EXHIBIT 99.1
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AGREEMENT AND PLAN OF MERGER
DATED AS OF OCTOBER 31, 2004
BY AND AMONG
VALERO L.P.
RIVERWALK LOGISTICS, L.P.
VALERO GP, LLC
VLI SUB A LLC
AND
KANEB SERVICES LLC
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TABLE OF CONTENTS
ARTICLE I CERTAIN DEFINITIONS..........................................1
ARTICLE II THE MERGER...................................................9
2.1 The Merger......................................................9
2.2 Effective Time of the Merger....................................9
2.3 Effects of the Merger...........................................9
2.4 Closing.........................................................9
2.5 LLC Agreement..................................................10
2.6 Directors and Officers.........................................10
2.7 Alternative Transaction Structures.............................10
ARTICLE III CONVERSION OF SECURITIES....................................10
3.1 Effect of the Merger on Equity Securities......................10
3.2 KSL Stock Options; Other KSL Equity Awards.....................11
3.3 Exchange Fund..................................................12
3.4 Exchange Procedures............................................13
3.5 No Further Ownership Rights in KSL Common Shares...............13
3.6 Termination of Exchange Fund...................................13
3.7 No Liability...................................................13
3.8 Investment of the Exchange Fund................................13
3.9 Lost Certificates..............................................13
3.10 Withholding Rights.............................................13
3.11 Further Assurances.............................................14
3.12 Stock Transfer Books...........................................14
ARTICLE IV REPRESENTATIONS AND WARRANTIES...............................14
4.1 Representations and Warranties of KSL..........................14
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4.2 Representations and Warranties of VLI..........................28
ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS......................30
5.1 Covenants of KSL...............................................30
5.2 Covenants of VLI...............................................33
5.3 Governmental Filings...........................................34
5.4 Control of Other Party's Business..............................34
ARTICLE VI ADDITIONAL AGREEMENTS.......................................34
6.1 Preparation of Proxy Statement; Shareholders Meetings..........34
6.2 Access to Information..........................................36
6.3 Reasonable Best Efforts........................................37
6.4 Acquisition Proposals..........................................39
6.5 Fees and Expenses..............................................40
6.6 Directors' and Officers' Indemnification and Insurance.........40
6.7 Employee Benefits..............................................42
6.8 Public Announcements...........................................43
6.9 KSL Rights Agreement...........................................44
6.10 Section 16 Matters.............................................44
6.11 Accountants' Letter............................................44
6.12 Tax Matters....................................................44
6.13 Other Payments.................................................44
ARTICLE VII CONDITIONS PRECEDENT........................................45
7.1 Conditions to Each Party's Obligation to Effect the KSL Merger.45
7.2 Additional Conditions to Obligations of VLI....................45
7.3 Additional Conditions to Obligations of KSL....................46
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ARTICLE VIII TERMINATION AND AMENDMENT..................................47
8.1 Termination....................................................47
8.2 Effect of Termination..........................................48
8.3 Amendment......................................................50
8.4 Extension; Waiver..............................................50
ARTICLE IX GENERAL PROVISIONS.........................................50
9.1 Non-Survival of Representations, Warranties and Agreements.....50
9.2 Notices........................................................50
9.3 Interpretation.................................................51
9.4 Counterparts...................................................52
9.5 Entire Agreement; No Third Party Beneficiaries.................52
9.6 Governing Law..................................................52
9.7 Severability...................................................52
9.8 ASSIGNMENT.....................................................52
9.9 Submission to Jurisdiction; Waivers............................52
9.10 Waiver of Jury Trial...........................................53
9.11 Enforcement....................................................53
EXHIBIT A - Form of Support Agreement
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AGREEMENT AND PLAN OF MERGER, dated as of October 31, 2004 (this
"AGREEMENT"), by and among Valero L.P., a Delaware limited partnership ("VLI"),
Riverwalk Logistics, L.P., a Delaware limited partnership and the general
partner of VLI ("VLI GP"), Valero GP, LLC, a Delaware limited liability company
and the general partner of VLI GP ("PARENT GP"), VLI Sub A LLC, a Delaware
limited liability company and a wholly-owned subsidiary of VLI ("VLI SUB A" and
collectively with VLI, VLI GP and Parent GP, the "VLI ENTITIES" and each a "VLI
ENTITY"), and Kaneb Services LLC, a Delaware limited liability company ("KSL").
W I T N E S S E T H:
WHEREAS, the VLI Entities and KSL desire that VLI and KSL combine their
businesses on the terms and conditions set forth in this Agreement;
WHEREAS, simultaneously with, and as a condition to, the execution hereof,
VLI, VLI GP, Parent GP and VLI Sub B LLC, a Delaware limited liability company
and wholly-owned subsidiary of VLI ("VLI SUB B"), Kaneb Pipe Line Partners,
L.P., a Delaware limited partnership ("KPP"), and Kaneb Pipe Line Company LLC, a
Delaware limited liability company that is a wholly-owned subsidiary of KSL and
the general partner of KPP ("KPP GP" and collectively, with KSL and KPP, the
"KANEB ENTITIES" and each a "KANEB ENTITY") are entering into an Agreement and
Plan of Merger (the "KPP MERGER AGREEMENT"), pursuant to which VLI Sub B will
merge with and into KPP (the "KPP MERGER"); and
WHEREAS, simultaneously with, and as a condition to, the execution hereof,
Messrs. Barnes and Doherty are executing a support agreement substantially in
the form of Exhibit A hereto (the "SUPPORT AGREEMENT").
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, and intending to be legally bound hereby, the parties hereto agree as
follows:
ARTICLE I
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the respective
meanings set forth below:
"ACQUISITION PROPOSAL" shall have the meaning set forth in Section
6.4(a)(i).
"AFFILIATE" shall have the meaning given such term in Rule 12b-2 under the
Exchange Act.
"AGREEMENT" shall have the meaning set forth in the preamble.
"ASSETS" means all of the assets (including the tangible and intangible
assets) used or necessary for the conduct of KSL's or VLI's, as the case may be,
and their respective Subsidiaries' businesses as they are presently conducted.
"BENEFICIAL OWNERSHIP" or "BENEFICIALLY OWN" shall have the meaning
ascribed to such terms under Section 13(d) of the Exchange Act and the rules and
regulations thereunder.
"BENEFIT PLAN" means, with respect to any entity, any employee
compensation, benefit plan, program, policy, practice, agreement, contract or
other arrangement providing benefits to any current or former employee, officer
or director of such entity or any of its Subsidiaries or any beneficiary or
dependent thereof that is sponsored or maintained by such entity or any of its
Subsidiaries or to which such entity or any of its Subsidiaries contributes or
is obligated to contribute or with respect to which such entity or any of its
Subsidiaries may have any liability, contingent or otherwise, whether or not
written, including any employee welfare benefit plan within the meaning of
Section 3(1) of ERISA, any employee pension benefit plan within the meaning of
Section 3(2) of ERISA (whether or not such plan is subject to ERISA) and any
bonus, incentive, deferred compensation, vacation, stock purchase, stock option,
severance, employment, change of control or fringe benefit plan, program, policy
or agreement and any related trusts or other funding vehicles.
"BUSINESS DAY" means any day on which banks are not required or authorized
to close in the City of New York.
"CERTIFICATE OF MERGER" shall have the meaning set forth in Section 2.2.
"CHANGE IN THE KANEB RECOMMENDATION" shall have the meaning set forth in
Section 6.1(b).
"CHANGE IN THE VLI RECOMMENDATION" shall have the meaning set forth in
Section 6.1(c).
"CLOSING" shall have the meaning set forth in Section 2.4.
"CLOSING DATE" shall have the meaning set forth in Section 2.4.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"CONFIDENTIALITY AGREEMENT" shall have the meaning set forth in Section
6.2.
"DISSENTING SHARES" shall have the meaning set forth in Section 3.1(a)(ii).
"DOJ" means the Antitrust Division of the U.S. Department of Justice.
"EFFECTIVE TIMES" shall have the meaning set forth in Section 2.2.
"ENCUMBRANCES" shall have the meaning set forth in Section 4.1(b)(ii).
"ENVIRONMENTAL LAWS" shall have the meaning set forth in Section
4.1(l)(ii)(1).
"ENVIRONMENTAL PERMITS" shall have the meaning set forth in Section
4.1(l)(i)(a).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
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"ERISA AFFILIATE" means, with respect to any entity, trade or business, any
other entity, trade or business that is a member of a group described in Section
414(b), (c), (m) or (o) of the Code or Section 4001(b)(1) of ERISA that includes
the first entity, trade or business, or that is a member of the same "controlled
group" as the first entity, trade or business pursuant to Section 4001(a)(14) of
ERISA.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE AGENT" shall have the meaning set forth in Section 3.3.
"EXCHANGE FUND" shall have the meaning set forth in Section 3.3.
"EXPENSES" means all out-of-pocket expenses (including all fees and
expenses of counsel, accountants, investment bankers, experts and consultants to
a party and its Affiliates) incurred by a party or on its behalf in connection
with or related to the authorization, preparation, negotiation, execution and
performance of this Agreement and the transactions contemplated hereby,
including the preparation, printing, filing and mailing of the Joint Proxy
Statement/Prospectus and the Form S-4 and the solicitation of member and/or
limited partner approvals and all other matters related to the transactions
contemplated hereby and thereby.
"FORM S-4" means a registration statement, and any amendments and
supplements thereto, on Form S-4 with respect to the issuance of VLI Common
Units in the KPP Merger.
"FTC" means the U.S. Federal Trade Commission.
"GAAP" means U.S. generally accepted accounting principles.
"GOVERNMENTAL ENTITY" shall have the meaning set forth in Section 4.1(d).
"HAZARDOUS SUBSTANCES" shall have the meaning set forth in Section
4.1(l)(ii)(2).
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
"INDEMNIFIED PARTY" and "INDEMNIFIED PARTIES" shall have the meaning set
forth in Section 6.6(b).
"INTELLECTUAL PROPERTY" means all patents, trademarks, trade names, service
marks, copyrights, and any applications therefor, technology, know-how, computer
software programs or applications, and tangible or intangible proprietary
information or materials.
"JOINT PROXY STATEMENT/PROSPECTUS" shall have the meaning set forth in
Section 4.1(d)(iii).
"KANEB BENEFIT PLAN" means the KSL Stock Plans and any other Benefit Plan
sponsored, maintained or contributed to by KSL or any of its Subsidiaries, or to
which KSL or any of its Subsidiaries is required to contribute, or with respect
to which KSL or any of its Subsidiaries may have any liability, contingent or
otherwise.
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"KANEB CONTRACT" shall have the meaning set forth in Section 4.1(j)(i).
"KANEB DISCLOSURE SCHEDULE" shall have the meaning set forth in Section
4.1.
"KANEB EMPLOYEES" shall have the meaning set forth in Section 6.7(a).
"KANEB ENTITIES" or "KANEB ENTITY" shall have the meaning set forth in the
recitals.
"KANEB PARTIALLY OWNED ENTITIES" means Partially Owned Entities of KSL.
"KANEB PLAN" means any Kaneb Benefit Plan other than a Multiemployer Plan.
"KANEB QUALIFIED PLANS" shall have the meaning set forth in Section
4.1(m)(iii).
"KANEB RECOMMENDATION" shall have the meaning set forth in Section 6.1(b).
"KANEB SEC DOCUMENTS" means the KSL SEC Documents and the KPP SEC Documents
"KSL TERMINATION FEE" means $15,000,000.
"KNOWLEDGE" means, with respect to any entity, the knowledge of such
entity's (or its general partner's) executive officers after reasonable inquiry.
"KPP" shall have the meaning set forth in the recitals.
"KPP EFFECTIVE TIME" shall have the meaning set forth in Section 2.2.
"KPP GP" shall have the meaning set forth in the recitals.
"KPP GP LLC AGREEMENT" means the Amended and Restated Limited Liability
Company Agreement of KPP GP, dated July 2, 2001.
"KPP MERGER" shall have the meaning set forth in the recitals.
"KPP MERGER AGREEMENT" shall have the meaning set forth in the recitals.
"KPP PARTNERSHIP AGREEMENT" means the Amended and Restated Partnership
Agreement of KPP, dated July 23, 1998, as amended October 27, 2003.
"KPP SEC DOCUMENTS" shall have the meaning assigned thereto in the KPP
Merger Agreement.
"KPP UNIT" shall have the meaning given the term "Common Unit" in the KPP
Partnership Agreement.
"KPP UNITHOLDERS" means the holders of the KPP Units.
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"KPP UNITHOLDERS MEETING" shall have the meaning set forth in the KPP
Merger Agreement.
"KSL" shall have the meaning set forth in the preamble.
"KSL CERTIFICATE" shall have the meaning set forth in Section 3.1(a)(i).
"KSL COMMON SHARES" shall have the meaning given the term "Common Share" in
the KSL LLC Agreement.
"KSL CONSIDERATION" shall have the meaning set forth in Section 3.1(a)(i).
"KSL DEFERRED SHARE UNIT" shall have the meaning set forth in Section
3.2(b).
"KSL DEFERRED SHARE UNIT ARRANGEMENTS" shall have the meaning set forth in
Section 3.2(b).
"KSL EFFECTIVE TIME" shall have the meaning set forth in Section 2.2.
"KSL ENTITIES" means KSL and its Subsidiaries (which specifically excludes
KPP and its Subsidiaries).
"KSL LLC AGREEMENT" means the Amended and Restated Limited Liability
Company Agreement of KSL, dated June 28, 2001.
"KSL MERGER" shall have the meaning set forth in Section 2.1.
"KSL OWNED UNITS" means KPP Units directly or indirectly owned by KSL.
"KSL RIGHTS" means any of the Rights, as such term is defined in the KSL
Rights Agreement.
"KSL RIGHTS AGREEMENT" means the Rights Agreement, dated as of June 27,
2001, between KSL and The Chase Manhattan Bank, National Association, as rights
agent.
"KSL SEC DOCUMENTS" shall have the meaning set forth in Section 4.1(e)(i).
"KSL SHAREHOLDER" shall have the meaning given to the term "Shareholder" in
the KSL LLC Agreement.
"KSL SHAREHOLDERS APPROVAL" means the approval and adoption of this
Agreement and the transactions contemplated hereby by the KSL Shareholders
holding at least the majority of the voting power of KSL, including the
affirmative vote of the KSL Shareholders holding at least a majority of the
outstanding KSL Common Shares (other than those beneficially owned by VLI or any
Affiliates thereof or by any Kaneb Entity or any Affiliates thereof) that are
present, in person or by proxy, at the KSL Shareholders Meeting.
"KSL SHAREHOLDERS MEETING" shall have the meaning set forth in Section
4.1(c)(i).
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"KSL STOCK OPTION" shall have the meaning set forth in Section 3.2(a).
"KSL STOCK PLANS" shall have the meaning set forth in Section 4.1(b)(i).
"KSL 2003 10-K" means KSL's Annual Report on Form 10-K for the fiscal year
ended December 31, 2003, as filed with the SEC.
"LETTER OF TRANSMITTAL" shall have the meaning set forth in Section 3.4(a).
"LLC ACT" shall have the meaning set forth in Section 2.2.
"MATERIAL ADVERSE EFFECT" means, with respect to any entity or group of
entities, a material adverse effect on (i) the business, operations, results of
operations or financial condition of such entity or entities and its or their
Subsidiaries taken as a whole or (ii) the ability of such entity or entities to
timely consummate the transactions contemplated by this Agreement, except, in
each case, to the extent such effect is reasonably attributable to (A) general
political and economic conditions (including prevailing interest rate and stock
market levels), (B) the general state of the industries in which such entity
operates, except to the extent such entity is substantially disproportionately
affected, (C) the negotiation, announcement, execution or delivery of this
Agreement or (D) any outbreak of hostilities, terrorism or war, other than any
terrorist or similar acts directed at or directly impacting the business or
assets of such entity or its Subsidiaries.
"MULTIEMPLOYER PLAN" means any "multiemployer plan" within the meaning of
Section 4001(a)(3) of ERISA.
"NECESSARY CONSENTS" shall have the meaning set forth in Section
4.1(d)(vi).
"NEW PLANS" shall have the meaning set forth in Section 6.7(b).
"NYSE" means the New York Stock Exchange, Inc.
"OLD PLANS" shall have the meaning set forth in Section
6.7(b).
"OTHER APPROVALS" shall have the meaning set forth in Section 4.1(d)(ii).
"PARENT GP" shall have the meaning set forth in the preamble.
"PARTIALLY OWNED ENTITY" means, with respect to a specified Person, any
other Person that is not a Subsidiary of such specified Person but in which such
specified Person, directly or indirectly, owns 30% or more of the equity
interests thereof (whether voting or non-voting and including beneficial
interests); provided, however, in no case shall KPP or its Subsidiaries or its
or their Partially Owned Entities be considered a "Partially Owned Entity" of
KSL.
"PBGC" shall have the meaning set forth in Section 4.1(m)(v).
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"PERMITTED ENCUMBRANCES" means (A) liens for current Taxes not yet due and
payable or for Taxes the validity of which is being contested in good faith in
appropriate proceedings, and (B) such other Encumbrances that are de minimis or
immaterial individually and in the aggregate.
"PERSON" means an individual, corporation, limited liability company,
partnership, association, trust, unincorporated organization, other entity or
group (as defined in the Exchange Act).
"POLICIES" shall have the meaning set forth in Section 4.1(k)(i).
"REGULATORY LAW" means the HSR Act, and all other federal, state and
foreign, if any, statutes, rules, regulations, orders, decrees, administrative
and judicial doctrines and other laws that are designed or intended to prohibit,
restrict or regulate (i) mergers, acquisitions or other business combinations,
(ii) foreign investment, or (iii) actions having the purpose or effect of
monopolization or restraint of trade or lessening of competition.
"RELEASE" shall have the meaning set forth in Section 4.1(l)(ii)(3).
"REQUIRED APPROVALS" shall have the meaning set forth in Section 6.3(a)(i).
"SEC" means the U.S. Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SUBSIDIARY" shall have the meaning ascribed to such term in Rule 1-02 of
Regulation S-X of the SEC; provided, however, in no case shall any of KPP or its
Subsidiaries be considered a "Subsidiary" of KSL. For the avoidance of doubt,
with respect to KSL, a "Subsidiary" includes KPP GP.
"SUPERIOR PROPOSAL" shall mean, for purposes of this Agreement, a bona fide
written Acquisition Proposal with respect to KSL that the Board of Directors of
KSL concludes in good faith, after consultation with its respective financial
advisors and legal advisors, taking into account all legal, financial,
regulatory and other aspects of the proposal and the Person making the proposal
(including any break-up fees, expense reimbursement provisions and conditions to
consummation), as well as after giving effect to all of the adjustments that may
be offered by VLI pursuant to clause (B) of the final proviso in this definition
below, (i) is more favorable to the KSL Shareholders, from a financial point of
view, than the transactions contemplated by this Agreement, and (ii) is fully
financed or reasonably capable of being fully financed and otherwise reasonably
capable of being completed on the terms proposed; PROVIDED that, for purposes of
this definition of "Superior Proposal," the term Acquisition Proposal shall have
the meaning assigned to such term in Section 6.4(a)(i), except that the
reference to "10% or more" in the definition of "Acquisition Proposal" shall be
deemed to be a reference to "a majority" and "Acquisition Proposal" shall only
be deemed to refer to a transaction involving a majority of the equity
securities of KSL or all or substantially all of the consolidated assets of the
KSL and its Subsidiaries; PROVIDED FURTHER that no Acquisition Proposal shall
constitute a Superior Proposal unless (A) KSL has notified VLI, at least five
Business Days in advance, of the intention to effect a Change in the Kaneb
Recommendation in accordance with Section 6.4 hereof on the basis of such
Acquisi-
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tion Proposal, specifying the material terms and conditions of any such
Acquisition Proposal and furnishing to VLI a copy of the relevant proposed
transaction agreements, if such exist, with the party making such Acquisition
Proposal, and (B) during the period of not less than five Business Days
following KSL's delivery of the notice referred to in clause (A) above and prior
to effecting such a Change in the Kaneb Recommendation, have negotiated, and
have used reasonable best efforts to cause their respective financial and legal
advisors to negotiate, with VLI in good faith (to the extent that VLI desires to
negotiate) to make such adjustments in the terms and conditions of this
Agreement so that such Acquisition Proposal ceases to constitute a Superior
Proposal.
"SUPPORT AGREEMENT" shall have the meaning set forth in the recitals.
"SURVIVING LLC" shall have the meaning ascribed to such term in Section
2.1.
"TAX RETURN" means any return, report or similar statement (including any
attached schedules) required to be filed with respect to any Tax, including any
information return, claim for refund, amended return or declaration of estimated
Tax.
"TAXES" means any and all taxes, assessments, fees and other governmental
charges imposed by any Governmental Entity, including without limitation income,
profits, gross receipts, net proceeds, alternative or add-on minimum, ad
valorem, value added, turnover, sales, use, property, personal property
(tangible and intangible), environmental (including taxes under section 59A of
the Code), stamp, leasing, lease, user, excise, duty, franchise, capital stock,
transfer, registration, license, withholding, social security (or similar),
unemployment, disability, payroll, employment, fuel, excess profits,
occupational, premium, windfall profit, severance, estimated, or other charge of
any kind whatsoever, including any interest, penalty, or addition thereto,
whether disputed or not.
"TERMINATION DATE" shall have the meaning set forth in Section 8.1(b).
"VLI" shall have the meaning set forth in the preamble.
"VLI COMMON UNIT" shall have the meaning given the term "Common Unit" in
the VLI Partnership Agreement.
"VLI DISCLOSURE SCHEDULE" shall have the meaning set forth in Section 4.2.
"VLI ENTITIES" and "VLI ENTITY" shall have the meaning set forth in the
preamble.
"VLI GP" shall have the meaning set forth in the preamble.
"VLI INCENTIVE DISTRIBUTION RIGHTS" shall have the meaning given the term
"Incentive Distribution Rights" in the VLI Partnership Agreement.
"VLI PARTNERSHIP AGREEMENT" means the Third Amended and Restated Agreement
of Limited Partnership of VLI, dated as of March 18, 2003, as amended March 11,
2004.
"VLI RECOMMENDATION" shall have the meaning set forth in Section 6.1(c).
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"VLI SUB A" shall have the meaning set forth in the preamble.
"VLI SUB B" shall have the meaning set forth in the recitals.
"VLI SUBORDINATED UNITS" shall have the meaning given the term
"Subordinated Unit" in the VLI Partnership Agreement.
"VLI TERMINATION FEE" means $25,000,000.
"VLI UNITHOLDERS" shall have the meaning set forth in the KPP Merger
Agreement.
"VLI UNITHOLDERS APPROVAL" shall have the meaning set forth in Section
4.2(b)(i).
"VLI UNITHOLDERS MEETING" shall have the meaning set forth in Section
4.2(b)(i).
"VOTING DEBT" means any bonds, debentures, notes or other indebtedness
having the right to vote on any matters on which holders of capital stock or
members or partners of the same issuer may vote.
"WITHDRAWAL LIABILITY" means liability to a Multiemployer Plan as a result
of a complete or partial withdrawal from such Multiemployer Plan, as those terms
are defined in Part I of Subtitle E of Title IV of ERISA.
ARTICLE II
THE MERGER
2.1 THE MERGER. Upon the terms and subject to the conditions hereof, at
the KSL Effective Time, VLI Sub A shall be merged with and into KSL (the "KSL
MERGER"), with KSL as the surviving entity in the KSL Merger (the "SURVIVING
LLC"), and the separate existence of VLI Sub A shall thereupon cease.
2.2 EFFECTIVE TIME OF THE MERGER. The KSL Merger shall become effective as
set forth in (or, if not set forth, at the time of filing) a properly executed
certificate of merger, in accordance with the Delaware Limited Liability Company
Act (the "LLC Act") duly filed with the Secretary of State of the State of
Delaware (the "CERTIFICATE OF MERGER"), which filing shall be made on the
Closing Date. As used in this Agreement, the term "KSL EFFECTIVE TIME" shall
mean the date and time when the KSL Merger becomes effective, which date and
time shall immediately precede the time that the KPP Merger becomes effective
(the "KPP EFFECTIVE TIME" and, together with the KSL Effective Time, the
"EFFECTIVE TIMES").
2.3 EFFECTS OF THE MERGER. The KSL Merger shall have the effects set forth
in the applicable provisions of the LLC Act.
2.4 CLOSING. Upon the terms and subject to the conditions set forth in
Article VII and the termination rights set forth in Article VIII, the closing of
the transactions contemplated by this Agreement (the "CLOSING") will take place
at the offices of Wachtell, Lipton,
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Rosen & Katz, 51 West 52nd Street, New York, New York 10019 at 10:00 A.M. on the
date that is the second full NYSE trading day to occur after the date following
the satisfaction or waiver (subject to applicable law) of the conditions
(excluding conditions that, by their nature, cannot be satisfied until the
Closing Date) set forth in Article VII, unless this Agreement has been
theretofore terminated pursuant to its terms or unless another place, time or
date is agreed to in writing by the parties hereto (the date of the Closing
being referred to herein as the "CLOSING DATE").
2.5 LLC AGREEMENT. At the KSL Effective Time, the limited liability company
agreement of the Surviving LLC shall be the KSL LLC Agreement, as in effect
immediately prior to the KSL Effective Time, until thereafter changed or amended
as provided therein or by applicable law.
2.6 DIRECTORS AND OFFICERS. The directors and officers of VLI Sub A
immediately prior to the KSL Effective Time shall be the directors and officers
of the Surviving LLC.
2.7 ALTERNATIVE TRANSACTION STRUCTURES. The parties agree that VLI, with
the consent of KSL, which shall not be unreasonably withheld or delayed, may
change the method and structure of effecting the KSL Merger, and KSL shall
cooperate in such efforts, including by entering into appropriate amendments to
this Agreement; PROVIDED, HOWEVER, that any actions taken pursuant to this
Section 2.7 shall not (i) alter or change the kind or amount of consideration to
be issued to KSL Shareholders as provided for in this Agreement, (ii) adversely
affect the tax consequences of the receipt of such consideration by the holders
of KSL Common Shares, (iii) materially delay receipt of any Required Approvals,
or (iv) otherwise cause any condition to Closing set forth in Article VII to be
materially delayed or to be materially more difficult to fulfill (unless duly
waived by the party entitled to the benefits thereof).
ARTICLE III
CONVERSION OF SECURITIES
3.1 EFFECT OF THE MERGER ON EQUITY SECURITIES.
(a) At the KSL Effective Time, by virtue of the KSL Merger and without any
action on the part of any holder of any KSL Common Shares:
(i) Subject to Section 3.1(a)(ii), each outstanding KSL Common Share
(together with any associated KSL Rights) issued and outstanding
immediately prior to the KSL Effective Time shall be converted into the
right to receive an amount in cash equal to $43.31 (the "KSL
CONSIDERATION"). All KSL Common Shares converted into the right to receive
the KSL Consideration pursuant to this Section 3.1(a) shall cease to be
outstanding and shall be canceled and retired and shall cease to exist, and
each holder of a certificate that immediately prior to the KSL Effective
Time represented any such KSL Common Shares (a "KSL CERTIFICATE") shall
thereafter cease to be a member of KSL or have any rights with respect to
such KSL Common Shares, except the right to receive the KSL Consideration
to be issued in consideration therefor and any distributions to which
hold-
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ers of KSL Common Shares become entitled all in accordance with this
Article III upon the surrender of such KSL Certificate.
(ii) Notwithstanding any other provision contained in this Agreement,
no KSL Common Shares that are issued and outstanding as of the KSL
Effective Time and that are held by a KSL Shareholder who has properly
exercised such KSL Shareholder's appraisal rights (any such KSL Common
Shares being referred to herein as "DISSENTING SHARES") under Section 11.5
of the KSL LLC Agreement shall be converted into the right to receive the
KSL Consideration as provided in Section 3.1(a) unless and until such KSL
Shareholder shall have failed to perfect, or shall have effectively
withdrawn or lost, such Shareholder's right to dissent from the KSL Merger
under the KSL LLC Agreement and to receive such consideration as may be
determined to be due with respect to such Dissenting Shares pursuant to and
subject to the KSL LLC Agreement. If any holder of Dissenting Shares shall
have so failed to perfect or has effectively withdrawn or lost such KSL
Shareholder's right to dissent from the KSL Merger after the KSL Effective
Time, each of such holder's KSL Common Shares shall thereupon be deemed to
have been converted into and to have become, as of the KSL Effective Time,
the right to receive the KSL Consideration.
(b) At the KSL Effective Time, by virtue of the KSL Merger and without any
action on the part of VLI, each outstanding limited liability company interest
in VLI Sub A issued and outstanding immediately prior to the KSL Effective Time
shall be converted into 1,000 KSL Common Shares and KSL shall issue to VLI a
certificate evidencing such KSL Common Shares. VLI agrees that at the KSL
Effective Time, VLI shall be automatically bound by the KSL LLC Agreement and
VLI shall be admitted to KSL as a member of KSL immediately upon the KSL
Effective Time. At the KSL Effective Time, the books and records of KSL shall be
revised to reflect the admission of VLI as a member of KSL and the simultaneous
resignation of all other members of KSL, and VLI shall continue KSL without
dissolution.
3.2 KSL STOCK OPTIONS; OTHER KSL EQUITY AWARDS. (a) Immediately prior to
the KSL Effective Time, each KSL stock option to acquire KSL Common Shares then
outstanding (the "KSL STOCK OPTIONS") shall become fully vested and shall be
converted into the right to receive, upon the exercise thereof, an amount in
cash (without interest) equal to the KSL Consideration multiplied by the number
of KSL Common Shares subject to the KSL Stock Option so exercised. As of the KSL
Effective Time, each outstanding KSL Stock Option so converted shall be
cancelled, and the holder thereof shall be entitled to receive, as soon as
practicable thereafter, an amount of cash (without interest) equal to the
product of (x) the total number of KSL Common Shares subject to such KSL Stock
Option multiplied by (y) the excess, if any, of the amount of the KSL
Consideration over the exercise price per share of KSL Common Shares under such
KSL Stock Option (with the aggregate amount of such payment rounded to the
nearest cent) less applicable Taxes, if any, required to be withheld with
respect to such payment. Payment of any amounts in respect of the KSL Stock
Options pursuant to Section 3.2(a) hereof shall be in full satisfaction of the
obligations in respect thereof.
(b) Effective as of the KSL Effective Time, all then outstanding and
unsettled stock units in respect of KSL Common Shares (each, a "KSL DEFERRED
SHARE UNIT") credited
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pursuant to a compensation agreement or plan or any similar plan, agreement or
arrangement with respect to KSL Common Shares including, but not limited to, the
Xanser Corporation Deferred Stock Unit Plan and the Xanser Corporation 1996
Supplemental Deferred Compensation Plan (the "KSL DEFERRED SHARE UNIT
ARRANGEMENTS") shall be converted into an obligation to pay cash in respect
thereof with a value equal to the product of (i) the KSL Consideration and (ii)
the number of KSL Common Shares subject to such KSL Deferred Share Unit (with
the aggregate amount of such payment rounded to the nearest cent). Such
obligation shall be payable or distributable in accordance with the terms of the
applicable KSL Deferred Share Unit Arrangement.
(c) Prior to the KSL Effective Time, the compensation committee of the
Board of Directors of KSL shall take all actions as are necessary, including
making such adjustments and amendments to, or determinations with respect to,
the KSL Stock Options and KSL Deferred Share Units, including the plans and
agreements related thereto, to implement the provisions of this Section 3.2, so
as to ensure that following the KSL Effective Time, no holder of a KSL Stock
Option or KSL Deferred Share Unit or participant in a Kaneb Plan or other
employee benefit arrangement of Kaneb or its Subsidiaries shall have any right
thereunder to acquire or receive any KSL Common Shares.
(d) Schedule 3.2(d) contains a list of all KSL Stock Options and KSL
Deferred Share Units outstanding as of the date hereof and lists for each such
KSL Stock Option or KSL Deferred Share Unit (i) the holder thereof; (ii) the
number of KSL shares subject to such award; (iii) the dates of grant and
expiration; and (iv) the exercise price (if any).
3.3 EXCHANGE FUND. Prior to the KSL Effective Time, VLI shall appoint
Computershare Limited, or a commercial bank or trust company, or a subsidiary
thereof, reasonably acceptable to KSL, to act as exchange agent hereunder for
the purpose of exchanging KSL Certificates for the KSL Consideration (the
"EXCHANGE AGENT"). At or prior to the KSL Effective Time, VLI shall deposit with
the Exchange Agent in trust for the benefit of holders of KSL Common Shares,
cash to be issued and paid pursuant to Section 3.1(a) in exchange for
outstanding KSL Common Shares upon due surrender of KSL Certificates pursuant to
this Article III. Any cash deposited with the Exchange Agent (including the
amount of any distributions (or other distributions payable with respect
thereto) shall hereinafter be referred to as the "EXCHANGE FUND."
3.4 EXCHANGE PROCEDURES. Promptly after the KSL Effective Time, VLI shall
cause the Exchange Agent to mail to each holder of a KSL Certificate (other than
any KSL Certificate representing any Dissenting Shares) (a) a letter of
transmittal (the "LETTER OF TRANSMITTAL") that shall specify that delivery shall
be effected, and risk of loss and title to the KSL Certificates shall pass, only
upon proper delivery of the KSL Certificates to the Exchange Agent, and which
Letter of Transmittal shall be in customary form and have such other provisions
as VLI and KSL may reasonably specify (such letter to be reasonably acceptable
to VLI and KSL prior to the KSL Effective Time) and (b) instructions for
effecting the surrender of such KSL Certificates in exchange for the KSL
Consideration, together with any distributions with respect thereto and any cash
in lieu of fractional shares. Upon surrender of a KSL Certificate to the
Exchange Agent together with the relevant Letter of Transmittal, duly executed
and completed in accordance with the instructions thereto, and such other
documents as may reasonably be required by
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the Exchange Agent, the holder of such KSL Certificate shall be entitled to
receive in exchange therefor a check in the amount equal to the cash such holder
has the right to receive pursuant to Section 3.1(a).
3.5 NO FURTHER OWNERSHIP RIGHTS IN KSL COMMON SHARES. All cash paid upon
conversion of KSL Common Shares in accordance with the terms of this Article III
shall be deemed to have been issued or paid in full satisfaction of all rights
pertaining to the KSL Common Shares.
3.6 TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund that
remains undistributed to the holders of KSL Certificates one year after the KSL
Effective Time shall, at VLI's request, be delivered to VLI or otherwise on the
instruction of VLI, and any holders of KSL Certificates who have not theretofore
complied with this Article III shall after such delivery look only to VLI for
any amounts payable to such holders pursuant to this Article III. Any such
portion of the Exchange Fund remaining unclaimed by holders of KSL Common Shares
immediately prior to such time as such amounts would otherwise escheat to or
become property of any Governmental Entity shall, to the extent permitted by
law, become the property of VLI free and clear of any claims or interest of any
Person previously entitled thereto.
3.7 NO LIABILITY. To the fullest extent permitted by law, none of the VLI
Entities, KSL or the Exchange Agent shall be liable to any Person in respect of
any portion of the Exchange Fund required to be delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
3.8 INVESTMENT OF THE EXCHANGE FUND. The Exchange Agent shall invest any
cash included in the Exchange Fund as directed by VLI on a daily basis; PROVIDED
that no such investment or loss thereon shall affect the amounts payable or the
timing of the amounts payable to KSL Shareholders pursuant to the other
provisions of this Article III. Any interest and other income resulting from
such investments shall promptly be paid to VLI.
3.9 LOST CERTIFICATES. If any KSL Certificate (other than any KSL
Certificate representing any Dissenting Shares) shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person claiming
such certificate to be lost, stolen or destroyed and, if required by VLI, the
posting by such Person of a bond in such reasonable amount as VLI may direct as
indemnity against any claim that may be made against it with respect to such
certificate, following the KSL Effective Time the Exchange Agent will deliver in
exchange for such lost, stolen or destroyed certificate the consideration and
amounts payable with respect to the KSL Common Shares formerly represented
thereby pursuant to this Article III.
3.10 WITHHOLDING RIGHTS. VLI shall be entitled to deduct and withhold from
the consideration otherwise payable pursuant to this Agreement such amounts as
it is required to deduct and withhold with respect to the making of such payment
under the Code and the rules and regulations promulgated thereunder, or any
provision of state, local or foreign Tax law. To the extent that amounts are so
withheld or paid over to or deposited with the relevant Governmental Entity by
VLI, such amounts shall be treated for all purposes of this Agreement as having
been paid to the Person in respect of which such deduction and withholding was
made by VLI.
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3.11 FURTHER ASSURANCES. At and after the KSL Effective Time, the officers
and directors of the Surviving LLC shall be authorized to execute and deliver,
in the name and on behalf of the Surviving LLC or KSL, any deeds, bills of sale,
assignments or assurances and to take and do, in the name and on behalf of the
Surviving LLC or KSL, any other actions and things necessary to vest, perfect or
confirm of record or otherwise in the Surviving LLC any and all right, title and
interest in, to and under any of the rights, properties or assets acquired or to
be acquired by the Surviving LLC as a result of, or in connection with, the KSL
Merger.
3.12 STOCK TRANSFER BOOKS. Subject to Section 3.1(b), the limited liability
company interest transfer books of KSL shall be closed immediately upon the KSL
Effective Time, and there shall be no further registration of transfers of KSL
Common Shares or other limited liability company interests of KSL thereafter on
the records of KSL. On or after the KSL Effective Time, subject to Section
3.1(a)(ii) any KSL Certificates presented to the Exchange Agent, VLI or the
Surviving LLC for any reason shall be converted into the right to receive the
KSL Consideration with respect to the KSL Common Shares formerly represented
thereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS AND WARRANTIES OF KSL. Except as disclosed in a section
of the KSL disclosure schedule delivered to VLI concurrently herewith (the
"KANEB DISCLOSURE SCHEDULE") corresponding to the subsection of this Section 4.1
to which such disclosure applies, or as specifically identified in the Kaneb SEC
Documents filed prior to the date hereof, KSL represents and warrants to VLI as
follows:
(a) ORGANIZATION.
(i) Each of KPP GP and KSL is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Each of KPP GP and KSL has the requisite power and authority to own or
lease all of its properties and assets and to carry on its business as it is now
being conducted, and is duly licensed or qualified to do business in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it makes
such licensing or qualification necessary, except where the failure to have such
power or authority or be so licensed or qualified would not, either individually
or in the aggregate, have a Material Adverse Effect on the KSL Entities. A true
and complete copy of the KSL LLC Agreement and the KPP GP LLC Agreement, each as
in effect as of the date of this Agreement, has previously been made available
by KSL to VLI.
(ii) Each Subsidiary of KSL (other than KPP GP) (A) is duly organized
and validly existing under the laws of its jurisdiction of organization, (B) is
duly qualified to do business and in good standing in all jurisdictions (whether
federal, state, local or foreign) where its ownership or leasing of property or
the conduct of its business requires it to be so qualified and (C) has all
requisite power and authority to own or lease its properties and assets and to
carry on its business as now conducted, except in each case where the failure to
have such
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power or authority or to be so organized, in existence, or qualified would not,
either individually or in the aggregate, have a Material Adverse Effect on the
KSL Entities.
(iii) Section 4.1(a)(iii) of the Kaneb Disclosure Schedule sets
forth, as of the date of this Agreement, a true and complete list of each of the
KSL Entities and Kaneb Partially Owned Entities and each of their respective
Subsidiaries, together with (A) the nature of the legal organization of such
Person, (B) the jurisdiction of organization or formation of such Person, (C)
the name of each KSL Entity or Kaneb Partially Owned Entity that owns
beneficially or of record any equity or similar interest in such Person, and (D)
the percentage interest owned by such KSL Entity or Kaneb Partially Owned Entity
in such Person. None of the KSL Entities is subject to any obligation in excess
of $1,000,000 to provide funds to or make any investment in (in the form of a
loan, capital contribution or otherwise) any of its Subsidiaries, Partially
Owned Entities or other persons.
(b) CAPITALIZATION. (i) Except as set forth in Section 4.1(b) of the Kaneb
Disclosure Schedule, KSL has no limited liability company or other equity
interests issued or outstanding other than, as of the date of this Agreement,
11,692,328 KSL Common Shares (each of which includes one KSL Right). Each of
such KSL Common Shares has been duly authorized and validly issued in accordance
with applicable laws and the KSL LLC Agreement, and are fully paid and
non-assessable. From and after October 31, 2004, no KSL Common Shares have been
issued except pursuant to employee and director stock plans of KSL in effect as
of the date of this Agreement and listed on Section 4.1(b) of the Kaneb
Disclosure Schedule (the "KSL STOCK PLANS") or the KSL Deferred Share Unit
Arrangements. Except pursuant to the terms of options or deferred or restricted
stock units issued pursuant to the KSL Stock Plans or the KSL Deferred Share
Unit Arrangements and outstanding as of the date of this Agreement or issued
thereafter as expressly permitted hereby, and pursuant to the KSL Rights, KSL
does not have and is not bound by any outstanding subscriptions, options,
warrants, calls, commitments or agreements of any character calling for the
purchase or issuance of any KSL Common Shares or any other equity securities of
KSL or any securities of KSL representing the right to purchase or otherwise
receive any KSL Common Shares or any other equity securities of KSL. KSL has no
Voting Debt issued or outstanding. Section 3.2(d) of the Kaneb Disclosure
Schedule lists all KSL Stock Options and KSL Deferred Share Units outstanding as
of the date hereof.
(ii) KPP GP is the sole general partner of KPP. KPP GP is the sole record
and beneficial owner of the general partner interest and incentive distribution
rights in KPP, and such general partner interest and incentive distribution
rights have been duly authorized and validly issued in accordance with
applicable laws and the KPP Partnership Agreement. KPP GP owns such general
partner interest and incentive distribution rights free and clear of any liens,
pledges, charges, encumbrances, restrictions and security interests whatsoever
("ENCUMBRANCES"). KSL is the sole record and beneficial owner of all of the
outstanding limited liability company or other equity interests in KPP GP free
and clear of any Encumbrances. KSL owns, directly or indirectly, all of the
issued and outstanding equity securities or other equity ownership and limited
liability company interests (including but not limited to general partnership
interests) of each Subsidiary of KSL, free and clear of any Encumbrances, and
all of such limited liability company interests or equity ownership interests
are duly authorized and validly issued in accordance with applicable laws and
the applicable partnership agreement, limited liability company agreement or
other similar organizational document and are fully paid, non-assessable and
free
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of pre-emptive rights. No Subsidiary of any of the KSL Entities has or is bound
by any outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character calling for the purchase or issuance of any equity
securities or any other equity ownership interests of such Subsidiary or any
securities representing the right to purchase or otherwise receive any equity
security of such Subsidiary. No Subsidiary of any of the KSL Entities has any
Voting Debt.
(c) AUTHORITY; NO VIOLATION. Except as set forth in Section 4.1(c) of the
Kaneb Disclosure Schedule:
(i) KSL has the requisite power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby, subject
to the KSL Shareholders Approval. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly approved by unanimous vote of the Board of Directors of KSL, at a duly
convened meeting thereof. The Board of Directors of KSL has directed that this
Agreement be submitted to KSL Shareholders for approval at a meeting of KSL
Shareholders for the purpose of approving the KSL Merger and this Agreement
(including any adjournment thereof, the "KSL SHAREHOLDERS MEETING"), and, except
for the KSL Shareholders Approval, no other limited liability company or other
actions on the part of KSL are necessary to approve this Agreement and to
consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by KSL and (assuming due authorization,
execution and delivery by the VLI Entities) constitutes a valid and binding
obligation of KSL, enforceable against KSL in accordance with its terms.
(ii) Neither the execution and delivery of this Agreement by KSL, nor
the consummation by KSL of the transactions contemplated hereby, nor compliance
by KSL with any of the terms or provisions hereof, will (A) violate any
provision of the KSL LLC Agreement or the organizational documents of its
Subsidiaries, or (B) assuming that the consents and approvals referred to in
Section 4.1(d) are duly obtained, (x) violate any statute, code, ordinance,
rule, regulation, judgment, order, writ, decree or injunction applicable to KSL,
any of its Subsidiaries or Partially Owned Entities or any of its respective
properties or assets or (y) violate, conflict with, result in a breach of any
provision of or the loss of any benefit under, constitute a default (or an event
which, with notice or lapse of time, or both, would constitute a default) under,
result in the termination of or a right of termination or cancellation under,
accelerate the performance required by, accelerate any right or benefit provided
by, or result in the creation of any Encumbrance upon any of the respective
properties or assets of KSL, any of its Subsidiaries or, to the KSL Entities'
Knowledge, their Partially Owned Entities under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which KSL, any of its
Subsidiaries or Partially Owned Entities is a party, or by which they or any of
their respective properties or assets may be bound or affected, except (in the
case of clause (B) above) for such violations, conflicts, breaches or defaults
which either individually or in the aggregate will not have a Material Adverse
Effect on the KSL Entities or the Surviving LLC.
(d) CONSENTS AND APPROVALS. Except for (i) the filing of a notification and
report form under the HSR Act and the termination or expiration of the waiting
period under the HSR Act, (ii) the filing of any other required applications or
notices with any state or foreign
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agencies of competent jurisdiction and approval of such applications and notices
(the "OTHER APPROVALS"), (iii) the filing with the SEC of a proxy statement
relating to the matters to be submitted to KSL Shareholders at the KSL
Shareholders Meeting and the matters to be submitted to the VLI Unitholders at
the VLI Unitholders Meeting (such joint proxy statement/prospectus, and any
amendments or supplements thereto, the "JOINT PROXY STATEMENT/PROSPECTUS"), (iv)
the filing of the Certificate of Merger, (v) any consents, authorizations,
approvals, filings or exemptions in connection with compliance with the rules of
the NYSE, (vi) such filings and approvals as are required to be made or obtained
under the securities or "Blue Sky" laws of various states in connection with the
issuance of VLI Common Units pursuant to this Agreement (the consents,
approvals, filings and registration required under or in relation to the
foregoing clauses (ii) through (vi) being referred to as "NECESSARY CONSENTS")
and (vii) such other consents, approvals, filings and registrations the failure
of which to obtain or make would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on the KSL Entities or
the Surviving LLC, no consents or approvals of or filings or registrations with
any supranational, national, state, municipal, local or foreign government, any
instrumentality, subdivision, court, administrative agency or commission or
other authority thereof, or any quasi-governmental or private body exercising
any regulatory, taxing, importing or other governmental or quasi-governmental
authority (each, a "GOVERNMENTAL ENTITY") are necessary in connection with (A)
the execution and delivery by KSL of this Agreement and (B) the consummation by
KSL of the transactions contemplated by this Agreement.
(e) FINANCIAL REPORTS AND SEC DOCUMENTS; DISCLOSURE AND INTERNAL CONTROLS.
(i) The KSL 2003 10-K and all other reports, registration statements,
definitive proxy statements or information statements filed or to be filed by
KSL or any of its Subsidiaries subsequent to December 31, 2000 (including but
not limited to, items incorporated by reference into such reports, registration
statements, definitive proxy statements or information statements) under the
Securities Act or under Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act
in the form filed, or to be filed (collectively, the "KSL SEC DOCUMENTS"), with
the SEC, (1) complied or will comply in all material respects as to form with
the applicable requirements under the Securities Act or the Exchange Act, as the
case may be, and (2) as of its filing date, did not or will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements made therein, in light of
the circumstances under which they were made, not misleading; and each of the
balance sheets contained in or incorporated by reference into any such KSL SEC
Document (including the related notes and schedules thereto) fairly presents or
will fairly present the financial position of the entity or entities to which it
relates as of its date, and each of the statements of operations and changes in
shareholders' equity and cash flows or equivalent statements in such KSL SEC
Documents (including any related notes and schedules thereto) fairly presents or
will fairly present the results of operations, changes in shareholders' equity
and changes in cash flows, as the case may be, of the entity or entities to
which it relates for the periods to which it relates, in each case in accordance
with GAAP consistently applied during the periods involved, except, in each
case, as may be noted therein, subject to normal year-end audit adjustments in
the case of unaudited statements. There are no outstanding comments from, or
unresolved issues raised by, the SEC with respect to any of the KSL SEC
Documents. No executive officer of any of the KSL Entities has failed in any
respect to make the certification required of him or her under Sections
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302 or 906 of the Sarbanes-Oxley Act of 2002 and no enforcement action has been
initiated against KSL relating to disclosures contained in any KSL SEC Document.
(ii) Prior to the date of this Agreement and in the ordinary course of
business, KSL has established approval procedures (which, as in effect as of the
date of this Agreement, have previously been disclosed to VLI) with respect to
the open position resulting from KSL and its Subsidiaries' physical commodity
transactions, exchange-traded futures and options and over-the-counter
derivative instruments.
(iii) Except as set forth in Section 4.1(e)(iii) of the Kaneb
Disclosure Schedule, the records, systems, controls, data and information of KSL
and its respective Subsidiaries are recorded, stored, maintained and operated
under means that are under the exclusive ownership and direct control of KSL or
its Subsidiaries or accountants, except for any non-exclusive ownership and
non-direct control that would not reasonably be expected to have a materially
adverse effect on the system of internal accounting controls described in the
following sentence. KSL and its Subsidiaries have devised and maintain a system
of internal accounting controls sufficient to provide reasonable assurances
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with U.S. GAAP,
including that (1) transactions are executed only in accordance with
management's authorization; (2) transactions are recorded as necessary to permit
preparation of the financial statements of KSL and its Subsidiaries and to
maintain accountability for the assets of KSL and its Subsidiaries; (3) access
to such assets is permitted only in accordance with management's authorization;
(4) the reporting of such assets is compared with existing assets at regular
intervals; and (5) accounts, notes and other receivables and inventory are
recorded accurately, and proper and adequate procedures are implemented to
effect the collection thereof on a current and timely basis. Each of the KSL
Entities (1) has designed disclosure controls and procedures (within the meaning
of Rules 13a-15(e) and 15d-15(e) of the Exchange Act) to ensure that material
information relating to such entity and its Subsidiaries is made known to the
management of such entity (or its general partner) by others within those
entities as appropriate to allow timely decisions regarding required disclosure
and to make the certifications required by the Exchange Act with respect to the
KSL SEC Documents, and (2) has disclosed, based on its most recent evaluation
prior to the date of this Agreement, to its auditors and the audit committee of
its Board of Directors (A) any significant deficiencies in the design or
operation of internal controls which could adversely affect in any material
respect its ability to record, process, summarize and report financial data and
have disclosed to its auditors any material weaknesses in internal controls and
(B) any fraud, whether or not material, that involves management or other
employees who have a significant role in its internal controls. The KSL Entities
have made available to VLI a summary of any such disclosure made by management
to KSL's auditors and audit committee since January 1, 2002. KSL has initiated
its process of compliance with Section 404 of the Sarbanes-Oxley Act and expects
to be in full compliance therewith by the SEC mandated compliance date.
(iv) Except as set forth in Section 4.1(e)(iv) of the Kaneb Disclosure
Schedule, since July 30, 2002, (x) none of KSL or any of its Subsidiaries nor,
to the Knowledge of KSL, any director, officer, employee, auditor, accountant or
representative of either of KSL or any of its Subsidiaries has received or
otherwise had or obtained Knowledge of any material complaint, allegation,
assertion or claim, whether written or oral, regarding the accounting or
auditing practices, procedures, methodologies or methods of KSL or any of its
Subsidiaries or
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their respective internal accounting controls, including any material complaint,
allegation, assertion or claim that either of KSL or any of its Subsidiaries has
engaged in questionable accounting or auditing practices, and (y) no attorney
representing either KSL or any of its Subsidiaries, whether or not employed
thereby, has reported evidence of a material violation of securities laws,
breach of fiduciary duty or similar violation by KSL or any of its officers,
directors, employees or agents, or those of its Subsidiaries, to the Board of
Directors of KSL or any committee thereof or to any director or officer of KSL.
(f) ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in Section
4.1(f) of the Kaneb Disclosure Schedule or disclosed in the audited financial
statements (or notes thereto) included in the KSL 2003 10-K, neither KSL nor any
of its Subsidiaries had at December 31, 2003, or has incurred since that date,
any liabilities or obligations (whether absolute, accrued, contingent or
otherwise) of any nature, except (a) liabilities, obligations or contingencies
which (i) are accrued or reserved against in the financial statements in the KSL
2003 10-K with respect to KSL or its Subsidiaries, or in the notes thereto or
(ii) were incurred thereafter in the ordinary course of business and consistent
with past practices, and (b) liabilities, obligations or contingencies which (i)
would not reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect on the KSL Entities or (ii) have been discharged or paid
in full prior to the date hereof.
(g) ABSENCE OF CERTAIN CHANGES OR EVENTS.
(i) Since December 31, 2003, except as set forth in the Kaneb SEC
Documents filed prior to the date hereof, no event or events have occurred that
has had or would reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect on the KSL Entities.
(ii) Except as set forth in Section 4.1(g)(ii) of the Kaneb Disclosure
Schedule, since December 31, 2003, KSL and its Subsidiaries have carried on
their respective businesses in all material respects in the ordinary course.
(iii) Except as set forth in Section 4.1(g)(iii) of the Kaneb
Disclosure Schedule, since December 31, 2003, or as permitted under Section
5.1(h), neither KSL nor any of its Subsidiaries has (A) except for such actions
prior to the date hereof as were in the ordinary course of business consistent
with past practice or except as required by applicable law, (I) increased the
wages, salaries, compensation, pension, or other fringe benefits or perquisites
payable to any executive officer or director from the amount thereof in effect
as of December 31, 2003, or (II) granted any severance or termination pay,
entered into any contract to make or grant any severance or termination pay, or
paid any bonuses, to any executive officer or director or (B) suffered any
strike, work stoppage, slowdown, or other labor disturbance which would be
reasonably be expected to have (in the case of this clause (B) only), either
individually or in the aggregate, a Material Adverse Effect on the KSL Entities.
(iv) Since December 31, 2003 and prior to the date hereof, KSL has not
declared or made any distributions with respect to KSL Common Shares other than
its regular quarterly distributions as follows:
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Quarter Amount Per KSL Common Share
Fourth (2003) $0.475
First (2004) $0.475
Second (2004) $0.495
Third (2004) $0.495
(h) LEGAL PROCEEDINGS. Except as disclosed in the Kaneb SEC Documents filed
prior to the date hereof or in Section 4.1(h) of the Kaneb Disclosure Schedule,
there is no suit, action or proceeding or investigation pending or, to the
Knowledge of KSL, threatened, against or affecting KSL or any of its
Subsidiaries that would, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on the KSL Entities, nor is there any
judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against any of the KSL Entities or any of its
Subsidiaries having, or which would reasonably be expected to have, individually
or in the aggregate, any such effect.
(i) COMPLIANCE WITH APPLICABLE LAW. KSL and each of its Subsidiaries hold
all licenses, franchises, permits and authorizations necessary for the lawful
conduct of their respective businesses under and pursuant to each, and have
complied in all respects with and are not in default under any, applicable law,
statute, order, rule or regulation of any Governmental Entity relating to KSL or
any of its Subsidiaries, except where the failure to hold such license,
franchise, permit or authorization or such noncompliance or default would not,
either individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on the KSL Entities.
(j) CONTRACTS. Except as set forth in Section 4.1(j) of the Kaneb
Disclosure Schedule or filed as exhibits to the Kaneb SEC Documents filed prior
to the date hereof:
(i) Neither KSL nor any of its Subsidiaries is a party to or bound by
any contract, arrangement, commitment or understanding (whether written or oral)
(1), which, upon the consummation or KSL Shareholders Approval of the
transactions contemplated by this Agreement, will (either alone or upon the
occurrence of any additional acts or events) result in any payment (whether of
severance pay or otherwise) becoming due from KSL, VLI, the Surviving LLC, or
any of their respective Subsidiaries to any director, officer or employee
thereof, (2) which is a "material contract" (as such term is defined in Item
601(b)(10) of Regulation S-K), or which, if entered into, amended, terminated or
otherwise created or modified on or after the date of this Agreement, would be
required to be disclosed on a Current Report on Form 8-K filed with the SEC, to
be performed after the date of this Agreement that has not been filed or
incorporated by reference in the Kaneb SEC Documents filed prior to the date of
this Agreement, (3) which materially restricts the conduct of any line of
business by KSL or upon consummation of the KSL Merger will materially restrict
the ability of KSL, VLI or the Surviving LLC to engage in any line of business,
(4) relating to any outstanding commitment for any capital expenditure in excess
of $10,000,000, (5) with any labor union or organization, (6) except (a) as
reflected in the financial statements included in the Kaneb SEC Documents filed
prior to the date hereof, (b) as reflected in the September 30, 2004 financial
statements of KSL delivered prior to the date hereof to VLI or (c) from the date
hereof to the extent permitted under Section 5.1(g), indentures, mortgages,
liens, promissory notes, loan agreements, guarantees or other arrangements
relating to the borrowing of money by KSL or any of its Subsidiaries, (7)
containing provisions triggered
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by change of control of KSL or any of its Subsidiaries or (8) in favor of
directors or officers relating to employment or compensation or providing rights
to indemnification, or (9) between any of the KSL Entities and any of their
respective Affiliates on the one hand and Xanser Corporation or any of its
Affiliates on the other. Each contract, arrangement, commitment or understanding
of the type described in this Section 4.1(j), whether or not set forth in the
Kaneb Disclosure Schedule or in such Kaneb SEC Documents, is referred to herein
as a "KANEB CONTRACT". True and complete copies of all such Kaneb Contracts have
been made available by the Kaneb Entities to VLI.
(ii) (A) Each Kaneb Contract is valid and binding on KSL and any of
its Subsidiaries that is a party thereto, as applicable, and in full force and
effect, (B) KSL and each of its Subsidiaries has performed all obligations
required to be performed by it to date under each Kaneb Contract, except where
such noncompliance, either individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect on the KSL Entities,
and (C) neither KSL nor any of its Subsidiaries knows of, or has received notice
of, the existence of any event or condition which constitutes, or, after notice
or lapse of time or both, will constitute, a default on the part of KSL or any
of its Subsidiaries under any such Kaneb Contract, except where such default,
either individually or in the aggregate, would not reasonably be expected to
have a Material Adverse Effect on the KSL Entities.
(k) INSURANCE.
(i) Section 4.1(k) of the Kaneb Disclosure Schedule sets forth a true
and complete list of all policies of property, casualty and liability insurance,
including crime insurance, liability and casualty insurance, property insurance,
business interruption insurance, workers' compensation, excess or umbrella
liability insurance and any other type of property and casualty insurance
insuring the properties, assets, employees and/or operations of KSL or its
Subsidiaries (collectively, the "POLICIES"). Upon request, KSL will make
available to VLI certificates of insurance and insurance summaries from the
insurance broker evidencing the existence of the Policies. Except as set forth
on Section 4.1(k) of the Kaneb Disclosure Schedule, all such policies are in
full force and effect. All premiums payable under such Policies have been paid
in a timely manner and KSL, and its Subsidiaries have complied in all material
respects with the terms and conditions of all such Policies.
(ii) Except as set forth in Section 4.1(k)(ii) of the Kaneb Disclosure
Schedule, neither KSL nor any of its Subsidiaries is in default under any
provisions of the Policies, and there is no claim by KSL or any Subsidiary of
KSL or any other Person pending under any of the Policies as to which coverage
has been questioned, denied or disputed by the underwriters or issuers of such
Policies. Neither KSL nor any of its Subsidiaries has received written notice
from an insurance carrier issuing any Policies that alteration of any equipment
or any improvements located on real property, purchase of additional equipment,
or modification of any of the methods of doing business of KSL or its
Subsidiaries, will be required or suggested after the date of this Agreement,
except for any such alterations or modifications as, either individually or in
the aggregate, would not reasonably be expected to have a Material Adverse
Effect on the KSL Entities.
(l) ENVIRONMENTAL LIABILITY.
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(i) Except as set forth in Section 4.1(l) of the Kaneb Disclosure
Schedule, and except as would not have a Material Adverse Effect on the KSL
Entities: (a) KSL and its Subsidiaries, and to the Knowledge of KSL, the Kaneb
Partially Owned Entities, and their respective businesses, operations,
properties and Assets are in compliance with all Environmental Laws and all
permits, registrations, licenses, approvals, exemptions, variances, and other
authorizations required under Environmental Laws ("ENVIRONMENTAL PERMITS"); (b)
KSL, its Subsidiaries, and to the Knowledge of KSL, the Kaneb Partially Owned
Entities, have obtained or filed for all Environmental Permits for its
respective businesses, operations, properties and Assets as they currently exist
and all such Environmental Permits are currently in full force and effect; (c)
KSL, its Subsidiaries, and to the Knowledge of KSL, the Kaneb Partially Owned
Entities, and their respective businesses, operations, properties and Assets are
not subject to any pending or, to the Knowledge of the KSL, threatened claims,
actions, suits, writs, injunctions, decrees, orders, judgments, investigations,
inquiries or proceedings relating to their compliance with Environmental Laws;
(d) (i) there has been no Release of Hazardous Substances on, under or from the
current or former property owned, leased or operated by KSL, its Subsidiaries or
to the Knowledge of KSL the Kaneb Partially Owned Entities, that was required to
be reported under applicable Environmental Laws but was not so reported, and
(ii) KSL has provided the VLI Entities with copies of all reports and related
documentation regarding any Release of Hazardous Substances on, under or from
the current or former property owned, leased or operated by KSL, its respective
Subsidiaries or the Kaneb Partially Owned Entities; (e) none of KSL, its
Subsidiaries, and to the Knowledge of KSL, the Kaneb Partially Owned Entities
have received any written notice asserting an alleged liability or obligation
under any Environmental Laws involving KSL, its Subsidiaries or the Kaneb
Partially Owned Entities with respect to the actual or alleged Hazardous
Substance contamination of any property offsite of the properties of KSL; (f) to
the Knowledge of KSL or its Subsidiaries, there are not any existing, pending or
threatened actions, suits, claims, investigations, inquiries or proceedings by
or before any court or any other Governmental Entity directed against KSL, its
Subsidiaries or the Kaneb Partially Owned Entities that pertain or relate to
personal injury or property damage claims relating to a Release of Hazardous
Substances; (g) there have been no ruptures in the Pipeline Systems resulting in
personal injury, loss of life, or material property damage; (h) to the Knowledge
of KSL, there are no defects, corrosion or other damage to any of the Pipeline
Systems that could reasonably be expected to create a risk of pipeline integrity
failure; and (i) KSL has made available to VLI complete and correct information
regarding compliance matters relating to Environmental Laws in the possession of
KSL or its Subsidiaries and relating to their respective businesses, operations,
properties or Assets.
(ii) The following terms shall have the following meanings:
(1) "ENVIRONMENTAL LAWS" means any and all applicable laws,
statutes, regulations, rules, orders, ordinances, and legally
enforceable directives of and agreements between a person that is
subject to the applicable representation and any Governmental Entity
and rules of common law pertaining to protection of human health (to
the extent arising from exposure to Hazardous Substances) or the
environment (including any generation, use, storage, treatment, or
Release of Hazardous Substances into the environment) including the
Comprehensive Environmental Response, Compensation, and Liability Act,
42 U.S.C. Section 9601 ET SEQ., the Resource Conservation and Recovery
Act, 42 U.S.C. Section 6901 ET
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SEQ., the Clean Air Act, 42 U.S.C. Section 7401 ET SEQ., the Federal
Water Pollution Control Act, 33 U.S.C. Section 1251 ET SEQ., the Oil
Pollution Act of 1990, 33 U.S.C. Section 2701 ET SEQ., the Toxic
Substances Control Act, 15 U.S.C. Section 2601 ET SEQ., the Safe
Drinking Water Act, 42 U.S.C. Section 300f ET SEQ., the Occupational
Safety and Health Act, 29 U.S.C. Section 651 ET SEQ., the Atomic
Energy Act, 42 U.S.C. Section 2014 et seq., the Federal Insecticide,
Fungicide, and Rodenticide Act, 7 U.S.C. Section 136 ET SEQ., and the
Federal Hazardous Materials Transportation Law, 49 U.S.C. Section 5101
ET SEQ., as each has been amended from time to time, and all other
environmental conservation and protection laws.
(2) "HAZARDOUS SUBSTANCES" means any (a) chemical, product,
substance, waste, material, pollutant, or contaminant that is defined
or listed as hazardous or toxic or that is otherwise regulated under
any Environmental Law; (b) asbestos containing materials, whether in a
friable or non-friable condition, polychlorinated biphenyls, naturally
occurring radioactive materials or radon; and (c) any oil or gas
exploration or production waste or any petroleum, petroleum
hydrocarbons, petroleum products, crude oil and any components,
fractions, or derivatives thereof.
(3) "RELEASE" means any depositing, spilling, leaking, pumping,
pouring, emitting, discarding, emptying, discharging, injecting,
escaping, leaching, dumping, or disposing into the environment.
(m) EMPLOYEE BENEFIT PLANS; LABOR MATTERS.
(i) Section 4.1(m)(i) of the Kaneb Disclosure Schedule includes a
complete list of all Kaneb Benefit Plans.
(ii) With respect to each Kaneb Plan, KSL has delivered or made
available to VLI, as applicable, a true, correct and complete copy of: (A) each
Kaneb Plan document or a summary of any unwritten Kaneb Plan, trust agreement
and insurance contract or other funding vehicle; (B) the most recent Annual
Report (Form 5500 Series) and accompanying schedule; (C) the current summary
plan description and any material modifications thereto (in each case, whether
or not required to be furnished under ERISA); (D) the most recent annual
financial report; (E) the most recent actuarial report; and (F) the most recent
determination letter from the Internal Revenue Service. Except as specifically
provided in the foregoing documents delivered or made available to VLI, or
except as provided in Section 4.1(m)(ii) of the Kaneb Disclosure Schedule, there
are no amendments to any Kaneb Plan that have been adopted or approved nor has
KSL or any of its Subsidiaries undertaken to make any such amendments or to
adopt or approve any new Kaneb Plan.
(iii) Section 4.1(m)(iii) of the Kaneb Disclosure Schedule identifies
each Kaneb Plan that is intended to be a "qualified plan" within the meaning of
Section 401(a) of the Code ("KANEB QUALIFIED PLANS"). The Internal Revenue
Service has issued a favorable determination letter with respect to each Kaneb
Qualified Plan and the related trust, and such determination letter has not been
revoked. No circumstances exist and no events have occurred
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that could adversely affect the qualified status of any Kaneb Qualified Plan or
the related trust, which could not be corrected under the Internal Revenue
Service's Employee Plans Compliance Resolution System (Revenue Procedure
2003-44) without material liability. No Kaneb Plan is intended to meet the
requirements of Code Section 501(c)(9).
(iv) All contributions required to be made to any Kaneb Plan by
applicable law or regulation or by any plan document or other contractual
undertaking, and all premiums due or payable with respect to insurance policies
funding any Kaneb Plan, for any period through the date of this Agreement have
been timely made or, to the extent not required to be made or paid on or before
the date of this Agreement, have been fully reflected on the financial
statements. Each Kaneb Benefit Plan that is an employee welfare benefit plan
under Section 3(1) of ERISA is either (A) funded through an insurance company
contract and is not a "welfare benefit fund" with the meaning of Section 419 of
the Code or (B) unfunded.
(v) With respect to each Kaneb Plan that is subject to Title IV or
Section 302 of ERISA or Section 412 or 4971 of the Code: (A) there does not
exist any accumulated funding deficiency within the meaning of Section 412 of
the Code or Section 302 of ERISA, whether or not waived; (B) the fair market
value of the assets of such Kaneb Plan equals or exceeds the actuarial present
value of all accrued benefits under such Kaneb Plan (whether or not vested) on
an accumulated benefits obligation basis based on the most recent actuarial
report for each such plan; (C) no reportable event within the meaning of Section
4043(c) of ERISA for which the 30-day notice requirement has not been waived has
occurred, and the consummation of the transactions contemplated by this
Agreement will not result in the occurrence of any such reportable event; (D)
all premiums to the Pension Benefit Guaranty Corporation (the "PBGC") have been
timely paid in full; (E) no liability (other than for premiums to the PBGC)
under Title IV of ERISA has been or is expected to be incurred by KSL or any of
its Subsidiaries; and (F) the PBGC has not instituted proceedings to terminate
any such Kaneb Plan and, to the Knowledge of KSL, no condition exists that
presents a risk that such proceedings will be instituted or which would
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any such Kaneb Plan.
(vi) (A) No Kaneb Benefit Plan is a Multiemployer Plan or a plan that
has two or more contributing sponsors at least two of whom are not under common
control, within the meaning of Section 4063 of ERISA; and (B) neither KSL, any
of its Subsidiaries nor any ERISA Affiliates has incurred any Withdrawal
Liability that has not been satisfied in full or reasonably expects to incur any
such liability. With respect to each Kaneb Benefit Plan that is a Multiemployer
Plan, neither KSL, any of its Subsidiaries, nor any of its ERISA Affiliates has
received any notification, nor has any reason to believe, that any such
Multiemployer Plan is in reorganization, has been terminated, is insolvent, or
may reasonably be expected to be in reorganization, to be insolvent, or to be
terminated.
(vii) (A) Each of the Kaneb Plans has been operated and administered
in all material respects in accordance with applicable law and administrative
rules and regulations of any Governmental Entity, including, but not limited to,
ERISA and the Code, and (B) there are no pending or, to the Knowledge of KSL,
threatened claims (other than claims for benefits in the ordinary course),
lawsuits or arbitrations which have been asserted or instituted against the
Kaneb Plans, any fiduciaries thereof with respect to their duties to the Kaneb
Plans or
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the assets of any of the trusts under any of the Kaneb Plans which could
reasonably be expected to result in any material liability of KSL or any of its
Subsidiaries to the PBGC, the U.S. Department of the Treasury, the U.S.
Department of Labor, any Kaneb Plan, any participant in a Kaneb Plan, or any
other party.
(viii) Except as set forth in Section 4.1(m)(viii) of the Kaneb
Disclosure Schedule, KSL and its Subsidiaries have no liability for life,
health, medical or other welfare benefits to former employees or beneficiaries
or dependents thereof, except for health continuation coverage that is required
by Section 4980B of the Code or Part 6 of Title I of ERISA or that is provided
at no expense to KSL and its Subsidiaries. KSL and its Subsidiaries have
reserved the right to amend, terminate or modify at any time all plans or
arrangements providing for retiree health or life insurance coverage.
(ix) Section 4.1(m)(ix) of the Kaneb Disclosure Schedule sets forth
(A) an accurate and complete list of each Kaneb Plan under which the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby could (either alone or in conjunction with any other event),
result in, cause the accelerated vesting, funding or delivery of, or increase
the amount or value of, any payment or benefit (including the forgiveness of
indebtedness) to any employee, officer or director of KSL or any of its
Subsidiaries, or could limit the right of KSL or any of its Subsidiaries to
amend, merge, terminate or receive a reversion of assets from any Kaneb Plan or
related trust or any material employment agreement or related trust, and (B) a
reasonable good faith estimate of the maximum amount of the payments or value of
benefits that could become payable to officers and senior management of KSL or
any of its Subsidiaries if their employment were terminated at the KSL Effective
Time. No amounts or benefits payable by KSL or any of its Subsidiaries will be
"parachute payments" within the meaning of Section 280G of the Code.
(x) Except as would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect on the KSL Entities, all Kaneb
Benefit Plans subject to the laws of any jurisdiction outside of the United
States (A) have been maintained in accordance with all applicable requirements;
(B) if they are intended to qualify for special tax treatment meet all
requirements for such treatment; and (C) if they are intended to be funded
and/or book-reserved are fully funded and/or book reserved, as appropriate,
based upon reasonable actuarial assumptions.
(xi) There does not now exist, nor do any circumstances exist that
could result in, any liability (A) under Title IV of ERISA, (B) under section
302 of ERISA, (C) under sections 412 and 4971 of the Code, (D) as a result of a
failure to comply with the continuation coverage requirements of section 601 et
seq. of ERISA and section 4980B of the Code, and (E) under corresponding or
similar provisions of foreign laws or regulations, other than such liabilities
that arise solely out of, or relate solely to, the Kaneb Benefit Plans, that
would be a liability of KSL or any of its Subsidiaries following the KSL
Effective Time. Without limiting the generality of the foregoing, neither KSL
nor any of its Subsidiaries, nor any of its ERISA Affiliates, has engaged in any
transaction described in Section 4069, 4204 or 4212 of ERISA. With respect to
each Kaneb Plan, there is not now, nor do any circumstances exist that could
give rise to, any requirement for the posting of security with respect to a
Kaneb Plan or the imposition of any lien on the assets of KSL or any of its
Subsidiaries under ERISA or the Code.
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(xii) Neither KSL nor any of its Subsidiaries has any potential
liability, contingent or otherwise, under the Coal Industry Retiree Health
Benefits Act of 1992. None of KSL, any of its Subsidiaries or any entity that
was ever an ERISA Affiliate of KSL or a Subsidiary of KSL was, on July 20, 1992,
required to be treated as a single employer under Section 414 of the Code
together with an entity that was ever a party to any collective bargaining
agreement or any other agreement with the United Mine Workers of America.
(n) PROPERTY OF THE KSL ENTITIES. Except for Permitted Encumbrances,
failures that could not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the KSL Entities or as set forth in
Section 4.1(n) of the Kaneb Disclosure Schedule, KSL or its Subsidiaries have
defensible fee or leasehold title to use their other Assets, free and clear of
all Encumbrances. The KSL Entities do not own any real property.
(o) INTELLECTUAL PROPERTY. Except as would not reasonably be expected to
have a Material Adverse Effect on the KSL Entities, (i) the KSL Entities and
their Subsidiaries own, or are licensed to use, all Intellectual Property used
in and necessary for the conduct of their business as it is currently conducted,
(ii) to the Knowledge of KSL, the use of Intellectual Property by KSL and its
Subsidiaries does not infringe on or otherwise violate the rights of any third
party, and, to the extent such Intellectual Property is licensed, its use is in
accordance in all material respects with the applicable license pursuant to
which KSL acquired the right to use such Intellectual Property, (iii) to the
Knowledge of KSL, no third party is challenging, infringing on or otherwise
violating any right of any of KSL in the Intellectual Property, (iv) neither KSL
nor any of its Subsidiaries has received any written notice of any pending
claim, order or proceeding with respect to any Intellectual Property used in and
necessary for the conduct of KSL's and its Subsidiaries' businesses, as they are
presently conducted, and (v) to the Knowledge of KSL, no Intellectual Property
is being used or enforced by KSL or any of its Subsidiaries in a manner that
would reasonably be expected to result in the abandonment, cancellation or
unenforceability of any Intellectual Property used in and necessary for the
conduct of KSL's and its Subsidiaries' businesses, as they are presently
conducted.
(p) STATE TAKEOVER LAWS; RIGHTS PLAN.
(i) The Board of Directors of KSL has approved this Agreement and the
transactions contemplated by this Agreement as required under Section 18-209 of
the LLC Act and any other applicable state takeover laws and any applicable
provision of the KSL LLC Agreement so that any such state takeover laws and such
provisions will not apply to this Agreement or any of the transactions
contemplated hereby.
(ii) KSL has taken all action, if any, necessary or appropriate so
that the execution of this Agreement does not result in the ability of any
person to exercise any KSL Rights under the KSL Rights Agreement or enable or
require the KSL Rights to separate from the KSL Common Shares to which they are
attached or to be triggered or become exercisable. No "Distribution Date" or
"Share Acquisition Date" (as such terms are defined in the KSL Rights Agreement)
has occurred.
(q) OPINION OF FINANCIAL ADVISOR. KSL has received the opinion of Raymond
James & Associates Inc., dated the date of this Agreement, to the effect that
the KSL Considera-
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tion to be received by KSL Shareholders in the KSL Merger is fair to such KSL
Shareholders (excluding VLI or any Affiliate or associate thereof, any Kaneb
Entity or any Affiliate or associate thereof, or any director or executive
officer of any Kaneb Entity) from a financial point of view.
(r) BOARD APPROVAL AND GENERAL PARTNER APPROVAL. The Board of Directors of
KSL, at a meeting duly called and held, has by unanimous vote of those directors
present, (i) determined that this Agreement and the transactions contemplated
hereby are advisable, fair to and in the best interests of the KSL Shareholders,
(ii) approved and adopted this Agreement and (iii) recommended that the KSL
Merger and this Agreement be approved and adopted by the KSL Shareholders.
(s) BROKER'S FEES. Neither KSL nor any of its Subsidiaries nor any of their
respective officers or directors has employed any broker or finder or incurred
any liability for any broker's fees, commissions or finder's fees in connection
with the transactions contemplated by this Agreement.
(t) TAXES. Except in each case for any exceptions that are immaterial
individually and in the aggregate or as set forth in Section 4.1(t) of the Kaneb
Disclosure Schedule: (i) all Tax Returns that were required to be filed by or
with respect to KSL or any of its Subsidiaries have been duly and timely filed,
(ii) all items of income, gain, loss, deduction and credit or other items
required to be included in each such Tax Return, have been so included, (iii)
all Taxes owed by KSL or any of its Subsidiaries that are or have become due
have been timely paid in full or an adequate reserve for the payment of such
Taxes has been established, (iv) all Tax withholding and deposit requirements
imposed on or with respect to KSL or any of its Subsidiaries have been satisfied
in full in all respects, (v) there are no Encumbrances on any of the assets of
KSL or any of its Subsidiaries that arose in connection with any failure (or
alleged failure) to pay any Tax, (vi) there is no written claim against KSL or
any of its Subsidiaries for any Taxes, and no assessment, deficiency or
adjustment has been asserted, proposed, or threatened in writing with respect to
any Tax Return of or with respect to KSL or any of its Subsidiaries, (vii) there
is not in force any extension of time with respect to the due date for the
filing of any Tax Return of or with respect to KSL or any of its Subsidiaries or
any waiver or agreement for any extension of time for the assessment or payment
of any Tax of or with respect to KSL or any of its Subsidiaries, (viii) neither
KSL nor any of its Subsidiaries will be required to include any amount in income
for any taxable period as a result of a change in accounting method for any
taxable period ending on or before the Closing Date or pursuant to any agreement
with any Tax authority with respect to any such taxable period, (ix) except as
set forth in Section 4.1(t)(ix) of the Kaneb Disclosure Schedule, neither KSL
nor any of its Subsidiaries is a party to a Tax allocation or sharing agreement,
and no payments are due or will become due by KSL or any of its Subsidiaries
pursuant to any such agreement or arrangement or any Tax indemnification
agreement, (x) neither KSL nor any of its Subsidiaries has been a member of an
affiliated group filing a consolidated federal income Tax Return or has any
liability for the Taxes of any Person (other than KSL or any of its
Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any similar
provision of state, local, or foreign law), as a transferee or successor, by
contract, or otherwise, (xi) KSL is a "publicly traded partnership" for United
States federal income tax purposes, and (xii) at least 90% of the gross income
of KSL for each taxable year since its formation has been from sources that will
be treated as "qualifying income" within the meaning of section 7704(d) of the
Code.
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(u) LABOR RELATIONS; COLLECTIVE BARGAINING AGREEMENTS. Except as set forth
on Section 4.1(u) of the Kaneb Disclosure Schedule, neither KSL nor any of its
Subsidiaries is a party to any collective bargaining or other labor union
contract applicable to persons employed by KSL or its Subsidiaries, and no
collective bargaining agreement or other labor union contract is being
negotiated by KSL or its Subsidiaries. No labor organization or group of
employees of KSL or its Subsidiaries has made a pending demand for recognition
or certification, and there are no representation or certification proceedings
or petitions seeking a representation proceeding presently pending or, to the
Knowledge of KSL, threatened to be brought or filed, with the National Labor
Relations Board or any other labor relations tribunal or authority. Except as
would not reasonably be expected to have a Material Adverse Effect on the KSL
Entities, (i) there is no labor dispute, strike, slowdown or work stoppage
against KSL or any of its Subsidiaries pending or, to the Knowledge of KSL,
threatened against KSL or any of its Subsidiaries and (ii) no unfair labor
practice or labor charge or complaint has occurred with respect to KSL or its
Subsidiaries.
(v) REGULATION AS A UTILITY; INVESTMENT COMPANY. None of the KSL Entities
nor any of its Subsidiaries is (i) an "investment company", as defined in, or
subject to regulation under, the Investment Company Act of 1940, as amended, or
(ii) (1) a "public-utility company" or a "holding company" or (2) a "subsidiary
company" or an "affiliate" of a "public-utility company" or a "holding company,"
as such terms are defined in the Public Utility Holding Company Act of 1935, as
amended. Except as set forth in Section 4.1(v) of the Kaneb Disclosure Schedule,
none of the KSL Entities or their Affiliates, all or part of whose rates or
services are regulated by a Governmental Entity, is a party to any proceeding
before a Governmental Entity that could reasonably be expected to result in
orders having a Material Adverse Effect with respect to the KSL Entities, nor to
the Knowledge of the KSL Entities has notice of such a proceeding been given or
has any Governmental Entity indicated to any of the KSL Entities its intention
to hold such a proceeding.
4.2 REPRESENTATIONS AND WARRANTIES OF VLI. Except as disclosed in a section
of the VLI disclosure schedule delivered to KSL concurrently herewith (the "VLI
DISCLOSURE SCHEDULE") corresponding to the subsection of this Section 4.2 to
which such disclosure applies or as specifically identified in the VLI SEC
Documents filed prior to the date hereof, VLI hereby represents and warrants to
KSL as follows:
(a) ORGANIZATION.
(i) Each of VLI, VLI GP and Parent GP is a limited partnership
duly organized, validly existing and in good standing under the laws of the
State of Delaware.
(ii) Each Subsidiary of VLI is duly organized, validly existing under
the laws of the State of Delaware and in good standing under the laws of the
State of Delaware.
(iii) VLI GP is the sole general partner of VLI. VLI GP is the sole
record and beneficial owner of the general partner interest in VLI, and such
general partner interest has been duly authorized and validly issued in
accordance with applicable laws and the VLI Partnership Agreement. VLI GP owns
such general partner interest free and clear of any Encumbrances. VLI GP is the
sole record and beneficial owner of all of the VLI Incentive Distribution Rights
and owns such rights free and clear of all Encumbrances.
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(iv) Parent GP is the sole general partner of VLI GP. Parent GP is the
sole record and beneficial owner of the general partner interest in VLI GP, and
such general partner interest has been duly authorized and validly issued in
accordance with applicable laws and the VLI GP partnership agreement. Parent GP
owns such general partner interest free and clear of any Encumbrances.
(b) AUTHORITY; NO VIOLATION.
(i) Each of the VLI Entities has full power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby, subject to VLI Unitholders Approval. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly and validly approved by VLI Sub A and VLI, as its sole member, and by VLI
GP. Parent GP, on behalf of VLI GP, has directed that the KPP Merger Agreement
be submitted to VLI Unitholders for approval at a meeting of VLI Unitholders for
the purpose of approving the issuance of VLI Common Units in the KPP Merger (the
"VLI UNITHOLDERS MEETING"), and except for the approval of the issuance of VLI
Common Units in the KPP Merger by both the holders of a majority of the
outstanding VLI Common Units and the holders of a majority of the outstanding
VLI Subordinated Units, each voting as a separate class, at a meeting of VLI's
unitholders at which a quorum is present (the "VLI UNITHOLDERS APPROVAL"), no
other proceedings on the part of any VLI Entity are necessary to approve this
Agreement or the KPP Merger Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by the VLI Entities and (assuming due authorization, execution and
delivery by KSL) constitutes a valid and binding obligation of the VLI Entities,
enforceable against the VLI Entities in accordance with its terms.
(ii) Neither the execution and delivery of this Agreement by VLI, nor
the consummation by VLI of the transactions contemplated hereby, nor compliance
by VLI with any of the terms or provisions hereof, will (A) violate any
provision of the VLI Partnership Agreement or the organizational documents or
its Subsidiaries, (B) assuming that the consents and approvals referred to in
Section 4.2(c) are duly obtained, (x) violate any statute, code, ordinance,
rule, regulation, judgment, order, writ, decree or injunction applicable to VLI,
any of its Subsidiaries or Partially Owned Entities or any of their respective
properties or assets or (y) violate, conflict with, result in a breach of any
provision of or the loss of any benefit under, constitute a default (or an event
which, with notice or lapse of time, or both, would constitute a default) under,
result in the termination of or a right of termination or cancellation under,
accelerate the performance required by, accelerate any right or benefit provided
by, or result in the creation of any Encumbrance upon any of the properties or
assets of VLI, any of its Subsidiaries or, to the VLI Entities' Knowledge, the
Partially Owned Entities under any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which VLI, any of its Subsidiaries or
Partially Owned Entities is a party, or by which they or any of their properties
or assets may be bound or affected, except (in the case of clause (y) above) for
such violations, conflicts, breaches or defaults which, either individually or
in the aggregate, will not have a Material Adverse Effect on VLI.
(c) CONSENTS AND APPROVALS. Except for (i) the filing of a notification and
report form under the HSR Act and the termination or expiration of the waiting
period under the HSR Act, (ii) the Other Approvals, (iii) the filing of the
Certificate of Merger, (iv) any consents,
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authorizations, approvals, filings or exemptions in connection with compliance
with the rules of the NYSE, (v) such other consents, approvals, filings and
registrations the failure of which to obtain or make would not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect on
VLI, no consents or approvals of or filings or registrations with any
Governmental Entity are necessary in connection with (A) the execution and
delivery by the VLI Entities of this Agreement and (B) the consummation by the
VLI Entities of the transactions contemplated by this Agreement.
(d) OPINION OF FINANCIAL ADVISOR. VLI has received the opinion of
Credit Suisse First Boston LLC, dated the date of this Agreement, to the effect
that, as of the date of this Agreement, the aggregate consideration to be paid
by VLI in the KPP Merger and the KSL Merger is fair to VLI from a financial
point of view.
(e) GENERAL PARTNER APPROVAL. VLI GP has (i) determined that this
Agreement and the transactions contemplated hereby are advisable, fair to and in
the best interests of the unitholders of VLI, (ii) approved and adopted this
Agreement, and (iii) recommended the approval of the issuance of the VLI Common
Units by the VLI Unitholders as contemplated by the KPP Merger Agreement.
(f) BROKER'S FEES. Neither VLI nor any of its Subsidiaries nor any of
its respective officers or directors has employed any broker or finder or
incurred any liability for any broker's fees, commissions or finder's fees in
connection with the transactions contemplated by this Agreement, excluding fees
to be paid to Credit Suisse First Boston LLC and Citigroup Global Markets Inc.
(g) FINANCING. VLI, taken together with its Subsidiaries, will have
available on the Closing Date sufficient funds to enable it to consummate the
transactions contemplated by this Agreement.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1 COVENANTS OF KSL. During the period from the date of this Agreement and
continuing until the KSL Effective Time, KSL agrees as to itself and its
Subsidiaries that without the written consent of VLI, which consent shall not be
unreasonably withheld or delayed (except as expressly contemplated or permitted
by this Agreement or a correspondingly numbered subsection of the Kaneb
Disclosure Schedule):
(a) ORDINARY COURSE.
(i) KSL and its Subsidiaries shall carry on their respective busines-
ses in the ordinary course consistent with past practices in all material
respects, in substantially the same manner as heretofore conducted, and shall
use their reasonable best efforts consistent with the other provisions of this
Agreement to keep available the services of their respective present officers
and key employees, preserve intact their present lines of business, maintain
their rights and franchises and preserve their relationships with customers,
suppliers and others having busi-
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ness dealings with them to the end that their ongoing businesses shall not be
impaired in any material respect at the KSL Effective Time.
(ii) KSL shall not, and shall not permit any of its Subsidiaries to,
(A) enter into any new material line of business or (B) incur or commit to any
capital expenditures or any obligations or liabilities in connection therewith,
other than capital expenditures and obligations or liabilities in connection
therewith (I) not exceeding $1 million individually, or $3 million in the
aggregate, or (II) contemplated by the 2004 or 2005 capital budget approved by
the board of directors of KSL and set forth on Section 5.1(a)(ii) of the Kaneb
Disclosure Schedule.
(b) DISTRIBUTIONS; CHANGES IN SHARE CAPITAL. Except as required under the
KSL LLC Agreement, KSL shall not, and shall not permit any of its Subsidiaries
to, and shall not propose to, (i) declare or pay any distributions or in respect
of any of its equity securities, except (x) the declaration and payment of
regular quarterly cash distributions not in excess of $0.495 per KSL Common
Share with usual record and payment dates for such distributions in accordance
with past distribution practice and (y) the declaration and payment of regular
distributions from a wholly owned Subsidiary of any of the KSL Entities to its
parent KSL Entity or to another wholly owned Subsidiary of such parent KSL
Entity in accordance with past distribution practice, (ii) split, combine or
reclassify any of its equity securities or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in substitution
for, its equity securities, except for any such transaction by a wholly owned
Subsidiary of any KSL Entity which remains a wholly owned Subsidiary of such KSL
Entity after consummation of such transaction, or (iii) repurchase, redeem or
otherwise acquire any of its equity securities or any securities convertible
into or exercisable for any equity securities.
(c) ISSUANCE OF SECURITIES. The KSL Entities shall not, and shall not
permit any of their respective Subsidiaries to, issue, deliver, sell, pledge or
dispose of, or authorize or propose the issuance, delivery, sale, pledge or
disposition of, any of its equity securities, any Voting Debt or any securities
convertible into or exercisable for, or any rights, warrants, calls or options
to acquire, any such shares or Voting Debt, or enter into any commitment,
arrangement, undertaking or agreement with respect to any of the foregoing,
other than (i) the issuance of KSL Common Shares (and the associated KSL Rights)
upon the exercise of KSL Stock Options outstanding as of the date of this
Agreement or in satisfaction of KSL Deferred Share Units unsatisfied as of the
date of this Agreement, in each case in accordance with their present terms,
(ii) issuances, sales or deliveries by a wholly owned Subsidiary of any of the
KSL Entities of equity securities or partnership units to such Subsidiary's
parent or another wholly owned Subsidiary of any of the KSL Entities or (iii)
issuances in accordance with the KSL Rights Agreement.
(d) GOVERNING DOCUMENTS. Except to the extent required to comply with its
obligations hereunder or with applicable law, KSL shall not and shall cause each
of its Subsidiaries not to amend or propose to amend its partnership agreement
or limited liability company agreement or similar organizational documents.
(e) NO ACQUISITIONS. Except for acquisitions (i) set forth in Section
5.1(e) of the Kaneb Disclosure Schedule or (ii) in the ordinary course of
business consistent with past practice that do not exceed $1 million
individually or $3 million in the aggregate, KSL shall not, and shall not permit
any of its Subsidiaries to, acquire or agree to acquire by merger or
consoli-
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dation, or by purchasing a substantial equity interest in or a substantial
portion of the assets of, or by any other manner, any business or any
corporation, partnership, association or other business organization or division
thereof or otherwise acquire or agree to acquire any assets (excluding the
acquisition of assets used in the operations of the business of KSL and its
Subsidiaries in the ordinary course, which assets do not constitute a business
unit, division or all or substantially all of the assets of the transferor and
which acquisitions are in the ordinary course of business consistent with past
practice).
(f) NO DISPOSITIONS. KSL shall not, and shall not permit any of its
Subsidiaries to, sell, lease or otherwise dispose of, or agree to sell, lease or
otherwise dispose of, in each case including but not limited to by way of
merger, any of its assets (including equity securities or partnership units of
Subsidiaries of KSL), except for, in the case of assets that are not equity
securities or partnership units, dispositions or encumbrances of immaterial
assets in the ordinary course of business consistent with past practice.
(g) INVESTMENTS; INDEBTEDNESS. KSL shall not, and shall not permit any of
its Subsidiaries to, (i) make any loans, advances or capital contributions to,
or investments in, any other Person, other than (x) loans or investments by KSL
or any of its wholly owned Subsidiaries to any of their wholly owned
Subsidiaries or parent wholly owning such entity, (y) in the ordinary course of
business consistent with past practice which are not, individually or in the
aggregate, material to KSL and its Subsidiaries taken as a whole (PROVIDED that
none of such transactions referred to in this clause (y) presents a material
risk of making it more difficult to obtain any approval or authorization
required in connection with the KSL Merger under Regulatory Law) or (ii) except
for additional borrowings under existing loan arrangements, incur any
indebtedness for borrowed money or guarantee or assume any such indebtedness of
another Person, issue or sell any debt securities or warrants or other rights to
acquire any debt securities of KSL or any of its Subsidiaries, guarantee any
debt securities of another person, enter into any "keep well" or other agreement
to maintain any financial statement condition of another Person (other than any
wholly owned Subsidiary or KPP or any wholly owned Subsidiary of KPP) or enter
into any arrangement having the economic effect of any of the foregoing.
Notwithstanding any other provision of this Agreement, KSL and its Subsidiaries
shall be entitled to transfer funds and make payments to KPP and its
Subsidiaries (i) to reimburse KPP and its Subsidiaries for obligations (which
otherwise were incurred in compliance with the KPP Merger Agreement) of KSL or
its Subsidiaries incurred by KPP or its Subsidiaries or (ii) in the ordinary
course of business consistent with past practice.
(h) COMPENSATION. Except (i) as disclosed on Section 5.1(h) of the Kaneb
Disclosure Schedule or except as required by law or by the terms of any
collective bargaining agreement or other agreement in effect as of the date
hereof between KSL or its Subsidiaries and any director, officer or employee
thereof identified on Section 5.1(h) of the Kaneb Disclosure Schedule, or (ii)
as otherwise agreed by KSL and VLI, KSL shall not and shall not permit any of
its Subsidiaries to (A) increase the amount of compensation of, or pay any
severance to, any director, officer or employee of KSL or its Subsidiaries
(except for increases in base salary or wages to employees who are not directors
or officers of the foregoing entities in the ordinary course of business
consistent with past practice), (B) make any increase in or commitment to
increase any employee benefits, (C) grant any additional KSL Stock Options or
other equity-based awards or permit the deferral or accrual of any amounts under
the KSL Deferred Share Unit Ar-
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rangements or any similar plan, (D) adopt, enter into or amend, make any
commitment to adopt, enter into or amend, or take any action to clarify any
provision of, any Kaneb Benefit Plan, (E) fund or make any contribution to any
Kaneb Benefit Plan or any related trust or other funding vehicles, other than
regularly scheduled contributions to trusts funding qualified plans, or (F)
adopt, enter into or amend any collective bargaining agreement or other
arrangement relating to union or organized employees.
(i) ACCOUNTING METHODS; TAX ELECTIONS. Except as disclosed in Kaneb SEC
Documents filed prior to the date of this Agreement, or as required by a
Governmental Entity, KSL shall not change in any material respect its methods of
accounting in effect at December 31, 2003, except as required by changes in GAAP
as concurred in by KSL's independent public accountants. KSL shall not (i)
change its fiscal year or any method of tax accounting, (ii) make any material
Tax election or (iii) settle or compromise any material liability for Taxes.
(j) MATERIAL CONTRACTS. Other than in the ordinary course of business
consistent with past practice or as disclosed on Section 5.1(j) of the Kaneb
Disclosure Schedule, KSL and its Subsidiaries shall not enter into any contract
or agreement that would be a Kaneb Contract if in existence as of the date of
this Agreement or terminate or amend in any material respect any Kaneb Contract
or waive any material rights under any Kaneb Contract.
(k) SETTLEMENT OF DISPUTES. KSL and its Subsidiaries shall not settle any
claim, demand, lawsuit or state or federal regulatory proceeding (i) for damages
to the extent such settlement in the aggregate assesses damages in excess of
$500,000 or (ii) seeking an injunction or any other equitable relief, except in
case of clause (i) a settlement of any such claim, demand, lawsuit or state or
federal regulatory proceeding within the specific amount reserved and identified
on Section 5.1(k) of the Kaneb Disclosure Schedule, provided that such
settlement achieves a full, final and non-appealable resolution of the matter
reserved.
(l) INSURANCE. KSL shall use commercially reasonable efforts to maintain
with financially responsible insurance companies insurance in such amounts and
against such risks and losses as are now carried by KSL and its Subsidiaries.
(m) GOVERNMENTAL FILINGS. KSL shall file on a timely basis all material
notices, reports, returns and other filings required to be filed with or
reported to any Governmental Entity, as well as all applications and other
documents necessary to maintain, renew or extend any material permit, license,
variance or any other approval required by any Governmental Entity for the
continuing operation of its business.
(n) CERTAIN ACTIONS. KSL and its Subsidiaries shall not take any action or
omit to take any action which action or omission would reasonably be expected to
prevent or materially delay or impede the consummation of the KSL Merger or the
other transactions contemplated by this Agreement.
(o) NO RELATED ACTIONS. KSL shall not, and shall not permit any of its
Subsidiaries to, agree or commit to do any of the foregoing.
5.2 COVENANTS OF VLI. During the period from the date of this Agreement and
continuing until the KSL Effective Time, each of the VLI Entities agrees as to
itself and its Sub-
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sidiaries that without the written consent of KSL, which consent shall not be
unreasonably withheld or delayed (except as expressly contemplated or permitted
by this Agreement or a correspondingly numbered subsection of the VLI Disclosure
Schedule):
(a) CERTAIN ACTIONS. The VLI Entities and their Subsidiaries shall not take
any action or omit to take any action which action or omission would reasonably
be expected to prevent or materially delay or impede the consummation of the
Merger, the other transactions contemplated by this Agreement or the payment of
the KSL Consideration.
(b) NO RELATED ACTIONS. Each of the VLI Entities shall not, and shall not
permit any of its Subsidiaries to, agree or commit to do any of the foregoing.
5.3 GOVERNMENTAL FILINGS. To the extent permitted by law or regulation or
any applicable confidentiality agreement, KSL and VLI shall confer on a
reasonable basis with each other on operational matters. KSL and VLI shall file
all reports required to be filed by each of them with the SEC (and all other
Governmental Entities) between the date of this Agreement and the KSL Effective
Time and shall, if requested by the other and (to the extent permitted by law or
regulation or any applicable confidentiality agreement) deliver to the other
party copies of all such reports, announcements and publications promptly upon
request.
5.4 CONTROL OF OTHER PARTY'S BUSINESS. Nothing contained in this Agreement
shall give KSL, directly or indirectly, the right to control or direct VLI's
operations or give VLI, directly or indirectly, the right to control or direct
KSL's operations prior to the KSL Effective Time. Prior to the KSL Effective
Time, KSL and VLI shall exercise, consistent with the terms and conditions of
this Agreement, complete control and supervision over its respective operations.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 PREPARATION OF PROXY STATEMENT; SHAREHOLDERS MEETINGS.
(a) As promptly as reasonably practicable following the date of this
Agreement, VLI and KSL shall cooperate in preparing and each shall cause to be
filed with the SEC mutually acceptable proxy materials which shall constitute
the Joint Proxy Statement/Prospectus and VLI shall prepare and file with the SEC
the Form S-4. The Joint Proxy Statement/Prospectus will be included as a
prospectus in and will constitute a part of the Form S-4 as VLI's prospectus.
Each of VLI and KSL shall use reasonable best efforts to have the Joint Proxy
Statement/Prospectus cleared by the SEC and the Form S-4 declared effective by
the SEC. VLI and KSL shall, as promptly as practicable after receipt thereof,
provide each other with copies of any written comments, and advise each other of
any oral comments, with respect to the Joint Proxy Statement/Prospectus or Form
S-4 received from the SEC. The parties shall cooperate and provide the other
party with a reasonable opportunity to review and comment on any amendment or
supplement to the Joint Proxy Statement/Prospectus and Form S-4 prior to filing
such with the SEC and will provide each other with a copy of all such filings
made with the SEC. Notwithstanding any other provision herein to the contrary,
no amendment or supplement (including by
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incorporation by reference) to the Joint Proxy Statement/Prospectus or the Form
S-4 shall be made without the approval of both VLI and KSL, which approval shall
not be unreasonably withheld or delayed; PROVIDED that, with respect to
documents filed by a party which are incorporated by reference in the Form S-4
or the Joint Proxy Statement/Prospectus, this right of approval shall apply only
with respect to information relating to the other party or its business,
financial condition or results of operations. VLI will use reasonable best
efforts to cause the Joint Proxy Statement/Prospectus to be mailed to the VLI
Unitholders, and KSL will use reasonable best efforts to cause the Joint Proxy
Statement/Prospectus to be mailed to KSL Shareholders, in each case as promptly
as practicable after the Form S-4 is declared effective under the Securities
Act. Each party will advise the other party, promptly after it receives notice
thereof, of the time when the Form S-4 has become effective, the issuance of any
stop order, the suspension of the qualification of the VLI Common Units issuable
in connection with the KPP Merger for offering or sale in any jurisdiction, or
any request by the SEC for amendment of the Joint Proxy Statement/Prospectus or
the Form S-4. If, at any time prior to the KSL Effective Time, any information
relating to VLI or KSL, or any of their respective Affiliates, officers or
directors, is discovered by VLI or KSL and such information should be set forth
in an amendment or supplement to either of the Form S-4 or the Joint Proxy
Statement/Prospectus so that any of such documents would not include any
misstatement of a material fact or omit to state any material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, the party discovering such information shall promptly
notify the other party hereto and, to the extent required by law, rules or
regulations, an appropriate amendment or supplement describing such information
shall be promptly filed with the SEC and disseminated to the KSL Shareholders
and the VLI Unitholders.
KSL shall use its reasonable best efforts to ensure that none of the
information to be supplied by KSL or its Subsidiaries in the Joint Proxy
Statement/Prospectus shall, at the time of the mailing of the Joint Proxy
Statement/Prospectus and any amendments or supplements thereto, and at the time
of each of the KSL Shareholders Meeting, and the VLI Unitholders Meeting,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not
misleading. KSL shall use its reasonable best efforts to ensure that the Joint
Proxy Statement/Prospectus will comply, as of its mailing date, as to form in
all material respects with all applicable laws, including the provisions of the
Exchange Act and the rules and regulations promulgated thereunder, except that
no covenant is made by KSL with respect to information supplied by VLI for
inclusion in any filing by KSL with the SEC.
VLI shall use its reasonable best efforts to ensure that none of the
information to be supplied by the VLI Entities or their Subsidiaries in the
Joint Proxy Statement/Prospectus will, at the time of the mailing of the Joint
Proxy Statement/Prospectus and any amendments or supplements thereto, and at the
time of each of the KSL Shareholders Meeting and the VLI Unitholders Meeting,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not
misleading. VLI shall use its reasonable best efforts to ensure that the Joint
Proxy Statement/Prospectus will comply, as of its mailing date, as to form in
all material respects with all applicable laws, including the provisions of the
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Exchange Act and the rules and regulations promulgated thereunder, except that
no covenant is made by the VLI Entities with respect to information supplied by
KSL for inclusion therein.
(b) KSL shall duly take all lawful action to call, give notice of, convene
and hold the KSL Shareholders Meeting as soon as practicable on a date
determined in accordance with the mutual agreement of VLI and KSL for the
purpose of obtaining the KSL Shareholder Approval and, subject to Section 6.4,
shall take all lawful action to solicit the KSL Shareholder Approval. The Board
of Directors of KSL (i) shall recommend the approval and adoption of the plan of
merger contained in this Agreement by the KSL Shareholders to the effect as set
forth in Section 4.1(r) (the "KANEB RECOMMENDATION"), and (ii) shall not, unless
VLI first makes a Change in the VLI Recommendation, (x) withdraw, modify or
qualify (or propose to withdraw, modify or qualify) in any manner adverse to VLI
the Kaneb Recommendation or (y) take any action or make any statement in
connection with the KSL Shareholder Meeting inconsistent with such
recommendation (collectively, a "CHANGE IN THE KANEB RECOMMENDATION"); PROVIDED,
HOWEVER, that the Board of Directors of KSL may make a Change in the Kaneb
Recommendation pursuant to Section 6.4 hereof. KSL agrees, in its capacity as a
KPP Unitholder, that it shall cause all KPP Units beneficially owned by it or
any of its Subsidiaries (whether beneficially owned as of the date hereof or
acquired thereafter and prior to the record date for the KPP Unitholders
Meeting) to be present for quorum purposes at the KPP Unitholders Meeting and
shall vote or cause to be voted such KPP Units in favor of the approval and
adoption of the KPP Merger Agreement and the transactions contemplated thereby,
and against any Acquisition Proposal at any meeting of KPP Unitholders at which
such proposal may be considered.
(c) VLI shall duly take all lawful action to call, give notice of, convene
and hold the VLI Unitholders Meeting as soon as practicable on a date determined
in accordance with the mutual agreement of VLI and KSL for the purpose of
obtaining the VLI Unitholders Approval and shall take all lawful action to
solicit the VLI Unitholders Approval. The Board of Directors of VLI GP shall
recommend the approval of the issuance of VLI Common Units in the KPP Merger by
the VLI Unitholders to the effect set forth in Section 4.2(e) (the "VLI
RECOMMENDATION"), and shall not, unless the board of directors of KSL (pursuant
to this Agreement) or the board of directors of KPP GP (pursuant to the KPP
Merger Agreement) first makes a Change in the Kaneb Recommendation (as defined
in this Agreement and in the KPP Merger Agreement), (x) withdraw, modify or
qualify (or propose to withdraw, modify or qualify) in any manner adverse to the
Kaneb Entities the VLI Recommendation or (y) take any action or make any
statement in connection with the VLI Unitholders Meeting inconsistent with such
recommendation (collectively, a "CHANGE IN THE VLI RECOMMENDATION").
6.2 ACCESS TO INFORMATION. Upon reasonable notice, each party shall (and
shall cause its Subsidiaries to), except as prohibited by law, afford to the
officers, employees, accountants, counsel, financial advisors and other
representatives of the other party reasonable access during normal business
hours, during the period prior to the Effective Times, to all its properties,
books, contracts, commitments, records, officers and employees, and, during such
period, such party shall (and shall cause its Subsidiaries to) furnish promptly
to the other party (a) a copy of each report, schedule, registration statement
and other document filed, published, announced or received by it in connection
with the transactions contemplated by this Agreement during such period pursuant
to the requirements of Federal, state or foreign laws (including, without
limitation, pursuant to the HSR Act, the Securities Act, the Exchange Act and
the rules
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of any Governmental Entity thereunder), as applicable (other than documents
which such party is not permitted to disclose under applicable law), and (b) all
other information concerning it and its business, properties and personnel as
such other party may reasonably request; PROVIDED, HOWEVER, that either party
may restrict the foregoing access to the extent that (i) any law, treaty, rule
or regulation of any Governmental Entity applicable to such party or any
contract requires such party or its Subsidiaries to restrict or prohibit access
to any such properties or information or (ii) such disclosure of the information
would breach confidentiality obligations owed to a third party (provided,
further, that if the circumstances of the preceding proviso occur, the parties
will use reasonable best efforts to agree upon alternate disclosure methods to
convey, to the maximum extent possible, the substance of such information to the
requesting party). The parties will hold any information obtained pursuant to
this Section 6.2 in confidence in accordance with, and shall otherwise be
subject to, the provisions of the amended and restated confidentiality agreement
dated August 8, 2004, between KPP, KSL and VLI (the "CONFIDENTIALITY
AGREEMENT"), which Confidentiality Agreement shall continue in full force and
effect. Any investigation by either VLI or KSL shall not affect the
representations and warranties of the other.
6.3 REASONABLE BEST EFFORTS.
(a) Subject to the terms and conditions of this Agreement, each party
hereto will use its reasonable best efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper or
advisable under this Agreement and applicable laws and regulations to consummate
the KSL Merger and the other transactions contemplated by this Agreement as soon
as reasonably practicable after the date of this Agreement, including (i)
preparing and filing as promptly as practicable all documentation to effect all
necessary applications, notices, petitions, filings, and other documents and to
obtain as promptly as reasonably practicable all Necessary Consents and all
other consents, waivers, licenses, orders, registrations, approvals, permits,
rulings, authorizations and clearances necessary or advisable to be obtained
from any third party and/or any Governmental Entity in order to consummate the
KSL Merger or any of the other transactions contemplated by this Agreement
(collectively, the "REQUIRED APPROVALS") and (ii) using its reasonable best
efforts to obtain all such Necessary Consents and the Required Approvals. In
furtherance of and not in limitation of the foregoing, each of VLI and KSL
agrees (i) to make (A) as promptly as reasonably practicable, an appropriate
filing of a Notification and Report Form pursuant to the HSR Act with respect to
the transactions contemplated hereby, (B) as promptly as reasonably practicable,
appropriate filings with the Canadian Competition Commission, if required, in
accordance with applicable competition, merger control, antitrust, investment or
similar laws, and (C) as promptly as reasonably practicable, all other necessary
filings with other Governmental Entities relating to the KSL Merger, and, to
supply as promptly as reasonably practicable any additional information or
documentation that may be requested pursuant to such laws or by such authorities
and to use reasonable best efforts to cause the expiration or termination of the
applicable waiting periods under the HSR Act and the receipt of Required
Approvals under such other laws or from such authorities as soon as reasonably
practicable and (ii) not to extend any waiting period under the HSR Act or enter
into any agreement with the FTC or the DOJ not to consummate the transactions
contemplated by this Agreement, except with the prior written consent of the
other parties hereto (which shall not be unreasonably withheld or delayed).
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(b) Each of KSL and the VLI Entities shall, in connection with the efforts
referenced in Section 6.3(a) to obtain all Required Approvals, use its
reasonable best efforts to (i) cooperate in all respects with each other in
connection with any filing or submission and in connection with any
investigation or other inquiry, including any proceeding initiated by a private
party, (ii) subject to applicable law, permit the other party to review in
advance any proposed written communication between it and any Governmental
Entity, (iii) promptly inform each other of (and, at the other party's
reasonable request, supply to such other party) any communication (or other
correspondence or memoranda) received by such party from, or given by such party
to, the DOJ, the FTC or any other Governmental Entity and of any material
communication received or given in connection with any proceeding by a private
party, in each case regarding any of the transactions contemplated hereby, (iv)
consult with each other in advance to the extent practicable of any meeting or
conference with the DOJ, the FTC or any other Governmental Entity or, in
connection with any proceeding by a private party, with any other Person, and to
the extent permitted by the DOJ, the FTC or such other applicable Governmental
Entity or other Person, give the other party the opportunity to attend and
participate in such meetings and conferences, and (v) subject to any action
taken by the parties pursuant to Section 6.3(c), respond promptly and fully to
any "second request" or other request for information in connection with filings
required by the HSR Act or any similar or corresponding foreign or state
statute, law, rule or regulation.
(c) In furtherance and not in limitation (except as otherwise expressly set
forth) of the covenants of the parties contained in Section 6.3(a) and 6.3(b),
if any administrative or judicial action or proceeding, including any proceeding
by a private party, is instituted (or threatened to be instituted) challenging
any transaction contemplated by this Agreement as violative of any regulatory
law, or if any statute, rule, regulation, executive order, decree, injunction or
administrative order is enacted, entered, promulgated or enforced by a
Governmental Entity which would make the KSL Merger or the other transactions
contemplated hereby illegal or would otherwise prohibit or materially impair or
delay the consummation of the KSL Merger or the other transactions contemplated
hereby, KSL and the VLI Entities shall cooperate with each other in all respects
in responding thereto, and each party shall use its respective reasonable best
efforts in responding thereto, including (i) contesting and resisting any such
action or proceeding, and to have vacated, lifted, reversed or overturned any
decree, judgment, injunction or other order, whether temporary, preliminary or
permanent, that is in effect and that prohibits, prevents or restricts
consummation of the KSL Merger or the other transactions contemplated by this
Agreement and to have such statute, rule, regulation, executive order, decree,
injunction or administrative order repealed, rescinded or made inapplicable so
as to permit consummation of the transactions contemplated by this Agreement and
(ii) holding separate or otherwise disposing of or conducting their business in
a specified manner, or agreeing to sell, hold separate or otherwise dispose of
or conduct their business in a specified manner or permitting the sale, holding
separate or other disposition of, assets of VLI, KSL or its Subsidiaries or the
conducting of their business in a specified manner, provided that the actions
described in this clause (ii) would not reasonably be expected to have a
Material Adverse Effect on the VLI Entities taken as a whole, the Kaneb Entities
taken as a whole, or the combined VLI Entities and Kaneb Entities after
consummation of the KSL Merger. Notwithstanding the foregoing or any other
provision of this Agreement, nothing in this Section 6.3 shall limit a party's
right to terminate this Agreement pursuant to Section 8.1(b) or 8.1(c) so long
as such party has up to then complied with its obligations under this Section
6.3.
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(d) Each of the VLI Entities and KSL and their respective Boards of
Directors and general partners shall, if any state takeover statute or similar
statute becomes applicable to this Agreement, the KSL Merger or any other
transactions contemplated hereby, take all action reasonably necessary to ensure
that the KSL Merger and the other transactions contemplated by this Agreement
may be consummated as promptly as practicable on the terms contemplated hereby
and otherwise to minimize the effect of such statute or regulation on this
Agreement, the KSL Merger and the other transactions contemplated hereby.
6.4 ACQUISITION PROPOSALS.
(a) KSL agrees that neither it nor any of its Subsidiaries nor any of its
officers and directors nor those of its Subsidiaries shall, and that it shall
cause its and its Subsidiaries' employees, agents and representatives (including
any investment banker, attorney or accountant retained by it or any of its
Subsidiaries) not to, directly or indirectly, (i) initiate, solicit, encourage
or knowingly take any action that facilitates any inquiries, or the making of
any proposal or offer, with respect to, or a transaction to effect, a merger,
reorganization, share exchange, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving KSL
or any of its Subsidiaries, or any purchase, sale or other transfer of 10% or
more of the consolidated assets of KSL (including stock of its Subsidiaries) of
it or its Subsidiaries, or any purchase or sale of, or tender or exchange offer
for, or other transfer of, its equity securities that, if consummated, would
result in any Person (or the shareholders of such Person) beneficially owning
securities representing 10% or more of the total voting power of KSL or the
voting power of any of its Subsidiaries (any such proposal, offer or
transaction, other than (a) a proposal or offer made by VLI or an Affiliate
thereof, or (b) a proposal, offer or transaction solely involving the equity
securities of KPP to the extent KPP and KPP GP comply with their obligation
relating thereto under the KPP Merger Agreement, being hereinafter referred to
as an "ACQUISITION PROPOSAL"), (ii) except as the board of directors of KSL
determines in good faith, after consultation with outside counsel and taking
into account any change in the terms of the KSL Merger or other proposal made
reasonably promptly by VLI after being notified pursuant to Section 6.4(b), that
doing so is necessary for such directors to comply with their fiduciary duties
under applicable law (and in such case only after entering into a
confidentiality agreement with such Person on terms no less favorable to KSL
than the Confidentiality Agreement and conditioned upon contemporaneously
providing to VLI a copy of any such information or data that it is providing to
any such Person pursuant to this Section 6.4 to the extent not previously
provided or made available to VLI), have any discussion with or provide any
confidential information or data to any Person relating to an Acquisition
Proposal, or engage in any negotiations concerning an Acquisition Proposal,
(iii) approve or recommend, or propose publicly to approve or recommend, any
Acquisition Proposal or (iv) approve or recommend, or propose to approve or
recommend, or execute or enter into, any letter of intent, agreement in
principle, merger agreement, acquisition agreement, option agreement or other
similar agreement or propose publicly or agree to do any of the foregoing
related to any Acquisition Proposal.
(b Notwithstanding anything in this Agreement to the contrary, KSL (and the
Board of Directors of KSL shall be permitted to (A) take and publicly disclose a
position to the extent necessary to comply with Rule 14d-9 or Rule 14e-2
promulgated under the Exchange Act with regard to an Acquisition Proposal (to
the extent applicable), (B) effect a Change in the Kaneb Recommendation, or (C)
engage in discussions or negotiations with, or provide any informa-
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tion (whether confidential, non-public or otherwise) to, any Person in response
to an unsolicited bona fide written Acquisition Proposal by any such Person, if
and only to the extent that, in any such case referred to in clause (B) or (C),
(I) the KSL Shareholder Meeting shall not have occurred other than as a result
of a breach by KSL of its obligations pursuant to Section 6.1, (II) (y) in the
case of clause (B) above, it has received an unsolicited bona fide written
Acquisition Proposal from a third party not in violation of Section 6.4(a) and
the Board of Directors of KSL concludes in good faith that such Acquisition
Proposal constitutes a Superior Proposal, (III) in the case of clause (B) or (C)
above, the Board of Directors of KSL, after receipt of the advice of outside
counsel, determines in good faith that doing so is necessary for such directors
to comply with their fiduciary duties under applicable law, (IV) prior to
providing any information or data permitted to be provided pursuant to this
sentence, KSL shall have entered into a confidentiality agreement with such
Person on terms no less favorable to the KSL than the Confidentiality Agreement,
and shall have provided to VLI a copy of any such information or data that it is
providing to any such Person pursuant to this Section 6.4 to the extent not
previously provided or made available to VLI, and (V) prior to providing any
information or data to any Person or entering into discussions or negotiations
with any Person, KSL shall notify VLI promptly of such inquiries, proposals or
offers received by, any such information requested from, or any such discussions
or negotiations sought to be initiated or continued with, any of its
representatives indicating, in connection with such notice, the name of such
Person and the material terms and conditions of any inquiries, proposals or
offers, along with a copy of the relevant proposed transaction agreements, if
such exist, with the party making such Acquisition Proposal. KSL agrees that it
will promptly keep VLI reasonably informed of the status and terms of any
inquiries, proposals or offers and the status and terms of any discussions or
negotiations, including the identity of the party making such inquiry, proposal
or offer. KSL agrees that it will, and will cause its officers, directors and
employees and use its reasonable best efforts to cause its representatives to,
immediately cease and cause to be terminated any activities, discussions or
negotiations existing as of the date of this Agreement with any parties (other
than the parties to this Agreement) conducted heretofore with respect to any
Acquisition Proposal. KSL agrees that it will use reasonable best efforts to
promptly inform its directors, officers, key employees, agents and
representatives of the obligations undertaken in this Section 6.4.
6.5 FEES AND EXPENSES. Subject to Section 8.2, whether or not the KSL
Merger is consummated, all Expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such Expenses, except Expenses incurred in connection with any filings under the
HSR Act the filing, printing and mailing of the Joint Proxy
Statement/Prospectus, which shall be shared equally by VLI, on the one hand, and
the Kaneb Entities, on the other hand.
6.6 DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE.
(a) The indemnification provisions of the KSL LLC Agreement as in effect as
of the date hereof shall not be amended, repealed or otherwise modified for a
period of at least six years from the KSL Effective Time in any manner that
would adversely affect the rights thereunder of individuals who at the KSL
Effective Time would be entitled to indemnification by KSL under the KSL LLC
Agreement. At the KSL Effective Time, VLI shall cause the Surviving LLC to honor
in accordance with their respective terms each of the covenants contained in
this Section 6.6 applicable thereto.
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(b) Without limiting Section 6.6(a), but without duplication of any right
or benefit thereunder, after the KSL Effective Time, each of VLI and the
Surviving LLC shall, to the fullest extent permitted under applicable law,
indemnify and hold harmless, each present and former director, officer and
employee of KSL or any of its Subsidiaries (each, together with such person's
heirs, executors or administrators, an "INDEMNIFIED PARTY" and collectively, the
"INDEMNIFIED PARTIES"), in their capacity as such, against any costs or expenses
(including reasonable attorneys' fees), judgments, fines, losses, claims,
damages, liabilities and amounts paid in settlement in connection with any
actual or threatened claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, arising out of, relating to or
in connection with (x) any action or omission occurring or alleged to occur
prior to the KSL Effective Time (including, without limitation, acts or
omissions in connection with such persons serving as an officer, director,
manager, partner, employee or other fiduciary in any entity if such service was
at the request of KSL) and (y) the KSL Merger and the other transactions
contemplated by this Agreement or arising out of or pertaining to the
transactions contemplated by this Agreement. In the event of any such actual or
threatened claim, action, suit, proceeding or investigation (whether arising
before or after the Effective Time), (i) KSL or VLI and the Surviving LLC, as
the case may be, shall pay the reasonable fees and expenses of counsel selected
by the Indemnified Parties, which counsel shall be reasonably satisfactory to
VLI and the Surviving LLC, promptly after statements therefor are received and
shall pay all other reasonable expenses in advance of the final disposition of
such action, subject to the receipt of any undertaking (which need not be
secured) by or on behalf of the Indemnified Party to repay such amount if it
shall be determined that such Person is not entitled to be indemnified pursuant
to the KSL LLC Agreement, (ii) VLI and the Surviving LLC will use all reasonable
efforts to assist in and cooperate in the defense of any such matter, and (iii)
to the extent any determination is required to be made with respect to whether
an Indemnified Party's conduct complies with the standards set forth under
Delaware law and VLI's or the Surviving LLC's respective partnership agreement,
such determination shall be made by independent legal counsel acceptable to VLI
or the Surviving LLC, as the case may be, and the Indemnified Party; provided,
however, that neither VLI nor the Surviving LLC shall be liable for any
settlement effected without its prior written consent (which consent shall not
be unreasonably withheld) and, provided further, that if VLI or the Surviving
LLC advances or pays any amount to any Person under this paragraph (b) and if it
shall thereafter be finally determined by a court of competent jurisdiction that
such Person was not entitled to be indemnified hereunder for all or any portion
of such amount, to the extent required by law, such person shall repay such
amount or such portion thereof, as the case may be, to VLI or the Surviving LLC,
as the case may be. The Indemnified Parties as a group may not retain more than
one law firm to represent them with respect to each matter unless there is,
under applicable standards of professional conduct, a conflict requiring
separate representation on any significant issue between the positions of any
two or more Indemnified Parties.
(c) In the event the Surviving LLC or VLI or any of their successors or
assigns (i) consolidates with or merges into any other Person and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger, or (ii) transfers all or substantially all of its properties and assets
to any Person, then and in each such case, proper provisions shall be made so
that the successors and assigns of the Surviving LLC or VLI shall assume the
obligations of the Surviving LLC or VLI, as the case may be, set forth in this
Section 6.6.
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(d) For a period of six years after the KSL Effective Time, VLI shall cause
to be maintained in effect the current policies of directors' and officers'
liability insurance maintained by KSL and its Subsidiaries with respect to
matters arising on or before the KSL Effective Time (provided that VLI may
substitute therefor policies of at least the same coverage and amounts
containing terms and conditions that are no less advantageous to the Indemnified
Parties, and which coverages and amounts shall be no less than the coverages and
amounts provided at that time for VLI's directors and officers) with respect to
matters arising on or before the KSL Effective Time; provided, however,
PROVIDED, HOWEVER, that in no event shall VLI (or any such successor) be
required to expend in any one year an amount in excess of 200% of the annual
premiums currently paid by KSL and its Subsidiaries for such insurance; and,
PROVIDED FURTHER that if the annual premiums of such insurance coverage exceed
such amount, VLI (or any such successor) shall obtain a policy with the greatest
coverage available for a cost not exceeding such amount.
(e) The rights of each Indemnified Party hereunder shall be in addition to,
and not in limitation of, any other rights such Indemnified Party may have under
the KSL LLC Agreement, any indemnification agreement, Delaware law or otherwise,
but shall in no event entitle any Indemnified Party to duplicative payments or
reimbursement. The provisions of this Section 6.6 shall survive the consummation
of the KSL Merger and expressly are intended to benefit each of the Indemnified
Parties.
(f) VLI shall pay all reasonable expenses, including reasonable attorneys
fees that may be incurred by an Indemnified Party in enforcing the indemnity and
other obligations provided in this Section 6.6 to the extent such Indemnified
Party is finally determined to be successful on the merits.
(g) Nothing contained in this Section 6.6 shall provide, or shall be
interpreted as providing, any individual with rights or benefits that are
duplicative of those that may be provided under any similar provisions of the
KPP Merger Agreement.
6.7 EMPLOYEE BENEFITS.
(a) Following the KSL Effective Time until the first anniversary of the KSL
Effective Time, Parent GP shall provide, or shall cause to be provided, to
individuals who are employees of KSL and its Subsidiaries immediately before the
KSL Effective Time and who continue to be employed by any of the VLI Entities
after the KSL Effective Time (the "KANEB EMPLOYEES") employee benefits (other
than any equity-based benefits) that are, in the aggregate, not less favorable
than those generally provided to Kaneb Employees as of the date of this
Agreement, as disclosed by KSL to VLI immediately prior to the date of this
Agreement. Notwithstanding anything contained herein to the contrary, Kaneb
Employees who are covered under a collective bargaining agreement shall be
provided the benefits that are required by such collective bargaining agreement
from time to time.
(b) (i) For purposes of eligibility and vesting under the employee benefit
plans of the VLI Entities and their respective Subsidiaries providing benefits
to any Kaneb Employee after the KSL Effective Time (the "NEW PLANS") and (ii)
solely for purposes of levels of vacation and severance benefits under the
severance and vacation benefit plans providing benefits to any
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Kaneb Employee after the KSL Effective Time, each Kaneb Employee shall be
credited with his or her years of service with KSL and its Subsidiaries and
predecessor employers before the KSL Effective Time, to the same extent as such
Kaneb Employee was entitled, before the KSL Effective Time, to credit for such
service under any similar Kaneb Benefit Plans, except to the extent such credit
would result in a duplication of benefits. In addition, and without limiting the
generality of the foregoing: (i) each Kaneb Employee shall be immediately
eligible to participate, without any waiting time, in any and all New Plans to
the extent coverage under such New Plan replaces coverage under a Kaneb Benefit
Plan in which such Kaneb Employee participated immediately prior to the KSL
Effective Time (such plans, collectively, the "OLD PLANS"); and (ii) for
purposes of each New Plan providing medical, dental, pharmaceutical and/or
vision benefits to any Kaneb Employee, Parent GP or the other applicable VLI
Entity shall cause all pre-existing condition exclusions and actively-at-work
requirements of such New Plan to be waived for such employee and his or her
covered dependents, and Parent GP or the other applicable VLI Entity shall cause
any eligible expenses incurred by such employee and his or her covered
dependents - during the portion of the plan year of the Old Plan ending on the
date such employee's participation in the corresponding New Plan begins - to be
taken into account under such New Plan for purposes of satisfying all
deductible, coinsurance and maximum out-of-pocket requirements applicable to
such employee and his or her covered dependents for the applicable plan year as
if such amounts had been paid in accordance with such New Plan.
(c) Parent GP or the other applicable VLI Entity will honor, in accordance
with their terms, all vested and accrued benefit obligations to, and contractual
rights of, current and former employees of KSL and its Subsidiaries which are
disclosed in Section 4.1(m)(i) of the Kaneb Disclosure Schedules. Nothing in
this Agreement shall be interpreted as preventing Parent GP or the other
applicable VLI Entity from amending, modifying or terminating any Kaneb Benefit
Plan or other contract, arrangement, commitment or understanding, in accordance
with their terms and applicable law. This Agreement is not intended, and it
shall not be construed, to create third party beneficiary rights for any current
or former employees of KSL or its Subsidiaries (including any beneficiaries or
dependents thereof) under or with respect to any plan, program, or arrangement
described or contemplated by this Agreement.
(d) VLI and the Kaneb Entities will take all actions necessary to satisfy
the obligations set forth on Section 6.7(d) of the Kaneb Disclosure Schedule in
accordance with the procedure set forth therein. Nothing contained in this
Section 6.7 shall provide, or shall be interpreted as providing, any individual
with rights or benefits that are duplicative of those that may be provided under
any similar provisions of the KPP Merger Agreement.
6.8 PUBLIC ANNOUNCEMENTS. Neither the VLI Entities nor KSL shall, and
neither the VLI Entities nor KSL shall permit any of their respective
Subsidiaries to, issue or cause the publication of any press release or other
public announcement with respect to, or otherwise make any public statement
concerning, the transactions contemplated by this Agreement without the prior
consent (which consent shall not be unreasonably withheld) of VLI, in the case
of a proposed announcement or statement by KSL, or KSL in the case of a proposed
announcement or statement by any of the VLI Entities; provided, however, that
either party may, without the prior consent of the other party (but after prior
consultation with the other party to the extent practicable under the
circumstances) issue or cause the publication of any press release or other
public announcement to the extent required by law or by the rules and
regulations of the NYSE.
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6.9 KSL RIGHTS AGREEMENT. The Board of Directors of KSL shall take all
action to the extent necessary (including amending the KSL Rights Agreement) in
order to render the KSL Rights inapplicable to the KSL Merger and the KPP Merger
and the other transactions contemplated by this Agreement. Except in connection
with the foregoing sentence, the Board of Directors of KSL shall not, without
the prior written consent of VLI, (i) amend or waive any provision of the KSL
Rights Agreement or (ii) take any action with respect to, or make any
determination under, the KSL Rights Agreement, including a redemption or
exchange of the KSL Rights, in each case in order to, or that would reasonably
be expected to, facilitate any Acquisition Proposal with respect to KSL.
6.10 SECTION 16 MATTERS. Prior to the KSL Effective Time, to the extent
permitted by law KSL shall take all such steps as may be required to cause any
dispositions of KSL Common Shares (including derivative securities with respect
to Kaneb Entities equity securities or partnership interests) or acquisitions of
VLI Common Units (including derivative securities with respect to VLI Entities
equity securities) resulting from the transactions contemplated by Article II or
Article III of this Agreement by each individual who is subject to the reporting
requirements of Section 16(a) of the Exchange Act with respect to KSL or will
become subject to such reporting requirements with respect to VLI, to be exempt
under Rule 16b-3 promulgated under the Exchange Act.
6.11 ACCOUNTANTS' LETTER. KSL shall use their reasonable best efforts to
cause to be delivered to VLI a letter from their independent public accountants
addressed to VLI, dated a date within two Business Days before the date on which
the Form S-4 shall become effective, in form and substance reasonably
satisfactory to VLI and customary in scope and substance for letters delivered
by independent public accountants in connection with registration statements
similar to the Form S-4. VLI shall use its reasonable best efforts to cause to
be delivered to the Kaneb Entities a letter from its independent public
accountants addressed to the Kaneb Entities, dated a date within two Business
Days before the date on which the Form S-4 shall become effective in form and
substance reasonably satisfactory to the Kaneb Entities and customary in scope
and substance for letters delivered by independent public accountants in
connection with registration statements similar to the Form S-4.
6.12 TAX MATTERS. KSL and the VLI Entities agree and consent to treat the
KSL Merger as a transaction governed by Rev. Rul. 99-6, 1999-1 C.B. 432
(Situation 2); PROVIDED FURTHER, that, to the extent applicable, each holder of
a KSL Common Share shall be deemed to have consented for federal income tax
purposes (and to the extent applicable state and local income tax purposes) to
report the KSL Merger as a sale of the holder's KSL Common Shares to VLI
consistent with Treasury Regulation Section 1.708-1(c)(4). Further, if pursuant
to a determination (as that term is defined in section 1313 of the Code), the
KSL Merger is classified as an "asset-over" transaction under Treasury
Regulation Section 1.708-1(c)(3)(i), KSL hereby consents to report such deemed
transfer for federal income tax purposes to VLI of its general partner interests
in KPP and KSL Owned Units as a sale of such interests to VLI consistent with
Treasury Regulation Section 1.708-1(c)(4).
6.13 OTHER AGREEMENTS. KPP or KSL shall pay the amount to the extent due
and payable as set forth on and pursuant to Section 6.13 of the Kaneb Disclosure
Schedule.
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ARTICLE VII
CONDITIONS PRECEDENT
7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE KSL MERGER. The
respective obligations of KSL and VLI to effect the KSL Merger are subject to
the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) SHAREHOLDER AND UNITHOLDER APPROVAL. (i) KSL shall have obtained the
KSL Shareholders Approval and (ii) VLI shall have obtained the VLI Unitholders
Approval.
(b) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No law shall have been
adopted or promulgated, and no temporary restraining order, preliminary or
permanent injunction or other order issued by a court or other Governmental
Entity of competent jurisdiction shall be in effect, having the effect of making
the KSL Merger illegal or otherwise prohibiting consummation of the KSL Merger.
(c) HSR ACT; OTHER APPROVALS. (i) The waiting period (and any extension
thereof) applicable to the KSL Merger under the HSR Act shall have been
terminated or shall have expired, without the imposition of any condition or
requirement that would be expected to have a Material Adverse Effect on the VLI
Entities taken as a whole, the Kaneb Entities taken as a whole, or the combined
VLI Entities and Kaneb Entities after consummation of the KSL Merger, and (ii)
all Other Approvals shall have been obtained, except those Other Approvals the
failure of which to obtain would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on VLI or the KSL
Entities.
7.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF VLI. The obligations of VLI to
effect the KSL Merger are subject to the satisfaction, or waiver by VLI, on or
prior to the Closing Date, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of KSL set forth in this Agreement that is qualified as to
materiality or Material Adverse Effect shall be true and correct, and each of
the representations and warranties of KSL set forth in this Agreement that is
not so qualified shall be true and correct in all material respects, in each
case as of the date of this Agreement and as of the Closing Date as though made
on and as of the Closing Date (except to the extent that such representations
and warranties speak as of another date, in which case such representations and
warranties shall be so true and correct as of such other date); PROVIDED,
HOWEVER, that no such representations or warranties shall be deemed to have
failed to be true and correct for purposes of this Section 7.2(a) unless the
failure of such representations and warranties to be true and correct,
disregarding for this purpose all qualifications and exceptions contained
therein relating to materiality or Material Adverse Effect, would, individually
or in the aggregate, reasonably be expected to result in (A) an adverse effect
on the KSL Entities involving $20,000,000 or more (individually or in the
aggregate) or (B) a Material Adverse Effect on the KSL Entities. In addition to
the requirements of the preceding sentence, the representations and warranties
set forth in Sections 4.1(a) and (b) that are not qualified therein as to
Material Adverse Effect or materiality shall be true and correct in all material
respects and those that are so qualified shall be true and correct. VLI shall
have received a certifi-
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ate of an executive officer of KSL to the effect of the preceding provisions of
this Section 7.2(a).
(b) PERFORMANCE OF OBLIGATIONS OF KSL. KSL shall have performed or complied
in all material respects with all material agreements and covenants required to
be performed by it under this Agreement at or prior to the Closing Date, except
for non-willful failures to comply that would not, individually or in the
aggregate, have a Material Adverse Effect on the combined VLI Entities and the
KSL Entities after the consummation of the KSL Merger and VLI shall have
received a certificate of an executive officer of KSL to such effect.
(c) TAX OPINION. VLI shall have received an opinion of each of Andrews
Kurth LLP and Wachtell, Lipton, Rosen & Katz dated as of the Closing Date to the
effect that (i) no VLI Entity will recognize any income or gain as a result of
the KSL Merger or the KPP Merger (other than any gain resulting from any
decrease in partnership liabilities pursuant to section 752 of the Code), (ii)
no gain or loss will be recognized by holders of VLI Common Units as a result of
the KSL Merger or the KPP Merger (other than any gain resulting from any
decrease in partnership liabilities pursuant to section 752 of the Code), and
(iii) 90% of the combined gross income of each of VLI, KSL and KPP for the most
recent four complete calendar quarters ending before the Closing Date for which
the necessary financial information is available are from sources treated as
"qualifying income" within the meaning of section 7704(d) of the Code. In
rendering such opinion, such counsel shall be entitled to receive and rely upon
representations of officers of the VLI Entities and the Kaneb Entities and any
of their respective Affiliates as to such matters as such counsel may reasonably
request.
(d) CONSUMMATION OF THE KPP MERGER. The KPP Merger shall be capable of
being consummated immediately succeeding the consummation of the KSL Merger.
7.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF KSL. The obligations of KSL to
effect the KSL Merger are subject to the satisfaction, or waiver by KSL, on or
prior to the Closing Date, of the following additional conditions:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of VLI set forth in this Agreement that is qualified as to
materiality or Material Adverse Effect shall be true and correct, and each of
the representations and warranties of VLI set forth in this Agreement that is
not so qualified shall be true and correct in all material respects, in each
case as of the date of this Agreement and as of the Closing Date as though made
on and as of the Closing Date (except to the extent that such representations
and warranties speak as of another date, in which case such representations and
warranties shall be so true and correct as of such other date); PROVIDED,
HOWEVER, that no such representations or warranties shall be deemed to have
failed to be true and correct for purposes of this Section 7.3(a) unless the
failure of such representations and warranties to be true and correct,
disregarding for this purpose all qualifications and exceptions contained
therein relating to materiality or Material Adverse Effect, would, individually
or in the aggregate, have a Material Adverse Effect on VLI. In addition to the
requirements of the preceding sentence, that the representations and warranties
set forth in Sections 4.2(a) and (b) that are not qualified therein as to
Material Adverse Effect or materiality shall be true and correct in all material
respects and those that are so qualified shall be true and correct.
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KSL shall have received a certificate of an executive officer of VLI to the
effect of the preceding provisions of this Section 7.3(a).
(b) PERFORMANCE OF OBLIGATIONS OF VLI. VLI shall have performed or complied
in all material respects with all material agreements and covenants required to
be performed by it under this Agreement at or prior to the Closing Date, except
for non-willful failures to comply that would not, individually or in the
aggregate, have a Material Adverse Effect on the combined VLI Entities and the
KSL Entities after the consummation of the KSL Merger and KSL shall have
received a certificate of an executive officer of VLI to such effect.
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 TERMINATION. This Agreement may be terminated at any time prior to the
KSL Effective Time, by action taken or authorized by the Board of Directors of
the terminating party or parties, and except as specifically provided below,
whether before or after the KSL Shareholders Meeting or the VLI Unitholders
Meeting:
(a) By mutual written consent of VLI and KSL;
(b) By either VLI or KSL, if the KSL Effective Time shall not have occurred
on or before the date that is ten (10) months after the date hereof (the
"TERMINATION DATE"); PROVIDED, HOWEVER, that the right to terminate this
Agreement under this Section 8.1(b) shall not be available to any party whose
failure to fulfill any obligation under this Agreement (including such party's
obligations set forth in Section 6.3) has been the primary cause of, or resulted
in, the failure of the KSL Effective Time to occur on or before the Termination
Date;
(c) By either VLI or KSL if any Governmental Entity (i) shall have issued
an order, decree or ruling or taken any other action (which the parties shall
have used their reasonable best efforts to resist, resolve or lift, as
applicable, in accordance with Section 6.3) permanently restraining, enjoining
or otherwise prohibiting the transactions contemplated by this Agreement, and
such order, decree, ruling or other action shall have become final and
nonappealable or (ii) shall have failed to issue an order, decree or ruling or
to take any other action which is necessary to fulfill the conditions set forth
in Sections 7.1(c), and such denial of a request to issue such order, decree,
ruling or the failure to take such other action shall have become final and
nonappealable (which order, decree, ruling or other action the parties shall
have used their reasonable best efforts to obtain, in accordance with Section
6.3); PROVIDED, HOWEVER, that the right to terminate this Agreement under this
Section 8.1(c) shall not be available to any party whose failure to comply with
Section 6.3 has been the primary cause of such action or inaction;
(d) By either VLI or KSL, if either the VLI Unitholders Approval or the KSL
Shareholders Approval has not been obtained by reason of the failure to obtain
the required vote at the VLI Unitholders Meeting or the KSL Shareholders
Meeting, as applicable;
(e) By VLI, if KSL shall have breached or failed to perform any of its
representations, warranties, covenants or other agreements contained in this
Agreement, such that the
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conditions set forth in Section 7.2(a) or (b) are not capable of being satisfied
on or before the Termination Date;
(f) By KSL, if VLI shall have breached or failed to perform any of its
representations, warranties, covenants or other agreements contained in this
Agreement, such that the conditions set forth in Section 7.3(a) or (b) are not
capable of being satisfied on or before the Termination Date;
(g) By KSL, if VLI shall have either (i) failed to make the VLI
Recommendation or effected a Change in the VLI Recommendation (or resolved to
take any such action), whether or not permitted by the terms hereof, or (ii)
materially breached its obligations under this Agreement by reason of a failure
to call the VLI Unitholders Meeting in accordance with Section 6.1(c) or a
failure to prepare and mail to its shareholders the Joint Proxy
Statement/Prospectus in accordance with Section 6.1(a);
(h) By VLI, if KSL shall have either (i) failed to make the Kaneb
Recommendation or effected a Change in the Kaneb Recommendation (or resolved to
take any such action), whether or not permitted by the terms hereof, or (ii)
materially breached its obligations under this Agreement by reason of a failure
to call the KSL Shareholders Meeting in accordance with Section 6.1(b) or a
failure to prepare and mail to the KSL Shareholders the Joint Proxy
Statement/Prospectus in accordance with Section 6.1(a);
(i) By KSL, if the Board of Directors of KSL has provided written notice to
VLI that KSL intends to enter into a binding written agreement for a Superior
Proposal (with such termination becoming effective, if VLI does not make the
offer contemplated by clause (iii) below, on the business day immediately
following the five business day period contemplated thereby, or otherwise, upon
KSL entering into such binding written agreement); provided, however, that (i)
KSL shall have complied with Section 6.4 hereof in all material respects; (ii)
KSL shall have (A) notified VLI in writing of its receipt of such Superior
Proposal, (B) further notified VLI in such writing that KSL intends to enter
into a binding agreement with respect to such Superior Proposal subject to
clause (iii) below and (C) attached the most current written version of such
Superior Proposal (or a summary containing all material terms and conditions of
such Superior Proposal) to such notice; and (iii) VLI does not make, within five
business days after receipt of KSL's written notice pursuant to clause (ii)
above, an offer that the Board of Directors of KSL shall have reasonably
concluded in good faith (following consultation with its financial advisor and
outside counsel) is at least as favorable to the KSL Shareholders as such
Superior Proposal; or
(j) By VLI, if the KPP Merger Agreement has been terminated without
consummation of the transactions contemplated thereby.
8.2 EFFECT OF TERMINATION.
(a) In the event of termination of this Agreement by KSL or VLI as provided
in Section 8.1, this Agreement shall forthwith become void and there shall be no
liability or obligation on the part of any party to this Agreement or their
respective officers or directors except as otherwise expressly set forth herein
and except with respect to Section 4.1(s), Section 4.2(f),
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the second sentence of Section 6.2, Section 6.5, this Section 8.2 and Article
IX, which provisions shall survive such termination; PROVIDED that,
notwithstanding anything to the contrary contained in this Agreement, neither
VLI nor KSL shall be relieved or released from any liabilities or damages
arising out of its intentional or willful and material breach of this Agreement.
(b) If (A) (I) KSL or VLI terminates this Agreement pursuant to Section
8.1(d) as a result of the failure to obtain the required vote at the KSL
Shareholder Meeting, or pursuant to Section 8.1(b) without the KSL Shareholder
Meetings having occurred, (II) VLI terminates this Agreement pursuant to Section
8.1(h), (III) VLI terminates this Agreement pursuant to Section 8.1(e), or (IV)
KSL terminates this Agreement pursuant to Section 8.1(i), (B) at any time after
the date of this Agreement and before such termination an Acquisition Proposal
with respect to KSL shall have been publicly announced or otherwise communicated
to the senior management, Board of Directors of KSL, or to KSL Shareholders and
(C) within 18 months of such termination KSL or any of its Subsidiaries enters
into any definitive agreement with respect to, or the Board of Directors of KSL
or any of its Subsidiaries recommends that KSL Shareholders approve, adopt or
accept, any Acquisition Proposal and such Acquisition Proposal is consummated at
any time, KSL shall promptly, but in no event later than one Business Day, after
consummation of such Acquisition Proposal, pay VLI, subject to the last sentence
of Section 8.2(d), an aggregate amount equal to the KSL Termination Fee by wire
transfer of immediately available funds.
(c) If (A) (I) KSL or VLI terminates this Agreement pursuant to Section
8.1(d) as a result of the failure to obtain the required vote at the VLI
Unitholders Meeting, or pursuant to Section 8.1(b) without the VLI Unitholders
Meetings having occurred, (II) KSL terminates this Agreement pursuant to Section
8.1(f), or (III) KSL terminates this Agreement pursuant to Section 8.1(g), (B)
at any time after the date of this Agreement and before such termination there
shall have been publicly announced or otherwise communicated to Parent GP, VLI
GP, the senior management or unitholders of VLI a proposal for the acquisition
by a third party of 10% or more of the consolidated assets (including stock of
its Subsidiaries) of VLI and its Subsidiaries, taken as a whole, or of 10% or
more of its total voting power, whether by merger, reorganization, share
exchange, consolidation, business combination, recapitalization, liquidation,
dissolution, tender offer or exchange offer or similar transaction or series of
related transactions and (C) within 18 months of the such termination VLI or any
of its Subsidiaries consummates or enters into any definitive agreement with
respect to, or VLI GP or any of its Subsidiaries recommends that its respective
unitholders or stockholders approve, adopt or accept, a transaction or series of
related transactions contemplated by clause (B), then in the case of a
termination, VLI shall promptly, but in no event later than one Business Day,
after consummation of the transactions contemplated by clause (B), pay KSL,
subject to the last sentence of Section 8.2(d), an aggregate amount equal to the
VLI Termination Fee by wire transfer of immediately available funds.
(d) The parties hereto acknowledge that the agreements contained in this
Section 8.2 are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, neither party would enter into
this Agreement; accordingly, if either party fails promptly to pay any amount
due pursuant to this Section 8.2, and, in order to obtain such payment, the
other party commences a suit which results in a judgment against such party for
the fee set forth in this Section 8.2, such party shall pay to the other party
its costs and expenses (includ-
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ing attorneys' fees and expenses) in connection with such suit, together with
interest on the amount of the fee at the prime rate of Citibank, N.A. in effect
on the date such payment was required to be made, notwithstanding the provisions
of Section 6.5. The parties hereto agree that any remedy or amount payable
pursuant to this Section 8.2 shall not preclude any other remedy or amount
payable hereunder, and shall not be an exclusive remedy, for any willful and
material breach of any representation, warranty, covenant or agreement contained
in this Agreement. The parties agree that any KSL Termination Fee payable
hereunder, together with any Kaneb Termination Fee previously paid under the KPP
Merger Agreement, shall not exceed $25 million, and that any VLI Termination Fee
payable hereunder, together with any VLI Termination Fee previously paid under
the KPP Merger Agreement, shall not exceed $25 million.
8.3 AMENDMENT. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors or General
Partner, as applicable, at any time before or after the KSL Shareholders
Approval or the VLI Unitholders Approval, but, after any such approval, no
amendment shall be made which by law or in accordance with the rules of any
relevant stock exchange requires further approval by such shareholders or
unitholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
8.4 EXTENSION; WAIVER. At any time prior to the KSL Effective Time, the
parties hereto, by action taken or authorized by their respective Boards of
Directors or General Partner, as applicable, may, to the extent legally allowed,
(i) extend the time for the performance of any of the obligations or other acts
of the other parties hereto, (ii) waive any inaccuracies in the representations
and warranties contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any of the agreements or conditions contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in a written instrument signed on behalf
of such party. The failure of any party to this Agreement to assert any of its
rights under this Agreement or otherwise shall not constitute a waiver of those
rights.
ARTICLE IX
GENERAL PROVISIONS
9.1 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. None of the
representations, warranties, covenants and other agreements in this Agreement or
in any instrument delivered pursuant to this Agreement, including any rights
arising out of any breach of such representations, warranties, covenants,
agreements and other provisions, shall survive the Effective Times, except for
those covenants, agreements and other provisions contained herein that by their
terms apply or are to be performed in whole or in part after the Effective Times
and this Article IX.
9.2 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed duly given (a) on the date of delivery if delivered
personally, or by telecopy or facsimile, upon verbal confirmation of receipt,
(b) on the first Business Day following the date of dispatch if delivered by a
recognized next-day courier service, or (c) on the fifth Business Day following
the date of mailing if delivered by registered or certified mail, return re-
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ceipt requested, postage prepaid. All notices hereunder shall be delivered as
set forth below, or pursuant to such other instructions as may be designated in
writing by the party to receive such notice:
(i) if to any of the VLI Entities to:
Valero L.P.
One Valero Place
San Antonio, Texas 78212
Attention: Bradley Barron, Esq.
with a copy to:
Andrews Kurth LLP
600 Travis, Suite 4200
Houston, Texas 77002
Attention: Gislar Donnenberg, Esq.
and:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Edward D. Herlihy, Esq.
Lawrence S. Makow, Esq.
(ii) if to KSL to:
2435 North Central Expressway, Suite 700
Richardson, Texas 75080
Attention: John Barnes
with a copy to:
Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010
Attention: John Watson, Esq.
9.3 INTERPRETATION. When a reference is made in this Agreement to Articles,
Sections, Exhibits or Schedules, such reference shall be to an Article or
Section of or Exhibit or Schedule to this Agreement unless otherwise indicated.
The table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the
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meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation." No provision of this Agreement shall
be construed to require VLI or KSL or any of their respective Subsidiaries or
Affiliates to take or omit to take any action if doing so would violate any
applicable obligation (arising in law or equity), rule or regulation.
9.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that both
parties need not sign the same counterpart.
9.5 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES.
(a) This Agreement, the Confidentiality Agreement, the Support Agreement
and the exhibits and schedules hereto and the other agreements and instruments
of the parties delivered in connection herewith constitute the entire agreement
and supersede all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof.
(b) This Agreement shall be binding upon and inure solely to the benefit of
each party hereto, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other Person any right, benefit or remedy
of any nature whatsoever under or by reason of this Agreement, other than
Section 6.7 (which is intended to be for the benefit of the Persons covered
thereby).
9.6 GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware (without giving effect to
choice of law principles thereof).
9.7 SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any law or public policy, all
other terms and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner in order that the
transactions contemplated hereby are consummated as originally contemplated to
the greatest extent possible.
9.8 ASSIGNMENT. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto, in whole
or in part (whether by operation of law or otherwise), without the prior written
consent of the other party, and any attempt to make any such assignment without
such consent shall be null and void. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.
9.9 SUBMISSION TO JURISDICTION; WAIVERS. Each of the VLI Entities and KSL
irrevocably agrees that any legal action or proceeding with respect to this
Agreement or for rec-
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ognition and enforcement of any judgment in respect hereof brought by the other
party hereto or its successors or assigns may be brought and determined in the
Chancery or other Courts of the State of Delaware, and each of the VLI Entities
and KSL hereby irrevocably submits with regard to any such action or proceeding
for itself and in respect to its property, generally and unconditionally, to the
nonexclusive jurisdiction of the aforesaid courts. Each of the VLI Entities and
KSL hereby irrevocably waives, and agrees not to assert, by way of motion, as a
defense, counterclaim or otherwise, in any action or proceeding with respect to
this Agreement, (a) any claim that it is not personally subject to the
jurisdiction of the above-named courts for any reason other than the failure to
lawfully serve process, (b) that it or its property is exempt or immune from
jurisdiction of any such court or from any legal process commenced in such
courts (whether through service of notice, attachment prior to judgment,
attachment in aid of execution of judgment, execution of judgment or otherwise),
and (c) to the fullest extent permitted by applicable law, that (i) the suit,
action or proceeding in any such court is brought in an inconvenient forum, (ii)
the venue of such suit, action or proceeding is improper and (iii) this
Agreement, or the subject matter hereof, may not be enforced in or by such
courts.
9.10 WAIVER OF JURY TRIAL. EACH PARTY HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT AND ANY OF THE AGREEMENTS DELIVERED IN CONNECTION HEREWITH OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE EITHER OF SUCH WAIVERS, (B) IT UNDERSTANDS
AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVERS, (C) IT MAKES SUCH WAIVERS
VOLUNTARILY, AND (D) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.10.
9.11 ENFORCEMENT. The parties hereto agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms. It is accordingly agreed that
the parties hereto shall be entitled to specific performance of the terms
hereof, this being in addition to any other remedy to which they are entitled at
law or in equity.
[The remainder of this page is intentionally left blank.]
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IN WITNESS WHEREOF, VALERO L.P., RIVERWALK LOGISTICS, L.P., VALERO GP, LLC,
VLI SUB A LLC, and KANEB SERVICES LLC, have caused this Agreement to be signed
by their respective officers thereunto duly authorized, all as of the date first
written above.
VALERO L.P.
By: /s/ Curtis V. Anastasio
----------------------------------------
Name: Curtis V. Anastasio
Title: Chief Executive Officer and
President
RIVERWALK LOGISTICS, L.P.
By: /s/ Curtis V. Anastasio
----------------------------------------
Name: Curtis V. Anastasio
Title: Chief Executive Officer and
President
VALERO GP, LLC
By: /s/ Curtis V. Anastasio
----------------------------------------
Name: Curtis V. Anastasio
Title: Chief Executive Officer and
President
VLI SUB A
By: /s/ Curtis V. Anastasio
----------------------------------------
Name: Curtis V. Anastasio
Title: Chief Executive Officer and
President
KANEB SERVICES LLC
By: /s/ Howard C. Wadsworth
----------------------------------------
Name: Howard C. Wadsworth
Title: Vice President, Treasurer and
Secretary
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