Exhibit 10.1

 

Execution Version

 

CONFIDENTIAL

 

KINDER MORGAN COCHIN ULC

 

as Vendor

 

-and-

 

HER MAJESTY IN RIGHT OF CANADA, as represented by the Minister of Finance

 

as Purchaser

 

-and-

 

KINDER MORGAN CANADA LIMITED

 

as Guarantor

 

-and-

 

KINDER MORGAN, INC.

 

as Guarantor

 

-regarding-

 

The acquisition of the shares and units relating to the business of the

Trans Mountain Pipeline System and the Trans Mountain Pipeline System Expansion

 

 

SHARE AND UNIT PURCHASE AGREEMENT

 

MAY 29, 2018

 

 

 

TABLE OF CONTENTS

 

 

 

 

 

 

SCHEDULE 4.1(1)(a)		FORM OF VENDOR’S BRING-DOWN CERTIFICATE
SCHEDULE 4.2(1)(a)		FORM OF PURCHASER’S BRING-DOWN CERTIFICATE
SCHEDULE 6.2(3)		AUTHORIZED AND ISSUED CAPITAL

 

INDEX OF DEFINITIONS

 

ACB		2
Accounts Receivable		2
Acquisition Proposal		2
Advance Ruling Certificate		2
Affiliate		2
Agreement		3
Applicable Law		3
Approvals		3
Assets		3
Auditors		4
Benefit Plan		4
Books and Records		4
Bump Transactions		5
Business		5
Business Day		5
Business Intellectual Property		5
Canadian Employees		5
Cash and Cash Equivalents		5

 

---

 

SHARE AND UNIT PURCHASE AGREEMENT dated May 29, 2018.

 

BETWEEN:

 

KINDER MORGAN COCHIN ULC

 

a Nova Scotia unlimited liability corporation

 

As Vendor

 

-and-

 

HER MAJESTY IN RIGHT OF CANADA , as represented by the Minister of Finance

 

As Purchaser

 

-and-

 

KINDER MORGAN CANADA LIMITED

 

an Alberta corporation

 

As guarantor

 

-and-

 

KINDER MORGAN, INC.

 

a Delaware general corporation

 

As guarantor

 

RECITALS :

 

A.                                     Vendor is a Nova Scotia unlimited liability corporation which owns all of the issued and outstanding shares of the Managing Partner, all of the issued and outstanding partnership units of TM Pipeline LP that are not owned by the Managing Partner, and all of the issued and outstanding shares of KMCI.

 

B.                                     TM Pipeline LP owns the assets and undertakings of the TMPL System.

 

C.                                     TM Pipeline LP owns all the issued and outstanding membership interests in Puget LLC, which owns the assets and undertakings of the Puget Sound Pipeline.

 

D.                                     KMCI employs all of the Canadian Employees and KMI employs the nine U.S. Employees required for the development, construction, and operation of the TMPL System.

 

 

E.                                      Subject to the terms and conditions contained in this Agreement, Vendor wishes to sell and Purchaser wishes to purchase all of the shares of KMCI, all of the shares of the Managing Partner, and all of the units of TM Pipeline LP.

 

F.                                       Shareholder approval of KML is a condition to the completion of the Transaction.

 

G.                                     KML and KMI will derive substantial economic benefit from the transactions contemplated by this Agreement and wish to provide the guarantees of Vendor contained herein.

 

Now therefore, for good and valuable consideration, the receipt and sufficiency is hereby acknowledged by the Parties;

 

THE PARTIES AGREE AS FOLLOWS:

 

ARTICLE 1

INTERPRETATION

 

1.1           Definitions . In this Agreement, including the Recitals to this Agreement, unless the context otherwise requires:

 

(1)                                  “ ACB ” has the meaning attributed to that term in Section 6.2(22)(o).

 

(2)                                  “ Accounts Receivable ” means all accounts receivable, trade accounts receivable, notes receivable, book debts and other debts due or accruing due to the Target Entities, and the full benefit of any related security.

 

(3)                                  “ Acquisition Proposal ” means any proposal relating to a possible: (a) merger, amalgamation, arrangement, reorganization, joint venture, consolidation, take-over bid, share exchange or similar transaction involving KML, Vendor or directly or indirectly any of the Target Entities; (b) sale, lease or other disposition, directly or indirectly, by merger, amalgamation, arrangement, reorganization, joint venture, consolidation, share purchase or exchange or otherwise, of any assets of KML, Vendor or directly or indirectly any of the Target Entities representing, in the aggregate, fifty percent (50%) or more of the securities or assets of any of KML, Vendor or any Target Entity; (c) issuance, sale or other disposition of (including by way of merger, amalgamation, arrangement, reorganization, take-over bid, consolidation, share purchase or exchange or any similar transaction) securities (or options, rights or warrants to purchase or securities convertible into, such securities) representing fifty percent (50%) or more of the votes attached to the outstanding securities of KML, Vendor or directly or indirectly any of the Target Entities; (d) liquidation, dissolution, or other similar type of transaction with respect to KML, Vendor or directly or indirectly any of the Target Entities; or (e) transaction which is similar in form, substance or purpose to any of the foregoing transactions, including an assignment of this Agreement in accordance with Section 11.13; provided, however, that the term “Acquisition Proposal” shall not include the Transactions contemplated hereby.

 

(4)                                  “ Advance Ruling Certificate ” means an advance ruling certificate issued by the Commissioner pursuant to section 102 of the Competition Act with respect to the Transactions.

 

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(5)                                  “ Affiliate ”  means, with respect to any Person, any other Person that directly or indirectly Controls, is Controlled by or is under common Control with, such Person and, for certainty, where the first-referenced Person is a nation-state (or any sub-federal or sub-division thereof) or other sovereign entity of any kind, includes any Person owned or controlled by the sovereign entity, other than a taxation, legislative, administrative, judicial or regulatory Governmental Authority. For the purposes of this definition “Control” (and its correlative terms) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise.

 

(6)                                  “ Agreement ” means this share and unit purchase agreement, including all Schedules, Appendices and Exhibits to this share and unit purchase agreement, as amended, supplemented, restated and replaced from time to time in accordance with its provisions.

 

(7)                                  “ Applicable Law ” means:

 

(a)                                  any domestic (federal, provincial or municipal) or foreign statute, law (including common and civil law), code, ordinance, rule, regulation, order-in-council, restriction or by-law (zoning or otherwise);

 

(b)                                  any judgment, order, writ, injunction, directive, decision, ruling, decree or award;

 

(c)                                   any regulatory policy, practice, standard or guideline;

 

(d)                                  any published administrative position; or

 

(e)                                   any Permit,

 

of any Governmental Authority, binding on the Person referred to in the context in which the term is used or binding on the property of that Person.

 

(8)                                  “ Approvals ” means any consent, approval, authorization, license, order or Permit.

 

(9)                                  “ Assets ” means all undertakings, property, assets, rights and interests of the Target Entities, including, without limitation the following:

 

(a)                                  the Mainline System;

 

(b)                                  all rights and interests of the Target Entities in and to the leased property and the leases, including prepaid rents, security deposits, options to renew or extend the term, options to purchase, rights of first refusal under the leases and all tenant’s trade fixtures and leasehold improvements owned by the Target Entities and forming part of the leased property;

 

(c)                                   the Real Property;

 

(d)                                  the personal property of the Target Entities;

 

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(e)                                   work in process and the Accounts Receivable;

 

(f)                                    all rights and interests of the Target Entities under or pursuant to all warranties, representations and guarantees, express, implied or otherwise, of or made by suppliers or others in connection with the Assets;

 

(g)                                   the Business Intellectual Property;

 

(h)                                  the Internal IT Systems;

 

(i)                                      all rights and interests of the Target Entities in and to all Contracts to which they are parties or by which any of the Assets or the Business is bound or affected;

 

(j)                                     all Approvals issued to the Target Entities;

 

(k)                                  the Books and Records;

 

(l)                                      all prepaid charges, deposits, sums and fees paid by the Target Entities before the Effective Time;

 

(m)                              the issued and outstanding membership interests in Puget LLC;

 

(n)                                  all of the Equity Interest held by the Target Entities in each of Western Canadian Spill Services Ltd. and Western Canada Marine Response Corporation;

 

(o)                                  all goodwill of the Target Entities, including the present telephone numbers, internet domain addresses and other communications numbers and addresses of the Target Entities;

 

(p)                                  the Miscellaneous Interests; and

 

(q)                                  all proceeds of any or all of the foregoing received or receivable after the Effective Time.

 

(10)                           “ Auditors ” means PricewaterhouseCoopers LLP, Chartered Professional Accountants.

 

(11)                           “ Benefit Plan ” means any employee benefit plan or arrangement, including any stock purchase, stock option, stock bonus, stock ownership, phantom stock or other stock or equity plan, pension, retirement, profit sharing, bonus, deferred compensation, incentive compensation, severance or termination pay, salary continuation, hospitalization or other medical or dental, life, disability, health and welfare or other insurance, supplemental unemployment benefits plan or agreement or policy or other arrangement providing employment-related compensation, fringe benefits, perquisites, allowances, or other benefits.

 

(12)                           “ Books and Records ” means all books, records, files and papers of the Target Entities including title documentation, financial and Tax working papers, financial and Tax books and records, business reports, business plans and projections, sales and purchases records

 

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and correspondence, trade association files, research and development records, lists of present and former customers and suppliers, personnel and employment records, employee data and plan records of KMCI Employee Plans, minute and share certificate books, Software documentation (including operator and user manuals, training materials, guides, listings, specifications and any revisions or additions to such documents), electronic data, all other documents and data (technical or otherwise) of the Target Entities related to the Business or the Assets.

 

(13)                           “ Bump Transactions ” has the meaning attributed to that term in Section 7.10.

 

(14)                           “ Business ” means the business carried out by the Target Entities currently consisting of: (a) the receipt, transportation and delivery by intra-provincial, inter-provincial and international pipelines and related facilities, and the handling, and storage and distribution by and through terminals and marine wharves, of petroleum, natural gas liquids and related hydrocarbons as it relates to the Mainline System; and (b) the development of the TMEP consisting of the planning, design, permitting, procurement and construction activities associated therewith.

 

(15)                           “ Business Day ” means any day, except Saturdays and Sundays, on which banks are generally open for non-automated business in Calgary, Alberta.

 

(16)                           “ Business Intellectual Property ”  has the meaning given in Section 6.2(11)(a), and for greater certainty, excludes the Excluded Intellectual Property.

 

(17)                           “ Canadian Employees ” means all employees of KMCI, whether full-time, part-time, salaried or hourly, other than the Excluded Employees.

 

(18)                           “Cash and Cash Equivalents ” means, in respect of the Target Entities, cash and bank balance, excluding any restricted cash and deposit and excluding any amount drawn under the Covered Credit Agreement or which may be drawn under and in accordance with the Covered Credit Agreement.

 

(19)                           “ Certificate of Limited Partnership ” means the certificate of limited partnership of TM Pipeline LP.

 

(20)                           “ CFIUS ” means the Committee on Foreign Investment in the United States.

 

(21)                           “ CFIUS Clearance ” means: (a) a written notice issued by CFIUS that it has concluded a review or investigation of the notification voluntarily provided pursuant to the Exon-Florio Amendment, with respect to the Transactions and has concluded that there are no unresolved national security concerns, and has therefore terminated all action under the Exon-Florio Amendment or (b) if CFIUS has sent a report to the President of the United States (the “ President ”) requesting the President’s decision, then (i) the President has announced a decision not to take any action to suspend or prohibit the Transactions, or (ii) having received a report from CFIUS requesting the President’s decision, the President has not taken any action to suspend or prohibit the Transactions after fifteen (15) days from the date the President received such report from CFIUS.

 

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(22)                           “ Circular ” means the notice of meeting and accompanying management information circular and Proxy Statement of KML, including all appendices, schedules and exhibits thereto, to be sent by KML to the Securityholders in connection with the Meeting, and filed with applicable securities regulatory authorities and other Governmental Authorities in all jurisdictions where the same are required to be filed, as amended, supplemented or otherwise modified.

 

(23)                           “ Claim ” has the meaning attributed to that term in Section 9.1(1).

 

(24)                           “ Closing ” means the completion of the Transactions on the Closing Date in accordance with this Agreement.

 

(25)                           “ Closing Cash and Cash Equivalents ” has the meaning attributed to that term in Section 2.4(3)(d).

 

(26)                           “ Closing Certificates ” has the meaning attributed to that term in Section 6.5(1).

 

(27)                           “ Closing Date ” means seven (7) Business Days following the satisfaction or waiver of the conditions to Closing described in Sections 4.1(1)(d), 4.1(1)(e) and 4.1(1)(f) and Sections 4.2(1)(c), 4.2(1)(d) and 4.2(1)(h) or such other date as may be agreed to by the Parties in writing.

 

(28)                           “ Closing Financial Statements ” has the meaning attributed to that term in Section 2.4(3)(a).

 

(29)                           “ Closing Indebtedness ” has the meaning attributed to that term in Section 2.4(3)(c).

 

(30)                           “ Closing Statements ” has the meaning attributed to that term in Section 2.4(3).

 

(31)                           “ Closing Working Capital ” has the meaning attributed to that term in Section 2.4(3)(b).

 

(32)                           “ Commissioner ” means the Commissioner of Competition appointed under the Competition Act and includes any person duly authorized to exercise the powers and perform the duties on behalf of the Commissioner of Competition.

 

(33)                           “ Competition Act ” means the Competition Act (Canada), and includes the regulations made thereunder.

 

(34)                           “ Competition Approval ” means:

 

(a)                                  the issuance of an Advance Ruling Certificate; or

 

(b)                                  the applicable waiting period under section 123 of the Competition Act has expired or been waived and a No Action Letter has been issued in accordance with subsection 123(2) of the Competition Act.

 

(35)                           “ Consequential Losses ” has the meaning attributed to that term in Section 9.4(6).

 

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(36)                           “ Constating Documents ” means, with respect to any Person, its articles or certificate of incorporation, amendment, amalgamation or continuance, memorandum and articles of association, letters patent, supplementary letters patent, by-laws, partnership agreement, certificate of limited partnership, limited liability company agreement or other similar document, and all unanimous shareholder agreements, other shareholder agreements, voting trusts, pooling agreements and similar Contracts, arrangements and understandings applicable to the Person’s Equity Interests, all as amended, supplemented, restated and replaced from time to time.

 

(37)                           “ Contaminant ” means any substance, emission or thing, howsoever occurring, which has, or may have, an adverse effect on the environment, any ecological system or natural resource, the use or enjoyment of property, or human health or safety, and includes any “contaminant” or “pollutant”, any substance defined or regulated as “hazardous”, “toxic” or “dangerous” or any type of “waste”, in each case which is defined or regulated by any Applicable Law and includes, without limitation, petroleum hydrocarbons and fractions thereof, halogenated or chlorinated solvents, asbestos and asbestos-containing materials, and polychlorinated biphenyls.

 

(38)                           “ Contract ” means any agreement, contract, indenture, lease, occupancy agreement, deed of trust, licence, option, other than a Permit.

 

(39)                           “ Covered Credit Agreement ” means a credit agreement to be entered into between, among other parties, TM Pipeline LP, as borrower, Royal Bank of Canada, as administrative agent, and Royal Bank of Canada and The Toronto-Dominion Bank, as lenders, and Her Majesty in Right of Canada (or its agent) as guarantor as the same may be amended, modified, supplemented, restated or replaced from time to time in respect of the establishment of the Covered Credit Facilities.

 

(40)                           “ Covered Credit Facilities ” means the credit facilities to fund (i) all project expenses contemplated by the TMEP 2018 Work Plan, including “owner’s costs” and allocation of overhead consistent with past practice, and (ii) debt service costs of the Covered Credit Facilities (including, without limitation, the costs, fees and expenses establishing the Covered Credit Facilities and fees payable to Her Majesty in Right of Canada (or its agent, Export Development Canada) in respect of the EDC Guarantee).

 

(41)                           “ CP Failure ” has the meaning attributed to that term in Section 7.16(3).

 

(42)                           “ CRA ” means the Canada Revenue Agency or any successor agency.

 

(43)                           “ Credit Agreement ” means the credit agreement made as of June 16, 2017 among Vendor, Managing Partner, Royal Bank of Canada, as administrative agent, Royal Bank of Canada and the various other financial institutions from time to time party thereto, as amended by a first amending agreement made as of January 23, 2018 among the same parties, as the same may be further amended, modified, supplemented, restated or replaced from time to time; provided that, it is acknowledged and agreed that the aforementioned credit agreement will be cancelled and replaced on or shortly after the date hereof, such credit agreement being replaced by a new credit agreement made as of May 1, 2018, and amended

 

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and effective as of the date hereof, be and between Vendor, as borrower, Royal Bank of Canada, as administrative agent and Royal Bank of Canada and The Toronto-Dominion Bank, as lenders, as the same may be further amended, modified, supplemented, restated or replaced from time to time; and further provided that, all references herein to the “Credit Agreement” shall be, and shall be deemed to be, to such May 1, 2018 credit agreement upon the cancellation and replacement of the June 16, 2017 credit agreement.

 

(44)                           “ CTA ” means the Canada Transportation Act (Canada), and includes the regulations made thereunder.

 

(45)                           “ CTA Clearance ” means, in respect of the proposed Transactions and the acquisition by Purchaser of the Purchased Shares and Purchased Units from Vendor, Purchaser and Vendor shall have received the notice from the Minister of Transport provided for under subsection 53.1(4) of the CTA or, if such notice has not been received, the completion of the proposed Transactions and the acquisition by Purchaser of the Purchased Shares and Purchased Units from Vendor shall not be prohibited under subsection 53.2(1) of the CTA.

 

(46)                           “ Cure Period ” has the meaning attributed to that term in Section 7.16(4).

 

(47)                           “ Cure Period Deadline ” has the meaning attributed to that term in Section 7.16(5).

 

(48)                           “ Current Assets ”  means, in respect of the Target Entities, the aggregate of accounts receivable, inventories, prepayments and other current assets, excluding: (a) Cash and Cash Equivalents; (b) current portion of regulatory assets; (c) deferred tax assets; and (d) environmental related assets determined in accordance with GAAP applied using the same accounting methods, practices, principles, policies and procedures, with consistent classifications, judgments and valuation and estimation methodologies that were used in the preparation of the consolidated KML financial statements for the most recent financial year end as if such accounts were being prepared and audited as of a fiscal year end.

 

(49)                           “ Current Liabilities ” means, in respect of the Target Entities, the aggregate of accounts payable, accruals and other current liabilities, excluding: (a) capital accruals and related payables; (b) current portion of regulatory liabilities; (c) environmental related liabilities; (d) severance and bonus payable liabilities other than in relation to the Transferred Canadian Employees; (e) transaction related costs outstanding; (f) amounts outstanding under mutual benefit agreements for TMEP accruing after May 31, 2018; (g) current portion of unfunded liabilities related to pension and benefit plans; (h) deferred tax liabilities; and (i) accounts payable on account of TMEP which accrue after May 31, 2018; determined in accordance with GAAP applied using the same accounting methods, practices, principles, policies and procedures, with consistent classifications, judgments and valuation and estimation methodologies that were used in the preparation of the consolidate KML financial statements for the most recent financial year end as if such accounts were being prepared and audited as of a fiscal year end. For the avoidance of any doubt, “ Current Liabilities ” will not include any items included in Indebtedness.

 

(50)                           “ Data Room ” means the electronic data room, as existing at the date of this Agreement and made available by Vendor to Purchaser in connection with the Transactions.

 

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(51)                           “ Disclosing Party ” has the meaning attributed to that term in Section 7.16(2).

 

(52)                           “ EDC Guarantee ” means the guarantee by Her Majesty in Right of Canada (or its agent, Export Development Canada) in favour of the administrative agent and the lenders under the Covered Credit Agreement.

 

(53)                           “ Effective Time ” means 12:01 a.m. on the Closing Date.

 

(54)                           “ Employees ” means the Canadian Employees and the U.S. Employees.

 

(55)                           “ Employment Effective Date ”  has the meaning attributed to it in Section 7.12(3)(b)(i).

 

(56)                           “ Encumbrance ” means any lien, charge, pledge, option, mortgage, deed of trust, security interest, restriction (whether on voting, sale, transfer, disposition or otherwise), easement, and other encumbrance of every type and description, whether imposed by Applicable Law, agreement, understanding or otherwise, and “ Encumber ” has a corresponding meaning.

 

(57)                           “ Environment ” means the environment or natural environment as defined in any Environmental Laws.

 

(58)                           “ Environmental Laws ” means any and all Applicable Laws relating to: (a) the protection of the Environment; (b) the presence, release, discharge, handling, transportation, storage, remediation, Release or disposal of Contaminants; (c) the ownership, occupation, management, transfer or sale of contaminated sites; (d) the exposure of workers to Contaminants in the workplace, and worker right-to-know legislation pertaining thereto; (e) the manufacture, distribution, labelling, import, export or sale of products or product ingredients by virtue of their composition or any other physical properties; (f) climate change, greenhouse gas emissions and the regulation of carbon; (g) the protection of endangered species and their habitat; and (h) the reporting of environmental matters and/or liabilities to any Governmental Authority or in any publicly accessible venue.

 

(59)                           “ Equity Interests ” means, with respect to any Person, any and all present and future shares, units, trust units, partnership or other interests, participations or other equivalent rights in that Person’s equity or capital, however designated and whether voting or non-voting.

 

(60)                           “ ERISA ” means the U.S. Employee Retirement Income Security Act of 1974.

 

(61)                           “ ERISA Affiliate ” means any trade or business (whether or not incorporated) which together with KMI or any Target Entity, would be treated as a single employer under Section 414 of the Internal Revenue Code or Section 4001 of ERISA.

 

(62)                           “ ETA ” means the Excise Tax Act (Canada) and includes the regulations made thereunder.

 

(63)                           “ Exchange Act ” means the United States Securities Exchange Act of 1934 .

 

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(64)                           “ Excluded Employees ” means the KMCI employees who are not employed or engaged in the development, construction and operation of the TMPL System.

 

(65)                           “ Excluded Intellectual Property ”  means the Intellectual Property to be provided or to be made available to, or accessible by, the Target Entities pursuant to the Transition Services Agreement, as disclosed in the Data Room.

 

(66)                           “ Excluded IT Systems ”  means all Hardware, Software and internal networks and communications technologies and services to be provided or to be made available to, or accessible by, the Target Entities pursuant to the Transition Services Agreement, as disclosed in the Data Room.

 

(67)                           “ Exempt Proposal ” has the meaning attributed to that term in Section 7.1(2)(a)(i).

 

(68)                           “ Existing NEB Facility ” has the meaning attributed to that term in Section 7.9(5).

 

(69)                           “ Existing NEB Insurance ” has the meaning attributed to that term in Section 7.9(5).

 

(70)                           “ Exon-Florio Amendment ” means 50 U.S.C. § 4565 as implemented by 31 C.F.R. Part 800.

 

(71)                           “ Expansion CPCN ” means the Certificate of Public Convenience and Necessity and Orders issued by the NEB under Part III of the National Energy Board Act, and, with respect to TMEP means the CPCN and Orders more particularly described as OC-2 and OC-49 and OC-64; Orders XO-T260-007-2016, XO-T260-008-2016, XO-T260-009-2016, XO-T260-010-2016 and MO-015-2016 and any amendments thereto which authorize the construction and operation of TMEP.

 

(72)                           “ Fairness Opinion ” means the opinion of TD Securities Inc., as a financial advisor to KML, delivered verbally to the KML board of directors on May 28, 2018 (with a written opinion dated such date to follow) to the effect that the consideration to be received by Vendor under the Transaction is fair, from a financial point of view, to Vendor and to KML.

 

(73)                           “ Financial Statements ” means the unaudited, combined and consolidated balance sheet and income statement, for the Target Entities as at and for the financial years ended December 31, 2016, and December 31, 2017, copies of which are disclosed in the Data Room.

 

(74)                           “ Financial Statements Date ” means December 31, 2017.

 

(75)                           “ Fundamental Representation ” means the representations and warranties listed in Section 6.5(1) and 6.5(5).

 

(76)                           “ GAAP ” when used in respect of accounting terms or accounting determinations relating to a Person, United States Generally Accepted Accounting Principles.

 

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(77)                           “ Governmental Authority ” means any domestic or foreign government, whether federal, provincial, state, territorial, local, regional, municipal, or other political jurisdiction, and any agency, authority, instrumentality, court, tribunal, board, commission, bureau, arbitrator, arbitration tribunal or other tribunal, or any quasi-governmental or other entity, body, organization or agency, insofar as it exercises a legislative, judicial, regulatory, administrative, expropriation or taxing power or function of or pertaining to government, including the SEC, stock exchanges such as the Toronto Stock Exchange and including the NEB, but does not include any Indigenous Group or aboriginal government, council or authority.

 

(78)                           “ GST/HST ” means all Taxes payable under Part IX of the ETA (including where applicable both the federal and provincial portion of those Taxes) or and under any provincial legislation imposing a similar value added or multi-staged tax, including, without limitation, the Provincial Sales Tax Act (British Columbia).

 

(79)                           “ Hardware ” means computer hardware, mainframes, personal computers, servers, client/server stations, devices, network equipment, routers, semi-conductor chips, embedded Software, communication lines, storage media and other equipment.

 

(80)                           “ HSR Act ” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, 15 U.S.C. § 18a et seq., as amended from time to time, and the rules and regulations promulgated thereunder.

 

(81)                           “ HSR Clearance ”  means the applicable waiting period (and any extension thereof) in respect of the Transaction under the HSR Act shall have expired without action on the part of the reviewing agency or been earlier terminated.

 

(82)                           “ Inactive U.S. Employee ”  has the meaning attributed to that term in Section 7.12(3)(c)(i).

 

(83)                           “ Increased Amount ” has the meaning attributed to that term in Section 9.10(3).

 

(84)                           “ Indebtedness ” means, for any Person, any obligation or liability whatsoever of such Person that is debt within the meaning of GAAP including, without limitation: (a) all indebtedness for borrowed money excluding any amount payable to Vendor or its Affiliates; (b) obligations pursuant to credit facility, loans, notes, debentures or similar instruments excluding obligations under the Covered Credit Agreement; (c) drawn letters of credit; (d) current regulatory toll settlement liabilities less current regulatory assets; (e) capital accruals and related payables that are not related to TMEP and, for TMEP, capital accruals and related payables accrued on or prior to May 31, 2018; (f) liabilities related to pipeline abandonment trust obligations less pipeline abandonment trust assets; (g) environmental reserve liabilities net of transportation revenue variance; and (h) Vendor’s transaction costs, to extent not paid by the Vendor. For the avoidance of any doubt, Indebtedness will not include items included in Working Capital or any deficiencies in funding in respect of any Benefit Plan.

 

(85)                           “ Independent Auditor ” has the meaning attributed to that term in Section 2.4(6).

 

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(86)                           “ Indigenous Group ” means any Indian band (as defined in the Indian Act (Canada)), any other aboriginal people within the meaning of the Constitution Act, 1982 (UK).

 

(87)                           “ Intellectual Property ” means, individually and collectively, howsoever created and wherever located:

 

(a)                                  all domestic and foreign patents and applications thereof and all reissues, divisions, continuations, renewals, extensions and continuations-in-part thereof;

 

(b)                                  all inventions (whether patentable or not), invention disclosures, improvements, trade secrets, proprietary information, know-how, technology, technical data, schematics and customer lists, and all documentation relating to any of the foregoing;

 

(c)                                   all copyrights in all works (including Software) and database rights, copyright registrations and applications thereof, and all works of authorship and moral rights, and all other rights corresponding thereto throughout the world;

 

(d)                                  all trade names, domain names, corporate names, trade dress, distinguishing guises, logos, slogans, brand names, trademarks (whether registered or common law and whether used with wares or services and including the goodwill attaching to such trademarks) and registrations and applications for registration thereof;

 

(e)                                   all Software (in source code and object code form) and databases, and any proprietary rights in such Software and databases;

 

(f)                                    all integrated circuit design, mask work, or topography registrations or applications thereof;

 

(g)                                   all industrial designs and applications for and registration of industrial designs, design patents and industrial design registrations;

 

(h)                                  other intellectual or industrial property whatsoever;

 

(i)                                      all income, royalties, damages and payments now and hereafter due and/or payable with respect to any of the foregoing, including damages and payments for past or future infringements thereof; and

 

(j)                                     all rights to sue for past, present and future infringements of any of the foregoing.

 

(88)                           “ Interim Period ” means the period from the date of this Agreement to the Closing Date.

 

(89)                           “ Internal IT Systems ” means all Hardware, Software and internal networks and communications technologies and services that are owned, leased, or licensed by the Target Entities in connection with the Business excluding the Excluded IT Systems.

 

(90)                           “ Internal Revenue Code ”  means the Internal Revenue Code of the United States.

 

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(91)                           “ Kinder Morgan Savings Plan ” means, with respect to Canada, the employer sponsored savings plan provided through Great West Life by KMCI to the Canadian Employees, and with respect to the U.S., the KMI Savings Plan, a defined contribution 401(k) savings plan provided by KMI to U.S. Employees.

 

(92)                           “ KMCI ” means Kinder Morgan Canada Inc., an Alberta corporation.

 

(93)                           “ KMCI Employee Plan ” has the meaning attributed to that term in Section 6.2(27)(a).

 

(94)                           “ KMCI Pension Plan ” means the Pension Plan for Employees of KMCI, OSFI Registration No. 57524.

 

(95)                           “ KMI ” means Kinder Morgan Inc., a Delaware general corporation.

 

(96)                           “ KMI Employee Plan ”  has the meaning attributed to that term in Section 6.2(27)(a).

 

(97)                           “ KMI ESPP ”  means the KMI Employee Share Purchase Plan.

 

(98)                           “ KMI Stock Incentive Plan ”  means the Kinder Morgan Inc. 2015 Amended and Restated Stock Incentive Plan.

 

(99)                           “ KML ” means Kinder Morgan Canada Limited, an Alberta corporation.

 

(100)                    “ KML Share Unit Plan ” means the KML 2017 Restricted Share Unit Plan for Employees.

 

(101)                    “ Land Rights ” means all fee simple lands, easements, rights-of-way, rights of access, rights of entry, governmental entry and access rights, crossing agreements, joint use agreements, surface leases, licenses and such other surface rights by virtue of which the holder is entitled to own, occupy or access lands on or under which: (a) any of the Mainline System is located or through which the Mainline System may be accessed; and (b) currently held in connection with the development of TMEP.

 

(102)                    “ Legacy Pension Plan ” means the Legacy Pension Plan for Employees of Kinder Morgan Canada Inc., OSFI Registration No. 55111.

 

(103)                    “ Limited Partnership Agreement ” means the limited partnership agreement dated February 1, 2008 as amended, which governs TM Pipeline LP.

 

(104)                    “ Limited Rep TMEP Contracts ” has the meaning attributed to that term in Section 6.2(14)(b).

 

(105)                    “ Limited TM Pipeline LP Indemnity (Covered Credit Agreement) ” means the Indemnity Agreement to be entered into by TM Pipeline LP and providing for an indemnity of TM Pipeline LP to reimburse Her Majesty in Right of Canada (or its agent, Export Development Canada) for any payment that it makes under the EDC Guarantee under certain circumstances as have been separately agreed in writing between the Parties.

 

(106)                    “ Losses ” has the meaning attributed to that term in Section 9.1(8).

 

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(107)                    “ Mainline CPCN ” means the Certificate of Public Convenience and Necessity issued by the NEB pursuant to the National Energy Board Act, and, with respect to the Mainline System means the CPCN more particularly described as OC-2, and OC-49 and any amendments thereto, which authorize the construction and operation of the Mainline System.

 

(108)                    “ Mainline System ” means: (a) the Trans Mountain pipeline system including the Edmonton Tank Terminal, Kamloops Terminal, Burnaby Terminal, Sumas Terminal and Westridge Marine Terminal, as more particularly described in the Mainline CPCN, including a crude oil and refined products pipeline with a capacity of approximately three hundred thousand (300,000) barrels per day which consists of approximately one thousand (1,000) kilometres of pipeline, extending from Edmonton Alberta to delivery points in Burnaby, Westridge and Sumas, British Columbia, and including related lateral lines, rights of way, easements, pumps, pump stations and other related equipment and machinery; and (b) the Puget Sound pipeline system (the “ Puget Sound Pipeline ”), which is an oil pipeline connecting Sumas, British Columbia to Washington State refineries and including related lateral lines, rights of way, easements, pumps, pump stations and other related equipment and machinery; in respect of each of the foregoing clauses (a) and (b), as each exists and is operating as at the date hereof.

 

(109)                    “ Managing Partner ” means Trans Mountain Pipeline ULC, the managing partner of TM Pipeline LP.

 

(110)                    “ Marketing Period ” has the meaning attributed to that term in Section 7.1(1)(a).

 

(111)                    “ Material Adverse Change ” or “ Material Adverse Effect ” as either may be used in this Agreement, means any change or effect that is materially adverse to the Business, Assets or financial condition of Target Entities, taken as a whole; provided that any change or effect arising from or relating to:

 

(a)                                  any change to Applicable Law, in GAAP or regulatory accounting requirements;

 

(b)                                  general economic or industry conditions affecting the midstream oil and gas industry;

 

(c)                                   the failure of the Target Entities to meet any internal or published projections, forecasts, estimates or predictions in respect of revenues, earnings or other financial or operating metrics before, on or after the date of this Agreement;

 

(d)                                  any matter or prospective matter which has, at or prior to the date hereof, been publicly disclosed by Vendor or any of its Affiliates in regulatory or securities filings, has been made available to Purchaser in the Data Room, or disclosed in writing to Purchaser on or prior to the date hereof;

 

(e)                                   the announcement of the Transaction or the taking of any actions contemplated by this Agreement or actions taken (or omitted to be taken) at the request or with the prior consent of Purchaser;

 

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(f)                                    the identity of, or any facts or circumstances relating to, Purchaser or its Affiliates, or any action or inaction of Purchaser or its Affiliates;

 

(g)                                   departures of personnel providing services to the Target Entities, whether such departures result from the announcement or consummation of the Transaction, or otherwise;

 

(h)                                  acts of God, including earthquakes, fires, tornadoes, flooding and other natural disasters;

 

(i)                                      any military action or attack or the engagement by the United States of America or Canada in hostilities, whether or not pursuant to the declaration of a national emergency or war;

 

(j)                                     opposition, either individually or as a group, whether local, regional, national or international, including, acts of protest, civil disobedience, sabotage or terrorism, political or social unrest, protests or insurgencies;

 

(k)                                  sabotage against any Assets or other criminal actions, or any failure or delay of authorities or the judiciary to enforce Applicable Law;

 

(l)                                      any commencement of Proceedings or decision of a court or any other Governmental Authority, including any ruling, order, declaration, injunction, announcement, application, action, suit, inquiry or similar event brought or provided by or before any court, tribunal, regulatory body or other Governmental Authority delaying or hindering the development or construction of the TMEP; and

 

(m)                              as they relate to the TMEP, increased costs, delays in development or construction for any reason, or any action or inaction by a Governmental Authority in the issuance of Permits and other authorizations or consents,

 

shall be deemed to not constitute a Material Adverse Change or a Material Adverse Effect. Each of Vendor and Purchaser agree that the determination of whether there has been a Material Adverse Change or a Material Adverse Effect shall be made after giving effect to any insurance proceeds (net of any deductibles) and indemnification payments that, in either case, are payable as a result of the change or effect subject to such determination.

 

(112)                    “ Material Contract ” has the meaning attributed to that term in Section 6.2(14).

 

(113)                    “ Meeting ” means the special meeting of Securityholders to be called and held in accordance with this Agreement to permit the Securityholders to consider the Transaction Resolution and related matters, and any adjournment(s) thereof.

 

(114)                    “ MI 61-101 ” has the meaning attributed to that term in Section 7.11(2)(e).

 

(115)                    “ Miscellaneous Interests ” means all interests of the Target Entities in and to all property, assets and rights of any nature and kind relating to, or necessarily incidental to, the

 

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construction, ownership, operation and / or maintenance of the Mainline System and/or the TMEP.

 

(116)                    “ National Energy Board ” or “ NEB ” means the National Energy Board and its successors.

 

(117)                    “ National Energy Board Act ” means the National Energy Board Act R.S.C. N-6, s. 1, the regulations made thereunder, and its predecessor and successor legislation.

 

(118)                    “ No Action Letter ” means written confirmation from the Commissioner that he does not, at that time, intend to make an application under section 92 of the Competition Act in respect of the Transactions.

 

(119)                    “ Non-Resident ”  means a Person who is not resident or deemed to be resident in Canada for purposes of the Tax Act, or a partnership that is not a “Canadian partnership” as defined in the Tax Act.

 

(120)                    “ Notice of Intent to Terminate ” has the meaning attributed to that term in Section 7.16(3).

 

(121)                    “ Objection Notice ” has the meaning attributed to that term in Section 2.4(5).

 

(122)                    “ Occupational Health and Safety ” means any obligation imposed on an employer pursuant to the Occupational Health and Safety Act (Alberta) or the Occupational Health and Safety Regulation promulgated pursuant to the Workers Compensation Act (British Columbia).

 

(123)                    “ Ordinary Course ” means, with respect to an action taken by a Person that the action is consistent with the past practices of the Person and is taken in the normal course operations of the Person.

 

(124)                    “ Other Documents ” has the meaning attributed to that term in Section 11.5.

 

(125)                    “ Outside Date ” means December 31, 2018.

 

(126)                    “ Parties ” means Vendor, Purchaser, KML and KMI, and “ Party ” means any of them.

 

(127)                    “ Payment ” has the meaning attributed to that term in Section 9.10(4).

 

(128)                    “ Pension Plans ” means the KMCI Pension Plan and the Legacy Pension Plan, and “ Pension Plan ” means any of them.

 

(129)                    “ Pension Regulator ” has the meaning attributed to that term in Section 6.2(27)(b)(iv).

 

(130)                    “ Permits ” means any license, order, permit, certificate of authority, approval, tender, bid, registration, franchise, variance, exemption, consent or other authorization of or from a Governmental Authority.

 

(131)                    “ Permitted Contest ” means action taken by any Target Entity or Vendor in good faith by appropriate proceedings diligently pursued to contest any Taxes, claims or Encumbrance, provided that:

 

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(a)                                  such Target Entity or Vendor has established reasonable reserves therefor if required in accordance with GAAP; and

 

(b)                                  proceeding with such contest will not create a material risk of sale, forfeiture or loss, or interference with the use of any material property of such Person and would not reasonably be expected to have a Material Adverse Effect.

 

(132)                    “ Permitted Encumbrances ” means:

 

(a)                                  servitudes, easements, leases, subleases, restrictions, rights-of-way, permits, restrictive covenants, encroachments, protrusions, licenses, sublicenses, zoning, caveats registered in respect of any of the foregoing or other similar rights or interests in land (including, without in any way limiting the generality of the foregoing, rights of way and servitudes for railways, sewers, drains, petroleum substances, pipelines, water pipelines, gas and water mains, electric light, power, telephone, telegraph, communication, computer, instrumentation and cable television conduits, poles, wires and cables, meter stations and substations and including other related structures and facilities; and other similar rights in real property or any interest therein) granted to or reserved or taken by other Persons which individually or in the aggregate do not materially detract from the value of such land or materially impair its use in the operation of the business of such Persons and its subsidiaries, taken as a whole;

 

(b)                                  Encumbrances imposed by or permitted by law, such as undetermined, inchoate or statutory liens and deemed trusts, carrier’s liens, garagekeepers’ liens, builders’ liens, warehousemen’s liens, mechanics’ liens, materialmen’s liens, repairmen’s liens and other liens, charges and privileges which relate to obligations which are not due or delinquent or, if due and delinquent, the validity of which is being contested at the time by a Permitted Contest;

 

(c)                                   statutory liens, charges, adverse claims, security interests or Encumbrances of any nature whatsoever claimed or held by any Governmental Authority that have not at the time been filed or registered against the title to the asset or served on any Target Entity or Vendor pursuant to Applicable Law or notice of which has not otherwise been received by any Target Entity or Vendor, or that relate to obligations not due or delinquent, or, if due and delinquent, the validity of which is being contested at the time by a Permitted Contest;

 

(d)                                  Encumbrances in favour of a public utility or Governmental Authority when required by such utility or Governmental Authority in connection with the operations of the Business, all in the Ordinary Course of the Business which individually or in the aggregate do not materially detract from the value of the asset concerned or materially impair its use in the operation of the Business, taken as a whole;

 

(e)                                   the reservations in any original grants from the Crown of any Real Property or interest therein and statutory exceptions to title that do not materially detract from

 

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the value of the Real Property concerned or materially impair its use in the operation of the Business;

 

(f)                                    Encumbrances for Taxes, assessments, customs duties or governmental charges which are not due and delinquent or, if due or delinquent, the validity of which is being contested at the time by a Permitted Contest;

 

(g)                                   Encumbrances under or pursuant to any judgment rendered, or claim filed, against such Target Entity or Vendor, which such Target Entity or Vendor shall be contesting at the time by a Permitted Contest or which is adequately covered by insurance;

 

(h)                                  Equipment leases or conditional sales contracts entered into in the Ordinary Course;

 

(i)                                      Encumbrances in favour of Computershare Trust Company of Canada to secure obligations under the Credit Agreement and in respect of related hedging and cash management obligations to the lenders thereunder;

 

(j)                                     Encumbrances contemplated under and pursuant to the Covered Credit Agreement (including, for certainty, any Encumbrances in favour of Purchaser or Export Development Canada);

 

(k)                                  Encumbrances consented to in writing by Purchaser;

 

(l)                                      Encumbrances in favour of a Target Entity;

 

(m)                              any lease or sublease granted by a Target Entity in the Ordinary Course, provided that, any such lease or sublease does not materially adversely affect the enjoyment by a Target Entity of the assets of such Target Entity in the conduct of the business the Target Entities, taken as a whole;

 

(n)                                  title defects or irregularities which are of a minor nature which, in the aggregate, do not materially affect or impair the use of any material property of the Target Entities for the purposes for which it is held by or on behalf of the Target Entity in question;

 

(o)                                  any right reserved to, or vested in, any applicable Governmental Authority by the terms of:

 

(i)                                      any Applicable Law;

 

(ii)                                   any applicable governmental authorization; or

 

(iii)                                any property interest, easement, right-of-way, or servitude issued or granted by Applicable Law or by any applicable governmental authorization,

 

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to terminate any such governmental authorization, easement, right-of-way or servitude or to purchase, expropriate, appropriate or recapture, or designate a purchaser of any property;

 

(p)                                  the Encumbrances disclosed in the Data Room; and

 

(q)                                  other Encumbrances arising in the Ordinary Course of Business and not materially affecting the Business or the Target Entities taken as a whole.

 

(133)                    “ Person ” is to be broadly interpreted and includes an individual, a corporation, a partnership, a joint venture, a trust, an association, a syndicate, an unincorporated organization, a Governmental Authority, an executor or administrator or other legal or personal representative, or any other juridical entity.

 

(134)                    “ Personal Information ” means any information about an identifiable individual.

 

(135)                    “ Post-Closing Period ” means any Tax period beginning on or after the Closing Date, and with respect to a U.S. Straddle Period, the portion of such Tax period beginning on the Closing Date.

 

(136)                    “ Pre-Acquisition Reorganization ” has the meaning attributed to that term in Section 7.11.

 

(137)                    “ Pre-Approved Liabilities ” has the meaning attributed to that term in Section 7.7(2).

 

(138)                    “ Pre-Closing Period ” means any Tax period that is not a Post-Closing Period and with respect to a U.S. Straddle Period, the portion of such Tax period ending on the day prior to the Closing Date.

 

(139)                    “ Preliminary Cash and Cash Equivalents ” has the meaning attributed to that term in Section 2.4(1).

 

(140)                    “ Preliminary Closing Indebtedness ” has the meaning attributed to that term in Section 2.4(1).

 

(141)                    “ Preliminary Closing Working Capital ” has the meaning attributed to that term in Section 2.4(1).

 

(142)                    “ Privacy Law ” means any and all Canadian Applicable Law that regulates the collection use, disclosure and or storage of Personal Information.

 

(143)                    “ Proceeding ” means:

 

(a)                                  any suit, action, dispute, investigation, claim, arbitration, order, summons, citation, directive, charge, demand or prosecution, whether legal or administrative; or

 

(b)                                  any appeal or application for review;

 

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at law or in equity before any Governmental Authority.

 

(144)                    “ Proposed Agreement ” has the meaning attributed to that term in Section 7.1(5).

 

(145)                    “ Proxy Statement ” means the proxy statement of KML to be filed with the SEC in connection with the Transactions as amended, supplemented or otherwise modified.

 

(146)                    “ Puget LLC ” means Trans Mountain Pipeline (Puget Sound) LLC.

 

(147)                    “ Purchase Price ” has the meaning attributed to that term in Section 2.2(1).

 

(148)                    “ Purchased Shares ” means all issued and outstanding Equity Interests in the Target Corporations

 

(149)                    “ Purchased Units ” means all the Equity Interest in TM Pipeline LP.

 

(150)                    “ Purchaser ” means Her Majesty in Right of Canada.

 

(151)                    “ Purchaser’s Counsel ” means Borden Ladner Gervais LLP.

 

(152)                    “ Real Property ” means the real property and Land Rights, including all leasehold interests, rights-of-way and easements, used in or necessary for the Business (it being acknowledged that only a portion have been currently procured in connection with TMEP) including the conduct of the Mainline System.

 

(153)                    “ Receiving Party ” has the meaning attributed to that term in Section 7.16(2).

 

(154)                    “ Release ” has the meaning prescribed in any Environmental Law and includes any release, spill, leak, pumping, pouring, emission, emptying, discharge, injection, escape, leaching, disposal, dumping, deposit, spraying, burial, abandonment, incineration, seepage, placement, or introduction.

 

(155)                    “ Representatives ” means, with respect to any Party, its Affiliates and, if applicable, its and their respective directors, officers, employees, agents and other representatives and advisors.

 

(156)                    “ Review Period ” has the meaning attributed to that term in Section 7.16(3).

 

(157)                    “ SEC ” means the United States Securities and Exchange Commission.

 

(158)                    “ Securityholders ” means, collectively, the holders of the Restricted Voting Shares, Special Voting Shares and Preferred Shares of KML.

 

(159)                    “ Software ” means software, including all versions thereof, whether installed locally, on a local area network or delivered through the internet, and all related documentation, manuals, source code and object code, program files, data files, computer related data, field and data definitions and relationships, data definition specifications, data models, program and system logic, interfaces, program modules, routines, sub-routines, algorithms, program architecture, design concepts, system designs, program structure, sequence and

 

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organization, screen displays and report layouts, including any and all modifications, changes, release, versions, upgrades, updates or patches of any of the foregoing, and all other material related to such software.

 

(160)                    “ Statutory Plans ” means benefit plans that any Target Entity is required by any domestic or foreign statute to participate in or contribute to in respect of a current or former employee, director or officer of the Target Entity or any beneficiary or dependent thereof, including the Canada Pension Plan, and plans administered pursuant to applicable health, Tax, workplace safety insurance, workers’ compensation and employment insurance legislation.

 

(161)                    “ Superior Proposal ” has the meaning attributed to that term in Section 7.1(2).

 

(162)                    “ Supplemental Disclosure ” has the meaning attributed to that term in Section 7.16(2).

 

(163)                    “ Support Agreements ” means the support agreements dated the date hereof, entered into between Purchaser and the Supporting Securityholders, in their capacities as Securityholders, as the case may be.

 

(164)                    “ Supporting Securityholders ” means Kinder Morgan Canada Company and KM Canada Terminals ULC, each an indirect subsidiary of KMI, in respect of securities of KML legally and beneficially owned by them, as applicable.

 

(165)                    “ Target Corporations ” means the Managing Partner and KMCI.

 

(166)                    “ Target Entities ” means TM Pipeline LP, the Managing Partner, KMCI and Puget LLC and a “ Target Entity ” means any of them.

 

(167)                    “ Target Working Capital ” shall mean the target aggregate consolidated Working Capital of the Target Entities, being Twenty Five Million Dollars ($25,000,000).

 

(168)                    “ Tax Act ” or any reference to a specific provision thereof means the Income Tax Act (Canada) and legislation of any legislature of any province or territory of Canada and any regulations made thereunder in force of like or similar effect.

 

(169)                    “ Tax Returns ” means all returns, declarations, designations, forms, schedules, reports, elections, notices, filings, statements (including withholding tax returns and reports, and information tax returns and reports), claims for refunds and other documents of every nature whatsoever filed or required to be filed with any Governmental Authority with respect to any Taxes, together with all amendments and supplements thereto.

 

(170)                    “ Taxes ” means taxes, duties, fees, premiums, assessments, imposts, levies and other charges of any kind whatsoever imposed by any Governmental Authority, including all interest, penalties, fines, additions to tax or other additional amounts imposed in respect thereof (including those levied on, or measured by, or referred to as, income, gross receipts, profits, capital, transfer, land transfer, gains, capital stock, production, gift, wealth, environment, net worth, utility, sales, goods and services, harmonized sales, use, consumption valued-added, excise, stamp, withholding on amounts to be paid to or by any

 

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person, premium, business, franchising, property, employer health, payroll, employment, health, social services, education and social security taxes, escheat payments, surtaxes, customs duties and import and export taxes, development, occupancy, social services, licence, franchise and registration fees and employment insurance, health insurance and Canada pension plan premiums or contributions), public utilities tax, and business and occupation tax, and “ Tax ” has a corresponding meaning.

 

(171)                    “ Third Party Claim ” has the meaning attributed to that term in Section 9.1(11).

 

(172)                    “ TM Pipeline LP ” means Trans Mountain Pipeline L.P., an Alberta limited partnership registered February 23, 2007.

 

(173)                    “ TMEP 2018 Work Plan ” means the work plan for 2018 approved by Purchaser and Vendor disclosed in the Data Room.

 

(174)                    “ TMPL System ” means collectively the Mainline System and the TMEP.

 

(175)                    “ Trans Mountain Expansion Project ” or “ TMEP ” means a proposed expansion of the Mainline System to increase the capacity from approximately three hundred thousand (300,000) barrels per day to approximately eight hundred and ninety thousand (890,000) barrels per day, as more particularly described in the Expansion CPCN.

 

(176)                    “ Trans Mountain Section 15 Indemnity ” means the release and indemnity from TM Pipeline LP in favour of Vendor in respect of section 15.2(1) of the Business Corporations Act (Alberta) as a result of the Managing Partner being an unlimited liability corporation.

 

(177)                    “ Transaction Resolution ” means, as applicable, the special resolution in respect of the Transaction to be considered by the Securityholders at the Meeting.

 

(178)                    “ Transaction Resolution Approval ” means the approval of the Transaction Resolution by the Securityholders at the Meeting, voting together as a single class, as required by section 190 of the Business Corporations Act (Alberta).

 

(179)                    “ Transactions ” means the purchase and sale of the Purchased Shares and Purchased Units and all other transactions contemplated by this Agreement.

 

(180)                    “ Transferred Canadian Employees ”  has the meaning attributed to that term in Section 7.12(1)(c)(i).

 

(181)                    “ Transferred Employees ”  means the Transferred Canadian Employees and the Transferred U.S. Employees.

 

(182)                    “ Transferred U.S. Employees ” has the meaning attributed to that term in Section 7.12(3)(c)(i).

 

(183)                    “ Transition Services Agreement ” has the meaning attributed to that term in Section 7.13(1).

 

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(184)                    “ Transmission ” has the meaning attributed to that term in Section 11.12(1).

 

(185)                    “ U.S. Employees ” means the KMI employees who are employed or engaged in the development, construction and operation of the TMPL System.

 

(186)                    “ U.S. Straddle Period ” has the meaning attributed to that term in Section 8.2(a).

 

(187)                    “ Vendor ” has the meaning set out in the Recitals.

 

(188)                    “ Vendor’s Counsel ” means Blake, Cassels and Graydon LLP.

 

(189)                    “ Working Capital ” means, in respect of the Target Entities, the aggregate of the Current Assets (excluding Cash and Cash Equivalents) minus the Current Liabilities (excluding Indebtedness); determined in accordance with GAAP applied using the same accounting methods, practices, principles, policies and procedures, with consistent classifications, judgments and valuation and estimation methodologies that were used in the preparation of the KML consolidated financial statements for the most recent financial year end as if such accounts were being prepared and audited as of a fiscal year end.

 

1.2                                Construction . This Agreement has been negotiated by each Party with the benefit of legal representation, and any rule of construction to the effect that any ambiguities are to be resolved against the drafting Party does not apply to the construction or interpretation of this Agreement.

 

1.3                                Certain Rules of Interpretation . In this Agreement:

 

(1)                                  the division into Articles and Sections and the insertion of headings and the Table of Contents are for convenience of reference only and do not affect the construction or interpretation of this Agreement;

 

(2)                                  the expressions “hereof”, “herein”, “hereto”, “hereunder”, “hereby” and similar expressions refer to this Agreement and not to any particular portion of this Agreement; and

 

(3)                                  unless specified otherwise or the context otherwise requires:

 

(a)                                  references to any Article, Section or Schedule are references to the Article or Section of, or Schedule to, this Agreement of the Data Room, as applicable;

 

(b)                                  “including” or “includes” means “including (or includes) but is not limited to” and is not to be construed to limit any general statement preceding it to the specific or similar items or matters immediately following it;

 

(c)                                   “the aggregate of”, “the total of”, “the sum of”, or a phrase of similar meaning means “the aggregate (or total or sum), without duplication, of”;

 

(d)                                  references to Contracts are deemed to include all present amendments, supplements, restatements and replacements to those Contracts;

 

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(e)                                   references to any legislation, statutory instrument or regulation or a section thereof are references to the legislation, statutory instrument, regulation or section as amended, re-enacted, consolidated or replaced from time to time;

 

(f)                                    references in this Agreement to consent and the taking or refraining from taking action except with the consent of a Party or its Representatives shall be qualified by “such consent not to be unreasonably withheld conditioned or delayed” unless otherwise stated to be in the sole discretion of such Party or its Representatives; and

 

(g)                                   words in the singular include the plural and vice-versa and words in one gender include all genders.

 

1.4                                Knowledge . In this Agreement, any reference to the knowledge of a Party means, the actual knowledge of those individuals in respect of Vendor as disclosed in the Data Room.

 

1.5                                Computation of Time . In this Agreement, unless specified otherwise or the context otherwise requires:

 

(1)                                  a reference to a period of days is deemed to begin on the first day after the event that started the period and to end at 5:00 p.m. on the last day of the period, but if the last day of the period does not fall on a Business Day, the period ends at 5:00 p.m. on the next succeeding Business Day;

 

(2)                                  all references to specific dates mean 11:59 p.m. on the dates;

 

(3)                                  all references to specific times are references to Mountain time; and

 

(4)                                  with respect to the calculation of any period of time, references to “from” mean “from and excluding” and references to “to” or “until” mean “to and including”.

 

1.6                                Performance on Business Days . If any action is required to be taken pursuant to this Agreement on or by a specified date that is not a Business Day, the action is valid if taken on or by the next succeeding Business Day.

 

1.7                                Calculation of Interest . In calculating interest payable under this Agreement for any period of time, the first day of the period is included and the last day is excluded.

 

1.8                                Currency and Payment . In this Agreement, unless specified otherwise:

 

(1)                                  references to dollar amounts or “$” are to Canadian dollars;

 

(2)                                  any payment is to be made by way of wire transfer, to an account designated by Vendor in writing to Purchaser, or designated by Purchaser in writing to Vendor, as the case may be, or by any other method agreed by Purchaser and Vendor (other than cash payment) that provides immediately available funds; and

 

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(3)                                  except in the case of any payment due on the Closing Date, any payment due on a particular day must be received and available by 2:00 p.m. on the due date and any payment received and available after that time is deemed to have been made and received on the next succeeding Business Day.

 

1.9                                Accounting Terms . In this Agreement, unless specified otherwise, each accounting term has the meaning assigned to it under GAAP.

 

1.10                         Schedules . The following Schedules are attached to and form part of this Agreement:

 

Schedule 4.1(1)(a)		Form of Vendor’s Bring-Down Certificate
Schedule 4.2(1)(a)		Form of Purchaser’s Bring-Down Certificate
Schedule 6.2(3)		Authorized and Issued Capital

 

ARTICLE 2

PURCHASE AND SALE OF PURCHASED SHARES AND PURCHASED UNITS

 

2.1                                Agreement to Purchase and Sell . Subject to the terms and conditions of this Agreement, as of the Effective Time Vendor shall sell to Purchaser and Purchaser shall purchase from Vendor, all of the Purchased Shares and Purchased Units, constituting all of the issued and outstanding shares in the capital of the Target Corporations and all of the issued and outstanding units of TM Pipeline LP.

 

2.2                                Purchase Price and Purchase Price Allocation .

 

(1)                                  Subject to the terms and conditions of this Agreement, the aggregate purchase price (the “ Purchase Price ”) to be paid by Purchaser to Vendor for the Purchased Units and the Purchased Shares is Four Billion Five Hundred Million Dollars ($4,500,000,000), subject to any adjustments required by Section 2.4 and 2.5.

 

(2)                                  Purchaser and Vendor shall allocate the Purchase Price and any adjustments as disclosed in the Data Room.

 

2.3                                Payment of Purchase Price . Subject to Section 2.5, Purchaser shall pay and satisfy the Purchase Price by payment at Closing to or to the order of Vendor of the amount of Four Billion Five Hundred Million Dollars ($4,500,000,000) plus or minus the amount of any positive or negative preliminary adjustment, as the case may be, determined immediately prior to Closing pursuant to Section 2.4(2).

 

2.4                                Closing Date Adjustments .

 

(1)                                  At least five (5) Business Days prior to the Closing Date, Vendor shall cause the Auditors to prepare and Vendor shall deliver to Purchaser: (a) a good faith best estimate of a detailed calculation of the consolidated Working Capital of the Target Entities as of the Effective Time without giving effect to the Transactions (the “ Preliminary Closing Working Capital ”), including an estimated balance sheet of the Target Entities as of the Effective Time without giving effect to the Transactions; (b) a calculation of the amount by which

 

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the Preliminary Closing Working Capital exceeds or is less than, as the case may be, the Target Working Capital; (c) a good faith best estimate of a detailed calculation of the consolidated Indebtedness of the Target Entities as of the Effective Time without giving effect to the Transactions (the “ Preliminary Closing Indebtedness” ); and (d) a good faith best estimate of a detailed calculation of the consolidated Cash and Cash Equivalents of the Target Entities as of the Effective Time without giving effect to the Transactions (the “ Preliminary Cash and Cash Equivalents ”);

 

(2)                                  If the Preliminary Closing Working Capital is less than the Target Working Capital, then the Purchase Price will be reduced at Closing by the amount of that difference, subject to any further adjustments as may be prescribed by Section 2.5. If the Preliminary Closing Working Capital is greater than the Target Working Capital, then the Purchase Price will be increased at Closing by the amount of that difference, subject to any further adjustments as may be prescribed by Section 2.5.The Purchase Price will be reduced at Closing by the amount of Preliminary Closing Indebtedness. The Purchase Price shall be increased by the Preliminary Cash and Cash Equivalents. A sample calculation of the determination of the preliminary Purchase Price adjustment is disclosed in the Data Room. The determinations of the preliminary Purchase Price adjustment pursuant to this Section 2.4(2) and the final Purchase Price adjustment pursuant to Section 2.5 shall be made on a basis consistent with the sample calculation.

 

(3)                                  As soon as possible, but not later than ninety (90) days, following the Closing Date, Purchaser shall prepare and deliver to Vendor the following (collectively, the “ Closing Statements ”):

 

(a)                                  financial statements for the Target Entities on a consolidated basis for the period from the Financial Statements Date to the Effective Time and prepared in accordance with GAAP applied on a basis consistent with the audited financial statements of KML for the year ended December 31, 2017 (the “ Closing Financial Statements ”);

 

(b)                                  a calculation of the consolidated Working Capital as of the Effective Time of the Target Entities as determined by reference to the balance sheet contained in the Closing Financial Statements (the “ Closing Working Capital ”);

 

(c)                                   a calculation of the consolidated Indebtedness as of the Effective Time of the Target Entities as determined by reference to the balance sheet contained in the Closing Financial Statements (the “ Closing Indebtedness ”);

 

(d)                                  a calculation of the consolidated Cash and Cash Equivalents as of the Effective Time of the Target Entities as determined by reference to the balance sheet contained in the Closing Financial Statements (the “ Closing Cash and Cash Equivalents ”);

 

(e)                                   a calculation of:

 

(i)                                      the amount by which the Closing Working Capital exceeds or is less than, as the case may be, the Preliminary Closing Working Capital;

 

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(ii)                                   the amount by which the Closing Indebtedness exceeds or is less than, as the case may be, the Preliminary Closing Indebtedness;

 

(iii)                                the amount by which the Closing Cash and Cash Equivalents exceeds or is less than, as the case may be, the Preliminary Closing Cash and Cash Equivalents; and

 

(iv)                               the Purchase Price, as adjusted in accordance with Section 2.5.

 

(4)                                  Vendor and Purchaser shall co-operate fully with each other in the calculation of the Closing Working Capital and the preparation of the Closing Statements.

 

(5)                                  Vendor shall have thirty (30) days from receipt of the Closing Statements within which to review the Closing Statements. For the purposes of this review, Purchaser shall permit and shall cause the Target Entities and the Auditors to permit Vendor and Vendor’s authorized Representatives to examine all working papers, schedules, accounting Books and Records and other documents and information used or prepared by the Target Entities or the Auditors in connection with the preparation of the Closing Statements and to have reasonable access to appropriate personnel of the Target Entities for Vendor to verify the accuracy and presentation and other matters relating to the preparation of the Closing Statements. Vendor may dispute any of the items in the Closing Statements by written notice (an “ Objection Notice ”) to Purchaser within the same thirty (30) days. If Vendor has not delivered an Objection Notice to Purchaser within this thirty (30) day period, Vendor shall be deemed to have accepted the Closing Statements. If Vendor delivers an Objection Notice, Vendor and Purchaser shall work expeditiously and in good faith in an attempt to resolve all of the items in dispute within fifteen (15) days of receipt of the Objection Notice. If all items in dispute are not resolved within this fifteen (15) day period, the remaining items in dispute shall be referred to a nationally recognized firm of chartered accountants in Canada, selected by Purchaser and acceptable to Vendor, acting reasonably (provided that the firm shall not be the auditors of any Party nor have been paid material consulting fees by any Party within the prior twenty-four (24) months).

 

(6)                                  Each Party shall furnish to the firm chosen in accordance with Section 2.4(5) (the “ Independent Auditor ”) those working papers, schedules and other documents, accounting books and records and information relating to the items in dispute, that are available to that Party or its auditors (and in the case of Purchaser, the Auditors) as the Independent Auditor may require. The Parties shall instruct the Independent Auditor that time is of the essence in proceeding with its determination of any dispute, and the decision of the Independent Auditor with respect to any item in dispute is to be in writing and, absent any manifest error, is final and binding on Vendor and Purchaser with no rights of challenge, review or appeal to the courts in any manner. The Independent Auditor, in making its determination of any dispute, is acting as an expert and not as an arbitrator and is not required to engage in a judicial inquiry worked out in a judicial manner.

 

(7)                                  On agreement or decision, as the case may be, with respect to all items in dispute, the Closing Statements are deemed to be amended as may be necessary to reflect the agreement

 

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or the decision, as the case may be. In this event, references in this Agreement to the Closing Statements will be references to the Closing Statements, as so amended.

 

(8)                                  Vendor shall be responsible for one-half of the fees and expenses of the Independent Auditor and Purchaser shall be responsible for one-half of the fees and expenses of the Independent Auditor but each Party shall be responsible for its own costs and expenses.

 

2.5                                Purchase Price Adjustment . The Purchase Price is to be adjusted by the amount by which the Closing Working Capital, Closing Indebtedness, and Closing Cash and Cash Equivalents is greater than, or is less than, as the case may be, the Preliminary Closing Working Capital, Preliminary Closing Indebtedness, and Preliminary Closing Cash and Cash Equivalents, respectively.

 

If:

 

(1)                                  Closing Working Capital is greater than Preliminary Closing Working Capital, then the Purchase Price shall be increased by that amount;

 

(2)                                  Closing Working Capital is less than Preliminary Closing Working Capital, then the Purchase Price shall be decreased by that amount;

 

(3)                                  Closing Indebtedness is greater than Preliminary Closing Indebtedness, then the Purchase Price shall be decreased by that amount;

 

(4)                                  Closing Indebtedness is less than Preliminary Closing Indebtedness, then the Purchase Price shall be increased by that amount;

 

(5)                                  Closing Cash and Cash Equivalents is greater than Preliminary Closing Cash and Cash Equivalents, then the Purchase Price shall be increased by that amount; and

 

(6)                                  Closing Cash and Cash Equivalents is less than Preliminary Closing Cash and Cash Equivalents, then the Purchase Price shall be decreased by that amount.

 

If the sum of the adjustments for Working Capital, Indebtedness and Cash and Cash Equivalents is a positive amount then Purchaser shall pay the difference to Vendor within ten (10) Business Days following the agreement or deemed amendment of the Closing Statements pursuant to Section 2.4. If the sum of the adjustments for Working Capital, Indebtedness and Cash and Cash Equivalents is a negative amount then Vendor shall pay the difference to Purchaser within ten (10) Business Days following the agreement or deemed amendment of the Closing Statements pursuant to Section 2.4. The determination and adjustment of the Purchase Price in accordance with the provisions of Section 2.4 and this Section 2.5 will not limit or affect any other rights or causes of action, which the Parties may have with respect to the representations, warranties, covenants and indemnities in its favour contained in this Agreement.

 

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ARTICLE 3

CLOSING ARRANGEMENTS

 

3.1                                Closing . Subject to the satisfaction or waiver by the applicable Party of the conditions set out in Article 4, the Parties shall hold the Closing on the Closing Date, at such time as agreed to by Vendor and Purchaser and at the offices of Purchaser’s Counsel in Calgary, Alberta or at such other place as agreed to by Vendor and Purchaser.

 

3.2                                Vendor’s Closing Deliveries . At Closing, Vendor shall deliver or cause to be delivered to Purchaser the following:

 

(1)                                  those items required to be delivered under Section 4.1(1);

 

(2)                                  original share registers, share transfer ledgers, minute books and corporate seals (if any) of the Target Corporations;

 

(3)                                  an original partnership record book for the partnership containing original unit registers, unit transfer ledgers, and the Limited Partnership Agreement;

 

(4)                                  in respect of each Target Entity:

 

(a)                                  share certificate(s) or unit certificates representing all of the issued and outstanding shares or units of the Target Entity registered in the names of one or more of the Target Entities or the Vendor, as applicable;

 

(b)                                  a certificate of status or its equivalent under the laws of the jurisdiction of its incorporation or governing its corporate existence;

 

(c)                                   a certificate of a senior officer certifying the corporate status, partnership status and Constating Documents of the Target Entity;

 

(d)                                  written resignations of those directors and officers of the Target Entity specified by Purchaser, in each case with effect from the Effective Time, together with mutual releases, substantially in the form customary for a Transaction of this nature; and

 

(e)                                   a true, accurate and complete list of the accounts and safety deposit boxes of the Target Entities and of Persons holding general or special powers of attorney from the Target Entities and which sets out:

 

(i)                                      the name of each bank, trust company or similar institution in which each Target Entity has accounts or safety deposit boxes, the number or designation of each such account and safety deposit box and the names of all Persons authorized to draw thereon or to have access thereto; and

 

(ii)                                   the name of each Person holding a general or special power of attorney from a Target Entity and a summary of the terms thereof;

 

(5)                                  in respect of Vendor:

 

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(a)                                  a certificate of status or its equivalent under the laws of the jurisdiction of its incorporation or governing its corporate existence;

 

(b)                                  a certificate of a senior officer certifying:

 

(i)                                      the resolutions of the board of directors and/or (if required by Applicable Law) shareholders of Vendor authorizing the execution, delivery and performance of this Agreement and of all contracts, agreements, instruments, certificates and other documents required by this Agreement to be delivered by Vendor; and

 

(ii)                                   the incumbency and signatures of the officers of Vendor executing this Agreement and any other document relating to the Transactions;

 

(6)                                  the Trans Mountain Section 15 Indemnity duly executed by TM Pipeline LP; and

 

(7)                                  such other documentation as Purchaser reasonably requests on a timely basis in order to establish the completion of the Transactions and the taking of all corporate proceedings in connection with the Transactions (as to certification and otherwise), in each case in form and substance satisfactory to Purchaser, acting reasonably.

 

3.3                                Purchaser’s Closing Deliveries . At Closing, Purchaser shall deliver or cause to be delivered to Vendor the following:

 

(1)                                  all payments, certificates, agreements, documents and instruments as required under Section 4.2(1)(f);

 

(2)                                  such other documentation as Vendor reasonably requests on a timely basis in order to establish the completion of the Transactions and the taking of all corporate proceedings in connection with the Transactions (as to certification and otherwise), in each case in form and substance satisfactory to Vendor, acting reasonably; and

 

(3)                                  evidence reasonably satisfactory to Vendor that the designee of Purchaser taking assignment of the Purchased Shares and Purchased Units is a taxable entity under the Tax Act.

 

ARTICLE 4

CONDITIONS OF CLOSING

 

4.1                                Conditions for the Benefit of Purchaser .

 

(1)                                  Purchaser shall be obliged to complete the Transactions only if each of the following conditions precedent has been satisfied in full at or before the time of Closing on the Closing Date:

 

(a)                                  all of the representations and warranties of Vendor, KML and KMI made in this Agreement shall be true and correct as at the date hereof and the Closing Date (except to the extent such representations and warranties expressly relate to a

 

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specified date, and in such case, shall be true and correct on and as of such specified date), except for the failure of representations and warranties to be true and correct (without regard to any qualifications with respect to materiality, Material Adverse Effect or the like contained therein) as individually or in the aggregate, do not have a Material Adverse Effect; and a certificate of a senior officer of Vendor certifying thereto shall have been delivered to Purchaser;

 

(b)                                  each of Vendor, KML and KMI have complied with or performed all of their respective obligations, covenants and agreements under this Agreement to be complied with or performed by Vendor, KML and KMI on or before the Closing Date in all material respects and a certificate of a senior officer each of Vendor and KML certifying thereto shall have been delivered to Purchaser;

 

(c)                                   all corporate proceedings required to be taken by Vendor and KML in connection with the Transactions have been undertaken and obtained;

 

(d)                                  the Transaction Resolution Approval has been undertaken and obtained;

 

(e)                                   the Competition Approval and the CTA Clearance shall have been obtained;

 

(f)                                    the CFIUS Clearance shall have been obtained;

 

(g)                                   there is no extant injunction or restraining order issued by a court of competent jurisdiction that comprises a Governmental Authority preventing the completion of the Transactions;

 

(h)                                  since the date of this Agreement there has not occurred any event which has had a Material Adverse Effect;

 

(i)                                      Vendor has delivered or caused to be delivered to Purchaser the following:

 

(i)                                      certificates representing the Purchased Shares and Purchased Units, accompanied by stock and unit transfer powers duly executed in blank or duly executed instruments of transfer, and all such other assurances, consents and other documents as Purchaser reasonably requests to effectively transfer to Purchaser title to the Purchased Shares and Purchased Units free and clear of all Encumbrances other than Encumbrances thereon in respect of the security provided for by the Vendor and the Target Entities to secure obligations of TM Pipeline LP under the Limited TM Pipeline Indemnity (Covered Credit Agreement);

 

(ii)                                   a certified copy of a resolution of the board of directors of each of the Managing Partner and KMCI consenting to the transfer of the Purchased Shares and the Purchased Units from Vendor to Purchaser as contemplated by this Agreement and authorizing the execution, delivery and performance of all contracts, agreements, instruments, certificates and other documents required by this Agreement to be delivered by the Managing Partner and KMCI, as applicable;

 

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(iii)                                releases by Vendor as shareholder of the Managing Partner and KMCI customary in a transaction such as the Transaction;

 

(iv)                               evidence, satisfactory to Purchaser of the release and discharge of all Encumbrances affecting any of the Assets, other than the Permitted Encumbrances, but, excluding Encumbrances in favour of Computershare Trust Company of Canada referred to in subparagraph (i) of the definition of Permitted Encumbrances (which shall, for certainty, be released concurrently with Closing);

 

(v)                                  the Transition Services Agreement duly executed by Vendor;

 

(vi)                               a certificate from the General Partner of TM Pipeline LP in accordance with U.S. Treasury Regulation 1.1445-11T(d), certifying that fifty percent (50%) or more of the value of the gross assets of TM Pipeline LP do not consist of U.S. real property interests and that ninety percent or more of the value of the gross assets of TM Pipeline LP do not consist of U.S. real property interests plus any cash or cash equivalents;

 

(vii)                            a certificate from the General Partner of TM Pipeline LP under U.S. Internal Revenue Service Notice 2018-29 stating that if the TM Pipeline LP had sold all of its assets at their fair market value, the amount of effectively connected gain within the meaning of Notice 2018-29 would be less than twenty five percent (25%) of the total gain; and

 

(j)                           if the Covered Credit Agreement has been entered into, the Limited TM Pipeline LP Indemnity (Covered Credit Agreement) shall have been entered into.

 

(2)                                  Each of the conditions set out in Section 4.1(1) is for the exclusive benefit of Purchaser and Purchaser may waive compliance with any such condition in whole or in part by notice in writing to Vendor, except that no such waiver operates as a waiver of any other condition.

 

4.2                                Conditions for the Benefit of Vendor .

 

(1)                                  Vendor shall be obliged to complete the Transactions only if each of the following conditions precedent has been satisfied in full at or before the time of Closing on the Closing Date:

 

(a)                                  all of the representations and warranties of Purchaser made in this Agreement shall have been true and correct in all material respects as of the date hereof (except as those representations and warranties may be affected by events or transactions expressly permitted by or resulting from the entering of this Agreement) and shall be true and correct in all material respects as of the Closing Date with the same effect as if made on and as of the Closing Date and a certificate of a senior officer of Purchaser certifying thereto shall have been provided by Purchaser;

 

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(b)                                  Purchaser shall have complied with or performed all of the obligations, covenants and agreements under this Agreement to be complied with or performed by Purchaser on or before the Closing Date in all material respects and a certificate of a senior officer of Purchaser certifying thereto shall have been provided by Purchaser;

 

(c)                                   the Competition Approval and the CTA Clearance shall have been obtained;

 

(d)                                  the CFIUS Clearance shall have been obtained;

 

(e)                                   there is no extant injunction or restraining order issued by a court of competent jurisdiction that comprises a Governmental Authority preventing the completion of the Transactions;

 

(f)                                    Purchaser has caused to be delivered to Vendor the following:

 

(i)                                      payment of the amounts required to be paid on the Closing Date under Section 2.3;

 

(ii)                                   the Transition Services Agreement duly executed by Purchaser; and

 

(g)                                   if the Covered Credit Agreement is entered into, the EDC Guarantee shall have been duly executed by Her Majesty in Right of Canada (or its agent Export Development Canada); and

 

(h)                                  the Transaction Resolution Approval shall have been obtained.

 

(2)                                  Each of the conditions set out in Section 4.2(1) is for the exclusive benefit of Vendor and Vendor may waive compliance with any such condition in whole or in part by notice in writing to Purchaser, except that no such waiver operates as a waiver of any other condition.

 

4.3                                Termination Events . By notice given prior to or at Closing, subject to Section 4.4 this Agreement may be terminated as follows:

 

(1)                                  by Purchaser if any condition in Section 4.1 has not been satisfied as of the Closing Date or if the satisfaction of any condition by the Closing Date is or becomes impossible (other than through the failure of Purchaser to comply with its obligations under this Agreement), and Purchaser has not waived that condition on or before Closing Date;

 

(2)                                  by Vendor if any condition in Section 4.2 has not been satisfied as of the Closing Date or if the satisfaction of any condition by the Closing Date is or becomes impossible (other than through the failure of Vendor to comply with their obligations under this Agreement), and Vendor has not waived that condition on or before the Closing Date;

 

(3)                                  by mutual consent of Purchaser and Vendor;

 

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(4)                                  by Vendor to accept or approve or enter into an agreement with respect to a Superior Proposal as contemplated by Section 7.1(4) and Section 7.1(5);

 

(5)                                  by Purchaser unless it is in material breach of this Agreement or by Vendor unless it is in material breach of this Agreement, if the Closing has not occurred on or before the Outside Date;

 

(6)                                  by Purchaser or Vendor pursuant to Section 7.16; and

 

(7)                                  by Purchaser pursuant to Section 7.4.

 

4.4                                Effect of Termination . Each Party’s right of termination under Section 4.3 is in addition to any other rights it may have under this Agreement or otherwise, whether at law, in equity or otherwise, and the exercise of that right of termination is not an election of remedies. If this Agreement is terminated pursuant to Section 4.3, all obligations of the Parties under this Agreement will terminate except that the obligations contained in this Section 4.4 and in Article 11 will survive, provided that if this Agreement is terminated pursuant to Section 4.3(1), 4.3(2), 4.3(5) or 4.3(6) the terminating Party’s right to pursue all legal remedies at law, in equity or otherwise will survive that termination unimpaired.

 

4.5                                Waiver of Conditions of Closing . If any of the conditions set forth in Section 4.1 has not been satisfied, Purchaser may elect in writing to waive the condition and proceed with the completion of the Transactions and, if any of the conditions in Section 4.2 has not been satisfied, Vendor may elect in writing to waive the condition and proceed with the completion of the Transactions. Any such waiver and election by Purchaser or Vendor, as the case may be, will only serve as a waiver of the specific closing condition and the other Party or Parties, as the case may be, will have no liability with respect to the specific waived condition.

 

4.6                                Failure to Close . If the Closing does not occur because any condition in Section 4.1 or Section 4.2 has not been satisfied or waived as of the Closing Date or if the satisfaction of any such condition by the Closing Date is or becomes impossible due to a breach by a Party of its covenants, representations, warranties or other obligations under this Agreement, such defaulting Party shall be liable for the other Party’s Transaction costs up to Ten Million Dollars ($10,000,000) and, in addition, each of the non-breaching Parties shall have the right to pursue all remedies at law, in equity or otherwise and nothing herein will preclude the non-breaching Parties from seeking injunctive relief to restrain any breach of the covenants or other obligations of the other Parties set forth in this Agreement or otherwise to obtain specific performance of any of such covenants or obligations. Any requirement for the securing or posting of any bond in connection with the obtaining of any such injunctive or other equitable relief is hereby waived.

 

4.7                                Reasonable Efforts . Each Party shall use its reasonable commercial efforts to satisfy the conditions applicable to it contained in this Article 4.

 

ARTICLE 5
SECURITYHOLDER APPROVAL MATTERS

 

5.1                                Support Agreements . The Supporting Securityholders have, concurrent with the execution of this Agreement, delivered to Purchaser the Support Agreements.

 

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5.2                                Circular and Meeting .

 

(1)                                  As promptly as practicable following the execution of this Agreement and in compliance with Applicable Laws, KML shall, with assistance from Purchaser as reasonably requested by KML: (a) prepare the Circular and cause the Circular to be mailed to the Securityholders and filed with applicable securities regulatory authorities, including the SEC, and other Governmental Authorities in all jurisdictions where the same are required to be filed; and (b) call, give notice of and convene the Meeting (and not adjourn, postpone or cancel, or propose the adjournment, postponement or cancellation of the Meeting without the prior written consent of Purchaser, except as required for quorum purposes (in which case, the Meeting, shall be adjourned and not cancelled) or as required by Applicable Law, or by a Governmental Authority) at which meeting the Transaction Resolution shall be submitted to the Securityholders entitled to vote upon such resolution for approval. Each of KML and Purchaser shall promptly furnish all information as may be reasonably requested by a Governmental Authority in connection with the preparation and filing of the Circular.

 

(2)                                  KML shall, with assistance from Purchaser, cause the Circular to be prepared in compliance, in all material respects, with Applicable Laws, including the applicable requirements of the Exchange Act, and to provide the Securityholders with information in sufficient detail to permit them to form a reasoned judgment concerning the matters to be considered at the Meeting and shall include, without limitation: (a) a copy of the Fairness Opinion; and (b) the approvals determination, and recommendations of the board of directors of KML as set out in Section 5.2(3).

 

(3)                                  The Circular shall state that the board of directors of KML has, based upon, among other things, the Fairness Opinion, unanimously: (a) determined that the Transaction is fair and in the best interests of KML; and (b) resolved to recommend that Securityholders vote in favour of the Transaction Resolution.

 

(4)                                  KML shall provide Purchaser and its Representatives with a reasonable opportunity to review and comment on the Circular and any other relevant documentation and shall give due consideration to all comments made by Purchaser. The Circular shall comply with Applicable Laws, including the applicable requirements of the Exchange Act.

 

(5)                                  KML shall ensure that the Circular does not, at the time of the mailing of the Circular, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or that is necessary to make the statements contained therein not misleading in light of the circumstances under which they are made. If at any time prior to the receipt of the Transaction Resolution Approval, any information relating to KML, Purchaser or any of its respective Affiliates, directors or officers, should be discovered by KML or Purchaser which is required to be set forth in an amendment or supplement to the Circular, so that such document would not include any misstatement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, the party which discovers such information shall promptly notify the other party and an appropriate amendment or supplement describing such information shall be

 

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promptly filed with the applicable security regulatory authorities and, to the extent required by Applicable Law, disseminated to the Securityholders.

 

(6)                                  KML shall advise Purchaser, as Purchaser may reasonably request, and on a daily basis on each of the last ten (10) Business Days prior to the proxy cut-off date for the Meeting, as to the aggregate tally of the proxies received by KML in respect of the Transaction Resolution.

 

(7)                                  KML shall conduct the Meeting in accordance with the by-laws of KML and any instrument governing the Meeting, as applicable, and otherwise in accordance with Applicable Laws.

 

(8)                                  KML shall promptly advise Purchaser of the number of Securityholders for which KML receives written objections to the Transactions and provide Purchaser with copies of such written objections on an as received basis.

 

5.3                                Proxy Solicitation and Solicitation Agent . Subject to the terms of this Agreement and the fiduciary duties of the directors and officers of KML, KML shall solicit proxies to be voted at the Meeting in favour of matters to be considered at the Meeting, including the Transaction Resolution and, if requested by Purchaser, acting reasonably, shall engage a proxy solicitation agent to solicit proxies in favour of the Transaction Resolution and cooperate with any Persons engaged to solicit proxies in favour of the approval of the Transaction Resolution.

 

ARTICLE 6
REPRESENTATIONS AND WARRANTIES

 

6.1                                Representations and Warranties of Vendor . Vendor represents and warrants to Purchaser as follows and acknowledges that Purchaser is relying on these representations and warranties in connection with its purchase of the Purchased Shares and the Purchased Units and that Purchaser would not purchase the Purchased Shares and the Purchased Units without these representations and warranties:

 

(1)                                  Organization and Status . It is an unlimited liability company duly formed and organized, and is validly subsisting, under the laws of the province of Nova Scotia and is up-to-date in the filing of all corporate and similar returns under the laws of that jurisdiction.

 

(2)                                  Corporate Power . It has all necessary capacity, power and authority to own or lease or dispose of its undertakings, property and assets (including the Purchased Shares and the Purchased Units), to enter into this Agreement and the contracts, agreements and instruments required by this Agreement to be executed and delivered by it, and to perform its obligations hereunder and thereunder.

 

(3)                                  Authorization . All necessary corporate action has been taken by it or on its part to authorize its execution and delivery of this Agreement and the contracts, agreements and instruments required by this Agreement to be delivered by it and the performance of its obligations hereunder and thereunder.

 

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(4)                                  Enforceability . This Agreement has been duly executed and delivered by it and (assuming due execution and delivery by the other Parties) is a legal, valid and binding obligation of it enforceable against it in accordance with its terms, except as that enforcement may be limited by bankruptcy, insolvency and other similar laws affecting the rights of creditors generally and except that equitable remedies may be granted only in the discretion of a court of competent jurisdiction. Each of the contracts, agreements and instruments required by this Agreement to be delivered by it will at the Closing have been duly executed and delivered by it and (assuming due execution and delivery by the other parties thereto) will at Closing be enforceable against it in accordance with its terms, except as that enforcement may be limited by bankruptcy, insolvency and other laws affecting the rights of creditors generally and except that equitable remedies may be granted only in the discretion of a court of competent jurisdiction.

 

(5)                                  Ownership of Purchased Shares . It is the registered and beneficial owner of the Purchased Shares, with good and marketable title thereto, free and clear of all Encumbrances, (other than the Permitted Encumbrances referred to in subparagraphs (i) and (j) of the definition of Permitted Encumbrances), and has the exclusive right to dispose of the Purchased Shares as provided in this Agreement. None of the Purchased Shares is subject to: (a) any Contract or restriction which in any way limits or restricts the transfer to Purchaser of the Purchased Shares other than the transfer restrictions in the Target Corporation’s articles; or (b) any voting trust, pooling agreement, shareholder agreement, voting agreement or other Contract, arrangement or understanding with respect to the voting of the Purchased Shares (or any of them). At or prior to the Closing, all those Contracts and restrictions will have been complied with or terminated and evidence of that compliance or termination in form and substance satisfactory to Purchaser will have been provided to Purchaser. On completion of the Transactions, it will have no ownership interest in the Target Corporations, whether direct or indirect, actual or contingent, and Purchaser shall have good title to the Purchased Shares, free and clear of all Encumbrances other than Encumbrances granted by Purchaser or in respect of the security provided for by the Vendor and the Target Entities to secure the obligations of TM Pipeline LP under the Limited TM Pipeline LP Indemnity (Covered Credit Agreement).

 

(6)                                  Ownership of Purchased Units . It is the registered and beneficial owner of the Purchased Units, with good and marketable title thereto, free and clear of all Encumbrances (other than the Permitted Encumbrances referred to in subparagraphs (i) and (j) of the definition of Permitted Encumbrances), and has the exclusive right to dispose of the Purchased Units as provided in this Agreement. None of the Purchased Units is subject to: (a) any Contract or restriction which in any way limits or restricts the transfer to Purchaser of the Purchased Units other than the transfer restrictions in the Limited Partnership Agreement or the Certificate of Limited Partnership; or (b) any voting trust, pooling agreement, shareholder agreement, voting agreement or other Contract, arrangement or understanding with respect to the voting of the Purchased Units (or any of them). At or prior to the Closing, all those Contracts and restrictions will have been complied with or terminated and evidence of that compliance or termination in form and substance satisfactory to Purchaser will have been provided to Purchaser. On completion of the Transactions, it will have no ownership interest in TM Pipeline LP, whether direct or indirect, actual or contingent, and Purchaser shall have good title to the Purchased Units, free and clear of all Encumbrances other than

 

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Encumbrances thereon in respect of the security provided for by the Vendor and the Target Entities to secure the obligations of TM Pipeline LP under the Limited TM Pipeline LP Indemnity (Covered Credit Agreement).

 

(7)                                  No Other Agreements to Purchase . No Person other than Purchaser has any Contract or any right or privilege capable of becoming a Contract for the purchase or acquisition from Vendor of any of the Purchased Shares or Purchased Units.

 

(8)                                  Bankruptcy . It is not an insolvent Person within the meaning of the Bankruptcy and Insolvency Act (Canada) and has not made an assignment in favour of its creditors or a proposal in bankruptcy to its creditors or any class thereof, and no petition for a receiving order has been presented in respect of it. It has not initiated proceedings with respect to a compromise or arrangement with its creditors or for its winding up, liquidation or dissolution. No receiver or interim receiver has been appointed in respect of it or any of its undertakings, property or assets (including any of the Purchased Shares or Purchased Units) and no execution or distress has been levied on any of its undertakings, property or assets (including any of Purchased Shares or Purchased Units), nor have any proceedings been commenced in connection with any of the foregoing.

 

(9)                                  Absence of Conflict . The execution, delivery and performance by it of this Agreement and the completion of the Transactions will not (whether after the passage of time or notice or both) result in:

 

(a)                                  the breach or violation of any of the provisions of, or constitute a default under, or give any Person the right to seek or cause a termination, cancellation, amendment or renegotiation of any Contract to which it is a party or by which any of its undertakings, property or assets is bound or affected except where such termination, cancellation, amendment or renegotiation does not have a Material Adverse Effect;

 

(b)                                  the breach or violation of any of the provisions of, or constitute a default under, or conflict with any of its obligations under:

 

(i)                                      any provision of its Constating Documents or resolutions of its board of directors (or any committee thereof) or shareholders;

 

(ii)                                   any judgment, decree, order or award of any Governmental Authority having jurisdiction over it;

 

(iii)                                any Approval issued to it or held by it or held for the benefit of or necessary to the ownership of any of Purchased Shares or Purchased Units;

 

(iv)                               any Applicable Law; or

 

(c)                                   the creation or imposition of any Encumbrance over any of Purchased Shares or Purchased Units or the units of Puget LLC other than the creation or imposition of Encumbrances thereon contemplated to be provided by the Vendor or the applicable Target Entities to secure the obligations of TM Pipeline LP under the Limited TM Pipeline LP Indemnity (Covered Credit Agreement).

 

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(10)                           Proceedings . There are no Proceedings (whether or not purportedly on its behalf) pending or outstanding or, to its knowledge, threatened against it which could affect the Purchased Shares or Purchased Units or the units of Puget LLC or its ability to perform its obligations under this Agreement. To its knowledge there is not any factual or legal basis on which any such Proceeding might be commenced with any reasonable likelihood of success.

 

(11)                           Residence . It is not a Non-Resident.

 

6.2                                Representations and Warranties of Vendor Relating to the Target Entities . Vendor represents and warrants to Purchaser as follows and acknowledges that Purchaser is relying on these representations and warranties in connection with its purchase of the Purchased Shares and Purchased Units and that Purchaser would not purchase the Purchased Shares and Purchased Units without these representations and warranties:

 

(1)                                  Organization and Status . Each Target Entity is duly formed and organized, and is validly subsisting, under the laws of the jurisdiction set out opposite its name as disclosed in the Data Room and is up-to-date in the filing of all corporate and similar returns under the laws of that jurisdiction. Each Target Entity is duly registered, licensed or qualified as an extra-provincial or foreign corporation, limited liability company or partnership, is in good standing and up-to-date in the filing of all corporate and similar returns, under the laws of the jurisdictions set out opposite its name disclosed in the Data Room. The jurisdictions disclosed in the Data Room are the only jurisdictions in which the nature of the Business or the Assets makes the registration, licensing or qualification necessary.

 

(2)                                  Corporate Power . The Target Entities have all necessary power and authority to own or lease the Assets and to carry on the Business as now being conducted by them.

 

(3)                                  Authorized and Issued Capital . The authorized and issued shares or units (as applicable) of each Target Entity, the names of the Persons who are shown on the securities register of the Target Entity as the holder of any of the shares or units, the names of the Persons who are the beneficial owners of any of the shares or units, and the number and class of shares or units held or owned, as the case may be, by each Person as set out in Schedule 6.2(3). All such shares or units are the only issued and outstanding shares or units of the Target Entities as applicable and have been validly issued as shares or units and are outstanding as fully paid and non-assessable shares or units, and were not issued in violation of the pre-emptive rights of any Person or any Contract or Applicable Law by which the issuing Target Entity was bound as the time of the issuance. Other than as disclosed in the Data Room, there are no shareholders’ agreements, voting trusts, pooling agreements or other Contracts, arrangements or understandings in respect of the voting of any of the shares or units of the Target Entities. True, accurate and complete copies of the Constating Documents (including all Contracts, arrangements and understandings disclosed in the Data Room) and other organizational documents of the Target Entities, or where those Contracts, arrangements or understandings are oral, true, accurate and complete written summaries of their terms, have been provided to Purchaser.

 

(4)                                  Options . No Person has any Contract or any right or privilege capable of becoming a Contract, including convertible securities, warrants or convertible obligations of any

 

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nature, for the purchase, subscription, allotment or issuance of any issued or un-issued shares, units or other securities of the Target Entities.

 

(5)                                  Absence of Conflict . The completion of the Transactions will not (whether after the passage of time or notice or both) result in:

 

(a)                                  the breach or violation of any of the provisions of, or constitute a default under, or give any Person the right to seek or cause a termination, cancellation, amendment or renegotiation of, or require a consent under, any Contract to which a Target Entity is a party, or by which any of the Assets is bound or affected or any Contract in respect of a KMCI Employee Plan except where such a termination, cancellation, amendment or renegotiation does not have a Material Adverse Effect;

 

(b)                                  the breach or violation of any of the provisions of, or constitute a default under, or conflict with any of the obligations of the Target Entities under:

 

(i)                                      any provision of the Constating Documents or resolutions of the board of directors (or any committee thereof) or shareholders of the Target Entities;

 

(ii)                                   any judgment, decree, order or award of any Governmental Authority having jurisdiction over the Target Entities;

 

(iii)                                any Approval issued to, or held by, one or more of the Target Entities or held, for the benefit of or necessary to the operation of, any Target Entity or the Business;

 

(iv)                               any Applicable Law; or

 

(c)                                   the creation or imposition of any Encumbrance over any of the Assets other than the creation or imposition of Encumbrances thereon contemplated to be provided by the Vendor and the Target Entities to secure the obligations of TM Pipeline LP under the Limited TM Pipeline LP Indemnity (Covered Credit Agreement).

 

(6)                                  Conduct of Business . The Target Entities have complied with, and have conducted the Business in material compliance with, all Applicable Laws. The Assets and the services provided under the Transition Services Agreement are sufficient to permit the continued operation of the Mainline System in substantially the same manner as conducted in the one year period preceding the date of this Agreement. During the two (2) year period preceding the date of this Agreement, there has not been any significant interruption of operations of the Business where such interruption was outside the Ordinary Course of Business.

 

(7)                                  No Subsidiaries . Except as disclosed in the Data Room, the Target Entities do not own and do not have any Contracts of any nature to acquire, directly or indirectly, any Equity Interests in any Person (other than the ownership of Puget LLC) and the Target Entities do not have any Contracts to acquire by any manner whatsoever or lease any other business operations.

 

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(8)                                  Bankruptcy . None of the Target Entities is an insolvent Person within the meaning of the Bankruptcy and Insolvency Act (Canada) or similar laws or has made an assignment in favour of its creditors or a proposal in bankruptcy to its creditors or any class thereof, and no petition for a receiving order or liquidation or reorganization under the US Bankruptcy Code has been presented in respect of it. None of the Target Entities has initiated proceedings with respect to a compromise or arrangement with its creditors or for its winding up, liquidation or dissolution. No receiver or interim receiver has been appointed in respect of a Target Entity or any of the Assets and no execution or distress has been levied on any of the Assets, nor have proceedings been commenced in connection with any of the foregoing.

 

(9)                                  Real Property

 

(a)                                  The Target Entities have such valid consents, easements, rights of way, permits, licenses and leasehold interests as are reasonably sufficient to conduct the Business of the operation of the Mainline System; and the Target Entities have good and valid title or leasehold interests in and to the Real Property, other than easements and rights of way, except where the failure to have such title or leasehold interest would not have, and would not reasonably be expected to have, a Material Adverse Effect; and, which, when such consents, easements, rights of way, permits, licenses, leasehold interests and title are taken together are reasonably sufficient to conduct the Business of the Mainline System; and the foregoing are free and clear of all Encumbrances, other than Permitted Encumbrances.

 

(b)                                  The Real Property and the current uses of the Real Property are in material compliance with all Applicable Laws and the Target Entities have not received any, nor to their knowledge are there any, pending or threatened notices of violation or alleged violation of any Applicable Laws against or affecting any Real Property which would have a Material Adverse Effect.

 

(c)                                   The Real Property provides the required rights of occupancy, possession, permission, use, ingress and egress, as applicable, as are reasonably necessary to carry on the Business, including the Mainline System, in a reasonable and customary manner.

 

(d)                                  The Target Entities have not entered into any Contract to sell, transfer, encumber, or otherwise dispose of or impair their right, title and interest in the Real Property, except for a Permitted Encumbrance or otherwise in the Ordinary Course.

 

(e)                                   There are no matters affecting the right, title and interest of the Target Entities in and to the Real Property which would have a Material Adverse Effect thereon.

 

(10)                           Other Property.

 

(a)                                  One or more of the Target Entities, as the case may be, owns all the Assets (other than the Real Property) free and clear of any and all Encumbrances other than the Permitted Encumbrances. All of the tangible property used by the Target Entities are free of defects (patent or latent), in good operating condition and in a state of

 

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good repair and maintenance in accordance with good pipeline industry practice, except where the failure to does not have a Material Adverse Effect.

 

(b)                                  The Assets, other than the Real Property, are sufficient, when used in combination with the Real Property and the services to be provided under the Transition Services Agreement, to carry on the Business in a reasonable and customary manner.

 

(11)                           Intellectual Property .

 

(a)                                  Except for the Excluded Intellectual Property, the Target Entities own or have valid and enforceable rights to use all Intellectual Property used or intended to be used or necessary for the operation of the Business (the “ Business Intellectual Property ”). Such Business Intellectual Property and Excluded Intellectual Property rights are reasonably sufficient for the proper carrying on of the Business, as it has been and is now conducted, and in accordance with the current documented plans of the Target Entities.

 

(b)                                  All necessary consents and licences relating to Business Intellectual Property are in good standing, binding and enforceable in accordance with their respective terms and, to Vendor’s knowledge, no material default exists on the part of the applicable Target Entity or Target Entities thereunder.

 

(c)                                   Entering into this Agreement will not alter, impair or extinguish any Business Intellectual Property of any Target Entity.

 

(12)                           Internal IT Systems .

 

(a)                                  The Internal IT Systems are either owned by, or properly licensed or leased to, a Target Entity, and, together with the Excluded IT Systems, are reasonably sufficient for the proper carrying on of the Business, as it has been and is now conducted, and in accordance with the current documented plans of the Target Entities.

 

(b)                                  To Vendor’s knowledge, no Target Entity is in default under the Internal IT Systems licences or leases and there are no grounds on which they might be terminated. There are no circumstances in which the ownership, benefit, or right to use the Internal IT Systems may be lost by virtue of the Transaction or the performance of this Agreement.

 

(c)                                   The Target Entities have and have maintained back-up systems and disaster recovery and business continuity plans, consistent with current industry standards, designed to adequately and properly ensure the availability of the functionality provided by the Internal IT Systems in the event of any malfunction of, or other form of disaster affecting, the Internal IT Systems.

 

(13)                           Insurance . The Assets are covered by fire, casualty, general liability, business interruption, product liability, water damage, workers compensation and employer liability, director, officer and fiduciaries insurance, and other insurance with responsible insurers against such risks and in such amounts as are reasonable for prudent owners of comparable assets. No

 

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other insurance is necessary to the conduct of the Business nor is required to be maintained by a Target Entity pursuant to the terms of any Material Contract, Permit, or Applicable Law. None of the Target Entities is in default, whether as to the payment of premiums or with respect to any other provision contained in any insurance policy or has failed to give any notice or present any claim under any insurance policy in a due and timely manner, except where such default or failure has not had or would not reasonably be expected to have a Material Adverse Effect. The Data Room contains copies of the 2016-2017 policy year insurance policies of the Target Entities which are substantially similar in form to the 2017-2018 policy year insurance policies of the Target Entities renewed on November 30, 2017. Vendor will provide copies of the current-year policies to Purchaser upon Purchaser’s request within five (5) Business Days.

 

(14)                           Material Contracts .

 

(a)                                  The following Contracts (each a “ Material Contract ”) to which any of the Target Entities is a party or by which any of the Target Entities or any of their properties is otherwise bound as of the date of this Agreement are disclosed in the Data Room:

 

(i)                                    any Contract for transportation on, or development of, either the Mainline System or the TMEP, including the Facility Support Agreements and the Transportation Services Agreements with the shippers on the TMEP, the Firm Services Agreements on the Mainline System, and the primary construction contracts for each spread of the TMEP;

 

(ii)                                 any Contract with an Indigenous Group in the nature of a mutual benefits agreement;

 

(iii)                              any Contract which requires or entitles a Target Entity to make or receive payments of, with respect to the Mainline System, at least Ten Million Dollars ($10,000,000), and with respect to TMEP, at least Fifty Million Dollars ($50,000,000);

 

(iv)                             any Contracts made outside the Ordinary Course of Business and which (A) contain material covenants limiting the freedom of the Target Entities to engage in any line of business or compete with any Person or operate at any location, (B) contain any preferential rights to purchase or similar rights relating to the Assets, or (C) pertain to the acquisition or disposition by the Target Entities of any business (whether by acquisition or disposition of Equity Interests or assets) pursuant to which the Target Entities has any remaining material obligation or liability; and

 

(v)                                any commodities, interest rate, currency or other hedging agreement which exposes or may expose a Target Entity to liability in excess of Ten Million Dollars ($10,000,000) annually.

 

(b)                                  Except as disclosed in the Data Room, as of the date of execution of this Agreement and to the knowledge of Vendor, with respect to those Material Contracts referred to in Section 6.2(14)(a)(i) and which are the Facility Support Agreements and the

 

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Transportation Services Agreements with the shippers on TMEP (the “ Limited Rep TMEP Contracts ”):

 

(i)                                    each such Contract is in good standing and in full force and effect; and

 

(ii)                                 Vendor has not received any written notice of default or termination in respect of such Contract.

 

(c)                                   Except as disclosed in the Data Room, as of the date of execution of this Agreement and to the knowledge of Vendor, with respect to those Material Contracts referred to in Section 6.2(14)(a)(ii):

 

(i)                                    each such Contract has been duly authorized and executed by the Target Entity party thereto; and

 

(ii)                                 no Target Entity which is a party to any such Contract has received notice in writing, by an authorized representative of which is a party to any such Contract, that the applicable Contract is not in good standing or in full force and effect or has been terminated.

 

(d)                                  As it relates to all other Material Contracts, other than the Limited Rep TMEP Contracts and the Contracts set out in Section 6.2(14)(a)(ii):

 

(i)                                    each such Contract has been duly authorized and executed by the Target Entity party thereto and assuming such Contract has been duly authorized and executed by the counterparty is valid and enforceable in all material respects in accordance with its terms by and against the Target Entities, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally and subject, as to enforceability, to general principles of equity;

 

(ii)                                 neither the Target Entities nor any counterparty thereto is in breach in any material respect of the terms of any such Contract;

 

(iii)                              such Contract is in good standing and in full force and effect; and

 

(iv)                             Vendor has not received any notice of default or termination in respect of such Contract.

 

(15)                           Permits . The Target Entities hold all material Permits necessary or required for the proper carrying on of the Business with respect to the Mainline System, and there are no other Permits necessary to conduct the Business with respect to the Mainline System. Each Permit held by the Target Entities is valid, subsisting and in good standing. None of the Target Entities are in material default or in breach of the terms of any such Permit and, to the knowledge of Vendor, there exists no grounds, nor is any action or proceeding pending or, to the knowledge of Vendor, threatened to revoke, suspend, amend or limit any such Permit.

 

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(16)                           Regulatory Approvals . There is no requirement to make any filing with, give any notice to, or obtain any Permit from any Governmental Authority as a condition to the lawful completion of the Transactions contemplated by this Agreement or to permit the Target Entities to conduct the Business of the Mainline System after Closing as such Business is currently conducted by the Target Entities, except for the filings, notifications and Permits disclosed in the Data Room. There is no requirement to make any filing with, give any notice to, or obtain any Permit from any Governmental Authority as a condition to the lawful completion of the Transactions contemplated by this Agreement or to permit the Target Entities to conduct the Business of the TMEP after Closing as such Business is currently conducted by the Target Entities, except for the filings, notifications, and Permits disclosed in the Data Room or where the failure to do so would not have a Material Adverse Effect.

 

(17)                           Financial Statements and Closing Financial Statements . The combined and consolidated, unaudited balance sheet and income statement for the Target Entities, each dated December 31, 2017 and December 31, 2016 as disclosed in the Data Room, fairly present, in all material respects, the financial position and results for the Target Entities as of and for the periods covered thereby, in accordance with GAAP, applied on a basis consistent with that used to prepare the audited financial statements of KML for those preceding periods, except in the case of such statements the absence of notes and subject to the assumptions and limitations set forth therein and subject to normal year-end adjustments.

 

(18)                           Books and Records . Vendor has disclosed the existence of and made available for review by Purchaser the Books and Records material to the Target Entities. The Books and Records are not recorded, stored, maintained, operated or otherwise dependent on or held by any means (including any electronic, mechanical or photographic process, whether computerized or not), which are not or will not be available to the Target Entities in the Ordinary Course after Closing.

 

(19)                           Corporate Records . Vendor has made available to Purchaser accurate and complete copies or originals of all of Target Entities’ minute books and organizational documents.

 

(20)                           Undisclosed Liabilities . None of the Target Entities has any material liabilities that would be required to be set forth on the face of a balance sheet of such Target Entity, prepared in accordance with GAAP, other than (a) liabilities reflected in the Financial Statements, (b) liabilities incurred in the Ordinary Course since the Financial Statements Date, and (c) liabilities that would not be on the front page of a balance sheet but would be reflected on the notes.

 

(21)                           Absence of Changes . Since the Financial Statements Date, the Target Entities have carried on the Business and conducted their operations and affairs only in the Ordinary Course and the Target Entities have not:

 

(a)                                  made or suffered any Material Adverse Change; or

 

(b)                                  suffered any material loss, damage, destruction, or other casualty to any of its Assets which would have a Material Adverse Effect.

 

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(22)                           Taxes . Except as otherwise disclosed in the Data Room:

 

(a)                                  Each of the Target Entities has filed in the prescribed manner and within the prescribed times all Tax Returns required to be filed by it in all applicable jurisdictions before the Closing Date. All Tax Returns that have been filed by, or with respect to the Target Entities are true, complete and correct, report all income and all other amounts and information required to be reported thereon, and disclose all Taxes required to be paid for the periods covered thereby. None of the Target Entities (other than Puget LLC) has ever been required to file any Tax Returns with, and none of the Target Entities (other than Puget LLC) has ever been liable to pay or remit Taxes to, any Governmental Authority outside Canada. Each of the Target Entities has duly and timely paid all Taxes due and payable by it, including all instalments on account of Taxes that are due and payable before the Closing Date, whether or not assessed by the appropriate Governmental Authority, and has duly and timely paid all assessments and reassessments it has received in respect of all Taxes.

 

(b)                                  Vendor has provided to Purchaser true, complete and accurate copies of all Tax Returns filed by the Target Entities in respect of the last four (4) completed taxation years and all working papers and all communications to and from all Governmental Authorities relating to such Tax Returns and to Taxes of the Target Entities for such taxation years and for all taxation years in respect of which a Notice of Reassessment has been issued and remains unresolved and the subject of dispute. Canadian federal and provincial income, capital, GST/HST, provincial retail sales and payroll Tax assessments have been issued to the Target Entities for all taxation years or periods up to and including its taxation year ended June 30, 2016 or, if otherwise applicable, up to the most recent reporting period. No notices of determination of loss from the CRA to the Target Entities have been requested by or issued to the Target Entities. The Target Entities have not requested, received or entered into any advance Tax rulings or advance pricing agreements from or with any Governmental Authority.

 

(c)                                   The Target Entities’ Financial Statements and Closing Financial Statements contain adequate provision in accordance with GAAP for all Taxes payable by the Target Entities in respect of each period covered by such Financial Statements and all prior periods to the extent those Taxes have not been paid, whether or not assessed and whether or not shown to be due on any Tax Returns, and since the end of the last period for which the Target Entities have recorded items on their respective Books and Records, no Target Entity has incurred a Tax liability, engaged in any transaction, or taken any other action, other than in the Ordinary Course.

 

(d)                                  There are no audits, reassessments or other Proceedings issued, in progress or, to the knowledge of Vendor, threatened against the Target Entities, in respect of any Taxes and, in particular, there are no currently outstanding reassessments or written enquiries which have been issued or raised by any Governmental Authority relating to any such Taxes. Vendor is not aware of any contingent liability of the Target Entities for Taxes or any grounds that could prompt an assessment or reassessment

 

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for Taxes (including, without limitation, aggressive treatment of income, expenses credits or other claims for deduction under any Tax Return), and no Target Entity has received any indication from any Governmental Authority that any assessment or reassessment is proposed.

 

(e)                                   No Governmental Authority has challenged or disputed a filing position taken by the Target Entity in any Tax Return. No Target Entity is negotiating any final or draft assessment or reassessment in respect of Taxes with any Governmental Authority. No Governmental Authority (whether within or without Canada) in which a Target Entity has not filed a particular type of Tax Return or paid a particular type of Tax has asserted that such Target Entity is required to file such Tax Return or pay such type of Tax in such taxing jurisdiction.

 

(f)                                    None of the Target Entities has entered into any transactions with any Non-Resident with whom the Target Entity was not dealing at arm’s length (within the meaning of the Tax Act or the comparable provisions of the Internal Revenue Code). With respect to all transactions between any Target Entity and any Non-Resident Person, such Target Entity has made or obtained records or documents that meet the requirements of subsection 247(4) of the Tax Act or the analogous laws of any provincial or foreign jurisdiction. None of the Target Entities has acquired property from any Person in circumstances where the Target Entity did or could have become liable for any Taxes payable by that Person pursuant to section 160 of the Tax Act or the analogous laws of any provincial or foreign jurisdiction.

 

(g)                                   There are no agreements, waivers or other arrangements with any Governmental Authority extending the statutory period with respect to the issuance of any assessment or reassessment of Taxes, or providing the extension of time for the filing of any Tax Return, or the payment of any Taxes by or in respect of a Target Entity, nor has there been a request by a Target Entity with respect thereto. None of the Target Entities is a party to any tax sharing agreements, arrangements or undertakings with respect to Taxes nor liable for Taxes of any other Person or entity as a transferee or successor and none of the Target Entities has made any elections, designations or similar filings with respect to Taxes that have an effect for any period ending after the Closing Date.

 

(h)                                  Each Target Entity has deducted, withheld or collected and remitted in a timely manner to the relevant Governmental Authority all Taxes or other amounts required to be deducted, withheld or collected and remitted by it. None of the Target Entities has received any requirement from any Governmental Authority pursuant to section 224 of the Tax Act or the comparable provisions of the laws of any provincial or foreign jurisdiction which remains unsatisfied in any respect.

 

(i)                                      None of sections 80 to 80.04, both inclusive, of the Tax Act have applied or will apply to any Target Entity at any time up to and including the Closing Date. None of the Target Entities has any unpaid amounts that may be required to be included in income under section 78 of the Tax Act for a taxation year ending after the Closing Date.

 

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(j)                                     Each Target Entity other than Puget LLC is a registrant for purposes of the ETA and its registration number is disclosed in the Data Room.

 

(k)                                  All input tax credits claimed by the Target Entities pursuant to the ETA have been proper, correctly calculated and documented in accordance with the requirements of the ETA. Each Target Entity is duly registered under applicable provincial Tax statutes in respect of all provincial Taxes which they are required to collect and pay, and the registration numbers are as disclosed in the Data Room. The Target Entities have collected, paid and remitted when due all Taxes, including GST/HST and provincial retail sales taxes, collectible, payable or remittable prior to the Closing Date.

 

(l)                                      Each Target Entity keeps its Books and Records in compliance with section 230 of the Tax Act and all similar provisions of any other Applicable Law in respect of Taxes and the Target Entities have in their possession or under their control all Books and Records in respect of Taxes that are required to be maintained and preserved under all Applicable Laws.

 

(m)                              None of the Target Entities has claimed any reserve in any Tax Return under the Tax Act if any such amount could be included in the income of a Target Entity for any period ending after Closing.

 

(n)                                  Since the acquisition of the Target Entities by Vendor, there has been no acquisition of control of any Target Entity, as that term is used in the Tax Act.

 

(o)                                  Disclosed in the Data Room is an accurate estimate of the paid-up capital and adjusted cost base (“ ACB ”) as of December 31, 2017 (as those terms are used in the Tax Act) of all of the issued and outstanding shares of the capital of each Target Entity which is a corporation and the ACB of the interests in TM Pipeline LP, and the calculations thereof.

 

(p)                                  Based on currently available information and the aggregate ACB of the capital in the Target Entities as of December 31, 2017, Vendor anticipates that the sale of the Target Entities will result in: (i) a capital gain of approximately Two Billion Seven Hundred Million Dollars ($2,700,000,000), and (ii) after taking into account any unused capital losses of One Hundred Ninety Seven Million Dollars ($197,000,000), combined Canadian federal and provincial income taxes of not less than Three Hundred Million Dollars ($300,000,000). For greater certainty, Vendor shall not be precluded from utilizing the full amount of any unused capital losses or net operating losses available to it in computing its income or from revising or updating the information or assumptions on which its tax estimates are based (consistent with past practice) even if such utilization, revisions or updates results in tax payable that is less than the amount stated herein.

 

(q)                                  US Tax Matters.

 

(i)                                    No Target Entity will be required to include any item of income in, or exclude or reduce any item of deduction from, taxable income for any

 

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taxable period (or portion thereof) ending after the Closing Date as a result of any (A) change in method of accounting for a period ending on or prior to the Closing Date, (B) “closing agreement” (as described in section 7121 of the Internal Revenue Code or similar provision of state, local or foreign income Tax law) executed on or prior to the Closing Date, (C) installment sale or open transaction disposition made on or prior to the Closing Date, (D) prepaid amount or deferred revenue received on or prior to the Closing Date, or (E) intercompany transactions or excess loss account described in Treasury Regulations under section 1502 of the Internal Revenue Code (or any corresponding or similar provision of state, local or non-U.S. income Tax law).

 

(ii)                                 None of the Target Entities is a party to a Contract, arrangement or plan that has resulted or could result in its making of a payment that (A) is not deductible under, or would otherwise constitute a “parachute payment” within the meaning of section 280G of the Internal Revenue Code (or any corresponding or similar provision of state, local or foreign income Tax law), (B) is or may be subject to the imposition of an excise tax under section 4999 of the Internal Revenue Code, or (C) is or may be subject to Internal Revenue Code section 409A or any similar provision of Applicable Law and that the Target Entities do not have any actual or potential obligation to reimburse, indemnify, or otherwise “gross-up” any Person for interest or additional Tax with respect to any payment described in (A), (B) or (C).

 

(iii)                              None of the Target Entities is or has been a “United States real property holding corporation” for the purposes of Sections 897 and 1445 of the Code, or a partnership as described in Treasury Regulation 1.1445-11T(d)(1), and no transaction contemplated by this Agreement is subject to withholding tax under Section 1445 of the Internal Revenue Code (or similar provision of state, local or non-U.S. law).

 

(iv)                             Puget LLC is, and since its formation has been, classified as an entity disregarded as separate from TM Pipeline LP for U.S. federal income tax purposes. TM Pipeline LP is, and has been since its formation, classified as a partnership for U.S. federal income tax purposes. Neither Puget LLC nor TM Pipeline LP has or will make an election to change its U.S. tax classification.

 

(v)                                No Target Entity has participated in any “listed transaction” within the meaning of U.S. Treasury Regulation § 1.6011-4(b)(2) and, with respect to each transaction in which a Target Entity has participated that is a “reportable transaction” within the meaning of Treasury Regulation § 1.6011-4(b)(1), such participation has been properly disclosed on IRS Form 8886 (Reportable Transaction Disclosure Statement) and on any corresponding form required under state, local or other law.

 

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