Name] [Account No.] [Bank Name & Address] [ABA #] Reference: Telephone advice to: [Name] @ tel. No. ( ) Please advise [Name] at telephone no ( ) _________________ if Conduits will not be making this purchase. In connection with the Incremental Purchase to be made on the above listed "Date of Purchase" (the "Purchase Date"), the Seller hereby certifies that the following statements are true on the date hereof, and will be true on the Purchase Date (before and after giving effect to the proposed Incremental Purchase): (i) the representations and warranties of the Seller set forth in Section 5.1 of the Receivables Purchase Agreement are true and correct on and as of the Purchase Date as though made on and as of such date; (ii) no event has occurred and is continuing, or would result from the proposed Incremental Purchase, that will constitute an Amortization Event or a Potential Amortization Event; (iii) the Facility Termination Date has not occurred, the Aggregate Capital does not exceed the Purchase Limit and the aggregate Purchaser Interests do not exceed 100%; and (iv) the amount of Aggregate Capital is $_________ after giving effect to the Incremental Purchase to be made on the Purchase Date. Very truly yours, [SELLER] By: Name: Title: EXHIBIT III PLACES OF BUSINESS OF SELLER; LOCATIONS OF RECORDS; FEDERAL EMPLOYER IDENTIFICATION NUMBER(S) Places of Business of Seller: One Allen Center 500 Dallas Street, Suite 1000 Houston, TX 77002 Location of Records: (a) Same as above (b ) 370 Van Gordon Street Lakewood, CO 80228 Federal Employer Identification Number: _________________ EXHIBIT IV NAMES OF COLLECTION BANKS; COLLECTION ACCOUNTS EXHIBIT V FORM OF COMPLIANCE CERTIFICATE To: Bank One, NA, as Agent This Compliance Certificate is furnished pursuant to that certain Receivables Purchase Agreement dated as of ________ ___, 1999 among KN Receivables Corporation (the "Seller"), the Purchasers party thereto and Bank One, NA, as agent for such Purchasers (the "Agreement"). THE UNDERSIGNED HEREBY CERTIFIES THAT: 1. I am the duly elected of Seller. 2. I have reviewed the terms of the Agreement and I have made, or have caused to be made under my supervision, a detailed review of the transactions and conditions of Seller and its Subsidiaries during the accounting period covered by the attached financial statements. 3. The examinations described in paragraph 2 did not disclose, and I have no knowledge of, the existence of any condition or event which constitutes an Amortization Event or Potential Amortization Event, as each such term is defined under the Agreement, during or at the end of the accounting period covered by the attached financial statements or as of the date of this Certificate, except as set forth in paragraph 5 below. 4. Schedule I attached hereto sets forth financial data and computations evidencing the compliance with certain covenants of the Agreement, all of which data and computations are true, complete and correct. 5. Described below are the exceptions, if any, to paragraph 3 by listing, in detail, the nature of the condition or event, the period during which it has existed and the action which Seller has taken, is taking, or proposes to take with respect to each such condition or event: The foregoing certifications, together with the computations set forth in Schedule I hereto and the financial statements delivered with this Certificate in support hereof, are made and delivered this day of, ____. SCHEDULE I TO COMPLIANCE CERTIFICATE A. Schedule of Compliance as of __________, ____ with Section ___ of the Agreement. Unless otherwise defined herein, the terms used in this Compliance Certificate have the meanings ascribed thereto in the Agreement. This schedule relates to the month ended: EXHIBIT VI FORM OF COLLECTION ACCOUNT AGREEMENT [On letterhead of name of Originator] , [Lock-Box Bank/Concentration Bank/Depositary Bank] Re: Name of Originator. Ladies and Gentlemen: Reference is hereby made to P.O. Box # in [city, state, zip code] (the "Lock-Box") of which you have exclusive control for the purpose of receiving mail and processing payments therefrom pursuant to that certain [name of lock-box agreement) between you and [K N Energy, Inc.] (the "Company") dated (the "Agreement"). You hereby confirm your agreement to perform the services described therein. Among the services you have agreed to perform therein, is to endorse all checks and other evidences of payment, and credit such payments to the Company's checking account no. maintained with you in the name of the Company (the "Lock-Box Account"). The Company hereby informs you that pursuant to that certain Receivables Sale Agreement, dated as of ______ __, 1999 between the Company, the other Orginators specified therein and KN Receivables Corporation (the "Seller"), the Company has transferred all of its right, title and interest in and to, and exclusive ownership and control of, the Lock-Box and the Lock-Box Account to the Seller. The Company and the Seller hereby request that the name of the Lock-Box Account be changed to [Name of Originator], as Sub-Servicer." The Company and Seller hereby irrevocably instruct you, and you hereby agree, that upon receiving notice from Bank One, NA ("Bank One") in the form attached hereto as Annex A: (i) the name of the Lock-Box Account will be changed to Bank One for itself and as agent (or any designee of Bank One) and Bank One will have exclusive ownership of and access to the Lock-Box and the Lock-Box Account, and neither the Company, the Seller, nor any of their respective affiliates will have any control of the Lock-Box or the Lock-Box Account or any access thereto, (ii) you will either continue to send the funds from the Lock-Box to the Lock-Box Account, or will redirect the funds as Bank One may otherwise request, (iii) you will transfer monies on deposit in the Lock-Box Account, at any time, as directed by Bank One, (iv) all services to be performed by you under the Agreement will be performed on behalf of Bank One, and (v) all correspondence or other mail which you have agreed to send to the Company or the Seller will be sent to Bank One at the following address: Bank One, NA Suite 0079, 21st Floor One Bank One Plaza Chicago, Illinois 60670-0079 Attention: Credit Manager, Asset Backed Securities Division Moreover, upon such notice, Bank One for itself and as agent will have all rights and remedies given to the Company (and the Seller, as the Company's assignee) under the Agreement. Seller agrees, however, to continue to pay all fees and other assessments due thereunder at any time. You hereby acknowledge that monies deposited in the Lock-Box Account or any other account established with you by Bank One for the purpose of receiving funds from the Lock-Box are subject to the liens of Bank One for itself and as agent, and will not be subject to deduction, set-off, banker's lien or any other right you or any other party may have against the Company or the Seller except that you may debit the Lock-Box Account for any items deposited therein that are returned or otherwise not collected and for all charges, fees, commissions and expenses incurred by you in providing services hereunder, all in accordance with your customary practices for the charge back of returned items and expenses. THIS LETTER AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER WILL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS. This letter agreement may be executed in any number of counterparts and all of such counterparts taken together will be deemed to constitute one and the same instrument. This letter agreement contains the entire agreement between the parties, and may not be altered, modified, terminated or amended in any respect, nor may any right, power or privilege of any party hereunder be waived or released or discharged, except upon execution by all parties hereto of a written instrument so providing. In the event that any provision in this letter agreement is in conflict with, or inconsistent with, any provision of the Agreement, this letter agreement will exclusively govern and control. Each party agrees to take all actions reasonably requested by any other party to carry out the purposes of this letter agreement or to preserve and protect the rights of each party hereunder. Please indicate your agreement to the terms of this letter agreement by signing in the space provided below. This letter agreement will become effective immediately upon execution of a counterpart of this letter agreement by all parties hereto. Very truly yours, [ORIGINATOR] By: Name: Title: KN RECEIVABLES CORPORATION By: Name: Title: Acknowledged and agreed to this day of [COLLECTION BANK] By: Name: Title: BANK ONE, NA, as Agent By: Name: Title: ANNEX A FORM OF NOTICE [On letterhead of Bank One] , [Collection Bank/Depositary Bank/Concentration Bank] Re: [Name of Originator]/KN Receivables Corporation Ladies and Gentlemen: We hereby notify you that we are exercising our rights pursuant to that certain letter agreement among [name of Originator], KN Receivables Corporation, you and us, to have the name of, and to have exclusive ownership and control of, account number (the "Lock-Box Account") maintained with you, transferred to us. Lock-Box Account will henceforth be a zero-balance account, and funds deposited in the Lock-Box Account should be sent at the end of each day to . You have further agreed to perform all other services you are performing under that certain agreement dated between you and [Originator] on our behalf. We appreciate your cooperation in this matter. Very truly yours, BANK ONE, NA (for itself and as agent) By: Title: EXHIBIT VII FORM OF ASSIGNMENT AGREEMENT THIS ASSIGNMENT AGREEMENT (this "Assignment Agreement") is entered into as of the ___ day of ____________, ____, by and between _______________ ("Assignor") and _________________ ("Assignee"). PRELIMINARY STATEMENTS A. This Assignment Agreement is being executed and delivered in accordance with Section 12.1(a) of that certain Receivables Purchase Agreement dated as of September 28, 1999 by and among KN Receivables Corporation, Falcon Asset Securitization Corporation, International Securitization Corporation, Bank One, NA, as Agent, and the Financial Institutions party thereto (as amended, modified or restated from time to time, the "Purchase Agreement"). Capitalized terms used and not otherwise defined herein are used with the meanings set forth or incorporated by reference in the Purchase Agreement. B. Assignor is a Financial Institution party to the Purchase Agreement, and Assignee wishes to become a Financial Institution thereunder; and C. Assignor is selling and assigning to Assignee an undivided ____________% (the "Transferred Percentage") interest in all of Assignor's rights and obligations under the Purchase Agreement and the Transaction Documents, including, without limitation, Assignor's Commitment and (if applicable) the Capital of Assignor's Purchaser Interests as set forth herein; AGREEMENT The parties hereto hereby agree as follows: 1. The sale, transfer and assignment effected by this Assignment Agreement shall become effective (the "Effective Date") two (2) Business Days (or such other date selected by the Agent in its sole discretion) following the date on which a notice substantially in the form of Schedule II to this Assignment Agreement ("Effective Notice") is delivered by the Agent to Conduits, Assignor and Assignee. From and after the Effective Date, Assignee shall be a Financial Institution party to the Purchase Agreement for all purposes thereof as if Assignee were an original party thereto and Assignee agrees to be bound by all of the terms and provisions contained therein. 2. If Assignor has no outstanding Capital under the Purchase Agreement, on the Effective Date, Assignor shall be deemed to have hereby transferred and assigned to Assignee, without recourse, representation or warranty (except as provided in paragraph 6 below), and Assignee shall be deemed to have hereby irrevocably taken, received and assumed from Assignor, the Transferred Percentage of Assignor's Commitment and all rights and obligations associated therewith under the terms of the Purchase Agreement, including, without limitation, the Transferred Percentage of Assignor's future funding obligations under Section 4.1 of the Purchase Agreement. 3. If Assignor has any outstanding Capital under the Purchase Agreement, at or before 12:00 noon, local time of Assignor, on the Effective Date Assignee shall pay to Assignor, in immediately available funds, an amount equal to the sum of (i) the Transferred Percentage of the outstanding Capital of Assignor's Purchaser Interests (such amount, being hereinafter referred to as "Assignee's Capital"); (ii) all accrued but unpaid (whether or not then due) Financial Institution Discount Rate attributable to Assignee's Capital; and (iii) accruing but unpaid fees and other costs and expenses payable in respect of Assignee's Capital for the period commencing upon each date such unpaid amounts commence accruing, to and including the Effective Date ("Assignee's Acquisition Cost"); whereupon, Assignor shall be deemed to have sold, transferred and assigned to Assignee, without recourse, representation or warranty (except as provided in paragraph 6 below), and Assignee shall be deemed to have hereby irrevocably taken, received and assumed from Assignor, the Transferred Percentage of Assignor's Commitment and the Capital of Assignor's Purchaser Interests (if applicable) and all related rights and obligations under the Purchase Agreement and the Transaction Documents, including, without limitation, the Transferred Percentage of Assignor's future funding obligations under Section 4.1 of the Purchase Agreement. 4. Concurrently with the execution and delivery hereof, Assignor will provide to Assignee copies of all documents requested by Assignee which were delivered to such Assignor pursuant to the Purchase Agreement. 5. Each of the parties to this Assignment Agreement agrees that at any time and from time to time upon the written request of any other party, it will execute and deliver such further documents and do such further acts and things as such other party may reasonably request in order to effect the purposes of this Assignment Agreement. 6. By executing and delivering this Assignment Agreement, Assignor and Assignee confirm to and agree with each other, the Agent and the Financial Institutions as follows: (a) other than the representation and warranty that it has not created any Adverse Claim upon any interest being transferred hereunder, Assignor makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made by any other Person in or in connection with the Purchase Agreement or the Transaction Documents or the execution, legality, validity, enforceability, genuineness, sufficiency or value of Assignee, the Purchase Agreement or any other instrument or document furnished pursuant thereto or the perfection, priority, condition, value or sufficiency of any collateral; (b) Assignor makes no representation or warranty and assumes no responsibility with respect to the financial condition of Assignor, any Obligor, any Assignor Affiliate or the performance or observance by Assignor, any Obligor, any Assignor Affiliate of any of their respective obligations under the Transaction Documents or any other instrument or document furnished pursuant thereto or in connection therewith; (c) Assignee confirms that it has received a copy of the Purchase Agreement and copies of such other Transaction Documents, together with such other documents and information as it has requested and deemed appropriate to make its own credit analysis and decision to enter into this Assignment Agreement; (d) Assignee will, independently and without reliance upon the Agent, Conduits, Assignor or any other Financial Institution or Assignee and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Purchase Agreement and the Transaction Documents; (e) Assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Transaction Documents as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto; and (g) Assignee agrees that it will perform in accordance with their terms all of the obligations which, by the terms of the Purchase Agreement and the Transaction Documents, are required to be performed by it as a Financial Institution or, when applicable, as a Assignee. 7. Each party hereto represents and warrants to and agrees with the Agent that it is aware of and will comply with the provisions of the Purchase Agreement, including, without limitation, Sections 4.1, 13.1 and 14.6 thereof. 8. Schedule I hereto sets forth the revised Commitment of Assignor and the Commitment of Assignee, as well as administrative information with respect to Assignee. 9. THIS ASSIGNMENT AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS. 10. Assignee hereby covenants and agrees that, prior to the date which is one year and one day after the payment in full of all senior indebtedness for borrowed money of Conduits, it will not institute against, or join any other Person in instituting against, Conduits any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceeding under the laws of the United States or any state of the United States. IN WITNESS WHEREOF, the parties hereto have caused this Assignment Agreement to be executed by their respective duly authorized officers of the date hereof. [ASSIGNOR] By: Title: [ASSIGNEE] By: Title: SCHEDULE I TO ASSIGNMENT AGREEMENT LIST OF LENDING OFFICES, ADDRESSES FOR NOTICES AND COMMITMENT AMOUNTS Date: _______________, ____ Transferred Percentage: ________% A-1 A-2 B-1 B-2 Assignor Commitment Commitment (prior to (after giving giving effect to effect to Ratable the the Outstanding Share of Assignment Assignment Capital Outstanding Agreement) Agreement) if any Capital A-2 B-1 B-2 Assignee Commitment (after giving effect to Ratable the Outstanding Share of Assignment Capital Outstanding Agreement if any Capital Address for Notices Attention: Phone: Fax: SCHEDULE II TO ASSIGNMENT AGREEMENT EFFECTIVE NOTICE TO:________________________, Assignor ________________________ ________________________ ________________________ TO:________________________, Assignee ________________________ ________________________ ________________________ The undersigned, as Agent under the Receivables Purchase Agreement dated as of ______, ____ by and among ___________, a ____________ corporation, _____________, as Servicer, Falcon Asset Securitization Corporation, ______________________, Bank One, NA, as Agent, and the Financial Institutions party thereto, hereby acknowledges receipt of executed counterparts of a completed Assignment Agreement dated as of ____________, ____ between __________________, as Assignor, and __________________, as Assignee. Terms defined in such Assignment Agreement are used herein as therein defined. 1. Pursuant to such Assignment Agreement, you are advised that the Effective Date will be ______________, ____. 2. Each Conduit hereby consents to the Assignment Agreement as required by Section 12.1(b) of the Receivables Purchase Agreement. [3. Pursuant to such Assignment Agreement, Assignee is required to pay $____________ to Assignor at or before 12:00 noon (local time of Assignor) on the Effective Date in immediately available funds.] Very truly yours, BANK ONE, NA, individually and as Agent By:__________________________ Title:_______________________ FALCON ASSET SECURITIZATION CORPORATION By: ____________________________ Authorized Signatory EXHIBIT VIII CREDIT AND COLLECTION POLICY EXHIBIT IX FORM OF CONTRACT(S) EXHIBIT X FORM OF MONTHLY REPORT [In addition to such other information as may be included on this exhibit, each Monthly Report should set forth the following with respect to the related Calculation Period (as defined in the Receivables Sale Agreement): (i) the aggregate Outstanding Balance of Receivables created and conveyed by Originator to Seller in purchases pursuant to the Receivables Sale Agreement during such Calculation Period, as well as the Net Receivables Balance included therein, (ii) the aggregate purchase price payable to Originator in respect of such purchases, specifying the Discount Factor (as defined in the Receivables Sale Agreement) in effect for such Calculation Period and the aggregate Purchase Price Credits (as defined in the Receivables Sale Agreement) deducted in calculating such aggregate purchase price, (iii) the aggregate amount of funds received by the Servicer during such Calculation Period which are to be applied as Reinvestments, (iv) the increase or decrease in the amount outstanding under the Subordinated Note (as defined in the Receivables Sale Agreement) as of the end of such Calculation Period after giving effect to the application of funds toward the aggregate purchase price and the restrictions on Subordinated Loans (as defined in the Receivables Sale Agreement) set forth in Section 1.2(a)(ii) of the Receivables Sale Agreement, and (v) the amount of any capital contribution made by Originator to Seller as of the end of such Calculation Period pursuant to Section 1.2(b) of the Receivables Sale Agreement.] The above is a true and accurate accounting pursuant to the terms of the Receivables Purchase Agreement dated [month, day, year] (the "Agreement"), by and among [Seller's name] and Bank One, NA as Agent, and I have no knowledge of the existence of any conditions or events which constitute an Amortization Event or Potential Amortization Event, as each such term is defined under the Agreement, during or at the end of the accounting period covered by this monthly report or as of the date of this certificate, except as set forth below. By:______________________ Name:___________________ Title:____________________ Company Name:___________ Date:____________________ SCHEDULE A COMMITMENTS OF FINANCIAL INSTITUTIONS Financial Institution Commitment SCHEDULE B DOCUMENTS TO BE DELIVERED TO THE AGENT ON OR PRIOR TO THE INITIAL PURCHASE PART I: Documents to be Delivered in Connection with the Receivables Sale Agreement 1. Executed copies of the Receivables Sale Agreement, duly executed by the parties thereto. 1. Copy of the Resolutions of the Board of Directors of each Originator certified by its Secretary, authorizing such Originator's execution, delivery and performance of the Receivables Sale Agreement and the other documents to be delivered by it thereunder. 1. Articles or Certificate of Incorporation of each Originator certified by the Secretary of State of the jurisdiction of incorporation of such Originator. 1. Good Standing Certificate for each Originator issued by the Secretaries of State of its state of incorporation and each jurisdiction where it has material operations. 1. A certificate of the Secretary of each Originator certifying: (i) the names and signatures of the officers authorized on its behalf to execute the Receivables Sale Agreement and any other documents to be delivered by it thereunder and (ii) a copy of such Originator's By-Laws. 1. Pre-filing state and federal tax lien, judgment lien and UCC lien searches against each Originator from the following jurisdictions: 1. Signed financing statements for all jurisdictions as may be necessary or, in the opinion of Seller (or its assigns), desirable, under the UCC of all appropriate jurisdictions or any comparable law in order to perfect the ownership interests contemplated by the Receivables Sale Agreement. 1. Signed UCC termination statements, if any, necessary to release all security interests and other rights of any Person in the Receivables, Contracts or Related Security previously granted by each Originator. 1. Executed Collection Account Agreements for each Lock-Box and Collection Account. 1. Favorable opinions of legal counsel for each Originator reasonably acceptable to Seller (or its assigns) in the form attached hereto as Annex B. 1. A "true sale" opinion and "substantive consolidation" opinion of counsel for each Originator with respect to the transactions contemplated by the Receivables Sale Agreement. 1. A Compliance Certificate. 1. Executed copies of the Subscription Agreement (as defined in the Receivables Sale Agreement). 1. Executed copies of the Subordinated Note (as defined in the Receivables Sale Agreement) by Seller in favor of each Originator. PART II: Documents to Be Delivered in Connection with the Agreement 1. Executed copies of the Agreement, duly executed by the parties thereto. 1. Copy of the Resolutions of the Board of Directors of Seller certified by its Secretary authorizing such Person's execution, delivery and performance of this Agreement and the other documents to be delivered by it hereunder. 1. Articles or Certificate of Incorporation of Seller certified by the Secretary of State of its jurisdiction of incorporation. 1. Good Standing Certificate for Seller issued by the Secretaries of State of its state of incorporation and each jurisdiction where it has material operations. 1. A certificate of the Secretary of Seller certifying (i) the names and signatures of the officers authorized on its behalf to execute this Agreement and any other documents to be delivered by it hereunder and (ii) a copy of such Person's By-Laws. 1. Pre-filing state and federal tax lien, judgment lien and UCC lien searches against Seller from the following jurisdictions: 1. Signed financing statements for all jurisdictions as may be necessary or, in the opinion of the Agent, desirable, under the UCC of all appropriate jurisdictions or any comparable law in order to perfect the ownership interests contemplated by this Agreement. 1. Signed UCC termination statements, if any, necessary to release all security interests and other rights of any Person in the Receivables, Contracts or Related Security previously granted by Seller. 1. Executed copies of Collection Account Agreements for each Lock-Box and Collection Account. 1. Favorable opinions of legal counsel for Seller reasonably acceptable to the Agent in the form attached hereto as Annex C. 1. If requested by any Conduit or the Agent, a favorable opinion of legal counsel for each Financial Institution, reasonably acceptable to the Agent which addresses the following matters: -- This Agreement has been duly authorized by all necessary corporate action of such Financial Institution. -- This Agreement has been duly executed and delivered by such Financial Institution and, assuming due authorization, execution and delivery by each of the other parties thereto, constitutes a legal, valid and binding obligation of such Financial Institution, enforceable against such Financial Institution in accordance with its terms. 1. A Compliance Certificate. 1. The Fee Letter. 1. A Monthly Report as at September 28, 1999. EX-10.5 6 RECEIVABLES SALE AGREEMENT Dated as of September 28, 1999 BETWEEN K N ENERGY, INC. as the Originator AND OTHER ORIGINATORS SPECIFIED HEREIN AND KN RECEIVABLES CORPORATION as Buyer TABLE OF CONTENTS Page ARTICLE I AMOUNTS AND TERMS 2 Section 1.1 Purchases of Receivables 2 Section 1.2 Payment for the Purchase 3 Section 1.3 Purchase Price Credit Adjustments 5 Section 1.4 Payments and Computations, Etc 6 Section 1.5 Allocation of Purchase Price and Indemnification 6 Section 1.6 Transfer of Records 7 Section 1.7 Characterization 8 Section 1.8 Additional Originators 8 Section 1.9 Withdrawal of Originator 9 ARTICLE II REPRESENTATIONS AND WARRANTIES 9 Section 2.1 Representations and Warranties of Originators 9 ARTICLE III CONDITIONS OF PURCHASES 14 Section 3.1 Conditions Precedent to Purchase 14 Section 3.2 Conditions Precedent to Subsequent Payments 14 Section 3.3 Conditions Precedent to Purchase from Additional Originators 14 ARTICLE IV COVENANTS 16 Section 4.1 Affirmative Covenants of KNEI 16 Section 4.2 Affirmative Covenants of Each Originator 19 Section 4.3 Negative Covenants of the Originators 22 ARTICLE V ADMINISTRATION AND COLLECTION 23 Section 5.1 Designation of Sub-Servicer 23 Section 5.2 Duties of Sub-Servicer 24 Section 5.3 Collection Rights 25 Section 5.4 Responsibilities of the Sub-Servicer and Originators 26 Section 5.5 Reports 26 Section 5.6 Sub-Servicer Fee 26 ARTICLE VI AMORTIZATION EVENTS 26 Section 6.1 Amortization Events 26 Section 6.2 Remedies 28 ARTICLE VII INDEMNIFICATION 28 Section 7.1 INDEMNITIES BY KNEI 28 Section 7.2 Other Costs and Expenses 33 Section 7.3 LIABILITY OF ADDITIONAL ORIGINATORS TO KNEI AND INDEMNIFIED PARTIES 33 ARTICLE VIII MISCELLANEOUS 33 Section 8.1 Waivers and Amendments 33 Section 8.2 Notices 34 Section 8.3 Protection of Ownership Interests of Buyer 34 Section 8.4 Confidentiality 35 Section 8.5 Bankruptcy Petition 35 Section 8.6 CHOICE OF LAW 36 Section 8.7 CONSENT TO JURISDICTION 36 Section 8.8 WAIVER OF JURY TRIAL 36 Section 8.9 Integration; Binding Effect; Survival of Terms 37 Section 8.10 Counterparts; Severability; Section References 37 Exhibits and Schedules Exhibit I - Definitions Exhibit II - Places of Business; Locations of Records; Federal Employer Identification Number(s); Other Names Exhibit III - Lock-Boxes; Collection Accounts; Collection Banks Exhibit IV - Form of Compliance Certificate Exhibit V - Credit and Collection Policy Exhibit VI - Form of Subscription Agreement Exhibit VII - Form of Subordinated Note Exhibit VIII - Form of Joinder Supplement Exhibit IX - Form of Performance Guaranty Schedule A List of Documents to Be Delivered to Buyer Prior to the Purchase RECEIVABLES SALE AGREEMENT THIS RECEIVABLES SALE AGREEMENT, dated as of September 28, 1999, is by and between K N Energy, Inc., a Kansas corporation ("KNEI"), and certain Additional Originators as specified herein (KNEI and the Additional Originators, each an "Originator," collectively "Originators") and KN Receivables Corporation, a Delaware corporation ("Buyer"). Unless defined elsewhere herein, capitalized terms used in this Agreement shall have the meanings assigned to such terms in Exhibit I. PRELIMINARY STATEMENTS Each Originator now owns, and from time to time hereafter will own, Receivables. The Originators wish to sell and assign to Buyer, and Buyer wishes to purchase from the Originators, all of each Originator's right, title and interest in and to such Receivables, together with the Related Security and Collections with respect thereto. The Originators and Buyer intend the transactions contemplated hereby to be true sales of the Receivables from the Originators to Buyer, providing Buyer with the full benefits of ownership of the Receivables, and the Originators and Buyer do not intend these transactions to be, or for any purpose to be characterized as, loans from Buyer to the Originators. Following the purchase of Receivables from the Originators, Buyer will sell undivided interests therein and in the associated Related Security and Collections pursuant to that certain Receivables Purchase Agreement dated as of September 28, 1999 (as the same may from time to time hereafter be amended, supplemented, restated or otherwise modified, the "Purchase Agreement") among Buyer, Falcon Asset Securitization Corporation ("FALCON"), International Securitization Corporation ("ISC") (FALCON and ISC each being referred to individually as a "Conduit" and collectively as the "Conduits"), the financial institutions from time to time party thereto as "Financial Institutions" and Bank One, NA or any successor agent appointed pursuant to the terms of the Purchase Agreement, as agent for the Conduits and such Financial Institutions (in such capacity, the "Agent"). The Conduits and the Financial Institutions together are referred to herein as the Purchasers. 1. ARTICLE AMOUNTS AND TERMS a. Section Purchases of Receivables . b. i. Effective on the date hereof, in consideration for the Purchase Price and upon the terms and subject to the conditions set forth herein, each Originator does hereby sell, assign, transfer, set-over and otherwise convey to Buyer, without recourse (except to the extent expressly provided herein), and Buyer does hereby purchase from each Originator, all of such Originator's right, title and interest in and to all Receivables existing as of the close of business on the Business Day immediately prior to the date hereof and all Receivables thereafter arising through and including the Amortization Date, together, in each case, with all Related Security relating thereto and all Collections thereof. In accordance with the preceding sentence, on the date hereof, Buyer shall acquire all of such Originator's right, title and interest in and to all Receivables existing as of the close of business on the Business Day immediately prior to the date hereof and thereafter arising through and including the Amortization Date, together with all Related Security relating thereto and all Collections thereof; provided, that, Buyer shall be obligated to pay the Purchase Price therefor in accordance with Section 1.2. i. It is the intention of the parties hereto that the Purchase of Receivables made hereunder shall constitute a "sale of accounts" (as such term is used in Article 9 of the UCC), which sale is absolute and irrevocable and provides Buyer with the full benefits of ownership of the Receivables. It is further the intention of the Parties hereto that Section 9.102(d) of the Texas Business and Commerce Code shall apply to all purchases and sales of Receivables and Related Security and Collections with respect thereto. Except for the Purchase Price Credits owed pursuant to Section 1.3, the sale of Receivables hereunder is made without recourse to the Originators; provided, however, that (i) each Originator shall be liable to Buyer for all representations, warranties and covenants made by such Originator pursuant to the terms of the Transaction Documents to which such Originator is a party, and (ii) such sale does not constitute and is not intended to result in an assumption by Buyer or any assignee thereof of any obligation of any Originator or any other Person arising in connection with the Receivables, the related Contracts and/or other Related Security or any other obligations of such Originator. In view of the intention of the parties hereto that the Purchase of Receivables made hereunder shall constitute a sale of such Receivables rather than loans secured thereby, each Originator agrees that it will, on or prior to the date hereof and in accordance with Section 4.1(e)(ii), mark its master data processing records relating to the Receivables with a legend acceptable to Buyer and to the Agent (as Buyer's assignee), evidencing that Buyer has purchased such Receivables as provided in this Agreement and to note in its financial statements that its Receivables have been sold to Buyer. Upon the request of Buyer or the Agent (as Buyer's assignee), each Originator will execute and file such financing or continuation statements, or amendments thereto or assignments thereof, and such other instruments or notices, as may be necessary or appropriate to perfect and maintain the perfection of Buyer's ownership interest in the Receivables and the Related Security and Collections with respect thereto, or as Buyer or the Agent (as Buyer's assignee) may reasonably request. ii. b. Section Payment for the Purchase . c. i. The Purchase Price for the Purchase of Receivables in existence on the close of business on the Business Day immediately preceding the date hereof (the "Initial Cutoff Date") shall be payable in full by Buyer to KNEI on the date hereof, and shall be paid to KNEI in the following manner: ii. (1) by delivery of immediately available funds, to the extent of funds made available to Buyer in connection with its subsequent sale of an interest in such Receivables to the Purchasers under the Purchase Agreement, and (1) the balance by accepting a contribution to its capital and/or with the proceeds of a borrowing from KNEI of a subordinated revolving loan (each, a "Subordinated Loan") in such amounts as determined by Buyer; provided that such borrowing pursuant to a Subordinated Loan would not cause Buyer's Net Worth to be less than the Required Capital Amount. The Purchase Price for each Receivable coming into existence after the Initial Cutoff Date shall be due and owing in full by Buyer to each Originator or its designee on the date each such Receivable came into existence (except that Buyer may, with respect to any such Purchase Price, offset against such Purchase Price any amounts owed by such Originator to Buyer hereunder and which have become due but remain unpaid) and shall be paid to such Originator in the manner provided in the following paragraphs (b), (c) and (d). i. With respect to any Receivables coming into existence after the date hereof, on each Settlement Date, Buyer shall pay to KNEI for the account of the Originators the Purchase Price for each Purchase from such Originator during the related Calculation Period as follows: ii. first, by delivery of immediately available funds, to the extent of funds available to Buyer from its subsequent sale of an interest in such Receivables to the Agent for the benefit of the Purchasers under the Purchase Agreement or otherwise; second, with the proceeds of any Subordinated Loans from KNEI to Buyer in an amount not to exceed the lesser of (i) the remaining unpaid portion of such Purchase Price and (ii) the maximum Subordinated Loan that could be borrowed without rendering Buyer's Net Worth less than the Required Capital Amount; and third, unless KNEI has declared the Amortization Date to have occurred by accepting a contribution to Buyer's capital pursuant to the Subscription Agreement in an amount equal to the remaining unpaid balance of such Purchase Price. Subject to the limitations set forth in Section 1.2(a)(ii), KNEI irrevocably agrees to advance each Subordinated Loan requested by Buyer on or prior to the Amortization Date. The Subordinated Loans owing to KNEI shall be evidenced by, and shall be payable in accordance with the terms and provisions of the Subordinated Note and shall be payable solely from funds which Buyer is not required under the Purchase Agreement to set aside for the benefit of, or otherwise pay over to, the Agent for the benefit of the Purchasers. i. On each Business Day during each Calculation Period after the date hereof, all Collections and all proceeds of the Incremental Purchases received by Buyer under the Purchase Agreement and not required to be paid to Purchasers pursuant to the Purchase Agreement shall be paid to KNEI for the account of the Originators as payments toward the Purchase Price of Receivables sold or to be sold by the Originators to Buyer during such Calculation Period. Although amounts shall be paid directly to KNEI for the benefit of the Originators on each Business Day in accordance with the first sentence of this paragraph, settlement of the Purchase Price between Buyer and KNEI shall be effected on a monthly basis on Settlement Dates with respect to all Receivables coming into existence during the same Calculation Period and based on the information contained in the Monthly Report for the Calculation Period then most recently ended. Although settlement for each Calculation Period shall be effected on the related Settlement Date, increases or decreases in the amount owing under the Subordinated Note made pursuant to clause second of paragraph (b) above and any contribution of capital to Buyer made pursuant to clause third of paragraph (b) above shall be deemed to have occurred and shall be effective as of the last Business Day of such Calculation Period. a. Section Purchase Price Credit Adjustments . If on any day: b. i. the Outstanding Balance of a Receivable is: (1) reduced as a result of any defective or rejected goods or services, any discount or any adjustment by an Originator (other than cash Collections on account of the Receivables) or for any other reason not arising from the financial inability of the Obligor to pay, (1) reduced or canceled as a result of a setoff in respect of any claim by any Person (whether such claim arises out of the same or a related transaction or an unrelated transaction and whether such claim relates to such Originator or any Affiliate thereof other than Buyer), or (1) is otherwise reduced as a result of any of the factors set forth in the definition of "Dilution," or i. any of the representations and warranties made by such Originator set forth in Article II are no longer true with respect to any Receivable or any Receivable which was represented to be a Continuing Eligible Receivable on any date is determined by Buyer or the Agent to not have been a Continuing Eligible Receivable on such date, ii. iii. then, in such event, Buyer shall be entitled to a credit (each, a "Purchase Price Credit") against the Purchase Price otherwise payable hereunder to KNEI on behalf of the Originators equal to the full amount of such reduction or cancellation (in the case of clause (a)) or the Outstanding Balance of such Receivable (in the case of clause (b)). If, on any Purchase Date, such Purchase Price Credit exceeds the Original Balance of the Receivables coming into existence on any day, then KNEI on behalf of such Originator shall pay the remaining amount of such Purchase Price Credit in cash within 5 Business Days thereafter, provided that if the Amortization Date has not occurred, KNEI on behalf of such Originator shall be allowed to deduct the remaining amount of such Purchase Price Credit from any indebtedness owed to KNEI under the Subordinated Note. It is understood and agreed that the obligation of KNEI to provide such Purchase Price Credits to Buyer and to make such cash payments as are required by the preceding sentence shall, if such obligation is fulfilled in a timely fashion, constitute the sole remedy against KNEI on behalf of such Originator for such circumstances available to Buyer and its assigns. iv. b. Section Payments and Computations, Etc . All amounts to be paid or deposited by Buyer hereunder shall be paid or deposited in accordance with the terms hereof on the day when due in immediately available funds to the account of KNEI designated from time to time by KNEI or as otherwise directed by KNEI. In the event that any payment owed by any Person hereunder becomes due on a day that is not a Business Day, then such payment shall be made on the next succeeding Business Day. If any Person fails to pay any amount hereunder when due, such Person agrees to pay, on demand, the Default Fee in respect thereof until paid in full; provided, however, that such Default Fee shall not at any time exceed the maximum rate permitted by applicable law. All computations of interest payable hereunder shall be made on the basis of a year of 360 days for the actual number of days (including the first but excluding the last day) elapsed. c. d. Section Allocation of Purchase Price and Indemnification . e. i. As described in Sections 1.2 and 1.3, Buyer shall pay the Purchase Price for Receivables generated by all Originators to KNEI in full performance and satisfaction of Buyer's Purchase Price payment obligations hereunder. KNEI shall be solely responsible to properly allocate and remit such payment, and all other Buyer Payments, to the Originators in respect of the Receivables sold by each such Originator. On each date on which KNEI receives any Buyer Payment, on and subject to the conditions set forth in this Agreement, KNEI shall make an allocation and remittance of such Buyer Payment among the Originators as follows: ii. first, on each day on which an Originator (other than KNEI) sells Receivables to Buyer, any cash received from Buyer shall be distributed among each such Originator (other than KNEI) in proportion to the unpaid amount of the Purchase Price of all Receivables sold by such Originator on such day; second, as of each day on which an Originator (other than KNEI) sells Receivables to Buyer and as of which KNEI makes a Subordinated Loan or a capital contribution to Buyer, KNEI (on behalf of Buyer) shall distribute to such Originator (other than KNEI) an amount equal to the remaining unpaid Purchase Price of all Receivables sold by such Originator on such day (it being intended that (i) each Originator other than KNEI shall be entitled to receive 100 per cent of the Purchase Price of its Receivables as of the day on which such Receivables are sold to Buyer and (ii) that the making of Subordinated Loans or a capital contribution by KNEI to Buyer shall provide the funds as of such day to make up the shortfall in cash owed to any such Originator); and third, all remaining payments by Buyer to KNEI shall be retained by KNEI and applied, first, to the unpaid amount of the Purchase Price of all Receivables theretofore sold by KNEI to Buyer, and second, to the amounts owing on the Subordinated Note. i. Each Originator agrees that: ii. (1) Buyer's payment to KNEI, as such Originator's agent, of the Purchase Price for any Receivable originated by such Originator shall constitute full payment to such Originator for such Receivable; and (1) Upon such payment to KNEI by Buyer, such Originator shall look only to KNEI for the proper allocation and remittance of Buyer Payments for such Receivables and shall indemnify and hold Buyer harmless for any act, omission, failure or error by KNEI in connection with the proper allocation or remittance of any amounts due to such Originator from KNEI. a. Section Transfer of Records . b. (a) In connection with the Purchase of Receivables hereunder, each Originator hereby sells, transfers, assigns and otherwise conveys to Buyer all of such Originator's right and title to and interest in the Records insofar as they relate to all Receivables sold hereunder, without the need for any further documentation in connection with the Purchase. In connection with such transfer, such Originator hereby grants to each of Buyer, the Agent and the Servicer an irrevocable, non-exclusive license to use, without royalty or payment of any kind, all software used by such Originator to account for the Receivables, to the extent necessary to administer the Receivables, whether such software is owned by such Originator or is owned by others and used by such Originator under license agreements with respect thereto, provided that, to the extent the consent of any third party licensor to make such grant is required, the grant is limited to the extent such consent has been obtained; and provided further that should the consent of any licensor of such Originator to such grant of the license described herein be required, such Originator hereby agrees that upon the request of Buyer (or the Agent as Buyer's assignee), such Originator will use its reasonable efforts to obtain the consent of such third- party licensor. The license granted hereby shall be irrevocable, and shall terminate on the date this Agreement terminates in accordance with its terms. (b) Each Originator (i) shall take such action requested by Buyer and/or the Agent (as Buyer's assignee), from time to time hereafter, that may be necessary or appropriate to ensure that Buyer and its assigns under the Purchase Agreement have an enforceable ownership interest in the Records relating to the Receivables purchased from such Originator hereunder, and (ii) shall use its reasonable efforts to ensure that Buyer, the Agent and the Servicer each has an enforceable right (whether by license or sublicense or otherwise) to use all of the computer software used to account for the Receivables and/or to recreate such Records. a. Section Characterization . If, notwithstanding the intention of the parties expressed in Section 1.1(b), any sale or contribution by an Originator to Buyer of Receivables, Related Security and Collections with respect thereto hereunder shall be characterized as a secured loan and not a sale or such sale shall for any reason be ineffective or unenforceable, then this Agreement shall be deemed to constitute a security agreement under the UCC and other applicable law. For this purpose and without being in derogation of the parties' intention that the sale of Receivables, Related Security and Collections with respect thereto hereunder shall constitute a true sale thereof, each Originator hereby grants to Buyer a duly perfected security interest in all of such Originator's right, title and interest in, to and under all Receivables now existing and hereafter arising, all Collections and Related Security with respect thereto, and all proceeds of the foregoing, which security interest shall be prior to all other Adverse Claims thereto. After the occurrence of an Amortization Event, Buyer and its assigns shall have, in addition to the rights and remedies which they may have under this Agreement, all other rights and remedies provided to a secured creditor after default under the UCC and other applicable law, which rights and remedies shall be cumulative. b. c. Section Additional Originators . Effective upon the execution and delivery of a Joinder Supplement, each Person executing such Joinder Supplement in the capacity of an Additional Originator shall become an Additional Originator hereunder; provided, that: d. (a) such Person shall be a direct or indirect wholly-owned Subsidiary of KNEI; (b) the Agent shall have consented to such Person becoming an Additional Originator, such consent (which shall be in the sole discretion of the Agent) to be evidenced by the Agent's execution and delivery of the applicable Joinder Supplement; and (c) no Receivables shall be purchased from such Person hereunder until on or after the date (the "Additional Originator Closing Date") on which all conditions specified in Section 3.3 have been satisfied with respect to such Originator. a. Section Withdrawal of Originator . Any Originator may terminate further sales of interests in its Receivables hereunder by providing at least fifteen days' notice to Buyer and Agent of such withdrawal. On the date set forth in such notice (the "Withdrawal Date"), such Originator shall discontinue any further sale of interests in Receivables and shall only be party to this Agreement to the extent that Buyer continues to have an interest in any Purchased Receivables acquired from such Originator or any amounts remain payable by Buyer or such Originator to the other hereunder. No such withdrawal shall affect the Originator's representations or agreements concerning Purchased Receivables or Related Security in which Buyer retains an interest or any related Collections. 1. ARTICLE REPRESENTATIONS AND WARRANTIES a. Section Representations and Warranties of Originators . Each Originator hereby represents and warrants to Buyer that: i. Corporate Existence and Power. Such Originator is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation and is duly qualified to do business and is in good standing as a foreign enterprise in each jurisdiction where the nature of its business requires such qualification and has and holds all full power and authority and all governmental licenses, authorizations, consents and approvals required to carry on its business in each jurisdiction in which its business is conducted except where a failure to do so will not cause a Material Adverse Effect. ii. iii. Power and Authority; Due Authorization Execution and Delivery. The execution and delivery by such Originator of this Agreement and each other Transaction Document to which it is a party, and the performance of its obligations hereunder and thereunder and, such Originator's use of the proceeds of the Purchase made hereunder, are within its corporate powers and authority and have been duly authorized by all necessary corporate action on its part. This Agreement and each other Transaction Document to which such Originator is a party has been duly executed and delivered by such Originator. iv. v. No Conflict. The execution and delivery by such Originator of this Agreement and each other Transaction Document to which it is a party, and the performance of its obligations hereunder and thereunder do not contravene or violate (i) its certificate or articles of incorporation or by-laws (or equivalent organizational documents), (ii) any law, rule or regulation applicable to it, (iii) any restrictions under any agreement, contract or instrument to which it is a party or by which it or any of its property is bound, or (iv) any order, writ, judgment, award, injunction or decree binding on or affecting it or its property, and do not result in the creation or imposition of any Adverse Claim on assets of such Originator or its Subsidiaries (except as created hereunder) and no transaction contemplated hereby requires compliance with any bulk sales act or similar law. vi. vii. Governmental Authorization. Other than the filing of the financing statements required hereunder, no authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution and delivery by such Originator of this Agreement and each other Transaction Document to which it is a party and the performance of its obligations hereunder and thereunder. viii. ix. Actions, Suits. There are no actions, suits or proceedings pending, or to the best of such Originator's knowledge, threatened, against or affecting such Originator, or any of its properties, in or before any court, arbitrator or other body, that could reasonably be expected to have a Material Adverse Effect. Such Originator is not in default with respect to any order of any court, arbitrator or governmental body. x. xi. Binding Effect. This Agreement and each other Transaction Document to which such Originator is a party constitute the legal, valid and binding obligations of such Originator enforceable against such Originator in accordance with their respective terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws relating to or limiting creditors' rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). xii. xiii. Accuracy of Information. All information heretofore furnished by such Originator or any of its Affiliates to Buyer (or its assigns) for purposes of or in connection with this Agreement, any of the other Transaction Documents or any transaction contemplated hereby or thereby is, and all such information hereafter furnished by such Originator or any of its Affiliates to Buyer (or its assigns) will be, true and accurate in every material respect on the date such information is stated or certified and does not and will not contain any material misstatement of fact or omit to state a material fact or any fact necessary to make the statements contained therein not misleading. xiv. xv. Use of Proceeds. No proceeds of the Purchase hereunder will be used (i) for a purpose that violates, or would be inconsistent with, Regulation T, U or X promulgated by the Board of Governors of the Federal Reserve System from time to time or (ii) to acquire any security in any transaction which is subject to Section 13 or 14 of the Securities Exchange Act of 1934, as amended. xvi. xvii. Good Title. Immediately prior to the time each Receivable came into existence, such Originator shall be the legal and beneficial owner of each such Receivable and Related Security with respect thereto, free and clear of any Adverse Claim, except as created by the Transaction Documents. There have been duly filed all financing statements or other similar instruments or documents necessary under the UCC (or any comparable law) of all appropriate jurisdictions to perfect such Originator's ownership interest in each Receivable, its Collections and the Related Security. xviii. xix. Perfection. This Agreement, together with the filing of the financing statements contemplated hereby, is effective to transfer to Buyer (and Buyer shall acquire from such Originator) legal and equitable title to, with the right to sell and encumber each Receivable existing and hereafter arising, together with the Related Security and Collections with respect thereto, free and clear of any Adverse Claim, except as created by the Transactions Documents. There have been duly filed all financing statements or other similar instruments or documents necessary under the UCC (or any comparable law) of all appropriate jurisdictions to perfect Buyer's ownership interest in the Receivables, the Related Security and the Collections. xx. xxi. Places of Business. The principal places of business and chief executive office of such Originator and the offices where it keeps all of its Records are located at the address(es) listed on Exhibit II or such other locations of which Buyer has been notified in accordance with Section 4.2(a) in jurisdictions where all action required by Section 4.2(a) has been taken and completed. Such Originator's Federal Employer Identification Number is correctly set forth on Exhibit II. xxii. xxiii. Collections. The conditions and requirements set forth in Section 4.1(j) have at all times been satisfied and duly performed. The names and addresses of all Collection Banks, together with the account numbers of the Collection Accounts of such Originator at each Collection Bank and the post office box number of each Lock-Box, are listed on Exhibit III. xxiv. xxv. Material Adverse Effect. Since June 30, 1999 no event has occurred that would have a Material Adverse Effect. xxvi. xxvii. Names. In the past five (5) years, KNEI has not used any corporate names, trade names or assumed names other than the name in which it has executed this Agreement. As of the date of the applicable Joinder Supplement, in the five years prior to such date, the applicable Additional Originator has not used any corporate names, trade names, or assumed names other than those listed on the applicable Joinder Supplement. xxviii. xxix. Ownership of Buyer. KNEI owns, directly or indirectly, 100% of the issued and outstanding capital stock of Buyer, free and clear of any Adverse Claim. Such capital stock is validly issued, fully paid and nonassessable, and there are no options, warrants or other rights to acquire securities of Buyer. xxx. xxxi. Not a Holding Company or an Investment Company. Such Originator is not a "holding company" or a "subsidiary holding company" of a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended, or any successor statute. Such Originator is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or any successor statute. xxxii. xxxiii. Compliance with Law. Such Originator has complied in all respects with all applicable laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject and with respect to which a failure to comply will cause a Material Adverse Effect. Each Receivable, together with the Contract related thereto, does not contravene any laws, rules or regulations applicable thereto (in cluding, without limitation, laws, rules and regulations relating to truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy), and no part of such Contract is in violation of any such law, rule or regulation. xxxiv. xxxv. Compliance with Credit and Collection Policy. Such Originator has complied in all material respects with the Credit and Collection Policy with regard to each Receivable and the related Contract, and has not made any change to such Credit and Collection Policy, except such material change as to which Buyer (or its assigns) has been notified in accordance with Section 4.1(a)(vii). xxxvi. xxxvii. Payments to Originator. With respect to each Receivable transferred to Buyer hereunder, the Purchase Price received by such Originator constitutes reasonably equivalent value in consideration therefor and such transfer was not made for or on account of an antecedent debt. No transfer by such Originator of any Receivable hereunder is or may be voidable under any section of the Bankruptcy Reform Act of 1978 (11 U.S.C. 101 et seq.), as amended. xxxviii. xxxix. Enforceability of Contracts. Each Contract with respect to each Receivable is effective to create, and has created, a legal, valid and binding obligation of the related Obligor to pay the Outstanding Balance of the Receivable created thereunder and any accrued interest thereon, enforceable against the Obligor in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws relating to or limiting creditors' rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). xl. xli. Eligible Receivables. Each Receivable included in the Net Receivables Balance as an Eligible Receivable on the date it came into existence was an Eligible Receivable on such date. xlii. xliii. Year 2000. Such Originator (i) has reviewed the areas within its business and operations which could be adversely affected by the Year 2000 Problem, (ii) has developed a Year 2000 Plan to address the Year 2000 Problem on a timely basis, (iii) is taking all actions necessary to meet the schedule and goals of the Year 2000 Plan and (iv) has established adequate reserves to implement the Year 2000 Plan. Such Originator does not reasonably anticipate that the Year 2000 Problem could have a Material Adverse Effect. xliv. xlv. Accounting. The manner in which such Originator accounts for the transactions contemplated by this Agreement does not jeopardize the true sale analysis. xlvi. xlvii. Compliance with Representations. On and as of the date of the Purchase and on and as of each subsequent date each Receivable came into existence, such Originator hereby represents and warrants that all of the other representations and warranties set forth in this Article II are true and correct on and as of each such date (and after giving effect to all Receivables in existence on each such date) as though made on and as of each such date. xlviii. xlix. Type of Receivable. None of the Receivables transferred to Buyer under this Agreement resulted from the sale of an interest in minerals or the like (including oil and gas) before extraction or at the well head or the mine head. 1. ARTICLE CONDITIONS OF PURCHASES i. Section Conditions Precedent to Purchase . The initial Purchase under this Agreement is subject to the conditions precedent that Buyer shall have received on or before the date of such purchase those documents listed on Schedule A and all of the conditions to the Purchase under the Purchase Agreement shall have been satisfied or waived in accordance with the terms thereof. a. Section Conditions Precedent to Subsequent Payments . Buyer's obligation to pay for Receivables coming into existence after the date hereof shall be subject to the further condition precedent that the Facility Termination Date shall not have occurred. Each Originator represents and warrants that the representations and warranties set forth in Article II are true and correct on and as of the date each Receivable came into existence as though made on and as of such date. b. c. Section Conditions Precedent to Purchase from Additional Originators . The Purchase under this Agreement from an Additional Originator is subject to the conditions precedent that, on or before the Additional Originator Closing Date for such Additional Originator: d. i. the following documents shall have been delivered: ii. (1) a certificate from each such Additional Originator's Secretary certifying: 1) an attached copy of its Certificate of Incorporation or other charter document(s) (certified within 30 days prior to the Additional Originator Closing Date by the Secretary of State of its jurisdiction of formation or incorporation); 2) an attached copy of its by-laws, operating agreement or other constitutional document(s); 3) an attached copy of resolutions of its Board of Directors or other governing body authorizing its execution, delivery and performance of the Joinder Supplement, the Sale Agreement and related documents; and 4) the names, titles and specimen signatures of its officers authorized to execute and deliver the Joinder Supplement, the Sale Agreement and related documents; (1) good standing certificates for each such Additional Originator from the states in which it is formed and in which it has principal operations certified by each such state within 30 days prior to the Additional Originator Closing Date; (1) state and federal tax lien, judgment lien and UCC lien searches against each such Additional Originator from the state in which its Chief Executive Office is located (the "Filing State") and as applicable for tax and judgment liens; (1) executed UCC financing statements naming each such Additional Originator, as debtor, PRC, as secured party, and Bank One, NA, as Agent, as assignee of secured party, for filing with the Secretary of State of the Filing State; (1) opinions from each such Additional Originator's counsel, in form and substance reasonably satisfactory to the Agent, regarding corporate, UCC, true sale, non-consolidation and other matters with respect to each such Additional Originator; (1) an Officer's Certificate from KNEI to the effect that no Amortization Event or Potential Amortization Event has occurred and is continuing; (1) an executed Collection Agreement with respect to each such Additional Originator's Collection Accounts; and (1) a Monthly Report which reflects the addition of the Receivables of such Additional Originator and the Net Receivables Balance and Aggregate Reserves for such Additional Originator. For purposes of all calculations hereunder and under the Purchase Agreement, the Net Receivables Balance and Aggregate Reserves for the Additional Originator shown in such supplement shall supersede or supplement the calculation of such items in the then outstanding Monthly Report, effective as of the Additional Originator Closing Date. 1. ARTICLE COVENANTS a. Section Affirmative Covenants of KNEI . Until the date on which this Agreement terminates in accordance with its terms, KNEI, in its capacity as Originator, hereby covenants as set forth below: i. Financial Reporting. KNEI will maintain, for itself and each of its Subsidiaries, a system of accounting established and administered in accordance with generally accepted accounting principles, and furnish to Buyer (or its assigns): ii. (1) Annual Reporting. Within 100 days after the close of each of its respective fiscal years, audited, unqualified financial statements (which shall include balance sheets, statements of income and retained earnings and a statement of cash flows) for KNEI and its consolidated subsidiaries for such fiscal year certified in a manner acceptable to Buyer (and its assigns) by independent public accountants acceptable to Buyer (and its assigns). (1) Quarterly Reporting. Within 50 days after the close of the first three (3) quarterly periods of each of its respective fiscal years, balance sheets of KNEI as at the close of each such period and statements of income and retained earnings and a statement of cash flows for KNEI for the period from the beginning of such fiscal year to the end of such quarter, all certified by its chief financial officer. (1) Compliance Certificate. Together with the financial statements required hereunder, a compliance certificate in substantially the form of Exhibit IV signed by KNEI's Authorized Officer and dated the date of such annual financial statement or such quarterly financial statement, as the case may be. (1) Shareholders Statements and Reports. Promptly upon the furnishing thereof to the shareholders of KNEI copies of all financial statements, reports and proxy statements so furnished. (1) S.E.C. Filings. Promptly upon the filing thereof, copies of all registration statements and annual, quarterly, monthly or other regular reports which KNEI or any of its Subsidiaries files with the Securities and Exchange Commission. (1) Copies of Notices. Promptly upon its receipt of any notice, request for consent, financial statements, certification, report or other communication under or in connection with any Transaction Document from any Person other than Buyer, the Agent or the Conduits, copies of the same. (1) Change in Credit and Collection Policy. At least thirty (30) days prior to the effectiveness of any material change in or amendment to the Credit and Collection Policy, a copy of the Credit and Collection Policy then in effect and a notice indicating such change or amendment. (1) Other Information. Promptly, from time to time, such other information, documents, records or reports relating to the Receivables or the condition or operations, financial or otherwise, of KNEI as Buyer (or its assigns) may from time to time reasonably request in order to protect the interests of Buyer (and its assigns) under or as contemplated by this Agreement. i. Notices. KNEI will notify Buyer (or its assigns) in writing of any of the following promptly upon learning of the occurrence thereof, describing the same and, if applicable, the steps being taken with respect thereto: ii. (1) Amortization Events or Potential Amortization Events. The occurrence of each Amortization Event and each Potential Amortization Event, by a statement of an Authorized Officer of KNEI. (1) Litigation. The institution of any litigation, arbitration, proceeding or governmental proceeding against any Originator or any of its Subsidiaries, or to which such Originator or any of its Subsidiaries becomes party, in either case which (A) remains unsettled for a period of 90 days from the commencement thereof and involves claims for damages or relief in an amount which could reasonably be expected to have a Material Adverse Effect, or (B) has resulted in a final judgment or judgments for the payment of money in an amount which has a Material Adverse Effect. (1) Material Adverse Effect. The occurrence of any event or condition that has, or could reasonably be expected to have, a Material Adverse Effect. (1) Defaults Under Other Agreements. The occurrence of a default or an event of default under any other financing arrangement pursuant to which KNEI is a debtor or an obligor pursuant to which KNEI has an obligation of $50,000,000 or more. (1) Downgrade of the KNEI. Any downgrade in the rating of any Indebtedness of KNEI or any of its Subsidiaries by Standard and Poor's Ratings Services or by Moody's Investors Service, Inc., setting forth the Indebtedness affected and the nature of such change. (2) b. Section Affirmative Covenants of Each Originator . Until the date this Agreement shall terminate in accordance with its terms, each Originator, in its capacity as an Originator, covenants and agrees as follows: c. i. Compliance with Laws and Preservation of Corporate Existence. Such Originator will comply in all respects with all applicable laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject with respect to which a failure to comply may reasonably be expected to cause a Material Adverse Effect. Such Originator will preserve and maintain its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified in good standing as a foreign enterprise in each jurisdiction where its business is conducted and where a failure to qualify would cause a Material Adverse Effect. ii. iii. Audits. Such Originator will furnish to Buyer (or its assigns) from time to time such information with respect to it and the Receivables as Buyer (or its assigns) may reasonably request. Such Originator will, from time to time, during regular business hours as requested by Buyer (or its assigns), upon reasonable notice, permit Buyer (or its assigns) or their respective agents or representatives, (i) to examine and make copies of and abstracts from all Records in the possession or under the control of such Originator relating to the Receivables and the Related Security, including, without limitation, the related Contracts, and (ii) to visit the offices and properties of such Originator for the purpose of examining such materials described in clause (i) above, and to discuss matters relating to such Originator's financial condition or the Receivables and the Related Security or such Originator's performance under any of the Transaction Documents or such Originator's performance under the Contracts and, in each case, with any of the officers or employees of such Originator having knowledge of such matters. Such Originator shall reimburse Buyer promptly for all of Buyer's reasonable costs incurred in connection with (i) so long as no Amortization Event or Potential Amortization Event has occurred, not more than one such audit per calendar year and (ii) following the occurrence of an Amortization Event or a Potential Amortization Event, any such audit. iv. v. Keeping and Marking of Records and Books. vi. (1) Such Originator will maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing Receivables in the event of the destruction of the originals thereof), and keep and maintain all documents, books, records and other information reasonably necessary or advisable for the collection of all Receivables (including, without limitation, records adequate to permit the immediate identification of each new Receivable and all Collections of and adjustments to each existing Receivable). Such Originator will give Buyer (or its assigns) notice of any material change in the administrative and operating procedures referred to in the previous sentence. (1) Such Originator will (A) on or prior to the date hereof, mark its master data processing records relating to the Receivables with a legend, acceptable to Buyer (or its assigns), describing Buyer's ownership interests in the Receivables and further describing the Purchaser Interests of the Agent (on behalf of the Purchasers) under the Purchase Agreement and (B) following the occurrence of an Amortization Event, upon the request of Buyer (or its assigns), (x) mark each Contract with a legend describing Buyer's ownership interests in the Receivables and further describing the Purchaser Interests of the Agent (on behalf of the Purchasers) and (y) deliver to Buyer (or its assigns) all Contracts (including, without limitation, all multiple originals of any such Contract) relating to the Receivables. i. Compliance with Contracts and Credit and Collection Policy. Such Originator will timely and fully (i) perform and comply with all provisions, covenants and other promises required to be observed by it under the Contracts related to the Receivables with respect to which a failure to perform or comply may reasonably be expected to adversely affect the collectibility thereof, and (ii) comply in all respects with the Credit and Collection Policy in regard to each Receivable and the related Contract. Such Originator will pay when due any taxes payable in connection with the Receivables, exclusive of taxes on or measured by income or gross receipts of Buyer and its assigns. ii. iii. Ownership. Such Originator will take all necessary action to establish and maintain, irrevocably in Buyer, legal and equitable title to the Receivables, the Related Security and the Collections, free and clear of any Adverse Claims other than Adverse Claims in favor of Buyer (and its assigns) (including, without limitation, the filing of all financing statements or other similar instruments or documents necessary under the UCC (or any comparable law) of all appropriate jurisdictions to perfect Buyer's interest in such Receivables, Related Security and Collections and such other action to perfect, protect or more fully evidence the interest of Buyer as Buyer (or its assigns) may reasonably request). iv. v. Purchasers' Reliance. Such Originator acknowledges that the Agent and the Purchasers are entering into the transactions contemplated by the Purchase Agreement in reliance upon Buyer's identity as a legal entity that is separate from such Originator and any Affiliates thereof. Therefore, from and after the date of execution and delivery of this Agreement, such Originator will take all reasonable steps including, without limitation, all steps that Buyer or any assignee of Buyer may from time to time reasonably request to maintain Buyer's identity as a separate legal entity and to make it manifest to third parties that Buyer is an entity with assets and liabilities distinct from those of such Originator and any Affiliates thereof and not just a division of such Originator. Without limiting the generality of the foregoing and in addition to the other covenants set forth herein, such Originator (i) will not hold itself out to third parties as liable for the debts of Buyer nor purport to own the Receivables and other assets acquired by Buyer, (ii) will take all other actions necessary on its part to ensure that Buyer is at all times in compliance with the covenants set forth in Section 7.1(i) of the Purchase Agreement and (iii) will cause all tax liabilities arising in connection with the transactions contemplated herein or otherwise to be allocated between such Originator and Buyer on an arm's-length basis and in a manner consistent with the procedures set forth in U.S. Treasury Regulations 1.1502-33(d) and 1.1552-1. vi. vii. Collections. Such Originator will cause (1) all proceeds from all Lock-Boxes to be directly deposited by a Collection Bank into a Collection Account and (2) each Lock-Box and Collection Account to be subject at all times to a Collection Account Agreement that is in full force and effect. In the event any payments relating to Receivables are remitted directly to Originator or any Affiliate of such Originator, such Originator will remit (or will cause all such payments to be remitted) directly to a Collection Bank for deposit into a Collection Account within two (2) Business Days following receipt thereof and, at all times prior to such remittance, such Originator will itself hold or, if applicable, will cause such payments to be held in trust for the exclusive benefit of Buyer and its assigns. Such Originator will transfer exclusive ownership, dominion and control of each Lock-Box and Collection Account to Buyer and, will not grant the right to take dominion and control of any Lock- Box or Collection Account at a future time or upon the occurrence of a future event to any Person, except to Buyer (or its assigns) as contemplated by this Agreement and the Purchase Agreement. viii. ix. Taxes. Such Originator will file all tax returns and reports required by law to be filed by it and promptly pay all taxes and governmental charges at any time owing. x. xi. Obligations under Purchase Agreement. Such Originator covenants and agrees to fully perform all of the obligations of an Originator set forth in the Purchase Agreement. xii. b. Section Negative Covenants of the Originators . Until the date on which this Agreement terminates in accordance with its terms, each Originator hereby covenants that: c. i. Name Change, Offices and Records. Such Originator will not change its name, identity or corporate structure (within the meaning of Section 9-402(7) of any applicable enactment of the UCC) or relocate its chief executive office or any office where Records are kept unless it shall have: (i) given Buyer (and its assigns) at least forty-five (45) days' prior written notice thereof and (ii) delivered to Buyer (or its assigns) all financing statements, instruments and other documents requested by Buyer (or its assigns) in connection with such change or relocation. ii. iii. Change in Payment Instructions to Obligors. Such Originator will not add or terminate any bank as a Collection Bank, or make any change in the instructions to Obligors regarding payments to be made to any Lock-Box or Collection Account, unless Buyer (and its assigns) shall have received, at least ten (10) days before the proposed effective date therefor, (i) written notice of such addition, termination or change and (ii) with respect to the addition of a Collection Bank or a Collection Account or Lock-Box, an executed Collection Account Agreement with respect to the new Collection Account or Lock-Box; provided, however, that such Originator may make changes in instructions to Obligors regarding payments if such new instructions require such Obligor to make payments to another existing Collection Account. iv. v. Modifications to Contracts and Credit and Collection Policy. Such Originator will not make any change to the Credit and Collection Policy that could adversely affect the collectibility of the Receivables or decrease the credit quality of any newly created Receivables. Except as otherwise permitted in its capacity as Servicer pursuant to Article VIII of the Purchase Agreement, such Originator will not extend, amend or otherwise modify the terms of any Receivable or any Contract related thereto other than in accordance with the Credit and Collection Policy. vi. vii. Sales, Liens. Such Originator will not sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, or create or suffer to exist any Adverse Claim upon (including, without limitation, the filing of any financing statement) or with respect to, any Receivable, Related Security or Collections, or upon or with respect to any Contract under which any Receivable arises, or any Lock-Box or Collection Account, or assign any right to receive income with respect thereto (other than, in each case, the creation of the interests therein in favor of Buyer provided for herein), and such Originator will defend the right, title and interest of Buyer in, to and under any of the foregoing property, against all claims of third parties claiming through or under such Originator. Such Originator shall not create nor suffer to exist any mortgage, pledge, security interest, encumbrance, lien, charge or other similar arrangement on any of its inventory. viii. ix. Accounting for Purchase. Such Originator will not, and will not permit any Affiliate to, account for or treat (whether in financial statements or otherwise) the transactions contemplated hereby in any manner other than the sale of the Receivables and the Related Security by such Originator to Buyer or in any other respect account for or treat the transactions contemplated hereby in any manner other than as a sale of the Receivables and the Related Security by such Originator to Buyer. x. 2. ARTICLE ADMINISTRATION AND COLLECTION a. Section Designation of Sub-Servicer . b. i. The servicing, administration and collection of the Receivables shall be conducted by the Servicer so designated from time to time in accordance with Section 8.1(a) of the Purchase Agreement. KNEI is hereby designated as, and hereby agrees to act as, sub-servicer (the "Sub-Servicer") for Buyer in Buyer's capacity as the initial Servicer designated pursuant to the terms of the Purchase Agreement, and KNEI agrees in such capacity as Sub-Servicer to perform all of the duties and obligations of the Servicer set forth herein and in the Purchase Agreement with respect to the Receivables, the Related Security related thereto and Collections thereof. If the Agent appoints a new Servicer pursuant to the terms hereof, KNEI shall no longer be required to act as Sub-Servicer hereunder unless it so consents. i. KNEI further agrees that, so long as it shall remain as Sub-Servicer, it shall be directly liable to the Agent and the Purchasers for the full and prompt performance of all such duties and responsibilities of the Servicer; provided that (i) nothing in this Agreement shall eliminate Buyer's primary liability to the Agent and the Purchasers for its duties as Servicer (for so long as Buyer is the Servicer or the Servicer is an Affiliate thereof or is appointed by Buyer), (ii) Buyer and its assigns shall retain sole responsibility and authority for withdrawing funds from each Collection Account, and (iii) the Agent and the Purchasers shall be entitled to deal exclusively with Buyer in matters relating to the discharge by the Servicer of its duties pursuant to Section 8.1 of the Purchase Agreement. ii. iii. Without the prior written consent of Buyer and its assignees, KNEI shall not be permitted to delegate any of its duties or responsibilities as Sub-Servicer to any Person other than an Originator. If at any time, pursuant to the terms and conditions of the Purchase Agreement, the Agent shall designate as Servicer any Person other than Buyer, all duties and responsibilities theretofore delegated by Buyer to the Sub- Servicer shall be terminated forthwith. a. Section Duties of Sub-Servicer . b. i. The Sub-Servicer shall take or cause to be taken all such actions as may be reasonably necessary or advisable to collect each Receivable from time to time, all in accordance with applicable laws, rules and regulations, with reasonable care and diligence, and in accordance with the Credit and Collection Policy, in each case to the same extent required of such Originator under Section 4.2(d). i. The Sub-Servicer shall use its reasonable best efforts to segregate, on each Business Day, in a manner reasonably acceptable to Buyer and the Agent, all cash, checks and other instruments received by it from time to time constituting Collections from the general funds of the Sub- Servicer prior to the remittance thereof to Buyer. The Sub- Servicer shall remit to Buyer all Collections of Receivables not later than the Business Day immediately following receipt of such Collections. The Sub-Servicer shall cause Collections to be applied as described herein and in the Purchase Agreement. ii. iii. The Sub-Servicer, may, in accordance with the Credit and Collection Policy, extend the maturity of any Receivable or adjust the Outstanding Balance of any Receivable as the Sub-Servicer may determine to be appropriate to maximize Collections thereof; provided, however, that such extension or adjustment shall not alter the status of such Receivable as a Delinquent Receivable or Defaulted Receivable or limit the rights of the Agent or the Purchasers under the Purchase Agreement. Notwithstanding anything to the contrary contained herein, from and after the occurrence of an Amortization Event, Buyer shall have the absolute and unlimited right to direct the Sub-Servicer to commence or settle any legal action with respect to any Receivable or to foreclose upon or repossess any Related Security. iv. v. The Sub-Servicer shall hold in trust for Buyer and its assignees, in accordance with their respective interests, all Records that it is required to maintain hereunder, the related Contracts and Related Security or that are otherwise necessary or desirable to collect the Receivables and (to the fullest extent permitted to do so without violating contractual restrictions imposed by licensors as provided in Section 1.6(a) herein or the confidentiality provisions of any such contract) shall, as soon as reasonably practicable upon demand of Buyer upon the occurrence and during the continuance of an Amortization Event, deliver or make available to Buyer copies of all such Records at the chief executive office of such Sub-Servicer. vi. vii. Any payment by an Obligor in respect of any indebtedness owed by it to any Originator in connection with a Receivable shall, except as otherwise required by contract or law and unless otherwise instructed by Buyer, be applied as a Collection to such Receivable or Receivables of such Obligor originated by such Originator as shall be designated by such Originator. viii. ix. If KNEI is terminated as Sub-Servicer, KNEI as Sub-Servicer agrees to cooperate with Buyer and the successor Sub-Servicer in effecting the termination of the responsibilities and rights of KNEI to conduct servicing hereunder, and shall (to the fullest extent permitted to do so without violating contractual restrictions imposed by licensors as provided in Section1.5(a) herein or the confidentiality provisions of any such contract) promptly transfer to the successor Sub-Servicer copies of all records, correspondence and documents necessary for the continued servicing of the Receivables, and shall do and accomplish all other acts or things necessary or appropriate to effect the transfer of servicing rights. x. b. Section Collection Rights . KNEI hereby authorizes Buyer and the Servicer, and agrees that each of Buyer and the Servicer shall, if KNEI is terminated as Sub-Servicer, be entitled to (i) endorse its name on checks and other instruments representing Collections, (ii) enforce the Receivables and the Related Security and (iii) take such action as shall be necessary or desirable to cause all cash, checks and other instruments constituting Collections of Receivables to come into the possession of the Servicer or its designees, on behalf of Buyer and its assignees, rather than KNEI. c. d. Section Responsibilities of the Sub-Servicer and Originators . Anything herein to the contrary notwithstanding, the exercise by Buyer (or its assignees) of its rights hereunder shall not release any Sub-Servicer or any Originator from any of their respective duties or obligations with respect to any Receivables or under the related Contracts. Neither Buyer nor any of its assignees (including any Servicer) shall have any obligation or liability with respect to any Receivables or related Contracts, nor shall any of them be obligated to perform the obligations of such Sub-Servicer or Originator. e. f. Section Reports . Not later than the third Business Day preceding each Settlement Date, the Sub-Servicer shall prepare and forward to Buyer and the Agent a Monthly Report for the related Calculation Period (or other comparable report for such period as may be applicable). g. h. Section Sub-Servicer Fee . In consideration of the Sub-Servicer's agreement to perform the duties and obligations of the Servicer under the Purchase Agreement, Buyer hereby agrees that, so long as KNEI shall continue to perform as Sub-Servicer hereunder, Buyer shall, within 30 days of each Settlement Date, pay over to KNEI a monthly fee in an amount equal to (i) a per annum rate not to exceed 1% agreed to by Buyer and KNEI from time to time, multiplied by (ii) the average Outstanding Balance of the Receivables held by Buyer (without taking account of any interests therein sold pursuant to the Purchase Agreement) during the related Calculation Period, such fee to be calculated to provide the Sub-Servicer reasonable compensation for its servicing activities. Such fee shall be payable for each Calculation Period on the related Settlement Date and may be payable with the proceeds of any Subordinated Loan (to the extent that a Subordinated Loan could be borrowed without rendering Buyer's Net Worth less than the Required Capital Amount). i. 1. ARTICLE AMORTIZATION EVENTS a. Section Amortization Events . The occurrence of any one or more of the following events shall constitute an Amortization Event: i. Any Originator shall fail (i) to make any payment or deposit required hereunder when due and such failure continues for one (1) Business Day, or (ii) to perform or observe any covenant or agreement hereunder (other than as referred to in clause (i) of this paragraph (a)) or any other Transaction Document to which it is a party and such failure shall continue for ten (10) Business Days after notice thereof has been given to such Originator by Buyer (or its assignees). ii. iii. Any representation, warranty, certification or statement made by any Originator in this Agreement, any other Transaction Document or in any other document delivered pursuant hereto or thereto shall prove to have been incorrect when made or deemed made. iv. v. KNEI or any Subsidiary shall fail to make any payment in respect of any Material Financial Obligations when due or within any applicable grace period; provided, however, that if any such failure is cured by KNEI or such Subsidiary or is waived by the requisite percentage of holders of such Material Financial Obligations entitled to so waive, then the Amortization Event under this Agreement by reason of such failure shall be deemed to have been cured. vi. vii. Any event or condition shall occur which results in the acceleration of the maturity of any Material Debt or enables (or, with the giving of notice or lapse of time or both, would enable) the holder of such Debt or any Person acting on such holder's behalf to accelerate the maturity thereof; provided, however, that if any such acceleration is rescinded, or any such event or condition is cured by KNEI or any Subsidiary or is waived by the requisite percentage of holders of such Material Debt entitled to so waive, then the Amortization Event under this Agreement by reason of such acceleration, event or condition shall be deemed to have been cured. viii. (1) Any Originator or any of its Material Subsidiaries shall generally not pay its debts as such debts become due or shall admit in writing its inability to pay its debts generally or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against any Originator or any of its Material Subsidiaries seeking to adjudicate it bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee or other similar official for it or any substantial part of its property, and such proceedings shall not be dismissed within 60 days of the filing thereof or (ii) any Originator or any of its Material Subsidiaries shall take any corporate action to authorize any of the actions set forth in the foregoing clause (i) of this subsection (d). (2) ix. A Change of Control of KNEI shall occur. x. xi. One or more final judgments for the payment of money shall be entered against any Originator on claims not covered by insurance or as to which the insurance carrier has denied its responsibility, and such judgment shall continue unsatisfied and in effect for thirty (30) consecutive days without a stay of execution. xii. b. Section Remedies . Upon the occurrence and during the continuation of an Amortization Event, Buyer may take any of the following actions: (i) declare the Amortization Date to have occurred, whereupon the Amortization Date shall forthwith occur, without demand, protest or further notice of any kind, all of which are hereby expressly waived by such Originator; provided, however, that upon the occurrence of Amortization Event described in Section 6.1(d), or of an actual or deemed entry of an order for relief with respect to such Originator under the Federal Bankruptcy Code, the Amortization Date shall automatically occur, without demand, protest or any notice of any kind, all of which are hereby expressly waived by such Originator and (ii) to the fullest extent permitted by applicable law, declare that the Default Fee shall accrue with respect to any amounts then due and owing by Buyer to such Originator. The aforementioned rights and remedies shall be in addition to all other rights and remedies of Buyer and its assigns available under this Agreement, by operation of law, at equity or otherwise, all of which are hereby expressly preserved, including, without limitation, all rights and remedies provided under the UCC, all of which rights shall be cumulative. c. 2. ARTICLE INDEMNIFICATION a. Section INDEMNITIES BY KNEI . WITHOUT LIMITING ANY OTHER RIGHTS THAT BUYER MAY HAVE HEREUNDER OR UNDER APPLICABLE LAW, KNEI HEREBY AGREES TO INDEMNIFY BUYER AND ITS ASSIGNS, OFFICERS, DIRECTORS, AGENTS AND EMPLOYEES (EACH AN "INDEMNIFIED PARTY") FROM AND AGAINST ANY AND ALL DAMAGES, LOSSES, CLAIMS, TAXES, LIABILITIES, COSTS, EXPENSES AND FOR ALL OTHER AMOUNTS PAYABLE, INCLUDING REASONABLE ATTORNEYS' FEES (WHICH ATTORNEYS MAY BE EMPLOYEES OF BUYER) AND DISBURSEMENTS (ALL OF THE FOREGOING BEING COLLECTIVELY REFERRED TO AS "INDEMNIFIED AMOUNTS") AWARDED AGAINST OR INCURRED BY ANY OF THEM ARISING OUT OF OR AS A RESULT OF THIS AGREEMENT OR THE ACQUISITION, EITHER DIRECTLY OR INDIRECTLY, BY BUYER OF AN INTEREST IN THE RECEIVABLES, EXCLUDING, HOWEVER: (1) INDEMNIFIED AMOUNTS TO THE EXTENT A FINAL JUDGMENT OF A COURT OF COMPETENT JURISDICTION HOLDS THAT SUCH INDEMNIFIED AMOUNTS RESULTED FROM GROSS NEGLIGENCE OR WILLFUL MISCONDUCT ON THE PART OF THE INDEMNIFIED PARTY SEEKING INDEMNIFICATION; (1) INDEMNIFIED AMOUNTS TO THE EXTENT THE SAME INCLUDES LOSSES IN RESPECT OF RECEIVABLES THAT ARE UNCOLLECTIBLE ON ACCOUNT OF THE INSOLVENCY, BANKRUPTCY OR LACK OF CREDITWORTHINESS OF THE RELATED OBLIGOR; OR (1) TAXES IMPOSED BY THE JURISDICTION IN WHICH SUCH INDEMNIFIED PARTY'S PRINCIPAL EXECUTIVE OFFICE IS LOCATED, ON OR MEASURED BY THE OVERALL NET INCOME OF SUCH INDEMNIFIED PARTY TO THE EXTENT THAT THE COMPUTATION OF SUCH TAXES IS CONSISTENT WITH THE INTENDED TAX CHARACTERIZATION; (1) INDEMNIFIED AMOUNTS TO THE EXTENT THE SAME ARE A RESULT OF A VIOLATION BY SUCH INDEMNIFIED PARTY OF ANY BANKING OR SECURITIES LAWS OR REGULATIONS; (1) INDEMNIFIED AMOUNTS TO THE EXTENT THEY INCLUDE COSTS AND EXPENSES OF A TYPE REFERRED TO IN SECTION 7.2 HEREOF, EXCEPT TO THE EXTENT PROVIDED IN SECTION 7.2; (1) INDEMNIFIED AMOUNTS TO THE EXTENT THEY CONSTITUTE STATE OR LOCAL FRANCHISE TAXES TO THE EXTENT THAT THE INDEMNIFIED PARTY IS SUBJECT TO TAXATION IN THE JURISDICTION IMPOSING SUCH FRANCHISE TAXES SOLELY FOR REASONS OTHER THAN THE TRANSACTIONS CONTEMPLATED BY THE TRANSACTION DOCUMENTS; AND (1) INDEMNIFIED AMOUNTS THAT UNDER THE TERMS OF CLAUSES (I) THROUGH (XIV) BELOW ARE EXPRESSLY EXCEPTED FROM THE INDEMNIFICATION PROVISIONS OF SUCH CLAUSES. PROVIDED, HOWEVER, THAT NOTHING CONTAINED IN THIS SENTENCE SHALL LIMIT THE LIABILITY OF KNEI OR LIMIT THE RECOURSE OF BUYER TO KNEI FOR AMOUNTS OTHERWISE SPECIFICALLY PROVIDED TO BE PAID BY KNEI UNDER THE TERMS OF THIS AGREEMENT. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING INDEMNIFICATION, BUT SUBJECT TO THE LIMITATIONS SET FORTH IN CLAUSES (I) AND (II) OF THIS PREVIOUS SENTENCE, KNEI SHALL INDEMNIFY BUYER FOR INDEMNIFIED AMOUNTS (INCLUDING, WITHOUT LIMITATION, LOSSES IN RESPECT OF UNCOLLECTIBLE RECEIVABLES, REGARDLESS OF WHETHER REIMBURSEMENT THEREFOR WOULD CONSTITUTE RECOURSE TO SELLER) RELATING TO OR RESULTING FROM: (i) ANY REPRESENTATION OR WARRANTY MADE BY ANY ORIGINATOR (OR ANY OFFICERS OF SUCH ORIGINATOR) UNDER OR IN CONNECTION WITH THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENT OR ANY OTHER INFORMATION OR REPORT DELIVERED BY SUCH ORIGINATOR PURSUANT HERETO OR THERETO, WHICH SHALL HAVE BEEN FALSE OR INCORRECT WHEN MADE OR DEEMED MADE; (i) THE FAILURE BY ANY ORIGINATOR, TO COMPLY WITH ANY APPLICABLE LAW, RULE OR REGULATION WITH RESPECT TO ANY RECEIVABLE OR CONTRACT RELATED THERETO, OR THE NONCONFORMITY OF ANY RECEIVABLE OR CONTRACT INCLUDED THEREIN WITH ANY SUCH APPLICABLE LAW, RULE OR REGULATION OR ANY FAILURE OF ANY ORIGINATOR TO KEEP OR PERFORM ANY OF ITS OBLIGATIONS, EXPRESS OR IMPLIED, WITH RESPECT TO ANY CONTRACT; (i) ANY FAILURE OF ANY ORIGINATOR TO PERFORM ITS DUTIES, COVENANTS OR OTHER OBLIGATIONS IN ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT; (i) ANY PRODUCTS LIABILITY OR SIMILAR CLAIM ARISING OUT OF OR IN CONNECTION WITH MERCHANDISE, INSURANCE OR SERVICES THAT ARE THE SUBJECT OF ANY CONTRACT; (i) ANY DISPUTE, CLAIM, OFFSET OR DEFENSE (OTHER THAN DISCHARGE IN BANKRUPTCY OF THE OBLIGOR) OF THE OBLIGOR TO THE PAYMENT OF ANY RECEIVABLE (INCLUDING, WITHOUT LIMITATION, A DEFENSE BASED ON SUCH RECEIVABLE OR THE RELATED CONTRACT NOT BEING A LEGAL, VALID AND BINDING OBLIGATION OF SUCH OBLIGOR ENFORCEABLE AGAINST IT IN ACCORDANCE WITH ITS TERMS), OR ANY OTHER CLAIM RESULTING FROM THE SALE OF THE MERCHANDISE OR SERVICE RELATED TO SUCH RECEIVABLE OR THE FURNISHING OR FAILURE TO FURNISH SUCH MERCHANDISE OR SERVICES; (i) THE COMMINGLING OF COLLECTIONS OF RECEIVABLES AT ANY TIME WITH OTHER FUNDS; (i) ANY INVESTIGATION, LITIGATION OR PROCEEDING RELATED TO OR ARISING FROM THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT, THE TRANSACTIONS CONTEMPLATED HEREBY, THE USE OF THE PROCEEDS OF A PURCHASE, THE OWNERSHIP OF THE RECEIVABLES OR ANY OTHER INVESTIGATION, LITIGATION OR PROCEEDING RELATING TO ANY ORIGINATOR IN WHICH ANY INDEMNIFIED PARTY BECOMES INVOLVED AS A RESULT OF ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY; (i) ANY INABILITY TO LITIGATE ANY CLAIM AGAINST ANY OBLIGOR IN RESPECT OF ANY RECEIVABLE AS A RESULT OF SUCH OBLIGOR BEING IMMUNE FROM CIVIL AND COMMERCIAL LAW AND SUIT ON THE GROUNDS OF SOVEREIGNTY OR OTHERWISE FROM ANY LEGAL ACTION, SUIT OR PROCEEDING; (i) ANY AMORTIZATION EVENT DESCRIBED IN SECTION 6.1(D); (i) ANY FAILURE TO VEST AND MAINTAIN VESTED IN BUYER, OR TO TRANSFER TO BUYER, LEGAL AND EQUITABLE TITLE TO, AND OWNERSHIP OF, THE RECEIVABLES, THE RELATED SECURITY AND THE COLLECTIONS, FREE AND CLEAR OF ANY ADVERSE CLAIM; (i) THE FAILURE TO HAVE FILED, OR ANY DELAY IN FILING, FINANCING STATEMENTS OR OTHER SIMILAR INSTRUMENTS OR DOCUMENTS UNDER THE UCC OF ANY APPLICABLE JURISDICTION OR OTHER APPLICABLE LAWS WITH RESPECT TO ANY RECEIVABLE, THE RELATED SECURITY AND COLLECTIONS WITH RESPECT THERETO, AND THE PROCEEDS OF ANY THEREOF, WHETHER AT THE TIME OF THE PURCHASE OR AT ANY SUBSEQUENT TIME; (i) ANY ACTION OR OMISSION BY ANY ORIGINATOR WHICH REDUCES OR IMPAIRS THE RIGHTS OF BUYER WITH RESPECT TO ANY RECEIVABLE OR THE VALUE OF ANY SUCH RECEIVABLE; (i) ANY ATTEMPT BY ANY PERSON TO VOID ANY PURCHASE HEREUNDER UNDER STATUTORY PROVISIONS OR COMMON LAW OR EQUITABLE ACTION; AND (i) THE YEAR 2000 PROBLEM INVOLVING KNEI OR ANY ORIGINATOR. 1.1 Section Other Costs and Expenses . Knei shall pay to buyer on demand all costs and out-of-pocket expenses in connection with the preparation, execution, delivery and administration of this agreement, the transactions contemplated hereby and the other documents to be delivered hereunder. Knei shall pay to buyer on demand any and all costs and expenses of buyer, if any, including reasonable counsel fees and expenses in connection with the enforcement of this agreement and the other documents delivered hereunder and in connection with any restructuring or workout of this agreement or such documents, or the administration of this agreement following an amortization event. 1.2 1.3 Section LIABILITY OF ADDITIONAL ORIGINATORS TO KNEI AND INDEMNIFIED PARTIES . NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN, KNEI SHALL HAVE THE RIGHT TO SEEK CONTRIBUTION FROM ANY ADDITIONAL ORIGINATOR FOR ANY INDEMNIFIED LOSSES WHICH IT INDEMNIFIED BUT WHICH WERE CAUSED, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, BY SUCH ADDITIONAL ORIGINATOR'S ACTION OR INACTION. IN ADDITION, IF KNEI FAILS TO PERFORM ITS INDEMNIFICATION OR REIMBURSEMENT OBLIGATIONS IN A TIMELY FASHION, THEN THE ADDITIONAL ORIGINATORS SHALL BE JOINTLY AND SEVERALLY LIABLE TO EACH INDEMNIFIED PARTY FOR ALL LOSSES SUBJECT TO INDEMNIFICATION OR REIMBURSEMENT PURSUANT TO THIS AGREEMENT. 1.4 1 ARTICLE MISCELLANEOUS (a) Section Waivers and Amendments . No failure or delay on the part of Buyer (or its assigns) in exercising any power, right or remedy under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or remedy preclude any other further exercise thereof or the exercise of any other power, right or remedy. The rights and remedies herein provided shall be cumulative and nonexclusive of any rights or remedies provided by law. Any waiver of this Agreement shall be effective only in the specific instance and for the specific purpose for which given. (a) No provision of this Agreement may be amended, supplemented, modified or waived except in writing signed by all Originators and Buyer and, to the extent required under the Purchase Agreement, the Agent and the Financial Institutions or the Required Financial Institutions. (b) (i) Section Notices . Except as provided below, all communications and notices provided for hereunder shall be in writing (including bank wire, telecopy or electronic facsimile transmission or similar writing) and shall be given to the other parties hereto at their respective addresses or telecopy numbers set forth on the signature pages hereof or at such other address or telecopy number as such Person may hereafter specify for the purpose of notice to each of the other parties hereto. Each such notice or other communication shall be effective if given by telecopy, upon the receipt thereof, if given by mail, three (3) Business Days after the time such communication is deposited in the mail with first class postage prepaid or if given by any other means, when received at the address specified in this Section 8.2. (ii) (c) Section Protection of Ownership Interests of Buyer . Each Originator agrees that from time to time, at its expense, it will promptly execute and deliver all instruments and documents, and take all actions, that may be necessary or desirable, or that Buyer (or its assigns) may request, to perfect, protect or more fully evidence the Purchaser Interests, or to enable Buyer (or its assigns) to exercise and enforce their rights and remedies hereunder. At any time during the continuance of an Amortization Event, Buyer (or its assigns) may, at the Originator's sole cost and expense, direct an Originator to notify the Obligors of Receivables of the ownership interests of Buyer under this Agreement and may also direct that payments of all amounts due or that become due under any or all Receivables be made directly to Buyer or its designee. (d) (e) If any Originator fails to perform any of its obligations hereunder, Buyer (or its assigns) may (but shall not be required to) perform, or cause performance of, such obligation, and Buyer's (or such assigns') costs and expenses incurred in connection therewith shall be payable by such Originator as provided in Section 7.2. Each Originator irrevocably authorizes Buyer (and its assigns) at any time and from time to time in the sole discretion of Buyer (or its assigns), and appoints Buyer (and its assigns) as its attorney(es)-in-fact, to act on behalf of the Originator (i) to execute on behalf of the Originator as debtor and to file financing statements necessary or desirable in Buyer's (or its assigns') sole discretion to perfect and to maintain the perfection and priority of the interest of Buyer in the Receivables and (ii) to file a carbon, photographic or other reproduction of this Agreement or any financing statement with respect to the Receivables as a financing statement in such offices as Buyer (or its assigns) in their sole discretion deem necessary or desirable to perfect and to maintain the perfection and priority of Buyer's interests in the Receivables. This appointment is coupled with an interest and is irrevocable. (f) (g) Section Confidentiality . Each Originator shall maintain and shall cause each of its respective employees and officers to maintain the confidentiality of this Agreement and the other confidential proprietary information with respect to the Agent and the Conduits and their respective businesses obtained by it or them in connection with the structuring, negotiating and execution of the transactions contemplated herein, except that such Originator and its officers and employees may disclose such information to such Originator's external accountants and attorneys and as required by any applicable law or order of any judicial or administrative proceeding. (h) (i) In the event that any Originator provides to Buyer, the Agent or any Purchaser information belonging to such Originator, Buyer, the Agent and the Purchasers shall thereafter maintain such information in confidence in accordance with the standards of care and diligence that each utilizes in maintaining its own confidential information. This obligation of confidence shall not apply to such portions of the information which (i) are disclosed to Buyer, the Agent, the Financial Institutions or Conduits by each other, (ii) are disclosed by Buyer, the Agent or the Purchasers to any prospective or actual assignee or participant of any of them, (iii) are disclosed by the Agent to any rating agency, Commercial Paper dealer or provider of a surety, guaranty or credit or liquidity enhancement to Conduits or any entity organized for the purpose of purchasing, or making loans secured by, financial assets for which Bank One acts as the administrative agent and to any officers, directors, employees, outside accountants and attorneys of any of the foregoing, (iv) are in the public domain, (v) hereafter become part of the public domain without Buyer, the Agent or the Purchasers breaching their obligation of confidence to such Originator, (vi) are previously known by Buyer, the Agent or the Purchasers from some source other than such Originator, (vii) are hereafter obtained by or available to Buyer, the Agent or the Purchasers from a third party who owes no obligation of confidence to such Originator with respect to such information or through any other means other than through disclosure by such Originator, (viii) are disclosed with such Originators consent, (ix) must be disclosed to any Governmental Authority regulating the activities of Buyer, the Agent or the Purchasers, or (x) as may be required by law or regulation or order of any Governmental Authority in any judicial, arbitration or governmental proceeding. (j) 1.2 Section Bankruptcy Petition . Each Originator and each Buyer hereby covenants and agrees that, prior to the date that is one year and one day after the payment in full of all outstanding senior Indebtedness of each Conduit, it will not institute against, or join any other Person in instituting against, such Conduit any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceeding under the laws of the United States or any state of the United States. 1.3 1.4 Section CHOICE OF LAW . ALL PROVISIONS OF THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF TEXAS. 1.5 1.6 Section CONSENT TO JURISDICTION . EACH ORIGINATOR HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR ILLINOIS STATE COURT SITTING IN CHICAGO, ILLINOIS IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY DOCUMENT EXECUTED BY SUCH ORIGINATOR PURSUANT TO THIS AGREEMENT AND EACH ORIGINATOR HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF BUYER (OR ITS ASSIGNS) TO BRING PROCEEDINGS AGAINST ANY OR ALL OF THE ORIGINATORS IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY ANY ORIGINATOR AGAINST BUYER (OR ITS ASSIGNS) OR ANY AFFILIATE THEREOF INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT OR ANY DOCUMENT EXECUTED BY SUCH ORIGINATOR PURSUANT TO THIS AGREEMENT SHALL BE BROUGHT ONLY IN A COURT IN CHICAGO, ILLINOIS. 1.7 1.8 Section WAIVER OF JURY TRIAL . EACH PARTY HERETO HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT, ANY DOCUMENT EXECUTED BY SUCH ORIGINATOR PURSUANT TO THIS AGREEMENT OR THE RELATIONSHIP ESTABLISHED HEREUNDER OR THEREUNDER. 1.9 1.10 Section Integration; Binding Effect; Survival of Terms . 1.11 (a) This Agreement, the Subordinated Note, the Subscription Agreement and each Collection Account Agreement contain the final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and shall constitute the entire agreement among the parties hereto with respect to the subject matter hereof superseding all prior oral or written understandings. (b) (c) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns (including any trustee in bank ruptcy). This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms and shall remain in full force and effect until terminated in accordance with its terms; provided, however, that the rights and remedies with respect to (i) any breach of any representation and warranty made by the Originators pursuant to Article II, (ii) the indemnification and payment provisions of Article VII, and Section 8.5 shall be continuing and shall survive any termination of this Agreement. (d) 1.12 Section Counterparts; Severability; Section References . This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same Agreement. Any provisions of this Agreement which are prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Unless otherwise expressly indicated, all references herein to "Article," "Section," "Schedule" or "Exhibit" shall mean articles and sections of, and schedules and exhibits to, this Agreement. 1.13 * * * * * IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their duly authorized officers as of the date hereof. K N ENERGY, INC. By:/s/ Rose M. Robeson Title: Vice President and Treasurer Address:370 Van Gordon Street Lakewood, CO 80228 KN RECEIVABLES CORPORATION By: /s/ Rose M. Robeson Title: Vice President and Treasurer Address:One Allen Center 500 Dallas, Suite 1000 Houston, TX 77002 Exhibit I Definitions This is Exhibit I to the Agreement (as hereinafter defined). As used in the Agreement and the Exhibits, Schedules and Annexes thereto, capitalized terms have the meanings set forth in this Exhibit I (such meanings to be equally applicable to the singular and plural forms thereof). If a capitalized term is used in the Agreement, or any Exhibit, Schedule or Annex thereto, and not otherwise defined therein or in this Exhibit I, such term shall have the meaning assigned thereto in Exhibit I to the Purchase Agreement. "Additional Originator Closing Date" means, as to any Person, the first date upon which such Person becomes an Additional Originator hereunder pursuant to Section 1.8 of this Agreement. "Additional Originator" means each Person who becomes a party to this Agreement from time to time for the purpose of selling its Receivables to Buyer pursuant to Section 1.8 and who has not ceased to be a party to the Agreement and the Purchase Agreement pursuant to Section 1.9 of this Agreement. "Agent" has the meaning set forth in the Preliminary Statements to the Agreement. "Agreement" means the Receivables Sale Agreement dated as of September 28, 1999, between Originator and Buyer, as the same may be amended, restated or otherwise modified. "Aggregate Reserves" has the definition set forth in the Purchase Agreement. "Amortization Date" means the earliest to occur of (i) the Facility Termination Date, (ii) any Business Day so designated by Originator or Buyer, and (ii) the Business Day immediately prior to the occurrence of an Amortization Event set forth in Section 6.1(d), (iii) the Business Day specified in a written notice from Buyer to Originator following the occurrence of any other Amortization Event, and (iv) the date which is 60 Business Days after Buyer's receipt of written notice from Originator that it wishes to terminate the facility evidenced by this Agreement. "Amortization Event" has the meaning set forth in Section 6.1 of the Agreement. "Authorized Officer" means, with respect to each Originator, its corporate controller or chief financial officer. "Base Rate" means a rate per annum equal to the corporate base rate, prime rate or base rate of interest, as applicable, announced by the Reference Bank from time to time, changing when and as such rate changes. "Business Day" means any day on which banks are not authorized or required to close in New York, New York or Chicago, Illinois and The Depository Trust Company of New York is open for business. "Buyer" has the meaning set forth in the preamble to the Agreement. "Buyer Payment" means any payment from Buyer of the Purchase Price for Receivables or any payment by Buyer of any amount owed in respect of Subordinated Loans. "Calculation Period" means each calendar month or portion thereof which elapses during the term of the Agreement. The first Calculation Period shall commence on the date of the Purchase of Receivables hereunder and the final Calculation Period shall terminate on the Amortization Date. "Change of Control" means the acquisition by any Person, or two or more Persons acting in concert, of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of 30% or more of the outstanding shares of voting stock of KNEI. "Collection Account" means each concentration account, depositary account, lock-box account or similar account in which any Collections are collected or deposited that is subject to a Collection Agreement. "Collection Agreement" means, in the case of any actual or proposed Collection Account, an agreement in substantially the form of Exhibit VI hereto. "Collections" means, with respect to any Receivable, all cash collections and other cash proceeds in respect of such Receivable, including, without limitation, all cash proceeds of Related Security with respect to such Receivable and all Deemed Collections. "Continuing Eligible Receivable" means, as of any date of determination, a Receivable that (i) as of the date on which it was sold to Buyer under the Agreement, met all eligibility criteria in the definition of "Eligible Receivable" and (ii) as of such date of determination, meets all eligibility criteria in the definition of "Eligible Receivable." "Credit and Collection Policy" means the applicable Originator's credit and collection policies and practices relating to Contracts and Receivables existing on the date hereof and summarized in Exhibit V, as modified from time to time in accordance with the Agreement. "Deemed Collections" means the aggregate of all amounts that Buyer shall be entitled to receive a Purchase Price Credit for pursuant to Section 1.3 herein. "Default Fee" means a per annum rate of interest equal to the sum of (i) the Base Rate, plus (ii) 2% per annum, it being understood that a Default Fee shall not accrue on a Receivable by reason of such Receivable becoming a Defaulted Receivable. "Defaulted Receivable" means a Receivable: (i) as to which the Originator thereof has taken any action, or suffered any event to occur, of the type described in Section 6.1(e); (ii) as to which the Originator thereof, if a natural person, is deceased, (iii) which, consistent with the Credit and Collection Policy, would be written off Originator's books as uncollectible, (iv) which has been identified by Originator as uncollectible in accordance with the Credit and Collection Policy or (v) as to which any payment, or part thereof, remains unpaid for sixty-one (61) days or more from the original due date for such payment. "Delinquent Receivable" means a Receivable as to which any payment, or part thereof, remains unpaid for thirty-one (31) days or more from the original due date for such payment. "Dilutions" means, at any time, the aggregate amount of reductions in the Outstanding Balances of the Receivables as a result of any setoff, discount, rebate, trade-in credit, credit memo, inter-company entry, adjustment or otherwise, other than (i) cash Collections on account of the Receivables and (ii) charge-offs. "Discount Factor" means a percentage calculated to provide Buyer with a reasonable return on its investment in the Receivables after taking account of (i) the time value of money based upon the anticipated dates of collection of the Receivables and the cost to Buyer of financing its investment in the Receivables during such period and (ii) the risk of nonpayment by the Obligors. The Originators and Buyer may agree from time to time to change the Discount Factor based on changes in one or more of the items affecting the calculation thereof, provided that any change to the Discount Factor shall take effect as of the commencement of a Calculation Period, shall apply only prospectively and shall not affect the Purchase Price payment in respect of Purchase which occurred during any Calculation Period ending prior to the Calculation Period during which the Originators and Buyer agree to make such change. "Eligible Receivable" has the meaning set forth in the Purchase Agreement. "FALCON" has the meaning set forth in the Preliminary Statements to the Agreement. "Federal Bankruptcy Code" means Title 11 of the United States Code entitled "Bankruptcy", as amended and any successor statute thereto. "Initial Cutoff Date" has the meaning set forth in Section 1.2(a) hereof. "Intended Tax Characterization" means, for income tax purposes, the characterization of the acquisition by the Purchasers of Purchaser Interests under the Purchase Agreement as a loan or loans by the Purchasers to Buyer secured by the Receivables, the Related Security and the Collections. "ISC" has the meaning set forth in the Preliminary Statements to the Agreement. "KNEI" means K N Energy, Inc., a Kansas corporation, and its successors. "Material Adverse Effect" means a material adverse effect on (i) the financial condition or operations of the applicable Originator and its Subsidiaries, (ii) the ability of the applicable Originator to perform its obligations under the Agreement or any other Transaction Document, (iii) the legality, validity or enforceability of the Agreement or any other Transaction Document, (iv) the applicable Originator's, Buyer's, the Agent's or any Purchaser's interest in the Receivables generally or in any significant portion of the Receivables, the Related Security or Collections with respect thereto, or (v) the collectibility of the Receivables generally or of any material portion of the Receivables. "Material Debt" has the meaning set forth in the Receivables Purchase Agreement "Material Financial Obligations" has the meaning set forth in the Receivables Purchase Agreement. "Material Subsidiary" has the meaning set forth in the Receivables Purchase Agreement. "Net Worth" means as of the last Business Day of each Calculation Period preceding any date of determination, the excess, if any, of (a) the aggregate Outstanding Balance of the Receivables at such time, over (b) the sum of (i) the aggregate Capital outstanding at such time, plus (ii) the aggregate outstanding principal balance of the Subordinated Loans (including any Subordinated Loan proposed to be made on the date of determination). "Original Balance" means, with respect to any Receivable, the Outstanding Balance of such Receivable on the date it was purchased by Buyer. "Originator" has the meaning set forth in the preamble to the Agreement. "Potential Amortization Event" means an event which, with the passage of time or the giving of notice, or both, would constitute an Amortization Event. "Purchase" means the purchase under the Agreement by Buyer from Originator of the Receivables, the Related Security and the Collections related thereto, together with all related rights in connection therewith. "Purchase Agreement" has the meaning set forth in the Preliminary Statements to the Agreement. "Purchase Price" means, with respect to any Purchase on any date, the aggregate price to be paid by Buyer to an Originator for such Purchase in accordance with Section 1.2 of the Agreement for the Receivables, Collections and Related Security being sold to Buyer on such date, which price shall equal (i) the product of (x) the Original Balance of such Receivables, multiplied by (y) one minus the Discount Factor then in effect, minus (ii) any Purchase Price Credits to be credited against the Purchase Price otherwise payable in accordance with Section 1.3 of the Agreement. "Purchase Price Credit" has the meaning set forth in Section 1.3 of the Agreement. "Purchased Receivables" means, collectively, all Receivables existing on the date of the Purchase hereunder, and all Receivables arising thereafter through and including the Amortization Date, all Related Security associated therewith, all Collections in respect of any Receivables or any Related Security, all proceeds of the foregoing, and all Collection Accounts and all balances, checks, money orders and other instruments from time to time therein, which in each case have been sold to Buyer hereunder. "Purchaser" has the meaning set forth in the Purchase Agreement. "Receivable" means all accounts (as defined in Article 9.106 of the UCC) owed to an Originator (without giving effect to any transfer or conveyance under the Agreement) or Buyer (after giving effect to the transfers under the Agreement) constituting an account under Article 9.102 of the UCC arising in connection with the sale or the rendering of services by such Originator and includes, without limitation, the obligation to pay any Finance Charges with respect thereto. Indebtedness and other rights and obligations arising from any one transaction, including, without limitation, indebtedness and other rights and obligations represented by an individual invoice, shall constitute a Receivable separate from a Receivable consisting of the indebtedness and other rights and obligations arising from any other transaction. "Related Security" means, with respect to any Receivable: (i) all of each Originator's interest in inventory and goods (including returned or repossessed inventory or goods), if any, the financing of which by such Originator gave rise to such Receivable, and all insurance contracts with respect thereto, (i) all other security interests or liens and property subject thereto from time to time, if any, purporting to secure payment of such Receivable, whether pursuant to the Contract related to such Receivable or otherwise, together with all financing statements and security agreements describing any collateral securing such Receivable, (i) all guaranties, insurance and other agreements or arrangements of whatever character from time to time supporting or securing payment of such Receivable whether pursuant to the Contract related to such Receivable or otherwise, (i) all service contracts and other contracts and agreements associated with such Receivable, (i) all Records related to such Receivable, and (i) all proceeds of any of the foregoing. "Required Capital Amount" means the greater of (i) $4,500,000 and (ii) 3% of the Net Receivables Balance at such time. "Settlement Date" means the 22nd day of each calendar month. "Subordinated Loan" has the meaning set forth in Section 1.2(a) of the Agreement. "Subordinated Note" means a promissory note in substantially the form of Exhibit VIII hereto as more fully described in Section 1.2 of the Agreement, as the same may be amended, restated, supplemented or otherwise modified from time to time. "Subscription Agreement" means that certain Stockholder and Subscription Agreement, dated as of September 28, 1999, between KNEI and Buyer, substantially in the form of Exhibit VII hereto. "Subsidiary" of a Person means (i) any corporation more than 50% of the outstanding securities having ordinary voting power of which shall at the time be owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries, or (ii) any partnership, association, limited liability company, joint venture or similar business organization more than 50% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. "Transaction Documents" means, collectively, this Agreement, the Purchase Agreement, each Collection Account Agreement, the Subordinated Note, the Subscription Agreement and all other instruments, documents and agreements executed and delivered in connection herewith. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles. All terms used in Article 9 of the UCC in the State of Texas, and not specifically defined herein, are used herein as defined in such Article 9. Exhibit II Places of Business; Locations of Records; Federal Employer Identification Number(s); Other Names Places of Business: One Allen Center 500 Dallas Street, Suite 1000 Houston, TX 77002 Locations of Records: (a) Same as above (b) 370 Van Gordon Street Lakewood, CO 80228 Federal Employer Identification Number: Corporate, Partnership Trade and Assumed Names: Exhibit III Lock-boxes; Collection Accounts; Collection Banks Exhibit IV Form of Compliance Certificate This Compliance Certificate is furnished pursuant to that certain Receivables Sale Agreement dated as of September 28, 1999, between K N Energy, Inc. and the Additional Originators specified therein, ("Originators") and KN Receivables Corporation (the "Agreement"). Capitalized terms used and not otherwise defined herein are used with the meanings attributed thereto in the Agreement. THE UNDERSIGNED HEREBY CERTIFIES THAT: 1. I am the duly elected ______________ of Originator. 2. I have reviewed the terms of the Agreement and I have made, or have caused to be made under my supervision, a detailed review of the transactions and conditions of Originator and its Subsidiaries during the accounting period covered by the attached financial statements. 3. The examinations described in paragraph 2 did not disclose, and I have no knowledge of, the existence of any condition or event which constitutes an Amortization Event or a Potential Amortization Event, as each such term is defined under the Agreement, during or at the end of the accounting period covered by the attached financial statements or as of the date of this Certificate, except as set forth below. 4. Described below are the exceptions, if any, to paragraph 3 by listing, in detail, the nature of the condition or event, the period during which it has existed and the action which Originator has taken, is taking, or proposes to take with respect to each such condition or event: The foregoing certifications, together with the computations set forth in Schedule I hereto and the financial statements delivered with this Certificate in support hereof, are made and delivered this day of , 19__. ______________________________ [Name] Exhibit V Credit and Collection Policy Exhibit VI Form of Subscription Agreement STOCKHOLDER AND SUBSCRIPTION AGREEMENT THIS STOCKHOLDER AND SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of September 28, 1999, is entered into by and between KN Receivables Corporation, a Delaware corporation, ("SPV") and K N Energy, INC., a Kansas corporation ("Parent"). Except as otherwise specifically provided herein, capitalized terms used in this Agreement have the meanings ascribed thereto in the Receivables Sale Agreement, dated as of even date herewith, between SPV and Parent (as amended, restated, supplemented or otherwise modified from time to time, the "Sale Agreement"). RECITALS A. SPV has been organized under the laws of the State of Delaware for the purpose of, among other things, purchasing, holding, financing, receiving and transferring accounts receivable and related assets originated or otherwise held by Parent and/or its Subsidiaries. B. Contemporaneously with the execution and delivery of this Agreement: (i) Parent, various Additional Originators and SPV have entered into the Sale Agreement pursuant to which Parent and such Additional Originators have, from and after the Purchase date thereunder and prior to the termination date specified therein, sold all of their Receivables, Collections and Related Security to SPV; and (ii) SPV, Parent, as Servicer, certain financial institutions party thereto as "Purchasers," and Bank One, NA, as the "Agent," have entered into a Receivables Purchase Agreement (as amended, restated, supplemented or otherwise modified from time to time, the "Purchase Agreement") pursuant to which SPV will sell "Purchaser Interests" to the Agent for the benefit of the Purchasers. C. SPV desires to sell shares of its capital stock to Parent, and Parent desires to purchase such shares, on the terms set forth in this Agreement. 3 NOW, THEREFORE, SPV and Parent agree as follows: 1. Section Purchase and Sale of Capital Stock. Parent hereby purchases from SPV, and SPV hereby sells to Parent, 1,000 shares of common stock, par value $1.00 per share, of SPV (the "Common Stock") for the Stock Purchase Price set forth in Section 2(a). The shares of Common Stock being purchased under this Agreement are referred to herein as the "Shares." Within three (3) Business Days from the date hereof, SPV shall deliver to Parent a certificate registered in Parent's name representing the Shares. 2. 3. Section Consideration for Shares and Capital Contributions. 4. (a) Consideration for Shares. To induce SPV to enter into the Sale Agreement and to enable SPV to fund its obligations thereunder by consummating the transactions contemplated by the Purchase Agreement, and in reliance upon the representations and warranties set forth herein, Parent hereby pays to SPV on the date hereof the sum of $1,000 (the "Stock Purchase Price") in consideration of the purchase of the Shares. The Stock Purchase Price shall take the form of a transfer of cash, except that Parent may, in lieu of cash payment of the Stock Purchase Price, offset the amount of the Stock Purchase Price against the purchase price otherwise payable by SPV to Parent on the Purchase date pursuant to the Sale Agreement. (b) (c) Contributions After Initial Closing Date. From time to time Parent may make additional capital contributions to SPV. All such contributions shall take the form of a cash transfer, except that SPV agrees to, in lieu of cash payment thereof, offset the amount of such contributions against the purchase price for Receivables otherwise payable by SPV to Parent on the date of such capital contributions. All of the Receivables so paid for through such offset shall constitute purchased Receivables within the meaning of the Sale Agreement and shall be subject to all of the representations, warranties and indemnities otherwise made thereunder. It is expressly understood and agreed that Parent has no obligations under this Agreement or otherwise to make any capital contributions from and after payment of the Stock Purchase Price. (d) 5. Section Representations and Warranties of SPV. SPV represents and warrants to Parent as follows: 6. (a) SPV is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, and has all requisite corporate power and authority to carry on its business as proposed to be conducted on the date hereof. (b) (c) SPV has all requisite legal and corporate power to enter into this Agreement, to issue the Shares and to perform its other obligations under this Agreement. (d) (e) Upon receipt by SPV of the Stock Purchase Price and the issuance of the Shares to Parent, the Shares will be duly authorized, validly issued, fully paid and nonassessable. (f) (g) SPV has taken all corporate action necessary for its authorization, execution and delivery of, and, its performance under, this Agreement. (h) (i) This Agreement constitutes a legally valid and binding obligation of SPV, enforceable against SPV in accordance with its terms, except that enforceability may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and by general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law. (j) (k) SPV has filed its Certificate of Incorporation in the form attached hereto as Annex A with the Secretary of State of Delaware and (ii) adopted By-laws in the form attached hereto as Annex B. (l) (m) The issuance of the Shares by SPV hereunder is legally permitted by all laws and regulations to which SPV is subject. (n) 7. Section Representations and Warranties of Parent. Parent represents and warrants to SPV as follows: 8. (a) Parent is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Kansas, and has all requisite corporate power and authority to carry on its business as conducted on the date hereof. (b) (c) Parent has all requisite legal and corporate power to enter into this Agreement, to purchase the Shares and to perform its other obligations under this Agreement. (d) (e) Parent has taken all corporate action necessary for its authorization, execution and delivery of, and its performance under, this Agreement. (f) (g) This Agreement constitutes a legally valid and binding obligation of Parent, enforceable against Parent in accordance with its terms, except that enforceability may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and by general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law. (h) (i) Parent is purchasing the Shares for investment for its own account, not as a nominee or agent, and not with a view to any distribution of any part thereof. Parent has no current intention of selling, granting a participation in, or otherwise distributing, the shares. (j) (k) Parent understands that the Shares have not been registered under the Securities Act of 1933, as amended, or under any other Federal or state law, and that SPV does not contemplate such a registration. (l) (m) Parent has such knowledge, sophistication and experience in financial and business matters that it is capable of evaluating the merits and risks of the transactions contemplated by this Agreement, and has made such investigations in connection herewith as have been deemed necessary or desirable to make such evaluation. (n) (o) The purchase of the Shares by Parent is legally permitted by all laws and regulations to which Parent is subject. (p) 9. Section Restrictions on Transfer Imposed by the Act; Legend. 10. (a) Legend. Each certificate representing any Shares shall be endorsed with the following legend: (b) THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE NOT REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES ACT. SUCH SECURITIES SHALL NOT BE SOLD, PLEDGED, HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED OR DISPOSED OF ABSENT SUCH REGISTRATION, UNLESS, IN THE OPINION OF THE CORPORATION'S COUNSEL, SUCH REGISTRATION IS NOT REQUIRED. IN ADDITION, THESE SECURITIES HAVE BEEN ISSUED OR SOLD IN RELIANCE ON SECTION 4(2) OF THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER SUCH ACT OR PURSUANT TO AN EFFECTIVE REGISTRATION UNDER SUCH ACT. (a) Registration of Transfers. SPV need not register a transfer of any Shares unless the conditions specified in the legend set forth in Section 5(a) hereof are satisfied. SPV may also instruct its transfer agent (which may be SPV) not to register the transfer of any Shares unless the conditions specified in the legend set forth in Section 5(a) hereof are satisfied. (b) 2. Section Agreement to Vote. Parent hereby agrees and covenants to vote all of the shares of Common Stock now or hereafter owned by it, whether beneficially or otherwise, as is necessary at a meeting of stockholders of SPV, or by written consent in lieu of any such meeting, to cause to be elected to, and maintained on, SPV's board of directors at least one (1) person meeting the qualifications of an Independent Director and selected in accordance with the provisions of the Certificate of Incorporation and By-Laws of SPV. 3. 4. Section Successors and Assigns. Each party agrees that it will not assign, sell, transfer, delegate, or otherwise dispose of, whether voluntarily or involuntarily, or by operation of law, any right or obligation under this Agreement except in connection with a transfer of Shares in compliance with the terms and conditions hereof, as contemplated by Section 5(b) above, or otherwise in accordance with the terms hereof. Any purported assignment, transfer or delegation in violation of this Section 7 shall be null and void ab initio. Subject to the foregoing limits on assignment and delegation and except as otherwise provided herein, this Agreement shall be binding upon and inure to the benefit of the parties hereto, their respective heirs, legatees, executors, administrators, assignees and legal successors. 5. 6. Section Amendments and Waivers. Any term hereof may be amended and the observance of any term hereof may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of SPV and Parent. Any amendment or waiver so effected shall be binding upon SPV and Parent. 7. 8. Section Further Acts. Each party agrees to perform any further acts and execute and deliver any document which may be reasonably necessary to carry out the provisions of this Agreement. 9. 10. Section Counterparts. This Agreement may be executed in any number of counterparts, and all of such counterparts together will be deemed one instrument. 11. 12. Section Notices. Any and all notices, acceptances, statements and other communications to Parent in connection herewith shall be in writing, delivered personally, by facsimile or certified mail, return receipt requested, and shall be addressed to the address of Parent indicated on the stock transfer register of SPV or, if no address is so indicated, to the address provided to SPV pursuant to the Sale Agreement unless changed by written notice to SPV or its successor. 13. 14. Section GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF ILLINOIS, EXCEPT AND TO THE EXTENT THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE IS APPLICABLE. 15. 16. Section Entire Agreement. This Agreement, together with the Sale Agreement and the documents expressly to be delivered in connection therewith, constitute the entire understanding and agreement between the parties hereto with subject matter hereof and thereof. 17. 18. Section Severability of this Agreement. In case any provision of this Agreement shall be invalid or unenforceable, the validity, legality and enforceability of the remaining shall not in any way be affected or impaired thereby. 19. IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first above written. 1. 2. 1. KN RECEIVABLES CORPORATION By: Name: Title: K N ENERGY, INC. By: Name: Title: ANNEX A to Subscription Agreement Certificate of Incorporation Annex B to Subscription Agreement By-Laws Exhibit VII Form of Subordinated Note SUBORDINATED NOTE ______________, 1999 1. Note. FOR VALUE RECEIVED, the undersigned, KN Receivables Corporation, a Delaware corporation ("SPV"), hereby unconditionally promises to pay to the order of K N Energy, Inc., a Kansas corporation ("Lender"), in lawful money of the United States of America and in immediately available funds, on the date following the Amortization Date which is one year and one day after the date on which (i) the Outstanding Balance of all Receivables (other than Receivables which are uncollectible on account of insolvency, bankruptcy or lack of creditworthiness of the related Obligor) sold under the "Sale Agreement" referred to below has been reduced to zero and (ii) Lender and each other Originator under the Sale Agreement has paid to Buyer all indemnities, adjustments and other amounts which may be owed thereunder in connection with the Purchases (the "Collection Date"), the aggregate unpaid principal sum outstanding of all "Subordinated Loans" made from time to time by Lender to SPV pursuant to and in accordance with the terms of that certain Receivables Sale Agreement dated as of September 28, 1999 between the Lender and other Originators and SPV (as amended, restated, supplemented or otherwise modified from time to time, the "Sale Agreement"). Reference to Section 1.2 of the Sale Agreement is hereby made for a statement of the terms and conditions under which the loans evidenced hereby have been and will be made. All terms which are capitalized and used herein and which are not otherwise specifically defined herein shall have the meanings ascribed to such terms in the Sale Agreement. 2. Interest. SPV further promises to pay interest on the outstanding unpaid principal amount hereof from the date hereof until payment in full hereof at a rate equal to the Base Rate; provided, however, that if SPV shall default in the payment of any principal hereof, SPV promises to pay, on demand, interest at the rate of the Base Rate plus 2.00% per annum on any such unpaid amounts, from the date such payment is due to the date of actual payment. Interest shall be payable on the first Business Day of each month in arrears; provided, however, that SPV may elect on the date any interest payment is due hereunder to defer such payment and upon such election the amount of interest due but unpaid on such date shall constitute principal under this Subordinated Note. The outstanding principal of any loan made under this Subordinated Note shall be due and payable on the Collection Date and may be repaid or prepaid at any time without premium or penalty. 3. Principal Payments. Lender is authorized and directed by SPV to enter on the grid attached hereto, or, at its option, in its books and records, the date and amount of each loan made by it which is evidenced by this Subordinated Note and the amount of each payment of principal made by SPV, and absent manifest error, such entries shall constitute prima facie evidence of the accuracy of the information so entered; provided that neither the failure of Lender to make any such entry or any error therein shall expand, limit or affect the obligations of SPV hereunder. 4. Subordination. The indebtedness evidenced by this Subordinated Note is subordinated to the prior payment in full of all of SPV's recourse obligations under that certain Receivables Purchase Agreement dated as of September 28, 1999 by and among SPV, various "Purchasers" from time to time party thereto, and Bank One, NA, as the "Agent" (as amended, restated, supplemented or otherwise modified from time to time, the "Purchase Agreement"). The subordination provisions contained herein are for the direct benefit of, and may be enforced by, the Agent and the Purchasers and/or any of their respective assignees (collectively, the "Senior Claimants") under the Purchase Agreement. Until the date on which all "Capital" outstanding under the Purchase Agreement has been repaid in full and all other obligations of SPV and/or the Servicer thereunder and under the "Fee Letter" referenced therein (all such obligations, collectively, the "Senior Claim") have been indefeasibly paid and satisfied in full, Lender shall not demand, accelerate, sue for, take, receive or accept from SPV, directly or indirectly, in cash or other property or by set-off or any other manner (including, without limitation, from or by way of collateral) any payment or security of all or any of the indebtedness under this Subordinated Note or exercise any remedies or take any action or proceeding to enforce the same; provided, however, that (i) Lender hereby agrees that it will not institute against SPV any proceeding of the type described in Section 5.1(d) of the Sale Agreement unless and until the Collection Date has occurred and (ii) nothing in this paragraph shall restrict SPV from paying, or Lender from requesting, any payments under this Subordinated Note so long as SPV is not required under the Purchase Agreement to set aside for the benefit of, or otherwise pay over to, the funds used for such payments to any of the Senior Claimants pursuant to the Purchase Agreement and further provided that the making of such payment would not otherwise violate the terms and provisions of the Purchase Agreement. Should any payment, distribution or security or proceeds thereof be received by Lender in violation of the immediately preceding sentence, Lender agrees that such payment shall be segregated, received and held in trust for the benefit of, and deemed to be the property of, and shall be immediately paid over and delivered to the Agent for the benefit of the Senior Claimants. 5. Bankruptcy; Insolvency. Upon the occurrence of any proceeding of the type described in Section 5.1(d) of the Sale Agreement involving SPV as debtor, then and in any such event the Senior Claimants shall receive payment in full of all amounts due or to become due on or in respect of Capital and the Senior Claim (including "CP Costs" and "Yield" as defined and as accruing under the Purchase Agreement after the commencement of any such proceeding, whether or not any or all of such CP Costs or Yield is an allowable claim in any such proceeding) before Lender is entitled to receive payment on account of this Subordinated Note, and to that end, any payment or distribution of assets of SPV of any kind or character, whether in cash, securities or other property, in any applicable insolvency proceeding, which would otherwise be payable to or deliverable upon or with respect to any or all indebtedness under this Subordinated Note, is hereby assigned to and shall be paid or delivered by the Person making such payment or delivery (whether a trustee in bankruptcy, a receiver, custodian or liquidating trustee or otherwise) directly to the Agent for application to, or as collateral for the payment of, the Senior Claim until such Senior Claim shall have been paid in full and satisfied. 6. Amendments. This Subordinated Note shall not be amended or modified except in accordance with Section 7.1 of the Sale Agreement. The terms of this Subordinated Note may not be amended or otherwise modified without the prior written consent of the Agent for the benefit of the Purchasers. 7. GOVERNING LAW. THIS SUBORDINATED NOTE HAS BEEN MADE AND DELIVERED AT CHICAGO, ILLINOIS, AND SHALL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE LAWS AND DECISIONS OF THE STATE OF ILLINOIS. WHEREVER POSSIBLE EACH PROVISION OF THIS SUBORDINATED NOTE SHALL BE INTERPRETED IN SUCH MANNER AS TO BE EFFECTIVE AND VALID UNDER APPLICABLE LAW, BUT IF ANY PROVISION OF THIS SUBORDINATED NOTE SHALL BE PROHIBITED BY OR INVALID UNDER APPLICABLE LAW, SUCH PROVISION SHALL BE INEFFECTIVE TO THE EXTENT OF SUCH PROHIBITION OR INVALIDITY, WITHOUT INVALIDATING THE REMAINDER OF SUCH PROVISION OR THE REMAINING PROVISIONS OF THIS SUBORDINATED NOTE. 8. Waivers. All parties hereto, whether as makers, endorsers, or otherwise, severally waive presentment for payment, demand, protest and notice of dishonor. Lender additionally expressly waives all notice of the acceptance by any Senior Claimant of the subordination and other provisions of this Subordinated Note and expressly waives reliance by any Senior Claimant upon the subordination and other provisions herein provided. 9. Assignment. This Subordinated Note may not be assigned, pledged or otherwise transferred to any party other than Lender without the prior written consent of the Agent, and any such attempted transfer shall be void. 10. Sharing of Amounts Received Pursuant to Subordinated Note. Lender will share all amounts received pursuant to this Subordinated Note in accordance with Section 1.5 of the Sale Agreement. KN RECEIVABLES CORPORATION By:_____________________________ Title: Schedule to SUBORDINATED NOTE SUBORDINATED LOANS AND PAYMENTS OF PRINCIPAL Amount Amount of of Unpaid Subordinated Principal Principal Notation Date Loan Paid Balance made by EXHIBIT VIII FORM OF JOINDER SUPPLEMENT JOINDER SUPPLEMENT (the "Company"), a , hereby joins in the Receivables Sale Agreement ("Sale Agreement"), dated as of __________, by and between K N Energy, Inc., certain other originators as specified therein and KN Receivables Corporation (as amended, restated, supplemented or otherwise modified from time to time). Except as otherwise specifically provided herein, capitalized terms used in this joinder have the meanings ascribed thereto in the Sale Agreement. The Company agrees to be bound by the terms of, and to perform all of the obligations of an Originator and Additional Originator under, the Sale Agreement and all related agreements. For purposes of the Sale Agreement, the Company's chief executive office, address for notices, primary location of records, Collection Accounts and Federal Employer Identification Number are as set forth below. In the past five years, the Company has not used any corporate names, trade names or assumed names other than those set forth below. The "Additional Originator Closing Date" for the Company shall be _________________, ______. Dated: --------------------------- By: Its: Chief Executive Office: Address for Notices: Primary Location of Records: Federal Employer Identification Num- ber: Collection Accounts: Trade/Assumed Names: Acknowledged and agreed to this _____ day of ___________, 1999 that the Performance Guaranty will apply to obligations of this Additional Originator. K N ENERGY, INC., as Performance Guarantor By:___________________________________ Name: Title: Address: EXHIBIT IX FORM OF PERFORMANCE GUARANTY PERFORMANCE GUARANTY This Performance Guaranty (the "Guaranty"), dated as of , 1999 is executed by K N Energy, Inc. (the "Performance Guarantor") in favor of the Beneficiaries defined below. Recitals The Performance Guarantor and the Additional Originators as specified and defined therein (each an "Originator", collectively "Originators") have entered into a Receivables Sale Agreement with KN Receivables Corporation ("KRC") dated as of September 28, 1999 (as amended, modified, renewed or extended and in effect from time to time, the "Sale Agreement"), pursuant to which the Originators, subject to the terms and conditions contained therein, are selling their respective rights, titles and interests in Receivables to KRC. Furthermore, KRC has entered into a Receivables Purchase Agreement dated as of September 28, 1999 (as amended, modified, renewed or extended and in effect from time to time, the "Purchase Agreement" and together with the Sale Agreement, the "Agreements"), with the Purchasers party thereto and Bank One, NA, as Agent for such Purchasers, pursuant to which the Purchasers, subject to the terms and conditions contained therein, may purchase interests in KRC's Receivables. KRC is a Subsidiary of the Performance Guarantor and the Performance Guarantor is expected to receive substantial direct and indirect benefits from the sale of Receivables by the Originators to KRC pursuant to the Sale Agreement and the purchase of interests in the Receivables of KRC by the Purchasers pursuant to the Purchase Agreement (which benefits are hereby acknowledged). As an inducement for the Purchasers to purchase interests in KRC's Receivables, the Performance Guarantor has agreed to guaranty the due and punctual performance by all Additional Originators of their obligations under the Sale Agreement and the Purchase Agreement. It is a condition precedent to the Purchasers agreeing to purchase interests in KRC's Receivables pursuant to the Purchase Agreement that the Performance Guarantor execute and deliver to the Agent a performance guaranty in favor of the Agent and the Purchasers (each, a "Beneficiary" and together, the "Beneficiaries") substantially in the form hereof. The Performance Guarantor wishes to guaranty the due and punctual performance by each Additional Originator of its obligations to the Beneficiaries under or in respect of the Sale Agreement and the Purchase Agreement, as provided herein. NOW, THEREFORE, the Performance Guarantor hereby agrees as follows: 1. Definitions. As used herein: "Obligations" means, collectively, (i) all covenants, agreements, terms, conditions and indemnities to be performed and observed by the Additional Originators under and pursuant to the Sale Agreement and each other document executed and delivered by the Additional Originators pursuant to the Sale Agreement, including, without limitation, the due and punctual payment of all sums which are or may become due and owing by the Additional Originators under the Sale Agreement or the Fee Letter whether for Discount, Funding Charges, fees, expenses (including counsel fees), indemnified amounts or otherwise, whether upon any termination or for any other reason and (ii) all obligations of the Additional Originators under the Purchase Agreement. All capitalized terms used herein, and not otherwise defined herein, shall have their respective meanings as defined in the Agreements. 2. Guaranty of Performance of Obligations. The Performance Guarantor hereby guarantees to the Beneficiaries the full and punctual payment and performance by the Additional Originators of the Obligations. This Guaranty is an absolute, unconditional and continuing guaranty of the full and punctual performance of all of the Obligations of the Additional Originators under the Agreements and each other document executed and delivered by the Additional Originators pursuant to the Agreements and is in no way conditioned upon any requirement that the Beneficiaries first attempt to collect any amounts owing by the Additional Originators to the Purchasers from KRC or resort to any collateral security, any balance of any deposit account or credit on the books of any Purchaser in favor of the Additional Originators or any other Person or other means of obtaining payment. Should any Originator default in the payment or performance of any of the Obligations, the Agent or any one of the Purchasers may cause the immediate performance by the Performance Guarantor of the Obligations and cause any such payment Obligations to become forthwith due and payable to the Beneficiaries, without demand or notice of any nature (other than as expressly provided herein), all of which are expressly waived by the Performance Guarantor. Notwithstanding the foregoing, this Guaranty is not a guarantee of the collection of any of the Receivables and the Performance Guarantor shall not be responsible for any Obligations to the extent the failure to perform such Obligations by the Additional Originators results from Receivables being uncollectible on account of the insolvency, bankruptcy or lack of creditworthiness of the related Obligor or any action or inaction of such Obligor (other than any arising from disputes, claims, offsets, setoffs, defenses or other matters as more fully set forth in subclause (v) of Section 9.1 of the Purchase Agreement); provided that nothing herein shall relieve the Additional Originators from performing in full their Obligations under the Purchase Agreement or the Performance Guarantor of its undertaking hereunder with respect to the full performance of such duties. 3. Performance Guarantor's Further Agreements to Pay. The Performance Guarantor further agrees, as the principal obligor and not as a guarantor only, to pay to the Beneficiaries, forthwith upon 30 days following written notice in funds immediately available to the Beneficiaries, all reasonable and documented out-of-pocket costs and expenses (including court costs and legal expenses) incurred or expended by such Beneficiaries in connection with enforcement of this Guaranty and together with interest on amounts recoverable under this Guaranty from the time when such amounts become due until payment, at a rate of interest (computed for the actual number of days elapsed based on a 360 day year) equal to the Base Rate plus 2% per annum, such rate of interest changing when and as the Base Rate changes. 4. Waivers by Performance Guarantor; Agent's and Purchasers' Freedom to Act. The Performance Guarantor waives notice of acceptance of this Guaranty, notice of any action taken or omitted by any Beneficiary in reliance on this Guaranty, and any requirement that the Beneficiaries be diligent or prompt in making demands under this Guaranty, giving notice of any Amortization Event, other default or omission by the Additional Originators or asserting any other rights of any Beneficiary under this Guaranty. The Performance Guarantor warrants that it has adequate means to obtain from the Additional Originators, on a continuing basis, information concerning the financial condition of the Additional Originators, and that it is not relying on the Agent or Beneficiaries to provide such information, now or in the future. The Performance Guarantor also irrevocably waives all defenses (i) that at any time may be available in respect of the Obligations by virtue of any statute of limitations, valuation, stay, moratorium law or other similar law now or hereafter in effect or (ii) that arise under the law of suretyship, including impairment of collateral. Each of the Beneficiaries shall be at liberty, without giving notice to or obtaining the assent of the Performance Guarantor and without relieving the Performance Guarantor of any liability under this Guaranty, to deal with the Additional Originators and with each other party who now is or after the date hereof becomes liable in any manner for any of the Obligations, in such manner as any Beneficiary in its sole discretion deems fit, and to this end the Performance Guarantor agrees that the validity and enforceability of this Guaranty, including without limitation, the provisions of 7 hereof, shall not be impaired or affected by any of the following: (a) any extension, modification or renewal of, or indulgence with respect to, or substitutions for, the Obligations or any part thereof or any agreement relating thereto at any time; (b) any failure or omission to enforce any right, power or remedy with respect to the Obligations or any part thereof or any agreement relating thereto, or any collateral securing the Obligations or any part thereof; (c) any waiver of any right, power or remedy or of any Amortization Event or default with respect to the Obligations or any part thereof or any agreement relating thereto; (d) any release, surrender, compromise, settlement, waiver, subordination or modification, with or without consideration, of any other obligation of any person or entity with respect to the Obligations or any part thereof; (e) the enforceability or validity of the Obligations or any part thereof or the genuineness, enforceability or validity of any agreement relating thereto or with respect to the Obligations or any part thereof; (f) the application of payments received from any source to the payment of any payment Obligations of the Additional Originators or any part thereof or amounts which are not covered by this Guaranty even though the Beneficiaries might lawfully have elected to apply such payments to any part or all of the payment Obligations of the Additional Originators or to amounts which are not covered by this Guaranty; (g) the existence of any claim, setoff or other rights which the Performance Guarantor may have at any time against the Additional Originators in connection herewith or any unrelated transaction; (h) any assignment or transfer of the Obligations or any part thereof; or (i) any failure on the part of the Additional Originators to perform or comply with any term of the Agreements or any other document executed in connection therewith or delivered thereunder, all whether or not the Performance Guarantor shall have had notice or knowledge of any act or omission referred to in the foregoing clauses (a) through (i) of this Section. 5. Unenforceability of Obligations Against the Additional Originators. Notwithstanding (a) any change of ownership of the Additional Originators or the insolvency, bankruptcy or any other change in the legal status of the Additional Originators; (b) the change in or the imposition of any law, decree, regulation or other governmental act which does or might impair, delay or in any way affect the validity, enforceability or the payment when due of the Obligations; (c) the failure of the Additional Originators or the Performance Guarantor to maintain in full force, validity or effect or to obtain or renew when required all governmental and other approvals, licenses or consents required in connection with the Obligations or this Guaranty, or to take any other action required in connection with the performance of all obligations pursuant to the Obligations or this Guaranty; or (d) if any of the moneys included in the Obligations have become irrecoverable from the Additional Originators for any other reason other than final payment in full of the payment Obligations in accordance with their terms, this Guaranty shall nevertheless be binding on the Performance Guarantor. This Guaranty shall be in addition to any other guaranty or other security for the Obligations, and it shall not be rendered unenforceable by the invalidity of any such other guaranty or security. In the event that acceleration of the time for payment of any of the Obligations is stayed upon the insolvency, bankruptcy or reorganization of the Additional Originators or for any other reason with respect to the Additional Originators, all such amounts then due and owing with respect to the Obligations under the terms of the Agreements, or any other agreement evidencing, securing or otherwise executed in connection with the Obligations, shall be immediately due and payable by the Performance Guarantor. 6. Representations and Warranties. 6.1. Binding Effect. The Performance Guarantor has the corporate power and authority and legal right to execute and deliver this Guaranty, perform its obligations hereunder and consummate the transactions therein contemplated. The execution and delivery by the Performance Guarantor of this Guaranty, the performance of its obligations and consummation of the transactions contemplated hereunder have been duly authorized by proper corporate proceedings, and this Guaranty constitutes the legal, valid and binding obligation of the Performance Guarantor enforceable against the Performance Guarantor in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization or other similar laws of general applicability and by the effect of general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law). 6.2. No Conflict; Government Consent. The execution, delivery and performance by the Performance Guarantor of this Guaranty are within its corporate powers, have been duly authorized by all necessary corporate action, do not contravene or violate (i) its certificate of incorporation or by-laws, (ii) any law, rule or regulation applicable to it the contravention or violation of which would or could reasonably be expected to have a Material Adverse Effect, (iii) any restrictions under any material agreement, contract or instrument to which it is a party or by which it or any of its property is bound, the contravention or violation of which would or could reasonably be expected to have a Material Adverse Effect or (iv) any material order, writ, judgment, award, injunction or decree binding on or affecting it or its property, the contravention or violation of which would or could reasonably be expected to have a Material Adverse Effect and do not result in the creation or imposition of any Adverse Claim on assets of the Performance Guarantor (except as created under the Transaction Documents). 7. Subrogation; Subordination. Until the Obligations are paid in full, the Performance Guarantor shall not enforce or otherwise exercise any right of subrogation to any of the rights of any Purchaser against the Additional Originators and, notwithstanding anything to the contrary contained herein, until the Obligations are paid in full, hereby waives all rights of subrogation (whether contractual, under Section 509 of the United States Bankruptcy Code, at law or in equity or otherwise) to the claims of the Beneficiaries against the Additional Originators and all contractual, statutory or legal or equitable rights of contribution, reimbursement, indemnification and similar rights and "claims" (as that term is defined in the United States Bankruptcy Code) which the Performance Guarantor might now have or hereafter acquire against the Additional Originators that arises from the existence or performance of the Performance Guarantor's obligations hereunder; the Performance Guarantor will not claim any setoff, recoupment or counterclaim against the Additional Originators in respect of any liability of the Performance Guarantor to the Additional Originators; and the Performance Guarantor waives any benefit of and any right to participate in any collateral security which may be held by the Beneficiaries. The payment of any amounts due with respect to any indebtedness of the Additional Originators now or thereafter owed to the Performance Guarantor is hereby subordinated to the prior payment in full of all of the Obligations; provided, that as long as no Amortization Event has occurred and is continuing, the Performance Guarantor shall be permitted to receive any and all payments required under such indebtedness without respect to such subordination. The Performance Guarantor agrees that, after the occurrence of any default in the payment or performance of any of the Obligations, the Performance Guarantor will not demand, sue for or otherwise attempt to collect any such indebtedness of the Additional Originators to the Performance Guarantor until all of the Obligations shall have been paid and performed in full. If, notwithstanding the foregoing sentence, the Performance Guarantor shall collect, enforce or receive any amounts in respect of such indebtedness while any Obligations are still unperformed or outstanding, such amounts shall be collected, enforced and received by the Performance Guarantor as trustee for the Beneficiaries and be paid over to the Agent on account of the Obligations without affecting in any manner the liability of the Performance Guarantor under the other provisions of this Guaranty. The provisions of this 7 shall be supplemental to and not in derogation of any rights and remedies of the Beneficiaries under any separate subordination agreement which the Beneficiaries may at any time and from time to time enter into with the Performance Guarantor. 8. Termination of Guaranty. The Performance Guarantor's obligations hereunder shall continue in full force and effect until all Obligations are finally paid and satisfied in full and the Purchase Agreement is terminated, provided that this Guaranty shall continue to be effective or shall be reinstated, as the case may be, if at any time payment or other satisfaction of any of the Obligations is rescinded or must otherwise be restored or returned upon the bankruptcy, insolvency, or reorganization of the Additional Originators or otherwise, as though such payment had not been made or other satisfaction occurred, whether or not the Agent is in possession of this Guaranty. No invalidity, irregularity or unenforceability by reason of the Bankruptcy Code or any insolvency or other similar law, or any law or order of any government or agency thereof purporting to reduce, amend or otherwise affect the Obligations shall impair, affect, be a defense to or claim against the obligations of the Performance Guarantor under this Guaranty. 9. Effect of Bankruptcy. This Guaranty shall survive the insolvency of the Additional Originators and the commencement of any case or proceeding by or against the Additional Originators under the federal Bankruptcy Code or other federal, state or other applicable bankruptcy, insolvency or reorganization statutes. No automatic stay under the federal Bankruptcy Code with respect to the Additional Originators or other federal, state or other applicable bankruptcy, insolvency or reorganization statutes to which the Additional Originators is subject shall postpone the obligations of the Performance Guarantor under this Guaranty. 10. Taxes. All payments made by the Performance Guarantor hereunder shall be made without withholding for or on account of any present or future Taxes unless otherwise required by law. If any such withholding is so required, the Performance Guarantor shall make the withholding, pay the amount withheld to the appropriate authority before penalties attach thereto or interest accrues thereon and pay such additional amount as may be necessary to ensure that the net amount actually received by the Person entitled to receive such payment free and clear of such Taxes (including such Taxes on such additional amount), and all penalties or interest thereon, is equal to the amount that such Person(as the case may be) would have received had such withholding not been made, except to the extent such withholding (x) is in payment of, and serves as an effective credit for, Excluded Taxes payable by such Person(as the case may be) or (y) would not have been imposed if such Person pays any such Taxes, penalties or interest for which the Performance Guarantor is responsible, the Performance Guarantor shall reimburse such Person for that payment in accordance with Section 7.5 of the Sale Agreement. If the Performance Guarantor pays any such Taxes, penalties or interest, it shall deliver official tax receipts (or certified copies thereof) evidencing that payment to such Person on whose account such withholding was made (with a copy to the Agent if not the recipient of the original) on or before the thirtieth day after payment (or as soon thereafter as the Performance Guarantor is able to obtain such receipts). 11. Further Assurances. The Performance Guarantor agrees to do all such things and execute all such documents as the Beneficiaries may reasonably consider necessary or desirable to give full effect to this Guaranty and to perfect and preserve the rights and powers of the Beneficiaries hereunder. 12. Successors and Assigns. This Guaranty shall be binding upon the Performance Guarantor, its successors and assigns, and shall inure to the benefit of and be enforceable by the Beneficiaries and their successors, transferees and assigns. The Performance Guarantor may not assign or transfer any of its obligations hereunder without the prior written consent of each of the Purchasers. Without limiting the generality of the foregoing sentence, the Beneficiaries may, subject to Article XIII of the Purchase Agreement, assign or otherwise transfer the Agreements, any other documents executed in connection therewith or delivered thereunder or any other agreement or note held by them evidencing, securing or otherwise executed in connection with the Obligations, or sell participations in any interest therein, to any other entity or other person, and such other entity or other person shall thereupon become vested, to the extent set forth in the agreement evidencing such assignment, transfer or participation, with all the rights in respect thereof granted to the Beneficiaries herein. 13. Amendments and Waivers. No amendment or waiver of any provision of this Guaranty nor consent to any departure by the Performance Guarantor therefrom shall be effective unless the same shall be in writing and signed by the Agent and the Performance Guarantor. No failure on the part of any Beneficiary to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. 14. Notices. All notices and other communications called for hereunder shall be made in writing and, unless otherwise specifically provided herein, shall be deemed to have been duly made or given when delivered by hand or mailed first class, postage prepaid, or, in the case of telegraphic, telecopied or telexed notice, when transmitted, answer back received, addressed as follows: if to the Performance Guarantor, at the address set forth beneath its signature hereto, and if to the Beneficiaries, at the addresses set forth for each respective Beneficiary on the signature pages of the Purchase Agreement, or at such other addresses as each of the Performance Guarantor or any of the Beneficiaries may designate in writing to the other. 15. GOVERNING LAW. THIS GUARANTY SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS. 16. CONSENT TO JURISDICTION. EACH OF THE PERFORMANCE GUARANTOR AND THE BENEFICIARIES HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR ILLINOIS STATE COURT SITTING IN CHICAGO IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTY, THE AGREEMENTS OR ANY OTHER DOCUMENT EXECUTED IN CONNECTION THEREWITH OR DELIVERED THEREUNDER AND EACH OF THE PERFORMANCE GUARANTOR AND THE BENEFICIARIES HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. 17. Miscellaneous. This Guaranty constitutes the entire agreement of the Performance Guarantor with respect to the matters set forth herein. No failure on the part of the Agent to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The rights and remedies herein provided are cumulative and not exclusive of any remedies provided by law or any other agreement, and this Guaranty shall be in addition to any other guaranty of or collateral security for any of the Obligations. The provisions of this Guaranty are severable, and in any action or proceeding involving any state corporate law, or any state or federal bankruptcy, insolvency, reorganization or other law affecting the rights of creditors generally, if the obligations of the Performance Guarantor hereunder would otherwise be held or determined to be avoidable, invalid or unenforceable on account of the amount of the Performance Guarantor's liability under this Guaranty, then, notwithstanding any other provision of this Guaranty to the contrary, the amount of such liability shall, without any further action by the Performance Guarantor or the Beneficiaries, be automatically limited and reduced to the highest amount that is valid and enforceable as determined in such action or proceeding. The invalidity or unenforceability of any one or more sections of this Guaranty shall not affect the validity or enforceability of its remaining provisions. Captions are for the ease of reference only and shall not affect the meaning of the relevant provisions. The meanings of all defined terms used in this Guaranty shall be equally applicable to the singular and plural forms of the terms defined. * * * * IN WITNESS WHEREOF, the Performance Guarantor has caused this Performance Guaranty to be executed and delivered as of the date first above written. K N ENERGY, INC. By: Name: Title: Telecopy: __________________ Schedule A DOCUMENTS TO BE DELIVERED TO BUYER ON OR PRIOR TO THE PURCHASE 1. Copy of the Resolutions of the Board of Directors of each Originator certified by its Secretary, authorizing Originator's execution, delivery and performance of the Agreement and the other documents to be delivered by it thereunder. 2. Articles or Certificate of Incorporation, Partnership Agreement (or equivalent organizational documents) of each Originator certified by the Secretary of State of the jurisdiction of incorporation or formation of such Originator. 3. Good Standing Certificate for each Originator issued by the Secretary of State of each jurisdiction where it has material operations. 4. A certificate of the Secretary of each Originator certifying: (i) the names and signatures of the officers authorized on its behalf to execute the Agreement and any other documents to be delivered by it thereunder and (ii) a copy of such Originator's By-Laws. 5. Signed financing statements in all jurisdictions as may be necessary or, in the opinion of Buyer (or its assigns), desirable, under the UCC of all appropriate jurisdictions or any comparable law in order to perfect the ownership interests contemplated by the Agreement. 6. Signed UCC termination statements, if any, necessary to release all security interests and other rights of any Person in the Receivables, Contracts or Related Security previously granted by Originator. 7. Executed Collection Account Agreements for each Lock-Box and Collection Account. 8. A favorable opinion of legal counsel for each Originator reasonably acceptable to Buyer (or its assigns) in the form attached hereto as Annex B. 10. A "true sale" opinion and "substantive consolidation" opinion of counsel for each Originator with respect to the transactions contemplated by the Agreement and the Purchase Agreement. 11. A Compliance Certificate. 12. A direction letter executed by each Originator authorizing Buyer and its assigns, and directing warehousemen to allow Buyer and its assigns, to inspect and make copies from such Originator's books and records maintained at off-site data processing or storage facilities. 13. A Monthly Report as at September 28, 1999. _______________________________ 1FOOTER B HAS BEEN ENTERED (DRAFT) 2Article numbering in effect. Exceptions to the current outline style can be created by pressing CTRL+SHIFT+F5. This inserts only a ParaNum code. You may type any additional text or formatting codes that you need, such as brackets or unusual indents. 3Section numbering in effect. Exceptions to the current outline style can be created by pressing CTRL+SHIFT+F5. This inserts only a ParaNum code. You may type any additional text or formatting codes that you need, such as brackets or unusual indents. EX-27.1 7
5 1,000 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 22459 0 673503 12515 134209 960859 7767790 880768 8352141 1472224 3298484 0 0 354837 869121 8352141 3704018 3704018 2995953 3499944 0 2465 210505 13387 5221 8166 (17970) 0 0 (9804) (0.15) (0.15)
-----END PRIVACY-ENHANCED MESSAGE-----