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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
COMMISSION FILE NUMBER 1-5083
KANEB SERVICES, INC.
(Exact name of Registrant as specified in its Charter)
Delaware 75-1191271
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2435 North Central Expressway
Richardson, Texas 75080
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (214) 699-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, Without Par Value New York Stock Exchange
Adjustable Rate Cumulative Class A New York Stock Exchange
Preferred Stock
8 3/4% Convertible Subordinated New York Stock Exchange
Debentures due 2008
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Subsection 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K.[ ]
Aggregate market value of the voting stock held by non-affiliates of the
Registrant: $79,862,563. This figure is estimated as of March 15, 1996, at
which date the closing price of the Registrant's Common Stock on the New York
Stock Exchange was $2.50 per share, and assumes that only the Registrant's
officers and directors were affiliates of the Registrant.
Number of shares of Common Stock, without par value, of the Registrant
outstanding at March 15, 1996: 33,652,151.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III (Items 10, 11, 12 and 13) of Form
10-K is incorporated by reference from portions of the Registrant's definitive
proxy statement to be filed with the Securities and Exchange Commission not
later than 120 days after the close of the fiscal year covered by this Report.
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PART I
ITEM 1. BUSINESS
GENERAL
Kaneb Services, Inc. ("KSI" or the "Company") conducts its principal
businesses in two industry segments: i) specialized industrial field services;
and, ii) pipeline transportation and storage of refined petroleum products.
The Company operates its specialized industrial field services business through
its Furmanite group of wholly-owned subsidiaries (collectively, "Furmanite"),
which provide underpressure leak sealing, on-site machining, valve testing and
repair and other engineering products and services, primarily to electric power
generating plants, petroleum refineries and other process industries in Western
Europe, North America and the Pacific Rim (See: "Industrial Field Services").
The Company's wholly-owned subsidiary, Kaneb Pipe Line Company ("KPL"),
operates and manages refined petroleum products pipeline transportation systems
and petroleum products and specialty liquids terminal storage and pipeline
facilities for the benefit of Kaneb Pipe Line Partners, L.P. ("KPP" or the
"Partnership"), which owns such systems and facilities, through its
subsidiaries (See: "Pipeline and Terminaling Services"). The Company is also
engaged in the information management services industry through its
wholly-owned subsidiary, Fields Financial Services, Inc. ("Fields"), which
offers products and services that enable financial institutions to monitor the
continual insurance coverage of their loan collateral and provides other
information management services to financial institutions and other customers.
Kaneb Services, Inc. was incorporated in Delaware on January 23, 1953.
The Company is a holding company that conducts its business through the
subsidiaries identified above, among others. The Company's principal operating
office is located at 2435 North Central Expressway, Richardson, Texas 75080 and
its telephone number is (214) 699-4000.
INDUSTRY SEGMENTS
Financial information regarding the Company's industry segments and
foreign operations is presented under the caption "Business Segment Data" in
Note 10 to Company's consolidated financial statements. Such information is
hereby incorporated by reference into this Item 1.
INDUSTRIAL FIELD SERVICES
The Company, through Furmanite, offers a variety of specialized industrial
field services to an international base of process industry clients. Founded
in Virginia Beach, Virginia in the 1920's as a manufacturer of leak sealing
kits, Furmanite has evolved into an international service company. In the
1960's, Furmanite expanded within the United Kingdom, primarily through its
leak sealing products and services; and, during the 1970's and 1980's, grew
through geographic expansion and the addition of new techniques, processes and
services to become the largest leak sealing company, and one of the largest
on-site machining companies, in the world. In 1991, the Company acquired
Furmanite to diversify the Company's operations and take advantage of
anticipated international growth opportunities. For the year ended December
31, 1995, Furmanite's sales and operating income were approximately
$104,500,000 and $3,900,000, respectively (See: "Management's Discussion and
Analysis of Financial Condition and Results of Operations").
PRODUCTS AND SERVICES
Furmanite is an industry leader in providing on-line repairs of leaks in
valves, pipes and other components of piping systems and related equipment
("leak sealing") typically used in process industries (See: "Customers and
Markets"). Other services provided by Furmanite include on-site machining,
bolting and valve testing and repair on such systems and equipment, which tend
to compliment Furmanite's leak sealing service, since these "turnaround
services" are usually performed while a plant or piping system is off-line. In
addition, Furmanite provides a variety of services, such as hot tapping,
fugitive emissions monitoring, passive fire protection, concrete repair, heat
exchanger repair and pipeline engineering, on a regional basis in response to
the needs of a particular regional customer base. In performing these
services, Furmanite technicians generally work at the customer's location,
frequently responding on an emergency basis. Over its history, Furmanite has
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established a reputation for delivering quality service and helping its
customers avoid or delay costly plant or equipment shutdowns. For each of the
years ended December 31, 1995, 1994, and 1993, on-line, underpressure leak
sealing services represented approximately 31%, 26% and 26%, respectively, of
Furmanite's revenues, while on-site machining accounted for approximately 23%,
16% and 13%, respectively, and valve repair represented approximately 13%, 9%
and 10%, respectively, of Furmanite's revenues for each of such years.
Furmanite's on-line, underpressure leak sealing services are performed on
a variety of process industry machinery, often in difficult situations. Many
of Furmanite's techniques and materials are proprietary and, the Company
believes, provide Furmanite with a competitive advantage over other
organizations that provide similar services. The Company's skilled technicians
work with equipment in a manner designed to enhance safety and efficiency in
temperature environments ranging from cryogenic to 1,400 degrees Fahrenheit and
pressure environments ranging from vacuum to 5,000 pounds per square inch. In
many circumstances, Furmanite personnel are called upon to custom-design tools,
equipment or other materials in order to effect the necessary repairs. These
efforts are supported by an internal quality control group that works together
with the on-site technicians in crafting these materials.
CUSTOMERS AND MARKETS
Furmanite's customer base spans a broad industry spectrum, which includes
petroleum refineries, chemical plants, offshore energy production platforms,
steel mills, power generation and other process industries in more than 20
countries. Over 80% of Furmanite's revenues are derived from fossil and nuclear
fuel power generation companies, petroleum refiners and chemical producers;
while other significant markets include offshore oil producers and steel
manufacturers. As the worldwide industrial infrastructure continues to age,
additional repair and maintenance expenditures are expected to be required for
the specialized services provided by Furmanite and similarly situated
organizations. Other factors that may influence the markets served by
Furmanite include regulations governing construction of industrial plants;
safety and environmental compliance requirements; and fulfillment of
specialized services through the increased use of outsourcing, rather than an
organization's in-house staff.
Furmanite serves its customers from its Richardson, Texas worldwide
headquarters and continues to maintain a strong presence in England and
continental Europe. Furmanite currently operates North American offices in the
United States in Baton Rouge, Beaumont, Charlotte, Chicago, Houston, Los
Angeles, Philadelphia, Salt Lake City and San Francisco; and in Edmonton,
Alberta and Sarnia, Ontario, Canada. Furmanite's worldwide strength is further
supported by offices currently located in Austria, Belgium, France, Germany,
Holland, Hong Kong, Norway, Singapore and the United Kingdom (10 locations) and
by licensee and minority ownership interest arrangements in Argentina,
Australia, China, the Czech Republic, Finland, India, Indonesia, Italy, Japan,
Kuwait, Malaysia, Mexico, Portugal, Puerto Rico, Saudi Arabia, Slovenia, South
Africa, South Korea, Sweden, Taiwan, Thailand, Trinidad and the United Arab
Emirates. Sales by geographic region for 1995 were 31% for North America, 36%
for the U.K. and 29% for continental Europe (See: "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 10 to the
Company's consolidated financial statements).
Furmanite's underpressure leak sealing and other specialty field services
are marketed primarily through direct sales calls on customers by salesmen
based at Furmanite's various operating locations, which are situated to
facilitate timely customer response, 24 hours a day, seven days a week.
Customers are usually billed on a time and materials basis for services
typically performed pursuant to either job quotation sheets or purchase orders
issued under written customer agreements. Customer agreements are generally
short-term in duration and specify the range of and rates for the services to
be performed. Furmanite typically provides various limited warranties,
depending upon the services furnished, and, to date, has had no significant
warranty claims. Furmanite competes on the basis of service, product
performance and price, generally on a localized basis with smaller companies
and the in-house maintenance departments of its customers. In addition to
staff reductions and the trend toward outsourcing, Furmanite believes it
presently has an advantage over in-house maintenance departments because of the
ability of its multi-disciplined technicians to use Furmanite's proprietary
techniques to perform quality repairs on a timely basis while customer
equipment remains in service.
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SAFETY, ENVIRONMENTAL AND OTHER REGULATORY MATTERS
Many aspects of Furmanite's operations are subject to governmental
regulation. National, state and local authorities of the U.S. and various
foreign countries have each adopted safety, environmental and other regulations
relating to the use of certain methods, practices and materials in connection
with the performance of Furmanite's services and which otherwise affect its
operations. Additionally, Furmanite participates, from time to time, with
various regulatory authorities in certain studies, reviews and inquiries of its
projects and/or operations. Further, because of its international presence,
Furmanite is subject to a number of political and economic uncertainties,
including expropriation of equipment, taxation policies, labor practices,
import and export limitations, foreign exchange restrictions, currency exchange
rate fluctuations and local political conditions. Except in certain developing
countries, where payment in a specified currency is required by contract,
Furmanite's services are paid, and its operations are typically funded, in the
currency of the particular country in which its business activities are
conducted.
Underpressure leak sealing and other Furmanite services are often
performed in emergency situations under dangerous circumstances, involving
exposure to high temperatures and pressures, potential contact with caustic or
toxic materials, fire and explosion hazards and environmental contamination,
any of which can cause serious personal injury or property damage. Furmanite
manages its operating risks by providing its technicians with extensive
classroom and field training and supervision, maintaining a system of technical
support through its staff of professionally qualified specialists, establishing
and enforcing strict safety and competency requirements, standardizing
procedures and evaluating new materials and techniques for use in connection
with its lines of service. Furmanite also maintains insurance coverage for
certain risks, although there is no assurance that insurance coverage will
continue to be available at rates considered reasonable or that the insurance
will be adequate to protect the Company against liability and loss of revenues
resulting from the consequences of a significant accident.
RECENT DEVELOPMENTS
On December 28, 1995, the Company notified the holders of its 12%
Convertible Class A Preferred Stock, Series D, which was originally issued in
connection with the Company's acquisition of Furmanite, that it would redeem
all outstanding shares of such Series on January 26, 1996. The Company
effected such redemption as noticed, utilizing a portion of the proceeds that
it received from a public offering of 3,500,000 Preference Units in Kaneb Pipe
Line Partners, L.P. by Kaneb Pipe Line Company, a wholly-owned subsidiary of
the Company and the General Partner of the Partnership (See: "Pipeline and
Terminaling Services - Recent Developments" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations").
In February 1995, the Company completed the sale of certain unprofitable
general maintenance projects in eastern Germany. These projects were acquired
in 1991, 1992 and 1993, during the privatization of the former East Germany by
the German government. As economic conditions in eastern Germany worsened
considerably in 1994, the Company elected to close one project and sell the
remaining projects (See: "Item 3. Legal Proceedings").
PIPELINE AND TERMINALING SERVICES
Through its KPL subsidiary, the Company manages and operates refined
petroleum products pipeline transportation system and petroleum products and
specialty liquids terminal storage businesses, and their associated properties,
for the benefit of KPP, which owns such systems and facilities through its
subsidiaries. The pipeline business consists primarily of the transportation,
as a common carrier, of refined petroleum products in Colorado, Iowa, Kansas,
Nebraska, North Dakota, South Dakota and Wyoming, as well as related
terminaling activities; while, through its Support Terminal Services, Inc.
subsidiary, among others (collectively, "ST"), the Company operates 31 terminal
storage facilities in 16 states and the District of Columbia, with a total
storage capacity of approximately 16,800,000 barrels. Including those situated
along its refined petroleum products pipeline systems, the Company's terminal
storage operations comprise the third largest independent petroleum products
and specialty liquids terminaling companies in the United States. For a more
detailed discussion of the business, activities and results of operations of
the Partnership than that which is contained herein, reference is made to the
Annual Report on Form 10-K and the other publicly filed documents of Kaneb Pipe
Line Partners, L.P. (NYSE: KPP, KPU).
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PIPELINE TRANSPORTATION SYSTEMS
MARKETS SERVED
Initially built in 1953, the KPP pipeline transportation operations
currently consist of two pipeline systems: the East and West Pipelines (the
"Pipelines"), with its operational headquarters located in Wichita, Kansas.
The East Pipeline is a 2,075 mile integrated pipeline, ranging between six and
sixteen inches in diameter, that transports refined petroleum products received
from refineries in southeast Kansas or other interconnecting pipelines to
terminals in Iowa, Kansas, Nebraska, North Dakota and South Dakota and to
receiving pipeline connections in Kansas. The East Pipeline has direct
connections to three Kansas refineries; has direct access by third-party
pipelines to four other refineries in Kansas, Oklahoma and Texas; provides
access to Gulf (of Mexico) Coast suppliers of refined petroleum products
through a connecting pipeline which receives products from a pipeline
originating on the Gulf Coast; and, through five connecting pipelines, receives
propane from gas processing plants in Kansas, New Mexico, Oklahoma and Texas
for shipment through the East Pipeline. The East Pipeline's operation also
includes 16 public truck loading terminals located in five states, comprised of
a total of 240 tanks having storage capacity of approximately 3,500,000 barrels
of product. In addition, the East Pipeline has intermediate storage facilities
in McPherson and El Dorado, Kansas, consisting of 23 tanks having an aggregate
storage capacity of approximately 922,000 barrels.
The West Pipeline was acquired by the Partnership in February 1995 from
Wyco Pipe Line Company (See: "Recent Developments") and consists of
approximately 550 miles of pipeline, ranging from six to eight inches in
diameter, that transports refined petroleum products received by direct
terminals and other interconnecting pipelines from refineries located in
Colorado, Montana, South Dakota and Wyoming to terminals in Colorado, South
Dakota and Wyoming. Additionally, the West Pipeline's operations include four
public truck loading terminals, also located in Colorado, South Dakota and
Wyoming, having storage capacity of approximately 1,801,000 barrels of product.
Through these facilities and operations, the West Pipeline serves the growing
Denver and northeastern Colorado markets and supplies the jet fuel for
Ellsworth Air Force Base, Rapid City, South Dakota.
The West Pipeline is the nearest pipeline system paralleling the East
Pipeline to the west. Consequently, there is a high level of commonality of
shippers on the Pipelines. Due to the proximity of the East and West Pipelines
to one another, they often face similar competitive issues. The Pipelines'
more significant competitors include common carrier pipelines, proprietary
pipelines owned and operated by major integrated and large independent oil
companies and other companies in the areas where the Company's pipeline systems
and operations deliver products. In particular, the Pipelines' major
competitor is an independent regulated common carrier pipeline system that
operates approximately 100 miles east of and parallel with the East Pipeline.
Competition between common carrier pipelines is based primarily on
transportation charges, quality of customer service and proximity to end users.
The Company believes that high capital costs, tariff regulation, environmental
considerations and problems in acquiring rights-of-way make it unlikely that
other competing pipeline systems comparable in size and scope to the Pipelines
will be built in the near future, provided that the Pipeline has available
capacity to satisfy demand and its tariffs remain at reasonable levels.
Further, while pipeline transportation systems are generally the lowest cost
method for intermediate and long-haul overland movement of refined petroleum
products, trucks may also competitively deliver products in some of the areas
served by the Pipelines. Trucking costs, however, render that mode of
transportation uncompetitive for longer hauls or larger volumes. The Company
does not believe that over the long term, trucks are effective competition to
the Pipelines' long-haul volumes.
PRODUCTS DELIVERED
The mix of refined petroleum products delivered varies seasonally, with
gasoline demand peaking in early summer, diesel fuel demand peaking in late
summer and propane demand higher in the fall. In addition, weather conditions
in the geographic areas served by the Pipelines affect the demand for and the
mix of the refined petroleum products delivered through the Pipelines, although
any such impact on the volumes shipped has historically been short-term. Most
of the refined petroleum products delivered through the East Pipeline are
ultimately used in agricultural operations, including fuel for farm equipment,
irrigation systems, crop drying facilities and trucks used to transport crops
to a variety of destinations; while the West Pipeline's products are generally
delivered to a more urban and commercial marketplace, including Ellsworth Air
Force Base. The
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agricultural sector served by the East Pipeline is also affected by
governmental policy and crop prices. Further, the Pipelines are dependent upon
adequate levels of production of refined petroleum products by refineries that
are connected to the Pipeline, which refineries are, in turn, dependent upon
adequate supplies of suitable grades of crude oil. KPL, in its capacity as
General Partner of the Partnership, believes that, in the event that operations
at any one refinery were discontinued (and assuming unchanged demand in the
markets served by the Pipelines), the effects thereof would be short-term in
nature, and the Company's business would not be materially adversely affected
over the long term. However, a substantial reduction of output by several
refineries as a group could affect the Pipelines' operations to the extent that
a greater percentage of the supply would have to come from refineries outside
the Pipelines' connecting access pipelines.
TARIFFS
Substantially all of the Pipelines' operations constitute common carrier
activities that are subject to federal or state tariff regulation. Such common
carrier activities are those under which transportation services through the
Pipeline are available at published tariffs, as filed with the Federal Energy
Regulatory Commission ("FERC") or the applicable state regulatory authority, to
any shipper of refined petroleum products who requests such services, provided
that each refined petroleum product for which transportation is requested
satisfies the conditions, requirements and specifications for transportation.
TERMINAL STORAGE OPERATIONS
FACILITIES
Acquired by the Partnership in 1993 (See: "Recent Developments"), ST and
its predecessors have a proven track record of more than 30 years of quality
service and experience in the operation of specialty liquids terminal storage
facilities. ST's terminal facilities provide throughput and storage on a fee
basis for a wide variety of products from petroleum products to specialty
chemicals and edible and other liquids. ST's 31 facilities offer storage
capacity ranging from 40,000 to 5,511,000 barrels, comprised of two to 124
tanks per facility. Following the acquisition of certain assets and facilities
from Steuart Petroleum Company and certain of its affiliates (collectively,
"Steuart") (See: "Recent Developments") and as of December 31, 1995, ST's five
largest facilities were located at Piney Point, Maryland (5,511,000 Bbls
capacity; 30 tanks); Jacksonville, Florida (2,061,000 Bbls capacity; 28 tanks);
Texas City, Texas (2,002,000 Bbls capacity; 124 tanks); Westwego, Louisiana
(858,000 Bbls capacity; 54 tanks); and, Baltimore, Maryland (826,000 Bbls
capacity; 50 tanks). In addition to the foregoing, the other ST facilities are
situated in Alabama (2), Arizona, California (2), the District of Columbia (2),
Florida, Georgia (6), Illinois (2), Indiana, Kansas, Maryland, Minnesota, New
Mexico, Oklahoma, Texas, Virginia (2) and Wisconsin, 27 of which are inland
facilities that receive, store and deliver primarily petroleum products for a
variety of customers, providing ST with a geographically diverse base of
customers and revenue. ST's operational headquarters is located in Dallas,
Texas.
The independent liquids terminaling industry is fragmented and includes
both large, well financed publicly-traded companies that own and/or operate
many terminal locations and small private companies that may own and/or operate
only a single terminal location. In addition to the terminals owned by
independent terminal operators, many major energy and chemical companies also
own extensive terminal facilities. Although such terminals often have the same
capabilities as those owned by independent operators, they generally do not
provide terminaling services to third parties. In many instances, major energy
and chemical companies that own storage facilities are also significant
customers of independent terminal operators, when independent terminals have
more cost effective locations near key transportation links such as deep water
ports. Major energy and chemical companies also require independent terminal
storage when their captive storage facilities are inadequate, either because of
size constraints, the nature of the stored material or specialized handling
requirements. Independent terminal owners, such as ST, compete on the basis of
location, versatility of terminals, service and price. For example, a
favorably located terminal will have access to various means of cost-effective
transportation both to and from the terminal. Terminal versatility is a
function of the operator's ability to offer safe handling for a diverse group
of products having complex handling requirements. The service function
typically provided by the terminal includes, among other things, the safe
storage of the product at specified temperature, moisture and other conditions,
as well as loading and unloading of product at the terminal. An increasingly
important aspect of the versatility and service capabilities of an operator is
that operator's ability to offer product handling and storage that
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complies with applicable environmental, safety and health regulations, among
others, especially since customers may retain the liability for certain acts of
non-compliance with such regulations.
PRODUCTS
The variety of products that can be stored at ST's terminal storage
facilities is a significant part of, what the Company believes is, its
competitive advantage among similarly-situated organizations. ST's terminals
provide storage capacity for such products as petroleum products, specialty
chemicals, asphalt, fertilizer, latex and caustic solutions, and edible
liquids, including animal and vegetable fats and oils. Further, the
terminaling and pipeline transportation of jet fuel for the U.S. Department of
Defense is an important part of ST's business. Nine of ST's 27 inland terminal
sites are involved in the terminaling or transport (via pipeline) of jet fuel
for the Defense Department. Six of the nine locations are utilized solely by
the Defense Department and five of these locations include pipelines that
deliver jet fuel directly to nearby military bases. Additionally, as part of
the Steuart transaction, the Partnership acquired the pipeline that serves
Andrews Air Force Base in Maryland (See: "Recent Developments"). Revenue
attributable to Department of Defense activities is derived from a combination
of terminal contracts and tenders for the handling and movement of jet fuel.
The terminal contracts provide a fixed monthly revenue for a period of one to
four years per contract, with additional revenues generated if specific
throughput levels are exceeded. The tenders provide for charges per barrel of
throughput and have no minimum guarantees. From time to time, military base
closings or other events have impacted the operation of certain of ST's
facilities. However, KPL, in its capacity as General Partner of the
Partnership, does not believe that, in the aggregate, the inland terminals
serving the U.S. Department of Defense will experience a significant decrease
in cash flows for the foreseeable future as a result of Department of Defense
changes in activity. KPL, in its capacity as General Partner of the
Partnership, does not believe that ST's business is dependent upon any one
customer or any small group of customers.
SAFETY, ENVIRONMENTAL AND OTHER REGULATORY MATTERS
In addition to tariff regulation of the Partnership's Pipeline activities,
certain operations of the Partnership are subject to federal, state and local
laws and regulations relating to the construction, maintenance and management
of its facilities, the safety of its personnel and the protection of the
environment. Although KPL, in its capacity as General Partner of the
Partnership, believes that the operations of the Partnership are in general
compliance with applicable laws and regulations, risks of substantial costs and
liabilities are inherent in both pipeline and terminaling operations, and there
can be no assurance that significant costs and liabilities will not be incurred
by the Partnership. For example, contamination resulting from spills or
releases of refined petroleum products within the petroleum pipeline industry,
or refined petroleum or other products within the terminaling industry, are not
unusual in such industries. From time to time, the Partnership has experienced
limited groundwater contamination at certain of its Pipeline-related terminal
sites, resulting from spills of refined petroleum products. In each instance,
the appropriate regulatory authorities have been notified of these events and
appropriate remediation activities have either been completed or are ongoing.
In connection with the formation of the Partnership, the Company agreed to bear
the costs associated with identified environmental contamination relating to
the operations of the East Pipeline arising prior to October 3, 1989; however,
such costs have not been, and are not in the future anticipated to be,
material.
Additionally, from time to time, the Partnership has experienced limited
groundwater contamination at certain of its current and former terminal storage
facilities, as a result of operations at or around these locations. Again, in
each instance, the appropriate regulatory authorities have been notified of
these events and appropriate remediation activities have either been completed,
are ongoing, at times using extraction wells and air strippers, or are under
investigation. In certain instances where other unrelated companies may also
have responsibility for the contamination of a particular facility or area, the
Partnership, through the appropriate operating subsidiary, has entered into
agreements (or is in the process of negotiating such agreements) with such
company or companies providing for the allocation of the costs and/or
responsibilities of remediation of such facilities or areas. Further, ST has
been named as a "potentially responsible party" for a federally-designated and
EPA-supervised "Superfund" site where a small amount of material handled by the
former operator was attributed to the facility owned by ST.
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While the Company believes that the Partnership's obligations in connection
with the remediation process at this location will be de minimis, until a final
settlement agreement is signed with the EPA, there is a possibility that the
EPA could bring additional claims against ST (See: "Legal Proceedings").
RECENT DEVELOPMENTS
On December 19, 1995, the Partnership acquired the liquid terminaling
assets of Steuart Petroleum Company and certain of its affiliates
(collectively, "Steuart") for $68,000,000 plus transaction costs and the
assumption of certain environmental liabilities. Among the assets acquired by
the Partnership were eight terminal storage facilities located in the District
of Columbia, Florida, Georgia, Maryland and Virginia, consisting of 88 storage
tanks having an aggregate capacity of approximately 9,000,000 barrels of
product. The Maryland facility also includes the pipeline servicing operations
for Andrews Air Force Base. The transaction was initially funded by a bank
bridge loan, which is anticipated to be replaced during the 1996 calendar year
by the private placement of $68,000,000 of first mortgage notes. The
Partnership is currently in the process of finalizing the terms of such a
private placement and has engaged an investment banking organization to assist
with the proposed transaction. While the Company expects that the Partnership
will be successful in completing the private placement, there can be no
assurance that such will occur or, if so, it will contain the terms and
conditions currently contemplated by the Partnership. On a pro-forma basis,
giving effect to the Steuart acquisition, revenues generated by the Steuart
assets would have accounted for approximately 8.3% of the Company's revenues
for the year ended December 31, 1995.
In September 1995, the Partnership completed a public offering of
3,500,000 Preference Units (NYSE: KPU) at a price of $22.50 per unit. The
Preference Units, which had been owned by KPL since 1989, represent a separate
class of units from, and are junior to, the Partnership's Senior Preference
Units (NYSE: KPP) ("SPUs"), which SPUs have been the subject of two previous
public offerings in 1989 and 1993. The Company, through a dividend from its
KPL subsidiary, realized net proceeds of approximately $74,000,000 from the
offering of Preference Units; following which, the Company continued to retain
control of the Partnership through a 2% General Partner interest and an
aggregate 31.0% limited partner interest in the Partnership. A substantial
portion of the proceeds from the offering were used by the Company in 1995 to
retire two outstanding debt issues: $5,011,000 of Moran Energy Inc. 11.5%
Subordinated Debentures, which were redeemed by the Company on October 23,
1995, and $43,200,000 of Moran Energy International, N.V. 8% Convertible
Subordinated Debentures, which matured on November 1, 1995 and to repay a
$10,000,000 bank term loan. Additionally, on February 1, 1996, the Company
used a portion of the offering proceeds to retire a $6,000,000 bank loan and,
on January 26, 1996, the Company used approximately $8,000,000 of the offering
proceeds to redeem all of the outstanding shares of its 12% Convertible Class A
Preferred Stock, Series D, which were originally issued in connection with the
Company's acquisition of Furmanite (See: "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Industrial Field
Services - Recent Developments"). As stated, the Partnership has previously
completed two public offerings of Partnership SPUs: the original offering of
5,000,000 units for $22 per unit in September 1989, following the formation of
KPP and generating net proceeds to the Company of approximately $98,000,000 and
a gain of approximately $60,000,000; and, an offering of an additional
2,250,000 SPUs for $25.25 per unit in April 1993, which resulted in net
proceeds to KPP of approximately $53,200,000 and recognition by the Company in
1993 of a non-cash gain of approximately $15,100,000.
On February 24, 1995, the Partnership completed a transaction with Wyco
Pipe Line Company ("Wyco"), an entity jointly owned by GATX Terminals
Corporation and Amoco Pipe Line Company, pursuant to which KPP acquired certain
refined petroleum pipeline assets from Wyco for $27,100,000 plus transaction
costs and the assumption of certain environmental liabilities. The assets,
which the Company refers to as "the West Pipeline", consist of approximately
550 miles of underground pipe in Wyoming, Colorado and South Dakota, four truck
loading terminals, numerous pump stations and other related assets. KPP
financed the acquisition of the former Wyco assets by the issuance of
$27,000,000 of 8.37% first mortgage notes, due in 2002, to three insurance
companies.
7
<PAGE> 9
ENVIRONMENTAL CONTROLS
The Company believes that it is in substantial compliance with applicable
state, federal and local legislation and regulations relating to environmental
controls, and the existence of such laws and regulations has not had, nor at
this time is expected to have, any materially restrictive effect on the
Company. To date, the Company has not accounted for costs or capital
expenditures incurred for environmental control facilities separately from
other costs incurred in the operation of its businesses. The Company does not,
however, believe that any such costs or expenditures have been material, and
the Company does not expect that under present conditions such costs or
expenditures will become material in the foreseeable future.
EMPLOYEES
At December 31, 1995, the Company and its subsidiaries employed 1,657
persons, of which an aggregate total of 1,154 persons were employed by the
Company's Furmanite subsidiaries, collectively, and an aggregate total of 347
persons were employed by KPL, collectively with its subsidiaries. The
Partnership has no employees, as the business and operations of the Partnership
are conducted by KPL, the General Partner of the Partnership and a wholly-owned
subsidiary of the Company. As of December 31, 1995, approximately 550 of the
persons employed by Furmanite were subject to representation by unions or other
similar associations for collective bargaining or other similar purposes;
however, there were no significant collective bargaining or other similar
contracts covering the Furmanite employees in effect at that date.
Additionally, as of December 31, 1995, approximately 139 of the persons
employed by KPL (or its subsidiaries) were subject to representation by unions
for collective bargaining purposes; however, except for approximately 30
persons employed by ST who were subject to representation by the Oil, Chemical
and Atomic Workers International Union AFL-CIO ("OCAW"), there were no
collective bargaining or other similar contracts covering employees of KPL (or
its subsidiaries) in effect at that date. ST has an agreement with the OCAW
regarding conditions of employment for such persons, which agreement is in
effect through June 28, 1996 and is subject to automatic renewal for successive
one-year periods unless ST or OCAW serves written notice to terminate or modify
such agreement in a timely manner.
ITEM 2. PROPERTIES
The corporate headquarters of the Company are located in Richardson,
Texas, in a modern, sixteen story building pursuant to a five year lease
agreement. In addition to properties owned or leased by its industrial field
services and pipeline transportation and liquids terminaling businesses, the
Company, through its wholly-owned subsidiary, Fields Financial Services, Inc.,
also leases office space in Bryan, Texas.
Descriptions of other properties owned or utilized by the Company (or its
subsidiaries) are contained in Item 1 of this report and such descriptions are
hereby incorporated by reference into this Item 2. Under the caption
"Commitments and Contingencies" in Note 9 to the Company's consolidated
financial statements, additional information is presented concerning
obligations of the Company (or its subsidiaries) for lease and rental
commitments. Such additional information is also incorporated by reference
into this Item 2.
ITEM 3. LEGAL PROCEEDINGS
On February 2, 1996 a lawsuit was filed in Germany on behalf of
Gesellschaft fur Industrieanlagen und Maschineninstandhaltung GmbH or G.I.M.
Engineering ("GIM") against one of the Company's German subsidiaries, Furmanite
Technische Dienstleistungen GmbH ("FTD"), concerning the consideration received
in a December 30, 1994 German contract that was part of a series of
transactions relating to the sale of one of the Company's domestic
subsidiaries. On February 5, 1996, the Court ruled in the Furmanite German
subsidiary's favor in a separate but related injunctive proceeding involving
the same consideration issue in the same contract. The December 30, 1994
contract was an integral part of the ultimate sale of the Company's domestic
subsidiary and was consummated after a thorough review by, and based upon the
advice of, the Company's German legal counsel and tax advisors. The Company
intends to vigorously defend this action, which has not yet been set for
hearing.
8
<PAGE> 10
In March 1995, the Company completed a settlement agreement and release of
claims among all parties relating to a lawsuit filed in September 1987 in
Mobile County, Alabama, against the Company and certain of its affiliates and
other unrelated parties by Stephen R. Herbel and others doing business as
Pinnacle Petroleum Company ("Pinnacle"). The Company's portion of the
settlement agreement was adequately reserved in its financial statements.
Two of the Company's subsidiaries, which subsidiaries are no longer
actively conducting any operations, have been notified that they are
"potentially responsible parties" in connection with two separate governmental
investigations relating to two separate waste disposal facilities which may
each be subject to remedial action as locations listed on the Environmental
Protection Agency's ("EPA") Superfund National Priority List ("Superfund").
Such proceedings arising under Superfund typically involve numerous waste
generators and other waste transportation and disposal companies for each
identified facility and seek to allocate or recover costs associated with site
investigation and cleanup, which costs could be substantial. These particular
proceedings are based upon allegations that the Company's former operating
subsidiaries disposed of hazardous substances at the facilities in question.
One proceeding involves actions allegedly taken by the Company's former
operating subsidiary at a time prior to the acquisition of such subsidiary by
the Company. The Company's subsidiaries have been included within a de minimis
group of waste generators that are involved in this proceeding, who have been
negotiating a collective settlement of their liabilities with the EPA.
However, the Company has joined with others within this de minimis group who
are each contesting their respective liability. Proceedings in this matter
have been ongoing since 1989 and there was no significant activity relating to
this matter that occurred during 1995. The second proceeding involves alleged
activity by a corporation in which a former operating subsidiary of the Company
held a 50% interest, which interest is no longer owned by the Company's
subsidiary or any affiliate of the Company. Accordingly, the Company believes
that its liability in this proceeding is governed by the provisions of the
agreement pursuant to which the Company's interest in such corporation was
disposed. The Company has reviewed its potential exposure, if any, in
connection with each location, giving consideration to the nature, accuracy and
strength of evidence relating to the Company's alleged relationship to the
location, the amount and nature of waste taken to the location, and the number,
relationship and financial ability of other named and unnamed "potentially
responsible parties" at the location. While the Company does not anticipate
that the amount of expenditures from its involvement in the above matters will
have a material adverse effect on the Company's operations or financial
condition, the possibility remains that technological, regulatory, enforcement
or legal developments, the results of environmental studies or other factors
could materially alter this expectation at any time.
In addition, from time to time, the Company and certain of its
subsidiaries are involved in various litigation and other legal proceedings in
the ordinary course of business. However, the Company believes that a
resolution of these matters will not have a material adverse affect on the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not hold a meeting of stockholders or otherwise submit any
matter to a vote of stockholders in the fourth quarter of 1995.
PART II
9
<PAGE> 11
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Shares of the Company's Common Stock are listed and traded principally on
the New York Stock Exchange. At March 15, 1996, there were approximately 4,870
holders of Common Stock of record. The following table sets forth, for the
fiscal periods indicated, the quoted high and low sales prices of the shares on
the New York Stock Exchange.
<TABLE>
<CAPTION>
QUOTED STOCK PRICES
-------------------------
HIGH LOW
---- ---
<S> <C> <C>
FISCAL YEAR
1994:
First Quarter 4 1/8 3
Second Quarter 3 1/2 2 3/4
Third Quarter 3 1/8 2 1/4
Fourth Quarter 2 1/2 1 7/8
1995:
First Quarter 2 1/4 1 1/2
Second Quarter 2 3/4 1 3/4
Third Quarter 2 5/8 2
Fourth Quarter 2 5/8 1 7/8
1996:
First Quarter 3 1/4 2 1/4
(through March 15,
1996)
</TABLE>
Regular dividends on the Company's Adjustable Rate Cumulative Class A
Preferred Stock have been regularly paid since the third quarter of 1990, in
accordance with the provisions of the Certificates of Designation filed with
the Delaware Secretary of State for such Preferred Stock. In connection with
its 1991 acquisition of Furmanite, the Company issued a total of 1,098,373
shares of 12% Convertible Class A Preferred Stock, Series D, stated value of
5.34 Pounds Sterling. On December 28, 1995, the Company notified the holders
of the Series D shares that it would redeem all outstanding shares of such
Series on January 26, 1996. The Company used approximately $8,000,000 of the
proceeds from the public offering of 3,500,000 Preference Units of KPP to
effect the redemption as noticed. Also, the Company has issued 600 restricted
shares of its Adjustable Rate Cumulative Class A Preferred Stock, Series C, to
three senior officers of the Company, in connection with an executive
compensation program established by the Company. In 1994, the holders of these
shares were paid an aggregate dividend of $28,422, which had been previously
accrued in 1991. Among other restrictions on payment of dividends on this
Series of Preferred Stock, dividends on the Series C Preferred Stock that are
otherwise payable for a year in which the Company has a net loss are not paid
until completion of a year in which the Company has a net profit. Additionally,
the credit facilities used to acquire Furmanite and for the working capital of
each of Furmanite and KPL each contain restrictions on the respective
subsidiary's ability to pay dividends or distributions to the Company, if an
event of default exists.
10
<PAGE> 12
TEM 6. SUMMARY HISTORICAL FINANCIAL AND OPERATING DATA
The following selected financial data (in thousands, except per share
amounts) is derived from the consolidated financial statements of Kaneb
Services, Inc. and should be read in conjunction with the consolidated
financial statements and related notes included herein. The Company has not
declared a dividend on its common stock for any of the periods presented.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue ........................... $212,062 $208,722 $198,549 $176,703 $134,965
Operating income .................. 43,465 31,964 29,530 14,611 13,247
Net income (loss):
Income (loss) from continuing
operations before gains on
sale or issuance of
partnership units .......... 5,024 2,035 1,032 (5,532) (8,055)
Gains on sale or issuance of
pipeline partnership units 54,157 - 15,122 - -
-------- -------- -------- -------- --------
Continuing operations ......... 59,181 2,035 16,154 (5,532) (8,055)
Discontinued operations ....... - - - 996 (13,011)
Extraordinary gain on debt
extinguishment ............. - - - - 405
Cumulative effect of accounting
charges(a) ................ - - - 742 -
-------- -------- -------- -------- --------
Net income (loss) ............. $ 59,181 $ 2,035 $ 16,154 $ (3,794) $(20,661)
======== ======== ======== ======== ========
PER SHARE DATA:
Earnings (loss) per common share:
Continuing operations ......... $ 1.72 $ .02 $ .46 $ (.22) $ (.30)
Discontinued operations ....... - - - .03 (.41)
Extraordinary gain on debt
extinguishment ............... - - - - .01
Cumulative effect of
accounting changes ...... - - - .02 -
------- -------- -------- -------- --------
Total ..................... $ 1.72 $ .02 $ .46 $ (.17) $ (.70)
======= ======== ======== ======== ========
BALANCE SHEET DATA:
Cash flow provided by operating
activities ................ $ 39,964 $ 25,890 $ 30,880 $ 19,183 $ 6,159
Cash and cash equivalents ..... 30,389 9,506 24,327 10,596 17,501
Working capital ............... 16,302 (42,797) 15,842 12,555 22,339
Total assets .................. 409,827 284,213 287,472 215,848 237,173
Long-term debt ................ 191,846 103,376 152,678 141,430 144,222
Stockholders' equity .......... 69,022 18,844 14,861 (1,519) 7,239
</TABLE>
(a) Represents the cumulative effect of accounting changes from the adoption of
new financial accounting standards relating to taxes.
11
<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This discussion should be read in conjunction with the consolidated
financial statements of Kaneb Services, Inc. (the "Company") and notes thereto
included elsewhere in this report.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
(in millions)
-----------------------------
1995 1994 1993
------ ----------- --------
<S> <C> <C> <C>
Consolidated revenues .............. $212.1 $208.7 $198.5
Consolidated operating income ...... $ 43.5 $ 32.0 $ 29.5
Consolidated operating income before
depreciation and amortization .... $ 56.5 $ 44.8 $ 41.2
Consolidated net income before gains
on sale or issuance of pipeline
partnership units ................ $ 5.0 $ 2.0 $ 1.0
Consolidated capital expenditures,
excluding acquisitions ........... $ 13.4 $ 10.2 $ 11.0
</TABLE>
Consolidated revenues increased $3.4 million in 1995. Pipeline and
terminaling services revenues increased $18.2 million, primarily as a result of
the acquisition of the West Pipeline by the pipeline partnership in February
1995. Near the end of 1994, unprofitable operations in eastern Germany, which
generated approximately $18.9 million in revenues in 1994, were sold. Revenues
from the remaining core business in industrial field services increased $5.2
million in 1995. Consolidated operating income increased $11.5 million in
1995. Improvements in industrial field services totaled $2.3 million while
pipeline and terminaling services were up $9.5 million, primarily as a result
of the acquisition of the West Pipeline. Consolidated capital expenditures,
excluding acquisitions, increased $3.2 million from 1994 to 1995, principally
as a result of increased industrial field services equipment purchases and
increased pipeline and terminaling capital maintenance projects.
Consolidated revenues increased $10.2 million in 1994, primarily as a
result of the inclusion for the entire year of a petroleum products and
specialty liquids terminaling company that was acquired by the pipeline
partnership in March 1993. Consolidated operating income increased $2.5
million from 1993 to 1994 as increases in pipeline and terminaling services
profits of $3.7 million, largely due to improvements at the terminaling company
acquired by the pipeline partnership in 1993, were partially offset by declines
in industrial field services profits attributable to the unprofitable
operations in eastern Germany that were not sold until near the end of 1994.
12
<PAGE> 14
Industrial Field Services
The Company's industrial field services segment is comprised of the
operations of Furmanite, which was acquired in March 1991. Furmanite provides
specialized industrial field services to plants in the process and power
industries and to refineries and chemical plants.
<TABLE>
<CAPTION>
(in millions)
----------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Revenues:
United States.................. $ 32.8 $ 34.2 $ 32.8
United Kingdom................. 37.6 36.3 30.5
Germany........................ 16.2 33.0 40.0
Rest of World.................. 17.9 14.7 13.1
------ ------ ------
$104.5 $118.2 $116.4
====== ====== ======
Operating income:
United States.................. $ 1.9 $1.7 $ 1.1
United Kingdom................. 3.3 2.4 1.2
Germany........................ (1.2) (3.6) 1.3
Rest of World.................. .8 1.3 .2
Headquarters................... (.9) (.2) -
------ ------ ------
$ 3.9 $ 1.6 $ 3.8
====== ====== ======
Operating income before
depreciation and amortization.. $ 8.0 $ 6.6 $ 8.7
====== ====== ======
Capital expenditures............. $ 4.3 $ 2.8 $ 2.6
====== ====== ======
</TABLE>
Furmanite's revenues increased $5.2 million or 5% in 1995 and $8.9 million
or 10% in 1994, excluding unprofitable general maintenance projects in eastern
Germany that had revenues of approximately $18.9 million in 1994 and $26.0
million in 1993 and were sold near the end of 1994. Revenues from traditional
underpressure services steadily improved in both years, especially in the
United Kingdom and other western European countries where economic conditions
have been sluggish over the last several years.
Operating income increased $2.3 million or 144% in 1995 as a result of
improvements in Furmanite's operations around the world, particularly in the
United Kingdom and in Germany. Declines in the Rest of World in 1995 primarily
resulted from non-recurring product sales with high margins in the Far East in
1994. The overall decline in Furmanite's operating income in 1994 was the
result of the losses from the general maintenance projects in eastern Germany
that were sold in late 1994 that were only partially offset by the improvements
in the rest of Furmanite's operations.
Capital expenditures are primarily related to field services equipment and
the implementation of new services. Capital expenditures for 1996 are
currently estimated to be $2 million to $4 million, depending on the economic
environment and the needs of the business.
Pipeline and Terminaling Services
The Company's pipeline and terminaling services segment includes the
operations of Kaneb Pipe Line Partners, L.P. ("KPP") which owns refined
petroleum products pipeline assets and, since 1993, petroleum products and
specialty liquids storage and terminaling assets. The Company operates,
manages, and controls the pipeline and terminaling operations of KPP through
its 2% general partner interest and a 31% limited partner interest in the
partnership.
13
<PAGE> 15
<TABLE>
<CAPTION>
(in millions)
---------------------------
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Revenues....................... $96.9 $78.7 $69.2
===== ===== =====
Operating income............... $42.5 $33.0 $29.3
===== ===== =====
Operating income before
depreciation and amortization. $50.8 $40.2 $35.4
===== ===== =====
Capital expenditures, excluding
acquisitions.................. $ 9.0 $ 7.2 $ 8.1
===== ===== =====
</TABLE>
Revenues increased $18.2 million or 23%, while operating income increased
$9.5 million or 29% in 1995. The increase in revenues and operating income is
primarily attributable to the acquisition of the West Pipeline by the pipeline
partnership in 1995. Revenues increased $9.5 million or 14%, while operating
income increased $3.7 million or 13% in 1994, primarily as a result of the
inclusion of the operations of ST for the full year in 1994 versus a 10-month
period in 1993 as well as an approximate 5.5% pipeline tariff increase
implemented in April 1994, which was partially offset by an increase in
property taxes and unusually high repair and maintenance expenditures.
The interest of outside non-controlling partners in the KPP's net income
was $18.0 million, $12.6 million and $11.0 million in 1995, 1994 and 1993,
respectively. Distributions paid to the outside non-controlling unitholders of
KPP aggregated approximately $16.3 million, $16.2 million and $13.7 million in
1995, 1994 and 1993, respectively. The increase in the interest of outside
non-controlling partners in KPP's net income in 1995 is attributable to the
sale by the Company in 1995 of 3.5 million of the preference units that it had
owned since 1989. The 1994 increase in both the interest of outside
non-controlling partners in KPP's net income and in the distributions paid to
the outside non-controlling unitholders is a result of the issuance of 2.25
million Senior Preference Units in 1993 by KPP.
Capital expenditures relate to the maintenance of existing operations.
Routine capital expenditures for 1996 are currently estimated to be $7.5
million.
Effective March 1, 1993, KPP acquired Support Terminal Services, Inc.
("ST"), a petroleum products and specialty liquids storage and terminaling
company, for approximately $65 million. In April 1993 KPP completed a
secondary public offering of 2.25 million Senior Preference Units at $25.25 per
unit and used $50.8 million of the proceeds from the offering to repay a
portion of the ST acquisition bank debt. The Company recognized a non-cash
accounting basis gain in the amount of $22.4 million resulting from the change
in its ownership interest of KPP as a result of this public offering.
Consistent with the treatment in 1989 of the initial offering of Senior
Preference Units, the Company deferred $7.3 million of this gain and recorded
$15.1 million in the statement of income as a gain on the issuance of units by
the Partnership.
In February 1995 KPP, through a wholly-owned subsidiary, acquired the
pipeline assets of WYCO Pipe Line Company (the "West Pipeline"), a company
jointly owned by GATX Terminals Corporation and Amoco Pipeline Company, for
$27.1 million plus transaction costs and the assumption of certain
environmental liabilities. The acquisition was financed by the sale of first
mortgage notes due February 24, 2002, which bear interest at the rate of 8.37%
per annum. In December 1995 KPP, through a wholly-owned subsidiary, acquired
the liquids terminaling assets of Steuart Petroleum Company and certain of its
affiliates (collectively "Steuart") for $68 million plus transaction costs and
the assumption of certain environmental liabilities, which was financed with a
bridge loan from a bank.
14
<PAGE> 16
Other Operations
The Company had revenues of $10.6 million, $11.8 million, and $12.9
million in 1995, 1994 and 1993, respectively, and operating income of $1.7
million, $1.5 million and $.6 million for the same periods related to
subsidiaries that provide payment, collection and information services to
retail merchants and financial institutions.
New Accounting Pronouncement
In March 1995, The Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of
(SFAS 121). SFAS 121 is effective for financial statements for fiscal years
beginning after December 15, 1995 and requires the write-down to market of
certain long-lived assets. The Company will adopt SFAS 121 in the first
quarter of 1996 and such adoption will not have a material effect on the
Company's financial position or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by consolidated operating activities was $40.0 million,
$25.9 million and $30.9 million during the years 1995, 1994 and 1993,
respectively. Almost two-thirds of the increase in 1995 related to pipeline
and terminaling services, primarily as a result of the acquisition of the West
Pipeline by the pipeline partnership in February 1995.
At December 31, 1995, $24.8 million was outstanding under a credit
facility, as amended, that was obtained by a wholly-owned subsidiary in
conjunction with the acquisition of Furmanite. The credit facility, which is
without recourse to the Parent Company, is due 2001, bears interest at the
option of the borrower at variable rates based on either the LIBOR rate or the
prime rate plus a differential of up to 150 basis points, and contains certain
financial and operational covenants with respect to the specialized industrial
field services group of companies.
In 1994 KPP, through a wholly-owned subsidiary, issued $33 million of
first mortgage notes ("Notes") to a group of insurance companies. The Notes
bear interest at the rate of 8.05% per annum and are due on December 22, 2001.
In 1994, another wholly-owned subsidiary of KPP entered into a Restated Credit
Agreement with a group of banks that provides a $15 million revolving credit
facility through November 30, 1997. The credit facility bears interest at
variable interest rates and has a commitment fee of .2% per annum of the unused
credit facility. No amounts were drawn under the credit facility at December
31, 1995 or 1994. In 1995 KPP financed the acquisition of the West Pipeline
with the issuance of $27 million of Notes due February 24, 2002, which bear
interest at the rate of 8.37% per annum. The Notes and credit facility are
secured by a mortgage on substantially all of the pipeline assets of KPP and
contain certain financial and operational covenants. The acquisition of the
Steuart terminaling assets in December 1995 was initially financed by a $68
million bridge loan from a bank. The bridge loan maturity has been extended
until March 17, 1997, and bears interest at variable rates based on the LIBOR
rate plus 50 to 100 basis points. KPP expects to refinance this obligation
under terms similar to the Notes discussed above.
In September 1995 the Company, through a wholly-owned subsidiary, sold in
a public offering 3.5 million Preference Units it held in KPP. The Company
received net cash proceeds of approximately $74 million related to the sale and
recorded a gain of $54.2 million. The Company used the proceeds from the sale
to retire its 8% convertible subordinated debentures totaling $43.2 million,
retire its 11.5% subordinated debentures totaling $5.0 million, repay its $10
million term loan, redeem, in 1996, its Series D Preferred Stock for
approximately $8.0 million and retire, in 1996, its $6.0 million 8.85% senior
note. The Company continues to control the pipeline and terminaling operations
of KPP through its 2% general partner interest and a 31% limited partner
interest.
15
<PAGE> 17
In December 1995 the Company entered into an agreement with an
international bank that provides for a $15 million revolving credit facility
through December 1, 2000, that bears interest at variable rates at the
Company's option based on the LIBOR rate plus 100 basis points or at the prime
rate in effect from time to time with a commitment fee of .5% per annum of the
unused credit facility. No amounts were drawn under the credit facility at
December 31, 1995.
Consolidated capital expenditures for 1996 have been budgeted at $9.5
million to $11.5 million, depending on the economic environment and the needs
of the business. Consolidated debt maturities are $4.1 million, $4.5 million,
$8.7 million, $1.8 million and $1.5 million for each of the five years ending
December 31, 2000. Capital expenditures in 1996 are expected to be funded from
existing cash and anticipated cash flows from operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary data of the
Company begins on page F-1 of this report. Such information is hereby
incorporated by reference into this Item 8.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
16
<PAGE> 18
PART III
The information required by Part III (Items 10, 11, 12 and 13) of Form 10-K is
incorporated by reference from portions of the Registrant's definitive proxy
statement to be filed with the Securities and Exchange Commission not later
than 120 days after the close of the fiscal year covered by this Report.
17
<PAGE> 19
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS PAGE
----
Set forth below are financial statements appearing in this report.
Report of Independent Accountants ............................ F-1
Financial Statements of Kaneb Services, Inc, and Subsidiaries:
Consolidated Statements of Income - Years Ended December 31,
1994 and 1993 .......................................... F-2
Consolidated Balance Sheets - December 31, 1995 and 1994...... F-3
Consolidated Statements of Cash Flows
Years Ended December 31, 1995, 1994 and 1993 ........... F-4
Consolidated Statements of Changes in Stockholders'
Equity - Years Ended December 31, 1995, 1994 and 1993 .. F-5
Notes to Consolidated Financial Statements ................... F-6
(a)(2) FINANCIAL STATEMENT SCHEDULES
Set forth are the financial statement schedules appearing in this
report.
Schedule I - Kaneb Services, Inc. (Parent Company)
Condensed Financial Statements:
Statements of Income - Years Ended December 31, 1995,
1994 and 1993 ............................................ F-18
Balance Sheets - December 31, 1995 and 1994 .................... F-19
Statements of Cash Flows - Years Ended
December 31, 1995, 1994 and 1993 ......................... F-20
Schedule II - Kaneb Services, Inc. Valuation and
Qualifying Accounts -
Years Ended December 31, 1995, 1994 and 1993 ............. F-21
Schedules, other than those listed above, have been omitted because of the
absence of the conditions under which they are required or because the required
information is included in the consolidated financial statements or related
notes thereto presented in the Annual Report to Stockholders.
18
<PAGE> 20
(A) (3) LIST OF EXHIBITS
3.1 Restated Certificate of Incorporation of the Registrant, dated September
26, 1979, filed as Exhibit 3.1 of the exhibits to the Registrant's
Registration Statement on Form S-16, which exhibit is hereby incorporated
by reference.
3.2 Certificate of Amendment to the Restated Certificate of Incorporation of
the Registrant, dated April 30, 1981, filed as Exhibit 3.2 of the exhibits
to the Registrant's Annual Report on Form 10-K for the year ended December
31, 1981 ("1981 Form 10-K"), which exhibit is hereby incorporated by
reference.
3.3 Certificate of Amendment to the Restated Certificate of Incorporation of
the Registrant, dated May 28, 1985, filed as Exhibit 4.1 of the exhibits
to the Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1985, which exhibit is hereby incorporated by reference.
3.4 Certificate of Amendment to the Restated Certificate of Incorporation of
the Registrant, dated September 17, 1985, filed as Exhibit 4.1 of the
exhibits to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1985, which exhibit is hereby incorporated by
reference.
3.5 Certificate of Amendment to the Restated Certificate of Incorporation of
the Registrant, dated July 10, 1990, filed as Exhibit 3.5 of the exhibits
to the Registrant's Annual Report on Form 10-K for the year ended December
31, 1990 ("1990 Form 10-K"), which exhibit is hereby incorporated by
reference.
3.6 Certificate of Amendment to the Restated Certificate of Incorporation of
the Registrant, dated September 21, 1990, filed as Exhibit 3.5 of the
exhibits to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1990, which exhibit is hereby incorporated by
reference.
3.7 By-laws of the Registrant, filed as Exhibit 3.5 of the exhibits to the
Registrant's Annual Report on Form 10-K for year ended December 31, 1985,
which exhibit is hereby incorporated by reference.
4.1 Certificate of Designation related to the Registrant's Adjustable Rate
Cumulative Class A Preferred Stock, filed as Exhibit 4 of the exhibits to
the Registrant's Quarterly Report of Form 10-Q for the quarter ended
September 30, 1983, which exhibit is hereby incorporated by reference.
4.2 Certificate of Designation, Preferences and Rights related to the
Registrant's Series B Junior Participating Preferred Stock, filed as
Exhibit 1 of the exhibits to the Registrant's Current Report on Form 8-K
and Registration Statement on Form 8-A, dated April 5, 1988, which exhibit
is hereby incorporated by reference.
4.3 Certificate of Designation related to the Registrant's Adjustable Rate
Cumulative Class A Preferred Stock, Series D, dated February 11, 1991,
filed as Exhibit 4.3 of the exhibits to the Registrant's 1990 Form 10-K,
which exhibit is hereby incorporated by reference.
4.4 Certificate of Designation related to the Registrant's Adjustable Rate
Cumulative Class A Preferred Stock, Series C, dated April 23, 1991, filed
as Exhibit 4.4 of the exhibits to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1991, which exhibit is hereby incorporated
by reference.
4.5 Certificate of Designation related to the Registrant's Adjustable Rate
Cumulative Class A Preferred Stock, Series E, filed as Exhibit 10.2 of the
exhibits to the Registrant's Current Report on Form 8-K, dated January 23,
1993, which exhibit is hereby incorporated by reference.
4.6 Indenture between Moran Energy Inc. ("Moran") and First City National
Bank of Houston ("First City"), dated as of January 1, 1978, under which
Moran issued the 11 1/2% Subordinated Debentures due 1998, filed as
Exhibit 2(g) to Moran's Registration Statement on Form S-7 (SEC File No.
2-61216), which exhibit is hereby incorporated by reference.
19
<PAGE> 21
4.7 First Supplemental Indenture between the Registrant and First City, dated
as of March 20, 1984, under which the Registrant assumed obligations under
the Indenture listed as Exhibit 4.5 above, filed as Exhibit 4.4 to the
exhibits of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1983 ("1983 Form 10-K"), which exhibit is hereby incorporated
by reference.
4.8 Indenture between Moran Energy International N.V. ("Moran
International"), Moran and First City, dated as of November 1, 1980, under
which Moran International issued the 8% Convertible Subordinated
Debentures due 1995, guaranteed on a subordinated basis by Moran, filed as
Exhibit 4(b) to Moran's Annual Report on Form 10-K for the year ended
December 1, 1980, which exhibit is hereby incorporated by reference.
4.9 First Supplemental Indenture between Moran International, the Registrant
and First City, dated as of March 20, 1984, under which the Registrant
assumed obligations under the Indenture listed as Exhibit 4.8 above, filed
as Exhibit 4.7 of the 1983 Form 10-K, which exhibit is hereby incorporated
by reference.
4.10 Indenture between Moran and First City, dated January 15, 1984, under
which Moran issued the 8 3/4% Convertible Subordinated Debentures due
2008, filed as Exhibit 4.1 to Moran's Registration Statement on Form S-3
(SEC File No. 2-81227), which exhibit is hereby incorporated by reference.
4.11 First Supplemental Indenture between the Registrant and First City, dated
as of March 20, 1984, under which the Registrant assumed obligations under
the Indenture listed as Exhibit 4.10 above, filed as Exhibit 4.7 of the
1983 Form 10-K, which exhibit is hereby incorporated by reference.
10.1 Kaneb Services, Inc. 1984 Nonqualified Stock Option Plan, filed as
Exhibit 10.26 of the exhibits to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1984, which exhibit is hereby
incorporated by reference.
10.2 Kaneb Services, Inc. 1994 Stock Incentive Plan, filed as Exhibit 4.12 to
the exhibits of the Registrant's Form S-8 Registration Statement (S.E.C.
File No. 33-54027), which exhibit is hereby incorporated by reference.
10.3 Kaneb Services, Inc. Savings Investment Plan, filed as Exhibit 4.10 of
the exhibits to the Registrant's Form S-8 Registration Statement (S.E.C.
File No. 33-41295), which exhibit is hereby incorporated by reference.
10.4 Amended and Restated Loan Agreement between Furmanite PLC, Bank of
Scotland and certain other Lenders, dated May 1, 1991, filed as Exhibit
10.8 of the exhibits to the Registrant's Annual Report on Form 10-K ("1994
Form 10-K"), which exhibit is hereby incorporated by reference.
10.5 Amended and Restated Senior Secured Increasing Rate Promissory Note
between the Registrant and the Bank of Scotland, dated July 2, 1993, filed
as Exhibit 10.9 of the exhibits to the Registrant's 1994 Form 10-K, which
exhibit is hereby incorporated by reference.
10.6 Pledge and Proxy Agreement between the Registrant and Texas Commerce
Bank, National Association, ("TCB"), dated October 11, 1993, filed as
Exhibit 10.9 of the exhibits to the Registrant's 1993 Form 10-K, which
exhibit is hereby incorporated by reference.
10.7 Pledge and Security Agreement between Kaneb Pipe Line Company ("KPL") and
TCB, dated October 11, 1993, filed as Exhibit 10.10 of the exhibits to the
Registrant's 1993 Form 10-K, which exhibit is hereby incorporated by
reference.
10.8 Restated Credit Agreement between KPOP, TCB, and certain other Lenders,
dated December 22, 1994, filed as Exhibit 10.13 of the exhibits to the
Registrant's 1994 Form 10-K, which exhibit is hereby incorporated by
reference.
20
<PAGE> 22
10.9 Note Purchase Agreement, dated December 22, 1994, filed as Exhibit 10.2
of the exhibits to Registrant's Current Report on Form 8-K, dated March
13, 1995, which exhibit is hereby incorporated by reference.
10.10 Loan Agreement between the Registrant, KPL and Bank of Scotland, dated
as of December 1, 1995, filed herewith.
10.11 Bridge Financing Agreement between KPOP and TCB, dated December 18,
1995, filed herewith.
10.12 Agreement for Sale and Purchase of Assets between Wyco Pipe Line Company
and KPOP, dated February 19, 1995, filed as Exhibit 10.1 of the exhibits
to the Registrant's Current Report on Form 8-K, dated March 13, 1995,
which exhibit is hereby incorporated by reference
10.13 Asset Purchase Agreements between and among Steuart Petroleum Company,
SPC Terminals, Inc., Piney Point Industries, Inc., Steuart Investment
Company, Support Terminals Operating Partnership, L.P. and KPOP, as
amended, dated August 27, 1995, filed as Exhibits 10.1, 10.2, 10.3, and
10.4 of the exhibits to Registrant's Current Report on Form 8-K/A, dated
January 3, 1996, which exhibits are hereby incorporated by reference.
21 List of subsidiaries of the Registrant, filed herewith.
23 Consent of independent accountants: Price Waterhouse LLP, filed herewith.
24 Powers of Attorney, filed herewith.
27 Financial Data Schedule, filed herewith.
Certain instruments respecting long-term debt of the Registrant have been
omitted pursuant to instructions as to Exhibits. The Registrant agrees to
furnish copies of any of such instruments to the Commission upon request.
(B) REPORTS ON FORM 8-K - NONE.
21
<PAGE> 23
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Kaneb Services, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) and (2) on page 18 present fairly, in all material
respects, the financial position of Kaneb Services, Inc. and its subsidiaries
(the "Company") at December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years ended December 31,
1995, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Dallas, Texas
March 5, 1996
F - 1
<PAGE> 24
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Revenues ....................................... $212,062,000 $208,722,000 $198,549,000
------------ ------------ ------------
Costs and expenses:
Operating costs .............................. 151,014,000 159,913,000 153,231,000
Depreciation and amortization ................ 13,055,000 12,807,000 11,655,000
General and administrative ................... 4,528,000 4,038,000 4,133,000
------------ ------------ ------------
Total costs and expenses ................. 168,597,000 176,758,000 169,019,000
------------ ------------ ------------
Operating income ............................... 43,465,000 31,964,000 29,530,000
Interest income ................................ 858,000 446,000 307,000
Other expense .................................. (1,037,000) (251,000) (514,000)
Interest expense ............................... (15,927,000) (13,752,000) (13,559,000)
Amortization of excess of cost over
fair value of net assets of acquired
business ..................................... (1,847,000) (1,846,000) (1,845,000)
------------ ------------ ------------
Income before interest of outside non-
controlling partners in pipeline
partnership's net income, income taxes and
gains on sale or issuance of pipeline
partnership units ............................ 25,512,000 16,561,000 13,919,000
Interest of outside non-controlling partners
in pipeline partnership's net income ......... (17,953,000) (12,567,000) (10,989,000)
Gain on sale of pipeline partnership interest .. 54,157,000 - -
Gain on issuance of units by
pipeline partnership ......................... - - 15,122,000
Income tax expense ............................. (2,535,000) (1,959,000) (1,898,000)
------------ ------------ ------------
Net income ..................................... 59,181,000 2,035,000 16,154,000
Dividends applicable to preferred stock ........ 1,527,000 1,489,000 1,451,000
------------ ------------ ------------
Net income applicable to common stock .......... $ 57,654,000 $ 546,000 $ 14,703,000
============ ============ ============
Earnings per common share - primary
and fully diluted ............................ $ 1.72 $ .02 $ .46
============ ============ ============
Weighted average number of common shares
outstanding .................................... 33,450,000 32,664,000 31,866,000
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F - 2
<PAGE> 25
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents ...................... $ 30,389,000 $ 9,506,000
Short-term investments ......................... - 1,020,000
Accounts receivable, trade (net of allowance for
doubtful accounts of $1,133,000 in 1995 and
$854,000 in 1994) ............................ 32,708,000 25,851,000
Inventories .................................... 5,809,000 6,110,000
Prepaid expenses and other current assets....... 7,465,000 5,497,000
------------ ------------
Total current assets ......................... 76,371,000 47,984,000
------------ ------------
Property and equipment .......................... 363,545,000 255,032,000
Less accumulated depreciation and amortization .. 99,698,000 91,490,000
------------ ------------
Net property and equipment .................... 263,847,000 163,542,000
------------ ------------
Excess of cost over fair value of net assets of
acquired business ............................... 65,031,000 66,876,000
------------ ------------
Other assets .................................... 4,578,000 5,811,000
------------ ------------
$409,827,000 $284,213,000
============ ============
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt:
Industrial field services .................... $ 2,357,000 $ 2,252,000
Pipeline and terminaling services ............ 1,777,000 1,548,000
Parent company ............................... - 56,246,000
------------- ------------
Total current portion of long-term debt .... 4,134,000 60,046,000
------------- ------------
Accounts payable ............................... 11,947,000 10,262,000
Accrued expenses ............................... 35,787,000 20,473,000
Accrued redemption of preferred stock .......... 8,201,000 -
------------- ------------
Total current liabilities .................... 60,069,000 90,781,000
------------- ------------
Long-term debt, less current portion:
Industrial field services ..................... 25,691,000 25,434,000
Pipeline and terminaling services .............. 136,489,000 43,265,000
Parent company ................................. 29,666,000 34,677,000
------------- ------------
Total long-term debt, less current portion ... 191,846,000 103,376,000
------------- ------------
Net liabilities of discontinued operations ....... 3,320,000 3,914,000
------------- ------------
Deferred income taxes and other liabilities ...... 11,235,000 5,565,000
------------- ------------
Interest of outside non-controlling partners
in pipeline partnership .......................... 74,335,000 61,733,000
------------- ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, without par value ............. 5,814,000 14,085,000
Common stock, without par value. Authorized
60,000,000 shares; issued 36,479,954 shares
in 1995 and 36,428,823 in 1994 ............... 4,230,000 4,224,000
Additional paid-in capital ..................... 197,151,000 198,736,000
Accumulated deficit ............................ (118,118,000) (175,772,000)
Treasury stock, at cost ........................ (19,552,000) (23,435,000)
Cumulative foreign currency translation
adjustmement ................................. (503,000) 1,006,000
------------- -------------
Total stockholders' equity ................... 69,022,000 18,844,000
------------- -------------
$409,827,000 $284,213,000
============= =============
</TABLE>
See notes to consolidated financial statements.
F - 3
<PAGE> 26
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------ ------------
<S> <C> <C> <C>
Operating Activities:
Net income ............................................. $59,181,000 $2,035,000 $16,154,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization ...................... 13,055,000 12,807,000 11,655,000
Gain on sale of pipeline partnership interest ...... (54,157,000) - -
Amortization of excess of cost over net assets
acquired ......................................... 1,847,000 1,846,000 1,845,000
Interest of outside non-controlling partners
in pipeline partnership .......................... 17,953,000 12,567,000 10,989,000
Deferred income taxes .............................. (778,000) 457,000 357,000
Gain on issuance of units by pipeline partnership .. - - (15,122,000)
Changes in current assets and liabilities:
Short-term investments ........................... 1,020,000 (1,020,000) -
Accounts receivable, net ......................... (6,857,000) 1,449,000 3,931,000
Inventories ...................................... 301,000 79,000 1,196,000
Prepaid expenses and other current assets ........ (1,968,000) (2,288,000) (1,127,000)
Accounts payable and accrued expenses ............ 10,367,000 (2,042,000) 1,002,000
------------- ------------ ------------
Net cash provided by operating activities .......... 39,964,000 25,890,000 30,880,000
------------- ------------ ------------
Investing Activities:
Capital expenditures ................................... (13,428,000) (10,185,000) (11,028,000)
Acquisitions made by pipeline partnership .............. (97,850,000) (12,320,000) (62,677,000)
Decrease in other assets, net .......................... 4,739,000 1,975,000 3,185,000
------------- ------------ ------------
Net cash used in investing activities ................ (106,539,000) (20,530,000) (70,520,000)
------------- ------------ ------------
Financing Activities:
Issuance of long-term debt ............................. 6,975,000 14,319,000 23,961,000
Issuance of long-term debt by pipeline partnership ..... 96,500,000 41,350,000 86,300,000
Payments on long-term debt ............................. (67,957,000) (15,387,000) (31,217,000)
Payments on long term debt by pipeline partnership ..... (3,047,000) (42,201,000) (62,677,000)
Distributions to outside non-controlling
partners in pipeline partnership ..................... (16,306,000) (16,168,000) (13,682,000)
Preferred stock dividends paid ......................... (1,328,000) (1,402,000) (1,451,000)
Net proceeds from sale of partnership interest ......... 73,620,000 - -
Net proceeds from issuance of units by partnership ..... - - 53,159,000
------------- ------------ ------------
Net cash provided by (used in) financing
activities ......................................... 88,457,000 (19,489,000) 54,393,000
------------- ------------ ------------
Cash used in discontinued operations .................... (999,000) (692,000) (1,022,000)
------------- ------------ ------------
Increase (decrease) in cash and cash equivalents ........ 20,883,000 (14,821,000) 13,731,000
Cash and cash equivalents at beginning of year .......... 9,506,000 24,327,000 10,596,000
------------- ------------ ------------
Cash and cash equivalents at end of year ................ $30,389,000 $9,506,000 $24,327,000
============= ============ ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 27
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
FOREIGN
PREFERRED COMMON ADDITIONAL ACCUMULATED TREASURY CURRENCY
STOCK STOCK PAID-IN CAPITAL DEFICIT STOCK TRANSLATION
----------- ---------- --------------- -------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1993 .............. $14,117,000 $4,210,000 $203,349,000 $(191,021,000) $(31,677,000) $(497,000)
Net income for the year ............. - - - 16,154,000 - -
Common stock issued ................. - 7,000 (1,575,000) - 2,922,000 -
Preferred stock dividends declared .. - - - (1,451,000) - -
Conversion of Series D
preferred stock ................... (207,000) 5,000 202,000 - - -
Foreign currency translation
adjustment ........................ (203,000) - - - - 526,000
----------- ---------- --------------- -------------- ------------- -----------
BALANCE AT DECEMBER 31, 1993 ............ 13,707,000 4,222,000 201,976,000 (176,318,000) (28,755,000) 29,000
Net income for the year ............. - - - 2,035,000 - -
Common stock issued ................. - - (3,325,000) - 5,320,000 -
Preferred stock dividends declared .. - - - (1,489,000) - -
Conversion of Series D
preferred stock ................... (87,000) 2,000 85,000 - - -
Foreign currency translation
adjustment ........................ 465,000 - - - - 977,000
----------- ---------- --------------- -------------- ------------- -----------
BALANCE AT DECEMBER 31, 1994 ............ 14,085,000 4,224,000 198,736,000 (175,772,000) (23,435,000) 1,006,000
Net income for the year ............. - - - 59,181,000 - -
Common stock issued ................. - 6,000 (2,764,000) - 3,883,000 -
Preferred stock dividends declared .. - - - (1,527,000) - -
Series D preferred stock redemption.. (8,201,000) - 1,179,000 - - (1,179,000)
Foreign currency translation
adjustment ........................ (70,000) - - - - (330,000)
----------- ---------- --------------- -------------- ------------- -----------
BALANCE AT DECEMBER 31, 1995 ............ $5,814,000 $4,230,000 $197,151,000 $(118,118,000) $(19,552,000) $(503,000)
=========== ========== =============== ============== ============= ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 28
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are followed by Kaneb
Services, Inc. (the "Company") and its subsidiaries in the preparation of
financial statements.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries and Kaneb Pipe Line Partners, L.P. ("KPP"). The
Company controls the pipeline operations of KPP through its two percent
general partner interest and a 31% limited partner interest as of December
31, 1995. All significant intercompany transactions and balances are
eliminated in consolidation.
Segment Information
The Company provides specialized industrial field services to an
international client base that includes oil refineries, chemical plants,
pipelines, offshore drilling and production platforms, steel mills, food
and drink processing facilities, power generation, and other process
industries. The Company, as general partner, also manages and operates the
pipeline and terminaling business of KPP.
Cash, Cash Equivalents and Short-term Investments
The Company's policy is to invest cash in highly liquid investments with
maturities of three months or less, upon acquisition. Accordingly,
uninvested cash balances are kept at minimum levels. Such investments are
valued at cost, which approximates market, and are classified as cash
equivalents. Similar investments with original maturities beyond three
months are considered short-term investments and are carried at cost, which
approximates market value.
Inventories
Inventories consist primarily of finished goods of the industrial services
segment and are valued at the lower of average cost or market. Cost is
determined using the weighted average cost method.
Property and Equipment
Property and equipment are carried at original cost. Certain leases have
been capitalized and the leased assets have been included in property and
equipment. Additions of new equipment and major renewals and replacements
of existing equipment are capitalized. Repairs and minor replacements that
do not materially increase values or extend useful lives are expensed.
Depreciation of property and equipment is provided on the straight-line
basis at rates based upon expected useful lives of the various classes of
assets. The rates used for pipeline and certain storage facilities, which
are subject to regulation, are the same as those promulgated by the Federal
Energy Regulatory Commission.
Revenue Recognition
Substantially all revenues are recognized when services to unaffiliated
customers have been rendered. Pipeline transportation revenues are
recognized upon receipt of the products into the pipeline system.
Earnings Per Share
Earnings per common share data have been computed by dividing income
applicable to common stock by the weighted average number of shares
outstanding during each period. The effect of common stock equivalents and
other potentially dilutive securities on such computation was anti-dilutive
for each period presented.
Foreign Currency Translation
The Company translates the balance sheets of its foreign subsidiaries using
year-end exchange rates and translates income statement amounts using the
average exchange rates in effect during the year. The gains and losses
resulting from the change in exchange rates from year to year have been
reported separately as a component of stockholders' equity. Gains and
losses resulting from foreign currency transactions are included in the
statements of income.
F-6
<PAGE> 29
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Excess of Cost Over Fair Value of Net Assets of Acquired Business
The excess of the purchase price of an industrial field service company
over the fair value of the net assets acquired is being amortized on a
straight-line basis over a period of 40 years. Accumulated amortization
was $8.4 million and $6.6 million at December 31, 1995 and 1994,
respectively.
Estimates
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Change in Presentation
Certain financial statement items for 1994 and 1993 have been reclassified
to conform with the 1995 presentation.
2. ACQUISITIONS
In February 1995, KPP acquired the refined petroleum product pipeline
assets (the "West Pipeline") of Wyco Pipe Line Company for $27.1 million,
plus transaction costs and the assumption of certain environmental
liabilities. The West Pipeline was owned 60% by a subsidiary of GATX
Terminals Corporation and 40% by a subsidiary of Amoco Pipe Line Company.
The acquisition was financed by the issuance of $27 million of first
mortgage notes. The assets acquired from Wyco Pipe Line Company did not
include certain assets that were leased to Amoco Pipe Line Company and the
purchase agreement did not provide for either (i) the continuation of an
arrangement with Amoco Pipe Line Company for the monitoring and control of
pipeline flows or (ii) the extension or assumption of certain credit
agreements that Wyco Pipe Line company had with its shareholders.
In December 1995, KPP acquired, the liquids terminaling assets of Steuart
Petroleum Company and certain of its affiliates (collectively, "Steuart")
for $68 million, plus transaction costs and the assumption of certain
environmental liabilities. The acquisition price was financed by bank
borrowings. The asset purchase agreement includes a provision for an
earn-out payment based upon revenues of one of the terminals exceeding a
specified amount for a seven-year period beginning in January 1996. The
contracts also include a provision for the continuation of all terminaling
contracts in place at the time of the acquisition, including those
contracts with Steuart.
The acquisitions have been accounted for using the purchase method of
accounting. The total purchase price of each acquisition has been
allocated to the assets and liabilities based on their respective fair
values based on valuations and other studies. The allocation of the
purchase price of the Steuart acquisition presented in the consolidated
financial statements is preliminary and subject to adjustment.
The following summarized unaudited pro forma consolidated results of
operations for the years ended December 31, 1995 and 1994, assume the
acquisitions occurred as of the beginning of each period presented. The
unaudited pro forma financial results have been prepared for comparative
purposes only and may not be indicative of the results that would have
occurred if KPP had acquired the pipeline assets of the West Pipeline and
the liquids terminaling assets of Steuart on the dates indicated or which
will be obtained in the future.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1995 1994
-------------- -------------
<S> <C> <C>
(UNAUDITED)
Revenues ..................... $233,004,000 $248,044,000
============== =============
Net Income ................... $ 59,025,000 $ 5,925,000
============== =============
Net income per common share .. $ 1.72 $ .14
============== =============
</TABLE>
3. SALE OF PARTNERSHIP INTEREST
In September 1995, the Company through a wholly-owned subsidiary, sold in a
public offering, 3.5 million Preference Units it held in KPP. The Company
received net cash proceeds of $73.6 million related to the sale and
recorded a gain of
F-7
<PAGE> 30
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$54.2 million, net of expenses. The Company used the proceeds to retire
its 8% convertible subordinated debentures totaling $43.2 million, retire
its 11.5% subordinated debentures totaling $5.0 million and repay its $10
million term loan in 1995 and, in 1996, redeem $8 million of its Series D
Preferred Stock and repay $6 million of its long-term debt. The Company
continues to control the pipeline and terminaling operations of KPP through
its 2% general partner interest and a 31% limited partner interest.
4. INCOME TAXES
Income (loss) before income tax expense is comprised of the following
components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1995 1994 1993
------------- ------------- ------------
<S> <C> <C> <C>
Income from domestic operations.... $ 63,607,000 $ 8,686,000 $ 21,324,000
Loss from foreign operations....... (1,891,000) (4,692,000) (3,272,000)
------------- ------------- -------------
$ 61,716,000 $ 3,994,000 $ 18,052,000
============= ============= =============
</TABLE>
Income tax expense is comprised of the following components:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, FEDERAL FOREIGN STATE TOTAL
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
1995:
Current ..................... $1,415,000 $ 328,000 $ 1,570,000 $ 3,313,000
Deferred .................... (791,000) 13,000 - (778,000)
---------- ---------- ----------- -----------
$ 624,000 $ 341,000 $ 1,570,000 $ 2,535,000
========== ========== =========== ===========
1994:
Current ..................... $ 326,000 $ 488,000 $ 688,000 $ 1,502,000
Deferred .................... 313,000 (1,000) 145,000 457,000
---------- ---------- ----------- -----------
$ 639,000 $ 487,000 $ 833,000 $ 1,959,000
========== ========== =========== ===========
1993:
Current ..................... $ 137,000 $ 354,000 $ 1,050,000 $ 1,541,000
Deferred .................... 313,000 44,000 - 357,000
---------- ---------- ----------- -----------
$ 450,000 $ 398,000 $ 1,050,000 $ 1,898,000
========== ========== =========== ===========
</TABLE>
Deferred income tax provisions or benefits result from temporary differences
between the tax basis of assets (principally fixed assets) and liabilities
of foreign subsidiaries and certain domestic subsidiaries not included in
the Company's consolidated federal tax return, and their reported amounts in
the financial statements that will result in differences between income for
tax purposes and income for financial statement purposes in future years.
The Company has recorded deferred tax assets of approximately $86 million
and $108 million as of December 31, 1995 and 1994, respectively, primarily
relating to the Company's domestic net operating loss carryforwards and
investment tax credit carryforwards, offset by a valuation reserve of $84
million and $108 million, respectively. In 1995 and 1994, the Company
reduced its valuation allowance by $24 million and $5 million, respectively,
primarily due to the utilization of domestic net operating loss carryforwards
and the expiration of investment tax credit carryforwards. The Company has
recorded a deferred tax liability of $1.7 million and $1.1 million as of
December 31, 1995 and 1994, which is associated with certain domestic
subsidiaries not included in the Company's consolidated federal tax return.
F-8
<PAGE> 31
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The reasons for the differences between the amount of tax expense
provided and the amount of tax expense computed by applying the statutory
Federal income tax rate to income from continuing operations before income
taxes for the years 1995, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------------------------------------------
1995 1994 1993
------------------------ ---------------------- -------------------------
AMOUNT % AMOUNT % AMOUNT %
------------ ----- -------------- ------ ------------------ ----
<S> <C> <C> <C> <C> <C> <C>
Tax expense at
statutory rates............... $21,601,000 35.0 $1,398,000 35.0 $6,318,000 35.0
Increase (decrease) in taxes
resulting from:
Domestic loss carry
forward adjustments........... (21,089,000) (34.2) (2,110,000) (52.8) (1,353,000) (7.5)
State income taxes, net........ 1,021,000 1.7 541,000 13.5 683,000 3.8
Foreign losses not
benefited and foreign
income taxes.................. 1,002,000 1.6 2,130,000 53.3 1,543,000 8.5
Non-taxable gain from
issuance of pipeline
partnership units............. - - - - (5,293,000) (29.3)
---------- ---- ---------- ----- ---------- -----
$2,535,000 4.1 $1,959,000 49.0 $1,898,000 10.5
========== ==== ========== ===== ========== =====
</TABLE>
At December 31, 1995, the Company had the following domestic tax attribute
carryforwards expiring in the years indicated:
<TABLE>
<CAPTION>
YEAR OF NET OPERATING INVESTMENT
EXPIRATION LOSSES TAX CREDITS
------------- --------------- -------------
<S> <C> <C>
1996 .............................. $ - $ 1,813,000
1997 .............................. 35,662,000 2,483,000
1998 .............................. 3,971,000 4,319,000
1999 .............................. 7,820,000 2,171,000
2000 .............................. - 1,786,000
2001 .............................. 33,422,000 -
2002 .............................. 64,553,000 -
2003 .............................. 22,049,000 -
2005 .............................. 16,866,000 -
2006 .............................. 17,508,000 -
2007 .............................. 3,038,000 -
------------ -----------
$204,889,000 $12,572,000
============ ===========
</TABLE>
The amounts shown above that expire in the years 1996 through 1999
represent the operating losses and investment tax credits acquired in the
acquisition of Moran Energy, Inc. and its subsidiaries and it is unlikely
that the Company will be able to utilize these tax carryforwards in the
future. If certain substantial changes in the Company's ownership should
occur, there would be an annual limitation on the amount of the tax
carryforwards which could be utilized.
5. RETIREMENT PLANS
The Company has a defined contribution benefit plan which covers
substantially all domestic employees and provides for varying levels of
employer matching. Company contributions to this plan were $.9 million,
$.9 million and $.6 million for 1995, 1994 and 1993, respectively.
One of the Company's foreign subsidiaries has a defined benefit pension
plan covering substantially all of its United Kingdom employees (the "U.K.
Plan"). The benefit is based on the average of the employee's salary for
the last three years of employment. Generally, the employee contributes 5%
and the employer contributes up to 12% of pay. Plan assets are
primarily invested in unitized pension funds managed by United Kingdom
registered funds managers. The valuation of the U.K. Plan was performed as
of November 1, 1995. Net pension cost for the U.K. Plan included the
following components:
F-9
<PAGE> 32
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
----------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Service cost for benefits earned during
during the period ....................... $1,107,000 $1,290,000 $1,232,000
Interest cost on projected benefit
obligations ............................ 1,416,000 1,267,000 1,253,000
Less actual return on plan
assets ................................. (2,126,000) (180,000) (3,785,000)
Net amortization and deferral ............. 243,000 (1,663,000) 2,530,000
---------- ---------- ----------
Net pension cost .......................... $ 640,000 $ 714,000 $1,230,000
========== ========== ==========
</TABLE>
Actuarial assumptions used in the accounting for the U.K. Plan were a
weighted average discount rate of 9% for 1995 and 1994 and 7.5% for 1993,
an expected long-term rate of return on assets of 9% for 1995, 1994 and
1993 and a rate of increase in compensation levels of 6% for 1995 and 1994
and 5.5% for 1993.
The funded status of the U.K. Plan is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
Actuarial present value of accumulated benefit
obligations (all vested) ........................ $ 18,325,000 $ 14,988,000
============ ============
Actuarial present value of projected benefit
obligations ..................................... $(18,946,000) $(15,550,000)
Plan assets at fair value ........................ 22,705,000 18,869,000
Unrecognized net gain ............................ (5,544,000) (6,212,000)
Unrecognized prior service cost .................. 354,000 382,000
------------ ------------
Net pension liability recorded in other
liabilities ...................................... $ (1,431,000) $ (2,511,000)
============ ============
</TABLE>
6. PROPERTY AND EQUIPMENT
The cost of property and equipment is as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1995 1994
------------ ------------
<S> <C> <C>
Industrial field services ................. $ 30,222,000 $ 30,758,000
Pipeline and terminaling services ......... 323,671,000 214,556,000
General corporate ......................... 3,794,000 3,762,000
Other ..................................... 5,858,000 5,956,000
------------ ------------
$363,545,000 $255,032,000
============ ============
</TABLE>
Equipment acquired under capital leases and included in the cost of
property and equipment is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
Industrial field services equipment .............. $ 6,199,000 $ 5,864,000
Pipeline and terminaling services equipment (a) .. 21,972,000 21,901,000
Less accumulated depreciation .................... (11,775,000) (11,327,000)
------------ ------------
Net equipment acquired under capital lease ....... $ 16,396,000 $ 16,438,000
============ ============
</TABLE>
- --------------
(a) The capital lease is secured by certain pipeline equipment and
the pipeline partnership has recorded its option to purchase this
equipment for approximately $4.1 million at the termination of the
lease.
F-10
<PAGE> 33
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. DEBT
Debt is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
Industrial field services:
Credit facility due through 2001 ............ $24,803,000 $25,159,000
Various notes of foreign subsidiaries ranging
from 6.75% to 8.0% due through 2000 ....... 320,000 331,000
Capital leases .............................. 2,925,000 2,196,000
------------ ------------
Total debt .............................. 28,048,000 27,686,000
Less current portion ........................ 2,357,000 2,252,000
------------ ------------
$25,691,000 $25,434,000
============ ============
Pipeline and terminaling services:
Mortgage notes due 2001 and 2002 ............ $60,000,000 $33,000,000
Bank bridge loan due in 1997 ................ 68,000,000 -
Capital leases .............................. 10,266,000 11,813,000
------------ ------------
Total debt .............................. 138,266,000 44,813,000
Less current portion ........................ 1,777,000 1,548,000
------------ ------------
$136,489,000 $43,265,000
============ ============
Parent company:
8.75% convertible subordinated debentures
due through 2008 .......................... $23,666,000 $23,666,000
8.85% convertible notes retired in 1996 ..... 6,000,000 6,000,000
8% convertible subordinated debentures
retired in 1995 ........................... - 43,186,000
Term loan retired in 1995 ................... - 10,000,000
11.5% subordinated debentures retired in
1995 ...................................... - 5,011,000
Line of credit .............................. 3,060,000
------------ ------------
Total debt .............................. 29,666,000 90,923,000
Less current portion ........................ - 56,246,000
------------ ------------
$29,666,000 $34,677,000
============ ============
Total consolidated long-term debt ............. $195,980,000 $163,422,000
Current portion ............................... 4,134,000 60,046,000
------------ ------------
Total consolidated long-term debt,
less current portion ...................... $191,846,000 $103,376,000
============ ============
</TABLE>
Industrial Field Services
At December 31, 1995, $24.8 million was outstanding under a credit
facility, as amended, that was obtained by a wholly-owned subsidiary in
conjunction with the acquisition of Furmanite. The credit facility, which
is without recourse to the Parent Company, is due 2001, bears interest at
the option of the borrower at variable rates based on either the LIBOR rate
or the prime rate plus a differential of up to 150 basis points, has a
commitment fee equal to one-half of one-percent per annum on unutilized
amounts, contains certain financial and operational covenants with respect
to the specialized industrial field services group of companies and
restricts the subsidiary from paying dividends to the parent company under
certain circumstances. The credit facility is secured by all of the
tangible assets of the industrial field services group (except those assets
in Germany).
Pipeline and Terminaling Services
In 1994, KPP, through a wholly-owned subsidiary issued $33 million of first
mortgage notes ("Notes") to a group of insurance companies. The Notes bear
interest at the rate of 8.05% per annum and are due on December 22, 2001.
In 1994, a wholly-owned subsidiary entered into a Restated Credit Agreement
with a group of banks that provides a $15 million revolving credit facility
through November 30, 1997. The credit facility bears interest at variable
interest rates and has a commitment fee of .2% per annum of the unused
credit facility. No amounts were drawn under the credit
F-11
<PAGE> 34
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
facility at December 31, 1995 or 1994. In 1995, KPP financed the
acquisition of the West Pipeline with the issuance of $27 million of Notes
due February 24, 2002 which bear interest at the rate of 8.37% per annum.
The Notes and credit facility are secured by a mortgage on substantially
all of the pipeline assets of KPP and contains certain financial and
operational covenants. The acquisition of Steuart was initially financed by
a $68 million bridge loan from a bank. The loan bears interest at a
variable rate based on the LIBOR rate plus 50 to 100 basis points and its
maturity was extended until March 1997. KPP expects to refinance this
obligation under terms similar to the Notes discussed above. The loan will
be secured, pari passu with the existing Notes and credit facility, by a
mortgage on the East Pipeline.
Parent Company
On February 1, 1996, the Company retired the 8.85% senior note. The 8.85%
senior note was convertible into shares of the Company's common stock at a
conversion price of $6.00 per share.
The 8.75% subordinated debentures are convertible into shares of the
Company's Common Stock at a conversion price of $17.54 per share. The
Company has satisfied the sinking fund requirements on its 8.75%
subordinated debentures through 2000.
In December 1995 the Company entered into an agreement with an
international bank that provides for a $15 million revolving credit
facility through December 1, 2000, that bears interest at variable rates
at the Company's option based on the LIBOR rate plus 100 basis points or at
the prime rate in effect from time to time with a commitment fee of .5% per
annum of the unused credit facility. The credit facility is secured by 1.0
million of the Company's limited partnership units in the pipeline
partnership. No amounts were drawn under the credit facility at December
31, 1995.
Annual sinking fund requirements and debt maturities, including capital
leases, are $4.1 million, $4.5 million, $8.7 million, $1.8 million and $1.5
million for each of the five years ending December 31, 2000.
8. CAPITAL STOCK
The changes in the number of issued and outstanding shares of the Company's
preferred and common stock are summarized as follows:
<TABLE>
COMMON STOCK
----------------------------------
PREFERRED HELD IN
STOCK ISSUED ISSUED TREASURY OUTSTANDING
------------ ---------- --------- -----------
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1993 ........... 1,595,522 36,303,923 4,534,990 31,768,933
Stock options exercised .............. - 61,000 - 61,000
Conversion of Series D preferred ..... (26,268) 44,413 - 44,413
Common shares issued ................. - 928 (417,433) 418,361
------------ ---------- --------- -----------
BALANCE AT DECEMBER 31, 1993 ......... 1,569,254 36,410,264 4,117,557 32,292,707
Conversion of Series D preferred ..... (10,880) 18,398 - 18,398
Common shares issued ................. - 161 (759,942) 760,103
------------ ---------- --------- -----------
BALANCE AT DECEMBER 31, 1994 ......... 1,558,374 36,428,823 3,357,615 33,071,208
Series D preferred stock redemption .. (990,424) - - -
Common shares issued ................. - 50,018 (524,739) 574,757
------------ ---------- --------- -----------
BALANCE AT DECEMBER 31, 1995 ......... 567,950 36,478,841 2,832,876 33,645,965
============ ========== ========= ===========
</TABLE>
The Company has stock option plans and agreements for officers, directors
and key employees. The options granted under these plans and agreements
generally expire ten years from date of grant. All options were granted at
prices greater than or equal to the market price at the date of grant. At
December 31, 1995, options on 1,423,936 shares at prices ranging from $1.50
to $8.50 were outstanding, of which 1,110,936 were exercisable at prices
ranging from $1.50 to $8.50.
F-12
<PAGE> 35
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Series A Preferred Stock
The Company has 567,950 shares of its Cumulative Class A Adjustable Rate
Preferred Stock, Series A ("Series A Preferred") with a stated value of $10
per share outstanding at December 31, 1995. Dividends accrue quarterly at
the applicable U.S. Treasury rate plus 2.00 percentage points (200 basis
points) ("Applicable Rate"), but will in no event be less than 7.5% per
annum or greater than 14% per annum. If dividends are in arrears for two
or more quarters, additional dividends accrue on all dividends in arrears
at a rate equal to the Applicable Rate plus 25 basis points for each
quarter dividends are in arrears (but not more than the lesser of 14% per
annum or 300 basis points more than the Applicable Rate). If unpaid
accrued dividends exist with respect to eight or more quarters, the holders
of the Series A Preferred may elect individually to require the Company to
redeem their shares at a price of $12 per share plus dividends in arrears.
No such arrearages existed as of December 31, 1995, 1994 and 1993. The
Company, at its option, may redeem shares at any time at a price of $12 per
share (reduced ratably to $10 over 15 years unless unpaid accrued dividends
exist with respect to eight or more quarters) plus accrued and unpaid
dividends thereon.
Series B Preferred Stock
On March 26, 1988, the Board of Directors of the Company declared a
dividend distribution of one stock purchase right ("Right") for each
outstanding share of Common Stock to stockholders of record on April 19,
1988. Each Right entitles the holder, upon the occurrence of certain
events, to purchase from the Company one one-hundredth of a share of Series
B Junior Participating Preferred Stock, no par value, at a price of $10,
subject to adjustment. The Rights will not separate from the Common Stock
or become exercisable until a person or group either acquires beneficial
ownership of 20% or more of the Company's Common Stock or commences a
tender or exchange offer that would result in ownership of 30% or more,
whichever occurs earlier. The Rights, which expire on April 19, 1998, are
redeemable in whole, but not in part, at the Company's option at any time
for a price of $0.05 per Right. At December 31, 1995, 1994 and 1993 there
were no Series B Preferred shares outstanding.
Series C Preferred Stock
In April 1991, the Company authorized 1,000 shares of Adjustable Rate
Cumulative Class A Preferred Stock, Series C ("Series C Preferred") which
has a preference value of $1.00 per share and which is only entitled to a
dividend if the value of the Company's Common Stock increases. The Series
C Preferred, as an entire class, is entitled to an annual dividend
commencing January 1, 1992, equal to 1/2 of 1% (proportionately reduced for
authorized but unissued shares in the class) of the increase in the
average per share market value of the Company's Common Stock during the
year preceding payment of the dividend, over $4.79 (the average per share
market value of the Company's Common Stock during 1990) multiplied by the
average number of shares of Common Stock outstanding. The Series C
Preferred has mandatory redemption requirements in the event of certain
types of corporate reorganizations and may be redeemed at the option of the
Company during the first 60 days of each year commencing 1994. The
redemption price is the sum of (i) one divided by the average annual yield
of all issues of preferred stock listed on the New York Stock Exchange
during the calendar year preceding the date of the redemption period times
the average dividend for the two most recent years plus (ii) a pro rata
portion of the prior year's dividend based upon the number of elapsed days
in the year of redemption plus (iii) any accrued and unpaid dividends. The
Company may also repurchase the shares of a holder at such redemption price
during the first 60 days following the year in which the holder first
ceases to be an employee of the Company. A holder of the Series C
Preferred may, at his option, require the Company to redeem his shares at
120% of such redemption price if the Company elects, within 10 days after
the most recent dividend payment date, not to pay the accrued dividend.
Upon liquidation, holders of the Series C Preferred are entitled to receive
$1.00 per share plus accrued and unpaid dividends. The Company granted 600
shares of Series C Preferred to certain officers in April 1991.
Series D Preferred Stock
In conjunction with the acquisition of Furmanite, the Company issued
1,098,373 shares of its 12% Convertible Class A Preferred Stock, Series D
("Series D Preferred") with a stated value of 5.34 ($8.36) per share. The
Series D Preferred is not redeemable by the holder; however, each share was
convertible at the option of the holder into 1.691 shares of the Company's
Common Stock. During 1994 and 1993, 10,880 shares and 26,268 shares were
converted into 18,398 shares and 44,413 shares, respectively, of the
Company's Common Stock. On December 28, 1995, the Company notified the
Series D Preferred stockholders that it would redeem the Series D Preferred
Stock and it was fully redeemed on January 26, 1996. Accordingly, the
Company has reclassified its obligation to current liabilities on the
December 31, 1995 balance sheet.
F-13
<PAGE> 36
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. COMMITMENTS AND CONTINGENCIES
The Company leases vehicles, office space, data processing equipment,
office equipment and other items of personal property under leases expiring
at various dates. Management expects that, in the normal course of
business, leases that expire will be renewed or replaced by other leases.
Total rent expense under operating leases was $3.5 million for 1995, 1994
and 1993.
At December 31, 1995, minimum rental commitments under all capital
leases and operating leases for future years are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- -----------
<S> <C> <C>
1996 ...................................... $4,098,000 $2,402,000
1997 ...................................... 4,183,000 1,792,000
1998 ...................................... 8,055,000 1,462,000
1999 ...................................... 339,000 1,109,000
2000 ...................................... - 880,000
2001 and thereafter ....................... - 2,566,000
----------- -----------
Total minimum lease payments ................. 16,675,000 $10,211,000
===========
Less amounts representing interest ........... 3,484,000
-----------
Present value of net minimum lease payments .. $13,191,000
===========
</TABLE>
In October 1994, the Company settled two lawsuits filed in the 1980's by
Kanland Associates and Panance Property Corporation that related to the
Company's former office building in Sugar Land, Texas. One of these suits
had alleged damages at more than $38 million plus prejudgment interest,
legal fees, court costs and punitive damages. The settlement of these
lawsuits was adequately reserved.
In March 1995, the Company settled another lawsuit filed in the late 1980's
by Stephen R. Herbel and other named individuals doing business as Pinnacle
Petroleum Company ("Pinnacle") that related to coalbed gas produced from a
property that a subsidiary of the Company previously owned an interest in.
The settlement of this lawsuit was also adequately reserved.
On February 2, 1996 a lawsuit was filed in Germany on behalf of
Gesellschaft fur Industrieanlagen und Maschineninstandhaltung GmbH or
G.I.M. Engineering against one of the Company's German subsidiaries,
Furmanite Technische Dienstleistungen GmbH, concerning the consideration
received in a December 30, 1994 German contract that was part of a series
of transactions relating to the sale of one of the Company's domestic
subsidiaries. On February 5, 1996, the Court ruled in the Furmanite German
subsidiary's favor in a separate but related injunctive proceeding
involving the same consideration issue in the same contract. The December
30, 1994 contract was an integral part of the ultimate sale of the
Company's domestic subsidiary and was consummated after a thorough review
by, and based upon the advice of, the Company's German legal counsel and
tax advisors. The Company intends to vigorously defend this action, which
has not yet been set for hearing.
KPP makes quarterly distributions of 100% of its Available Cash (as defined
in the Partnership Agreement) to holders of limited partnership units and
KPL. Available Cash consists generally of all the cash receipts of the
Partnership less all of its cash disbursements and reserves. KPP believes
it will make distributions of Available Cash for each quarter of not less
than $.55 per Unit ("Minimum Quarterly Distribution"), or $2.20 per Unit on
an annualized basis for the foreseeable future. The Minimum Quarterly
Distribution on the Senior Preference Units is cumulative and preferential
to the partnership units held by the Company. The assets, other than
Available Cash, cannot be distributed without a majority vote of the
non-affiliated unitholders.
The operations of KPP are subject to federal, state and local laws and
regulations relating to protection of the environment. Although KPP
believes that its operations are in general compliance with applicable
environmental regulation, risks of additional costs and liabilities are
inherent in its operations, and there can be no assurance that significant
costs and liabilities will not be incurred by KPP. Moreover, it is
possible that other developments, such as increasingly stringent
environmental laws, regulations, enforcement policies thereunder, and
claims for damages to property or persons resulting from the operations of
KPP, could result in substantial costs and liabilities to KPP. KPP has
F-14
<PAGE> 37
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
recorded a reserve in other liabilities for environmental claims of $5.2
million (including $4.4 million relating to the acquisitions of the West
Pipeline and Steuart) as of December 31, 1995.
The Company has other contingent liabilities resulting from litigation,
claims and commitments incident to the ordinary course of business.
Management believes, based on the advice of counsel, that the ultimate
resolution of such contingencies will not have a materially adverse effect
on the financial position or results of operations of the Company.
10. BUSINESS SEGMENT DATA
Selected financial data pertaining to the operations of the Company's
business segments is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Industrial field services .......... $104,500,000 $118,196,000 $116,368,000
Pipeline and terminaling services .. 96,928,000 78,745,000 69,235,000
Other .............................. 10,634,000 11,781,000 12,946,000
------------ ------------ ------------
$212,062,000 $208,722,000 $198,549,000
============ ============ ============
Operating income (loss):
Industrial field services .......... $ 3,855,000 $ 1,649,000 $ 3,847,000
Pipeline and terminaling services .. 42,488,000 32,965,000 29,256,000
General corporate .................. (4,593,000) (4,118,000) (4,212,000)
Other .............................. 1,715,000 1,468,000 639,000
------------ ------------ ------------
$ 43,465,000 $ 31,964,000 $ 29,530,000
============ ============ ============
Depreciation and amortization:
Industrial field services .......... $ 4,152,000 $ 4,938,000 $ 4,836,000
Pipeline and terminaling services .. 8,274,000 7,257,000 6,135,000
General corporate .................. 65,000 80,000 79,000
Other .............................. 564,000 532,000 605,000
------------ ------------ ------------
$ 13,055,000 $ 12,807,000 $ 11,655,000
============ ============ ============
Capital expenditures (including
capitalized leases and excluding
acquisitions):
Industrial field services .......... $ 4,323,000 $ 2,783,000 $ 2,637,000
Pipeline and terminaling services .. 8,975,000 7,147,000 8,132,000
General corporate .................. 32,000 63,000 70,000
Other .............................. 98,000 192,000 189,000
------------ ------------ ------------
$ 13,428,000 $ 10,185,000 $ 11,028,000
============ ============ ============
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1995 1994 1993
------------- ------------ -------------
<S> <C> <C> <C>
Identifiable assets:
Industrial field services .......... $117,438,000 $117,911,000 $123,334,000
Pipeline and terminaling services .. 264,510,000 157,398,000 154,728,000
General corporate .................. 23,718,000 3,937,000 4,520,000
Other .............................. 4,161,000 4,967,000 4,890,000
------------ ------------ ------------
$409,827,000 $284,213,000 $287,472,000
============ ============ ============
</TABLE>
F-15
<PAGE> 38
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Selected financial data pertaining to the operations in geographical areas
is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
United States ....... $140,387,000 $124,723,000 $114,989,000
United Kingdom ...... 37,563,000 36,291,000 30,508,000
Continental Europe .. 29,822,000 43,245,000 49,523,000
Other ............... 4,290,000 4,463,000 3,529,000
------------ ------------ ------------
$212,062,000 $208,722,000 $198,549,000
============ ============ ============
Operating income:
United States ...... $ 40,649,000 $ 31,856,000 $ 26,827,000
United Kingdom ..... 3,272,000 2,432,000 1,168,000
Continental Europe . (873,000) (3,444,000) 749,000
Other .............. 417,000 1,120,000 786,000
------------ ------------ ------------
$ 43,465,000 $ 31,964,000 $ 29,530,000
============ ============ ============
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Identifiable assets:
United States ...... $304,227,000 $178,093,000 $177,393,000
United Kingdom ..... 87,608,000 91,676,000 91,575,000
Continental Europe . 15,951,000 12,457,000 16,876,000
Other .............. 2,041,000 1,987,000 1,628,000
------------ ------------ ------------
$409,827,000 $284,213,000 $287,472,000
============ ============ ============
</TABLE>
11. DISCONTINUED OPERATIONS
Since 1981, the Company has discontinued business segments to reduce debt,
increase cash and concentrate its activities towards ongoing operations.
The operations of the offshore and onshore drilling, exploration and
production, coal, general contracting, underground storage tank (UST)
testing operations and engineering services segments are classified as
discontinued operations in the Company's consolidated financial statements
and related footnotes. The remaining net liabilities of the discontinued
operations have been reclassified in the balance sheet from their
traditional classifications to "Net liabilities of discontinued
operations."
12. ACCRUED EXPENSES
Accrued expenses is comprised of the following components at December 31,
1995 and 1994:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1995 1994
----------- ------------
<S> <C> <C>
Accrued distribution payable .............. $ 6,037,000 $ 4,021,000
Accrued compensation and benefits ......... 2,796,000 3,651,000
Accured interest .......................... 1,772,000 1,910,000
Accrued expenses - other................... 25,182,000 10,891,000
----------- ------------
$35,787,000 $ 20,473,000
=========== ============
</TABLE>
F-16
<PAGE> 39
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly operating results for 1995 and 1994 are summarized as follows:
<TABLE>
<CAPTION>
QUARTERS ENDED
-----------------------------------------------------------
1995: MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
----------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues .......... $46,652,000 $53,005,000 $56,956,000 $55,449,000
=========== =========== =========== ===========
Operating income .. $8,695,000 $10,548,000 $11,717,000 $12,505,000
=========== =========== =========== ===========
Net income ........ $623,000 $1,549,000 $55,779,000 $1,230,000
=========== =========== =========== ===========
Earnings per
common share .... $.01 $.03 $1.65 $.02
=========== =========== =========== ===========
1994:
Revenues .......... $50,687,000 $51,540,000 $54,233,000 $52,262,000
=========== =========== =========== ===========
Operating income .. $7,004,000 $8,392,000 $9,102,000 $7,466,000
=========== =========== =========== ===========
Net income (loss) . $(399,000) $1,091,000 $1,230,000 $113,000
=========== =========== =========== ===========
Earnings (loss) per
common share .... $(.02) $.02 $.03 $(.01)
=========== =========== =========== ===========
</TABLE>
14. SUPPLEMENTAL CASH FLOW INFORMATION
The Company issued 18,398 and 44,413 shares of its common stock upon
conversion of 10,880 and 26,268 shares of its Series D Preferred Stock in
1994 and 1993, respectively. The Company contributed 394,739, 349,942 and
197,433 shares of its common stock to its 401(k) Savings Plan in 1995, 1994
and 1993, respectively. The Company contributed 160,000, 410,000 and
220,000 shares of its common stock to its subsidiary's defined benefit
pension plan in 1995, 1994 and 1993, respectively.
Supplemental information on cash paid during the period for:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Interest ...... $15,675,000 $13,311,000 $13,405,000
=========== =========== ===========
Income taxes .. $ 2,293,000 $ 2,105,000 $ 369,000
=========== =========== ===========
</TABLE>
15. FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
The estimated fair value of cash, cash equivalents, short-term investments
and accounts receivables approximate their carrying amount due to the
relatively short period to maturity of these instruments. The estimated
fair value of all long-term debt (excluding capital leases) as of December
31, 1995 was approximately $180 million as compared to the carrying value
of $183 million. These fair values were estimated using discounted cash
flow analysis, based on the Company's current incremental borrowing rates
for similar types of borrowing arrangements, when quoted market prices were
not available. The Company has not determined the fair value of its
capital leases as it is not practicable. The estimates presented above are
not necessarily indicative of the amounts that would be realized in a
current market exchange.
The Company does not believe that it has a significant concentration of
credit risk at December 31, 1995, as approximately 61% of the Company's
accounts receivable are generated from its industrial field services
customers located throughout the United States, the United Kingdom and
Continental Europe.
F-17
<PAGE> 40
SCHEDULE I
KANEB SERVICES, INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
General and administrative expenses ......... $(4,528,000) $(4,038,000) $(4,133,000)
Depreciation and amortization ............... (65,000) (80,000) (79,000)
Interest expense ............................ (4,343,000) (4,402,000) (4,030,000)
Intercompany fees and expenses .............. 1,104,000 (13,000) (528,000)
Interest income ............................. 261,000 42,000 119,000
Other income (expense) ...................... (307,000) 55,000 (343,000)
Equity in income of subsidiaries and pipeline
partnership ................................ 67,059,000 10,471,000 25,148,000
----------- ----------- -----------
Net income .................................. 59,181,000 2,035,000 16,154,000
Dividends applicable to preferred stock ..... 1,527,000 1,489,000 1,451,000
----------- ----------- -----------
Net income applicable to common
stock ...................................... $57,654,000 $ 546,000 $14,703,000
=========== ========== ===========
Earnings per common share ................... $ 1.72 $ .02 $ .46
=========== ========== ===========
</TABLE>
See "Notes to Consolidated Financial Statements" of
Kaneb Services, Inc. and Subsidiaries included in this report.
F-18
<PAGE> 41
(CONTINUED)
SCHEDULE I
KANEB SERVICES, INC. (PARENT COMPANY)
CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
1995 1994
------------ -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ................... $ 18,606,000 $ 630,000
Short-term investments ...................... - 1,020,000
Accounts receivable ......................... 201,000 94,000
Prepaid expenses and other current assets ... 1,797,000 -
------------ -------------
Total current assets .......................... 20,604,000 1,744,000
Property and equipment ........................ 3,794,000 3,762,000
Less accumulated depreciation ................. 3,507,000 3,442,000
------------ -------------
Net property and equipment ................ 287,000 320,000
------------ -------------
Investments in advances to and notes receivable
from subsidiaries and pipeline partnership .. 94,263,000 118,306,000
------------ -------------
Other assets .................................. 2,561,000 2,086,000
------------ -------------
$117,715,000 $ 122,456,000
============ =============
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt ............ $ - $ 10,000,000
Accounts payable and accrued expenses ........ 14,973,000 4,228,000
------------ -------------
Total current liabilities ................ 14,973,000 14,228,000
------------ -------------
Long-term debt, payable to subsidiary paid
in 1995 ...................................... - 50,000,000
------------ -------------
Long-term debt, less current portion .......... 29,666,000 34,677,000
------------ -------------
Deferred credits and other liabilities ........ 734,000 793,000
------------ -------------
Net liabilities of discontinued operations .... 3,320,000 3,914,000
------------ -------------
Stockholders' equity:
Preferred stock, without par value ........... 5,814,000 14,085,000
Common stock, without par value .............. 4,230,000 4,224,000
Additional paid-in capital ................... 197,151,000 198,736,000
Accumulated deficit .......................... (118,118,000) (175,772,000)
Treasury stock, at cost ...................... (19,552,000) (23,435,000)
Cumulative foreign currency translation
adjustment .................................. (503,000) 1,006,000
------------ -------------
Total stockholders' equity ............... 69,022,000 18,844,000
------------ -------------
$117,715,000 $ 122,456,000
============ =============
</TABLE>
See "Notes to Consolidated Financial Statements" of
Kaneb Services, Inc. and Subsidiaries included in this report.
F-19
<PAGE> 42
(CONTINUED)
SCHEDULE I
KANEB SERVICES, INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Operating Activities:
Net income ................................... $ 59,181,000 $ 2,035,000 $ 16,154,000
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization .............. 65,000 80,000 79,000
Equity in net income of subsidiaries
and pipeline partnership .................. (67,059,000) (10,471,000) (25,148,000)
Changes in current assets and liabilities:
Short-term investments ................... 1,020,000 (1,020,000) -
Accounts receivable ...................... (107,000) (2,000) 1,166,000
Prepaid expense .......................... (1,797,000) - -
Accrued expenses ......................... 2,401,000 (808,000) (816,000)
------------ ------------ ------------
Net cash used in operating activities .... (6,296,000) (10,186,000) (8,565,000)
Investing Activities:
Capital expenditures ......................... (32,000) (63,000) (70,000)
Decrease in other assets, net ................ 540,000 7,729,000 1,219,000
------------ ------------ ------------
Net cash provided by investing
activities ............................. 508,000 7,666,000 1,149,000
------------ ------------ ------------
Financing Activities:
Dividends received from subsidiary ........... 88,070,000 11,548,000 17,739,000
Payments on long-term debt ................... (15,011,000) (381,000) (381,000)
Payment of subsidiary note ................... (50,000,000) - -
Preferred stock dividends paid ............... (1,328,000) (1,402,000) (1,451,000)
Decrease (increase) in investments in,
advances to and notes receivable
from subsidiaries and pipeline partnership . 2,033,000 (9,897,000) (8,897,000)
------------ ------------ ------------
Net cash provided by financing
activities .............................. 23,764,000 (132,000) 7,010,000
------------ ------------ ------------
Increase (decrease) in cash and cash
equivalents ................................. 17,976,000 (2,652,000) (406,000)
Cash and cash equivalents at beginning
of year ..................................... 630,000 3,282,000 3,688,000
------------ ------------ ------------
Cash and cash equivalents at end of year ...... $ 18,606,000 $ 630,000 $ 3,282,000
============ ============ ============
</TABLE>
See "Notes to Consolidated Financial Statements" of
Kaneb Services, Inc. and Subsidiaries included in this report.
F-20
<PAGE> 43
SCHEDULE II
KANEB SERVICES, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COL. C
------------------------
COL. A COL. B ADDITIONS COL. D COL. E
- ---------------------------------- ------------ ------------------------ ---------- ----------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
DESCRIPTIONS PERIOD EXPENSES ACCOUNTS (A) DEDUCTIONS PERIOD
- ---------------------------------- ------------ ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
ALLOWANCE DEDUCTED FROM
ASSETS TO WHICH THEY
APPLY
Year ended December 31, 1995:
For doubtful receivables
classified as current assets .. $ 854 $ 598 $ 41 $ (360)(B) $ 1,133
========== ====== ======== ========= =========
For deferred tax asset valuation
allowance classified as
noncurrent assets ............. $ 108,441 $ - $ - $ (24,157) $ 84,284
========== ====== ======== ========= =========
Year ended December 31, 1994:
For doubtful receivables
classified as current assets .. $ 769 $ 249 $ 60 $ (224)(B) $ 854
========== ====== ======== ========= =========
For deferred tax asset valuation
allowance classified as
noncurrent assets ............. $ 113,261 $ - $ - $ (4,820) $ 108,441
========== ====== ======== ========= =========
Year ended December 31, 1993:
For doubtful receivables
classified as current assets .. $ 1,389 $ 96 $ (39) $ (677)(B) $ 769
========== ====== ======== ========= =========
For deferred tax asset valuation
allowance classified as
noncurrent assets ............. $ 115,994 $ - $ - $ (2,733) $ 113,261
========== ====== ======== ========= =========
</TABLE>
- ---------------------
Notes:
(A) Currency translation adjustment.
(B) Receivable write-offs and reclassifications, net of recoveries.
F-21
<PAGE> 44
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, Kaneb Services, Inc. has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
KANEB SERVICES, INC.
By: JOHN R. BARNES
---------------------------------------
*John R. Barnes
President and Chief Executive Officer
March 28, 1996
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of Kaneb
Services, Inc. and in the capacities and on the date indicated.
SIGNATURE TITLE DATE
- --------------------------- ----- ----
Principal Executive Officer
JOHN R. BARNES
- ---------------------------
(John R. Barnes) President, Chief Executive March 28, 1996
Officer and Director
Principal Accounting Officer
TONY M. REGAN
- ----------------------------
(Tony M. Regan) Controller March 28, 1996
Directors
SANGWOO AHN
- ----------------------------
(Sangwoo Ahn) Director March 28, 1996
JOHN R. BARNES
- ----------------------------
(John R. Barnes) Director March 28, 1996
CHARLES R. COX
- ----------------------------
(Charles R. Cox) Director March 28, 1996
PRESTON A. PEAK
- ----------------------------
(Preston A. Peak) Director March 28, 1996
RALPH A. REHM
- ----------------------------
(Ralph A. Rehm) Director March 28, 1996
JAMES R. WHATLEY
- ----------------------------
(James R. Whatley) Director March 28, 1996
<PAGE> 45
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.10 Loan Agreement between the Registrant, KPL and Bank of Scotland, dated
as of December 1, 1995, filed herewith.
10.11 Bridge Financing Agreement between KPOP and TCB, dated December 18,
1995, filed herewith.
21 List of subsidiaries of the Registrant, filed herewith.
23 Consent of independent accountants: Price Waterhouse LLP, filed herewith.
24 Powers of Attorney, filed herewith.
27 Financial Data Schedule, filed herewith.
</TABLE>
<PAGE> 1
EXHIBIT 10.10
LOAN AGREEMENT
among
KANEB SERVICES, INC. ("KSI"),
KANEB PIPE LINE COMPANY ("KPL"),
and
BANK OF SCOTLAND (the "Bank")
dated as of December 1, 1995
<PAGE> 2
TABLE OF CONTENTS
PAGE NO.
--------
Section 1. DEFINITIONS............................................... 1
Section 2. THE LOAN FACILITIES....................................... 1
2.1 The Loans..................................................... 1
2.2 Notice of Borrowing........................................... 2
2.3 The Note...................................................... 2
2.4 Wiring Account................................................ 3
2.5 Mandatory Prepayments of Loans................................ 3
2.6 Nature of Borrowers' Obligations; Effect of Notices........... 4
2.7 Voluntary Repayment........................................... 4
2.8 Reduction of Commitment....................................... 5
SECTION 2A. LETTERS OF CREDIT........................................ 5
2A.1 Requests..................................................... 5
2A.2 Issuances and Extensions..................................... 6
2A.3 Fees and Expenses............................................ 6
2A.4 Disbursements................................................ 8
2A.5 Reimbursement................................................ 8
2A.6 Deemed Disbursements......................................... 8
2A.7 Nature of Reimbursement Obligations.......................... 10
2A.8 [intentionally omitted]...................................... 10
2A.9 [intentionally omitted]...................................... 10
2A.10 Collateralization............................................ 11
Section 3. INTEREST................................................. 11
3.1 Rate of Interest.............................................. 11
3.2 Interest Payment Dates........................................ 11
3.3 Overdue Payment of Principal and Interest..................... 12
3.4 Interest Periods.............................................. 12
3.5 Rollovers..................................................... 13
3.6 Automatic Conversion.......................................... 13
3.7 Capital Adequacy.............................................. 14
3.8 Determination of Rate of Borrowing............................ 15
3.9 Requirements of Law........................................... 16
3.10 Required Termination and Prepayment........................... 17
3.11 Compensation.................................................. 18
Section 4. COMMITMENT COMMISSION, ETC............................... 18
4.1 Commitment Commission......................................... 18
4.2 Annual Fee.................................................... 19
4.3 Facility Fee.................................................. 19
(i)
<PAGE> 3
PAGE NO.
--------
Section 5. PAYMENTS, ETC........................................... 19
5.1 Payments on Non-Business Days; Calculations.................. 19
5.2 Net Payments; Application.................................... 19
Section 6. CONDITIONS PRECEDENT TO INITIAL LOANS................... 22
6.1 Default, etc................................................. 22
6.2 Note......................................................... 22
6.3 Supporting Documents......................................... 22
6.4 Security Documents........................................... 23
6.5 Approvals and Consents....................................... 23
6.6 Financial Statements......................................... 24
6.7 Legal Opinions............................................... 24
6.8 Change in Law................................................ 24
6.9 All Proceedings to be Satisfactory........................... 24
6.10 No Opposition................................................ 24
6.11 Adverse Change............................................... 24
6.12 Fees and Expenses............................................ 24
6.13 Intercompany Documents....................................... 25
6.14 Consent to Service........................................... 25
Section 6A. CONDITIONS PRECEDENT TO SUBSEQUENT LOANS AND LETTERS
OF CREDIT.............................................. 25
6A.1 Certain Conditions.......................................... 25
6A.2 Subsequent Opinions of Counsel.............................. 26
6A.3 Officer's Certificate....................................... 26
Section 7. AFFIRMATIVE COVENANTS................................... 27
7.1 Financial Statements; Compliance Certificates................ 27
7.2 Inspections.................................................. 28
7.3 Further Assurances........................................... 28
7.4 Notice of Default............................................ 28
7.5 Payment of Charges........................................... 28
Section 8. NEGATIVE COVENANTS...................................... 28
8.1 Same Type of Business........................................ 29
8.2 Liens........................................................ 29
8.3 Other Indebtedness........................................... 30
8.4 Subordinated Indebtedness.................................... 31
8.5 EBITDA....................................................... 32
8.6 Dissolution.................................................. 32
8.7 Sale of Assets............................................... 32
8.8 Purchase of Assets........................................... 32
8.9 Related Transactions......................................... 32
8.10 Subsidiaries................................................. 32
8.11 Investments.................................................. 33
8.12 Accounting Changes........................................... 33
8.13 Other Agreements............................................. 34
Section 9. EVENTS OF DEFAULT........................................ 34
9.1 Principal and Interest....................................... 34
(ii)
<PAGE> 4
PAGE NO.
--------
9.2 Representations and Warranties................................. 34
9.3 Negative Covenants............................................. 34
9.4 Other Covenants................................................ 34
9.5 Other Obligations.............................................. 35
9.6 Other KSI Matters.............................................. 35
9.7 Insolvency..................................................... 35
9.8 Pledged Securities............................................. 36
9.9 Judgments...................................................... 36
9.10 KPOP, etc...................................................... 36
9.11 Shares......................................................... 37
Section 10. REPRESENTATIONS AND WARRANTIES........................... 37
10.1 Status........................................................ 37
10.2 Other......................................................... 39
10.3 Taxes......................................................... 41
Section 11. [intentionally omitted].................................. 41
Section 12. MISCELLANEOUS............................................ 41
12.1 Calculations and Financial Data............................... 41
12.2 Amendment and Waiver.......................................... 42
12.3 Expenses...................................................... 42
12.4 Benefits of Agreement; Descriptive Headings................... 43
12.5 Notices, Requests, Demands, etc............................... 45
12.6 Governing Law................................................. 46
12.7 Counterparts.................................................. 46
12.8 Waiver........................................................ 46
12.9 Recoveries.................................................... 46
12.10 Jurisdiction.................................................. 46
12.11 Severability.................................................. 47
12.12 Right of Set-off.............................................. 47
12.13 No Third Party Beneficiaries.................................. 48
12.14 Effectiveness................................................. 48
12.15 Survival...................................................... 48
12.16 Domicile of Loans............................................. 48
12.17 Usury......................................................... 49
12.18 Waiver of Jury Trial.......................................... 49
12.19 Securities Act................................................ 49
EXHIBITS
EXHIBIT A Note
EXHIBIT B Notice of Borrowing
EXHIBIT C Pledge Agreement
SCHEDULES
Schedule 8.2 Existing Liens
Schedule 10.1 Litigation
(iii)
<PAGE> 5
LOAN AGREEMENT
LOAN AGREEMENT dated as of December 1, 1995 among KANEB SERVICES, INC., a
Delaware corporation ("KSI"), KANEB PIPE LINE COMPANY, a Delaware corporation
("KPL"), and BANK OF SCOTLAND (the "Bank"). KSI and KPL are sometimes referred
to herein, collectively, as the "Borrowers" and, individually, as a
"Borrower".
W I T N E S S E T H :
WHEREAS, Borrowers have requested that the Bank make available to them a
revolving credit facility of $15,000,000 in the aggregate; and
WHEREAS, the Bank is willing to extend such credit facility to the
Borrowers on the terms and conditions herein provided;
NOW, THEREFORE, the parties hereto hereby agree as follows:
Section 1. DEFINITIONS.
(a) Terms used in this Agreement which are defined in Annex I hereto
shall have the meanings specified in such Annex I (unless otherwise defined
herein) and shall include in the singular number the plural and in the plural
number the singular.
(b) All references to Sections in this Agreement or in Annex I hereto
shall be deemed references to Sections in this Agreement unless otherwise
specified.
Section 2. THE LOAN FACILITIES.
2.1 The Loans. Subject to the terms and conditions set forth herein, the
Bank agrees at any time and from time to time during the Commitment Period to
make loans to the Borrowers (each a "Loan" and collectively, the "Loans") up to
the Commitment; provided that on the date of the making of any Loan (and after
giving effect thereto), the aggregate principal amount of Loans outstanding on
such date (plus the aggregate amount of all LC Obligations on such date) shall
not exceed (A) the Commitment then in effect, or (B) 66.67% of the Collateral
Value on such day. During the Commitment Period, the Borrowers may utilize the
Commitment by borrowing, prepaying the Loans in whole or in part without
penalty or premium (except as otherwise
<PAGE> 6
provided by Section 3.11), and reborrowing, all in accordance with the terms and
conditions hereof.
2.2 Notice of Borrowing. (a) The Borrowers shall give at least four
Business Days' prior written notice (a "Notice of Borrowing") to the Bank of
the date (which shall be a Business Day during the Commitment Period) of each
proposed borrowing hereunder (the "Borrowing Date"). Such notice shall specify
(subject to the provisions of this Agreement) (i) the Borrowing Date, (ii) the
total amount of the proposed borrowing, which shall be in a minimum amount of
$500,000 (and, if greater, in integral multiples of $100,000), provided that
the aggregate principal amount of such borrowing must equal or be less than the
Unutilized Commitment (after giving effect to all other Notices of Borrowings
for Loans and Issuance Requests pending at such time) at such time, and (iii)
unless such Loan will be a Base Rate Loan, the requested Interest Period
therefor. Unless otherwise agreed to by the Bank and a Borrower, the Notice of
Borrowing for all Loans shall be substantially in the form of Exhibit B hereto.
Unless otherwise agreed to in writing by the Bank and a Borrower, or as
otherwise specifically provided in this Agreement, all Loans shall be Libor
Loans.
(b) Borrowers may not designate more than one Interest Period for Libor
Loans in the same Notice of Borrowing. No more than five Libor Loans (whether
by way of initial borrowing or conversion or otherwise) may be outstanding at
any time. Without the Bank's consent, no Loan shall be made or maintained if
the principal amount thereof is less than $500,000. Without the consent of the
Bank, Borrowers shall not be entitled to make borrowings under the Commitment
more than once in any calendar week.
(c) [intentionally omitted]
(d) [intentionally omitted]
(e) The Bank will make the amount of its Loan or Loans available to the
Borrowers on the applicable Borrowing Date, in immediately available Dollars,
against delivery to the Bank at the Closing Office of such instruments,
documents and papers as are provided for herein.
(f) [intentionally omitted]
(g) [intentionally omitted]
2.3 The Note. (a) The Borrowers' obligation to pay the principal of, and
interest on, the Loans shall be evidenced by a Note payable to the order of the
Bank. The Note is entitled to the benefits of this Agreement and shall be
secured by the Security Documents.
2
<PAGE> 7
(b) The principal amount of all Loans outstanding from time to time, and
interest accrued thereon, shall be recorded on the records of the Bank and,
prior to any transfer of, or any action to collect, the Note, the unpaid
principal amount of the Loans evidenced thereby shall be endorsed on the
reverse side of the Bank's Note, together with the date of such endorsement and
the date to which interest has been paid; any failure to make such endorsement
and provide such other information, however, shall not affect Borrowers'
obligations hereunder or under the Note. Borrowers' obligations to pay
principal and interest in respect of the Note shall be limited to the unpaid
principal amount of the Loans evidenced thereby and unpaid interest accrued for
the periods during which such Loans are outstanding.
2.4 Wiring Account. The Borrowers agree that the proceeds of all Loans
shall (unless otherwise directed in a writing signed by both Borrowers) be
wired or otherwise transferred into an account in KPL's name in accordance with
Section 2.2 hereof.
2.5 Mandatory Prepayments of Loans. (a) The Borrowers shall prepay the
Loans on the effective date of any reduction or termination in the Commitment
to the extent that the aggregate principal amount of the Loans on such date
shall exceed the amount equal to (x) the amount of the Commitment in effect on
such date less (y) the amount of the LC Obligations at such time; if the
Commitment is terminated in full, then the Borrowers shall immediately prepay
in full the aggregate outstanding principal amount of all Loans.
(b) (i) The Borrowers shall immediately prepay the Loans to the extent
that the sum of (x) the aggregate outstanding principal amount thereof on any
day, plus (y) the aggregate amount of LC Obligations outstanding on such day,
shall exceed 66.67% of the Collateral Value on such day. Subject to the terms
and conditions of this Agreement, amounts prepaid under this clause (b)(i) may
be reborrowed.
(ii) As an alternative to the prepayment required by the foregoing clause
(i) (but only if a Borrower so requests and the Bank advises Borrower in
writing that, solely with respect to such request, such alternative is
acceptable to the Bank), the Borrowers shall immediately deliver and pledge to
the Bank that number of additional Preference Units which, when multiplied by
the Market Value of such Preference Units, shall equal 150% of the amount of
such excess, together with a pledge agreement substantially similar to the
Pledge Agreement and otherwise in form and substance satisfactory to the Bank
(as the same may from time to time be amended, restated, supplemented
or otherwise modified, the "Second Pledge Agreement"). No request by a Borrower
in accordance with this clause (b)(ii), nor any
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delay by the Bank in responding to any such request, shall relieve either
Borrower of its obligations under clause (b)(i) immediately preceding; the
Borrower shall have the right to utilize the alternative provided by this
clause (b)(ii) only after receiving written acknowledgement from the Bank that,
as to the particular instance in question, the Bank is amenable to such
alternative.
(c) Repayments pursuant to the foregoing provisions of this Section shall
first be made against (to the extent available and subject to the other
provisions of this Agreement) outstanding Libor Loans having an Interest Period
ending on the date of such repayment, or to Base Rate Loans, as directed by a
Borrower by written (or telephonic, promptly confirmed in writing) notice to
the Bank or, in the absence of such direction, by the Bank.
(d) The then-unpaid principal amount of the Loans shall be payable in
full on the fifth anniversary of the Closing Date.
2.6 Nature of Borrowers' Obligations: Effect of Notices. All of the
obligations of the Borrowers hereunder and under the Note are joint and
several. Each Borrower acknowledges that it will benefit from the proceeds of
the Loans. Any notice required to be given to the Borrowers (or either of
them) by the Bank pursuant to this Agreement or any other Loan Document may be
given by the Bank to either of the Borrowers, and each of the Borrowers hereby
acknowledges that any such notice given to the other Borrower shall be
considered notice to both Borrowers for all purposes of this Agreement and the
other Loan Documents. Each Borrower agrees and acknowledges that any notice,
consent, election or other action given or taken, or any right exercised, by
either Borrower hereunder (including, without limitation, any Notice of
Borrowing and any selection of an Interest Period pursuant to Section 3.4)
shall be binding on both Borrowers for all purposes of this Agreement and the
other Loan Documents (and shall be deemed given, taken or exercised (as the
case may be) by both Borrowers, whether or not it is expressly so provided in
any other provision hereof or of the other Loan Documents. In the case that
more than one such notice is given by the Borrowers, the first such notice to
be received by the Bank shall be so binding.
2.7 Voluntary Repayment. The Borrowers shall have the right, at any time
and from time to time, by four Business Days' prior written notice to the Bank
to prepay the Loans, in whole, or in part in integral multiples of $500,000 and
without premium, but in each case subject to the payment of any compensation
payable under Section 3.11 hereof provided that at the time of any prepayment
of the Loans in full, the Borrowers shall pay all interest accrued on the
amount of such prepayment and all other
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amounts owing to the Bank in respect thereof including, without limitation, any
compensation payable under Section 3.11 hereof. Subject to the terms and
conditions of this Agreement, amounts prepaid under this Section 2.7 may be
reborrowed.
2.8 Reduction of Commitment. (a) The Borrowers shall have the right at
any time and from time to time upon at least four Business Days' prior written
notice to the Bank to reduce permanently in amounts equal to $500,000 (and if
greater, in integral multiples thereof) or terminate the Commitment (but not in
an amount in excess of the Unutilized Commitment at such time unless the
provisions of Sections 2.5(a) and 2A.10 are complied with simultaneous with
such reduction or termination). Any reduction or termination of the Commitment
pursuant to this Section 2.8 shall be accompanied by the payment in full of any
Commitment commission then accrued hereunder.
(b) Any reduction of the Commitment pursuant to this Section 2.8 below
the amount of the LC Commitment shall result in a reduction of the LC
Commitment on a dollar-for-dollar basis.
SECTION 2A. LETTERS OF CREDIT.
2A.l Requests. (a) By delivering to the Bank a written request (an
"Issuance Request") on or before 10:00 a.m.Closing Office Time on a Business
Day, the Borrowers may request, from time to time during the Commitment Period
and on not less than five (unless the Bank otherwise consents) nor more than
ten Business Days' notice, that the Bank issue an irrevocable standby letter of
credit in such form as shall be acceptable to the Bank and a Borrower (a
"Letter of Credit"), in support of such financial obligations of a Borrower
which are described in such Issuance Request and are permitted by Section
2A.l(c). Each Issuance Request shall specify (i) the proposed date of issuance
(which shall be a Business Day during the Commitment Period), (ii) the Stated
Amount of the Letter of Credit, (iii) the expiration date of the Letter of
Credit, (iv) the name and address of the beneficiary of the Letter of Credit,
and (v) a precise description of the documents and have attached the verbatim
text of any certificate to be presented by the beneficiary of such Letter of
Credit which, if presented by such beneficiary prior to the expiration date of
the Letter of Credit, would require the Bank to make payment or accept drafts
under the Letter of Credit.
(b) Each Letter of Credit shall by its terms (unless otherwise consented
to by the Bank):
(i) be issued for the account of the Borrowers, and the Stated Amount
of such Letter of Credit shall not exceed the then effective Unutilized LC
Commitment
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(after giving effect to all Notice of Borrowings for Loans and other
Issuance Requests pending at such time)
(ii) be stated to expire on a date (its "Stated Expiry Date") no later
than the earlier of (x) 1 year from its date of issuance or (y) the last
day of the Commitment Period: and, if renewable by its terms, shall not be
renewed so as to expire on a date later than the earlier of (x) 1 year
from the date of renewal or (y) the last day of the Commitment Period:
(iii) on or prior to its Stated Expiry Date
(A) terminate immediately upon notice to the Bank thereof from
the beneficiary thereunder that all obligations covered thereby have
been terminated, paid, or otherwise satisfied in full, and
(B) reduce in part immediately to the extent the beneficiary
thereunder has notified the Bank that the obligations covered thereby
have been paid or otherwise satisfied in part; and
(iv) be denominated only in Dollars.
(c) Letters of Credit may be issued to support lease obligations,
statutory obligations, performance and return-of-money bonds, self-insurance
and other similar obligations of a Borrower (exclusive of obligations for the
payment of borrowed money, other than those obligations referred to in Section
8.3(vi)).
2A.2 Issuances and Extensions. (a) Subject to the terms and conditions
of this Agreement (including without limitation Section 6A), the Bank shall
issue Letters of Credit in accordance with the Issuance Requests made therefor.
The Bank will make each Letter of Credit available to the beneficiary thereof
in accordance with the Issuance Request therefor. No Letter of Credit shall be
issued unless the terms and conditions thereof are satisfactory to the Bank and
a Borrower.
(b) No Letter of Credit shall be issued if on the date of the proposed
issuance thereof (and after giving effect thereto), the aggregate principal
amount of Loans outstanding on such date (plus the aggregate amount of all LC
Obligations on such date) shall exceed (A) the Commitment then in effect, or
(B)66.67% of the Collateral Value on such day.
2A.3 Fees and Expenses. (a) The Borrowers agree to pay to the Bank on
the date of the issuance of each Letter of
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Credit a letter of credit fee with respect to such Letter of Credit equal to 1%
per annum of the Stated Amount of such Letter of Credit. For the purpose of
determining the foregoing amount, the tenor of such Letter of Credit shall be
deemed equal to the maximum period that such Letter of Credit may be
outstanding (other than by renewal or subsequent renewal, as the case may be,
thereof) in accordance with its terms. Each such fee shall be payable by the
Borrowers immediately prior to the issuance of the Letter of Credit to which it
relates. In addition, the Borrowers shall at the same time pay to the Bank an
issuance fee of $500 for each Letter of Credit issued. For purposes of this
Section 2A.3, any renewal of a Letter of Credit shall be treated as an issuance
thereof.
(b) The fees referred to in Section 2A.3(a) shall be in addition to, and
not in lieu of, fees required to be paid by the Borrowers pursuant to Section 4
hereof.
(c) If any Regulatory Change shall at any time(i) impose, modify or deem
applicable any reserve, special deposit or similar requirement against letters
of credit issued by the Bank or participated in by any Bank Assignee, or (ii)
subject letters of credit issued by the Bank or participations therein held by
any Bank Assignee to any assessment or other cost imposed by the Federal
Deposit Insurance Corporation or any successor thereto or (iii) impose on the
Bank or any Bank Assignee any other or similar condition regarding any Letter
of Credit, the commitment or obligation of the Bank to issue Letters of Credit
hereunder or any Bank Assignee's participation therein and the result of any
event referred to in clause (i), (ii) or(iii) above shall be to increase the
cost to the Bank or any Bank Assignee of agreeing to issue, issuing or
maintaining any Letter of Credit or its participation therein by an amount
which the Bank or such Bank Assignee shall deem to be material (which increase
in cost shall be the result of the reasonable allocation by the Bank or such
Bank Assignee of the aggregate of such cost increases resulting from such
events), then and in each case upon demand from time to time by the Bank or
such Bank Assignee (furnished to either Borrower by the Bank), the Borrowers
shall promptly pay to the Bank (for its account or the account of the such Bank
Assignee, if applicable) additional amounts as directed by the Bank which shall
be sufficient to compensate the Bank (or such Bank Assignee) for such increased
cost from the date of such change, together with interest on each such amount,
commencing three Business Days from the date demanded by the Bank (or such Bank
Assignee), until payment in full thereof (after as well as before judgment) at
a rate per annum equal to the Past Due Rate from time to time in effect. A
certificate of the Bank (or such Bank Assignee) submitted to either Borrower
(through the Bank, if from a Bank Assignee) as to any additional amount or
amounts (including calculations thereof, in reasonable detail) shall, in the
absence of manifest error, be conclusive and binding on the
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Borrowers. In determining such amount or amounts, the Bank (or such Bank
Assignee) shall act in good faith and may use any reasonable method of
averaging and attribution as it shall deem applicable.
(d) The provisions of Section 2A.3(c) and Section 2A.7 shall survive
until one year after the later of (x) any termination of this Agreement and (y)
the payment in full of the Note.
2A.4 Disbursements. (a) The Bank will notify a Borrower promptly of the
presentment of each demand for payment under any Letter of Credit together
with notice of the date (the"Disbursement Date") such payment shall be made.
(b) Prior to 10:00 a.m., Closing Office Time, on the Disbursement Date,
the Borrowers will reimburse the Bank by making payment to the Bank at the
Closing Office for all amounts disbursed or to be disbursed by the Bank on that
day (the"Disbursement") under such Letter of Credit (the "Reimbursement
Obligation"). To the extent the Bank is not reimbursed in full in accordance
with the foregoing provisions of this Section2A.4(b), the Borrowers'
Reimbursement Obligation shall accrue interest (after as well as before
judgment) at a rate per annum equal to the Past-Due Rate from time to time in
effect, payable on demand.
2A.5 Reimbursement. The Borrowers' Reimbursement Obligation with respect
to each Disbursement (including interest thereon) shall be absolute and
unconditional under any and all circumstances and irrespective of any setoff,
counterclaim, or defense to payment which either Borrower may have or have had
against any beneficiary, the Bank or any Bank Assignee, including any defense
based upon the failure of any Disbursement to conform to the terms of the
applicable Letter of Credit or any application or misapplication by the
beneficiary of the proceeds of such Disbursement, or the legality, validity,
form, regularity, or enforceability of such Letter of Credit provided,
however, that nothing herein or in Section 2A.7(c) shall adversely affect the
right of the Borrowers to commence any proceeding against the Bank for any
wrongful Disbursement made by the Bank under a Letter of Credit as a result of
acts or omissions constituting gross negligence or willful misconduct on the
part of the Bank.
2A.6 Deemed Disbursements. (a) Upon the occurrence of any Event of
Default under Section 9.7 (with respect to either Borrower) and also, at the
option of the Bank, upon the occurrence and during the continuance of any other
Event of Default, an amount equal to the LC Outstandings shall, without demand
upon or notice to either Borrower, be deemed to have been paid or disbursed by
the Bank (each, a "Deemed Disbursement")
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under all outstanding Letters of Credit (notwithstanding that such amount may
not in fact have been so paid or disbursed). Upon notification by the Bank to
either Borrower of the Borrowers' obligations under this Section 2A.6 (no such
notification being required in the case of an Event of Default under Section
9.7 with respect to either Borrower), the Borrowers shall be immediately
obligated to reimburse the aggregate amount of the Deemed Disbursements by
paying the full amount thereof to the Bank prior to 10:00 a.m. Closing Office
Time on the date of such Deemed Disbursement and any amount not so reimbursed
shall accrue interest (after as well as before judgment) at a rate per annum
equal to the Past Due Rate from time to time in effect, payable on demand.
All Deemed Disbursements reimbursed by either Borrower pursuant to this
Section 2A.6(a) shall be deposited into a single special depository account of
the Borrower (the "Deemed Disbursement Account") maintained by the Borrowers
with, and under the control of, the Bank (in New York or such other
jurisdiction as the Bank and the Borrowers agree to) and titled appropriately
so as to identify the nature of such account. The Borrowers shall take all
such action, if any, as is necessary to assure that the Bank has a perfected
first priority security interest in said account to the extent that such a
security interest can be so granted and perfected in the jurisdiction in which
such account is held. All of Borrowers' right, title and interest in and to
all monies at any time in the Deemed Disbursement Account (and all Disbursement
Earnings, if any, thereon) are hereby irrevocably pledged by the Borrowers to
the Bank as security to secure the prompt payment to the Bank of all the
Borrowers' liabilities to the Bank and to secure the performance by the
Borrowers of their obligations under this Agreement; and such amounts may be
applied to such liabilities in such order as the Bank may direct without notice
to, or the consent of, either Borrower. The Borrowers shall be entitled to
receive monies from the Deemed Disbursement Account only as permitted by
Section 2A.6(b). The Bank shall invest the monies in the Deemed Disbursement
Account in such types of investments as are agreed to by either Borrower and
the Bank.
(b) If any such Letter of Credit shall thereafter terminate without the
Bank being required to pay the full amount of the Deemed Disbursement with
respect to such Letter of Credit to the beneficiary thereunder, then (unless
the Loans have matured, by acceleration or otherwise, or the Borrowers have
failed to pay any amount then due and payable by it under this Agreement) the
Bank will return to the Borrowers an aggregate amount equal to that portion of
the Deemed Disbursement with respect to such terminated Letter of Credit not
theretofore applied by the Bank to any Reimbursement Obligation with respect to
such Letter of Credit or applied by the Bank in payment of the Note or any
other obligation of the Borrowers under this Agreement or any of the Loan
Documents. At such time when all Events of Default shall have been cured or
waived, the bank shall
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return to either or both of the Borrowers all amounts then on deposit in the
Deemed Disbursement Account.
2A.7 Nature of Reimbursement Obligations. The Borrowers shall assume all
risks of the acts, omissions, or misuse of any Letter of Credit by the
beneficiary thereof. The Bank (except to the extent of its own gross
negligence or willful misconduct) shall not be responsible for:
(a) the form, validity, sufficiency, accuracy, genuineness, or legal
effect of any Letter of Credit or of any draft, demand or other document,
instrument or other paper relating to, or presented under, any Letter of
Credit, or any document submitted by any party in connection with the
application for and issuance of a Letter of Credit, even if it should in fact
prove to be in any or all respects invalid, insufficient, inaccurate,
fraudulent, or forged:
(b) the form, validity, sufficiency, accuracy, genuineness, or legal
effect of any instrument transferring or assigning or purporting to transfer or
assign a Letter of Credit or the rights or benefits thereunder or proceeds
thereof in whole or in part, which may prove to be invalid or ineffective for
any reason,
(c) failure of the beneficiary to comply fully with conditions required
in order to demand payment under a Letter of Credit;
(d) errors, omissions, interruptions, or delays in transmission or
delivery of any messages, by mail, cable, telegraph, telex, telecopier or
otherwise; or
(e) any loss or delay in the transmission or otherwise of any document or
draft required in order to make a Disbursement under a Letter of Credit or of
the proceeds thereof.
None of the foregoing shall affect, impair, or prevent the vesting of any of
the rights or powers granted the Bank hereunder. In furtherance and extension
and not in limitation or derogation of any of the foregoing, any action taken
or omitted to be taken by the Bank in good faith shall be binding upon the
Borrowers and each Bank Assignee hereunder and shall not put the Bank or any
Bank Assignee under any resulting liability to either Borrower nor put the Bank
under any resulting liability to any Bank Assignee. Nothing herein shall
constitute a waiver by the Borrowers of any of their rights against any
beneficiary of a Letter of Credit.
2A.8 [intentionally omitted]
2A.9 [intentionally omitted]
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2A.10 Collateralization. If, at any time (after giving effect to the
provisions of Section 2.5(a) or 2.5(b), if applicable at such time) when no
Loans are outstanding, the aggregate amount of the LC Obligations exceeds (x)
the amount of the Commitment then in effect or (y) 66.67% of the Collateral
Value, the Borrower shall (if the Bank so requests):
(i) immediately deposit an amount, in Dollars equal to the amount of
such excess in a cash collateral account (the "Shortfall Account") with
the Bank, or
(ii) as an alternative to the deposit required by the foregoing
clause (i) (but only if a Borrower so requests and the Bank advises
Borrower in writing that, solely with respect to such request, such
alternative is acceptable to the Bank), immediately deliver and pledge to
the Bank that number of additional Preference Units which, when multiplied
by the Market Value of such Preference Units, shall equal 150% of the
amount of such excess, together with a Second Pledge Agreement,
in each case on terms and conditions satisfactory to the Bank and as security
for the Obligations. No request by a Borrower in accordance with clause (ii)
preceding, nor any delay by the Bank in responding to any such request, shall
relieve either Borrower of its obligations under clause (i) preceding; the
Borrower shall have the right to utilize the alternative provided by said
clause (ii) only after receiving written acknowledgement from the Bank that, as
to the particular instance in question, the Bank is amenable to such
alternative.
Section 3. INTEREST.
3.1 Rate of Interest. The Borrowers agree to pay interest in respect of
the unpaid principal amount of each Loan from time to time outstanding from the
date the proceeds thereof are made available to either Borrower until maturity
(whether by acceleration or otherwise) at the following interest rates: (i)
each Libor Loan, at a rate per annum for each Interest Period applicable
thereto equal to (x) LIBOR for such Interest Period plus (y) the Eurodollar
Differential, and (ii) each Base Rate Loan, at a rate per annum equal to the
Base Rate, such rate to change as and when such Base Rate changes.
3.2 Interest Payment Dates. Interest on and prior to maturity in respect
of each Loan shall be payable in arrears (i) if such Loan is (x) a Libor Loan,
on the last day of each Interest Period applicable thereto and, if such
Interest Period is longer than three months, at the end of each three-month
interval within such Interest Period or (y) a Base Rate Loan, on the last
Business Day of each calendar quarter after the making
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thereof and on the last day of any Interest Period applicable thereto, (ii)
upon any prepayment or repayment of such Loan in full (to the extent accrued on
the amount prepaid or repaid) and (iii) at maturity (whether by acceleration or
otherwise). The Bank shall endeavor to notify the Borrowers prior to each such
interest payment date of the amount to be paid by the Borrowers on such date,
but no failure by the Bank to do so shall in any way affect Borrowers'
obligations hereunder to timely pay the full amount of interest due when due;
however, no such amount paid in reliance on such a notice, or paid in
accordance with the Borrowers' good faith calculations in the absence of such a
notice, shall constitute an Event of Default under Section 9.1 unless the
Borrowers shall fail to timely pay the full amount of any further adjustment as
may be appropriate pursuant to notice to a Borrower from the Bank.
3.3 Overdue Payment of Principal and Interest. Overdue principal of, and
overdue interest in respect of, each Loan shall bear interest for each day,
payable on demand, at a rate per annum (the "Past-Due Rate") equal to 2% per
annum in excess of the interest rate otherwise applicable to such Loan (up to
the end of the then-current Interest Period therefor) and thereafter equal to
2% per annum in excess of the Base Rate.
3.4 Interest Periods. For purposes of this Agreement the term "Interest
Period" shall mean (a) with respect to any Libor Loan:
(i) initially, the period commencing on the borrowing date with
respect to such Loan and ending one, two or three months thereafter, as
selected by a Borrower in the Notice of Borrowing given with respect
thereto; and
(ii) thereafter, each period commencing on the last day of the next
preceding Interest Period applicable to such Loan and ending one, two or
three months thereafter, as selected by the Borrowers by irrevocable
notice (each an "Interest Period Notice") to the Bank not later than 10:00
a.m., Closing Office Time, four Business Days prior to the last day of the
then current Interest Period with respect thereto;
provided that, all of the foregoing provisions relating to Interest Periods for
Libor Loans are subject to the following:
(1) if any Interest Period pertaining to a Libor Loan would
otherwise end on a day that is not a Business Day, such Interest Period
shall be extended to the next succeeding Business Day unless the result
of such extension would be to carry such Interest Period into another
calendar month in which event such
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Interest Period shall end on the immediately preceding Business Day;
(2) any Interest Period that would otherwise extend beyond the date
final payment is due on the Libor Loan shall end on such date of final
payment:
(3) any Interest Period pertaining to a Libor Loan that begins on
the last Business Day of a calendar month (or on a day for which there is
no numerically corresponding day in the calendar month at the end of such
Interest Period) shall end on the last Business Day of a calendar month;
(4) the Borrowers shall select Interest Periods so as not to require
a payment or prepayment of any Libor Loan during an Interest Period for
such Loan; and
(5) in the absence of timely selection by the Borrowers of an
Interest Period for a Libor Loan, the Interest Period shall be one month
(subject to the other terms of this proviso); and
(b) With respect to any Base Rate Loan, the period commencing on the
borrowing or conversion date, as the case may be, with respect to such Loan and
ending on the first to occur of the maturity date (whether by acceleration or
otherwise)of such Loan or the conversion date with respect to such Loan.
3.5 Rollovers. Any Libor Loan may be continued as such upon the
expiration of the then current Interest Period with respect thereto by the
Borrowers giving an Interest Period Notice to the Bank, in accordance with
Section 3.4, setting forth the length of the next Interest Period to be
applicable to such Loan, provided that no Libor Loan may be continued (i) when
any Default or Event of Default has occurred and is continuing and the Bank has
determined that such a continuation is not appropriate, (ii) if, after giving
effect thereto, Section 2.2(b) would be contravened or (iii) after the date
that is one month prior to the end of the Commitment Period and provided,
further, that if such continuation is not permitted, the Borrowers shall be
required to pay such Loans on the last day of such then expiring Interest
Period.
3.6 Automatic Conversion. If, on or prior to a Eurodollar Interest
Determination Date for a Libor Loan, the Bank shall have determined (which
determination shall be conclusive and binding upon the Borrowers) that it would
be impossible or unlawful to continue such Loan for another Interest Period or
to make a Libor Loan then being requested because (i) the Bank does not expect
to be able to fund such Loan for the Interest Period applicable thereto by
obtaining a matching deposit in the London
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interbank market at the relevant time or (ii) the Bank has determined that it
would be impossible, unlawful or contrary to a regulation, interpretation,
order, directive or request (whether or not having the force of law) applicable
to the Bank of any Government Authority, or any fiscal, monetary, central bank
or other authority having jurisdiction over the Bank, for the Bank to make such
Loan available to the Borrowers or to continue such Loan as a Libor Loan (as
the case may be), then the Bank shall promptly notify (in writing or by
telephone, promptly confirmed in writing) the Borrowers thereof and
(A) with respect to an existing Libor Loan otherwise to be continued as
such, such Loan shall at the end of the current Interest Period therefor be
converted into a Base Rate Loan (if permitted by the other provisions of the
Agreement) unless a Borrower shall have advised the Bank that the Borrowers do
not want same to be so converted, in which event the Borrowers shall be
required to repay such Loans at the end of such Interest Period; and
(B) with request to a Labor Loan then being requested, such Loan shall
instead be made as a Base Rate Loan (unless the Borrowers shall have requested
prior to the Borrowing Date that such Loan not be made, in which event such
Loan shall not be made).
3.7 Capital Adequacy. If the Bank shall have determined that the
applicability after the date hereof of any law, rule, regulation or guideline
adopted pursuant to or arising out of the July 1988 report of the Basle
Committee on Banking Regulations and Supervisory Practices entitled
"International Convergence of Capital Measurement and Capital Standards", or
the adoption after the date hereof of any other law, rule, regulation or
guideline regarding capital adequacy, or any change in any of the foregoing or
in the enforcement or interpretation or administration of any of the foregoing
by any court or any governmental authority, central bank or comparable agency
charged with the enforcement or interpretation or administration thereof, or
compliance by the Bank (or any lending office of the Bank) or any holding
company of the Bank with any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on the Bank's capital or on the capital of the Bank's holding company, if any,
as a consequence of its obligations hereunder to a level below that which the
Bank or the Bank's holding company could have achieved but for such
applicability, adoption, change or compliance (taking into consideration the
Bank's policies and the policies of the Bank's holding company with respect to
capital adequacy) by an amount deemed by the Bank to be material, then, upon
demand by the Bank, the Borrowers shall pay to the Bank from time to time such
additional amount or amounts as will
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compensate the Bank or the Bank's holding company (as determined by the Bank in
good faith) for any such reduction suffered as a consequence of the Bank's
obligations hereunder, together with interest on each such amount (commencing
three Business Days from the date demanded) until payment in full thereof at
the Base Rate. A certificate of the Bank submitted to the Borrowers as to any
such additional amount or amounts (including calculations thereof in reasonable
detail) shall, in the absence of manifest error, be conclusive and binding on
the Borrowers. In determining such amount or amounts, the Bank may use any
reasonable method of averaging and attribution as it shall deem applicable.
3.8 Determination of Rate of Borrowing. (a) As soon as practicable after
11:00 a.m., Closing Office time, on each Eurodollar Interest Determination Date
for a Libor Loan, the Bank shall determine (which determination shall, absent
manifest error, be final, conclusive and binding upon all parties) LIBOR to be
applicable to such Libor Loan for the next succeeding Interest Period therefor
and shall promptly give notice thereof in writing or by telephone (confirmed in
writing) to the Borrowers.
(b) Notwithstanding the foregoing, in the event that prior to the first
day of any Interest Period for a Libor Loan;
(i) the Bank shall have determined (which determination shall be
conclusive and binding upon the Borrowers) that, by reason of
circumstances affecting the relevant market, adequate and reasonable
means do not exist for ascertaining the LIBOR for such Interest Period, or
(ii) the Bank shall have determined (which determination shall be
conclusive and binding upon the Borrowers) that LIBOR determined or to be
determined for such Interest Period will not adequately and fairly
reflect the cost to the Bank of making or maintaining its affected Loans
during such Interest Period,
the Bank shall give written or telephonic (promptly confirmed in writing)
notice thereof to the Borrowers as soon as practicable thereafter. If such
notice is given (x) any Libor Loans requested to be made on the first day of
such Interest Period shall be made as Base Rate Loans, and (y) any outstanding
Libor Loans shall be converted, on the first day of such Interest Period, to
Base Rate Loans. No further Libor Loans shall be made or continued as such
until the circumstances causing such suspension no longer exists.
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3.9 Requirements of Law. (a) If the Bank shall have reasonably
determined (which determination shall be final and conclusive and binding upon
all parties) that by reason of (x) the requirements of Regulation D of the
Board of the Governors of the Federal Reserve System or (y) any Regulatory
Change after the date hereof or (z) other circumstances affecting the Bank
(such as for example but not limited to a change in official reserve
requirements or increased capital reserves required or imposed by any
regulatory authority or entity (domestic or foreign) having jurisdiction over
or with respect to the Bank or any change in the basis or taxation of payments
to the Bank of principal or interest on any Libor Loan (other than taxes
covered by Section 5.2 or taxes on the Bank's overall income by the
jurisdiction where the Bank's principal or lending office or offices are
located) to the extent not provided for in clause (x) above), theBank shall
incur increased costs or reductions in the amounts received or receivable
hereunder in respect of any Libor Loan, then, and in any such event, the Bank
shall promptly give notice in writing or by telephone (confirmed in writing) to
the Borrowers of such determination. Thereafter, the borrowers shall pay to
the Bank, upon written demand therefor, such additional amounts (which may be
in the form of an increased rate of, or a different method of calculating,
interest if the Borrowers and the Bank so agree) as shall be sufficient to
compensate the Bank for such increased cost or reduction in amounts received or
receivable, provided that in the case of any such determination pursuant to
clause (x) with respect to any Libor Loan, the written notice from the Bank to
the Borrowers shall specify the additional amount required to be paid with
respect to such Loan(with such amount so stated to be final with respect to
each Interest Period therefor until notice is received by the Borrowers from
the Bank that the condition giving rise to such determination is no longer
applicable) and such additional amount shall be paid at the same time, and
together with, the interest otherwise payable in respect of such Libor Loans
for such affected Interest Periods. Each such notice or demand shall, absent
manifest error, be final and conclusive and binding upon all of the parties
hereto; provided that before giving any such notice or making any such demand,
the Bank agrees to use reasonable efforts (consistent with its internal policy
and legal and regulatory restrictions and so long as such efforts would not be
disadvantageous to it, in its reasonable discretion, in any legal, economic or
regulatory manner) to designate a different lending office if the making of
such designation would avoid the need for, or materially reduce the amount of,
such increased cost.
(b) If the Bank has invoked the provisions of subsection 3.9(a) (other
than in respect of clause (x) thereof,the Borrowers may (subject to the other
provisions of thisAgreement) exercise any one of the following options if the
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exercise of such option shall eliminate the need to pay compensation to the
Bank pursuant to Section 3.9(a):
(i) If such determination relates only to Libor Loans then being
requested by the Borrowers pursuant to a Notice of Borrowing, the
Borrowers may, prior to the date on which such Libor Loans are to be made,
by giving notice in writing or by telephone (confirmed in writing) to the
Bank, withdraw such Notice of Borrowing.
(ii) Upon written notice to the Bank, the Borrowers may terminate the
obligation of the Bank to make or maintain Loans as Libor Loans and, in
such event, the Borrower shall on the first day of the next occurring
Interest Period applicable thereto convert all Libor Loans into Base Rate
Loans by written notice to the Bank thereof.
(iii) The Borrowers may, by giving notice in writing or by telephone
(confirmed in writing) to the Bank, require the Bank to make the Libor
Loan then being requested as a Base Rate Loan and to convert each Libor
Loan then outstanding that is so affected into a Base Rate Loan on the
first day of the next occurring Interest Period applicable thereto, or
within such earlier period, as is required by law.
3.10 Required Termination and Prepayment. In the event that at any time
the Bank shall have reasonably determined (which determination shall be final
and conclusive and binding upon all parties) that the making or continuation of
any of its Libor Loans has become unlawful by compliance by the Bank in
goodfaith with any law, governmental rule, regulation, guideline or order
(whether or not having the force of law and whether or not failure to comply
therewith would be unlawful), the Bank shall promptly give notice in writing or
by telephone (confirmed in writing) to the Borrowers of such determination
Provided that before giving any such notice, the Bank agrees to use reasonable
efforts (consistent with its internal policy and legal and regulatory
restrictions and so long as such efforts would not be disadvantageous to it, in
its reasonable discretion, in any legal, economic or regulatory manner) to
designate a different lending office if the making of such a designation would
allow the Bank to continue to perform its obligations to make Libor Loans
affected by such determination. Upon receiving such notification, the
Borrowers shall (subject to the other provisions of this Agreement) forthwith
take one of the actions specified in Section 3.9(b) (to the extent required to
cure such condition). If the Borrowers have not exercised one of the options
specified in Section 3.9(b) within the time periods therein prescribed, the
Borrowers shall be deemed to have
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exercised the option set forth in clause (iii) of Section 3.9(b)(requiring the
making, continuance or conversion into Base Rate Loans) and to have given the
notice specified therein. If any such conversion of a Libor Loan occurs on a
day which is not the last day of the then current Interest Period with respect
thereto, the Borrowers shall pay to the Bank such amounts, if any, as may be
required pursuant to Section 3.11. If circumstances subsequently change so
that the Bank shall determine that it is no longer so affected, the Bank will
promptly notify the Borrowers, and upon receipt of such notice, the obligations
of the Bank to make or continue such Libor Loans or to convert Loans into such
Libor Loans shall be reinstated.
3.11 Compensation. The Borrowers shall compensate the Bank, upon written
request by the Bank (which request shall, absent manifest error, be final and
conclusive and binding upon all parties), for all reasonable losses, expenses
and liabilities (including, without limitation, any interest paid by the Bank
to lenders of funds borrowed by it to make or carry its Libor Loans and any
reasonable loss (including any loss of margin) sustained by the Bank in
connection with the liquidation or reemployment of such funds), which the Bank
may sustain: (i) if for any reason (other than a default by the Bank) a
borrowing of any Libor Loan does not occur on a date specified therefor in a
Notice of Borrowing (whether or not withdrawn), (ii) if any prepayment,
repayment or conversion of any of its Libor Loans occurs on a date which is not
the last day of the Interest Period applicable thereto, (iii) if any prepayment
of any of its Libor Loans is not made on any date specified in a notice of
prepayment given by a Borrower, or (iv) as a consequence of any default by a
Borrower hereunder.
Section 4. COMMITMENT COMMISSION. ETC.
4.1 Commitment Commission. The Borrowers agree to pay to the Bank a
commitment commission with respect to the commitment for the period commencing
on the Closing Date, to and including the date on which the Commitment has been
permanently terminated in full, computed at a rate per annum equal to 1/2 of 1%
on the average daily Unutilized commitment during the period for which payment
is made. For the purposes of the preceding sentence, issuance of Letters of
Credit shall be deemed to be a utilization of the Bank's Commitment in an
amount equal to LC Outstandings. Such Commitment commission shall be payable
quarterly in arrears on the last business Day of each calendar quarter and on
the date upon which the Commitment shall be permanently terminated. The Bank
shall endeavor to notify the Borrowers prior to the end of each such calendar
quarter of the amount to be paid by Borrowers at the end of such quarter, but
no failure by the Bank to do so shall in any way affect Borrowers'obligations
hereunder to timely pay the full amount due when due; however, no such amount
paid in reliance on such a notice, or
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paid in accordance with the Borrowers' good faith calculations in the absence
of such a notice, shall constitute an Event of Default under Section 9.1 unless
the Borrowers shall fail to timely pay the full amount of any further
adjustment as may be appropriate pursuant to notice to the Borrowers from the
Bank.
4.2 Annual Fee. The Borrowers agree to pay to the Bank a non-refundable
administration fee of $10,000 per annum, payable on each annual anniversary of
the Closing Date until the Loans are paid in full and the Commitment
terminated. The Borrowers' obligations to pay these fees (and those set forth
in Section 4.3 below) are obligations of the Borrowers under this Agreement and
are secured by the Security Documents.
4.3 Facility Fee. The Borrowers agree to pay to the Bank, on the Closing
Date a facility fee of $150,000.
Section 5. PAYMENTS. ETC.
5.1 Payments on Non-Business Days: Calculations. Except as otherwise set
forth in clause (1) of the provision toSection 3.4(a), whenever any payment to
be made hereunder or otherwise in connection with any Loan shall be stated to
be due on a day which is not a business Day, the due date thereof shall be
extended to the next succeeding Business Day and interest shall be payable at
the applicable rate during such extension. Interest hereunder (including,
without limitation, interest on the Loans) and under the Loan Documents (other
than any interest on the Deemed Disbursement Account) and Commitment
commissions shall be calculated on the basis of a 360 day year and the actual
number of days elapsed if for any reason a Loan is repaid on the same day on
which it is made, one day's interest (subject to the other provisions of this
Agreement) shall be paid on that Loan. The Borrowers hereby authorize and
direct the Bank to charge any account of either Borrower maintained at any
office of the Bank with the amount of any principal, interest or fee when the
same becomes due and payable under the terms hereof or of the Note; provided,
however, that the Bank shall not be under any obligation to charge any such
account.
5.2 Net Payments: Application. (a) All payments hereunder and under the
other Loan Documents (including, without limitation, prepayments and repayments
pursuant to Section 2) shall be made by the Borrowers to the Bank in
immediately available, freely transferable, freely convertible same day Dollars
at the Closing Office without set off or counterclaim and in such amounts as
may be necessary in order that all such payments (after (i) withholding for or
on account of any present or future taxes, levies, imposts, duties or other
similar charges of whatsoever nature imposed on the amounts described above by
any government or any political subdivision or taxing authority thereof, other
than any tax (other than such taxes referred to in
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clause (ii) below imposed on the Bank pursuant to the income tax laws of the
jurisdiction where the Bank's principal or lending office or offices are
located (collectively, the "Taxes") and (ii) deduction of an amount equal to any
taxes on or measured by the net income payable to the Bank with respect to the
amount by which the payments required to be made by this Section 5.2 exceed the
amount otherwise specified to be paid under this Agreement and the Note) shall
not be less than the amounts otherwise specified to be paid under this
Agreement and the Note. With respect to each such deduction or withholding,
the Borrowers shall promptly (and in no event later than 30 days thereafter)
furnish to the Bank such certificates, receipts and other documents as may be
required to establish any tax credit, exemption or reduction in rate to which
the Bank or any holder of a Note may be entitled. The Bank, not being a bank
organized and existing under the laws of the United States of America or any
political subdivision thereof that agrees to furnish the Borrowers, as soon as
practicable after any written request of the Borrowers to such effect, any
executed form reasonably requested by the Borrowers such as Internal Revenue
Service Form 4224 or 1001, and any other applicable form as to the Bank's
entitlement, if any,to exemption from, or a reduced rate of, or its subjection
to withholding tax on amounts payable to it hereunder or under the Note and the
Bank undertakes to use its best efforts promptly to notify the Borrowers of any
material change in any information, statement or form so furnished to the
Borrowers provided, however, that any failure on the part of the Bank to
furnish any such information, statements or forms shall in no way affect the
terms of this Agreement or of the Note. Notwithstanding the foregoing, in the
event the Bank fails to furnish any such information, statements or forms, the
Borrowers shall only pay to the Bank such amounts under this Agreement and the
Note as are due without those additions described in clauses (i) and (ii) above
that would not have been required had such information, statements or forms
been provided in a timely fashion. As promptly as practicable after the Bank
becomes aware of the existence or occurrence of an event giving rise to the
imposition of withholding tax upon amounts payable to it hereunder or under the
Note, the Bank shall use its best efforts to transfer its Loans or Commitment
to another office of the Bank with a view to avoiding or mitigating the
consequences of such tax. If the Bank determines that it is unable to effect
such transfer on or before the thirtieth day after the date the Bank becomes
aware of the existence or occurrence of an event giving rise to the imposition
of withholding tax, the Bank shall promptly give notice of such determination
to the Borrowers. If either Borrower receives notice of such determination
from the Bank, the Borrowers may, by notice to the Bank, indicate their
intention to prepay the affected Loan in full (but with all premiums, if any,
provided for in this Agreement and with interest accrued to the date of
prepayment on such Loan and all other amounts then payable to theBank
hereunder) on the tenth Business Day after the date of such
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notice of intention. On or before the tenth day after receipt of any such
notice of intention, the Bank may, by notice to the Borrowers, irrevocably
elect to receive payments hereunder reduced by the amount of such withholding.
If such an election is so made, the Borrowers (i) shall cease to be under any
further obligation to pay any such additional amount in respect of such
withholding and (ii) shall cease to be entitled so to prepay the Loan by virtue
of being required to make such withholding. If the Bank has become subject to
such withholding tax, it shall use its best efforts to provide the Borrowers
with an affidavit, within 30 days after the Bank files its tax return, setting
forth the amount of any tax credit it received with respect thereto.
(b) Unless otherwise specifically provided herein, all payments under or
pursuant to, or in satisfaction of any of the Borrowers' obligations under this
Agreement or under the Note will be applied in the following order of priority:
(i)to any amounts not otherwise listed in this Section 5.2(b) then due and
payable under this Agreement, the Note or the Security Documents, (ii) to any
Commitment commission or fees then due and payable pursuant to Section 4.1 of
this Agreement, (iii) to any interest on the Loans then due and payable (unless
otherwise specified by Borrowers, pro rata according to the aggregate amount of
interest then due and payable on the Loans), (iv) to any principal amount then
due on the Loans, and (v) to reduce the unpaid principal amount of the Loans.
(c) [intentionally omitted];
(d) If (i) the Borrowers make any payment to the Bank under Section
5.2(a), (ii) there are no amounts then payable, but unpaid, by the Borrowers
under this Agreement or the other Loan Documents, and (iii) no Default or Event
of Default has occurred which has not been remedied by the Borrowers or waived
by the Bank, the Bank shall negotiate with the Borrowers with a view to
reimbursing the Borrowers, following receipt bythe Bank (and the passage of all
periods for the audit of the tax records of the Bank by the appropriate tax
authority for the period in question), such proportion of any available credit
against, or remission for, tax as the Bank in good faith certifies to be
attributable to this Agreement or the other Loan Documents and the proportion
which will leave it (after reimbursement to the Borrowers) in no worse position
than it would have been in had the relative withholding or deduction never been
required. This Section shall not impose any obligation on the Bank:
(1) to manage its tax or other affairs in any particular manner;
or
(2) to claim any credit against, or remission for, tax payable
on amounts received by it under this
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Agreement or the other Loan Documents in priority to any other tax
relief, or allowance for tax borne by it, on such amounts; or
(3) to disclose any information concerning its tax affairs to
the Borrowers or to any other Person.
Any reimbursement to the Borrowers shall be made promptly after any such
certification by the Bank of any amount due to the Borrowers.
Section 6. CONDITIONS PRECEDENT TO INITIAL LOANS.
The Bank shall not be obligated to make the initial Loan (or issue any
Letter of Credit on the Closing Date) hereunder unless on the date of such Loan
or such issuance (unless otherwise specifically indicated), nor shall the
Closing Date occur unless on the Closing Date (unless otherwise specifically
indicated), the following conditions have been fulfilled to the satisfaction of
the Bank (or waived by the Bank):
6.1 Default. etc. On such date (and after giving effect to any Loans
made and Letters of Credit issued on such date), there shall exist no Default
or Event of Default and all representations and warranties made by the
Borrowers herein or in the other Loan Documents or otherwise by the Borrowers
in writing in connection herewith or therewith shall be true and correct in all
material respects with the same effect as though such representations and
warranties have been made at and as of such time.
6.2 Note. The Bank shall have received the Note, duly executed and
completed by the Borrowers.
6.3 Supporting Documents. There shall have been delivered to the Bank
such information and copies of documents, approvals (if any) and records
(certified where appropriate) of corporate and legal proceedings as the Bank
may have reasonably requested relating to the Borrowers entering into, issuance
and performance of the Loan Documents and the other agreements and documents
related thereto to which each is a party. Such documents shall, in any event,
include:
(a) certified copies of the Charter Documents of each Borrower (unless
previously delivered to the Bank)
(b) certificates of authorized officers of each Borrower, certifying the
corporate resolutions of each such entity relating to the entering into and
performance of the
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aforesaid documents to which such entity is a party and the transactions
contemplated thereby
(c) certificates of authorized officers of each Borrower with respect to
the incumbency and specimen signatures of their respective officers or
representatives authorized to execute such documents and any other documents
and papers, and to take any other action, in connection therewith;
(d) a certificate of an authorized officer of each Borrower certifying,
as of the Closing Date, compliance with the conditions of Section 6.1, 6.4(c)
(last sentence), 6.5, 6.6,6.10 and 6.13 and also the absence of any Material
Adverse Changes of the type referred to in Section 6.11.
6.4 Security Documents. There shall have been delivered to the Bank:
(a) A pledge agreement executed by the Borrowers, substantially in the
form of Exhibit C hereto, covering (1) no fewer than 1,000,000 Preference Units
owned by KPL on the Closing Date and (2) the Intercompany Note, together with
(x) certificates representing such Preference Units, (y) undated stock or
similar powers for such certificates executed in blank and (z) the Intercompany
Note, endorsed in blank by KPL.
(b) Such consents of third parties as the Bank may reasonably request.
(c) Evidence of all filings of financing statements under the applicable
Uniform Contmercial Code (to the extent required to perfect any security
interest in any collateral), satisfactory Lien search requests on Form UCC-ll
and analogous forms, confirming the absence of any perfected Liens (except
Permitted Liens) prior to the Bank's Liens (except those consented to by the
Bank) and all other actions with respect to the Liens created by the Security
Documents as are necessary or appropriate to perfect such Liens. All fees in
connection with any such UCC or similar filings shall have been paid or
otherwise provided for.
(d) To the extent required by the Bank, a release(in form and substance
satisfactory to the Bank) of all Liens (except Permitted Liens and other Liens
permitted by Section 8.2 hereof) in all assets of the Borrowers, including (to
the extent applicable) properly executed UCC-3 termination statements and
similar documents under the applicable laws of other relevant jurisdictions.
6.5 Approvals and consents. All orders, permissions, consents,
approvals, licenses, authorizations and validations of, and filings, recordings
and registrations with, and exemptions
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by, any Government Authority, or any other Person, required to authorize or
required in connection with the execution, delivery and performance of this
Agreement, the other Loan Documents and the transactions contemplated hereby
and thereby by any Designated Credit Party shall have been obtained.
6.6 Financial Statements. To the extent not previously delivered, each
Borrower shall have delivered to the Bank its balance sheet and statement of
earnings for the quarter(and year-to-date period) ended September 30, 1995.
6.7 Legal Opinions. (a) The Bank shall have received a legal opinion of
Stephen Hoffner, Esq., in form and substance satisfactory to the Bank,
addressed to the Bank and dated theClosing Date.
(b) If requested by the Bank, the Bank shall have received a legal
opinion of local counsel for the Bank, covering such matters incident to the
transactions contemplated hereby as the Bank may request.
6.8 Change in Law. On such date, no change shall have occurred in
applicable law, or in applicable regulations thereunder or in interpretations
thereof by any Government Authority or other Person which, in the opinion of
the Bank, would make it illegal for the Bank to make any Loan required to be
made (or any Letter of Credit required to be issued) on such date.
6.9 All Proceedings to be Satisfactory. All material corporate,
partnership and legal proceedings and all material instruments in connection
with the transactions contemplated by this Agreement and the other documents
referred to herein shall be satisfactory in form and substance to the Bank, and
the Bank shall have received information and copies of all documents which the
Bank may reasonably have requested in connection herewith, such documents where
appropriate to be certified by proper corporate officials or Government
Authorities.
6.10 No Opposition. No suit, action or proceeding shall be pending or
threatened on the closing Date or on the date of such Loan before or by any
Government Authority or other Person seeking to restrain or prohibit the
consummation of the transactions contemplated by this Agreement.
6.11 Adverse change. There shall have been, in the Bank's opinion, no
Material Adverse Change since December 31,1994 with respect to each Borrower.
6.12 Fees and Expenses. The Letter of Credit fees payable on issuance
with respect to the issuance of any Letters
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of Credit to be issued on such date and the facility fee referred to in Section
4.3 shall have been paid in full.
6.13 Intercompanv Documents. (a) KPL and KSI shall have entered into a
letter agreement (the "Intercompanv Letter") satisfactory to the Bank whereby
KPL shall have agreed, to the extent permitted by the terms of this Agreement
and to the extent RKL has funds available after meeting its own, direct needs,
to make loans (in Dollars) to KSI from time to time from proceeds of Loans made
to KPL.
(b) An intercompany note executed by KSI andpayable to KPL (the
"Intercompany Note") in a stated principal amount of $15,000,000, which note
shall have been endorsed in blank by KPL, shall have been delivered to the
Bank, together with a certificate from an officer of each Borrower that the
Intercompany Note and the Intercompany Letter each is in full force and effect
and not amended, rescinded or otherwise modified.
6.14 Consent to Service. Borrowers shall have delivered to the Agent the
consent of the Process Agent to acting as such, as more fully set forth in
Section 12.10 hereof.
All documents and papers required by this Section 6 shall be in form and
substance satisfactory to the Bank and delivered to the Bank at its Closing
Office or as the Bank may otherwise direct.
Section 6A. CONDITIONS PRECEDENT TO SUBSEQUENT
LOANS AND LETTERS OF CREDIT.
The Bank shall not be obligated to make any Loans or issue any Letters of
Credit after the Closing Date unless, at the time of the making of such Loan or
issuing such Letter of Credit (except as hereinafter indicated) the following
conditions (unless waived in writing by the Bank) have been satisfied:
6A.l Certain Conditions. At the time of the making of such Loan or
issuing such Letter of Credit, and immediately after giving effect thereto, (a)
all deficiencies, if any, with respect to conditions precedent to any prior
Loan or Letter of Credit shall have been corrected, (b) all of the conditions
specified in Sections 6.1, 6.5, 6.8, 6.9, 6.10 and 6.11 shall be satisfied in
full (with any reference in any of such Sections to the Closing Date or the
initial Loans made to be deemed a reference to the Loan or Letters of Credit
(as the case may be) then requested to be made), (c) each of the documents
specified in Sections 6.2, 6.3, 6.4, 6.13 and 6.14 shall be in full force and
effect and no Borrower party thereto shall have failed to perform in any
material respect any of its obligations thereunder, (of) no issuer of any legal
opinion issued in connection with any Loan Document
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or the making of any Loan or issuance of any Letter of Credit shall have
rescinded or qualified any such legal opinion, and (e) no issuer thereof shall
have rescinded or qualified any of the financial statements, certificates,
letters, reports or other opinions referred to in Section 6.
6A.2 Subsequent Opinions of Counsel. If reasonably requested by the
Bank, the Bank shall have received from any or all of the counsel referred to
in Section 6 or other counsel satisfactory to the Bank such favorable
supplemental legal opinions addressed to the Bank and dated the date of such
Loan or Letter of Credit and covering such matters incidental to the
transactions contemplated by this Agreement as the Bank shall reasonably
request, each of which opinions shall be in form and substance satisfactory to
the Bank.
6A.3 Officer's Certificate. (a) If requested by the Bank, the Bank shall
have received a certificate of authorized officers of the Borrowers certifying,
as of the date of the Loan then being made or Letter of Credit then being
issued, compliance with the provisions of Section 6.1 (with the reference
therein to Loan or Letter of Credit being deemed a reference to the Loan being
made or Letter of Credit being issued on the date of said certificate) and
further to the effect that the conditions specified in Section 6A.l are
satisfied at such time. Any such certificate shall be given "to the best of
such officers' knowledge, based upon due and adequate investigation" or as
otherwise agreed by the Borrowers and the Bank.
(b) The making of each Loan and the issuance of each Letter of Credit
subsequent to the Closing Date shall constitute a representation and warranty
by the Borrowers to the Bank that, at the time of said subsequent Loan or
Letter of Credit (and after giving effect thereto), (i) all representations and
warranties contained herein or in the other Loan Documents or otherwise made by
a Borrower in connection herewith or therewith are true and correct in all
material respects with the same effect as though such representations and
warranties were being made at and as of such time, (ii) no Default or Event of
Default exists and (iii) the conditions specified in Section 6A.l are satisfied
at such time.
All of the documents and papers referred to in this Section 6A shall be in form
and substance satisfactory to the Bank and shall be delivered to the Bank at
its Closing Office or at such other office as the Bank may from time to time
specify to the Borrowers.
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Section 7. AFFIRMATIVE COVENANTS.
The Borrowers jointly and severally covenant and agree hereby that, so
long as this Agreement is in effect and while any Letter of Credit is
outstanding and until the Commitment is terminated and all of the Loans,
together with interest, Commitment commission and all other obligations
incurred hereunder (including Deemed Disbursements and Reimbursement
obligations and fees and disbursements in connection therewith),are paid in
full, the Borrowers will perform, and will cause to be performed, the
obligations set forth in this Section 7 (unless the Bank should otherwise
consent in writing).
7.1 Financial Statements; Compliance Certificates. (a) Each Borrower
will furnish to the Bank promptly upon becoming available, copies of their
respective annual audited and quarterly unaudited Financial Statements and such
other information, reports, notices or statements as the Bank may reasonably
request from time to time, including all reports and other information sent by
KSI to its shareholders generally.
(b) The Borrowers will furnish to the Bank, as soon as practicable and in
any event within 60 days after the close of each fiscal quarter (within 90
days, with respect to the last fiscal quarter of each Fiscal Year), a
certificate of each Borrower's chief financial officer stating (x) that a
review of the activities of each Designated Credit Party during such fiscal
quarter has been made under their supervision with a view to determining
whether each such Person has observed, performed and fulfilled all of its
obligations under this Agreement and the other Loan Documents, and (y) that, to
the best of such officer's knowledge, and after due and adequate investigation,
there exists no Event of Default or Default or, if any Event of Default or
Default exists, specifying the nature thereof, the period of existence thereof
and what action the Borrowers (or if other than Borrower, the affected Person)
proposes to take with respect thereto.
(c) The Borrowers will furnish to the Bank, at the same time as the
audited statements of KSI referred to in Section 7.1(a) hereof are delivered to
the Bank, a certificate, in form and substance satisfactory to the Bank of the
Auditors that, in conducting their audit in connection with such Financial
Statements, they obtained no knowledge of the existence of any Event of Default
or Default or, if in the opinion of such Auditors, any Event of Default or
Default exists, specifying the nature thereof and the period of existence
thereof;
(d) The Borrowers will furnish to the Bank, promptly upon receipt
thereof, copies of all detailed financial reports and management letters, if
any, submitted to any Borrower by its Auditors in connection with each annual
or interim audit
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<PAGE> 32
of their respective books by such Auditors.
7.2 Inspections. Each of the Borrowers will allow any representative,
officer or accountant of the Bank, upon reasonable notice, to visit and inspect
any of its property, to examine its books of record and account and to discuss
its affairs, finances and accounts with its officers, and at such reasonable
time and during usual business hours and as often as the Bank may request.
7.3 Further Assurances. Each Borrower will make, execute or endorse, and
acknowledge and deliver or file, all such vouchers, invoices, notices, and
certifications and additional agreements, undertakings, conveyances, transfers,
assignments, or further assurances, and take any and all such other action, as
the Bank may, from time to time, reasonably deem necessary or proper for the
better assuring and confirming unto the Bank all or any part of the security
for the Loans and for the Intercompany Note.
7.4 Notice of Default. Forthwith upon (and, in any event, within five
Business Days of) any officer of either Borrower obtaining knowledge of the
existence of an Event of Default, the Borrowers will deliver to the Bank a
certificate signed by an officer of a Borrower specifying the nature thereof,
the period of existence thereof, and what action the Borrowers propose to take
with respect thereto.
7.5 Payment of Charges. Each Borrower will duly pay and discharge (i)
all taxes, assessments and governmental charges or levies imposed upon or
against it or its property or assets, or upon any property leased by it, prior
to the date on which penalties attach thereto, unless and to the extent only
that such taxes, assessments and governmental charges or levies are being
contested in good faith and by appropriate proceedings and such Borrower has
set aside on its books adequate reserves therefor,(ii) all lawful claims,
whether for labor, materials, supplies, services or anything else, which might
or could, if unpaid, become a lien or charge upon such property or assets,
unless and to the extent only that the validity thereof is being contested in
good faith and by appropriate proceedings, and (iii) all its trade bills when
due in accordance with their original terms, including any applicable grace
periods, unless and to the extent only that such trade bills are being
contested in good faith and by appropriate proceedings.
Section 8. NEGATIVE COVENANTS.
The Borrowers jointly and severally covenant and agree that so long as this
Agreement is in effect and while any Letter of Credit is outstanding and until
the Commitment is terminated
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and all of the Loans, together with interest, Commitment commission and all
other obligations incurred hereunder (including Deemed Disbursements and
Reimbursement Obligations and fees and disbursements in connection therewith),
are paid in full, the Borrowers will perform, and will cause to be performed,
the obligations set forth in this Section B (unless it shall first have
procured the written consent of the Bank to do otherwise). Nothing contained
in Section 8.3, however, shall be construed to prevent (x) a Kaneb Partnership
from contracting, creating, incurring or assuming any Indebtedness for Borrowed
Money or (y) KPL, as general partner of KPP and KPOP, doing so on behalf of
such Kaneb Partnership or (z) STSI, as general partner of STOP, doing so on
behalf of STOP. Nothing contained in Section 8.8 or 8.11 shall prohibit (x)
RPL, as general partner of KPP and KPOP, from taking any action on behalf of
such Kaneb Partnership otherwise prohibited by such section, or (y) STSI, as
general partner of STOP, from taking any action on behalf of STOP otherwise
prohibited by such section.
8.1 Same Type of Business. (a) KSI will not enter into any business or
activity other than its ownership of the capital stock of its Directly-Owned
Subsidiaries and, to the extent KSI's board of directors directs, its
participation in the management and business of its Subsidiaries.
(b) KPL will not enter into any business or activity other than (i)
acting as general partner of KPP and KPOP, (ii) other businesses and activities
in which it is engaged as of the Closing Date and (iii) to the extent KPL's
board of directors directs, its participation in the management and business of
its Subsidiaries.
8.2 Liens. Neither Borrower will contract, create, incur or assume any
Lien upon or with respect to, or by transfer or otherwise subject to the prior
payment of any indebtedness (other than the Loans), any of its property or
assets, whether now owned or hereafter acquired (it being acknowledged by the
Bank that property or assets owned solely by a Kaneb Partnership is neither
property nor assets of KPL) except (i) liens for taxes, assessments, levies or
governmental charges not yet due or which are being contested in good faith by
appropriate proceedings diligently conducted and with respect to which adequate
reserves are being maintained in accordance with GAAP, and (ii) other liens,
charges, and encumbrances incidental to the conduct of its business or the
ownership of its property and assets which were not incurred in connection with
the borrowing of money or the obtaining of advances or credit and which do not
materially detract from the value of its property or assets or materially
impair the use thereof in the operation of its business: and (iii) the
following:
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(a) Liens in connection with workmen's compensation, unemployment
insurance or other social security obligations;
(b) Deposits or pledges securing the performance of bids, tenders,
contracts (other than contracts for the payment of money), leases, statutory
obligations, surety and appeal bonds and other obligations of like nature made
in the ordinary course of business;
(c) Mechanics', carriers', warehousemen's, workmen's, materialmen's, or
other like Liens arising in the ordinary course of business with respect to
obligations which are not due or which are being contested in good faith;
(d) Liens securing the Loans;
(e) Encumbrances consisting of zoning regulations, easements, rights of
way, survey exceptions and other similar restrictions on the use of real
property or minor irregularities in titles thereto which do not materially
impair use of such property by either Borrower in the operation of its
business;
(f) Liens existing on the Closing Date and set forth on Schedule 8.2
hereto (provided that none of such Liens relate to the Pledged Units other than
Liens in favor of the Bank); and
(g) Liens placed upon property of a Borrower at the time of acquisition
thereof by such Person to secure up to 100% of the purchase price thereof
provided that such Lien shall not encumber any other property of such Person or
any property of any other Person.
8.3 Other Indebtedness. No Loan Party will contract, create, incur or
assume any Indebtedness for Borrowed Money; except
(i) indebtedness evidenced by the Note and by the Intercompany Note;
(ii) indebtedness outstanding at December 31, 1994 and referenced in
the Financial Statements of KSI contained in the lOK;
(iii) subordinated indebtedness of KSI, but only if (x) the proceeds
thereof are used to repay other subordinated Indebtedness of KSI and (y)
no portion of the principal on the newly-incurred Subordinated
Indebtedness is required to be paid prior to the scheduled final maturity
date of the Subordinated Indebtedness being so repaid
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<PAGE> 35
(iv) trade payables incurred in the ordinary course of business,
provided that same are not more than 60 days past due (unless (a) they are
being contested in good faith, (b) appropriate reserves are provided
therefor to the extent required by GAAP, and (c) the failure to make such
payment does not give rise to any Lien in excess of $100,000 (or its
equivalent in other currencies)
(v) non-recourse indebtedness incurred in accordance with, and
secured solely by the Liens permitted by, clause (g) of Section 8.2(iii);
and
(vi) in addition to the foregoing, unsecured indebtedness incurred by
KSI not to exceed $5,000,000 in the aggregate at any time outstanding and
unsecured indebtedness incurred by KPL not to exceed $2,500,000 in the
aggregate at any time outstanding.
8.4 Subordinated Indebtedness. (a) Except as permitted by Section 8.3
(iii), KSI will not (and will not permit any Subsidiary to) redeem, retire,
purchase or otherwise acquire, directly or indirectly, for a consideration, any
Subordinated Indebtedness (or any equity securities into which any Subordinated
Indebtedness is converted) or make any payments of (or on account of) the
principal thereof, or set aside any funds for any of the foregoing purposes;
provided, however, that KSI may make such purchases on the open market at less
than the face value of such indebtedness purchased if the maximum amount
expended by KSI therefor since October 16, 1995 does not exceed $5,000,000.
(b) KSI will not amend or modify the subordination provisions of any
agreement, instrument or document relating to Subordinated Indebtedness in any
way that will adversely affect the subordination provisions thereof.
(c) Prior to the scheduled maturity date thereof in 1998 and except as
set forth in the last sentence of this clause (c), KSI will not (and will not
permit any Subsidiary to) redeem, retire, purchase or otherwise acquire,
directly or indirectly, for a consideration, any of its 8.85% Convertible Notes
due 1998 (or any equity securities into which any of such notes are converted)
or make any payments of (or on account of) the principal thereof, or set aside
any funds for any of the foregoing purposes. Nothing contained in this clause
(c) shall prohibit KSI from redeeming or repurchasing from Security Pacific
Equipment Leasing, Inc. all such 8.85% Convertible Notes due 1998 outstanding
as of December 1, 1995 for an aggregate purchase price equal to $5,500,000
pursuant to contractual agreements therefor in effect on December 1, 1995 so
long as such redemption or repurchase occurs on or prior to June 30, 1996.
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<PAGE> 36
8.5 EBITDA. During any calendar year listed in the first column below,
KSI will not permit its consolidated EBITDA for that year to be less than the
amount set forth opposite such year in the second column below.
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1995 $29,000,000
1996 $29,000,000
1997 $30,000,000
1998 $30,000,000
1999 $31,000,000
2000 $31,000,000
</TABLE>
8.6 Dissolution. Neither Borrower will (x) enter into any transaction
of merger or consolidation if, after giving effect thereto, a Default or Event
of Default shall exist, or (y) wind up, liquidate or dissolve its affairs, or
(z) agree to do any of the foregoing at any future time.
8.7 Sale of Assets. Neither Borrower will (or agree that it will in the
future) convey, sell, lease or otherwise dispose of (any of the foregoing, a
"Transfer") (i) all or a substantial part of its property or assets or any part
of such property or assets essential to the conduct of its business
substantially as now conducted; (ii) any of its assets (except in the ordinary
course of business) unless (to the extent such Transfer is not prohibited by
clause (iii) below) such assets are Transferred for a price at least equal to
their fair market value (as determined in good faith by the board of directors
of KSI and, as to KPL, the board of directors of KPL); (iii) any capital stock
or other equity securities issued by (or otherwise evidencing an equity
interest in) KPL; or (iv) any of its General Partnership Interests or any of
the Pledged Units.
8.8 Purchase of Assets. Neither Borrower will purchase, lease or
otherwise acquire (x) all or any substantial part of the property or assets of
any Person, or (y) other than in the ordinary course of business, property or
net assets in excess of $750,000 (for both Borrowers, combined) in the
aggregate (or an equivalent amount in other currencies).
8.9 Related Transactions. Except as may otherwise be permitted by the
Furmanite Loan Agreement, neither Borrower will enter into any transaction with
any of its Affiliates on more favorable terms than if such Person was totally
unrelated.
8.10 Subsidiaries. (a) KSI will not sell, assign, transfer or otherwise
dispose of, or in any way part with control of, any shares of capital stock of
any Subsidiary except (x) as permitted by the Furmanite Loan Agreement, or (y)
with respect to any Subsidiary that is not a member of the Consolidated Group,
for an amount at least equal to the fair market value thereof as
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<PAGE> 37
determined in good faith by KSI's Board of Directors. Nothing contained in
this Section 8.10 shall prohibit the dissolution prior to July 1, 1996 of KPP
GP, Inc., a Delaware corporation, or KPP LP, Inc., a Delaware corporation, or
KPP, L.P., a Delaware limited partnership of which the aforesaid KPP GP, Inc.
is the sole general partner and the aforesaid KPP LP, Inc. is the sole limited
partner.
(b) KPL will not sell, assign, transfer (which term, as used in this
Agreement, includes the grant of a Lien) or otherwise dispose of, or in any way
part with control of, any of the Pledged Units or any of its interest as a
general partner in KPOP or KPP.
(c) KSI will not sell, assign, transfer or otherwise dispose of, or in
any way part with control of, any shares of capital stock issued by KPL.
8.11 Investments. Neither Borrower will invest in (by capital
contribution or otherwise), or acquire for investment or purchase or make any
commitment to purchase the obligations or stock of, any Person, except (i) the
purchase of marketable direct or guaranteed obligations of the national
government of the US; (ii) stock or obligations issued in settlement of claims
against others by reason of an event of bankruptcy or a composition or
readjustment of debt or a reorganization of any debtor of KSI or a Subsidiary;
(iii) certificates of deposit and banker's acceptances of any bank that is a
lender to KSI or any branch of any such bank; (iv) Commercial Paper rated P-1
or A-1 by Standard & Poors ("S&P") or Moody's Investors Service ("Moodys") or
the equivalent rating by any other rating agency nationally recognized in the
US; (v) certificates of deposit and banker's acceptances of any bank with a AA
or better rating from Moodys or the equivalent rating by S&P or any other
rating agency nationally recognized in the US; (vi) loans, subordinated or
otherwise, to any member of the Consolidated Group (but only while the
Furmanite Loan Agreement is in effect) and (vii) loans or equity investments
in any Person that was a Subsidiary of KSI on October 16, 1995, other than
those Subsidiaries that are members of the Consolidated Group. As used in this
Agreement, "Commercial Paper" shall mean short-term promissory notes due no
later than 270 days from the date of issuance of each such note.
8.12 Accounting Changes. (a) KSI will not make or permit any Subsidiary
to make any significant change in accounting treatment and reporting practices
except as permitted or required by GAAP.
(b) Neither Borrower will change its fiscal year or permit any of their
respective Subsidiaries to change its fiscal year.
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<PAGE> 38
8.13 Other Agreements. Neither Borrower will amend, modify or terminate
the Intercompany Note or the Intercompany Letter or waive any right with
respect thereto or subordinate any right with respect thereto.
Section 9. EVENTS OF DEFAULT.
Upon the occurrence of any of the following specified events (each an
"Event of Default"):
9.1 Principal and Interest. The Borrowers shall default in the due and
punctual payment of (i) any principal due on any Loan; or (ii) any interest on
any Loan or Note or in the due and punctual payment of Commitment commission or
other amounts due hereunder; or (iii) any repayment of any Reimbursement
Obligation or Deemed Disbursement or any interest payable thereon; provided
that failure to duly and punctually make an interest payment shall not be an
Event of Default under this Section 9.1 if such interest payment is paid within
five days after the date it is due and Borrowers have not been late in making
an interest payment on the Note more than once in the preceding 12 months; or
9.2 Representations and Warranties. Any representation, warranty or
statement made by a Borrower in any Loan Document to which it is a party or
otherwise in writing by such Person in connection with any of the foregoing or
in any certificate or statement furnished pursuant to or in connection with any
of the foregoing, shall be breached in a manner that could reasonably be
expected to have an adverse effect on the validity, payment, performance or
enforceability of the Loan Agreement or any of the other Loan Documents or any
obligation of a Borrower hereunder or thereunder or shall prove to be untrue in
any material and adverse respect on the date as of which made;
9.3 Negative Covenants. Either Borrower shall default in the due
performance or observance of any term, covenant or agreement on its part to be
performed or observed pursuant to Section 8; or
9.4 Other Covenants. A Borrower shall default in the due performance or
observance of any term, covenant or agreement on its part to be performed or
observed pursuant to any of the provisions of this Agreement (other than those
referred to in Sections 9.1, 9.2 or 9.3) and such default (which shall be
capable of cure) shall continue unremedied for a period of 30 days after the
earlier of the date on which the Bank gives the Borrowers notice of such
default or on the date an officer of a Borrower becomes aware thereof; or
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<PAGE> 39
9.5 Other Obligations. Any indebtedness of any Designated Credit Party
(i) shall be duly declared to be or shall become due and payable prior to the
stated maturity thereof, or (ii) in respect of indebtedness in excess of
$250,000 (or the equivalent amount in any other currency) in an aggregate
principal amount, shall not be paid as and when the same becomes due and
payable including any applicable grace period; or
9.6 Other KSI Matters. KSI shall at any time own less than 100% of the
outstanding capital stock of KII; or the breach by KSI of any term or provision
of any KSI Agreement, which default in the reasonable judgment of the Bank
(exercised in good faith) is material; or any KSI Agreement is at any time when
it is required to be in full force and effect by its terms or the terms of the
Furmanite Loan Agreement is not in full force and effect; or
9.7 Insolvency. Any Designated Credit Party shall dissolve or suspend or
discontinue its business, or shall make an assignment for the benefit of
creditors or a composition with creditors, shall be unable or admit in writing
its inability to pay its debts as they mature, shall file a petition in
bankruptcy, shall be adjudicated insolvent or bankrupt, shall petition or apply
to any tribunal for the appointment of (or there shall be appointed pursuant to
any contract) any administrator, receiver, liquidator or trustee of or for it
or any substantial part of its property or assets, shall commence any
proceedings relating to it under any bankruptcy, reorganization, arrangement,
readjustment of debt, receivership, dissolution or liquidation law or statute
of any jurisdiction, whether now or hereafter in effect; or there shall be
commenced against any Designated Credit Party any such proceeding which shall
remain undismissed for a period of 90 days or more, or any order, judgment or
decree approving the petition in any such proceeding shall be entered; or any
Designated Credit Party shall by any act or failure to act indicate its consent
to, approval of or acquiescence in, any such proceeding or in the appointment of
any receiver, liquidator or trustee of or for it or any substantial part of its
property or assets, or shall suffer any such appointment to continue
undischarged or unstayed for a period of 90 days or more; or any Designated
Credit Party shall take any action for the purpose of effecting any of the
foregoing; or any court of competent jurisdiction shall assume jurisdiction
with respect to any such proceeding or a receiver or trustee or other officer
or representative of a court or of creditors, or any court, governmental
officer or agency, shall under color of legal authority, take and hold
possession of any substantial part of the property or assets of any Designated
Credit Party or there shall happen or exist under the laws of any applicable
jurisdiction, with respect to any Designated Credit Party, any event analogous
to and having a substantially similar effect to any of the foregoing events; or
35
<PAGE> 40
9.8 Pledged Securities. Any of the Pledged Units or any shares issued by
KPL or any of the General Partnership Interests or the Intercompany Note is
the subject of a Lien other than Liens in favor of the Bank (provided, in
each of the foregoing situations, if any such breach is solely as a result of
a change of law and such breach is capable of remedy, then such breach
shall not be considered an Event of Default under this Section 9.8 for a
period of 10 days if such breach is remedied within that period); or a
Borrower shall assert that the Bank does not have a perfected, first priority
Lien in (x) any of the Pledged Units or (y) the Intercompany Note: or
9.9 Judgments. (a) Any final non-appealable judgment for the payment of
money in excess of $10,000,000 (or the equivalent thereof in any currency),
excluding any amounts payable or reimbursable by financially sound insurance
companies or by third parties whose Commercial Paper is rated P-1 or A-l by S&P
or Moodys (or the equivalent rating by any other rating agency nationally
recognized in the US or the UK), shall be rendered against a Designated Credit
Party; or
(b) Final judgment for the payment of money in excess of $5,000,000 (or
the equivalent thereof in any currency)shall be rendered against a Designated
Credit Party, and the same shall remain undischarged for a period of 30 days
during which execution shall not be effectively stayed or contested in good
faith; or
9.10 KPOP, etc. KPOP or KPP or any significant portion of the respective
assets of any such Person are Transferred (such term to include any granting of
a Lien),directly or indirectly, or an agreement for the foregoing is entered
into, other than (x) Liens granted prior to January 1,1995 to (1) the TCB
Restated Lenders in connection with the TCB Restated Agreement (as in effect in
December 1994), and (2) the Series Noteholders as collateral for the Series
Notes, and (y) Liens on assets of KPOP or any Subsidiary of KPOP permitted by
(i) the TCB Restated Agreement (as in-effect in December 1994),or (ii) if the
TCB Restated Agreement shall no longer be in effect, the Series Noteholder
Agreements (as in effect in December 1994); provided that (A) in the case of
both (x) and (y) above, none of such Liens relate to any of the Pledged Units
(B) in respect of clause (x) above, the property that is subject to the Series
Note Liens does not include any property that is not also subject to the
referenced Liens in favor of the TCB Restated Lenders in connection with the
TCB Restated Agreement (as in effect in December 1994), and (C) in the case of
both (x) and (y) above, the provisions of the Series Noteholder Agreements (as
in effect in December 1994) do not permit any Liens that are not also permitted
by the TCB Restated Agreement (as in effect in December 1994); or
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<PAGE> 41
9.11 Shares. KSI shall at any time own less than 100% of the
outstanding capital stock of KPL, or any of such stock is the subject of any
Lien in favor of any Person other than the Bank;
then, and in any such event, and at any time thereafter, if any Event of
Default shall then be continuing the Bank may by written notice to the
Borrowers: (i) declare the principal of and accrued interest on the Loans to
be, whereupon the same shall forthwith become, due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrowers; and or (ii) declare the commitments of the Bank
to make the Loans hereunder terminated, whereupon such commitments shall
forthwith terminate immediately; provided that if any Event of Default
described in Section 9.7 shall occur with respect to either Borrower, the
result which would otherwise occur only upon the giving of written notice by
the Bank to the Borrowers as herein described shall occur automatically,
without the giving of any such notice.
Section 10. REPRESENTATIONS AND WARRANTIES.
In order to induce the Bank to enter into this Agreement and to make the
Loans and issue the Letters of Credit provided for herein, each Borrower makes
the following representations, covenants and warranties, which representations,
covenants and warranties shall survive the execution and delivery of this
Agreement and the other documents and instruments referred to herein:
10.1 Status. (a) Each Borrower is a corporation duly organized, validly
existing and in good standing under the laws of Delaware and has the full power
and authority to own its properties and assets and to carry on its business as
now being conducted.
(b) Each Borrower has full power, authority and legal right to execute,
deliver and perform this Agreement, the Note, the Security Documents and the
other Loan Documents to which it is party.
(c) The execution, delivery and performance by each Borrower of the Loan
Documents executed by it has been duly authorized by all necessary action. The
Loan Documents executed by each Borrower constitute the legal, valid and
binding obligations of such Borrower, enforceable against such Borrower in
accordance with their respective terms subject (as to enforceability) to the
Enforceability Proviso.
(d) The most recent year-end financial statements of each Borrower
furnished to the Bank prior to the date hereof have been prepared in accordance
with GAAP consistently applied
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<PAGE> 42
and fairly present the financial condition and results of operations of each
Borrower as at the end of and for the reporting period covered thereby. There
are no material liabilities or any material unrealized or anticipated losses
which are not disclosed in such financial statements.
(e) There has been no Material Adverse Change with respect to either
Borrower from that set forth in the financial statements referred to in clause
(d) above. Except as set forth in Schedule 10.1 hereto, as of the Closing Date
there are no legal proceedings pending or, to the knowledge of either Borrower
threatened, against or affecting either Borrower or its obligations hereunder;
none of the items or matters listed on said Schedule 10.1 will (individually or
in the aggregate), if adversely decided, have a Material Adverse Effect with
respect to either Borrower. No default by either Borrower exists with respect
to any agreement or instrument to which either Borrower or any Subsidiary is a
party or to which it or its assets are subject which might (in the aggregate)
result in such a Material Adverse Change.
(f) The execution, delivery and performance of the Loan Documents will
not contravene any provision of law, rule or regulation to which any Designated
Credit Party is subject or any judgment, decree or order applicable to a
Designated Credit Party nor conflict or be inconsistent with or result in any
breach of any of the terms, covenants, conditions or provisions of, or
constitute a default under, or result in the creation or imposition of (or the
obligation to create or impose) any lien or other encumbrance upon any of the
property or assets of a Designated Credit Party pursuant to the terms of, any
agreement or other instrument to which a Designated Credit Party is a party or
by which it or its property is bound or to which it or its property may be
subject nor violate any provision of the charter documents or by-laws of any
Designated Credit Party.
(g) No order, permission, consent, approval, license, authorization,
registration or validation of, or filing with, or exemption by, any Government
Authority or any other Person is required to authorize, or is required in
connection with the execution, delivery and performance of this Agreement, the
Note or any of the other Loan Documents, or the taking of any action hereby or
thereby contemplated. Without limiting the generality of the foregoing, no
approvals are required from any Government Authority by virtue of KSI being the
owner or operator of pipelines.
(h) KSI is the sole owner of all of the capital stock of KPL, free and
clear of any Liens. KPL is the sole owner of the Pledged Units, free and clear
of any Liens other than Liens in favor of the Bank; on the Closing Date, KPL is
the sole owner of the Non-Pledged Units, free and clear of any Liens. KPL
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<PAGE> 43
is the sole owner of the General Partnership Interests, free and clear of any
Liens other than Liens in favor of the Bank. KPL is the sole general partner
of KPOP and of KPP; such general partnership interests of KPL are evidenced by
the General Partnership Interests. The General Partnership Interests evidence
a 1% equity interest in each of KPOP and KPP. KPL is also a limited partner of
KPP.
(i) The aggregate number of Preference Units(including the Pledged Units)
owned by either or both Borrowers on the Closing Date is 1,089,500, all of
which are owned solely by KPL and none of which are subject to any Liens (other
than, from and after the Closing Date, (x) Liens in favor of the Bank pursuant
to the Pledge Agreement and (y) Liens that may exist after the Closing
Date on the Non-Pledged Units. The Pledged Units were acquired by KPL prior to
November 1, 1993: the full purchase price for the Pledged units was paid to KPP
by KPL prior to such date. :
(j) KPOP owns 100% of the capital stock of STSI. STSI is the sole
general partner of STOP.
10.2 Other. (a) Neither Borrower is engaged principally, or as one of
its important activities, in the business of extending credit for the purpose
of purchasing or carrying any margin stock (within the meaning of Regulation U
of the Board of Governors of the Federal Reserve System). No part of the
proceeds of any Loan will be used to purchase or carry any such margin stock or
to extend credit to others for the purpose of purchasing or carrying any such
margin stock.
(b) The proceeds of the Loans will be used by each Borrower for working
capital purposes. In addition, certain of the proceeds of the Loans made to
KPL will be onlent to KSI, with such onlent loans being evidenced by the
Intercompany Note.
(c) Neither Borrower nor the entering into of this Note is subject to
any of the provisions of the Investment Company Act of 1940, as amended, or to
any other federal or state statute or regulation limiting its ability to incur
indebtedness.
(d) Neither this Agreement, the Note nor any Loan Document nor any
statement, list, certificate or other document or information delivered or to
be delivered to the Bank nor the 10K nor any of the reports on forms 10Q and 8K
referred to in Section 10.2(e) below contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary to make statements contained herein or therein, in light of the
circumstances in which they are made, not misleading.
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<PAGE> 44
(e) Between January 1, 1995 and the Closing Date, KSI did not file any
report on Form 8K with the SEC (except for the report on Form 8K dated on the
cover sheet thereof August 27, 1995) true, correct and complete copies of which
KSI has delivered to the Bank) nor has any event occurred which requires it to
do so (other than those referred to in the aforesaid filed reports). KSI has
delivered to the Bank true, correct and complete copies of all reports on Form
10Q that KSI has filed with the SEC since January 1, 1995.
(f) To the best of the knowledge of each Borrower, such Borrower has
been and continues to be in substantial compliance with all applicable
Environmental Laws.
(g) (i) All Subordinated Indebtedness of KSI contain provisions
subordinating the rights of the holders hereof to the rights of the Bank under
this Agreement and the Note. The Note and the Obligations are entitled to the
benefits of such subordination provisions.
(ii) The aggregate principal amount of Subordinated Indebtedness
outstanding on the Closing Date is approximately $23,666,000 with respect to
KSI's 8.75% Convertible Subordinated Debentures due through 2008 (the "8.75%
Debentures"); none of KSI's 11.5% Subordinated Debentures due through 1998 are
any longer outstanding.
(iii) The aggregate principal amount of KSI's 8.85% Convertible Notes
due 1998 outstanding on the Closing Date is $6,000,000.
(iv) KSI owns sufficient Repurchased Indentures so that it will be
able to satisfy all mandatory sinking fund deposits and mandatory redemptions
required by the 8.75% Indenture that occur on or prior to the Maturity Date
without being required to purchase or otherwise acquire any additional 8.75%
Debentures. No 8.75% Debentures are scheduled to mature on or prior to the
Maturity Date that cannot be satisfied by the retirement or redemption (or
deposit into such sinking fund) of Repurchased Debentures. As used in this
clause (iv): "Repurchased Debentures" shall mean 8.75% Debentures purchased by
KSI on or prior to October 16, 1995 and owned by KSI, and outstanding, as of
the Closing Date; and "8.75% Indenture" shall mean the indentures governing the
8.75% Debentures.
(h) No property (other than "after-acquired property" that is required to
be collateral pursuant to the terms of the TCB Restated Agreement or Series
Noteholder Agreements, in each case as in effect in December 1994) is subject
to the TCB Restated Liens or the Series Note Liens that was not subject to the
TCB Original Liens. Neither the nature and extent of the TCB
40
<PAGE> 45
Restated Liens, nor the nature and extent of the Series Note Liens, is
different from or broader than the nature and extent of the TCB Original Liens.
Neither the TCB Restated Agreement nor the Series Noteholder Agreements permit
any Lien on any asset of KPOP or any Subsidiary of KPOP that was not permitted
on that asset by the terms of the TCB Original Agreement. There have been no
amendments to, or other modifications of, the TCB Restated Agreement or the
Series Noteholder Agreements since each was executed in December 1994 other
than Amendment No. 1 (dated January 30, 1995) to the Series Noteholder
Agreements.
10.3 Taxes. (a) All material tax returns of any nature whatsoever,
including but not limited to, all income, payroll, stock transfer, and excise
tax returns and all appropriate state and local income, sales, excise, payroll,
franchise and real and personal property tax returns, and corresponding returns
under the laws of any jurisdiction, which are required to be filed by any
Borrower have been or will be filed by the due date or extended due date of
such returns.
(b) Except for amounts which in the aggregate do not exceed $100,000 (per
Borrower), all tax amounts and other related liabilities (including interest
and penalties) due and payable with respect to either Borrower have been paid
(or, with respect to state income taxes payable with respect to the sale by KPL
in October 1995 of approximately 3,825,000 outstanding Preference Units in an
underwritten offering, have been accrued and appropriate reserves set aside
therefor in accordance with GAAP).
(c) At the time of, and after giving effect to, the making of each Loan
and the issuance of each Letter of Credit, each Borrower is Solvent, and (y)
possesses, in the opinion of the Borrowers, sufficient capital to conduct the
business in which it is engaged or presently proposes to engage.
Section 11. [intentionally omitted]
Section 12. MISCELLANEOUS.
12.1 Calculations and Financial Data. (a) Calculations hereunder
(including, without limitation, calculations used in determining, or in any
certificate of any Loan Party reflecting, compliance by any Loan Party with the
provisions of this Agreement) shall be made and financial data required hereby
shall be prepared both as to classification of items and as to amount in
accordance with GAAP consistent with the Financial Statements of such Loan
Party for its Fiscal Year ended December 31, 1994 that were previously
delivered to the Bank.
41
<PAGE> 46
(b) For so long as this Agreement remains in effect, Each Borrower hereby
irrevocably authorizes the Bank to discuss the Financial Statements and other
financial information from time to time delivered hereunder, and the financial
condition of the Designated Credit Parties, with the Auditors and hereby
irrevocably authorize the Auditors to discuss same with the Bank. The Bank
shall notify the Borrowers prior to any such conversation or series of
conversations with the Auditors.
12.2 Amendment and Waiver. (a) Except as otherwise provided, no
provision of any of the Loan Documents may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the Bank and
a Borrower, except that waivers of provisions relating to a Borrower's
performance or non-performance of its obligations hereunder or thereunder need
not be signed by such Borrower or any other Designated Credit Party. Any such
change, waiver, discharge or termination shall be effective only in the
specific instance and for the specific purposes for which made or given.
(b) THIS WRITTEN AGREEMENT (AND THE OTHER LOAN DOCUMENTS) REPRESENTS THE
FINAL AGREEMENT AMONG THE PARTIES HERETO WITH RESPECT TO THE MATTERS COVERED
HEREBY AND THEREBY AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
(c) THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
12.3 Expenses. (a) Whether or not the transactions hereby contemplated
shall be consummated, the Borrowers shall upon demand of the Bank pay all
reasonable out-of-pocket costs and expenses of the Bank (x) incurred in
connection with the preparation, execution, delivery, administration, filing
and recording of, and (y) incurred in connection with the amendment(including
any waiver or consent), modification, and enforcement of or preservation of any
rights under, this Agreement, the Loan Documents, the making and repayment of
the Loans, the issuance of Letters of Credit and the maintenance and operation
of the Other Accounts, and the payment of all interest and fees, including,
without limitation, (A) the reasonable fees and expenses of Sullivan &
Worcester, LLP, counsel for the Bank, and any special or local or other counsel
retained by the Bank, (B) the reasonable fees and expenses of consultants and
appraiser retained by the Bank in connection with the transactions contemplated
hereunder, and (C) printing, travel, title insurance, recording, filing,
communication and signing taxes and costs.
(b) The Borrowers agree to pay, and to save the Bank harmless from (x)
all present and future stamp, filing and other similar taxes, fees or charges
(including interest and
42
<PAGE> 47
penalties, if any), which may be payable in connection with the Loan Documents
or the issuance of the Note or of Letters of Credit or any modification of any
of the foregoing, and (y) all finder's and broker's fees (other than any that
may have been contracted for by the Bank) in connection with the transactions
contemplated by this Agreement and the other Loan Documents.
(c) Without limiting any of the rights or obligations as set forth in
this Agreement on the part of the Bank, the Borrowers agree to indemnify, pay
and hold harmless the Bank, any Bank Assignee and each holder of a Note and
their respective present and future officers, directors, employees and agents
(collectively, the Indemnified Parties") from and against all liability,
losses, damages and expenses (including, without limitation, legal fees and
expenses) arising out of, or in any way connected with, or as a result of (i)
the execution and delivery of this Agreement, the Note and the other Loan
Documents or the documents or transactions contemplated hereby and thereby or
the performance by the parties hereto or thereto of their respective
obligations hereunder and thereunder or relating hereto; or (ii) any claim,
action, suit, investigation or proceeding (in each case, regardless of whether
or not the Indemnified Party is a party thereto or target thereof) in any way
relating to any, either Borrower, any Designated Credit Party or any Affiliate
of any of the foregoing; or (iii) any violation by any Designated Credit Party
(or any predecessor in interest of any of them) or any Environmental Law, any
Environmental Claim or Environmental Cost or the imposition of any
Environmental Lien; provided that the Borrowers shall not be liable to any
Indemnified Party for any portion of such liabilities, liabilities, losses,
damages and expenses sustained or incurred as a direct result of the gross
negligence or willful misconduct of the Bank if such gross negligence or
willful misconduct is determined to have occurred by a final and non-appealable
decision of a court of competent jurisdiction.
(d) All obligations provided for in this Section 12.3 and Sections 3.7,
3.9, 3.10, 3.11, 5.2, 11.6 and 11.10 shall survive any termination of this
Agreement, the expiration and termination of all Letters of Credit, the payment
of all Deemed Disbursements and Reimbursement Obligations and the payment in
full of the Loans.
12.4 Benefits of Agreement; Descriptive Headings. (a) This Agreement shall
be binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors and assigns, and, in particular, shall
inure to the benefit of the holders from time to time of the Note; provided,
however, that neither Borrower may assign or transfer any of its rights or
obligations hereunder without the prior written consent of the Bank and any
such purported assignment or transfer shall be void. In furtherance of the
foregoing, the Bank shall be
43
<PAGE> 48
entitled at any time to grant participations in or assign, sell or otherwise
transfer the whole or any part of its rights and obligations under this
Agreement, the Loan Documents or any Loan or the Note or any Letter of Credit
to any Person subject to obtaining the prior written consent of the Borrowers
(but no other Person), such consent not to be unreasonably withheld. No such
participation, assignment, sale or other transfer pursuant to this Section
12.4(a) shall relieve the Bank from its obligations hereunder and the Borrowers
need deal solely with the Bank with respect to waivers, modifications and
consents to this Agreement, the Loan Documents or the Note. Any such
participant, assignee, purchaser or transferee is referred to in this Agreement
as a "Bank Assignee". The Borrower agrees that the provisions of Sections
2A.3, 3.7, 3.9, 3.10, 3.11, 5.2 and 12.3 shall run to the benefit of each Bank
Assignee and its participations or interests herein, and the Bank may enforce
such provisions on behalf of any such Bank Assignee; provided, however, that if
the Bank nor any Bank Assignee assigns, sells, or otherwise transfers or grants
participations in or otherwise disposes of all or any part of the Borrowers'
indebtedness under this Agreement to any party pursuant to this Section
12.4(a),then the amounts that the Borrowers are required to pay pursuant to
this Agreement (including, without limitation, additional amounts made pursuant
to Section 5.2) shall not exceed the amounts that the Borrowers would have been
required to pay to the Bank pursuant to this Agreement had the Bank not made
such assignment, sale, transfer, grant, participation or other disposition of
the Borrowers' indebtedness under this Agreement. The Borrowers hereby further
agree that any such Bank Assignee may, to the fullest extent permitted by
applicable law, exercise the right of setoff with respect to such
participation (and in an amount up to the amount of such participation) as
fully as if such Bank Assignee were the direct creditor of the Borrowers. Upon
a participation, assignment, sale or transfer in accordance with the foregoing,
the Borrowers shall execute such documents and do such acts as the Bank may
reasonably request to effect such assignment, provided that such documents and
acts are consistent with the terms and conditions of the Loan Documents. The
Bank may furnish any information concerning any Designated Credit Party, any
Subsidiary or any member of the Consolidated Group in its possession from time
to time to Bank Assignees(including prospective Bank Assignees). The Bank
shall notify Borrowers of any participation, assignment, sale or transfer
granted by it pursuant to this Section 12.4(a). Borrowers shall not be
responsible for any due diligence costs or legal expenses of any party
(including any Bank Assignee) in connection with their entering into such
participation, assignment, sale or transfer. The Bank further agrees that no
holder of any participation hereunder, other than an Affiliate of the Bank,
shall be entitled to required the Bank to take or omit to take any action
hereunder, except that the Bank may agree with such participant that the Bank
will not, without such participant's
44
<PAGE> 49
consent, take any action to decrease the interest rates applicable to the
Loans, extend the final maturity date of the Loans or decrease the principal
amount of the Loans.
(b) The descriptive headings of the various provisions of this Agreement
are inserted for convenience of reference only and shall not be deemed to
affect the meaning or construction of any of the provisions hereof.
(c) Notwithstanding anything to the contrary contained herein or in any
of the Loan Documents, the exhibits to this Agreement shall not be required to
be attached to the execution or any other copy of this Agreement, and any
references in this Agreement or the other Loan Documents to such exhibits as
"Exhibits hereto" or "Exhibits to this Agreement" or words of similar effect
shall be deemed to refer to such document as executed by the parties thereto
and delivered on the Closing Date (or such other date on which they were
executed and delivered).
(d) [intentionally omitted]
(e) Notwithstanding the foregoing provisions of this Section 12.4, the
Bank (without the prior written approval of the Borrowers) may not grant
participations in or assign, sell or otherwise transfer any of the Loans or the
Commitment if, after giving effect thereto, the percentage of Loans (or if no
Loans are then outstanding the percentage of the Commitment) then held by the
Bank and its Affiliates is less than 51%.
12.5 Notices, Requests, Demands, etc. Except as otherwise expressly
provided herein, all notices, requests, demands or other communications to or
upon the respective parties hereto shall be deemed to have been duly given or
made when delivered (if sent by Federal Express or other similar overnight
delivery service), or 3 days after mailing (when mailed, postage prepaid, by
registered or certified mail, return receipt requested), or (in the case of
telex, telegraphic, telecopier or cable notice) when delivered to the telex,
telegraph, telecopier or cable company, or (in the case of telex or telecopier
notice sent over a telex or telecopier owned or operated by a party hereto)
when sent; in each case, addressed as follows, except that notices and
communications to the Bank pursuant to Sections 2 and 9 shall not be effective
until received by the Bank: (i) if to the Bank, at the Closing Office, (ii)
[intentionally omitted], and (iii) if to a Borrower, at its address specified
with its signature below (Attention: President), or to such other addresses as
any of the parties hereto may hereafter specify to the others in writing,
provided that communications with respect to a change of address shall be
deemed to be effective when actually received. As further set forth in Section
2.6 hereof, notices and communications sent to either Borrower shall be deemed
satisfactorily sent to both Borrowers.
45
<PAGE> 50
12.6 Governing Law. THIS AGREEMENT AND THE LOANS AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS EXECUTED WHOLLY WITHIN THE STATE OF NEW YORK (REGARDLESS OF THE PLACE
WHERE THIS AGREEMENT IS EXECUTED).
12.7 Counterparts. This Agreement may be executed in any number of
counterparts, and by the different parties hereto on the same or separate
counterparts, each of which shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
12.8 Waiver. No failure or delay on the part of the Bank in exercising
any right, power or privilege under this Agreement or any other Loan Document,
and no course of dealing between any Loan Party and the Bank shall operate as a
waiver thereof; nor shall any single or partial exercise of any right, power
or privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies
herein expressly provided are cumulative and not exclusive of any rights or
remedies which the Bank would otherwise have pursuant to such documents or at
law or equity. No notice to or demand on any Loan Party in any case shall
entitle such Loan Party or any other Loan Party to any other or further notice
or demand in similar or other circumstances or constitute a waiver of the right
of the Bank to any other or further action in any circumstances without notice
or demand.
12.9 Recoveries. (a) Any Recoveries (after deduction and payment of all
expenses and costs permitted by this Agreement, the Security Documents or
applicable law), shall be applied against the Loans or against unpaid
Reimbursement Obligations (and, if no Loans or Reimbursement Obligations shall
then be outstanding, shall be held in trust by the Bank on behalf of the
Borrower to the extent of the amount of the LC Outstandings from time to time
in existence until satisfaction in full of all amounts due thereunder).
(b) [intentionally omitted]
12.10 Jurisdiction. THE PARTIES HERETO AGREE THAT ANY LEGAL ACTION OR
PROCEEDING AGAINST ANY OTHER PARTY HERETO WITH RESPECT TO THIS AGREEMENT, THE
LOANS OR ANY OF THE LOAN DOCUMENTS OR THE DOCUMENTS DELIVERED IN CONNECTION
THEREWITH MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK LOCATED IN NEW
YORK CITY OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW
YORK AS SUCH PARTY MAY ELECT, and, by execution and delivery hereof, each of
the parties hereto accepts and consents for itself and in respect to its
property, generally and unconditionally, the jurisdiction of the aforesaid
courts. Each
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<PAGE> 51
of the parties hereto agree that such jurisdiction shall be exclusive, unless
waived by the Bank (with respect to actions or proceedings brought by a
Borrower) or by the Borrowers (with respect to actions or proceedings brought
by the Bank) in writing, and with respect to any questions relating to usury
except that without such written consent the Bank may bring actions and
proceedings in any other jurisdiction where a Borrower has property or does
business. Each of the parties hereto agrees that Sections 5-1401 and 5-1402 of
the General Obligations Law of the State of New York shall apply to the Loan
Documents and waives any right to stay or to dismiss any action or proceeding
brought before said New York or US courts on the basis of forum non conveniens.
In furtherance of the foregoing, each Borrower hereby irrevocably designates
and appoints CT Corporation System at 1633 Broadway, New York, New York 10019,
as its agent (the "Process Agent") to receive service of all process brought
against such Borrower with respect to any such proceeding in any such court in
New York, such service being hereby acknowledged by the Borrowers to be
effective and binding service in every respect. Copies of any such process so
served shall also be sent by registered mail to Borrowers at its address set
forth next to its signature below, but the failure of either Borrower to
receive such copies shall not affect in any way the service of such process as
aforesaid. Each Borrower shall furnish to the Bank a consent of the Process
Agent agreeing to act hereunder prior to the Closing Date. Nothing herein
shall affect the right of the Bank to serve process in any other manner
permitted by law. If for any reason the Process Agent shall resign or
otherwise cease to act as agent, each Borrower hereby irrevocably agrees to (i)
immediately designate and appoint a new agent (also, the "Process Agent")
acceptable to the Bank to serve in such capacity and, in such event, such new
agent shall be deemed to be substituted for the prior Process Agent for all
purposes hereof and (ii) promptly deliver to the Bank the written consent (in
form and substance satisfactory to the Bank) of such new agent agreeing to
serve in such capacity.
12.ll Severability. If any provision of this Agreement shall be held or
deemed to be or shall, in fact, be illegal, inoperative or unenforceable, the
same shall not affect any other provision or provisions herein contained or
render the same invalid, inoperative or unenforceable to any extent whatever.
12.12 Right of Set-off. In addition to any rights now or hereafter
granted under applicable law or otherwise and not by way of limitation of any
such rights, upon the occurrence of an Event of Default the Bank is hereby
authorized at any time or from time to time, without notice to either Borrower
or to any other Person, any such notice being hereby expressly waived, to
set-off and to appropriate and apply any and all deposits (general or special,
time or demand, provisional or final) and
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<PAGE> 52
any other indebtedness at any time held or owing by the Bank to or for the
credit or the account of a Borrower against and on account of the obligations
and liabilities of such Borrower now or hereafter existing under any of the
Loan Documents irrespective of whether or not any demand shall have been made
thereunder and although said obligations, liabilities or claims, or any of
them, shall be contingent or unmatured. If the Bank exercises any rights
granted under this Section 12.12 it shall thereafter notify the affected
Borrower of such action; provided that the failure to give such notice shall
not affect the validity of such set-off and application.
12.13 No Third Party Beneficiaries. This Agreement is solely for the
benefit of the Bank and the Borrowers and their respective successors and
assigns, and nothing contained herein shall be deemed to confer upon anyone
other than the Bank and the Borrowers and their respective successors and
assigns any right to insist on or to enforce the performance or observance of
any of the obligations contained herein. All conditions to the obligations of
the Bank to make the Loans and issue Letters of Credit hereunder are imposed
solely and exclusively for the benefit of the Bank and its successors and
assigns and no other Person shall have standing to require satisfaction of such
conditions in accordance with their terms and no other Person shall under any
circumstances be deemed to be beneficiary of such conditions.
12.14 Effectiveness. This Agreement shall become effective when and as
of the date (the "Effective Date") that all of the parties hereto shall have
signed a copy hereof (whether the same or different counterparts) and the
Borrowers shall have delivered the same to the Bank.
12.15 Survival. Each of the representations, warranties, terms,
covenants, agreements and conditions contained in this Agreement shall
specifically survive the execution and delivery of this Agreement and the other
Loan Documents, the making of the Loans and issuance of Letters of Credit and
the Closing Date and shall, unless otherwise expressly provided, continue in
full force and effect until the Commitment has been terminated and the Loans
together with interest thereon, the Commitment commissions, the fees and
compensation of the Bank, and all other sums payable hereunder or thereunder
(including, without limitation, Reimbursement Obligations) have been
indefeasibly paid in full.
12.16 Domicile of Loans. The Bank may make, maintain or transfer any of
its Loans hereunder to, or for the account of, any branch office and (subject
to the prior consent of the Borrowers, such consent not to be unreasonably
withheld) to any subsidiary or affiliate of the Bank.
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<PAGE> 53
12.17 Usury. Nothing contained in this Agreement or the Note shall
require Borrowers to pay interest at a rate exceeding the maximum rate
permitted by applicable law. If the amount of interest payable hereunder on
any date would otherwise result in such maximum rate being exceeded, such
amount shall be automatically reduced to the maximum permissible amount, and
the amount of interest payable for any subsequent period, to the extent less
than that permitted by applicable law, shall, to that extent, be increased by
the amount of such reduction. To the extent that any amount of interest is
paid in excess of the maximum permissible amount, such amount shall be applied
as a repayment of the principal amount hereof.
12.18 Waiver of Jury Trial. EACH BORROWER AND THE BANK HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE ANY AND ALL RIGHTS THEY MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION BASED ON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS
OF ANY SUBSIDIARY, ANY DESIGNATED CREDIT PARTY OR THE BANK. THIS PROVISION IS
A MATERIAL INDUCEMENT FOR THE BANK ENTERING INTO THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS.
12.19 Securities Act. The Bank agrees that it will not transfer its Note
in a manner that would subject the Note or
[rest of page intentionally left blank]
49
<PAGE> 54
transfer to the registration requirements of the Securities Act of 1933 (the
"1933 Act").
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective duly authorized officers as of
the date first above written.
2435 N. Central Expwy KANEB SERVICES, INC.
Richardson, Texas 75080
fax: 214/699-4025 By: /s/ Howard Wadsworth
--------------------------
Name: Howard Wadsworth
Title: Vice President
2435 N. Central Expwy KANEB PIPE LINE COMPANY
Richardson, Texas 75080
fax: 214/699-4025 By: /s/ Howard Wadsworth
--------------------------
Name: Howard Wadsworth
Title: Vice President
565 Fifth Avenue BANK OF SCOTLAND
New York, New York 10017
Telecopier No. 212/682-5720
By: /s/ Catherine M. Oniffrey
-------------------------
Catherine M. Oniffrey
Vice President
<PAGE> 1
EXHIBIT 10.11
CONFORMED BRIDGE FINANCING AGREEMENT*
between
KANEB PIPE LINE OPERATING PARTNERSHIP, L.P.,
as Borrower,
TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
as Agent,
and
TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
as initial Lender
$68,000,000
DECEMBER 18, 1995
* Conformed as executed.
<PAGE> 2
TABLE OF CONTENTS
Exhibit 10.11
<TABLE>
<S> <C> <C>
SECTION 1 DEFINITIONS AND TERMS 1
1.1 Definitions 1
1.2 Time References 12
1.3 Other References 12
1.4 Accounting Principles 12
SECTION 2 BORROWINGS 12
2.1 Commitments 12
2.2 Borrowings 12
2.3 Termination 13
SECTION 3 PAYMENT TERMS 13
3.1 Notes and Payments 13
3.2 Interest and Principal Payments 13
3.3 Interest Options 14
3.4 Quotation of Rates 14
3.5 Default Rate 14
3.6 Interest Recapture 14
3.7 Interest Calculations 15
3.8 Maximum Rate 15
3.9 Interest Periods 15
3.10 Conversions 15
3.11 Order of Application 16
3.12 Sharing of Payments, Etc. 16
3.13 Offset 16
3.14 Booking Borrowings 16
3.15 Basis Unavailable or Inadequate for LIBOR Rate 16
3.16 Additional Costs 17
3.17 Change in Laws 18
3.18 Foreign Lenders 18
3.19 Funding Loss 18
SECTION 4 FEES 18
4.1 Treatment of Fees 18
4.2 Agent's and Syndication Agents' Fees 18
4.3 Commitment Fee 18
SECTION 5 SECURITY 19
5.1 Guaranty 19
5.2 Collateral 19
5.3 Additional Security and Guaranties 19
5.4 Collateral Documentation 19
SECTION 6 CONDITIONS PRECEDENT 19
6.1 Initial Borrowing 19
6.2 All Borrowings 19
6.3 General 19
SECTION 7 REPRESENTATIONS AND WARRANTIES 20
7.1 Purpose of Credit Facility 20
7.2 Existence, Good Standing, and Authority 20
7.3 Subsidiaries 20
7.4 [INTENTIONALLY BLANK] 20
</TABLE>
(ii)
<PAGE> 3
<TABLE>
<S> <C> <C>
7.5 Authorization and Contravention 20
7.6 Binding Effect 20
7.7 Financial Statements 20
7.8 Litigation 21
7.9 Taxes 21
7.10 Environmental Matters 21
7.11 Employee Plans 21
7.12 Properties; Liens 21
7.13 Government Regulations 21
7.14 Affiliate Transactions 22
7.15 [INTENTIONALLY BLANK]. 22
7.16 Material Agreements 22
7.17 Insurance 22
7.18 Labor Matters 22
7.19 Solvency 22
7.20 Trade Names 22
7.21 Intellectual Property 22
7.22 Full Disclosure 22
SECTION 8 AFFIRMATIVE COVENANTS 23
8.1 Items to be Furnished 23
8.2 Use of Proceeds 24
8.3 Books and Records 24
8.4 Inspections 24
8.5 Taxes 25
8.6 Payment of Obligations 25
8.7 Expenses 25
8.8 Maintenance of Existence, Assets, and Business 25
8.9 Insurance 25
8.10 Preservation and Protection of Rights; Separate Legal Entities 25
8.11 Environmental Laws 25
8.12 Subsidiaries 26
8.13 Indemnification 26
SECTION 9 NEGATIVE COVENANTS 26
9.1 Taxes 26
9.2 Employee Plans 26
9.3 Funded Debt 26
9.4 Liens 27
9.5 Affiliate Transactions 28
9.6 Compliance with Laws and Documents 28
9.7 Loans, Advances, and Investments 28
9.8 Distributions 28
9.9 Asset Transfers 30
9.10 Dissolutions, Mergers, and Consolidations 31
9.11 Assignment 31
9.12 Fiscal Year and Accounting Methods 32
9.13 New Businesses 32
9.14 Government Regulations 32
SECTION 10 FINANCIAL COVENANTS 32
10.1 Current Ratio 32
10.2 Tangible Net Worth 32
10.3 Leverage Ratio 32
</TABLE>
(iii)
<PAGE> 4
<TABLE>
<S> <C> <C>
10.4 Fixed Charges Coverage Ratio 32
SECTION 11 DEFAULT 32
11.1 Obligation 32
11.2 Covenants 32
11.3 Debtor Relief 33
11.4 Misrepresentation 33
11.5 Judgments and Attachments 33
11.6 1994 Credit Agreement, Note Agreements, or Intercreditor Agreement 33
11.7 Default Under Other Agreements 33
11.8 Validity and Enforceability of Loan Papers 33
11.9 Change of Control 33
11.10 KPC Merger or Consolidation 33
SECTION 12 RIGHTS AND REMEDIES 34
12.1 Remedies Upon Default 34
12.2 KPP Company Waivers. 34
12.3 Performance by Agent 34
12.4 Not in Control 34
12.5 Course of Dealing 34
12.6 Cumulative Rights 35
12.7 Application of Proceeds 35
12.8 Diminution in Value of Collateral 35
12.9 Certain Proceedings 35
SECTION 13 AGREEMENT AMONG LENDERS 35
13.1 Agent 35
13.2 Expenses 36
13.3 Proportionate Absorption of Losses 37
13.4 Delegation of Duties; Reliance 37
13.5 Limitation of Agent's Liability 37
13.6 Default; Collateral 38
13.7 Limitation of Liability 38
13.8 Relationship of Lenders 38
13.9 Collateral Matters. 38
13.10 Benefits of Agreement 39
SECTION 14 MISCELLANEOUS 39
14.1 Nonbusiness Days 39
14.2 Communications 39
14.3 Form and Number of Documents 39
14.4 Exceptions to Covenants 40
14.5 Survival 40
14.6 Governing Law 40
14.7 Invalid Provisions 40
14.8 Venue; Service of Process; Jury Trial 40
14.9 Amendments, Consents, Conflicts, and Waivers 40
14.10 Multiple Counterparts 41
14.11 Successors and Assigns; Participations 41
14.12 Discharge Only Upon Payment in Full; Reinstatement in Certain Circumstances 43
14.13 Entirety 43
</TABLE>
(iv)
<PAGE> 5
SCHEDULES AND EXHIBITS
<TABLE>
<S> <C>
Schedule 2.1 Lenders, Commitments, and Wiring Instructions
Schedule 6.1 Closing Documents
Schedule 7.2 Jurisdictions of Organization and Business
Schedule 7.3 Organizational Structure
Schedule 7.8 Litigation
Schedule 7.10 Environmental Matters
Schedule 7.16 Material Agreements
Schedule 7.20 Trade Names
Schedule 8.9 Insurance
Schedule 9.7 Permitted Investments
Exhibit A Promissory Note
Exhibit B Guaranty
Exhibit C-1 Amendment to Intercreditor Agreement
Exhibit C-2 Amendment to Pledge Agreement
Exhibit C-3 Modification to Mortgage
Exhibit D-1 Notice of Borrowing
Exhibit D-2 Notice of Conversion
Exhibit D-3 Compliance Certificate
Exhibit D-4 Financial Statements Certificate
Exhibit E Opinion of General Counsel
Exhibit F Assignment
</TABLE>
(v)
<PAGE> 6
BRIDGE FINANCING AGREEMENT
THIS AGREEMENT is entered into as of December 18, 1995, between KANEB
PIPE LINE OPERATING PARTNERSHIP, L.P., a Delaware limited partnership
("BORROWER"), Lenders (defined below), and TEXAS COMMERCE BANK NATIONAL
ASSOCIATION as agent for Lenders. Terms used in this agreement are defined in
SECTION 1.
A. Borrower and STOP have entered into the Acquisition Agreement
with Steuart Petroleum and certain of its Affiliates for the purpose of
acquiring the Steuart Assets. Borrower has requested Agent and Lenders to
enter into this agreement to provide Borrowings (that may never exceed the
total Commitments) to Borrower on a revolving basis to finance, in part, the
acquisition of the Steuart Assets.
B. As of December 22, 1994 (1) Borrower, Agent, and certain
financial institutions entered into the December Credit Agreement, (2) Borrower
and the other KPP Companies entered into the Note Agreements with Noteholders,
and (3) Collateral Trustee, Agent, those certain financial institutions, and
Noteholders entered into -- and Borrower and the other KPP Companies consented
to -- the Intercreditor Agreement.
C. The Obligation under this agreement is (1) "Qualifying Debt,"
as that term is defined in the 1994 Credit Agreement, the Note Purchase
Agreements, and the Intercreditor Agreement and (2) therefore permitted to be
secured by the Collateral on a pari passu basis with the indebtedness under the
December Credit Agreement and the Note Agreements.
D. Subject to and upon the terms and conditions of the Loan
Papers, Agent and Lenders have agreed to extend Borrowings under the agreement
to Borrower.
ACCORDINGLY, for adequate and sufficient consideration, Borrower,
Lenders, and Agent agree as follows:
SECTION I. DEFINITIONS AND TERMS.
1.1 Definitions. As used in the Loan Papers:
ACQUISITION AGREEMENT means, collectively, (a) the Asset Purchase
Agreement dated as of August 27, 1995, between Steuart Petroleum, SPC
Terminals, Incorporated, STOP, and Borrower, (b) the Piney Point Pipeline Asset
Purchase Agreement, dated as of August 27, 1995, between Piney Point
Industries, Inc., STOP, and Borrower, and (c) the Purchase Agreement dated as
of August 27, 1995, between Steuart Investment Company, STOP, and Borrower, for
the purchase of assets at Cockpit Point, as each may be amended from time to
time, providing for the purchase by STOP of the Steuart Assets and the guaranty
of STOP's payment and performance under each of the above by Borrower.
ACTUAL TERMINATION DATE means the earlier of either (a) the Stated
Termination Date or (b) the effective date that the Commitments are otherwise
canceled or terminated under this agreement.
AFFILIATE of a Person means any other individual or entity who
(directly or indirectly through ownership, voting securities, contract, or
otherwise) controls, is controlled by, or under common control with that
Person. For purposes of this definition (a) "control" or similar terms mean
the power to direct or cause the direction of management or policies of that
Person, but (b) none of the KPP Companies or Restricted Subsidiaries at any
time are "Affiliates" of each other.
AGENT means, at any time, Texas Commerce Bank National Association (or
its successor appointed under SECTION 13) acting as agent for Lenders under the
Loan Papers.
ALTERNATE BASE RATE means, for any day, the annual interest rate
(rounded upward, if necessary, to the nearest 0.0625%) equal to the highest of
either (a) the Prime Rate, (b) the Secondary CD Rate plus 1%, or (c) the
Federal Funds Rate plus 0.50%.
<PAGE> 7
ALTERNATE BASE RATE BORROWING means a Borrowing bearing interest at the
Alternate Base Rate.
BANK OF SCOTLAND LOAN AGREEMENT means the Loan Agreement dated as of
December 1, 1995, between KSI, KPC, and Bank of Scotland, providing for a
revolving line of credit up to an aggregate amount of $15,000,000.
BORROWER is defined in the preamble to this agreement.
BORROWER COMPANIES means Borrower and its Subsidiaries (other than,
for all purposes except financial reporting and financial covenant
calculations, its Insignificant Subsidiaries).
BORROWER PARTNERSHIP AGREEMENT means the Amended and Restated
Agreement of Limited Partnership of Kaneb Pipe Line Operating Partnership,
L.P., dated September 27, 1989, a certified copy of which has been delivered to
Agent under SCHEDULE 6.1.
BORROWING means any amount disbursed (a) by one or more Lenders to
Borrower under the Loan Papers, either as an original disbursement of funds or
the continuation of an outstanding amount, or (b) by any Agent or Lender in
accordance with, and to satisfy the obligations of any KPP Company under, any
Loan Paper.
BORROWING DATE is defined in SECTION 2.2(a).
BUSINESS DAY means (a) for all purposes, any day other than Saturday,
Sunday, and any other day that commercial banks are authorized by Law to be
closed in Texas or New York and (b) for purposes of any LIBOR Rate Borrowing, a
day when commercial banks are open for international business in London.
CLOSING DATE means the initial Borrowing Date, which must be no later
than December 19, 1995, if ever.
CODE means the Internal Revenue Code of 1986.
COLLATERAL means all types and items of property described as
collateral in the Security Documents.
COLLATERAL TRUSTEE means, at any time, Texas Commerce Bank National
Association (or its successor appointed under the Intercreditor Agreement)
acting as collateral trustee under the Intercreditor Agreement, Mortgage, and
Pledge Agreement.
COMMITMENT means, for each Lender, the amount stated beside its name
on SCHEDULE 2.1, which amount is subject to reduction and cancellation under
this agreement.
COMMITMENT PERCENTAGE means, for any Lender, the proportion (stated as
a percentage) that its Commitment bears to the total Commitments.
COMPLIANCE CERTIFICATE means, for any Person, a certificate
substantially in the form of EXHIBIT D-3 and signed by a Responsible Officer of
that Person.
CURRENT FINANCIALS means, for KPP or Borrower, as the case may be (a)
either (i) their respective consolidated Financial Statements for the year
ending December 31, 1994, together with their Financial Statements for the
portion of the fiscal year ending on September 30, 1995, or (ii) at any time
after their respective annual Financial Statements are first delivered under
SECTION 8.1, their annual consolidated Financial Statements then most recently
delivered to Lenders under SECTION 8.1, together with their quarterly Financial
Statements then most recently delivered to Lenders under SECTION 8.1, but (b)
does not include the results of operation and cash flows for any Company
(except for Steuart Petroleum) for the time period before it becomes a member
of KPP's or Borrower's, as the case may be, consolidated group except
<PAGE> 8
for any periods for which that Company's Financial Statements were audited by
an accounting firm reasonably acceptable to Agent.
DEBT -- for any Person, at any time, and without duplication -- means
(a) any obligation of that Person either for borrowed money or incurred for the
purchase price of assets or services, (b) any indebtedness or obligation
secured by or constituting a Lien on property of that Person, whether or not
that Person is directly liable for that indebtedness or obligation, (c) the
face amount of all letters of credit, bankers' acceptances, or similar
facilities, whether drawn or undrawn, for which that Person is the account
party, (d) every lease obligation that should under GAAP be reflected on that
Person's balance sheet as a capitalized-lease obligation, (e) the net amount
payable by that Person for settlement of all interest-rate swaps or similar
arrangements (based on the assumption that each such swap or similar
arrangement terminated) as of the end of the most-recently-ended-fiscal quarter
of that Person, and (f) all Guaranty Liabilities of that Person in respect of
Debt of any other person or entity.
DEBTOR LAWS means the Bankruptcy Code of the United States of America
and all other applicable liquidation, conservatorship, bankruptcy, moratorium,
rearrangement, receivership, insolvency, reorganization, suspension of
payments, fraudulent transfer or conveyance, or similar Laws generally
affecting creditors' Rights.
DEFAULT is defined in SECTION 11.
DEFAULT PERCENTAGE means, for any Lender, the proportion (stated as a
percentage) that the Principal Debt owed to it bears to the total Principal
Debt.
DEFAULT RATE means, for any day, an annual interest rate equal from
day to day to the lesser of either (a) the then-existing Alternate Base Rate
plus 2.0% or (b) the Maximum Rate.
DETERMINING LENDERS means, at any time, any combination of Lenders
holding at least 51% of either the total Commitments or, if the Commitments
have been canceled or terminated, the Principal Debt.
DISTRIBUTION, for any shares of any capital stock, partnership units
or interests, or other equity securities or interests (for purposes of this
definition, "SECURITIES") issued by a Person, means (a) the retirement,
redemption, purchase, or other acquisition for value of those securities, (b)
the declaration or payment of any dividend or other distribution with respect
to those securities, (c) any loan or advance by that Person to, or other
investment by that Person in, the holder of any of those securities, and (d)
any other payment by that Person with respect to those securities.
EBITDA -- for any Person, for any period, and without duplication --
means the sum of net income plus (to the extent actually deducted in
calculating net income) deferred Taxes, depreciation, amortization, and cash
interest payments on Debt (including the interest portion of capitalized
leases).
(a) For the purpose of determining LIBOR Rate, whether
Funded Debt may be assumed or incurred in connection with the purchase
of assets of any Person or in connection with a merger or
consolidation, and the ratios described in SECTIONS 10.3 and 10.4:
(i) the determination of consolidated EBITDA for
any 12-calendar-month period includes the consolidated EBITDA
attributable solely to the assets or Person that has been or
is proposed to be purchased or merged or consolidated with for
that period, after elimination of the portions of earnings
included in that consolidated EBITDA that are or may be
attributable to (A) operations to be discontinued, (B) sources
of revenues that are unavailable to the KPP Companies after
the purchase, merger, or consolidation, (C) the gain (net of
any Tax effect) resulting from the sale of any capital assets
other than in the ordinary course of business, (D) the total
amount of unusual or nonrecurring gains (net of any Tax
effect), and (E) other adjustments (such as additional or
increased expenses) appropriate to reflect the earnings that
would have been realized by the KPP Companies had the purchase
of property or Person or the merger or consolidation occurred
at the inception of that period; only if
<PAGE> 9
(ii) KPP's chief financial officer provides to
Agent a certificate, in form and substance acceptable to
Agent, reflecting the determination of the earnings so
attributable to that property or Person, which certificate
must specifically be based upon, reference and attach either
(A) audited Financial Statements that reflect the earnings
figures used in that determination and any other source of
information used in that certificate or (B) unaudited
Financial Statements that reflect the earnings figures used in
that determination, which must be prepared in accordance with
GAAP (and be accompanied by a certificate of that chief
financial officer certifying that they were so prepared), be
in form and detail (and otherwise) acceptable to Determining
Lenders in their reasonable discretion.
(b) For purposes of this definition, the term net income
in respect of KPP and its Subsidiaries excludes (i) portions of
earnings properly attributable to minority interests (but without
excluding the portion of earnings attributable to KPC's 1% general
partnership ownership in Borrower), (ii) the loss or earnings of any
Subsidiary that is not consolidated with KPP for financial reporting
purposes, (iii) except as otherwise expressly provided, the loss or
earnings of any Subsidiary for the period before it became a
Subsidiary, (iv) the loss or gain of any sale of any capital assets
other than in the ordinary course of business, and (iv) all
nonrecurring losses or gains (net of any Tax effect).
EMPLOYEE PLAN means an employee pension benefit plan covered by Title
IV of ERISA and established or maintained by any KPP Company.
ENVIRONMENTAL LAW means any Law that relates to the pollution or
protection of the environment or to Hazardous Substances.
ERISA means the Employee Retirement Income Security Act of 1974.
FEDERAL-FUNDS RATE means, for any day, the annual rate (rounded
upwards, if necessary, to the nearest 0.01%) determined (which determination is
conclusive and binding, absent manifest error) by Agent to be equal to (a) the
weighted average of the rates on overnight federal-funds transactions with
member banks of the Federal Reserve System arranged by federal-funds brokers on
that day, as published by the Federal Reserve Bank of New York on the next
Business Day, or (b) if those rates are not published for any day, the average
of the quotations at approximately 10:00 a.m. received by Agent from three
federal-funds brokers of recognized standing selected by Agent in its sole
discretion.
FINANCIAL HEDGE means a swap, collar, floor, cap, or other contract
between Borrower and Agent or any Lender or another Person reasonably
acceptable to Determining Lenders, which is intended to reduce or eliminate the
risk of fluctuations in interest rates and which is legal and enforceable under
applicable Law.
FINANCIAL STATEMENTS, for a Person, means balance sheets, profit and
loss statements, reconciliations of capital and surplus or partners' capital
accounts, and statements of cash flow prepared (a) according to GAAP, (b)
except as stated in SECTION 1.4, in comparative form to prior year-end figures
or corresponding periods of the preceding fiscal year, as applicable, and (c)
on a consolidated basis if that Person had any consolidated Subsidiaries during
the applicable period.
FINANCIAL STATEMENTS CERTIFICATE means a certificate substantially in
the form of EXHIBIT D-4
FUNDED DEBT -- for any Person, at any time, and without duplication --
means (a) any obligation (including, without limitation, the scheduled current
portion of that obligation) of that Person (i) either for borrowed money or
incurred for the purchase price of assets or services and (ii) which has a
final maturity of (or is renewable or extendable at that Person's option to a
final maturity beyond) one year or more from the date that obligation was
incurred, (b) any indebtedness or obligation secured by or constituting a Lien
on property of that Person, whether or not that Person is directly liable for
that indebtedness or obligation, (c) the face amount of all letters of credit,
bankers' acceptances, or similar facilities, whether drawn or
<PAGE> 10
undrawn, for which that Person is the account party and which have a final
maturity of one year or more from the date of issuance or creation, as the case
may be, (d) every lease obligation that should under GAAP be reflected on that
Person's balance sheet as a capitalized-lease obligation, (e) the net amount
payable by that Person for settlement of all interest-rate swaps or similar
arrangements (based on the assumption that each such swap or similar
arrangement terminated) as of the end of the most-recently-ended-fiscal quarter
of that Person, and (f) all Guaranty Liabilities of that Person in respect of
Funded Debt of any other person or entity.
FUNDING LOSS means any loss or expense that any Lender reasonably
incurs because (a) Borrower fails or refuses (for any reason whatsoever other
than a default by Agent or the Lender claiming such loss or expense) to take
any Borrowing that it has requested under this agreement, or (b) Borrower
prepays or pays any LIBOR Rate Borrowing or converts any LIBOR Rate Borrowing
to an Alternate Base Rate Borrowing, in each case, before the last day of the
applicable Interest Period.
GAAP means generally accepted accounting principles of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
the Financial Accounting Standards Board that are applicable from time to time.
GECC LEASES means the equipment leases, as amended, dated December 1,
1981, and March 31, 1982, executed by First Security Bank of Utah, N.A., and
Robert S. Clark (each acting as a trustee under a trust indenture dated
December 1, 1981), General Electric Capital Corporation (as lessor), and KPC
(as original lessee), all of KPC's obligations under which have been assumed by
Borrower under an assumption agreement dated September 21, 1989.
GUARANTORS means KPP, STS, STOP, and STI.
GUARANTY means the Guaranty substantially in the form of EXHIBIT B.
GUARANTY LIABILITY -- of any Person, at any time, and without
duplication -- means (a) any guarantee or endorsement by that Person of
obligations of any other person or entity (other than endorsements for purposes
of collection in the ordinary course of business), (b) any obligation of that
Person to purchase goods, services, notes, or securities for the purpose of
supplying funds for the purchase, payment, or satisfaction of (or measured by)
any obligations of any other person or entity, (c) any other contingent
obligation of that Person in respect of, or to purchase or otherwise acquire or
service, obligations of, any other person or entity, (d) any obligation of that
Person, whether or not contingent, in respect of the obligations of a general
or limited partnership of which that Person is a general partner (unless the
holder of that obligation has agreed to waive all recourse to that Person for
that obligation), and (e) every obligation of that Person for obligations of
any other person or entity if that Person has in effect guaranteed by an
agreement (contingent or otherwise) to (i) make a loan, advance, or capital
contribution to, or other investment in, that other person or entity for the
purpose of assuring or maintaining a minimum equity, asset base, working
capital, or other balance sheet condition for that other person or entity on
any date, (ii) provide funds for the payment of any liability, dividend, or
stock liquidation payment of or by that other person or entity, or (iii)
otherwise supply funds to or in any manner invest in that other person or
entity for that purpose.
HAZARDOUS SUBSTANCE means any substance (a) the presence of which
requires removal, remediation, or investigation under any Environmental Law, or
(b) that is defined or classified as a hazardous waste, hazardous material,
pollutant, contaminant, or toxic or hazardous substance under any Environmental
Law.
INSIGNIFICANT SUBSIDIARY means a Subsidiary that contributes less than
5% of its parent's consolidated EBITDA, except that (a) if all of the
Subsidiaries that would have otherwise been "Insignificant Subsidiaries" of a
common parent collectively contribute 5% or more of the parent's consolidated
EBITDA, then none of those Subsidiaries are "Insignificant Subsidiaries," and
(b) no KPP Company or Restricted Subsidiary is ever an "Insignificant
Subsidiary" under any circumstances.
<PAGE> 11
INTERCREDITOR AGREEMENT means the Collateral Trust and Intercreditor
Agreement dated as of December 22, 1994, between Texas Commerce Bank National
Association as Agent under the 1994 Credit Agreement, certain financial
institutions as Lenders under the 1994 Credit Agreement, Noteholders, and
Collateral Trustee, and consented to by each KPP Company, as amended by, among
other things, an amendment in substantially the form of EXHIBIT C-1.
INTEREST PERIOD is determined in accordance with SECTION 3.9.
KPC means Kaneb Pipe Line Company, a Delaware corporation.
KPC COMPANIES means KPC and its Subsidiaries (other than its
Insignificant Subsidiaries).
KPP means Kaneb Pipe Line Partners, L.P., a Delaware limited
partnership.
KPP COMPANIES means KPP, Borrower, STS, STOP, and STI.
KPP PARTNERSHIP AGREEMENT means the Amended and Restated Agreement of
Limited Partnership of Kaneb Pipe Line Partners, L.P., dated April 26, 1993, a
certified copy of which has been delivered to Agent under SCHEDULE 6.1.
KSI means Kaneb Services, Inc., a Delaware corporation.
LAWS means all applicable statutes, laws, treaties, ordinances, rules,
regulations, orders, writs, injunctions, decrees, judgments, opinions, and
interpretations of any Tribunal.
LENDER LIENS means Liens in favor of Agent for Lenders, in favor of
any Lender, or in favor of Collateral Trustee and securing any of the
Obligation, which Liens are, unless otherwise specified, subject to the
Intercreditor Agreement until it has been terminated.
LENDERS means the financial institutions -- including, without
limitation, Agent (in respect of its share of Borrowings) -- named on SCHEDULE
2.1 or on the most recently amended SCHEDULE 2.1, if any, delivered by Agent
under this agreement, and, subject to this agreement, their respective
successors and assigns (but not any Participant who is not otherwise a party to
this agreement).
LIBOR RATE means, for a LIBOR Rate Borrowing and for its Interest
Period, the annual interest rate (rounded upward, if necessary, to the nearest
0.01%) equal to the sum of:
(a) The quotient obtained by dividing (i) the rate that
deposits in United States dollars are offered by major banks to other
major banks in the London interbank market at approximately 11:00 a.m.
(London time) two Business Days before the first day of that Interest
Period in an amount comparable to the amount of that LIBOR Rate
Borrowing and having a maturity approximately equal to the applicable
Interest Period, by (b) one minus the Reserve Requirement (expressed
as a decimal) for that relevant Interest Period; plus
<PAGE> 12
(b) A margin of interest that, for any day, is determined
on the basis of the ratio of the KPP's consolidated Funded Debt to
EBITDA as follows:
RATIO OF FUNDED DEBT TO EBITDA MARGIN
================================================================
2.75 to 1.00 or more 1.000%
----------------------------------------------------------------
Less than 2.75 to 1.00, but 2.25 to 1.00 or more 0.750%
----------------------------------------------------------------
Less than 2.25 to 1.00, but 1.50 to 1.00 or more 0.625%
----------------------------------------------------------------
Less than 1.50 0.500%
================================================================
For purposes of calculating that ratio, EBITDA is calculated for the
KPP Companies' most recently-completed- four-fiscal quarters, and
Funded Debt is determined as of the day the margin of interest is
determined. EBITDA is determined from the Current Financials and
related Compliance Certificate then most recently delivered to Agent,
effective as of the date received by Agent. If Borrower fails to
timely furnish to Agent any Financial Statements and related
Compliance Certificates required by this agreement, then the margin of
1.000% shall apply and remain in effect until Borrower furnishes them
to Agent.
LIBOR RATE BORROWING means a Borrowing bearing interest at the LIBOR
Rate.
LIEN means, with respect to any asset, any Right or interest in that
asset of a creditor to secure obligations, indebtedness, or claims owed to that
creditor or any other arrangement with that creditor that provides for the
payment of that obligation, indebtedness, or claim out of that asset or which
allows that creditor to have that obligation, indebtedness, or claim satisfied
out of that asset in priority to the general creditors of any owner of it,
including, without limitation (a) any lien, mortgage, security interest,
pledge, deposit, production payment, Rights of a vendor under any title
retention or conditional sale agreement or lease substantially equivalent to
it, Tax lien, mechanic's or materialman's lien, any other charge or encumbrance
for security purposes, whether arising by Law or agreement, or otherwise, and
(b) any filed financing statement, any registration of a pledge (such as with
an issuer of unregistered securities), or any other arrangement or action which
would serve to perfect a Lien otherwise described above, regardless of whether
that financing statement is filed, registration is made, or arrangement or
action is undertaken before or after the Lien exists.
LITIGATION means any action by or before any Tribunal.
LOAN PAPERS means (a) this agreement, certificates and reports
delivered under this agreement, and exhibits and schedules attached to this
agreement, (b) the Notes, the Security Documents, and all other agreements,
documents, and instruments in favor of Agent or Lenders (or Agent on behalf of
Lenders) ever delivered under this agreement, (c) any Financial Hedge between
Borrower and any Lender, and (d) all renewals, extensions, refinancings, and
restatements of, and amendments and supplements to, any of the foregoing.
MATERIAL ADVERSE EVENT means any circumstance or event that,
individually or collectively, reasonably is expected to result in any (a)
impairment of the ability of any party (other than Agent and Lenders) to any
Loan Paper to perform any of its payment or other material obligations under
any Loan Paper or the ability of Agent or any Lender to enforce any of those
obligations or any of their respective Rights under the Loan Papers, (b)
material and adverse effect on the financial condition of the KPC Companies as
a whole as represented to Lenders in the Current Financials, (c) material and
adverse effect on any part of the Collateral having a fair market value of at
least $5,000,000 at such time, or (d) Default or Potential Default.
MATERIAL AGREEMENT means, for any Person, any agreement (excluding
purchase orders for material or inventory in the ordinary course of business)
to which that Person is a party, by which that
<PAGE> 13
Person is bound, or to which any assets of that Person may be subject, and that
is not cancelable by that Person upon 30 or fewer days notice without liability
for further payment other than nominal penalty, and that requires that Person
to pay more than $5,000,000 during any 12-month period.
MAXIMUM AMOUNT and MAXIMUM RATE respectively mean, for a Lender, the
maximum non-usurious amount and the maximum non-usurious rate of interest that,
under applicable Law, the Lender is permitted to contract for, charge, take,
reserve, or receive on the Obligation.
MORTGAGE means the First Amended and Restated Mortgage and Security
Agreement (And Financing Statement and Fixture Filing) dated as of December 22,
1994, executed and delivered by KPP, Borrower, and Collateral Trustee, covering
properties situated in (and duly recorded in the official records of) six
counties in Iowa, 13 counties in Kansas, 24 counties in Nebraska, 11 counties
in South Dakota, and three counties in North Dakota -- as more particularly
reflected on SCHEDULE 6.1 -- as amended by, and among other things, an
amendment in substantially the form of EXHIBIT C-3.
MULTIEMPLOYER PLAN means a multiemployer plan as defined in Sections
3(37) or 4001(a)(3) of ERISA or Section 414(f) of the Code to which any Person
(that for purposes of Title IV of ERISA, is a member of Borrower's controlled
group or is under common control with Borrower within the meaning of Section
414 of the Code) is making, or has made, or is accruing, or has accrued, an
obligation to make contributions.
1994 CREDIT AGREEMENT means the Restated Credit Agreement dated as of
December 22, 1994, between Borrower, certain lenders, and Agent acting as agent
for those lenders, providing for extensions of credit to Borrower of up to
$19,118,000.
1994 GUARANTY means the "Guaranty," as that term is defined in the
1994 Credit Agreement.
1994 NOTES means the "Notes," as that term is defined in the 1994
Credit Agreement.
1994 SECURITY DOCUMENTS means the "Security Documents," as that term
is defined in this 1994 Credit Agreement.
NOTE means a promissory note substantially in the form of EXHIBIT A
and executed and delivered by Borrower under this agreement.
NOTE AGREEMENTS means the Note Purchase Agreements dated as of
December 22, 1994, between KPP, Borrower, STS, STOP, and each Noteholder,
collectively providing for the issuance by Borrower of its First Mortgage Notes
in the total stated principal amount of $27,000,000 and the issuance by STI of
its First Mortgage Notes in the total stated principal amount of $33,000,000.
NOTEHOLDERS means American General Life Insurance Company, Merit Life
Insurance Company, MONY Life Insurance Company of America, The Mutual Life
Insurance Company of New York, Principal Mutual Life Insurance Company, and The
Variable Annuity Life Insurance Company, together with the successor holders of
notes issued under the Note Agreements.
NOTICE OF BORROWING means a notice substantially in the form of
EXHIBIT D-1.
NOTICE OF CONVERSION means a notice substantially in the form of
EXHIBIT D-2.
OBLIGATION means all present and future indebtedness, liabilities,
and obligations, and all renewals, increases, and extensions thereof, or any
part thereof, now or hereafter owed to Agent, Syndication Agent, or any Lender
by any Person under any Loan Paper, together with all interest accruing
thereon, fees, costs, and expenses (including, without limitation, all
reasonable attorneys' fees and expenses incurred in the enforcement or
collection thereof) payable under the Loan Papers or in connection with the
protection of Rights under the Loan Papers.
PARTICIPANT is defined in SECTION 14.11(B).
<PAGE> 14
PBGC means the Pension Benefit Guaranty Corporation.
PERMITTED-FUNDED DEBT means, at any time, Funded Debt permitted under
SECTION 9.3.
PERMITTED INVESTMENTS means those items described on SCHEDULE 9.7.
PERMITTED LIENS means, at any time, the Lenders Liens and other Liens
permitted under SECTION 9.4.
PERMITTED TRANSFER means, at any time, the Transfers permitted under
SECTION 9.9.
PERSON means any individual, Tribunal, or other entity.
PLEDGE AGREEMENT means the Stock Pledge Agreement dated as of December
22, 1994, executed and delivered by Borrower in favor of Collateral Trustee,
and amended by, among other things, an amendment substantially in the form of
EXHIBIT C-2.
POTENTIAL DEFAULT means the occurrence of any event or existence of
any circumstance that would, upon notice or lapse of time or both, become a
Default.
PRIME RATE means, for any day, the prime rate per annum most recently
announced by Agent as its prime rate in effect at its principal office in
Dallas and thereafter entered into the minutes of Agent's Loan and Discount
Committee, automatically fluctuating upward and downward with and at the time
specified in each such announcement without special notice to Borrower or any
other Person, which prime rate may not necessarily represent the lowest or best
rate actually charged to a customer.
PRINCIPAL DEBT means, at any time, the unpaid principal balance of all
Borrowings.
PURCHASER is defined in SECTION 14.11(C).
QUALIFYING DEBT means, at any time, Funded Debt for money borrowed by
Borrower with respect to which all of the following are true:
(a) that Debt is permitted to be incurred under SECTION
9.3 at the time it is incurred;
(b) that Debt is permitted to be incurred by the terms
of, or a prior written consent or waiver under, each agreement,
document, or instrument governing other Debt of any KPP Company or any
of their Subsidiaries;
(c) that Debt is permitted to be pari passu secured with
all other Debt that is secured by the Collateral by the terms of, or a
prior written consent or waiver under, each agreement, document, or
instrument governing all Debt that is secured by the Collateral;
(d) each of the one or more initial holders of that Debt
(i) is either a commercial bank chartered under (or duly authorized to
operate a branch in the United States under) the Laws of the United
States of America or any of its states or an insurance company or
commercial finance company organized under the Laws of any such state,
and (ii) has capital and surplus in excess of $100,000,000 at the time
it becomes the holder of that Debt;
(e) that Debt is not guarantied in any manner by any
Person and is not secured by any Lien unless any such guaranty or Lien
concurrently pari passu assures and secures the Obligation; and
(f) Borrower has delivered to Agent a certificate (in
form and substance acceptable to Agent) of a Responsible Officer of
KPC at least 30 days before the incurrence of that Debt certifying
that (i) Borrower intends to secure that Debt with the Collateral and
(ii) the Debt complies with each of the provisions of this definition
in order to constitute "Qualifying Debt."
<PAGE> 15
REPRESENTATIVES means representatives, officers, directors, employees,
attorneys, accountants, and agents.
RESERVE REQUIREMENT means, for any LIBOR Rate Borrowing for the
relevant Interest Period, the maximum aggregate reserve requirements (including
all basic, supplemental, emergency, special, marginal, and other reserves
required by applicable Law) applicable to a member bank of the Federal Reserve
System for eurocurrency fundings or liabilities.
RESPONSIBLE OFFICER of a Person means its chairman, president, chief
executive officer, chief financial officer, or treasurer.
RESTRICTED SUBSIDIARY means, at any time, each Subsidiary of KPP other
than those that KPP has designated -- by a certificate of its chief financial
officer executed and delivered to Agent in form and substance acceptable to
Agent - - as NOT being a Restricted Subsidiary, which KPP may do from time to
time and at any time so long as (a) Borrower, STS, STI, STOP, and any other
Subsidiary ever designated by KPP as a Restricted Subsidiary is always a
Restricted Subsidiary for purposes of this agreement and (b) immediately after
that designation, no Default or Potential Default exists and $1.00 of
additional Funded Debt could be incurred under SECTION 9.3.
RIGHTS means rights, remedies, powers, privileges, and benefits.
SECONDARY CD RATE means, for any day, an annual rate of interest equal
to the sum (rounded upward, if necessary, to the nearest 0.01%) of (a) the
quotient of (i) the secondary market rate for 90-day certificates of deposit
(secondary market) of major United States money market banks for the most
recent weekly period ending Friday either (A) as reported in the Federal
Reserve Statistical release entitled "Selected Interest Rates" (currently
Publication H.15[519]) or any successor publication released during the week
for which the rate is being determined, which rate shall be in effect for
purposes of this determination for each day of the week in which the release
date of such publication occurs, or (B) if not so reported, as determined by
Agent on the basis of bids quoted to Agent at approximately 9:00 a.m. on such
day by three New York certificate of deposit dealers selected by Agent and of
recognized standing for secondary market morning offerings of negotiable
certificates of deposit, with maturities of 90 days, of major United States
money market banks, divided by (ii) a percentage equal to 100% minus the
then-stated maximum rate of all reserve requirements under regulations issued
by the Federal Reserve Board (including, without limitation, any margin,
emergency, supplemental, special, or other reserves for a member of the Federal
Reserve System having deposits in excess of $1,000,000,000 required by Law)
applicable to any Lender, plus (b) the actual (or, if not known, the estimated)
per annum assessment rate (rounded upward, if necessary, to the nearest 0.01%)
payable by Agent to The Federal Deposit Insurance Corporation (or its
successor) for insuring liability for time deposits, as in effect from time to
time.
SECURITY DOCUMENTS means, collectively, the Intercreditor Agreement,
Pledge Agreement, and Mortgage and any other document, financing statements,
and stock powers creating or perfecting Lender Liens.
SOLVENT means, as to a Person, that (a) the aggregate fair market
value of its assets exceeds its liabilities, (b) it has sufficient cash flow to
enable it to pay its Debts as they mature, and (c) it does not have
unreasonably small capital to conduct its businesses as currently, or proposed
to be, conducted.
STATED TERMINATION DATE means December 17, 1996.
STEUART ASSETS mean substantially all of the assets of Steuart
Petroleum and its affiliates, including, without limitation, (a) seven
petroleum-products terminals and (b) the pipelines and related tankage serving
Andrews Air Force Base.
STEUART PETROLEUM means Steuart Petroleum Co., a Delaware corporation.
STI means StanTrans, Inc., a Delaware corporation that is a wholly
owned Subsidiary of STS.
<PAGE> 16
STOP means Support Terminals Operating Partnership, L.P., a Delaware
limited partnership, of which Borrower is a 99% limited partner and STS is a 1%
general partner.
STS means Support Terminal Services, Inc., a Delaware corporation that
is a wholly owned Subsidiary of Borrower.
SUBSIDIARY of any Person means any entity of which at least 50% (in
number of votes) of the stock, partnership, or equivalent interests is owned of
record or beneficially, directly or indirectly, by that Person.
SYNDICATION AGENT means, at any time, Chemical Securities, Inc. acting
as syndication agent under the Loan Papers.
TANGIBLE NET WORTH, for any Person and at any time, means the sum of
(a) stockholders' equity or partner capital accounts, as the case may be, as
shown on a balance sheet, minus (b) treasury stock, if applicable, minus (c)
any surplus resulting from the write-up of assets, minus (d) goodwill,
including, without limitation, any amounts representing the excess of the
purchase price paid for acquired assets, stock, or partnership interests over
the book value assigned to them, minus (e) patents, trademarks, service marks,
trade names, and copyrights, minus (f) other intangible assets.
TAXES means, for any Person, taxes, assessments, or other
governmental charges or levies imposed upon it, its income, or any of its
properties, franchises, or assets.
TERM GUARANTIES means the "Guaranties," as that term is defined in the
Note Agreements as in effect on the Closing Date.
TERM NOTES means the "Notes," as the term is defined in the Note
Agreements as in effect on the Closing Date.
TRANSFER means to sell, lease, transfer, or otherwise dispose or, as
the context requires, a sale, lease, transfer, or other disposition.
TRIBUNAL means any (a) local, state, or federal judicial, executive,
or legislative instrumentality, (b) private arbitration board or panel, or (c)
central bank.
TYPE means any type of Borrowing determined with respect to the
applicable interest option.
1.2 Time References. Unless otherwise specified, in the
Loan Papers (a) time references (e.g., 10:00 a.m.) are to time in Dallas, Texas,
and (b) in calculating a period from one date to another, the word "from" means
"from and including" and the word "to" or "until" means "to but excluding."
1.3 Other References. Unless otherwise specified, in the
Loan Papers (a) where appropriate, the singular includes the plural and vice
versa, and words of any gender include each other gender, (b) heading and
caption references may not be construed in interpreting provisions, (c) monetary
references are to currency of the United States of America, (d) section,
paragraph, annex, schedule, exhibit, and similar references are to the
particular Loan Paper in which they are used, (e) references to "telecopy,"
"facsimile," "fax," or similar terms are to facsimile or telecopy transmissions,
(f) references to "including" mean including without limiting the generality of
any description preceding that word, (g) the rule of construction that
references to general items that follow references to specific items are limited
to the same type or character of those specific items is not applicable in the
Loan Papers, (h) references to any Person include that Person's heirs, personal
representatives, successors, trustees, receivers, and permitted assigns, (i)
references to any Law include every amendment or supplement to it, rule and
regulation adopted under it, and successor or replacement for it, and (j)
references to any Loan Paper or other document include every renewal, extension,
and refinancing of it, amendment and supplement to it, and replacement or
substitution for it.
<PAGE> 17
1.4 Accounting Principles. Unless otherwise specified,
in the Loan Papers (a) GAAPetermines all accounting and financial terms and
compliance with financial covenants, (b) GAAP in effect on the date of this
agreement determines compliance with financial covenants, (c) otherwise, all
accounting principles applied in a current period must be comparable in all
material respects to those applied during the preceding comparable period, and
(d) while KPP has any consolidated Subsidiaries (i) all accounting and financial
terms and compliance with reporting covenants applicable to KPP must be on a
consolidating and consolidated basis, as applicable and (ii) compliance with
financial covenants applicable to KPP must be on a consolidated basis.
SECTION 2 BORROWINGS.
2.1 Commitments. Subject to the provisions in the Loan
Papers, each Lender severally and not jointly agrees to lend to Borrower that
Lender's Commitment Percentage of Borrowings -- which Borrowings may be
borrowed, repaid, and reborrowed -- so long as (a) each Borrowing must be made
on a Business Day before the Actual Termination Date, (b) the Principal Debt may
never exceed the total Commitments, and (c) the Principal Debt owed any Lender
may never exceed its Commitment.
2.2 Borrowings.
(a) Borrower may request a Borrowing by submitting
to Agent a Notice of Borrowing -- which, subject to CLAUSE (D), is
irrevocable and binding on Borrower. It must be received by Agent no
later than 10:00 a.m. on the third Business Day before the date on
which funds are requested (the "BORROWING DATE") for any LIBOR Rate
Borrowing or on the Business Day immediately before the Borrowing Date
for any Alternate Base Rate Borrowing. Each Borrowing must be at least
$100,000 or a $50,000 greater multiple.
(b) Each Lender shall remit its Commitment
Percentage of each requested Borrowing to Agent's principal office in
Dallas, Texas, by wire transfer according to Agent's wiring
instructions on SCHEDULE 2.1, in funds that are available for immediate
use by Agent by 12:00 Noon on the Borrowing Date. Subject to receipt
of those funds, Agent shall (unless to its actual knowledge any of the
applicable conditions precedent have not been satisfied by Borrower or
waived by Determining Lenders) make those funds available to Borrower
as directed in the Notice of Borrowing.
(c) Absent contrary written notice from a Lender,
Agent may assume that each Lender has made its Commitment Percentage of
the requested Borrowing available to Agent on the Borrowing Date, and
Agent may, in reliance upon that assumption (but shall not be required
to), make available to Borrower a corresponding amount. If a Lender
fails to make its Commitment Percentage of any requested Borrowing
available to Agent on the Borrowing Date, Agent may recover the
applicable amount on demand (i) from that Lender, together with
interest at an annual rate equal to the Federal Funds Rate during the
period from the date the amount was made available to Borrower by Agent
and until the date Agent recovers the amount from that Lender, or (ii)
if that Lender fails to pay its amount upon demand, then from Borrower
-- who is not liable for any related Funding Loss but is liable for
interest at an annual interest rate equal to the rate applicable to the
requested Borrowing during the period from the Borrowing Date and until
the date Agent recovers the amount from Borrower. No Lender is
responsible for the failure of any other Lender to make its Commitment
Percentage of any Borrowing. However, failure of any Lender to make
its Commitment Percentage of any Borrowing does not excuse any other
Lender from making its Commitment Percentage of any Borrowing. As soon
as is reasonably practical, Agent shall notify Borrower if a Lender has
failed to make its Commitment Percentage of any Borrowing.
(d) Borrower may revoke a Notice of Borrowing that
requests a LIBOR Rate Borrowing -- and not be liable for any resulting
Funding Loss -- if, before the LIBOR Rate for the requested Borrowing
is established, SECTION 3.15 or 3.17 becomes applicable to it.
<PAGE> 18
2.3 Termination. The Commitments are automatically
terminated on the Actual Termination Date. The Commitments are automatically
terminated in whole or in part, as the case may be, by prepayments in accordance
with SECTION 3.2(C). Furthermore, without premium or penalty, and upon giving at
least three Business Days prior written and irrevocable notice to Agent,
Borrower may, before the Actual Termination Date, terminate all or part of the
unused portion of the total Commitments. Each voluntary partial termination
must be at least $1,000,000 or a $50,000 greater multiple and must be ratable
for Lenders based on their respective Commitment Percentages. Once terminated,
no part of any Commitment may be reinstated without the prior written approval
of all Lenders.
SECTION 3 PAYMENT TERMS.
3.1. Notes and Payments.
(a) Principal Debt of Borrowings under SECTION 2.2
shall be evidenced by the Notes, one payable to each Lender in the
stated principal amount of its Commitment.
(b) Borrower must make each payment and prepayment
on the Obligation to Agent's principal office in Dallas, Texas, by wire
transfer according to Agent's wiring instructions on SCHEDULE 2.1, in
funds that will be available for immediate use by Agent by 12:00 Noon
on the day due. Otherwise, but subject to SECTION 3.8, those funds
continue to accrue interest as if they were received on the next
Business Day. Agent shall pay to each Lender, by wire transfer
according to its wiring instructions on SCHEDULE 2.1, any payment or
prepayment to which that Lender is entitled on the same day Agent
receives the funds from Borrower if Agent receives the payment or
prepayment before 12:00 Noon, and otherwise before 12:00 Noon on the
following Business Day. If and to the extent that Agent does not make
payments to Lenders when due, unpaid amounts shall accrue interest at
an annual rate equal to the Federal Funds Rate from the due date until
(but not including) the payment date.
3.2 Interest and Principal Payments.
(a) Accrued interest on each LIBOR Rate Borrowing is
due and payable on the last day of its respective Interest Period. If
any Interest Period is a period greater than three months, then accrued
interest is also due and payable on the date ending each three month
period after the commencement of the Interest Period. Accrued interest
on each Alternate Base Rate Borrowing is due and payable on the last
day of each January, April, July, and October (commencing January 31,
1996), with a final scheduled interest payment on Borrowings on the
Actual Termination Date.
(b) Unless the Actual Termination Date occurs as a
result of the exercise of Rights and acceleration of the Obligation
under SECTION 12.1, then the Principal Debt on the Actual Termination
Date is due and payable on the Actual Termination Date.
(c) If Borrower incurs any Funded Debt other than
Funded Debt incurred under the 1994 Credit Agreement or the Note
Agreements (each a "SUBJECT FUNDED DEBT INCURRENCE") then, concurrently
with receipt of proceeds from a subject Funded Debt incurrence,
Borrower shall prepay to Agent for Lenders (with any resulting Funding
Loss) an amount equal at that time to the greater of either the total
proceeds received from that subject Funded Debt incurrence or the total
Obligation. The prepayment shall be applied in accordance with SECTION
3.11(B). This section applies to every subject Funded Debt
incurrence, if more than one, until the Obligation is fully paid. The
Commitments are automatically terminated in part by the amount of
Principal Debt prepaid under this section and are automatically
terminated in full by the full payment of the Principal Debt by
prepayments under this section.
(d) If any of the limitations in SECTION 2.1 are
ever exceeded, then Borrower shall prepay the Principal Debt, in at
least the amount of that excess, together with (i) all accrued and
unpaid interest on the principal amount so prepaid and (ii) any
resulting Funding Loss.
<PAGE> 19
3.3 Interest Options. Except where specifically
otherwise provided, Borrowings bear interest at an annual rate equal to the
lesser of either (a) the Alternate Base Rate or the LIBOR Rate (in each case as
designated or deemed designated by Borrower), as the case may be, or (b) the
Maximum Rate. Each change in the Alternate Base Rate, the Applicable Margin,
and the Maximum Rate is effective, without notice to Borrower or any other
Person, upon the effective date of change.
3.4 Quotation of Rates. A Responsible Officer of
Borrower may call Agent before delivering a Notice of Borrowing to receive an
indication of the interest rates then in effect, but the indicated rates do not
bind Agent or Lenders or affect the interest rate that is actually in effect
when Borrower delivers its Notice of Borrowing or on the Borrowing Date.
3.5 Default Rate. If permitted by Law, all past-due
Principal Debt and accrued interest thereon bears interest from maturity (stated
or by acceleration) at the Default Rate until paid, regardless whether payment
is made before or after entry of a judgment.
3.6 Interest Recapture. If the designated interest rate
applicable to any Borrowing exceeds the Maximum Rate, the interest rate on that
Borrowing is limited to the Maximum Rate, but any subsequent reductions in the
designated rate shall not reduce the interest rate thereon below the Maximum
Rate until the total amount of accrued interest equals the amount of interest
that would have accrued if that designated rate had always been in effect. If
at maturity (stated or by acceleration), or at final payment of the Notes, the
total interest paid or accrued is less than the interest that would have accrued
if the designated rates had always been in effect, then, at that time and to the
extent permitted by Law, Borrower shall pay an amount equal to the difference
between (a) the lesser of the amount of interest that would have accrued if the
designated rates had always been in effect and the amount of interest that would
have accrued if the Maximum Rate had always been in effect, and (b) the amount
of interest actually paid or accrued on the Notes.
3.7 Interest Calculations.
(a) Interest will be calculated on the basis of
actual number of days (including the first day but excluding the last
day) elapsed but computed as if each calendar year consisted of 360
days for LIBOR Rate Borrowings and Alternate Base Rate Borrowings based
on Secondary CD Rate or the Federal Funds Rate (unless the calculation
would result in an interest rate greater than the Maximum Rate, in
which event interest will be calculated on the basis of a year of 365
or 366 days, as the case may be), and 365 or 366 days, as the case may
be, for Alternate Base Rate Borrowings based on the Prime Rate. All
interest rate determinations and calculations by Agent are conclusive
and binding absent manifest error.
(b) The provisions of this agreement relating to
calculation of the Alternate Base Rate and the LIBOR Rate are included
only for the purpose of determining the rate of interest or other
amounts to be paid under this agreement that are based upon those
rates. Each Lender may fund and maintain its funding of all or any
part of each Borrowing as it selects.
3.8 Maximum Rate. Regardless of any provision contained
in any Loan Paper, no Lender is entitled to contract for, charge, take, reserve,
receive, or apply, as interest on all or any part of the Obligation any amount
in excess of the Maximum Rate, and, if Lenders ever do so, then any excess shall
be treated as a partial prepayment of principal and any remaining excess shall
be refunded to Borrower. In determining if the interest paid or payable exceeds
the Maximum Rate, Borrower and Lenders shall, to the maximum extent permitted
under applicable Law, (a) treat all Borrowings as but a single extension of
credit (and Lenders and Borrower agree that is the case and that the provision
in this agreement for multiple Borrowings is for convenience only), (b)
characterize any nonprincipal payment as an expense, fee, or premium rather than
as interest, (c) exclude voluntary prepayments and their effects, and (d)
amortize, prorate, allocate, and spread the total amount of interest throughout
the entire contemplated term of the Obligation. However, if the Obligation is
paid in full before the end of its full contemplated term, and if the interest
received for its actual period of existence exceeds the Maximum Amount, Lenders
shall refund any excess (and Lenders may not, to the extent permitted by Law, be
subject to any penalties provided by any Laws for contracting for, charging,
taking, reserving, or receiving interest in excess of the Maximum
<PAGE> 20
Amount). If the Laws of the State of Texas are applicable for purposes of
determining the "Maximum Rate" or the "Maximum Amount," then those terms mean
the "indicated rate ceiling" from time to time in effect under Article 1.04,
Title 79, Revised Civil Statutes of Texas, as amended. Borrower agrees that
Chapter 15, Subtitle 79, Revised Civil Statutes of Texas, 1925, as amended
(which regulates certain revolving credit loan accounts and revolving triparty
accounts), does not apply to the Obligation.
3.9 Interest Periods. When Borrower requests any LIBOR
Rate Borrowing, Borrower may elect the applicable interest period (each an
"INTEREST PERIOD"), which may be, at Borrower's option, one, two, three, or six
months, subject to the following conditions: (a) the initial Interest Period
commences on the applicable Borrowing Date or conversion date, and each
subsequent applicable Interest Period commences on the day when the next
preceding applicable Interest Period expires; (b) if any Interest Period begins
on a day for which no numerically corresponding Business Day in the calendar
month at the end of the Interest Period exists, then the Interest Period ends on
the last Business Day of that calendar month; (c) no Interest Period for any
portion of Principal Debt may extend beyond the scheduled repayment date for
that portion of Principal Debt; and (d) no more than five Interest Periods may
be in effect at one time.
3.10 Conversions. Subject to the dollar limits and
denominations of SECTION 2.1, Borrower may (a) convert a LIBOR Rate Borrowing on
the last day of the applicable Interest Period to an Alternate Base Rate
Borrowing, (b) convert an Alternate Base Rate Borrowing at any time to a LIBOR
Rate Borrowing, and (c) elect a new Interest Period for a LIBOR Rate Borrowing,
by giving a Notice of Conversion to Agent no later than 10:00 a.m. on the third
Business Day before the conversion date or the last day of the Interest Period,
as the case may be (for conversion to a LIBOR Rate Borrowing or election of a
new Interest Period), and no later than 10:00 a.m. one Business Day before the
last day of the Interest Period (for conversion to an Alternate Base Rate
Borrowing). Absent Borrower's notice of conversion or election of a new
Interest Period, a LIBOR Rate Borrowing shall be deemed converted to an
Alternate Base Rate Borrowing effective when the applicable Interest Period
expires.
3.11 Order of Application. The following provisions apply
except when and to the extent superseded by SECTION 4.09 of the Intercreditor
Agreement.
(a) If CLAUSE (B) below is not applicable, payments
on the Obligation must be applied as required by applicable Loan Paper
provisions other than CLAUSE (B) below.
(b) Any payment or prepayment (while a Default or
Potential Default exists) and any prepayment under SECTION 3.2(C) must
be applied in the following order: (i) All fees and expenses for which
Agent or Lenders have not been paid or reimbursed in accordance with
the Loan Papers (and if such payment is less than all unpaid or
unreimbursed fees and expenses, then the payment shall be paid against
unpaid and unreimbursed fees and expenses in the order of incurrence or
due date); (ii) accrued interest on the Principal Debt; (iii) the
remaining Principal Debt in the order as Determining Lenders may elect
(but Determining Lenders agree to apply payments in an order that will
minimize any Funding Loss); and (iv) the remaining Obligation in the
order and manner Determining Lenders deem appropriate.
(c) Agent and Lenders shall attempt to
apply mandatory payments against the Obligation in a manner that
minimizes Funding Losses.
3.12 Sharing of Payments, Etc.. If any Lender obtains any
payment (whether voluntary, involuntary, or otherwise, including, without
limitation, as a result of exercising its Rights under SECTION 3.13) that
exceeds its Commitment Percentage (or, if a Default exists, its Default
Percentage) of that amount, then that Lender shall purchase from the other
Lenders participations that will cause the purchasing Lender to share the excess
payment ratably with each other Lender per their respective Commitment
Percentages or Default Percentages, as applicable. If all or any portion of any
excess payment is subsequently recovered from the purchasing Lender, then the
purchase shall be rescinded and the purchase price restored to the extent of the
recovery. Borrower agrees that any Lender purchasing a participation from
another Lender under this SECTION 3.12 may, to the fullest extent permitted by
Law,
<PAGE> 21
exercise all of its Rights of payment (including the Right of offset) with
respect to that participation as fully as if that Lender were the direct
creditor of Borrower in the amount of that participation.
3.13 Offset. If a Default exists, each Lender is entitled
to exercise (for the benefit of all Lenders in accordance with SECTION 3.12) the
Rights of offset and banker's Lien against each and every account and other
property, or any interest therein, that any party to a Loan Paper (other than
Lenders and Agent) may now or hereafter have with, or which is now or hereafter
in the possession of, that Lender to the extent of the full amount of the
Obligation owed to it. Each Lender shall promptly notify Borrower of its
actions taken under this SECTION 3.13.
3.14 Booking Borrowings. To the extent permitted by Law,
any Lender may make, carry, or transfer its Borrowings at, to, or for the
account of any of its branch offices or the office of any of its Affiliates.
However, no Affiliate is entitled to receive any greater payment under SECTION
3.16 than the transferor Lender would have been entitled to receive with respect
to those Borrowings. Each Lender agrees that it will use its reasonable efforts
(consistent with its internal policies and applicable Law) to make, carry,
maintain, or transfer its part of any Borrowing with its Affiliates or branch
offices in an effort to eliminate or reduce to the extent possible the aggregate
amounts due to it under SECTIONS 3.16 and 3.17 if, in its reasonable judgment,
such efforts will not be disadvantageous to it.
3.15 Basis Unavailable or Inadequate for LIBOR Rate. If,
on or before any date when a LIBOR Rate is to be determined for a Borrowing,
Agent or any Lender determines (and Determining Lenders agree with that
determination) that the basis for determining the applicable rate is not
available or that the resulting rate does not accurately reflect the cost to
Lenders of making or converting Borrowings at that rate for the applicable
Interest Period, then Agent shall promptly notify Borrower and Lenders of that
determination (which is conclusive and binding on Borrower absent manifest
error). Unless Borrower has revoked the applicable Notice of Borrowing under
SECTION 2.2(D), the applicable Borrowing shall bear interest at the sum of the
Alternate Base Rate plus the Applicable Margin. Until Agent notifies Borrower
that those circumstances no longer exist, Lenders' commitments under this
agreement to make or convert to LIBOR Rate Borrowings are suspended.
3.16 Additional Costs.
(a) With respect to any LIBOR Rate Borrowing, (i) if any
present or future Law imposes, modifies, or deems applicable (or if
compliance by any Lender with any requirement of any Tribunal results
in) any requirement that any reserves (including, without limitation,
any marginal, emergency, supplemental, or special reserves) be
maintained, and if (ii) those reserves reduce any sums receivable by
that Lender under this agreement or increase the costs incurred by that
Lender in advancing or maintaining any portion of any LIBOR Rate
Borrowing and (iii) that Lender determines that the reduction or
increase is material (and it may, in determining the material nature of
the reduction or increase, utilize reasonable assumptions and
allocations of costs and expenses and use any reasonable averaging or
attribution method), then (iv) that Lender (through Agent) shall
deliver to Borrower a certificate setting forth in reasonable detail
the calculation of the amount necessary to compensate it for its
reduction or increase (which certificate is conclusive and binding
absent manifest error), and (iv) Borrower shall pay that amount to that
Lender within ten days after demand. The provisions of and
undertakings and indemnification set forth in this CLAUSE (A) shall
survive the satisfaction and payment of the Obligation and termination
of this agreement.
(b) With respect to any Borrowing, if any present or future
Law regarding capital adequacy or compliance by any Lender with any
request, directive, or requirement now existing or hereafter imposed by
any Tribunal regarding capital adequacy, or any change in its written
policies or in the risk category of this transaction, reduces the rate
of return on its capital as a consequence of its obligations under this
agreement to a level below that which it otherwise could have achieved
(taking into consideration its policies with respect to capital
adequacy) by an amount deemed by it to be material (and it may, in
determining the amount, utilize reasonable assumptions and allocations
of costs and expenses and use any reasonable averaging or attribution
method), then (unless the effect is already reflected in the rate of
interest then applicable under this
<PAGE> 22
agreement) that Lender (through Agent) shall notify Borrower and
deliver to Borrower a certificate setting forth in reasonable detail
the calculation of the amount necessary to compensate it (which
certificate is conclusive and binding absent manifest error), and
Borrower shall pay that amount to Lender within ten days after demand.
The provisions of and undertakings and indemnification set forth in
this CLAUSE (B) shall survive the satisfaction and payment of the
Obligation and termination of this agreement.
(c) Any Taxes payable by Agent or any Lender or ruled (by a
Tribunal) payable by Agent or any Lender in respect of this agreement
or any other Loan Paper shall -- if permitted by Law and if deemed
material by that Agent or Lender (who may, in determining the material
nature of the amount payable, utilize reasonable assumptions and
allocations of costs and expenses and use any reasonable averaging or
attribution method) -- be paid by Borrower, together with interest and
penalties, if any (except for Taxes payable on the overall net income
of that Agent or that Lender and except for interest and penalties
incurred as a result of the gross negligence or willful misconduct of
Agent or any Lender). That Agent or Lender (through Agent) shall
notify Borrower and deliver to Borrower a certificate setting forth in
reasonable detail the calculation of the amount of payable Taxes, which
certificate is conclusive and binding (absent manifest error), and
Borrower shall pay that amount to Agent for the account of that Agent
or Lender, as the case may be, within ten days after demand. If that
Agent or that Lender subsequently receives a refund of the Taxes paid
to it by Borrower, then the recipient shall promptly pay the refund to
Borrower.
3.17 Change in Laws. If any Law makes it unlawful for any
Lender to make or maintain LIBOR Rate Borrowings, then that Lender shall
promptly notify Borrower and Agent, and (a) as to undisbursed funds, that
requested Borrowing shall be made as an Alternate Base Rate Borrowing unless
Borrower has revoked the applicable Notice of Borrowing under SECTION 2.2(D),
(b), as to any outstanding Borrowing, (i) if maintaining the Borrowing until the
last day of the applicable Interest Period is unlawful, the Borrowing shall be
converted to an Alternate Base Rate Borrowing as of the date of notice, and
Borrower shall pay any related Funding Loss, or (ii) if not prohibited by Law,
the Borrowing shall be converted to an Alternate Base Rate Borrowing as of the
last day of the applicable Interest Period, or (iii) if any conversion will not
resolve the unlawfulness, Borrower shall promptly prepay the Borrowing, without
penalty, together with any related Funding Loss. No Notice of Conversion is
required to be delivered in connection with any conversion under this SECTION
3.17.
3.18 Foreign Lenders. Each Lender that is organized under
the laws of any jurisdiction other than the United States of America or any of
its states (a) represents to Agent and Borrower that (i) no Taxes are required
to be withheld by Agent or Borrower with respect to any payments to be made to
it in respect of the Obligation and (ii) it has furnished to Agent and Borrower
two duly completed copies of either U.S. Internal Revenue Service Form 4224,
Form 1001, or Form W-8 (wherein it claims entitlement to complete exemption from
U.S. federal withholding Tax on all interest payments under the Loan Papers),
and (b) covenants to (i) provide Agent and Borrower a new Form 4224, Form 1001,
or Form W-8 upon the expiration or obsolescence of any previously delivered form
according to Law, duly executed and completed by it, and (ii) comply from time
to time with all Laws with regard to the withholding tax exemption. If any of
the foregoing is not true or the applicable forms are not provided, then
Borrower and Agent (without duplication) may deduct and withhold from interest
payments under the Loan Papers United States federal income Tax at the full rate
applicable under the Code.
3.19 Funding Loss. Borrower agrees to indemnify each
Lender against, and pay to it upon demand, any Funding Loss of that Lender.
When any Lender demands that Borrower pay any Funding Loss, that Lender shall
deliver to Borrower and Agent a certificate setting forth in reasonable detail
the basis for imposing Funding Loss and the calculation of the amount, which
calculation is conclusive and binding absent manifest error. The provisions of
and undertakings and indemnification set forth in this SECTION 3.19 survives the
satisfaction and payment of the Obligation and termination of this agreement.
<PAGE> 23
SECTION 4 FEES.
4.1 Treatment of Fees. The fees described in this SECTION
4 (a) are not compensation for the use, detention, or forbearance of money, (b)
are in addition to, and not in lieu of, interest and expenses otherwise
described in this agreement, (c) are payable in accordance with SECTION 3.1, (d)
are non-refundable, (e) to the fullest extent permitted by Law, bear interest,
if not paid when due, at the Default Rate, and (f) are calculated on the basis
of actual number of days (including the first day but excluding the last day)
elapsed, but computed as if each calendar year consisted of 360 days, unless
computation would result in an interest rate in excess of the Maximum Rate in
which event the computation is made on the basis of a year of 365 or 366 days,
as the case may be.
4.2 Agent's and Syndication Agents' Fees. Borrower shall
pay to Agent and Syndication Agent the fees described in the letter agreement
dated as of the date of this agreement between Borrower, Agent, and Syndication
Agent.
4.3 Commitment Fee. Borrower shall pay to Agent for the
account of Lenders (based on their respective Commitment Percentages) a
commitment fee, payable as it accrues from the date of this agreement as of the
last day of each January, April, July, and October (commencing January 31,
1996), and on the Actual Termination Date, equal to 0.20% (per annum) of the
amount by which (a) the total Commitments exceed (b) the average-daily Principal
Debt, determined for the calendar quarter (or portion of a calendar quarter
commencing on the date of this agreement or ending on the Actual Termination
Date) preceding and including the date it is due.
SECTION 5 SECURITY.
5.1 Guaranty. Full and complete payment of the Obligation
is guaranteed in accordance with the Guaranty executed by Guarantors.
5.2 Collateral. Full and complete payment of the
Obligation is secured by the Lender Liens on all of the Collateral. No
Collateral may be subordinated, substituted, or released without the prior
written consent of all Lenders.
5.3 Additional Security and Guaranties. Lenders may (as
contemplated in connection with Qualifying Debt or otherwise), without notice or
demand and without affecting any Person's obligations under the Loan Papers,
from time to time (a) receive and hold additional collateral from any Person for
the payment of all or any part of the Obligation and exchange, enforce, or
release all or any part of that collateral and (b) accept and hold any
endorsement or guaranty of payment of all or any part of the Obligation and
release any endorser or guarantor, or any Person who has given any other
security for the payment of all or any part of the Obligation, or any other
Person in any way obligated to pay all or any part of the Obligation.
5.4 Collateral Documentation. Borrower shall execute, or
cause to be executed, financing statements, stock powers, assignments, consents
of partners and other Persons, and other agreements, documents, and instruments,
each in the form and content reasonably required by Agent, and Borrower shall
pay all costs of filing any financing, continuation, or termination statements,
or other action taken by Agent relating to the Collateral, including, without
limitation, costs and expenses of any Lien search reasonably required by Agent.
SECTION 6 CONDITIONS PRECEDENT.
6.1 Initial Borrowing. Lenders are not obligated to fund
the initial Borrowing unless Agent has received all of the items described in
SCHEDULE 6.1 on or before the Closing Date, each in form and substance
acceptable to Agent and its counsel.
6.2 All Borrowings. Lenders are not obligated to fund (as
opposed to continue or convert) any Borrowing, unless on the applicable
Borrowing Date (and after giving effect to the requested
<PAGE> 24
Borrowing: (a) Agent has timely received a Notice of Borrowing; (b) all of the
representations and warranties in the Loan Papers are true and correct in all
material respects (except to the extent that (i) the representations and
warranties speak to a specific date or (ii) the facts on which such
representations and warranties are based have been changed by transactions
contemplated or permitted by this agreement); (c) no Material Adverse Event,
Default, or Potential Default exists; and (d) the funding of the Borrowing is
permitted by Law. Upon Agent's request, Borrower has delivered to Agent
reasonable evidence substantiating any of the matters in the Loan Papers that
are necessary to enable Borrower to qualify for the Borrowing.
6.3 General. Each condition precedent in this agreement
(including, without limitation, each in SCHEDULE 6.1) is material to the
transactions contemplated by this agreement, and time is of the essence with
respect to each condition precedent. If Determining Lenders have first
approved, Lenders may fund any Borrowing without all conditions being
satisfied. To the extent permitted by Law, that funding or issuance may not be
deemed to be a waiver of the requirement that each condition precedent be
satisfied as a prerequisite for any subsequent funding or issuance, unless
Determining Lenders specifically waive each item in writing.
SECTION 7 REPRESENTATIONS AND WARRANTIES. Borrower represents
and warrants to Agent and Lenders as follows:
7.1 Purpose of Credit Facility. Borrower will use
proceeds of Borrowings only as described in the recitals to this agreement.
Borrower is not engaged principally, or as one of its important activities, in
the business of extending credit for the purpose of purchasing or carrying any
"margin stock" within the meaning of Regulation U of the Board of Governors of
the Federal Reserve System. No part of the proceeds of any Borrowing will be
used, directly or indirectly, for a purpose that violates any Law, including,
without limitation, the provisions of Regulation U.
7.2 Existence, Good Standing, and Authority. Each KPP
Company is duly organized, validly existing, and in good standing under the Laws
of its jurisdiction of organization as identified on SCHEDULE 7.2. Except where
failure is not a Material Adverse Event, each KPP Company (a) is duly qualified
to transact business and in good standing as a foreign entity in each
jurisdiction where (i) the Collateral is or may be located and (ii) the nature
and extent of its business and properties require due qualification and good
standing (those jurisdictions for CLAUSES (I) and (II) being identified on
SCHEDULE 7.2 and as otherwise disclosed in writing to Agent and Lenders from
time to time after the date of this agreement) and (b) possesses all requisite
authority and power to conduct its business as is now being, or is contemplated
by this agreement to be, conducted, except where failure is not a Material
Adverse Event. As used in this SECTION 7.2, the concept of "good standing" is
inapplicable to each KPP Company that is a partnership.
7.3 Subsidiaries. Excluding Insignificant Subsidiaries,
KPC has no Subsidiaries except as disclosed on SCHEDULE 7.3 (and as otherwise
disclosed in writing to Agent and Lenders from time to time after the date of
this agreement to reflect any changes to the schedule as a result of
transactions permitted by this agreement). All of the outstanding shares of
capital stock (or similar voting interests) of those Subsidiaries are duly
authorized, validly issued, fully paid, and nonassessable, and are owned of
record and beneficially as set forth thereon, free and clear of any Liens,
restrictions, claims, or Rights of another Person, other than Permitted Liens,
and are not subject to any warrant, option, or other acquisition Right of any
Person or subject to any transfer restriction except for restrictions imposed by
securities Laws and general corporate or partnership Laws.
<PAGE> 25
7.4 [INTENTIONALLY BLANK].
7.5 Authorization and Contravention. The execution and
delivery by each KPP Company of each Loan Paper to which it is a party and the
performance by it of its obligations thereunder (a) are within its corporate or
partnership power, (b) have been duly authorized by all necessary corporate or
partnership action, (c) require no action by or filing with any Tribunal (other
than any action or filing that has been taken or made on or before the date of
this agreement), (d) do not violate any provision of its certificate or
agreement of limited partnership, certificate or articles of incorporation, or
bylaws (as applicable), (e) do not violate any provision of Law applicable to
it, other than violations that individually or collectively are not a Material
Adverse Event, (f) do not violate any Material Agreements to which it is a
party, other than violations that are not a Material Adverse Event, or (g) do
not result in the creation or imposition of any Lien (other than the Lender
Liens) on any asset of any KPP Company.
7.6 Binding Effect. Upon execution and delivery by all
parties thereto, each Loan Paper will constitute a legal and binding obligation
of each KPP Company party thereto, enforceable against it in accordance with its
terms, except as enforceability may be limited by applicable Debtor Laws and
general principles of equity.
7.7 Financial Statements. The Current Financials of KPP
were prepared in accordance with GAAP and present fairly the consolidated
financial condition, results of operations, and cash flows of the KPP Companies
as of, and for the portion of the fiscal year ending on the date or dates
thereof (subject only to normal year-end adjustments). All material liabilities
of the KPP Companies as of the date or dates of the Current Financials are
reflected therein or in the notes thereto. Except for transactions directly
related to, or specifically contemplated by, the Loan Papers, no subsequent
material adverse changes have occurred in the consolidated financial condition
of the KPP Companies from that shown in the Current Financials of KPP, nor has
any KPP Company incurred any subsequent material liability.
7.8 Litigation. Except as disclosed on SCHEDULE 7.8 and
as otherwise disclosed in writing to Agent and Lenders from time to time after
the date of this agreement (if the disclosures are approved by Determining
Lenders), no KPP Company or Restricted Subsidiary is subject to, or aware of the
threat of, any Litigation that is reasonably likely to be determined adversely
to any KPP Company, any Collateral, or any Restricted Subsidiary, or, if so
adversely determined, is a Material Adverse Event. No outstanding or unpaid
judgments exist against any KPP Company, any Collateral, or any Restricted
Subsidiary.
7.9 Taxes. All Tax returns of each KPP Company or
Restricted Subsidiary required to be filed have been filed (or extensions have
been granted) before delinquency, except for returns for which the failure to
file is not a Material Adverse Event, and all Taxes imposed upon each KPP
Company and Restricted Subsidiary or any Collateral that are due and payable
have been paid before delinquency, other than Taxes for which the relevant
criteria for Permitted Liens have been satisfied or for which nonpayment is not
a Material Adverse Event.
7.10 Environmental Matters. Except as disclosed on
SCHEDULE 7.10 and as otherwise disclosed in writing to Agent and Lenders from
time to time after the date of this agreement (if the disclosures are approved
by Determining Lenders), and other than conditions, circumstances, or violations
that are not, individually or in the aggregate, a Material Adverse Event,
Borrower (a) knows of no environmental condition or circumstance materially and
adversely affecting any KPP Company's or Restricted Subsidiary's properties
(including, without limitation, the Collateral) or operations, (b) has received
no report of any KPP Company's or Restricted Subsidiary's violation of any
Environmental Law, and (c) is not aware that any KPP Company or Restricted
Subsidiary is under any obligation to remedy any violation of any Environmental
Law. Each KPP Company and Restricted Subsidiary has taken prudent steps to
determine that its properties (including, without limitation, the Collateral)
and operations do not violate any Environmental Law, other than violations that
are not, individually or in the aggregate, a Material Adverse Event.
<PAGE> 26
7.11 Employee Plans. Except where occurrence or existence
is not a Material Adverse Event, (a) no Employee Plan has incurred an
"accumulated funding deficiency" (as defined in Section 302 of ERISA or Section
412 of the Code), (b) no KPP Company or Restricted Subsidiary has incurred
liability under ERISA to the PBGC in connection with any Employee Plan, (c) no
KPP Company or Restricted Subsidiary has withdrawn in whole or in part from
participation in a Multiemployer Plan, (d) no KPP Company or Restricted
Subsidiary has engaged in any "prohibited transaction" (as defined in Section
406 of ERISA or Section 4975 of the Code), and (e) no "reportable event" (as
defined in Section 4043 of ERISA) has occurred, excluding events for which the
notice requirement is waived under applicable PBGC regulations.
7.12 Properties; Liens. Each KPP Company and Restricted
Subsidiary has good and marketable title to all its property (including, without
limitation, the Collateral) reflected on the Current Financials -- except for
title impairments described in SECTION 9.4(b)(ii)(B), property that is obsolete,
or (c) property that has been disposed in the ordinary course of business or,
after the date of this agreement, as otherwise permitted by SECTION 9.10 or
SECTION 9.11. Except for Permitted Liens, no Lien exists on any property of any
KPP Company (including, without limitation, the Collateral), and the execution,
delivery, performance, or observance of the Loan Papers will not require or
result in the creation of any Lien (other than Lender Liens) on any property of
any KPP Company or Restricted Subsidiary (including, without limitation, the
Collateral).
7.13 Government Regulations. No KPP Company or Restricted
Subsidiary is subject to regulation under the Investment Company Act of 1940, as
amended, the Public Utility Holding Company Act of 1935, as amended, or any
other Law (other than Regulations G, T, U, and X of the Board of Governors of
the Federal Reserve System) that regulates the incurrence of Debt.
7.14 Affiliate Transactions. No KPP Company or Restricted
Subsidiary is a party to a material (i.e., requiring it to pay more than
$100,000 during the term of the governing agreement) transaction with any of its
Affiliates other than transactions in the ordinary course of business and upon
fair and reasonable terms not materially less favorable than it could obtain or
could become entitled to in an arm's-length transaction with a Person that was
not its Affiliate.
7.15 [INTENTIONALLY BLANK].
7.16 Material Agreements. No KPP Company or Restricted
Subsidiary is a party to any Material Agreement, other than the Loan Papers, the
Note Agreements, and the Material Agreements described on SCHEDULE 7.16. All
described Material Agreements are in full force and effect, and no default or
potential default exists on the part of any KPP Company or Restricted Subsidiary
thereunder that is a Material Adverse Event.
7.17 Insurance. Each KPP Company and Restricted Subsidiary
maintains with financially sound, responsible, and reputable insurance companies
or associations (or, as to workers' compensation or similar insurance, with an
insurance fund or by self-insurance authorized by the jurisdictions in which it
operates) insurance concerning its properties (including, without limitation,
the Collateral) and businesses against casualties and contingencies and of types
and in amounts (and with co-insurance and deductibles) as is customary in the
case of similar businesses.
7.18 Labor Matters. No actual or -- to Borrower's
knowledge -- threatened strikes, labor disputes, slow downs, walkouts, or other
concerted interruptions of operations by the employees of any KPP Company or
Restricted Subsidiary exist that are a Material Adverse Event. Hours worked by
and payment made to employees of each KPP Company and Restricted Subsidiary have
not been in violation of the Fair Labor Standards Act or any other applicable
Law dealing with labor matters, other than any violations, individually or
collectively, that are not a Material Adverse Event. All payments due from any
KPP Company or Restricted Subsidiary for employee health and welfare insurance
have been paid or accrued as a liability on its books, other than any
nonpayments that are not, individually or collectively, a Material Adverse
Event.
7.19 Solvency. On each Borrowing Date, each KPP Company
is, and after giving effect to the requested Borrowing will be, Solvent.
<PAGE> 27
7.20 Trade Names. No KPP Company has used or transacted
business under any other corporate, partnership, or trade name in the five-year
period preceding the initial Borrowing Date, except as disclosed on SCHEDULE
7.20.
7.21 Intellectual Property. Each KPP Company and
Restricted Subsidiary owns all material licenses, patents, patent applications,
copyrights, service marks, trademarks, trademark applications, and trade names
necessary to continue to conduct its businesses as presently conducted by it and
proposed to be conducted by it immediately after the date of this agreement.
Each KPP Company and Restricted Subsidiary is conducting its business without
infringement or claim of infringement of any license, patent, copyright, service
mark, trademark, trade name, trade secret, or other intellectual property right
of others, other than any infringements or claims that, if successfully asserted
against or determined adversely to any KPP Company, would not, individually or
collectively, constitute a Material Adverse Event. To the knowledge of
Borrower, no infringement or claim of infringement by others of any material
license, patent, copyright, service mark, trademark, trade name, trade secret,
or Restricted Subsidiary or other intellectual property of any KPP Company
exists.
7.22 Full Disclosure. Each material fact or condition
relating to the Loan Papers or the financial condition, business, or property of
any KPP Company and Restricted Subsidiary that is a Material Adverse Event has
been disclosed in writing to Agent. All information previously furnished by any
KPP Company and Restricted Subsidiary to Agent in connection with the Loan
Papers was, and all information hereafter furnished by any KPP Company and
Restricted Subsidiary to Agent will be, true and accurate in all material
respects or based on reasonable estimates on the date the information is stated
or certified.
SECTION 8 AFFIRMATIVE COVENANTS. Until no Lender has any
commitment to extend any credit under any Loan Paper, and the Obligation is
fully paid and performed -- unless Borrower receives a prior written consent to
the contrary by Agent on behalf of Determining Lenders -- Borrower covenants and
agrees as follows:
8.1 Items to be Furnished. Borrower shall cause the
following to be furnished to Agent and each Lender:
A. Promptly after preparation, and no
later than 95 days after the last day of each fiscal year of KPP,
Financial Statements showing the consolidated financial condition and
results of operations of the KPP Companies and its Subsidiaries as of,
and for the year ended on, that last day, accompanied by:
(a) the unqualified opinion of a firm of
nationally-recognized independent certified public
accountants, based on an audit using generally accepted
auditing standards, that the Financial Statements were
prepared in accordance with GAAP and present fairly, in
all material respects, the consolidated financial
condition and results of operations of KPP and its
Subsidiaries;
(b) any management letter prepared by the
accounting firm delivered in connection with its audit;
(c) a certificate from the accounting firm
to Agent indicating that during its audit it obtained no
knowledge of any Default or Potential Default or, if it
obtained knowledge, the nature and period of existence
thereof; and
(d) a Compliance Certificate.
B. Promptly after preparation, and no
later than 95 days after the last day of each fiscal year ofBorrower,
Financial Statements showing the consolidated financial condition and
results of operations of the Borrower Companies as of, and for the
year ended on, that last day,
<PAGE> 28
accompanied by (i) a Financial Statements Certificate executed by the
chief financial officer of Borrower and (ii) any audit opinion
delivered in connection with the Financial Statements.
C. Promptly after preparation, and no
later than 50 days after the last day of each of the first three
fiscal quarters of KPP, Financial Statements showing the consolidated
financial condition and results of operations of KPP and its
Subsidiaries for the applicable fiscal quarter and for the period from
the beginning of the current fiscal year to the last day of that
fiscal quarter, accompanied by a Compliance Certificate.
D. Promptly after preparation, and no
later than 50 days after the last day of each of the first three
fiscal quarters of Borrower, Financial Statements showing the
consolidated financial condition and results of operations of the
Borrower Companies for the applicable fiscal quarter and for the
period from the beginning of the current fiscal year to the last day
of that fiscal quarter, accompanied by a Financial Statements
Certificate executed by the chief financial officer of Borrower.
E. Promptly after receipt, a copy of each
interim or special audit report and management letter issued by
independent accountants with respect to any KPP Company or Restricted
Subsidiary or its financial records.
F. Notice, promptly after Borrower knows,
of (i) the commencement of any Litigation that, if determined
adversely to any KPP Company or Restricted Subsidiary or the
Collateral, would be a Material Adverse Event, (ii) any change in any
material fact or circumstance represented or warranted by any KPP
Company in any Loan Paper, (iii) the receipt by any KPP Company or
Restricted Subsidiary of notice of any violation or alleged violation
of any Environmental Law (which individually or collectively with
other violations or allegations could constitute a Material Adverse
Event), (iv) a Default or Potential Default, specifying the nature
thereof and what action Borrower or any other KPP Company or
Restricted Subsidiary has taken, is taking, or proposes to take, or
(v) the incurrence of any Funded Debt other than under this agreement.
G. Promptly after filing, true, correct,
and complete copies of all material reports or filings filed by or on
behalf of any KPP Company with any Tribunal.
H. Upon request by Agent at the request of
Determining Lenders, full information as to the insurance carried by
the KPP Companies and Restricted Subsidiaries, and promptly after
receipt by any KPP Company or Restricted Subsidiary, notice from any
insurer of any notice of cancellation or nonrenewal of a material
insurance policy or material change in insurance coverage from that
existing on the date of this agreement.
I. Promptly after publication, copies of
all press releases and other statements made available generally by
any KPP Company or Restricted Subsidiary to the public concerning
material developments in its business.
J. As soon as is reasonably practical,
upon reasonable request by Agent or Determining Lenders (through
Agent), information (not otherwise required to be furnished under the
Loan Papers) respecting the business affairs, assets (including,
without limitation, the Collateral), and liabilities of the KPP
Companies and Restricted Subsidiaries, and opinions, certifications,
and documents in addition to those mentioned in this agreement.
8.2 Use of Proceeds. Borrower shall use the proceeds of
Borrowings only for the purposes represented in this agreement.
8.3 Books and Records. Each KPP Company and Restricted
Subsidiary shall maintain books, records, and accounts necessary to prepare
financial statements in accordance with GAAP (except for any departure with
respect to the accounting treatment of the pipeline, terminals, and related
assets acquired by Borrower).
<PAGE> 29
8.4 Inspections. Upon reasonable request, each KPP
Company and Restricted Subsidiary shall allow Agent or its Representatives (who
shall comply with the safety rules disclosed to it or them at the time of
inspection) to inspect any of its properties (including, without limitation, the
Collateral), to review reports, files, and other records and to make and take
away copies, to conduct tests or investigations, and to discuss any of its
affairs, conditions, and finances with its other creditors, directors, officers,
employees, or representatives from time to time, during reasonable business
hours. Fees and expenses incurred under this SECTION 8.4 shall be borne by
Agent unless Agent acted under this SECTION 8.4 in order to perform its duties
under the Loan Papers or preserve or protect the Rights of Agent and Lenders
under the Loan Papers. Agent and its Representatives agree to treat
confidential those matters disclosed by Borrower as being confidential; however,
Agent and its Representatives may disclose confidential matters (a) to Agent,
each Lender, and each actual or prospective Participant or Purchaser, (b) to any
Tribunal having jurisdiction over it, and (c) that are public knowledge.
8.5 Taxes. Each KPP Company and Restricted Subsidiary
shall promptly pay when due any and all Taxes other than Taxes which are being
contested in good faith by lawful proceedings diligently conducted, against
which reserve or other provision required by GAAP has been made, and in respect
of which levy and execution of any Lien have been and continue to be stayed.
8.6 Payment of Obligations. Each KPP Company and
Restricted Subsidiary shall promptly pay (or renew and extend) all of its
material obligations as they become due (unless the obligations are being
contested in good faith by appropriate proceedings).
8.7 Expenses. Borrower shall promptly pay upon demand (a)
all costs, fees, and expenses paid or incurred by Agent incident to any Loan
Paper (including, but not limited to, the reasonable fees and expenses of
Agent's counsel in connection with the negotiation, preparation, delivery, and
execution of the Loan Papers and any related amendment, waiver, or consent), and
(b) all reasonable costs and expenses of Lenders or Agent incurred by Agent or
any Lender in connection with the enforcement of the obligations of any Person
arising under the Loan Papers or the exercise of any Rights arising under the
Loan Papers (including, but not limited to, reasonable attorneys' fees and court
costs), all of which shall be a part of the Obligation and shall bear interest,
if not paid upon demand, at the Default Rate until repaid.
8.8 Maintenance of Existence, Assets, and Business.
Except as otherwise permitted by SECTION 9.10, each KPP Company and Restricted
Subsidiary shall (a) maintain its corporate or partnership existence and good
standing in its state of organization and its authority to transact business in
all other states where the Collateral is or may be located and, additionally,
where failure to maintain its authority to transact business is a Material
Adverse Event; (b) maintain all licenses, permits, and franchises necessary for
its business where failure is a Material Adverse Event; (iii) keep all of its
assets that are useful in and necessary to its business in good working order
and condition (ordinary wear and tear excepted) and make all necessary repairs
and replacements.
8.9 Insurance. Each KPP Company and Restricted
Subsidiary, at its cost and expense, shall maintain insurance with financially
sound and reputable insurers, in such amounts, and covering such risks, as is
ordinary and customary for similar Persons in the industry. However, the
insurance coverage, at a minimum, must be in the amounts and cover the risks
described on SCHEDULE 8.9. At Agent's request, each KPP Company and Restricted
Subsidiary shall deliver to Agent certificates of insurance for each policy of
insurance. If any insurance policy covered by an insurance certificate
previously delivered to Agent is altered or canceled, then Borrower shall cause
to be promptly delivered to Agent a replacement certificate (in form and
substance satisfactory to Agent).
8.10 Preservation and Protection of Rights; Separate Legal
Entities. Each KPP Company and Restricted Subsidiary shall perform the acts and
duly authorize, execute, acknowledge, deliver, file, and record any additional
writings as Agent or Determining Lenders may reasonably deem necessary or
appropriate to perfect and maintain the Lender Liens and preserve and protect
the Rights of Agent and Lenders under any Loan Paper.
<PAGE> 30
8.11 Environmental Laws. Each KPP Company and Restricted
Subsidiary shall (a) conduct its business and operate the Collateral so as to
comply with all applicable Environmental Laws and shall promptly take corrective
action to remedy any non-compliance with any Environmental Law, and (b)
establish and maintain a management system designed to ensure compliance with
applicable Environmental Laws and minimize financial and other risks to each KPP
Company and Restricted Subsidiary arising under applicable Environmental Laws or
as the result of environmentally related injuries to Persons or property
(including, without limitation, the Collateral). Borrower shall deliver
reasonable evidence of compliance with the foregoing covenant to Agent within 30
days after any request from Determining Lenders.
8.12 Subsidiaries. Each Person that becomes a Restricted
Subsidiary after the date of this agreement (whether as a result of acquisition,
creation, or otherwise) shall execute and deliver a Guaranty within ten days
after becoming a Restricted Subsidiary.
8.13 Indemnification. EACH KPP COMPANY, JOINTLY AND
SEVERALLY, INDEMNIFIES, PROTECTS, AND HOLDS AGENT, LENDERS, AND THEIR RESPECTIVE
PARENTS, SUBSIDIARIES, REPRESENTATIVES, SUCCESSORS, AND ASSIGNS (COLLECTIVELY,
THE "INDEMNIFIED PARTIES") HARMLESS FROM AND AGAINST ANY AND ALL LIABILITIES,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, CLAIMS, AND
PROCEEDINGS AND ALL COSTS, EXPENSES (INCLUDING, WITHOUT LIMITATION, ALL
ATTORNEYS' FEES AND LEGAL EXPENSES WHETHER OR NOT SUIT IS BROUGHT), AND
DISBURSEMENTS OF ANY KIND OR NATURE (THE "INDEMNIFIED LIABILITIES") THAT MAY AT
ANY TIME BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST ANY INDEMNIFIED PARTY,
IN ANY WAY RELATING TO OR ARISING OUT OF (A) THE DIRECT OR INDIRECT RESULT OF
THE VIOLATION BY ANY KPP COMPANY OF ANY ENVIRONMENTAL LAW, (B) ANY KPP COMPANY'S
GENERATION, MANUFACTURE, PRODUCTION, STORAGE, RELEASE, THREATENED RELEASE,
DISCHARGE, DISPOSAL, OR PRESENCE IN CONNECTION WITH ITS PROPERTIES (INCLUDING,
WITHOUT LIMITATION, THE COLLATERAL) OF A HAZARDOUS SUBSTANCE (INCLUDING, WITHOUT
LIMITATION, (I) ALL DAMAGES FROM ANY USE, GENERATION, MANUFACTURE, PRODUCTION,
STORAGE, RELEASE, THREATENED RELEASE, DISCHARGE, DISPOSAL, OR PRESENCE, OR (II)
THE COSTS OF ANY ENVIRONMENTAL INVESTIGATION, MONITORING, REPAIR, CLEANUP, OR
DETOXIFICATION AND THE PREPARATION AND IMPLEMENTATION OF ANY CLOSURE, REMEDIAL,
OR OTHER PLANS), (C) THE LOAN PAPERS OR ANY OF THE TRANSACTIONS CONTEMPLATED IN
THEM, AND (D) ANY INDEMNIFIED PARTY'S SOLE OR CONCURRENT ORDINARY NEGLIGENCE.
HOWEVER, NO INDEMNIFIED PARTY IS ENTITLED TO BE INDEMNIFIED UNDER THE LOAN
PAPERS FOR ITS OWN FRAUD, GROSS NEGLIGENCE, OR WILLFUL MISCONDUCT. The
provisions of and undertakings and indemnification in this SECTION 8.13 survive
the satisfaction and payment of the Obligation and termination of this
agreement.
SECTION 9 NEGATIVE COVENANTS. Until neither Agent, nor any
Affiliate of Agent, nor any Lender has any commitment to extend any credit under
any Loan Paper and the Obligation is fully paid and performed -- unless Borrower
receives a prior written consent to the contrary by Agent on behalf of
Determining Lenders -- Borrower covenants and agrees as follows:
9.1 Taxes. No KPP Company or Restricted Subsidiary may
use any portion of the proceeds of any Borrowing to pay the wages of employees
unless a timely payment to or deposit with the United States of America of all
amounts of Tax required to be deducted and withheld with respect to such wages
is also made.
9.2 Employee Plans. Except where a Material Adverse Event
would not result, no event or circumstance described in SECTION 7.11 may exist
or occur.
9.3 Funded Debt. No KPP Company or Restricted Subsidiary
may create, incur, of suffer to exist any Funded Debt except the following:
(a) Funded Debt evidenced by the Notes, Guaranty,
1994 Notes, 1994 Guaranty, Term Notes, and Term Guaranties;
and
(b) other Funded Debt of any KPP Company or any
Restricted Subsidiary so long as -- at the time of, and
immediately after giving effect to, the incurrence of
(including any
<PAGE> 31
amendments and modifications of, but excluding any amendment,
modification, renewal, extension, or refunding that has the
effect of extending the final maturity or increasing the
principal amount of) it and immediately after giving effect to
the concurrent application of any proceeds of it to retire
other Funded Debt -- (i) no Default or Potential Default
exists and (ii) the ratio of KPP's consolidated Funded Debt to
its consolidated EBITDA does not equal or exceed 3.15 to 1.00,
with (A) EBITDA being determined for a 12-calendar-month
period ending no more than three months before the date on
which that KPP Company or Restricted Subsidiary incurs that
other Funded Debt and (B) Funded Debt being determined as of
the date of the incurrence of the Funded Debt for which the
calculation in this CLAUSE (B) is being made.
9.4 Liens.
(a) No KPP Company or Restricted Subsidiary may
(i) create, assume, or otherwise incur or suffer to exist any
Lien upon -- or, whether by Transfer to any other KPP Company
or Restricted Subsidiary or otherwise, subject to the priority
payment of any obligations, indebtedness, or claim other than
the Obligation -- any present, future, real, personal,
tangible, or intangible assets (including, without limitation,
stock or other securities) of any KPP Company or Restricted
Subsidiary, whether now owned or acquired in the future, or
any income or profits from any of those assets, (ii) own or
acquire or agree to acquire any of those assets subject to or
encumbered by any Lien, or (iii) suffer to exist any
obligations, indebtedness, or claim of any KPP Company or
Restricted Subsidiary or claims or demands against any KPP
Company or Restricted Subsidiary, which obligations,
indebtedness, claims, or demands, if unpaid, would (in the
hands of the holder of any of them, any guarantor of any of
them, or any Person who has any Right or obligation to
purchase any of them), by law or upon bankruptcy or insolvency
or otherwise, be given any priority whatsoever over that KPP
Company's or Restricted Subsidiary's general creditors.
(b) The restrictions in CLAUSE (A) above neither
(i) apply to (A) Lender Liens, (B) other liens under the
Security Documents that are subject to the Intercreditor
Agreement, or (C) Liens under the 1994 Credit Agreement and
the 1994 Security Documents, nor (ii) prevent:
(A) any Lien that is incidental to the
normal conduct of business or ownership of assets by
any KPP Company or Restricted Subsidiary so long as
that Lien does not secure Debt and does not
materially impair the use of those assets in the
operation of that KPP Company's or Restricted
Subsidiary's businesses; or
(B) any (1) Lien for Taxes not yet due
and payable or the nonpayment of which is permitted
by SECTION 8.5, (2) survey exceptions, encumbrances,
easements, or reservations of, or Rights of others
for, Rights of way, sewers, electric lines, telegraph
and telephone lines and other similar purposes, or
zoning or other restrictions as to the use of real
property, and Rights of eminent domain so long as all
of the foregoing do not collectively have a material-
adverse effect on any assets of any KPP Company or
Restricted Subsidiary or materially impair their use
in the operation of its businesses, or (3) mechanic's
Liens and materialman's Liens for services or
materials for which payment is not yet due and
payable and which do not materially impair the use by
any KPP Company or Restricted Subsidiary in the
operation of its businesses; or
(C) any Lien in respect of assets
acquired by a KPP Company or Restricted Subsidiary
after the date of this agreement to secure Debt
assumed or incurred to finance all or any part of the
purchase price so long as that Lien (1) must at all
times apply solely to the assets so acquired and any
improvements on them that become fixtures or
accessions to them, (2) secures only a principal
amount of Debt that never exceeds the lesser of
either the fair market value of the acquired assets
at the time of their acquisition or the cost of those
assets, (3) must be either existing at the time of
the acquisition or created within 120 days after the
time of the acquisition, and (4) secures only Debt
permitted by SECTION 9.3 at the time the Debt is
incurred; or
<PAGE> 32
(D) any of the following Liens if (1)
the validity, applicability or amount of it is being
contested in good faith and by appropriate and lawful
proceedings diligently conducted, (2) the KPP Company
or Restricted Subsidiary in question has set aside on
its books, reserves for it that are deemed adequate
in its reasonable opinion, (3) levy and execution of
that Lien continue to be stayed, (4) it covers any
Collateral and is subordinate to the Lender Liens,
and (5) all such Liens do not collectively materially
detract from the value of the property of the KPP
Company or Restricted Subsidiary in question or
materially impair the use of that property in the
operation of its business: (a) All claims and Liens
of mechanics, materialmen, warehousemen -- other
than those described in SECTION 9.4(b)(ii)(B)(3), and
(b) adverse judgments or orders on appeal for the
payment of money not in excess of the total amount of
$25,000,000; or
(E) any Lien securing Qualifying Debt; or
(F) any Lien on assets that are not Collateral and
securing Debt permitted by SECTION 9.3 so long as
the total amount of Debt so secured never exceeds
10% of KPP's consolidated partners' capital.
9.5 Affiliate Transactions. No KPP Company or Restricted
Subsidiary may engage in any transaction with an Affiliate on terms less
favorable to it than would have been obtainable in arm's length dealing in the
ordinary course of business with a Person not an Affiliate.
9.6 Compliance with Laws and Documents. No KPP Company or
Restricted Subsidiary may (a) violate the provisions of any Laws applicable to
it or of any Material Agreement to which it is a party if that violation alone,
or when aggregated with all other violations, would be a Material Adverse Event,
or (b) violate, repeal, replace, or amend any provision of its certificate or
agreement of limited partnership, certificate or articles of incorporation, or
bylaws (as applicable).
9.7 Loans, Advances, and Investments. No KPP Company or
Restricted Subsidiary may make any loan, advance, extension of credit, or
capital contribution to, make any investment in, or purchase or commit to
purchase any stock or other securities or evidences of Debt of, or interests in,
any other Person, except (a) as permitted by SECTIONS 9.8 or 9.10 or (b)
Permitted Investments.
9.8 Distributions. No KPP Company or Restricted
Subsidiary may enter into or permit to exist any arrangement or agreement that
prohibits it from paying Distributions to its equity holders -- other than this
agreement and its charter documents in effect as of the date of this agreement
- -- and neither KPP nor Borrower may declare, make, or pay any Distribution:
(a) if it would violate the KPP Partnership
Agreement or Borrower Partnership Agreement or a Default or
Potential Default is continuing; or
(b) for (i) Borrower, the total
Distributions paid by it in any calendar quarter would exceed
100% of the "Borrower Available Cash" for the calendar quarter
immediately preceding the quarter in which those Distributions
are paid, or (ii) KPP, the total Distributions paid by it in
any calendar quarter would exceed the "KPP Available Cash"
that constitutes "Cash from Operations" or "Cash from Interim
Capital Transactions" for the calendar quarter immediately
preceding the quarter in which those Distributions are paid.
<PAGE> 33
For purposes of this SECTION 9.8 only:
BORROWER AVAILABLE CASH means, with respect to any calendar
quarter (i) the sum of (a) all cash receipts of Borrower during that
quarter from all sources, plus (b) any reduction in reserves
established in prior quarters, minus (ii) the sum of (aa) all cash
disbursements of Borrower during that quarter, including, without
limitation, disbursements for operating expenses, debt service
(including the payment of principal, premium, and interest), capital
expenditures, and contributions, if any, to any Subsidiary (but
excluding all cash Distributions by Borrower), plus (bb) any reserves
established in that quarter in such amounts as KPC determines in its
reasonable discretion to be necessary or appropriate to provide for
the proper conduct of Borrower's business (including reserves for
future capital expenditures), plus (cc) any other reserves established
in that quarter in such amounts as KPC determines in its reasonable
discretion to be necessary because the Distribution of those amounts
would be prohibited by applicable Law or by any loan agreement,
security agreement, mortgage, debt instrument, or other agreement or
obligation to which Borrower is a party or by which it is bound or its
assets are subject. For purposes of this definition, notwithstanding
the foregoing, "Borrower Available Cash" may not include any cash
receipts or reductions in reserves or take into account any
disbursements made or reserves established after commencement of the
dissolution and liquidation of Borrower.
CASH FROM INTERIM CAPITAL TRANSACTIONS means, on any day, the
amount of KPP Available Cash that KPC determines to be Cash from
Interim Capital Transactions in accordance with Section 5.3 of the KPP
Partnership Agreement.
CASH FROM OPERATIONS means, on any day before commencement of
the dissolution and liquidation of KPP -- on a cumulative basis -- the
sum of (a) the sum of all cash receipts of KPP plus $3,526,000 --
including Distributions of cash received from Borrower and excluding
any cash proceeds from any Interim Capital Transactions or Terminating
Capital Transactions during the period since the commencement of
operations by KPP through that day -- minus (b) the sum of (i) all
cash operating expenditures of KPP during that period, including,
without limitation, Taxes on KPP as an entity or Taxes paid by KPP on
behalf of, or amounts withheld with respect to, all (but not less than
all) of its unitholders, if any, plus (ii) all cash debt service
payments of KPP during that period -- other than payments or
prepayments of principal and premium required by reason of loan
agreements (including covenants and default provisions therein) or by
lenders, in each case in connection with sales or other dispositions
of assets or made in connection with refinancings or refundings of
indebtedness (provided that any payment or prepayment of principal,
whether or not then due, must be determined at the election and in the
discretion of KPC, to be refunded or refinanced by any indebtedness
incurred or to be incurred by KPP simultaneously with or within 180
days before or after that payment or prepayment to the extent of the
principal amount of that indebtedness so incurred), plus (iii) all
cash capital expenditures of KPP during that period -- other than (A)
Expansive Capital Expenditures and (B) cash expenditures made in
payment of transaction expenses relating to Interim Capital
Transactions -- plus (iv) an amount equal to revenues collected
pursuant to a rate increase that are subject to possible refund, plus
(v) any additional reserves outstanding as of that day which KPP
determines in its reasonable discretion to be necessary or appropriate
to provide for the future cash payment of items of the type referred
to in CLAUSES (i) through (iii) above, plus (vi) any reserves that KPC
determines in its reasonable discretion to be necessary or appropriate
to provide funds for Distributions with respect to any one or more of
the next four calendar quarters, all as determined on a consolidated
basis and after elimination of intercompany items and of the interest
attributable to the general partner interest in Borrower. For
purposes of this definition, Taxes paid by KPP on behalf of less than
all of its unitholders may not be considered cash operating
expenditures of KPP which reduce "Cash from Operations."
EXPANSIVE CAPITAL EXPENDITURES means cash capital expenditures
made to increase the throughput or deliverable capacity or terminaling
capacity (assuming normal operating
<PAGE> 34
conditions, including down-time and maintenance) of the assets of KPP
or Borrower, taken as a whole, from the throughput or deliverable
capacity or terminaling capacity (assuming normal operating
conditions, including down-time maintenance) existing immediately
before those capital expenditures. For purposes of this definition,
when cash capital expenditures are made in part to increase the
throughput or deliverable capacity or terminaling capacity of the
assets of KPP, taken as a whole, and in part for other purposes, KPP's
good-faith allocation thereof between the portion increasing capacity
and the portion for other purposes is conclusive.
INTERIM CAPITAL TRANSACTION means (a) borrowing and sales of
debt securities (other than for working capital purposes and items
purchased on open account in the ordinary course of business) by KPP
or Borrower, (b) sales of interest in KPP by KPP or Borrower, and (c)
sales or other voluntary or involuntary dispositions of any assets of
KPP or Borrower, other than (i) sales or other disposition of
inventory in the ordinary course of business, (ii) sales or other
dispositions of other current assets including receivables and
accounts, or (iii) sales or other dispositions of assets as a part of
normal retirements or replacements -- in each case before the
commencement of the dissolution and liquidation of KPP.
KPP AVAILABLE CASH means, with respect to any calendar quarter
(a) the sum of (i) all cash receipts of KPP during that quarter from
all sources (including Distributions of cash received from Borrower)
plus (ii) any reduction in reserves established in prior quarters,
minus (b) the sum of (i) all cash disbursements of KPP during that
quarter, including, without limitation, disbursements for operating
expenses, Taxes on KPP as an entity or paid by KPP on behalf of, or
amounts withheld with respect to, all (but not less than all) of its
unitholders, if any, debt service (including the payment of principal,
premium, and interest), capital expenditures, and contributions, if
any, to a subsidiary corporation or partnership (but excluding all
cash Distributions to its partners), plus (ii) any reserves
established in that quarter in such amounts as KPC determines in its
reasonable discretion to be necessary or appropriate (A) to provide
for the proper conduct of KPP's business (including reserves for
future capital expenditures) or (B) to provide funds for Distributions
with respect to any one or more of the next four calendar quarters,
plus (iii) any other reserves established in that quarter in such
amounts as KPC determines in its reasonable discretion to be necessary
because the Distribution of such amounts would be prohibited by
applicable Law or by any loan agreement, security agreement, mortgage,
debt instrument, or other agreement or obligation to which KPP is a
party or by which it is bound or its assets are subject. For purposes
of this definition, Taxes paid by KPP on behalf of, or amounts
withheld with respect to, less than all of KPP's unitholders may not
be considered cash disbursements of KPP which reduce "KPP Available
Cash," and, notwithstanding the foregoing, "KPP Available Cash" may
not include any cash receipts or reductions in reserves or take into
account any disbursements made or reserves established after
commencement of the dissolution and liquidation of KPP.
TERMINATING CAPITAL TRANSACTION means any sale or other
disposition of assets of KPP or Borrower following commencement of the
dissolution and liquidation of KPP or Borrower.
9.9 Asset Transfers. No KPP Company or Restricted
Subsidiary may Transfer any of its assets, issue or sell shares of its capital
stock or its partnership units, or Transfer any capital stock or partnership
units of a Restricted Subsidiary other than the following:
(a) a Transfer in the ordinary course of business
(including any Transfer of obsolete or worn-out assets);
(b) a Transfer pursuant to a transaction
permitted under SECTION 9.10;
(c) a Transfer and lease-back of any property
within 180 days following the acquisition of the property so
long as no Default or Potential Default exists at the time of
and after giving effect to that transaction;
(d) a Transfer at the time of which and
immediately after giving effect to which (i) the Transfer is
for fair market value and in the best interests of the Person
making it, (ii) no Default or Potential Default exists or
would exist after giving effect to it, or (iii) all such
Transfers which
<PAGE> 35
are to be treated as "Permitted Transfers" under this CLAUSE
(D) in any fiscal year consist of assets or of capital stock
of a KPP Subsidiary that do not have a total book value (or
total fair market value, whichever is higher) -- determined
with regard to each such asset or such capital stock at the
time the same is Transferred -- of more than 10% of KPP's
consolidated partners' capital as of the end of the
immediately preceding fiscal year;
(e) a Transfer for cash so long as, within one
year from the date of the Transfer, the KPP Companies or their
Subsidiaries use the full amount of the proceeds received from
the Transfer, net of all expenses of the KPP Companies or
their Subsidiaries incurred in connection with it, either (1)
to acquire assets used in the storage, terminaling, pipeline,
and transportation business, (2) to pay Funded Debt of the KPP
Companies, or (3) any combination of the two;
(f) a Transfer to any other KPP Company or wholly
owned Restricted Subsidiary;
(g) issuance or sale of its capital stock to
another KPP Company or wholly owned Restricted Subsidiary;
(h) new issuances of limited partnership units of
KPP in exchange for cash or property representing fair
consideration in the determination of the Board of Directors
of KPC;
(i) a merger or consolidation that complies with
the provisions of SECTION 9.10; or
(j) a contribution of capital stock of a
Restricted Subsidiary to a joint venture so long as, following
that contribution, an additional $1 of Funded Debt could be
incurred under SECTION 9.3.
9.10 Dissolutions, Mergers, and Consolidations. No KPP
Company or Restricted Subsidiary may liquidate, wind up, or dissolve or merge or
consolidate with any other Person other than (a) a Subsidiary of KPP may be
merged into or consolidated with another KPP Company or wholly owned Subsidiary
of KPP so long as a KPP Company or a wholly owned Subsidiary of KPP (which must
be a Restricted Subsidiary if one is involved in the merger or consolidation) is
the surviving Person, and (b) a KPP Company or Restricted Subsidiary may merge
or consolidate with another corporation, partnership, or limited liability
company (other than KSI or KPC) so long as (i) both before and immediately after
the merger or consolidation, no Default or Potential Default exists, (ii)
following the merger or consolidation, the successor company is a corporation,
partnership, or limited liability company that is duly organized and existing
under the Laws of the United States of America or any of its states, is Solvent,
and maintains substantially all of its assets in the United States of America,
(iii) that successor (if not the KPP Company involved) expressly assumes the due
and punctual performance and observance of all the obligations, terms,
covenants, agreements, and conditions of the Loan Papers to be performed or
observed by that KPP Company confirms that the Obligation constitutes a
senior-secured obligation of that successor, all by a written instrument in form
and substance satisfactory to Agent and Determining Lenders and furnished to
Agent and Lenders, (iv) following the merger or consolidation, an additional $1
of Funded Debt could be incurred under SECTION 9.3(C), and (v) immediately
before the merger or consolidation, Agent receives (A) a certificate of
Responsible Officer of KPP certifying that the merger or consolidation complies
with all requirements of this SECTION 9.10 and (B) an opinion of outside counsel
in form and substance satisfactory to Agent stating that the merger or
consolidation complies with the requirements of CLAUSES (II) (except as to
solvency) and (III) preceding.
9.11 Assignment. No KPP Company may assign or transfer any
of its Rights, duties, or obligations under any of the Loan Papers except as a
result of a merger or consolidation permitted under SECTION 9.10, in which case
the assignment or transfer of the Rights, duties, and obligations of the non-
surviving KPP Company is permitted if the survivor assumes in writing all
Rights, duties, and obligations of the non-surviving KPP Company under the Loan
Papers.
9.12 Fiscal Year and Accounting Methods. No KPP Company or
Restricted Subsidiary may change its fiscal year or its method of accounting
(other than immaterial changes in methods or as required by GAAP).
<PAGE> 36
9.13 New Businesses. No KPP Company or Restricted
Subsidiary may engage in any business except the businesses in which they are
presently engaged and any other reasonably related business.
9.14 Government Regulations. No KPP Company or Restricted
Subsidiary may conduct its business in a way that it becomes regulated under the
Investment Company Act of 1940, as amended, the Public Utility Holding Company
Act of 1935, as amended, or any other Law (other than Regulations G, T, U, and X
of the Board of Governors of the Federal Reserve System) that regulates the
incurrence of Debt.
SECTION 10 FINANCIAL COVENANTS. Until no Lender has any
commitment to extend any credit under any Loan Paper and the Obligation is
fully paid and performed -- unless Borrower receives a prior written consent to
the contrary by Agent on behalf of Determining Lenders -- Borrower covenants
and agrees as follows:
10.1 Current Ratio. The ratio of the current liabilities
(excluding current maturities of Funded Debt and Distributions permitted by this
agreement that have been declared but not yet paid) of the KPP Companies and
their Subsidiaries to their current assets may never exceed 1.00 to 1.00.
10.2 Tangible Net Worth. The Tangible Net Worth of the KPP
Companies and their Subsidiaries may never be less than the sum of (a)
$70,000,000 plus (b) if contributed to Borrower by KPP, 100% of the net cash
proceeds (i.e., the gross cash proceeds less usual and customary costs and
expenses related to the offering) received by KPP upon its issuance of partner
interests of any kind.
10.3 Leverage Ratio. The ratio of the total Debt of the KPP
Companies and their Subsidiaries on the last day of any fiscal quarter to their
EBITDA for the four-consecutive quarters ending on that last day may never
exceed 3.15 to 1.00.
10.4 Fixed Charges Coverage Ratio. For any
four-consecutive-quarterly period, the ratio of the amount in CLAUSE (A) below
to the amount in CLAUSE (B) below may never be less than 1.25 to 1.00:
(a) The sum (without duplication) of EBITDA
of the KPP Companies and their Subsidiaries plus (to the
extent actually deducted in calculating net income feature of
EBITDA) cash operating lease payments.
(b) The sum (without duplication) of the
KPP Companies' and their Subsidiaries' (i) cash interest
payments on Debt (including the interest portion of
capitalized leases), plus (ii) cash operating lease payments,
plus (iii) scheduled cash payments of Funded Debt, plus (iv)
cash payments of capital expenditures.
SECTION 11 DEFAULT. The term "DEFAULT" means the occurrence of
any one or more of the following events:
11.1 Obligation. The failure or refusal of (a) Borrower to
make any interest payment within five Business Days after it becomes due and
payable under the Loan Papers or (b) any KPP Company to pay any other part of
the Obligation after it becomes due and payable under the Loan Papers.
11.2 Covenants. The failure or refusal of Borrower (and, if
applicable, any other KPP Company) to punctually and properly perform, observe,
and comply with any other covenant, agreement, or condition contained in any
Loan Paper -- other than the covenants to pay the Obligation -- and that failure
or refusal is in respect of a covenant, agreement, or condition (a) in either
SECTION 9 or SECTION 10 and it continues for 30 days, or (b) elsewhere in any
Loan Paper and it continues for 30 days after the earlier of either (i) any KPP
Company receives notice of it or (ii) any Responsible Officer of any KPP Company
otherwise obtains knowledge of it.
<PAGE> 37
11.3 Debtor Relief. Any KPC Company (a) is not Solvent,
(b) fails to pay its Debts generally as they become due, (c) voluntarily
seeks, consents to, or acquiesces in the benefit of any Debtor Relief Law, or
(d) becomes a party to or is made the subject of any proceeding provided for by
any Debtor Relief Law, other than as a creditor or claimant, that could suspend
or otherwise adversely affect the Rights of Agent or any Lender granted in the
Loan Papers (unless, if the proceeding is involuntary, the applicable petition
is dismissed within 60 days after its filing).
11.4 Misrepresentation. Any material representation or
warranty made by any party (other than Agent and Lenders) contained in any Loan
Paper at any time proves to have been materially incorrect when made.
11.5 Judgments and Attachments. Any KPP Company or
Restricted Subsidiary fails, within 60 days after entry, to pay, bond, or
otherwise discharge any judgment or order for the payment of money in excess of
$5,000,000 (individually or collectively) or any warrant of attachment,
sequestration, or similar proceeding against any KPP Company's or Restricted
Subsidiary's assets having a value (individually or collectively) of $5,000,000,
which is neither (a) stayed on appeal nor (b) diligently contested in good faith
by appropriate proceedings and adequate reserves have been set aside on its
books in accordance with GAAP.
11.6 1994 Credit Agreement, Note Agreements, or
Intercreditor Agreement. (a) A payment Default or Event of Default, as the case
may be, occurs under the 1994 Credit Agreement or any Note Agreement, and the
applicable grace period under the 1994 Credit Agreement or that Note Agreement,
as the case may be, has expired; (b) any other Default or Event of Default, as
the case may be, occurs under the 1994 Credit Agreement or any Note Agreement
that has not been cured or permanently waived before expiration of the
applicable grace period under the 1994 Credit Agreement or that Note Agreement,
as the case may be; or (c) the occurrence and continuance of any Event of
Default as defined in the Intercreditor Agreement.
11.7 Default Under Other Agreements. (a) Any KPP Company or
Restricted Subsidiary fails to pay when due (after lapse of any applicable grace
period) any Debt in excess (individually or collectively) of $5,000,000; (b) any
default exists under any agreement to which a KPP Company or Restricted
Subsidiary is a party, the effect of which is to cause, or to permit any Person
(other than a KPP Company or Restricted Subsidiary) to cause, an amount in
excess (individually or collectively) of $5,000,000 to become due and payable
by any KPP Company or Restricted Subsidiary before its stated maturity, and such
default is not cured or amount is not paid, as the case may be, within the
required time period under the applicable agreement; or (c) any Debt in excess
(individually or collectively) of $5,000,000 is declared to be due and payable
or required to be prepaid by any KPP Company or Restricted Subsidiary before its
stated maturity.
11.8 Validity and Enforceability of Loan Papers. Except in
accordance with its terms or as otherwise expressly permitted by this agreement,
any Loan Paper, at any time after its execution and delivery ceases to be in
full force and effect in any material respect or is declared to be null and void
or its validity or enforceability is contested by any party (other than Agent
and Lenders) to any Loan Paper, if party thereto, or any party (other than Agent
and Lenders) denies that it has any further liability or obligations under any
Loan Paper to which it is a party.
11.9 Change of Control. KPC fails to be the sole general
partner of KPP and Borrower, or KPP fails to be the sole limited partner of
Borrower.
11.10 KPC Merger or Consolidation. Whether it is the
survivor or not, KPC is merged into or consolidated with KSI.
<PAGE> 38
SECTION 12 RIGHTS AND REMEDIES.
12.1 Remedies Upon Default.
(a) If a Default exists under SECTION 11.3, the
commitment to extend credit under this agreement automatically
terminates and the entire unpaid balance of the Obligation
automatically becomes due and payable without any action of
any kind whatsoever.
(b) If any Default exists, subject to the terms of
SECTION 13.5(B), Agent may (with the consent of, and must,
upon the request of, Determining Lenders), do any one or more
of the following: (i) if the maturity of the Obligation has
not already been accelerated under SECTION 12.1(A), declare
the entire unpaid balance of all or any part of the Obligation
immediately due and payable, whereupon it is due and payable;
(ii) terminate the commitments of Lenders to extend credit
under this agreement; (iii) reduce any claim to judgment; (iv)
to the extent permitted by Law, exercise (or request each
Lender to, and each Lender is entitled to, exercise) the
Rights of offset or banker's Lien against the interest of any
KPP Company in and to every account and other property of any
KPP Company that are in the possession of Agent or any Lender
to the extent of the full amount of the Obligation (and to the
extent permitted by Law, each KPP Company is deemed directly
obligated to each Lender in the full amount of the Obligation
for this purpose); and (v) exercise any and all other legal or
equitable Rights afforded by the Loan Papers, the Laws of the
State of Texas, or any other applicable jurisdiction.
(c) If, in reliance on SECTION 13.5(B), Agent
refuses to take any action under SECTION 12.1(B) at the
request of Determining Lenders, then Determining Lenders may
take that action.
12.2 KPP Company Waivers. To the extent permitted by Law,
each KPP Company waives presentment and demand for payment, protest, notice of
intention to accelerate, notice of acceleration, and notice of protest and
nonpayment, and agrees that its liability with respect to all or any part of the
Obligation is not affected by any renewal or extension in the time of payment of
all or any part of the Obligation, by any indulgence, or by any release or
change in any security for the payment of all or any part of the Obligation.
12.3 Performance by Agent. If any covenant, duty, or
agreement of any KPP Company is not performed in accordance with the terms of
the Loan Papers, Agent may, while a Default exists, at its option (but subject
to the approval of Determining Lenders), perform or attempt to perform that
covenant, duty, or agreement on behalf of that KPP Company (and any amount
expended by Agent in its performance or attempted performance is payable by the
KPP Companies, jointly and severally, to Agent on demand, becomes part of the
Obligation, and bears interest at the Default Rate from the date of Agent's
expenditure until paid). However, Agent does not assume and shall never have,
except by its express written consent, any liability or responsibility for the
performance of any covenant, duty, or agreement of any KPP Company. Agent shall
promptly notify Borrower of any action taken under this SECTION 12.3.
12.4 Not in Control. None of the covenants or other
provisions contained in any Loan Paper shall, or shall be deemed to, give Agent
or Lenders the Right to exercise control over the assets (including, without
limitation, real property), affairs, or management of any KPP Company; the power
of Agent and Lenders is limited to the Right to exercise the remedies provided
in this SECTION 12.
12.5 Course of Dealing. The acceptance by Agent or Lenders
of any partial payment on the Obligation shall not be deemed to be a waiver of
any Default then existing. No waiver by Agent, Determining Lenders, or Lenders
of any Default shall be deemed to be a waiver of any other then-existing or
subsequent Default. No delay or omission by Agent, Determining Lenders, or
Lenders in exercising any Right under the Loan Papers will impair that Right or
be construed as a waiver thereof or any acquiescence therein, nor will any
single or partial exercise of any Right preclude other or further exercise
thereof or the exercise of any other Right under the Loan Papers or otherwise.
<PAGE> 39
12.6 Cumulative Rights. All Rights available to Agent,
Determining Lenders, and Lenders under the Loan Papers are cumulative of and in
addition to all other Rights granted to Agent, Determining Lenders, and Lenders
at law or in equity, whether or not the Obligation is due and payable and
whether or not Agent, Determining Lenders, or Lenders have instituted any suit
for collection, foreclosure, or other action in connection with the Loan
Papers.
12.7 Application of Proceeds. Any and all proceeds ever
received by Agent or Lenders from the exercise of any Rights pertaining to the
Obligation shall be applied to the Obligation according to SECTION 3.
12.8 Diminution in Value of Collateral. Neither Agent nor
any Lender has any liability or responsibility whatsoever for any diminution in
or loss of value of any collateral now or hereafter securing payment or
performance of all or any part of the Obligation (other than diminution in or
loss of value caused by its gross negligence or willful misconduct).
12.9 Certain Proceedings. Borrower will promptly execute
and deliver, or cause the execution and delivery of, all applications,
certificates, instruments, registration statements, and all other documents and
papers Agent or Determining Lenders reasonably request in connection with the
obtaining of any consent, approval, registration, qualification, permit,
license, or authorization of any Tribunal or other Person necessary or
appropriate for the effective exercise of any Rights under the Loan Papers.
Because Borrower agrees that Agent's and Determining Lenders' remedies at Law
for failure of Borrower to comply with the provisions of this paragraph would be
inadequate and that failure would not be adequately compensable in damages,
Borrower agrees that the covenants of this paragraph may be specifically
enforced.
SECTION 13 AGREEMENT AMONG LENDERS.
13.1 Agent.
(a) Each Lender appoints Agent (and Agent accepts
appointment) as its nominee and agent, in its name and on its
behalf to: (i) act as its nominee and on its behalf in and
under all Loan Papers; (ii) take any action that it properly
requests under the Loan Papers (subject to the concurrence of
other Lenders as may be required under the Loan Papers); (iii)
receive all documents and items to be furnished to it under
the Loan Papers; (iv) be the secured party, mortgagee,
beneficiary, recipient, and similar party in respect of any
collateral for the benefit of Lenders; (v) distribute to it
all material information, requests, documents, and items
required to be delivered to it under the Loan Papers after any
KPP Company delivers the same to Agent; and (vi) deliver to
the appropriate Persons requests, demands, approvals, and
consents received from it. However, Agent may not be required
to take any action that exposes it to personal liability or
that is contrary to any Loan Paper or applicable Law.
(b) Each Lender appoints Agent (and Agent accepts
appointment) as its nominee and agent, in its name and on its
behalf to: (i) arrange the means whereby its funds are to be
made available to Borrower under the Loan Papers; and (ii)
promptly distribute to it its ratable part of each payment or
prepayment (whether voluntary, as proceeds of collateral upon
or after foreclosure, as proceeds of insurance thereon, or
otherwise) in accordance with the terms of the Loan Papers.
However, Agent may not be required to take any action that
exposes it to personal liability or that is contrary to any
Loan Paper or applicable Law.
(c) If the initial or any successor Agent ever
ceases to be a party to this agreement or if the initial or
any successor Agent ever resigns (whether voluntarily or at
the request of Determining Lenders), then Determining Lenders
shall appoint the successor Agent from among the Lenders
(other than the resigning Agent). If Determining Lenders fail
to appoint a successor Agent within 30 days after the
resigning Agent has given notice of resignation or Determining
Lenders have removed the resigning Agent, then the resigning
Agent may, on behalf of Lenders, appoint a successor Agent,
which must be a commercial bank having a combined capital and
surplus of at least $1,000,000,000 (as shown on its most
recently published statement
<PAGE> 40
of condition). Upon its acceptance of appointment as
successor Agent, the successor Agent succeeds to and becomes
vested with all of the Rights of the prior Agent, and the
prior Agent is discharged from its duties and obligations of
Agent under the Loan Papers, and each Lender shall execute the
documents as any Lender, the resigning or removed Agent, or
the successor Agent reasonably request to reflect the change.
After Agent's resignation or removal as Agent under the Loan
Papers, the provisions of this SECTION 13 inure to its benefit
as to any actions taken or omitted to be taken by it while it
was Agent under the Loan Papers.
(d) Agent, in its capacity as a Lender, has the
same Rights under the Loan Papers as any other Lender and may
exercise those Rights as if it were not acting as Agent; the
term "Lender" shall, unless the context otherwise indicates,
include Agent; and Agent's resignation or removal shall not
impair or otherwise affect any Rights that it has or may have
in its capacity as an individual Lender. Each Lender and
Borrower agree that Agent is not a fiduciary for Lenders or
for Borrower or any other party to a Loan Paper but simply is
acting in the capacity described in this agreement to
alleviate administrative burdens for Borrower, Lenders, and
other parties to the Loan Papers, that Agent has no duties or
responsibilities to Lenders or Borrower or other parties to
the Loan Papers except those expressly set forth in the Loan
Papers, and that Agent in its capacity as a Lender has all
Rights of any other Lender.
(e) Each KPP Company and Lender acknowledges and
agrees that (i) Agent is acting as agent for Lenders under the
Loan Papers, is a Lender under the Loan Papers, is acting as
agent for certain financial institutions under the 1994 Credit
Agreement, acted as the private-placement adviser to Borrower
and STI in respect of the transactions contemplated in the
Note Agreements, and is acting as the Collateral Trustee, and
(ii) none of those roles constitutes a conflict of interest
for Agent. Furthermore, Agent may now or hereafter be engaged
in one or more loan, letter of credit, leasing, or other
financing transactions with a KPC Company, act as trustee or
depositary for any KPC Company, or otherwise be engaged in
other transactions with any KPC Company (collectively, the
"OTHER ACTIVITIES") not the subject of the Loan Papers.
Without limiting the Rights of Lenders specifically set forth
in the Loan Papers, Agent is not responsible to account to
Lenders for those other activities, and no Lender shall have
any interest in any other activities, any present or future
guaranties by or for the account of any KPC Company that are
not contemplated or included in the Loan Papers, any present
or future offset exercised by Agent in respect of those other
activities, any present or future property taken as security
for any of those other activities, or any property now or
hereafter in Agent's possession or control that may be or
become security for the obligations of any KPC Company arising
under the Loan Papers by reason of the general description of
indebtedness secured or of property contained in any other
agreements, documents, or instruments related to any of those
other activities (but, if any payments in respect of those
guaranties or that property or the proceeds thereof is applied
by Agent to reduce the Obligation, then each Lender is
entitled to share ratably in the application as provided in
the Loan Papers).
13.2 Expenses. Each Lender shall pay its Default
Percentage of any reasonable expenses (including, without limitation, court
costs, reasonable attorneys' fees and other costs of collection) incurred by
Agent (while acting in such capacity) in connection with any of the Loan Papers
if Agent is not reimbursed from other sources within 30 days after incurrence.
Each Lender is entitled to receive its Default Percentage of any reimbursement
that it makes to Agent if Agent is subsequently reimbursed from other sources.
13.3 Proportionate Absorption of Losses. Except as
otherwise provided in the Loan Papers, nothing in the Loan Papers gives any
Lender any advantage over any other Lender insofar as the Obligation is
concerned or to relieve any Lender from ratably absorbing any losses sustained
with respect to the Obligation (except to the extent unilateral actions or
inactions by any Lender result in any KPP Company or any other obligor on the
Obligation having any credit, allowance, setoff, defense, or counterclaim solely
with respect to all or any part of that Lender's Default Percentage of the
Obligation).
13.4 Delegation of Duties; Reliance. Subject to the Rights
(including, without limitation, any required consent) of Agent or any or all
Lenders described elsewhere in this agreement, a
<PAGE> 41
Lender may perform its duties and exercise its Rights under the Loan Papers by
or through Agent, and Lenders and Agent may perform their duties and exercise
their Rights under the Loan Papers by or through their respective
Representatives (but a Lender's Representatives must work by or through Agent or
their respective Representatives). Agent, Lenders, and their respective
Representatives (a) are entitled to rely upon (and shall be protected in relying
upon) any written or oral statement believed by it or them to be genuine and
correct and to have been signed or made by the proper Person and, with respect
to legal matters, upon opinion of counsel selected by Agent or that Lender (but
nothing in this CLAUSE (A) permits Agent to rely on (i) oral statements if a
writing is required by this agreement or (ii) any other writing if a specific
writing is required by this agreement), (b) are entitled to deem and treat each
Lender as the owner and holder of its Default Percentage of the Principal Debt
for all purposes until, subject to SECTION 14.11, written notice of the
assignment or transfer is given to and received by Agent (and any request,
authorization, consent, or approval of any Lender is conclusive and binding on
each subsequent holder, assignee, or transferee of or Participant in that
Lender's Default Percentage of the Principal Debt until that notice is given and
received), (c) are not deemed to have notice of the occurrence of a Default
unless a responsible officer of Agent, who handles matters associated with the
Loan Papers and transactions thereunder, has actual knowledge or Agent has been
notified by a Lender or Borrower, and (d) are entitled to consult with legal
counsel (including counsel for any KPP Company), independent accountants, and
other experts selected by Agent and are not liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of
counsel, accountants, or experts.
13.5 Limitation of Agent's Liability.
(a) Neither Agent nor any of its respective
Representatives will be liable for any action taken or omitted
to be taken by it under the Loan Papers in good faith and
believed by it to be within the discretion or power conferred
upon it or them by the Loan Papers or be responsible for the
consequences of any error of judgment (except for fraud, gross
negligence, or willful misconduct), and neither Agent nor any
of its respective Representatives has a fiduciary relationship
with any Lender by virtue of the Loan Papers (but nothing in
this agreement negates the obligation of Agent to account for
funds received by it for the account of any Lender).
(b) Unless indemnified to its satisfaction against
loss, cost, liability, and expense, Agent may not be compelled
to do any act under the Loan Papers or to take any action
toward the execution or enforcement of the powers thereby
created or to prosecute or defend any suit in respect of the
Loan Papers. If Agent requests instructions from Lenders, or
Determining Lenders, as the case may be, with respect to any
act or action in connection with any Loan Paper, Agent is
entitled to refrain (without incurring any liability to any
Person by so refraining) from that act or action unless and
until it has received instructions. In no event, however, may
Agent or any of its Representatives be required to take any
action that it or they determine could incur for it or them
criminal or onerous civil liability. Without limiting the
generality of the foregoing, no Lender has any right of action
against Agent as a result of Agent's acting or refraining from
acting under this agreement in accordance with instructions of
Determining Lenders.
(c) Agent is not responsible to any Lender or any
Participant for, and each Lender represents and warrants that
it has not relied upon Agent in respect of, (i) the
creditworthiness of any party to any Loan Paper and the risks
involved to that Lender, (ii) the effectiveness,
enforceability, genuineness, validity, or the due execution of
any Loan Paper (other than by Agent), (iii) any representation,
warranty, document, certificate, report, or statement made
therein (other than by Agent) or furnished thereunder or in
connection therewith, (iv) the adequacy of any collateral now
or hereafter securing the Obligation or the existence,
priority, or perfection of any Lien now or hereafter granted or
purported to be granted on the collateral under any Loan Paper,
or (v) observation of or compliance with any of the terms,
covenants, or conditions of any Loan Paper on the part of any
KPP Company. Each Lender agrees to indemnify Agent and its
respective Representatives and hold them harmless from and
against (but limited to such Lender's Default Percentage of)
any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, reasonable
expenses, and reasonable disbursements of any kind or nature
whatsoever that may be imposed on, asserted against, or
incurred by them in any way relating to or arising out of the
Loan Papers or any action taken or omitted by them under the
Loan Papers if the applicable
<PAGE> 42
Person is not reimbursed for such amounts by any KPP Company.
Although Agent and its respective Representatives have the
right to be indemnified under this agreement for its or their
own ordinary negligence, none of those Persons have the right
to be indemnified under this agreement for its or their own
fraud, gross negligence, or willful misconduct.
13.6 Default; Collateral. If a Default exists, Lenders
agree to promptly confer in order that Determining Lenders or Lenders, as the
case may be, may agree upon a course of action for the enforcement of the Rights
of Lenders; and Agent is entitled to refrain from taking any action (without
incurring any liability to any Person for so refraining) unless and until it has
received instructions from Determining Lenders. In actions with respect to any
property of any KPP Company, Agent is acting for the ratable benefit of each
Lender. Agent shall hold, for the ratable benefit of all Lenders, any security
it receives for the Obligation or any guaranty of the Obligation it receives
upon or in lieu of foreclosure.
13.7 Limitation of Liability. No Lender or any Participant
will incur any liability to any other Lender or Participant except for acts or
omissions in bad faith, and neither Agent, Lender nor any Participant will incur
any liability to any other Person for any act or omission of Agent, any Lender,
or any Participant.
13.8 Relationship of Lenders. The Loan Papers do not
create a partnership or joint venture among Agent and Lenders or among Lenders.
13.9 Collateral Matters.
(a) Each Lender authorizes and directs
Agent to enter into the Security Documents for the ratable
benefit of Lenders. Each Lender agrees that any action taken
by Agent concerning any Collateral with the consent of, or at
the request of, all Lenders in accordance with the provisions
of this agreement, the Security Documents, or the other Loan
Papers, and the exercise by Agent (with the consent of, or at
the request of, all Lenders) of powers concerning any
Collateral set forth in any Loan Paper, together with other
reasonably incidental powers, shall be authorized and binding
upon all Lenders.
(b) Agent is authorized on behalf of all
Lenders, without the necessity of any notice to or further
consent from any Lender, from time to time before a Default or
Potential Default, to take any action with respect to any
Collateral or Security Documents that may be necessary to
perfect and maintain perfected the Lender Liens upon the
Collateral granted by the Security Documents.
(c) Agent has no obligation whatsoever to
any Lender or to any other Person to assure that the
Collateral exists or is owned by any KPP Company or is cared
for, protected, or insured or has been encumbered or that the
Liens granted to Agent for the benefit of Lenders under the
Security Documents have been properly or sufficiently or
lawfully created, perfected, protected, or enforced, or are
entitled to any particular priority.
(d) Agent shall exercise the same care and
prudent judgment with respect to the Collateral and the
Security Documents as it normally and customarily exercises in
respect of similar collateral and security documents.
(e) Lenders irrevocably authorize Agent, at
its option and in its discretion, to release any Lender Lien
upon any Collateral (i) upon full payment of the Obligation;
(ii) constituting property being sold or disposed of as
permitted under SECTION 9.9, if Agent determines that the
property being sold or disposed is being sold or disposed in
accordance with the requirements and limitations of SECTION
9.9; (iii) constituting property in which no KPP Company owned
any interest at the time the Lender Lien was granted or at any
time thereafter; (iv) constituting property leased to any KPP
Company under a lease that has expired or been terminated in a
transaction permitted under this agreement or is about to
expire and that has not been, and is not intended by that KPP
Company to be, renewed; or (v) consisting of an instrument
evidencing Debt pledged to Agent (for the benefit of Lenders),
if the Debt evidenced thereby has
<PAGE> 43
been paid in full. Upon request by Agent at any time, Lenders
will confirm in writing Agent's authority to release
particular types or items of Collateral under this SECTION
13.9(E).
13.10 Benefits of Agreement. None of the provisions of this
SECTION 13 inure to the benefit of any KPP Company or any other Person other
than Agent and Lenders; consequently, no KPP Company or any other Person is
entitled to rely upon, or to raise as a defense, in any manner whatsoever, the
failure of Agent or any Lender to comply with these provisions.
SECTION 14 MISCELLANEOUS.
14.1 Nonbusiness Days. Any payment or action that is due
under any Loan Paper on a non- Business Day may be delayed until the
next-succeeding Business Day (but interest shall continue to accrue on any
applicable payment until payment is in fact made) unless the payment concerns a
LIBOR Rate Borrowing, in which case if the next-succeeding Business Day is in
the next calendar month, then such payment shall be made on the next-preceding
Business Day.
14.2 Communications. Unless otherwise stated, when a Loan
Paper requires or permits any consent, approval, notice, request, or demand from
one party to another, it must be written and is deemed given:
if by telecopy, when transmitted to the appropriate telecopy
number (but, without affecting the date deemed given, a
telecopy communication must be promptly confirmed by
telephone);
if by mail, on the third Business Day after enclosed in a
properly addressed, stamped, and sealed envelope deposited in
the appropriate official postal service; and
if by other means, when actually delivered.
Until changed by notice, the address and telecopy number are stated
for (a) Borrower and Agent, beside their names on the signature pages
below, and (b) each Lender, beside its name on SCHEDULE 2.1.
14.3 Form and Number of Documents. The form, substance,
and number of counterparts of each writing to be furnished under this agreement
must be satisfactory to Agent and its counsel.
14.4 Exceptions to Covenants. No party to a Loan Paper may
take or fail to take any action that is permitted as an exception to any of the
covenants contained in any Loan Paper if that action or omission would result in
the breach of any other covenant contained in any Loan Paper.
14.5 Survival. All covenants, agreements, undertakings,
representations, and warranties made in any of the Loan Papers survive all
closings under the Loan Papers and, except as otherwise indicated, are not
affected by any investigation made by any party.
14.6 Governing Law. The Laws (other than conflict-of-laws
provisions) of the State of Texas and of the United States of America govern the
Rights and duties of the parties to the Loan Papers and the validity,
construction, enforcement, and interpretation of the Loan Papers.
14.7 Invalid Provisions. Any provision in any Loan Paper
held to be illegal, invalid, or unenforceable is fully severable; the
appropriate Loan Paper shall be construed and enforced as if that provision had
never been included; and the remaining provisions shall remain in full force and
effect and shall not be affected by the severed provision. Agent Lenders,
Borrower, and each other party to the affected Loan Paper shall negotiate, in
good faith, the terms of a replacement provision as similar to the severed
provision as may be possible and be legal, valid, and enforceable.
14.8 Venue; Service of Process; Jury Trial. EACH PARTY TO
ANY LOAN PAPER, IN EACH CASE FOR ITSELF, ITS SUCCESSORS AND PERMITTED ASSIGNS,
(A) IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE STATE AND
FEDERAL COURTS OF THE STATE OF TEXAS,
<PAGE> 44
(B) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION
THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY LITIGATION
ARISING OUT OF OR IN CONNECTION WITH THE LOAN PAPERS AND THE OBLIGATION BROUGHT
IN DISTRICT COURTS OF DALLAS COUNTY, TEXAS, OR IN THE UNITED STATES DISTRICT
COURT FOR THE NORTHERN DISTRICT OF TEXAS, DALLAS DIVISION, (C) IRREVOCABLY
WAIVES ANY CLAIMS THAT ANY LITIGATION BROUGHT IN ANY OF THE AFOREMENTIONED
COURTS HAS BEEN BROUGHT IN AN INCONVENIENT FORUM, (D) IRREVOCABLY CONSENTS TO
THE SERVICE OF PROCESS OUT OF ANY OF THOSE COURTS IN ANY LITIGATION BY THE
MAILING OF COPIES THEREOF BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, POSTAGE
PREPAID, BY HAND-DELIVERY, OR BY DELIVERY BY A NATIONALLY RECOGNIZED COURIER
SERVICE, AND SERVICE SHALL BE DEEMED COMPLETE UPON DELIVERY OF THE LEGAL PROCESS
AT ITS ADDRESS SET FORTH IN THIS AGREEMENT, (E) IRREVOCABLY AGREES THAT ANY
LEGAL PROCEEDING AGAINST ANY PARTY TO ANY LOAN PAPER ARISING OUT OF OR IN
CONNECTION WITH THE LOAN PAPERS OR THE OBLIGATION MAY BE BROUGHT IN ONE OF THE
AFOREMENTIONED COURTS, AND (F) IRREVOCABLY WAIVES TO THE FULLEST EXTENT
PERMITTED BY LAW, ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF ANY LOAN PAPER. The scope of each of the
foregoing waivers is intended to be all-encompassing of any and all disputes
that may be filed in any court and that relate to the subject matter of this
transaction, including, without limitation, contract claims, tort claims, breach
of duty claims, and all other common law and statutory claims. Borrower
acknowledges that these waivers are a material inducement to Agent's,
Syndication Agent's, and each Lender's agreement to enter into a business
relationship, that Agent and each Lender has already relied on these waivers in
entering into this agreement, and that Agent and each Lender will continue to
rely on each of these waivers in related future dealings. Borrower further
warrants and represents that it has reviewed these waivers with its legal
counsel, and that it knowingly and voluntarily agrees to each waiver following
consultation with legal counsel. THE WAIVERS IN THIS SECTION 14.8 ARE
IRREVOCABLE, MEANING THAT THEY MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING,
AND THESE WAIVERS SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, SUPPLEMENTS, AND
REPLACEMENTS TO OR OF THIS OR ANY OTHER LOAN PAPER. In the event of Litigation,
this agreement may be filed as a written consent to a trial by the court.
14.9 Amendments, Consents, Conflicts, and Waivers.
(a) Unless otherwise specifically provided,
(i) this agreement may be amended only by an instrument in
writing executed by Borrower, Agent, and Determining Lenders
and supplemented only by documents delivered or to be
delivered in accordance with the express terms of this
agreement, and (ii) the other Loan Papers may only be the
subject of an amendment, modification, or waiver that has been
approved by Determining Lenders and the Person(s) party to
those other Loan Papers.
(b) Any amendment to or consent or waiver
under this agreement or any Loan Paper that purports to
accomplish any of the following must be by an instrument in
writing executed by each party thereto (and, if not a party
thereto, Agent) and executed (or approved, as the case may be)
by each Lender: (i) extends the due date or decreases the
amount of any scheduled payment of the Obligation beyond the
date specified in the Loan Papers; (ii) decreases any rate or
amount of interest, fees, or other sums payable to Agent or
Lenders under this agreement (except such reductions as are
contemplated by this agreement); (iii) changes the definition
of "COMMITMENT," "COMMITMENT PERCENTAGE," "DETERMINING
LENDERS," "ACTUAL TERMINATION DATE," or "STATED TERMINATION
DATE"; (iv) increases any one or more Lenders' Commitments;
(v) waives compliance with, amends, or releases (in whole or
in part) any Guaranty or any Collateral; or (vi) changes this
CLAUSE (B) or any other matter specifically requiring the
consent of all Lenders under this agreement.
(c) Any conflict or ambiguity between the
terms and provisions of this agreement and terms and
provisions in any other Loan Paper is controlled by the terms
and provisions of this agreement.
(d) No course of dealing or any failure or
delay by Agent, any Lender, or any of their respective
Representatives with respect to exercising any Right of Agent
or any Lender
<PAGE> 45
under this agreement operates as a waiver thereof. A waiver
must be in writing and signed by Agent and Lenders (or
Determining Lenders, if permitted under this agreement) to be
effective, and a waiver will be effective only in the specific
instance and for the specific purpose for which it is given.
14.10 Multiple Counterparts. Any Loan Paper may be executed
in a number of identical counterparts, each of which shall be deemed an original
for all purposes and all of which constitute, collectively, one agreement; but,
in making proof of this agreement, it shall not be necessary to produce or
account for more than one counterpart. Each Lender need not execute the same
counterpart of this agreement so long as identical counterparts are executed by
Borrower, each Lender and Agent. This agreement shall become effective when
counterparts of this agreement have been executed and delivered to Agent by each
Lender, Agent and Borrower, or, in the case only of Lenders, when Agent has
received telecopied, telexed, or other evidence satisfactory to it that each
Lender has executed and is delivering to Agent a counterpart of this agreement.
14.11 Successors and Assigns; Participations.
(a) Each Loan Paper binds and inures to the
benefit of the parties thereto, any intended beneficiary
thereof, and each of their respective successors and permitted
assigns. No Lender may transfer, pledge, assign, sell any
participation in, or otherwise encumber its portion of the
Obligation except as permitted by this SECTION 14.11.
(b) Subject to the provisions of this
section and in accordance with applicable Law, any Lender may,
in the ordinary course of its commercial banking business, at
any time sell to one or more Persons (each a "PARTICIPANT")
participating interests in its portion of the Obligation. The
selling Lender shall remain a "Lender" under this agreement
(and the Participant shall not constitute a "Lender" under
this agreement) and its obligations under this agreement shall
remain unchanged. The selling Lender shall remain solely
responsible for the performance of its obligations under the
Loan Papers and shall remain the holder of its share of the
Principal Debt for all purposes under this agreement. Each
party to any Loan Paper and Agent shall continue to deal
solely and directly with the selling Lender in connection with
that Lender's Rights and obligations under the Loan Papers.
Participants have no Rights under the Loan Papers, other than
those of a Lender under SECTIONS 3, 8.1, 8.4, and 8.13, and
certain voting Rights as provided below. Subject to the
following, each Lender may obtain (on behalf of its
Participants) the benefits of SECTION 3 with respect to all
participations in its part of the Obligation outstanding from
time to time so long as Borrower is not obligated to pay any
amount in excess of the amount that would be due to that
Lender under SECTION 3 calculated as though no participations
have been made. No Lender may sell any participating interest
under which the Participant has any Rights to approve any
amendment, modification, or waiver of any Loan Paper, except
to the extent the amendment, modification, or waiver extends
the due date for payment of any principal, interest, or fees
due under the Loan Papers, reduces the interest rate or the
amount of principal or fees applicable to the Obligation
(except reductions contemplated by this agreement), or
releases any Guaranty or any collateral, if any, for the
Obligation (other than releases of collateral permitted by
SECTION 13.9(E)). Except in the case of the sale of a
participating interest to another Lender, the relevant
participation agreement shall prohibit the Participant from
transferring, pledging, assigning, selling participations in,
or otherwise encumbering its portion of the Obligation.
(c) Subject to the provisions of this
section, any Lender may at any time, in the ordinary course of
its commercial banking business, assign a proportionate part
(not less than $5,000,000) of all or any part of its Rights
and obligations under the Loan Papers (i) without the consent
of any Person (including, without limitation, any KPP Company
or Agent) to any of its Affiliates, and (ii) if no Default
exists and if Borrower and Syndication Agent first consent
(which consent may not be unreasonably withheld), to any of
the following, if the potential assignee does not own any
equity interests or Rights (excluding Rights under the
<PAGE> 46
Security Documents) to acquire any equity interests in any KSI
Company: (A) a commercial bank that is organized under Laws
of the United States of America or any of its states and has
total assets in excess of $1,000,000,000; (B) a commercial
bank that is organized under the Laws of another country that
is a member of the Organization for Economic Cooperation and
Development (the "OECD") -- or a political subdivision of any
such country, has total assets in excess of $1,000,000,000,
and is acting either through its main office or a branch or an
agency that has total assets in excess of $1,000,000,000 and
is located in the country of its organization or another
country that is also a member of the OECD; (C) the central
bank of any country that is a member of the OECD; or (D) a
finance company, insurance company, or other financial
institution or fund that has total assets in excess of
$1,000,000,000. Each such permitted assignee is called a
"PURCHASER."
(d) In each case, the Purchaser shall
assume those Rights and obligations under an assignment
agreement substantially in the form of the attached EXHIBIT F.
Each assignment under this SECTION 14.11(C) shall include a
ratable interest in the assigning Lender's Rights and
obligations under the Loan Papers. Upon (i) delivery of an
executed copy of the assignment agreement to Borrower, Agent,
and Syndication Agent and (ii) payment of a fee of $1,500 from
the transferor to Agent, from and after the assignment's
effective date (which shall be after the date of delivery),
the Purchaser shall for all purposes be a Lender party to this
agreement and shall have all the Rights and obligations of a
Lender under this agreement to the same extent as if it were
an original party to this agreement with Commitments as set
forth in the assignment agreement, and the transferor Lender
shall be released from its obligations under this agreement to
a corresponding extent, and, except as provided in the
following sentence, no further consent or action by Borrower,
Lenders, Agent, or Syndication Agent shall be required. Upon
the consummation of any transfer to a Purchaser under this
CLAUSE (D), then (x) the then-existing SCHEDULE 2.1 shall
automatically be deemed to reflect the name, address, and
Commitment of such Purchaser, (y) Borrower shall execute and
deliver to each of the transferor Lender and the Purchaser a
Note in the face amount of its respective Commitment following
transfer, and (z) upon receipt of its new Note, the transferor
Lender shall return to Borrower the Note previously delivered
to it under this agreement. A Purchaser is subject to all the
provisions in this section as if it were a Lender signatory to
this agreement as of the date of this agreement.
(e) Any Lender may at any time, without the
consent of any Person (including, without limitation, any KPP
Company, Agent, or Syndication Agent), assign all or any part
of its Rights under the Loan Papers to a Federal Reserve Bank
without releasing the transferor Lender from its obligations
thereunder.
(f) Notwithstanding any contrary provision
in this agreement, a Lender may not sell or participate any of
its interests for a purchase price that, directly or
indirectly, reflects a discount from face value, without first
offering the sale or participation to the other Lenders on a
Default Percentage basis (which must be accepted or rejected
within five Business Days after the offer).
14.12 Discharge Only Upon Payment in Full; Reinstatement in
Certain Circumstances. Each Person's obligations under the Loan Papers remain
in full force and effect until the total Commitments are terminated and the
Obligation is paid in full (except for provisions under the Loan Papers
expressly intended to survive payment of the Obligation and termination of the
Loan Papers). If at any time any payment of the principal of or interest on any
Note or any other amount payable by any KPP Company or any other obligor on the
Obligation under any Loan Paper is rescinded or must be restored or returned
upon the insolvency, bankruptcy, or reorganization of any Person or otherwise,
the obligations of each Person under the Loan Papers with respect to that
payment shall be reinstated as though the payment had been due but not made at
that time.
14.13 Entirety. THE LOAN PAPERS REPRESENT THE FINAL
AGREEMENT BETWEEN BORROWER, LENDERS, AGENT, AND SYNDICATION AGENT AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENT
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGE FOLLOWS.
<PAGE> 47
EXECUTED as of the day and year first mentioned.
2435 North Central Expressway KANEB PIPE LINE OPERATING
Suite 700 PARTNERSHIP, L.P., as Borrower
Richardson, Texas 75080
Attn: Edward D. Doherty, By: KANEB PIPE LINE COMPANY,
Chairman General Partner
Telecopy: 214/699-4025
By /s/ Edward D. Doherty
---------------------------
Edward D. Doherty, Chairman
2200 Ross Avenue TEXAS COMMERCE BANK NATIONAL
Dallas, Texas 75266-0197 ASSOCIATION, as Agent and a Lender
Attn: Dale S. Hurd
Senior Vice President
Telecopy: 214/965-2389
By /s/ Dale S. Hurd
------------------------
Dale S. Hurd, Senior Vice President
SIGNATURE PAGE TO BRIDGE FINANCING AGREEMENT
<PAGE> 48
FIRST AMENDMENT TO BRIDGE FINANCING AGREEMENT
THIS AMENDMENT is entered into as of March 26, 1996, between KANEB
PIPE LINE OPERATING PARTNERSHIP, a Delaware limited partnership ("BORROWER"),
and TEXAS COMMERCE BANK NATIONAL ASSOCIATION ("AGENT") as Agent and initial
Lender.
Borrower and Agent are party to the Bridge Financing Agreement (as
renewed, extended, and amended, the "BRIDGE AGREEMENT") dated as of December
18, 1995, providing for a $68,000,000 revolving credit facility. Borrower and
Agent have agreed, upon the following terms and conditions, to amend the Bridge
Agreement to provide for an extension of the stated date of maturity for the
facility. Accordingly, for adequate and sufficient consideration, Borrower and
Agent agree as follows:
1. TERMS AND REFERENCES. Unless otherwise stated in this
amendment, terms defined in the Bridge Agreement have the same meanings when
used in this amendment.
2. AMENDMENT TO BRIDGE AGREEMENT. The Bridge Agreement is
amended as follows:
(a) Section 1 of the Bridge Agreement is amended
by entirely amending the following term:
STATED TERMINATION DATE means March 25, 1997.
(b) Exhibit A is entirely amended in the form of
-- and all references in the Bridge Agreement to Exhibit A are
changed to -- the attached AMENDED EXHIBIT A.
3. CONDITIONS PRECEDENT. PARAGRAPH 2 above is not effective
until Agent receives counterparts of this amendment executed by each KPP
Company and Agent.
4. RATIFICATIONS. Borrower (a) ratifies and confirms all
provisions of the Loan Papers as amended by this amendment, (b) ratifies and
confirms that all guaranties, assurances, and Liens granted, conveyed, or
assigned to Agent under the Loan Papers are not released, reduced, or otherwise
adversely affected by this amendment and continue to guarantee, assure, and
secure full payment and performance of the present and future Obligation, and
(c) agrees to perform such acts and duly authorize, execute, acknowledge,
deliver, file, and record such additional documents and certificates as Agent
may request in order to create, perfect, preserve, and protect those
guaranties, assurances, and Liens.
5. REPRESENTATIONS. Borrower represents and warrants to Agent
that as of the date of this amendment (a) all representations and warranties in
the Loan Papers are true and correct in all material respects except to the
extent that (i) any of them speak to a different specific date or (ii) the
facts on which any of them were based have been changed by transactions
contemplated or permitted by the Bridge Agreement, and (b) no Material Adverse
Event, Default or Potential Default exists.
<PAGE> 49
6. ENTIRETIES. THE BRIDGE AGREEMENT AS AMENDED BY THIS AMENDMENT
REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES ABOUT THE SUBJECT MATTER OF
THE BRIDGE AGREEMENT AS AMENDED BY THIS AMENDMENT AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
7. PARTIES. This amendment binds and inures to Borrower, Agent
and their respective successors and assigns.
- 2 -
<PAGE> 50
EXECUTED as of the date first stated above.
KANEB PIPE LINE OPERATING TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
PARTNERSHIP, as Borrower as Agent and Lender
By KANEB PIPE LINE COMPANY,
General Partner
By /s/ Edward D. Doherty By /s/ Donna German
---------------------------- -----------------------------------
Edward D. Doherty, Chairman Donna German, Senior Vice President
To induce Agent to enter into this amendment, the undersigned consent
and agree (a) to its execution and delivery, (b) that this amendment in no way
releases, diminishes, impairs, reduces, or otherwise adversely affects any
Liens, guaranties, assurances, or other obligations or undertakings of any of
the undersigned under any Loan Papers, and (c) waive notice of acceptance of
this consent and agreement, which consent and agreement binds the undersigned
and their successors and permitted assigns and inures to Agent and their
respective successors and permitted assigns.
KANEB PIPE LINE PARTNERS, L.P. SUPPORT TERMINALS OPERATING
PARTNERSHIP, L.P., as a Guarantor
By: KANEB PIPE LINE COMPANY,
General Partner By: SUPPORT TERMINAL SERVICES, INC.,
as General Partner
By /s/ Edward D. Doherty By /s/ Edward D. Doherty
--------------------------- --------------------------------
Edward D. Doherty, Chairman Edward D. Doherty, Chairman
STANTRANS, INC., AND SUPPORT TERMINAL
SERVICES, INC., as Guarantors
By /s/ Edward D. Doherty
---------------------------------
Edward D. Doherty, Chairman of
both the above corporations
FIRST AMENDMENT SIGNATURE PAGE
<PAGE> 51
AMENDED EXHIBIT A
AMENDED AND RESTATED PROMISSORY NOTE
$68,000,000 March 22, 1996
FOR VALUE RECEIVED, KANEB PIPE LINE OPERATING PARTNERSHIP, L.P., a
Delaware limited partnership ("MAKER"), promises to pay to the order of Texas
Commerce Bank national Association ("PAYEE") that portion of the principal
amount of $68,000,000 that may be disbursed and outstanding under this note,
together with interest.
This note is one of the "Notes" under the Bridge Financing Agreement
(as renewed, extended, amended, or restated, the "BRIDGE AGREEMENT") dated as
of the date of this note, between Maker, Payee, certain other "Lenders," and
Texas Commerce Bank National Association, as Agent for Lenders. All of the
defined terms in the Bridge Agreement have the same meanings when used in this
note.
This note incorporates by reference the principal and interest payment
terms in the Bridge Agreement for this note -- including, without limitation,
the final maturity indicated as the earlier of either (a) the Stated
Termination Date, or (b) the effective date that the Commitments are otherwise
canceled or terminated under the Bridge Agreement. Maker must make those
payments to Agent for Payee or Agent's offices at 2200 Ross Avenue, Dallas,
Dallas County, Texas.
This note incorporates by reference all other provisions in the Bridge
Agreement applicable to this note -- such as provisions for disbursements of
principal, applicable interest rates before and after Default, prepayments,
acceleration of maturity, exercise of Rights, payment of attorneys' fees, court
costs, and other costs of collection, certain waivers by Maker and other
obligors, assurances and security, choice of Texas and United States federal
law, usury savings, and other matters applicable to "Loan Papers" under the
Bridge Agreement.
This note amends and completely restates, but does not extinguish
amounts left owing and unpaid on that certain Promissory Note dated December
18, 1995, in the stated principal amount of $68,000,000 executed and delivered
by Maker and payable to the order of Payee.
KANEB PIPE LINE OPERATING PARTNERSHIP, L.P.,
Maker
By: KANEB PIPE LINE COMPANY, General Partner
By /s/ E. D. DOHERTY
--------------------------------------
Edward D. Doherty, Chairman
Amended Exhibit A
<PAGE> 1
KANEB SERVICES, INC.
List of Subsidiaries
CORPORATE INSURERS LIMITED
DM DRILLING, INC.
Diamond K Limited
Diamond M Exploration Company
EAGLE CREEK RESOURCES, INC.
FURMANITE GERMANY, INC.
Management Services Furmanite Holding GmbH
Furmanite GmbH (formerly Zweipack GmbH)
Furmanite Pipeline Ingenieur-Team GmbH (Gaschwitz)
Furmanite Industrie Service GmbH (Schwedt)
KANEB ENERGY COMPANY
KANEB EQUIPMENT LEASING COMPANY, INC.
Furmanite Equipment Leasing Company, Inc.
KANEB EXPLORATION, INC.
KANEB INFORMATION SERVICES, INC.
Fields Financial Services, Inc.
Fields Data Management, Inc.
Viata Corporation
KANEB INTERNATIONAL INC.
Furmanite America Inc.
Kaneb Energy Canada Ltd.
Furmanite Canada Ltd.
Kaneb Offshore Services Inc.
Furmanite SA (France)
Furmanite NV (Belgium)
Metalock NV (Belgium)
Furmeta Holding BV (Netherlands)
Furmanite BV (Netherlands)
Metaholding BV (Netherlands)
Metalock BV (Netherlands)
Furmanite East Asia Ltd (Hong Kong/Singapore)
Furmanite AS (Norway)
Singapore PTE Ltd.
Furmanite plc (formerly Kaneb UK plc)
Furmanite 1986 LTD (formerly Furmanite plc)
Furmanite International LTD
EXHIBIT 21
<PAGE> 2
ASSOCIATED COMPANIES
Furmanite Mexico SA (with Furmanite America)
Fuji Furmanite Company Limited
Barrier Offshore Maintenance Services, LTD
Furmanite Gulf
Furmanite UAE LTD
KANEB INVESTMENT CORP.
KANEB PIPE LINE COMPANY
Kaneb Pipe Line Partners, L.P. (Partial)
Kaneb Pipe Line Operating Partnership, L.P.
Support Terminals Operating Partnership, L.P.
Support Terminal Services, Inc.
StansTrans, Inc.
StanTrans Holding, Inc.
StanTrans Partners, L.P.
KANEB TECHNOLOGIES, INC.
Kaneb Metering Corporation
NDE Environmental Corporation (Partial)
MORAN BROS., INC.
MORAN ENERGY INTERNATIONAL N.V.
PETROLEUM OPERATIONS AND SUPPORT SERVICES, INCORPORATED
TEXAS ENERGY SERVICES, INC.
SUSSEX INTERNATIONAL LIMITED
Exhibit 21
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement in Form S-3 (No. 33-35624) and
Registration Statements of Forms S-8 (No. 2-90929), (No. 33-41181), (No.
33-41295) and (No. 33-54027) of Kaneb Services, Inc. of our report dated March
5, 1996 appearing on page F-1 of this Form 10-K.
PRICE WATERHOUSE LLP
Dallas, Texas
March 28, 1996
<PAGE> 1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of Kaneb
Services, Inc., a Delaware corporation ("Kaneb"), does hereby constitute and
appoint Howard C. Wadsworth or Tony M. Regan with full power of substitution,
as his true and lawful attorney and agent to execute and sign, for and on
behalf of the undersigned, the name of the undersigned as a director of Kaneb
to the Annual Report on Form 10-K for Kaneb for the fiscal year ended December
31, 1995, or to any amendment thereto, to be filed with the Securities and
Exchange Commission, pursuant to the Securities Exchange Act of 1934, and to
any instrument or document filed as a part of, as an exhibit to or in
connection with said Form 10-K or any amendment thereto; and the undersigned
does hereby ratify and confirm as his own act and deed all that said attorney
and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
26th day of March, 1996.
SANGWOO AHN
- ------------------------
Sangwoo Ahn
In Presence of:
H. MATTESON
- ------------------------
H. Matteson
Exhibit 24
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of Kaneb
Services, Inc., a Delaware corporation ("Kaneb"), does hereby constitute and
appoint Howard C. Wadsworth or Tony M. Regan with full power of substitution,
as his true and lawful attorney and agent to execute and sign, for and on
behalf of the undersigned, the name of the undersigned as a director of Kaneb
to the Annual Report on Form 10-K for Kaneb for the fiscal year ended December
31, 1995, or to any amendment thereto, to be filed with the Securities and
Exchange Commission, pursuant to the Securities Exchange Act of 1934, and to
any instrument or document filed as a part of, as an exhibit to or in
connection with said Form 10-K or any amendment thereto; and the undersigned
does hereby ratify and confirm as his own act and deed all that said attorney
and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
26th day of March, 1996.
JOHN R. BARNES
- ------------------------
John R. Barnes
In Presence of:
HEATHER R. BULBA
- ------------------------
Heather R. Bulba
Exhibit 24
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of Kaneb
Services, Inc., a Delaware corporation ("Kaneb"), does hereby constitute and
appoint Howard C. Wadsworth or Tony M. Regan with full power of substitution,
as his true and lawful attorney and agent to execute and sign, for and on
behalf of the undersigned, the name of the undersigned as a director of Kaneb
to the Annual Report on Form 10-K for Kaneb for the fiscal year ended December
31, 1995, or to any amendment thereto, to be filed with the Securities and
Exchange Commission, pursuant to the Securities Exchange Act of 1934, and to
any instrument or document filed as a part of, as an exhibit to or in
connection with said Form 10-K or any amendment thereto; and the undersigned
does hereby ratify and confirm as his own act and deed all that said attorney
and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
28th day of March, 1996.
CHARLES R. COX
- ------------------------
Charles R. Cox
In Presence of:
JUNE KERSHAW
- ------------------------
June Kershaw
Exhibit 24
<PAGE> 4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of Kaneb
Services, Inc., a Delaware corporation ("Kaneb"), does hereby constitute and
appoint Howard C. Wadsworth or Tony M. Regan with full power of substitution,
as his true and lawful attorney and agent to execute and sign, for and on
behalf of the undersigned, the name of the undersigned as a director of Kaneb
to the Annual Report on Form 10-K for Kaneb for the fiscal year ended December
31, 1995, or to any amendment thereto, to be filed with the Securities and
Exchange Commission, pursuant to the Securities Exchange Act of 1934, and to
any instrument or document filed as a part of, as an exhibit to or in
connection with said Form 10-K or any amendment thereto; and the undersigned
does hereby ratify and confirm as his own act and deed all that said attorney
and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
26th day of March, 1996.
PRESTON A. PEAK
- ------------------------
Preston A. Peak
In Presence of:
HEATHER R. BULBA
- ------------------------
Heather R. Bulba
Exhibit 24
<PAGE> 5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of Kaneb
Services, Inc., a Delaware corporation ("Kaneb"), does hereby constitute and
appoint Howard C. Wadsworth or Tony M. Regan with full power of substitution,
as his true and lawful attorney and agent to execute and sign, for and on
behalf of the undersigned, the name of the undersigned as a director of Kaneb
to the Annual Report on Form 10-K for Kaneb for the fiscal year ended December
31, 1995, or to any amendment thereto, to be filed with the Securities and
Exchange Commission, pursuant to the Securities Exchange Act of 1934, and to
any instrument or document filed as a part of, as an exhibit to or in
connection with said Form 10-K or any amendment thereto; and the undersigned
does hereby ratify and confirm as his own act and deed all that said attorney
and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
26th day of March, 1996.
RALPH A. REHM
- ------------------------
Ralph A. Rehm
In Presence of:
HEATHER R. BULBA
- ------------------------
Heather R. Bulba
Exhibit 24
<PAGE> 6
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of Kaneb
Services, Inc., a Delaware corporation ("Kaneb"), does hereby constitute and
appoint Howard C. Wadsworth or Tony M. Regan with full power of substitution,
as his true and lawful attorney and agent to execute and sign, for and on
behalf of the undersigned, the name of the undersigned as a director of Kaneb
to the Annual Report on Form 10-K for Kaneb for the fiscal year ended December
31, 1995, or to any amendment thereto, to be filed with the Securities and
Exchange Commission, pursuant to the Securities Exchange Act of 1934, and to
any instrument or document filed as a part of, as an exhibit to or in
connection with said Form 10-K or any amendment thereto; and the undersigned
does hereby ratify and confirm as his own act and deed all that said attorney
and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
26th day of March, 1996.
JAMES R. WHATLEY
- ------------------------
James R. Whatley
In Presence of:
NATHLYE H. CHASTAIN
- ------------------------
Nathlye H. Chastain
Exhibit 24
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 30,389
<SECURITIES> 0
<RECEIVABLES> 33,841
<ALLOWANCES> 1,133
<INVENTORY> 5,809
<CURRENT-ASSETS> 76,371
<PP&E> 363,545
<DEPRECIATION> 99,698
<TOTAL-ASSETS> 409,827
<CURRENT-LIABILITIES> 60,069
<BONDS> 191,846
0
4,230
<COMMON> 5,814
<OTHER-SE> 79,033
<TOTAL-LIABILITY-AND-EQUITY> 409,827
<SALES> 0
<TOTAL-REVENUES> 212,062
<CGS> 0
<TOTAL-COSTS> 168,597
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<INCOME-TAX> 2,535
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<NET-INCOME> 59,181
<EPS-PRIMARY> 1.72
<EPS-DILUTED> 1.72
</TABLE>
