UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997 Commission File Number 1-10091
HUNTWAY PARTNERS, L.P.
(Exact Name of Registrant as Specified in its Charter)
Delaware 36-3601653
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
25129 The Old Road, #322
Newhall, California 91381
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number Including Area Code: (805) 286-1582
Securities Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
Common Units New York Stock Exchange
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(b) 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 is not contained herein and will not be considered, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to
this Form 10-K. [ ]
At March 17, 1998, the aggregate market value of the Partnership Units held by
non-affiliates of the registrant was approximately $18,102,000 based upon the
closing price of its units on the New York Stock Exchange Composite tape. At
March 17, 1998, there were 14,583,958 Units outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Document Form 10-K Part
Specified portions of Registrant's
Registration Statement on Form S-1 as amended by
Amendment No. 3, filed November 9, 1988 Part II
PART I
Item 1. Business of the Partnership
INTRODUCTION
Huntway Partners, L.P., a Delaware limited partnership (the "Partnership"),
owns three crude oil refineries located in California and Arizona. The
Partnership is currently operating the two California refineries while the
Arizona refinery has been shut down since August 1993 due to adverse market
conditions.
The managing general partner of the Partnership is Huntway Managing Partner,
L.P. (the "Managing General Partner"), a Delaware limited partnership. See
"Cash Distribution Policy" and "Management". The Managing General Partner and
Huntway Holdings, L.P. ("Huntway Holdings"), the special general partner of
the Partnership (the "Special General Partner"), are collectively referred to
herein as the "General Partners". The General Partners are under common
ownership.
The principal executive offices of the Partnership and General Partners are
located at 25129 The Old Road, Suite 322, Newhall, California 91381 and their
telephone number is (805) 286-1582.
General:
The three refineries owned by Huntway are located in Wilmington, California,
near Los Angeles Harbor, in Benicia, California, near San Francisco Bay and in
Coolidge, Arizona, which is midway between Phoenix and Tucson. The
Wilmington, Benicia and Coolidge refineries have refining capacities of 6,000
barrels per day ("bpd"), 9,000 bpd and 8,500 bpd, respectively.
The two California refineries produce liquid asphalt products and light-end
products such as gas oil, diesel fuel, naphtha and kerosene distillate, from
crude oil obtained from onshore and offshore California production sources.
The Arizona refinery, which was shut down in August 1993, also produced jet
fuel and diesel fuel. The California refineries supply liquid asphalt to hot
mix asphalt producers, material supply companies, contractors and government
agencies principally for use in road paving in California, and to a lesser
extent Nevada, Arizona, Utah, Oregon and Mexico. The Arizona refinery is
owned by a subsidiary of the Partnership, Sunbelt Refining Company, L.P.
("Sunbelt"). The refining business conducted by the Partnership, its
subsidiary and its predecessors since 1979 is referred to herein as "Huntway".
Some competing refineries typically produce liquid asphalt as a residual by-
product from refining higher-cost, light crude oil into products such as
gasoline. In contrast, Huntway's California refineries were designed
specifically to produce liquid asphalt from lower-cost, heavy crude oil
produced in California.
Products and Markets:
Market Area
Huntway markets liquid asphalt primarily in California and, to a lesser
extent, in Nevada, Arizona, Utah and Oregon. The market area served by the
Wilmington refinery includes the southern portion of California from
Bakersfield to San Diego, into Baja, California in Mexico, and east into
southern Nevada and Arizona (the "Southern Market"). The market area covered
by the Benicia refinery includes northern California from Monterey and Modesto
north to southern Oregon and east to northern Nevada and Utah (the "Northern
Market"). The Arizona refinery market area is no longer serviced through its
Sunbelt refinery, as the refinery was shut down in August 1993.
Liquid Asphalt
Liquid asphalt is one of Huntway's two principal products and accounted for
approximately 49% of its revenues in 1997 and 48% of its revenues in 1996. As
discussed below under "Light-end Products", the prices for Huntway's other
principal product, light-ends fell in 1997 as these prices are tied to
finished gasoline and diesel prices in California which decreased in 1997.
The principal uses of liquid asphalt are in road paving and, to a lesser
extent, manufacturing roofing products. About 89% of Huntway's liquid asphalt
sales consist of paving grade liquid asphalt. The remaining 11% of Huntway's
liquid asphalt is sold for use in producing roofing products such as tar
paper, roofing shingles, built-up roofing products, as a component of fuel oil
sales and other specialty products.
Paving grade liquid asphalt, including grades set by standards determined by
the National Highway and Transportation Administrations Strategic Highway
Research Program ("SHRP"), is sold by Huntway to hot mix asphalt producers,
material supply companies, contractors and government agencies. These
customers, in turn, mix liquid asphalt with sand and gravel to produce "hot
mix asphalt" which is used for road paving. In addition to conventional
paving grade asphalt, Huntway also produces "modified" and "cutback"
asphalt products. Modified asphalt is a blend of recycled plastic and polymer
materials with liquid asphalt, which produces a more durable product that can
withstand greater changes in temperature. Cutback asphalt is a blend of
liquid asphalt and lighter petroleum products that is used primarily to repair
asphalt road surfaces.
Demand for liquid asphalt is generally lowest in the first quarter of the
year, slightly higher in the second and fourth quarters and significantly
higher in the third quarter. In particular, liquid asphalt sales in the
northern market are somewhat more seasonal than sales in the southern market
(including Arizona) due to the rain and cold weather usually experienced in
the northern market during the winter months, which affects road paving
activities.
Light-End Products
In addition to liquid asphalt, Huntways two California refineries produce
certain light-end products. These products, as described below, constitute
approximately one-half of total production (as measured by barrels produced),
with liquid asphalt comprising the other half. Huntways light-end product
revenues are tied to the prices of finished gasoline and diesel fuel in
California, which decreased in 1997 as gasoline and diesel inventories
remained high and California crude oil prices declined through the year.
Liquid asphalt customers primarily take delivery via trucks, which enter the
refineries, light-end customers primarily take delivery of the product via
pipelines or barges.
Gas Oil
Gas oil accounted for about 29% of Huntway's revenues during 1997 and 29%
during 1996. This product is used either as a blending stock to make marine
diesel fuel or bunker fuel or by other refiners as a feedstock for producing
gasoline and other light petroleum products.
Kerosene Distillate and Naphtha
Kerosene distillate is primarily sold to customers to be used as a refinery
feedstock.
Huntway also produces a gasoline range naphtha, which is sold to other
refiners for further processing to finished gasoline products. Sales of
kerosene distillate and naphtha accounted for approximately 12% and 10% of
revenues in 1997 and 14% and 9% in 1996, respectively.
Bunker Fuel Blend Stock
This product is blended with lower viscosity blend stock to make finished
marine fuels used by ocean going ships and barges and is sold primarily to
ship bunkering companies. Bunker fuel sales were insignificant in 1997 and
1996 but accounted for 4% of revenues in 1995 as a result of inclement weather
in that year.
Major Customers
One customer, Ultramar Diamond Shamrock accounted for 25% of revenues in 1997
while Chevron, Inc. accounted for 15% and 17% of revenues in 1996 and 1995
respectively. In the event that one or more customers significantly reduces
the level of their purchases from Huntway, Huntway's management believes that
it could find alternative purchasers for the affected output and that such
reduction would not have a material adverse effect upon the results of
Huntway's operations.
Factors Affecting Demand for Liquid Asphalt
General
Demand for liquid paving asphalt products is primarily affected by federal,
state and local highway spending, as well as the general state of the
California economy, which drives commercial construction. Another factor is
weather, as asphalt paving projects are usually shut down in cold, wet weather
conditions. All of these demand factors are beyond the control of the
Partnership. Government highway spending provides a source of demand which is
relatively unaffected by normal business cycles but is dependent on
appropriations. During 1997, approximately 75% of liquid asphalt sales were
ultimately funded by the public sector.
On March 26, 1996, the California electorate approved the Seismic Retrofit
Proposition 192 which raises $2 billion of new money to be used for seismic
retrofit of Californias bridges, highways and overpasses. Passage of
Proposition 192 has resulted in a net increase in construction of new and
repair of existing asphalt road projects in the state over that which would
have occurred if Proposition 192 had not been approved.
Historically, approximately 70% of Huntway's liquid asphalt sales have been
made to purchasers whose business is directly tied to these various
governmental expenditures. Over the long term, demand for liquid asphalt will
also tend to be influenced by changes in population, the level of commercial
construction, and housing activity.
The California economy continued to improve in 1997 fueled by growth in
foreign trade as well as growth in high technology, tourism and entertainment.
This growth in business activity resulted in increases in road construction
and repair activity in both the private and public sectors. Further expansion
is being forecast for California in 1998 as growth rates as measured by growth
in jobs, personal income, consumer spending and construction are expected to
exceed national averages. Growth in the California economy generally bodes
well for the Partnership as increased business activity results in increased
construction activity, including increased new road construction and increased
repair efforts on existing roads in both the public and private sectors. In
1995, however, public sector work was delayed in the first half of the year
due to the heavy rainfall while, in 1994, and to some extent in 1995, public
funding was diverted to freeway and bridge repair resulting from the January
1994 earthquake. Private asphalt demand rebounded slightly in 1996 and
continued to improve in 1997 due to the improvement in the California economy.
Government Funding
General. With the closure of the Sunbelt refinery in 1993, Huntway's two
remaining refineries are in California. Therefore the following discussion
focuses on government highway funds available in California.
Federal Funding. Federal funding of highway projects is accomplished through
the Federal Aid Highway Program. The Federal Aid Highway Program is a
federally assisted, state administered program that distributes federal funds
to the states to construct and improve urban and rural highway systems. The
program is administered by the Federal Highway Administration ("FHWA"), an
agency of the Department of Transportation. Nearly all federal highway funds
are derived from gasoline user taxes assessed at the pump.
At this writing, the United States Congress is in the final mark up of a 6
year Intermodal Surface Transportation Efficiency Act (ISTEA) Bill that
increases annual expenditures by as much as 40% over the six year period. If
approved this bill would increase Californias annual receipts by as much as
$800 million beginning in 1999. This bill would also mean that for the first
time in a decade Congress would return the majority of the funds collected at
the gas pump to the states to be used for their intended purpose of repairing
and rehabilitating our roads and highways.
State and Local Funding. In addition to federal funding for highway projects,
states individually fund transportation improvements with the proceeds of a
variety of gasoline and other taxes. In California, the California Department
of Transportation ("CALTRANS") administers state expenditures for highway
projects.
California is presently moving a Constitutional amendment through the
Legislature that will require any future borrowings from the Transportation
Fund to be repaid the same fiscal year plus interest. If this amendment is
enacted this will stop borrowings that occurred on a regular basis through the
early 1990's that were never paid back and that reduced transportation related
expenditures by approximately $1.5 billion.
In June, 1990 voters in the state of California passed a measure increasing
state gasoline taxes from 9 cents to 14 cents per gallon effective August 1,
1990, and by an additional 1 cent per gallon on each January 1 thereafter
through 1994. The additional revenues available to the state are now
estimated to be about $14 billion over the decade. However, in June 1994,
voters in the State of California rejected a measure that would have provided
an additional $2.0 billion to pay for damage to freeways and bridges resulting
from the January 17, 1994 earthquake. Accordingly, State funding for
earthquake repair projects was achieved by utilizing funds from the existing
California transportation budget.
However, on March 26, 1996, the California electorate approved Proposition
192, the Seismic Retrofit Bond Act of 1996. This bond measure raised $2
billion to finance a seismic retrofit program for state bridges, highway
overpasses and interchanges and has had the indirect effect of increasing
expenditures for conventional road repair and construction over that which
would have been spent had Proposition 192 not been approved.
Local governmental units (such as cities, counties and townships) provide
additional funding for road and highway projects through various taxes and
bond issues.
However, it should be noted that these past increases in governmental funding
and expenditures to date have not been sufficient to entirely offset the
decline in private sector demand as previously outlined.
Crude Oil Supply
Huntway's California refineries require approximately 15,000 bpd of crude oil
when operating at their full capacities. Total refinery crude oil processing
capacity in California is approximately 1.9 million bpd according to the 1996
Refining Survey published by the Oil & Gas Journal. Refinery capacity for the
Western United States, including Hawaii (PADD5), is 2.9 million bpd. These
refineries generally run an average of 90% of their capacity. California
refineries are supplied primarily by onshore and offshore California
production and by crude oil transported from Alaska with some imports from
South America, Mexico, the Far East and Persian Gulf. Current production of
crude oil in California and Alaska alone totals approximately 2.5 million bpd.
Huntway's California refineries are located near substantial crude oil
reserves. A significant portion of this crude oil is heavy, high sulfur crude
oil, which is well suited for liquid asphalt production due to the higher
percentage yield of liquid asphalt per barrel. Nearly all of Huntway's crude
oil supply is delivered to its refineries by pipeline.
The Arizona refinery is located adjacent to the All-American Pipeline, a
common carrier pipeline which transports crude oil from California to Texas.
Huntway coordinates its purchases of crude oil to meet the supply needs of all
of its existing refineries. Huntway purchases a substantial portion of its
crude oil requirements under contracts with a variety of crude oil producers
for terms typically varying from 30 days to 90 days. In addition, Huntway
supplements its contract purchases with purchases of crude oil on the "spot"
market.
Competition
The markets for refined petroleum products are highly competitive and pricing
is a primary competitive factor. With respect to liquid asphalt, Huntway's
management believes that Huntway's reputation for consistently high product
quality, its ability to provide high levels of service and its long-standing
relationships with its major customers are important to its continued success.
Huntway's five-state market area is served by numerous refineries, including
refineries operated by major integrated oil companies and by other independent
refiners. All of Huntway's primary competitors are located in California and
many have larger refining capacity and greater financial resources than does
Huntway. In 1997, Huntway's management believes that Shell Oil Company
accounted for a majority of the volume of liquid asphalt sales in the Northern
Market and that Huntway accounted for 20% to 25% of liquid asphalt sales in
this market area. The remaining 10% to 20% estimated market share is
apportioned amongst several other competitors located outside of the Northern
California area. Huntway's management believes that Paramount Petroleum
Company accounts for approximately 50% of the liquid asphalt sales in the
Southern market and that Huntway and two other competing refineries account
for the majority of the remainder of liquid asphalt sales.
Employees
Huntway currently has 70 full-time and 8 part-time employees. None of
Huntway's employees is represented by a union, and management believes that
labor relations have been excellent.
Environmental Matters
Huntway's refinery activities involve the transportation, storage, handling
and processing of crude oil and petroleum products which contain substances
regulated under various federal and state environmental laws and regulations.
Huntway is also subject to federal, state and local laws and regulations
relating to air emissions and disposal of wastewater and hazardous waste, as
well as other environmental laws and regulations, including those governing
the handling, treatment, release and cleanup of hazardous materials and
wastes.
Huntway has from time to time expended significant resources, both financial
and management, to comply with environmental regulations and permitting
requirements and anticipates that it will continue to be required to expend
financial and management resources for this purpose in the future. Stringent
environmental regulations have been adopted which require most refiners in
Huntway's market area to expend substantial sums in order to comply. However,
these regulations principally impact refiners that produce motor vehicle
fuels, which Huntway does not produce. Compliance with such regulations and
requirements has not had a material adverse effect on the assets, financial
position or results of operations of Huntway. In 1997, the Partnership spent
less than $5,000 on environmentally related remediation expenditures.
However, Huntway's environmentally-related remediation expenditures in 1996
totaled approximately $150,000 and primarily related to expenditures made to
remove 20 drums improperly buried at the Wilmington refinery site prior to its
construction. Of the $150,000 expenditure, approximately $80,000 was
recovered from the former owners and operators of the site, as well as
entities involved in the construction of the refinery. Management does not
believe, based upon information presently known, that any additional costs
will be incurred. Environmentally-related remediation expenditures totaled
$65,000 in 1995 and $60,000 in 1994. Such related remediation expenditures in
1994 and 1995 were less than anticipated due to permitting delays resulting
from regulatory agencies.
Item 2. Properties of the Partnership
Wilmington Refinery
The Wilmington refinery and its related facilities are located on a seven-acre
site under a lease expiring on December 31, 2003. This ground lease covers
three contiguous parcels: (a) land owned by and leased directly from
Industrial Asphalt on which Huntway's tank farm is located; (b) land owned by
the Southern Pacific Railroad leased to Industrial Asphalt for a term ending
June 1, 2032 on which the processing facility is located; and (c) two strip
parcels bordering the facility owned by Southern Pacific and leased to
Industrial Asphalt under a lease cancelable upon 30 days notice which are used
for access to the refinery. In addition, the ground lease grants Huntway a
non-exclusive license in Industrial Asphalt's rights of access to the
properties under an agreement with Southern Pacific. The Partnership has the
right to (i) purchase from Industrial Asphalt an undivided interest in the
land under the tank farm at fair market value and (ii) assume the two Southern
Pacific leases from Industrial Asphalt. Wilmington has 108,000 barrels of
crude oil storage on site. Huntway also owns refined product tankage for
storage of liquid asphalt and other refined products which Huntway's
management believes is adequate for its needs.
Benicia Refinery
The Benicia refinery is located adjacent to the Carquinez Strait, near the San
Francisco Bay. The refinery and related facilities are located on nineteen
acres of land owned by Huntway. Crude oil tankage at Benicia totals 216,000
barrels, while refined product tankage for storage of liquid asphalt and light
oils totals 326,000 barrels. To enhance Benicia's ability to receive crude
oil by water and to ship finished products by ship and barge, Huntway leases
dock and loading facilities for a term expiring February 2031. The dock
facilities are connected to the refinery by two two-mile pipelines.
Huntway has seen an increase in the demand for SHRP grade performance-based
asphalt products in recent years by both the public and private sectors. This
increased demand for better performing, more durable paving, roofing and other
specialty products has caused the Partnership to expand its production
capabilities in this area.
Accordingly, in 1996, Huntway expended approximately $2,000,000 to expand its
modified plant to allow the Partnership to utilize low cost recycled
modifiers. While Huntway was unable to fully capitalize on its capabilities
in 1997 due to market conditions, management believes this facility's larger
production and storage capacity will improve the economics of production and
produce a more consistent product for the Partnership's customers.
Arizona Refinery
The Arizona refinery and its related facilities are located on a thirty-seven
acre parcel leased from the City of Mesa under a lease expiring on April 12,
2008 (with options to renew for up to an additional twenty years until 2028).
The Arizona refinery has 100,000 barrels of crude oil storage capacity, and
195,000 barrels of storage capacity for liquid asphalt and other refined
products. The Arizona refinery was closed in 1993.
Item 3. Legal Proceedings
In 1992, the Partnership and its subsidiary, Sunbelt Refining Company, L.P.,
were charged by the State of Arizona with violations of certain environmental
regulations and provisions of the Arizona refinery's installation permit.
Sunbelt acknowledged that it had certain environmental compliance problems in
the past, but believed that none of these resulted in any harm to public
health or to the environment. While Huntway and Sunbelt have consistently
denied that any criminal activity occurred, the parties agreed on December 21,
1993 to settle both the State's civil and criminal charges. As part of the
settlement, Sunbelt agreed to pay a penalty of $700,000 over a period of seven
years without interest and to undertake certain environmental improvements at
the Arizona refinery. Huntway has made payments against this obligation of
$550,000, with the next payment of $100,000 due January 7, 1999. The
settlement, which consists of a civil consent judgment and a plea agreement,
has been reviewed and approved by the court, the U.S. Attorney's Office and
the U.S. Environmental Protection Agency. Under the terms of the settlement,
Huntway is released from any further liability for the alleged violations and
considers the matter closed. Huntway has instituted new programs and
procedures to ensure that it is operating in compliance with all environmental
laws and regulations.
The Partnership is party to a number of additional lawsuits and other
proceedings arising out of the ordinary course of its business. While the
results of such lawsuits and proceedings cannot be predicted with certainty,
management does not expect that the ultimate liability, if any, will have a
material adverse effect on the consolidated financial position or results of
operations of the Partnership.
Item 4. Submission of Matters to a Vote of Unitholders
None
PART II
Item 5. Market for Registrant's Units and Related Unitholder Matters
Market
As of March 17, 1998 there were approximately 2,000 holders of record of
Huntway Partners, L.P. Units. The Units are traded on the New York Stock
Exchange under the ticker symbol "HWY". The following table indicates the
high and low sale prices of the Huntway Partners, L.P. Units as reported by
the Composite Transactions listing in The Wall Street Journal for the periods
indicated:
<TABLE>
<CAPTION>
Year Ended Distribution
1997 High Low Close Paid
<S> <C> <C> <C> <C>
1st Quarter 1 5/8 3/4 1 3/8 --
2nd Quarter 1 1/2 1 1/8 1 1/2 --
3rd Quarter 1 5/8 1 1/4 1 3/8 --
4th Quarter 3 1/4 1 1/4 2 5/8 --
</TABLE>
<TABLE>
<CAPTION>
Year Ended Distribution
1996 High Low Close Paid
<S> <C> <C> <C> <C>
1st Quarter 1/2 5/16 13/32 --
2nd Quarter 7/8 13/32 3/4 --
3rd Quarter 7/8 5/8 11/16 --
4th Quarter 13/16 9/16 13/16 --
</TABLE>
Cash Distribution Policy
No cash distributions were paid to holders of Units during 1997.
Cash distributions to holders of Units were suspended effective November, 1990
due to Huntway's operating and working capital needs, coupled with its bank
principal and capital expenditure requirements.
Under the Partnership's restructuring agreement with its principal lenders,
cash distributions to unitholders are prohibited until the payment in full on
all obligations to its senior lenders.
"Cash Distribution Policy" is incorporated by reference herein to pages 17
through 20 of the Partnership's Registration Statement on Form S-1 dated
November 9, 1988, Registration No. 33-24445.
Item 6. Selected Financial Data
(In thousands except per unit and per barrel data)
The following historical selected financial data as of and for each of the
years in the five-year period ended December 31, 1997, are derived from the
financial statements of Huntway Partners, L.P., which have been audited by
Deloitte & Touche LLP, independent auditors, which financial statements and
reports thereon (except for 1993 and 1994 and as to the balance sheet, 1995)
are included elsewhere herein. All of the selected information should be
read in conjunction with the financial statements and notes thereto.
<TABLE>
Huntway Partners L.P. Historical
<CAPTION>
Year Ended December 31,
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Operating Data
Revenues $102,678 $79,139 $83,069 $99,021 $96,715
Costs and Expenses
Material and Processing Costs 86,365 70,621 76,643 87,683 85,201
Selling and Administrative Costs 7,884(d) 4,182 3,819 4,297 4,476
Interest Expense 7,280 4,984 5,177 4,916 3,492
Plant Closure and Write Down 16,013(c) -- 9,492(f) -- --
Depreciation and Amortization 3,806(a) 2,356 2,399 2,219 2,414
Income (Loss) from Operations (18,670)(c,d,e)(3,004) (14,461) (94) 1,132
Extraordinary Gain on
Refinancing -- -- -- 58,668 --
Related Costs of Refinancing -- -- -- 2,180 --
Net Income (Loss) (18,670) (3,004) (14,461) 56,394 1,132
Income (Loss) per Unit from
Operations (a) $(1.60) $(0.26) $(1.24) $(0.01) $0.04
Income Per Unit from Extraordinary
Gain and Related Costs -- -- -- 4.37 --
Net Income (Loss) Per Unit (a) $(1.60) $(0.26) $(1.24) $ 4.36 $0.04
Barrels Sold 5,466 4,584 4,400 4,566 4,547
Revenues per Barrel $18.78 $17.26 $18.88 $21.69 $21.27
BALANCE SHEET DATA
Working Capital $ 2,289 $ 2,725(b)$(91,796)(b)$5,798(g)$8,375
Total Assets 90,745 85,796(b)$ 74,393 (b)$75,891 80,243
Long-Term Obligations 89,570 91,312 350 28,174(g)36,668
Partners' Capital/(Deficiency)(h)(13,049) (16,053) (30,514) 39,041(g)33,779
</TABLE>
a) 11,673 Limited Partner Equivalent Common Units were outstanding in 1993
through 1995, an average of 12,871 Limited Partner Equivalent Common Units
were outstanding in 1996 and an average of 23,787 Limited Partner
Equivalent Common Units were outstanding in 1997. All per unit amounts are
diluted.
b) After the cumulative LIFO reserve of $36, $1,203, $1,170, $2,192, and
$1,028 at December 31, 1993, 1994, 1995, 1996 and 1997, respectively.
c) Non-recurring charges recorded in June 1993 relating to the Sunbelt
refinery, which was shut down in August 1993.
d) Includes $2,078 of non-recurring charges relating to professional fees
incurred relating to the restructuring of indebtedness completed in 1993.
e) Includes $778 of non-recurring charges relating to amortization of loan
acquisition costs.
f) Write down of Sunbelt refinery assets to reflect expected operation as a
crude or product terminal in the future rather than as a petroleum refinery.
g) Reflects impact of 1996 Restructuring decreasing debt and accrued
interest by $71,748 as measured at November 30, 1996.
h) No distributions to unitholders have been paid since 1990.
Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Throughout the following discussion, the business operated by Huntway
Partners, L.P. is referred to as "Huntway" and all per unit data is diluted
per unit data.
The following should be read in conjunction with the foregoing "Selected
Financial Data" and the historical financial statements and notes included
elsewhere in this report.
This Form 10-K includes statements of a forward-looking nature relating to
future events or the future financial performance of the Company. The
Company's actual results may differ materially from the results discussed in
these forward-looking statements.
RESULTS OF OPERATIONS
Huntway is principally engaged in the processing and sale of liquid asphalt
products, as well as the production of other refined petroleum products such
as gas oil, naphtha, kerosene distillate, diesel fuel, jet fuel and bunker
fuel.
Huntway's ability to generate income depends principally upon the margins
between the prices for its refined petroleum products and the cost of crude
oil, as well as upon demand for liquid asphalt, which affects both price and
sales volume.
Historically, refined petroleum product prices (including prices for liquid
asphalt, although to a lesser degree than Huntway's other refined petroleum
products) generally fluctuate with crude oil price levels. There has not been
a relationship between total revenues and income due to the volatile commodity
character of crude oil prices.
Accordingly, management believes earnings before interest, depreciation and
amortization provides the most meaningful basis for comparing historical
results of operations discussed below. Earnings before interest, depreciation
and amortization is not a measuring criteria under generally accepted
accounting principles and should not be viewed as superior to or in isolation
from net income.
1997 COMPARED TO 1996
In 1997, Huntway reported net income of $1,132,000, or $.04 per unit, versus
net income of $56,394,000 or $4.36 per unit in 1996. Prior year net income
included a $58,668,000 extraordinary gain, or $4.54 per unit, partially offset
by transaction costs of $2,180,000, or $.17 per unit.
Absent the impact of the extraordinary gain net of associated transaction
costs net income improved $1,226,000 between years from a loss of $94,000 in
1996 to net income of $1,132,000 in 1997. The improvement in net results
reflects lower interest expense between periods of $1,424,000 partially offset
by higher depreciation and amortization between years of $195,000.
Interest expense declined between years due to lower average debt levels. On
December 30, 1996 Huntway's prepackaged plan of reorganization was consummated
by the U.S. Bankruptcy Court. As a result total debt and accrued interest
declined $71,748,000 to $27,924,000 from $99,672,000 as measured at November
30, 1996. Average debt levels in 1997 were $29,597,000 versus $80,515,000 in
1996.
On October 31, 1997 the Partnership issued $21,750,000 in 9 1/2% Senior
Subordinated Secured Convertible Debt due 2007, retired $11,707,000 in 12%
senior debt, and redeemed 10,758,696 units or 42% of its total units
outstanding. The transaction also reduced the effective interest rate on the
Partnership's $8,600,000 Industrial Development Bond from 12% to approximately
6% and provided the Partnership with $2,500,000 in additional working capital.
As a result of this transaction, the Partnership's debt increased from
$27,924,000 to $37,967,000 effective October 31, 1997. Net interest expense
however remained essentially unchanged due to the lower net interest rate on
the new convertible debt and the buydown of the approximate 6% interest spread
on the Industrial Development Bond.
Depreciation and amortization increased $195,000 between years. This increase
was due to $268,000 in amortization of deferred compensation in 1997 relating
to the accounting for employee stock options issued in December 1996.
Earnings before interest and depreciation and amortization were $7,038,000 in
1997 versus $7,041,000 in 1996. The decrease in revenues between years to
$96,715,000 in 1997 from $99,021,000 in 1996 was primarily the result of lower
crude costs.
Between years asphalt gross profit increased in aggregate and on a per barrel
basis due to the effect of the decline in crude costs coupled with slightly
higher asphalt selling prices due to increased demand. The expanding
California economy increased demand for asphalt in the private sector. Demand
for asphalt by the public sector was flat between years despite the improving
California economy as some public expenditures were diverted to complete
earthquake bridge and freeway overpass retrofit projects. These projects
primarily require steel and concrete and use very little asphalt.
Light-end margins conversely declined in 1997 versus 1996 as no major refinery
problems occurred in 1997 causing the supply of finished (Phase II) gasoline
CARB (California Air Resources Board) diesel products in California to exceed
prior year levels. This caused downward pressure on the prices for Huntway's
unfinished light-end products such as gas oil, kerosene distillate and
naphtha. These products are priced off of finished diesel and gasoline
prices. Huntway's light-end product prices also declined due to the decline
in crude oil costs.
Crude oil costs on a per barrel basis declined 4% in 1997. The decline in
Huntway's crude oil costs reflects overall lower crude costs on world markets.
The effect of Iraq selling crude oil for humanitarian purposes throughout all
of 1997 versus only the fourth quarter of 1996, production by OPEC members
above stated quotas, weaker Asian demand due to economic problems in that area
of the world and the effect of comparatively warmer weather in 1997 than 1996
in the eastern United States and Western Europe reducing heating oil demand
caused downward pressure on world oil prices. Crude oil prices began to
decline in the fourth quarter of 1996 and continued to reflect a relatively
declining trend throughout 1997.
California average crude oil postings decreased 5% in 1997 versus 1996. This
decline reflected the weakness in world oil prices. Moreover, in 1997
California oil refineries did not experience the operating difficulties that
arose in 1996 (particularly in the first half of 1996) as in the first half of
1996 these refineries experienced production problems as they began to produce
large quantities of the new cleaner fuels (Phase II gasoline and CARB diesel).
As a result Huntway's light-end margins in 1997 declined versus 1996 due to
higher finished fuel inventories commensurate with increased production by
major California refineries.
Cash processing costs in 1997, which include utility costs, operating
salaries, wages and benefits, repair and maintenance costs, property taxes and
environmental compliance costs, were comparable to 1996 on an aggregate and
per-barrel basis.
The following table sets forth the effects of changes in price and volume on
sales and materials (mostly crude) and processing costs for the year ended
December 31, 1997 as compared to the year ended December 31, 1996:
<TABLE>
<CAPTION>
Materials Net Barrels
Sales & Processing Margin Sold
<S> <C> <C> <C> <C>
Year Ended December 31, 1996 $99,021,000 $87,683,000 $11,338,000 4,566,000
Effect of Changes in Price (1,894,000) (2,117,000) 223,000
Effect of Changes in Volume (412,000) (365,000) (47,000) (19,000)
Year Ended December 31, 1997 $96,715,000 $85,201,000 $11,514,000 4,547,000
</TABLE>
Net margin increased a modest 2% in 1997 as the decline in material and
processing costs due to falling crude prices contributed to lower sales
prices. The slight increase in net margins reflects higher asphalt margins
offsetting lower light-end margins. On a per barrel basis net margin per
barrel was $2.53 a barrel in 1997 versus $2.48 in 1996.
On a per-barrel basis, sales averaged $21.27 in 1997 versus $21.69 in 1996.
Material and processing costs averaged $18.74 in 1997 versus $19.20 in the
prior year. The decline of 2% reflects lower average crude prices between
years.
Selling, general and administrative expenses increased 4% to $4,476,000 in
1997 from $4,297,000 in 1996. The $179,000 increase primarily reflects higher
salary and wage expense and higher travel expense due to increased promotion
and marketing efforts.
1996 COMPARED TO 1995
In 1996, Huntway undertook a restructuring of its debt through a prepackaged
plan of reorganization confirmed by the U.S. Bankruptcy Court on December 12,
1996 and consummated on December 30, 1996. As a result of this restructuring,
debt and accrued interest declined $71,748,000 to $27,924,000 from
$99,672,000, as measured at November 30, 1996. The effect of this transaction
was to record a $58,668,000 extraordinary gain, or $4.54 per unit, partially
offset by transaction costs of $2,180,000, or $.17 per unit. Accordingly, for
the year ended December 31, 1996, Huntway recorded net income of $56,394,000,
or $4.36 per unit, inclusive of the extraordinary gain and related costs.
In 1995, Huntway reported a loss of $14,461,000, or $1.24 per unit, which
included a $9,492,000, or $.82 per unit, write down of the Sunbelt Refinery.
Accordingly, absent the extraordinary gain in 1996 and the refinery write down
in 1995, earnings improved $4,875,000 between periods to a loss of $94,000, or
$.01 per unit, in 1996 from a loss of $4,969,000, or $.43 per unit, in 1995.
The significant reduction in the operating loss reflects the improvement in
light-end margins caused by increased finished gasoline and diesel prices in
California in 1996. Finished gasoline and diesel prices increased in 1996 in
response to the beginning of Phase II gasoline and CARB (California Air
Resources Board) diesel requirements unique to the State of California and
significant operating problems of major transportation fuel refineries.
Accordingly, as refineries in other states regularly produce little of these
specific California-grade fuels, margins on Phase II gasoline and CARB diesel
remained relatively high throughout 1996.
Meanwhile, asphalt margins remained consistent with the prior year at Benicia
as asphalt prices in 1996 rose commensurate with the increase in crude oil
cost. However, in Southern California, asphalt margins declined, as Huntway's
major competitor did not increase asphalt prices to reflect the increase in
crude oil costs. Accordingly, Southern California asphalt gross profit in
1996 was lower than 1995.
Crude oil costs on a per-barrel basis rose in 1996 by nearly 15% as world
crude oil prices increased with rising demand. Cold weather experienced in the
first half of 1996 in the United States and Northern Europe increased demand
for heating oil, thereby causing upward pressure on crude oil costs. Crude
oil prices, however, declined in late 1996 and early 1997 due to increased
supply as Iraq began selling barrels in the fourth quarter of 1996. In
addition, the United States experienced a relatively mild winter, thereby
reducing demand for crude oil, which resulted in lowering crude oil prices in
late 1996 and early 1997.
California average crude oil postings increased approximately 16% in 1996 over
1995, or slightly less than world crude prices as measured by W.T.I., as
several major refineries in California were shut down in the summer of 1996
due to refinery problems as discussed above. These shutdowns caused a
reduction in demand for California heavy crude oil that contributed to
downward pressure on the price of crude oil in the second half of 1996.
Cash processing costs in 1996, which include utility costs, operating
salaries, wages and benefits, repair and maintenance costs, property taxes and
environmental compliance costs, were comparable to 1995 on an aggregate and
per-barrel basis.
The following table sets forth the effects of changes in price and volume on
sales and materials (mostly crude) and processing costs for the year ended
December 31, 1996 as compared to the year ended December 31, 1995:
<TABLE>
<CAPTION>
Materials & Net Barrels
Sales Processing Margin Sold
<S> <C> <C> <C> <C>
Year Ended December 31, 1995 $83,069,000 $ 76,643,000 $6,426,000 4,400,000
Effect of Changes in Price 12,819,000 8,149,000 4,670,000
Effect of Changes in Volume 3,133,000 2,891,000 242,000 166,000
Year Ended December 31, 1996 $99,021,000 $ 87,683,000 $11,338,000 4,566,000
</TABLE>
As reflected above, net margin increased 76%, or $4,912,000, as the growth in
sales of $15,952,000 exceeded the increase in material and processing costs of
$11,040,000. Sales increased in part due to a 4% increase in volume, but more
importantly, as a result of higher light-end prices which increased due to
higher finished gasoline and diesel prices in California in 1996. Asphalt
prices also increased in 1996 but did not increase in aggregate terms to the
same degree as material and processing costs due to weak asphalt prices in
Southern California.
On a per-barrel basis, sales averaged $21.69 a barrel in 1996 versus $18.88 in
1995. Material and processing costs averaged $19.20 in 1996 and $17.42 in
1995. Accordingly, net operating margin per barrel was $2.48 in 1996 and
$1.46 in 1995.
Selling, general and administrative expenses totaled $4,297,000 in 1996 versus
$3,819,000 in 1995. This $478,000 increase reflects bonus expense of $718,000
in 1996, of which $406,100 was paid in cash in 1996. The balance of the 1996
bonus award of $311,900 was deferred and paid in 1997. The increase in bonus
expense was partially offset by lower bad debt expense due to favorable
collection efforts between years. Finally, professional fee expenses declined
between years primarily due to lower legal and consulting engineering fees.
Net interest expense totaled $4,916,000 in 1996 versus $5,177,000 in 1995.
The difference reflects increased interest income. The 1996 debt
restructuring, which was confirmed on December 12, 1996 and consummated on
December 30, 1996, was effective retroactive to January 1, 1996. However,
under generally accepted accounting principles, previously reported interest
expense for the first three quarter of 1996 is not restated. Had the
restructuring been in place on January 1, 1996, interest expense in 1996 would
have been reduced $1,592,000 to $3,324,000.
Depreciation and amortization in 1996 of $2,219,000 was $180,000 lower than
the prior year due to the write down of Sunbelt refinery assets at December
31, 1995, as discussed below.
OUTLOOK AND FACTORS THAT AFFECT FUTURE RESULTS
A number of uncertainties exist that may affect Huntway's future operations
including the possibility of increases in crude oil costs that Huntway may be
unable to pass on to customers in the form of higher prices. Additionally,
crude oil costs could rise to such an extent that Huntway may not have
sufficient letter of credit availability to purchase all the crude oil it
needs to sustain operations to capacity, especially during the summer season.
If this occurred, Huntway would be forced to prepay for crude oil or curtail
refining operations, either of which could adversely impact results of
operations. The Partnership's primary product is liquid asphalt. Several of
Huntway's competitors produce liquid asphalt as a by-product and are of much
greater size and have much larger financial resources than the Partnership.
Accordingly, the Partnership has in the past, and may in the future, have
difficulty raising prices in the face of increasing crude oil costs. As for
several of Huntway's competitors, the margins they receive on asphalt are not
as important to their operations as asphalt margins are to Huntway.
In an effort to mitigate fluctuations in crude oil prices Huntway has
negotiated hedge arrangements with independent producers of California crude
oil. Huntway's net cost of crude oil was reduced in 1996 and in 1997 from
what it might otherwise had been as a result of these hedge arrangements.
The January 1994 Northridge earthquake destroyed a major pipeline bringing
crude oil into Southern California. Both of Huntway's California refineries
are vulnerable to disruption in operations and reduced operating results due
to the possibility of additional earthquakes in California. In 1994 and early
1995, substantial public funds originally designated for road transportation
were diverted to freeway and bridge repair. This type of repair work uses
primarily concrete and steel and comparatively little liquid asphalt.
The expiration of certain crude oil tankering permits to Southern California
in 1995 resulted in a reduction in locally produced off-shore crude oil
supplies which are cheaper and better suited to the Company's production
needs. Accordingly, the expiration of tankering permits resulted in higher
overall prices for crude oil and presently there are no indications if or when
crude tankering will resume.
Huntway's export business is primarily with Mexican customers. Accordingly,
this export business is vulnerable to fluctuations in the Mexican peso to the
extent that devaluations in the peso relative to the U.S. dollar make
Huntway's asphalt more expensive. Huntway experiences no currency fluctuation
risk in these sales as all export sales are priced and paid for in U.S.
dollars. Export sales to Mexico in 1997 increased 114% versus 1996 due to
increased road construction expenditures in Mexico in 1997, as the Mexican
government is spending money on infrastructure as a foundation for future
growth. Export sales to Mexico in 1996 increased 6% versus 1995 as the peso
and the dollar exchange rate traded in a comparatively narrow range during
that timeframe.
Demand for liquid paving asphalt products is primarily affected by federal,
state and local highway spending, commercial construction and the level of
housing starts, all of which are beyond the control of the Company.
Government highway spending provides a source of demand which is relatively
unaffected by normal business cycles but is dependent upon appropriations.
Historically, approximately 70% of Huntway's liquid asphalt sales have been
made to purchasers whose business is directly tied to these various
governmental expenditures. Over the long-term, the demand for liquid asphalt
will also tend to be influenced by changes in population, the level of
commercial construction, and housing activity.
Federal funding of highway projects is accomplished through the Federal Aid
Highway Program. The Federal Aid Highway Program is a Federally assisted,
state administered program that distributes federal funds to the states to
construct and improve urban and rural highway systems. Substantially all
federal highway funds are derived from gasoline user taxes assessed at the
pump. In addition to federal funding for highway projects, states
individually fund transportation improvements with the proceeds of a variety
of gasoline and other taxes. In California, CALTRANS administers state
expenditures for highway projects.
In 1990, California voters approved a measure raising the gasoline taxes five
cents a gallon to 14 cents effective August 1, 1990. The measure also raised
gasoline taxes by a penny a gallon on each January 1 thereafter through 1994.
The additional revenues available to the state are estimated to be about $14
billion over the decade.
In June 1994, California voters rejected a measure that would have provided an
additional $2 billion to pay for damage to freeways and bridges resulting from
the January 17, 1994 earthquake. Accordingly, state funding for earthquake
repair projects was achieved by utilizing funds from the existing California
transportation budget. Local governmental units, such as cities, counties and
townships, provide additional funding for road and highway projects through
various taxes and bond issues. On March 26, 1996, the California electorate
approved the $2.0 billion Seismic Retrofit Proposition (Proposition 192).
Proposition 192 raised new money for earthquake retrofit projects involving
bridges, highways and overpasses. In the second half of 1997 CALTRANS
concentrated on completing retrofit projects and accordingly, several asphalt
road projects were delayed into 1998. As a result the Company expects asphalt
road construction and repair expenditures will increase in 1998 versus 1997.
However this increase could be further delayed if heavy El Nino-related
rainfall continues in California as has occurred through the first several
months of 1998.
California is presently moving a Constitutional amendment through the
Legislature that will require any future borrowings from the Transportation
Fund to be repaid the same fiscal year plus interest. If this amendment is
enacted this will stop borrowings that occurred on a regular basis through the
early 1990's that were never paid back and that reduced transportation related
expenditures by approximately $1.5 billion.
Huntway's asphalt sales are very dependent on public funding primarily at the
state level. Long-term disruptions or declines in the level of public funding
would adversely impact operating results. The strength of the California
economy also influences demand for Huntway's asphalt and light-end products.
Beginning in 1995 and continuing through 1996 Huntway experienced an increase
in demand for its products commensurate with the expansion of the California
economy. Asphalt demand in 1997 approximated 1996 as certain projects
anticipated to be started in 1997 were delayed into 1998 as earthquake
retrofit related work was emphasized in the second half of 1997. Private
asphalt demand did increase in 1997 commensurate with the expanding economy.
However, private asphalt demand constitutes only approximately 25% of
Huntway's annual asphalt demand. The Company believes asphalt demand will
continue to expand in the next several years commensurate with growth in the
California economy. Moreover damage to asphalt roads caused by El Nino-
related weather should further increase demand. Long-term, Huntway remains
optimistic about the outlook for future growth in California, based on the
level of existing expansion already underway and forecasts by several
prominent economic studies. This expected growth in the California economy
should lead to continued growth in the demand for Huntway's products. There
can be no assurance, however, that the California economy will continue to
expand as it has since 1995 or as forecasted by economic studies.
Generally, cold, wet weather is not conducive to asphalt road construction.
Accordingly, results in the first quarter of 1997 (due to El Nino-related
weather effects) and in 1995 were adversely impacted by unseasonably wet
weather. However, heavy rainfall does damage asphalt roads increasing the
backlog of needed road repairs, which should be accomplished if the required
public funding is available.
Barriers to entry in the asphalt market are limited. The sophistication level
of the required facilities is low indicating that refineries could enter the
market if they chose to do so. The capital needed to undertake asphalt
manufacturing at an existing California refinery operation is small by
refinery standards. Permit issues for these existing refineries, while they
exist, are not of such a nature that they are likely to be a significant
deterrent to new entrants. However, construction of new asphalt refineries is
very unlikely due to the inability to obtain required permits. Newly
constructed refineries would have high barriers to entry due to environmental
regulations and the limited size of the market.
The Company is subject to federal, state and local laws, regulations and
ordinances that govern activities or operations that might have adverse
environmental effects, and that impose liability for the costs of cleaning up,
and certain damages resulting from sites of past spills, disposals or other
releases of hazardous substances. Although Management believes that the
Company's operations procedures and safety precautions are enforced
stringently, there can be no assurance that environmental problems will not
occur in the future.
As a result of the factors described above while the Company is optimistic
regarding growth in asphalt demand commensurate with an expanding California
economy, the outlook for 1998 is uncertain. Continued heavy rainfall could
continue to delay projects while crude oil prices could increase dramatically
from existing relatively low levels. The Partnership continues to remain
optimistic regarding export growth potential and growth in the sale of higher
margin polymer based asphalt products. However, funding uncertainties also
influence growth in these areas. On an overall basis, projected population
growth in California and an improving economy bode well for future public and
private road construction activity.
Year 2000 Issue. The Year 2000 Issue is the result of computer programs being
written using two digits rather than four to define the applicable year. Any
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
Management has determined that the year 2000 issue will not pose significant
operational problems for its computer systems, and believes any remediation
costs will not be material.
The Partnership has not yet initiated formal communications with its
significant suppliers and customers to determine the extent to which the
Partnership's interface systems are vulnerable to those third parties' failure
to remediate their own Year 2000 Issue. However, the Partnership does not
utilize any electronic data interchange directly with its customers and
believes its exposure is limited to systems associated with the Federal Wire
system, common carrier pipelines and utilities. While there can be no
guarantee that the systems of other companies on which the Partnership relies
will be timely converted and would not have an adverse effect on the
Partnership, management does not currently anticipate significant problems
with these systems.
CAPITAL RESOURCES AND LIQUIDITY
The pricing factors that affect the Partnership's cash requirements and
liquidity position are fluctuations in the selling prices for its refined
products caused by local market supply and demand factors including public and
private demand for road construction and improvement. Secondly, demand for
diesel fuel and gasoline, as well as fluctuations in the cost of crude oil,
which is impacted by a myriad of market factors, both foreign and domestic,
influence the Partnership's cash requirements and liquidity position. In
addition, capital expenditure requirements, including costs to maintain
compliance with environmental regulations as well as debt service
requirements, impact the Partnership's cash needs.
Huntway's 1997 results improved $1,226,000 versus 1996 (absent the impact of
the extraordinary gain of $58,668,000 and related costs of $2,180,000 recorded
in 1996) to a profit of $1,132,000 in 1997 versus a loss of $94,000 in 1996.
The improvement in operating results reflects lower interest expense between
years of $1,424,000 due to lower average debt levels partially offset by
higher depreciation and amortization expense between years of $195,000 due to
depreciation of net additions to refinery equipment and amortization of non-
cash compensation relating to stock options.
Earnings before interest, depreciation and amortization was $7,038,000 in 1997
and $7,041,000 in 1996. While these results almost exactly equal each other,
light-end gross profit declined in 1997 versus 1996 while asphalt gross profit
increased in 1997 versus the prior year.
Light-end margins declined in the current year versus 1996 as finished fuel
inventories increased in California despite record gasoline usage in the
summer of 1997. This increase in finished fuel inventory was the result of no
major refinery problems occurring in 1997 in California as occurred in the
prior year. Huntway light-end products are priced off of finished gasoline
and diesel prices.
Asphalt gross profit increased at both California refineries in 1997 versus
1996 due to the 4% decline in average crude costs and higher average asphalt
selling prices due to increased demand. Private sector demand for asphalt
increased in 1997 commensurate with the expanding California economy. In
addition, in the fall of 1996 a supplier of asphalt in California quit
operations, reducing the supply of asphalt in the state. Asphalt margins
generally increase when crude costs fall and decline when crude costs rise as
asphalt pricing is generally established several months in advance of delivery
and established on fixed prices (absent certain escalators for Cal Trans
related projects).
On January 29, 1998 the Partnership submitted proxy materials to the
Securities and Exchange Commission describing a proposal that, if approved by
Huntway's limited partners, will result in the conversion of the Partnership
to corporate form. It is presently anticipated that this conversion will
occur on or before May 15, 1998. It is also anticipated that this conversion
will not materially impact Huntway's cash flow in 1998 except for related
transaction costs estimated at $300,000 as management believes that
significant amounts of taxable income will not be earned in 1998 or 1999 due
to the effects of depreciation on existing assets. This assumes earnings
before interest, depreciation and amortization does not materially increase
from levels earned in 1996 and 1997.
In October 1997 the Partnership issued $21,750,000 in 9 1/2% Senior
Subordinated Secured Convertible Debt due 2007.
This transaction retired $11,707,000 in
12% senior debt and redeemed 10,758,696 units or 42% of its total units
outstanding. The transaction also reduced the effective interest rate on the
partnership's $8,600,000 Industrial Development Bond from 12% to approximately
6%. The convertible debt sale also provided Huntway with $2,500,000 in
additional working capital. As a result of this transaction, total debt
increased from $27,924,000 to $37,967,000 effective October 31, 1997. Net
interest expense in 1998 will approximate 1997 despite higher debt levels due
to the lower net interest rate on the new convertible debt and the buydown of
the approximate 6% interest spread on the Industrial Development Bond.
The convertible debt sale also reduced required cash principal payments in
1998 as reflected below. Minimum required cash principal payments, assuming
the newly issued convertible debt does not convert, are as follows as measured
at December 31, 1997:
<TABLE>
<CAPTION>
Before After
Convertible Convertible
Debt Sale Debt Sale
<S> <C> <C>
1998 $3,929,000 1,449,000
1999 3,132,000 657,000
2000 3,132,000 657,000
2001 3,132,000 1,657,000
2002 3,132,000 1,657,000
Thereafter 11,467,000 31,890,000
Total $27,924,000 $37,967,000
</TABLE>
The holders of the convertible debt can convert into equity at $1.50 a share
at any time after May 15, 1998. Huntway can force conversion after October
15, 2000 assuming certain trading criteria are met. The convertible debt sale
reduced total units outstanding to 14,583,958 from 25,342,654. On an as
converted basis, total units will increase to 29,083,958.
In 1996, Huntway completed a restructuring of its debt through a prepackaged
plan of reorganization which was filed with the U.S. Bankruptcy Court in
Wilmington, Delaware, on November 12, 1996, confirmed by the Court on
December 12, 1996 and consummated on December 30, 1996. As a result of that
transaction, Huntway reduced debt and accrued interest by $71,748,000 as
measured at November 30, 1996. Huntway recorded a $58,668,000 extraordinary
gain on the transaction excluding $2,180,000 in related transaction costs.
The Partnership also recorded a $13,080,000 capital contribution on the
transaction represented by a decrease in debt and an increase in partners
capital.
The average interest rate and weighted average debt amount outstanding during
each period discussed below is as follows:
<TABLE>
<CAPTION>
Average
Interest Weighted Average
Rate Debt Outstanding
<S> <C> <C>
1995 5.04% 94,636,007
1996 5.62% 80,514,941
1997 11.13% 29,597,375
</TABLE>
Cash increased to $9,406,000 at December 31, 1997 from $5,287,000 at December
31, 1996. This increase of $4,119,000 can be attributed primarily to the
$2,500,000 in cash generated from the sale of the convertible debt in October
1997, to net income of $1,132,000 earned in 1997 and to other changes in
working capital of $487,000. Over the three-year period 1994 to 1997, cash
and cash equivalent increased $3,422,000.
Net cash provided by operating activities totaled $4,634,000 in 1997. Net
income of $1,132,000 plus depreciation and amortization of $2,414,000 and
interest expense paid by the issuance of notes of $894,000 provided a combined
$4,440,000 in cash. Decreases in accounts receivable generated $1,082,000 in
cash and were caused by the timing of light-end sales between years.
Inventory increased using $700,000 in cash. This increase reflects higher
crude and finished goods inventory at Benicia due to the timing of light-end
sales and lower than expected asphalt sales in December 1997 due to effects of
wet weather. Prepaid expenses decreased providing $41,000 in cash and
primarily reflects lower prepaid turnaround expenses as no major repair
projects were incurred in 1997. The reserve for plant closure decreased and
used $106,000 in cash in 1997. This reserve provided for maintenance costs
during the shutdown period. In December 1997 it was determined that no more
shutdown related expenses would be incurred at Sunbelt and the reserve was
reversed contributing $38,000 to net income. Accounts payable decreased
providing $183,000 in cash primarily due to the effect of lower crude oil
prices between years. Accrued liabilities increased providing $60,000 in cash
and reflect increased accrued interest of $255,000 due to higher debt levels
and due to the impact of the 1996 prepackaged reorganization plan in December
1996 which partially satisfied fourth quarter 1996 interest requirements.
Partially offsetting these factors were reduced accruals (due to payments)
relating to the 1993 settlement with the State of Arizona relating to the
Sunbelt environmental compliance agreement.
Net cash provided by operating activities in 1996 totaled $3,485,000. Net
income of $56,394,000 plus depreciation and amortization of $2,219,000 and
interest paid by the issuance of PIK notes (payment in kind) of $2,354,000 was
partially offset by the net gain on restructuring of $56,488,000. Accounts
receivable increased and used $327,000 in cash despite the fact that fourth
quarter 1996 revenues exceeded fourth quarter 1995 revenues by $2,499,000 as
increased sales were derived from higher light-end revenues which are usually
collected within ten days of sale. Accounts payable increased and provided
$331,000 in cash due to higher crude costs in 1996 versus 1995. Accrued
liabilities decreased and used $875,000 in cash in 1996 due primarily to the
payment of accrued property taxes. Inventory increased slightly and used
$89,000 in cash due to the impact of higher crude costs. Prepaid expenses
decreased and provided $24,000 in cash due to lower insurance costs while the
reserve for plan closure decreased and used $58,000 in cash to provide for
maintenance costs during the shut-down period of the Sunbelt refinery.
Investing activities used $2,815,000 in cash in 1997. Property additions
reflect construction of the wastewater treatment facility at the Wilmington
refinery, construction of a pipeline to a customer at the Wilmington refinery
and costs to relocate the railroad loading rack at the Wilmington refinery.
At Benicia costs were incurred to improve the asphalt storage and delivery
systems, to double-bottom certain storage tanks, to replace heat exchangers,
to purchase new heaters, to construct new pipelines and several other
projects. In addition, other assets increased $769,000 in 1997 and primarily
relate to costs associated with raising $21,750,000 in convertible debt.
Investing activities used $2,402,000 in cash in 1996. The majority of this
expenditure related to construction of a new modified asphalt facility at
Benicia. In addition, expenditures were made in 1996 to double bottom an
asphalt tank at the Benicia refinery and to purchase certain burners as well
as several other minor projects. Costs to construct a new wastewater treatment
facility were postponed until 1997 due to the problem surrounding the
discovery of several buried drums at the Wilmington refinery. In 1996, the
collection of deposits recorded in other assets provided $218,000 in cash.
Cash flows from financing activities in 1997 generated $2,300,000 in cash.
The October sale of convertible debt generated $2,500,000 in cash while
$200,000 in payments were made to the State of Arizona relating to the 1993
Sunbelt environmental compliance agreement. Two payments remain to be made on
the agreement as $100,000 is due January 1999 and $50,000 is due in January
2000.
The sale of $21,750,000 in convertible debt in October 1997 significantly
improves Huntway's capital structure. The sale provided the Company with
$2,500,000 in cash. In addition it reduced required principal payments by
$2,480,000 in 1998, by $2,475,000 in each of 1999 and 2000 and by $1,475,000
annually thereafter through 2004. The convertible sale also provides for a
potential debt repayment requirement of up to $1,000,000 annually in 1999 and
2000 based on available cash flow. On conversion of the convertible debt,
total debt would decline $21,750,000 while annual interest expense would
decline by $2,012,000.
Huntway made a principal payment of $292,000 against its 12% senior debt on
February 26, 1998 as determined based on 1997 cash flow and as provided for
under its loan agreement. A $500,000 principal payment is scheduled to be
paid against the $8,600,000 in Industrial Development Bonds on April 1, 1998
as provided for under its loan agreement.
Annual interest requirements in 1998 on the senior debt are as follows:
16.67% of the annual obligation is payable at March 31 and June 30 and 33.33%
at September 30 and December 31. Net of the principal payments made in
February 1998 and expected to be paid on April 1, 1998 as described above
(based on 50% of excess 1997 cash flow as defined), the Partnership is
obligated to begin amortizing senior debt under a sinking fund arrangement
that currently obligates Huntway to make payments of $263,000 at September 30
and $394,000 at December 31, 1998 through 2000, and payments of $663,000 at
September 30 and $994,000 at December 31 of each year 2001 through September
30, 2005. A payment of $4,094,000 is due December 31, 2005.
Interest paid on the convertible debt notes is due on a semi-annual basis
payable $1,006,000 on June 30 and $1,006,000 on December 31.
Scheduled fixed principal and cash interest payments in 1998 total $4,637,000.
Principal and cash interest payments totaled $2,343,000 in 1997 and $838,000
in 1996.
As part of the convertible debt transaction, the agreement provided for a new
letter of credit facility of $17,500,000 to support crude oil purchases and
hedging obligations through December 31, 1998.
Fees for this new facility are 2% on the face amount of any letter of credit
issued up to an aggregate of $14,500,000 and 3% on the face amount of any
letter of credit issued above that amount.
Management continues to address all areas of the Partnerships operations in
an effort to reduce costs, improve profitability and to provide a sound basis
for future operations. This evaluation resulted in the decision in 1993 to
temporarily suspend operations at its Sunbelt refinery located in Coolidge,
Arizona, until such time as there is a sustained improvement in market
conditions. The primary factors involved in the Partnerships decision were
poor margins at the facility, a limitation on working capital availability
and, to a lesser extent, the impact of an environmental lawsuit and
investigations filed by the State of Arizona which was settled in 1993. The
Partnership currently intends to eventually reopen the refinery as a terminal
when market conditions improve.
The Partnership believes its current level of letter of credit facilities are
sufficient to guarantee requirements for crude oil purchases,
collateralization of other obligations and for hedging activities at current
crude price levels. However, due to the volatility in the price of crude oil
there can be no assurance that these facilities will be adequate in the
future. If crude oil prices increased beyond the level of the Partnership's
letter of credit facilities, it would be required to prepay for crude oil or
reduce its crude oil purchases, either of which would adversely impact
profitability.
Management believes cash on hand and expected cash flow from operations will
be sufficient to meet liquidity needs in 1998 and for the foreseeable future.
However, due to the volatility in the price of crude oil there can be no
assurance that sufficient amounts of cash will be available to meet operating
requirements.
INDEPENDENT AUDITORS' REPORT
Operating Committee and Partners
Huntway Partners, L.P.
(A Limited Partnership)
We have audited the accompanying consolidated balance sheets of Huntway
Partners, L.P. (a limited partnership) and subsidiary as of December 31, 1997
and 1996 and the related consolidated statements of operations, partners'
capital (deficiency) and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the management of the Partnership. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Huntway
Partners, L.P. and its subsidiary as of December 31, 1997 and 1996 and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997 in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Los Angeles, California
January 30, 1998
<TABLE>
HUNTWAY PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
(in thousands)
<CAPTION>
ASSETS
1997 1996
<S> <C> <C>
Current Assets:
Cash $ 9,406 $ 5,287
Accounts Receivable 4,066 5,148
Inventories 4,112 3,399
Prepaid Expenses 587 640
Total Current Assets 18,171 14,474
Property - Net 59,346 59,339
Other Assets -- Net 1,025 319
Goodwill 1,701 1,759
Total $ 80,243 75,891
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
Accounts Payable $ 6,730 $ 6,913
Current Portion of Long-term
Obligations 1,449 100
Reserve for Plant Closure - 106
Accrued Interest 571 316
Other Accrued Liabilities 1,046 1,241
Total Current Liabilities 9,796 8,676
Long-term Debt 36,518 27,924
Other Long-term Obligations 150 250
Commitments & Contingencies
Partners' Capital
General Partners 338 390
Limited Partners 33,441 38,651
Total Partners' Capital 33,779 39,041
Total $ 80,243 $ 75,891
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
HUNTWAY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1997, 1996 and 1995
(in thousands, except per unit data)
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Sales $96,715 $99,021 $ 83,069
Costs & Expenses:
Material & Processing Costs 85,201 87,683 76,643
Selling and Administration Expenses 4,476 4,297 3,819
Plant Closure and Write Down - - 9,492
Interest Expense 3,492 4,916 5,177
Depreciation and Amortization 2,414 2,219 2,399
Total Costs and Expenses 95,583 99,115 97,530
Income (Loss) from Operations 1,132 (94) (14,461)
Extraordinary Gain on Refinancing - 58,668 -
Related Costs of Refinancing - 2,180 -
Net Income (Loss) $1,132 $56,394 $(14,461)
Basic Earnings per Unit:
Income (Loss) from operations $0.05 $(0.01) $(1.24)
Extraordinary Items - 4.37 -
Net Income (Loss) $0.05 $4.36 $(1.24)
Diluted Earnings per Unit:
Income (Loss) from operations $0.04 $(0.01) $(1.24)
Extraordinary Items - 4.37 -
Net Income (Loss) $0.04 $4.36 $(1.24)
</TABLE>
<TABLE>
HUNTWAY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIENCY)
For the years ended December 31, 1997, 1996 and 1995
<CAPTION>
General Limited
Partners Partners Totals
<S> <C> <C> <C>
Balance at January 1, 1995 $ (160) $ (15,893) (16,053)
Net Loss for the Year Ended
December 31, 1995 (145) (14,316) (14,461)
Balance at December 31, 1995 (305) (30,209) (30,514)
Net Income for the Year Ended
December 31, 1996 695 55,699 56,394
Capital Contribution - 13,161 13,161
Balance at December 31, 1996 390 38,651 39,041
Earned Portion of Option Awards 3 265 268
Net Income for the Year Ended
December 31, 1997 11 1,121 1,132
Capital Redemption (66) (6,596) (6,662)
Balance at December 31, 1997 $338 $33,441 $33,779
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
HUNTWAY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1997, 1996 and 1995
(In thousands)
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income (Loss) $ 1,132 $ 56,394 $ (14,461)
Adjustments to Reconcile Net Income
(Loss) to Net Cash Provided by Operations:
Depreciation and Amortization 2,414 2,219 2,399
Interest Expense Paid by the Issuance of
Notes 894 2,354 1,693
Plant Closure and Write Down -- -- 9,492
Extraordinary Gain on Refinancing -- (58,668) --
Related Costs of Refinancing -- 2,180 --
Changes in Operating Assets and Liabilities:
Decrease (Increase) in Accounts Receivable 1,082 (327) (2,335)
Decrease (Increase) in Inventories (700) (89) 711
Decrease in Prepaid Expenses 41 24 73
Decrease in Reserve for Plant Closure (106) (58) (78)
Increase (Decrease) in Accounts Payable (183) 331 598
Increase (Decrease) in Accrued Liabilities 60 (875) 1,473
Net Cash Provided By (Used By)
Operating Activities 4,634 3,485 (435)
Cash Flows From Investing Activities:
Additions to Property (2,046) (2,620) (447)
Additions to Other Assets (769) 218 (170)
Net Cash Used By Investing Activities (2,815) (2,402) (617)
Cash Flows From Financing Activities:
Proceeds of Other Notes Payable 2,500 -- --
Repayments of Long-term Obligations (200) (100) (628)
Net Cash Provided (Used) by
Financing Activities 2,300 (100) (628)
Net Increase (Decrease) In Cash 4,119 983 (1,680)
Cash Balance Beginning of Year 5,287 4,304 5,984
Cash Balance End of Year $ 9,406 $ 5,287 $ 4,304
Supplemental Disclosures:
Interest Paid in Cash During the Period $ 2,343 $ 738 $ 2,308
Issuance (Redemption) of Units Not
Involving Cash $ (6,596) $ 13,080
Issuance of Notes Not Involving Cash $ 19,250 $ 25,570
Retirement of Notes Not Involving Cash $ 11,707 $ 85,745
</TABLE>
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General. Huntway Partners, a limited partnership, is engaged primarily in the
operation of a 6,000 barrel-per-day oil refinery located in Southern
California and a 9,000 barrel-per-day oil refinery located in Northern
California, which produce and sell refined petroleum products. Also owned by
the Partnership was an 8,500 barrel-per-day refinery in Arizona, closed in
1993 (see Note 5, Plant Closure). Huntway Partners has adopted a calendar
year fiscal period.
Principles of Consolidation. The consolidated financial statements include
the accounts of Huntway Partners and its subsidiary, Sunbelt Refining Company,
L.P. ("Sunbelt"). All significant inter-company items have been eliminated in
consolidation.
Exchange Transactions. In connection with its refinery activities, the
Partnership engages from time to time in exchange transactions common to the
industry where crude oil or refined product is exchanged with other unrelated
entities for similar commodities. The accounting of such exchanges is based
on the recorded value of the commodities relinquished. At December 31, 1997
Huntway Partners owed balances for commodities on exchange valued at
approximately $244,000. Exchange balances at December 31, 1996 were
negligible.
Environmental Costs. The Partnership is subject to various environmental
laws and regulations of the United States and the states of California and
Arizona. As is the case with other companies engaged in similar industries,
the Partnership faces exposure from potential claims and lawsuits involving
environmental matters. These matters may involve alleged soil and water
contamination and air pollution. The Partnership's policy is to accrue
environmental and clean-up costs when it is probable that a liability has been
incurred and the amount of the liability is reasonably estimable. The
Partnership expenses or capitalizes costs associated with environmental clean-
up and other repairs and maintenance at its refineries in accordance with
Emerging Issues Task Force Topic 90-8 and exhibits thereto.
Turnaround Costs. Cost of turnarounds, which consist of complete shutdown and
inspection of a refinery unit for repair and maintenance, are deferred and
amortized over the estimated period of benefit, which generally ranges from 18
to 60 months.
Income Taxes. No provision has been made for income taxes in the accompanying
consolidated financial statements. The taxable income or loss of the
Partnership is allocated to each partner in accordance with the provisions of
the Partnership agreement.
The taxable income or loss allocated to the partners in any one year may vary
from the amount of income or loss reported for financial statement purposes,
due to differences between the time that certain income and expense items are
recognized and the time when they are reported for financial statement
purposes.
The partnership agreement provides generally that income, loss and cash
distributions be allocated 1 percent to the general partner and 99 percent to
the limited partners. In turn, each partner's tax status will determine the
appropriate income tax for that partner's allocated share of Huntway Partners'
taxable income or loss.
Inventories. Crude oil and finished product inventories are stated at cost
determined by the last-in, first-out method (LIFO) , which is not in excess of
market.
Management believes the LIFO method of accounting for inventories is
preferable because it more closely matches revenues and expenses and reflects
the prevailing practice in the petroleum industry.
The effect of LIFO in 1997 was to increase the net income from operations by
$1,164,000 and net income per limited partners unit by approximately $.05 and
in 1996 was to increase the net loss and net loss per limited partner unit by
approximately $1,022,000 and $0.08. In 1995, the effect of LIFO was to
decrease the net loss and net loss per limited partner unit by approximately
$33,000 and less than 1/2 cent.
Inventories at December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Finished Products $ 2,480,000 $2,533,000
Crude Oil and Supplies 2,660,000 3,058,000
5,140,000 5,591,000
Less LIFO Reserve (1,028,000 ) (2,192,000 )
Total $ 4,112,000 $3,399,000
</TABLE>
Property and Depreciation. Property is stated at cost and depreciated using
the straight-line method over the estimated useful lives of the assets.
Facilities, which are temporarily closed, are retained in the property
accounts as idle facilities and are depreciated.
Fair value of Financial Instruments. The recorded values of accounts
receivable, accounts payable and accrued expenses approximate their fair value
based on their short-term nature. The recorded value of long-term debt
approximates fair values as interest is tied to or approximates market rates.
Use of Estimates. The preparation of 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
disclosure 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 would differ from these estimates. As
discussed in Note 4, the Partnership has written down its investment in the
Sunbelt Refinery based upon the best estimate of the outlook for the asphalt
and light-end market in Arizona.
Property at December 31, 1997 and 1996 consisted of:
<TABLE>
<CAPTION>
Depreciable
Life 1997 1996
<S> <C> <C> <C>
Land $ 2,176,000 $2,176,000
Buildings 40 yrs. 887,000 887,000
Refineries and Related Equipment 40 yrs. 70,653,000 69,370,000
Other 5 - 10 yrs. 1,215,000 1,130,000
Construction in Progress 971,000 293,000
Idle Facilities (see Note 4) 1,227,000 1,227,000
77,129,000 75,083,000
Less Accumulated Depreciation
and Amortization (17,783,000) (15,744,000)
Property - Net $ 59,346,000 $ 59,339,000
</TABLE>
Other Assets. Other assets are stated at cost and amortized over 2 to 10
years, where appropriate, using various methods over the useful lives of the
assets.
Other assets at December 31, 1997 and 1996 consisted of:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Computer Software $ 624,000 $ 604,000
Deposits 218,000 189,000
Loan Costs 597,000 -
Other 587,000 348,000
2,026,000 1,141,000
Less Accumulated Amortization (1,001,000) (822,000)
Other Assets - Net $ 1,025,000 $ 319,000
</TABLE>
Goodwill. Goodwill is stated at cost and amortized using the straight-line
method over a period of 40 years and relates to the Partnerships California
refineries. Huntway Partners refineries are designed to produce asphalt and
unfinished light-end products, and accordingly, are not prone to obsolescence
to the same degree as more sophisticated refineries. The Partnership
continually evaluates the existence of goodwill impairment on the basis of
whether the goodwill is fully recoverable from projected, undiscounted net
cash flows of the two refineries. The related accumulated amortization at
December 31, 1997 and 1996 was $586,000 and $528,000, respectively.
Interest Capitalization. Huntway Partners and Sunbelt capitalize interest
incurred in connection with the construction of refinery facilities. No
interest was capitalized in 1997, 1996, or 1995.
Other Long-Term Obligations. Included in other long-term obligations are
amounts due to the state of Arizona under an agreement reached in 1993
relating to the Sunbelt Refinery. The payment for 1998 was made December 1997
and therefore $0 was included in current portion of long-term obligations at
December 31, 1997 relating to this settlement. Obligations were $100,000 at
December 31, 1996 relating to this settlement.
Reclassifications and New Accounting Standards. Certain items in the prior
years financial statements have been reclassified to conform to the 1996
presentation.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general purpose financial statements. SFAS No. 130 requires that an
enterprise (a) classify items of other comprehensive income by their nature in
a financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial positions. SFAS No.
130 is effective for fiscal years beginning after December 15, 1997. The
Company does not expect the impact of SFAS No. 130 to be material in relation
to its financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information." SFAS No. 131 established standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to stockholders. It also establishes standards for related
disclosure about products and services, geographic areas and major customers.
SFAS No. 131 is effective for financial statements for periods beginning after
December 15, 1997. The Company does not expect the impact of SFAS No. 131 to
be material in relation to its financial statements.
NOTE 2. FINANCING ARRANGEMENTS
On October 31, 1997 the Partnership issued $21,750,000 in 9 1/2% Senior
Subordinated Secured Convertible Notes (the convertible debt) due 2007,
retired $11,707,000 in 12% senior debt, and redeemed 10,758,696 units or 42%
of its total units outstanding. The transaction also reduced the effective
interest rate on the Partnerships $8,600,000 Industrial Development Bond from
12% to approximately 6% and provided the partnership with $2,500,000 in
additional working capital. The Partnership also extended through 2005 its
letter of credit arrangement with its existing bank to continue to
collateralize its outstanding Industrial Development Bond.
The new debt is convertible into equity at $1.50 per unit (subject to
adjustment) at any time after May 15, 1998. The Partnership can force
conversion after October 15, 2000 assuming certain trading criteria is met.
This transaction immediately reduced total units outstanding to 14,583,958
from 25,342,654. On an as converted basis, total units will increase to
29,083,958.
Interest on the Convertible Debt is due on June 30 and December 31 and the
principal balance is due October 15, 2007 unless earlier converted. The
agreements also provide that the interest rate on the notes will increase to
12% if the Partnership has not converted to corporate form by May 15, 1998.
As a result of the transaction, the Partnerships debt increased from
$27,924,000 to $37,967,000 although interest expense will remain essentially
unchanged due to the lower interest rate on the new convertible debt and the
reduction of the effective interest rate on the Industrial Development Bond.
The Partnerships revised letter of credit arrangement collateralizing the
Industrial Development Bond extends through 2005 and requires redemptions on
the Bond of $500,000 in 1998, $1,000,000 in each of 2001 through 2004 and the
remaining balance in 2005. The agreement also provides for contingent
redemption in 1999 and 2000 of up to $1,000,000 annually on a formula of
66.67% of excess cash flow as defined.
On December 30, 1996, the Partnership completed it restructuring of its
indebtedness with its senior and junior lenders. The restructuring was
completed pursuant to the consummation of a prepackaged plan of
reorganization.
Under the terms of the reorganization plan total debt, including accrued
interest, declined $71,748,000 to $27,924,000 from $99,672,000 as measured at
November 30, 1996. In exchange for this reduction in debt and accrued
interest, 13,786,404 units (valued at $13,080,000 based on a 30 day average
unit price) were issued to the partnerships senior and junior lenders raising
total units outstanding to 25,342,654. At December 31, 1996, total debt and
accrued interest on all senior and junior debt totaled $28,172,000.
The 12% senior secured debt matures on December 31, 2005 and was reduced to
$5,547,000 from $17,254,000 as a result of the 1997 convertible debt
transaction. Interest on the senior debt is 12% per annum and is payable in
cash, payable 1/6 in the first and second fiscal quarters and 1/3 in the third
and fourth fiscal quarters. The Principal balance is due 949,000 in 1998 and
the remainder in equal annual installments of $657,000 in 1999 through 2005.
The 12% junior subordinated debentures also mature on December 31, 2005.
Under the agreement, no principal payments or prepayments will be made on the
junior subordinated debenture until the senior secured notes are paid in full.
Interest on the junior subordinated debt at 12% is payable only in kind.
The Partnership has a letter of credit facility of $17,500,000 through
December 31, 1998. This facility provides for crude purchase, and other
activities. Fees for this facility are 2% on the face amount of any letter of
credit issued up to an aggregate of $14,500,000 and 3% on any letter of credit
issued above that amount. The agreement also provides that all current assets
of the Partnership, including cash will be made available to collateralize a
replacement letter of credit facility subsequent to 1997.
The Partnership's debt as of December 31, 1997 and December 31, 1996 consisted
of the following:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
12% Senior Secured Notes due December 31, 2005 $ 5,547,000 $17,254,000
12% Junior Subordinated Debentures due 2,070,000 2,070,000
December 31, 2005
9.25% Senior Subordinated Convertible Notes
Due October 15, 2007 21,750,000 -
Series 1988 Variable Rate Demand Industrial 8,600,000 8,600,000
Development Bonds (IDB) due September 1, 2005,
Interest on the IDB is Payable Monthly at Rates
Determined Weekly Based on Market Rates for
Comparable Interest (3.95% and 4.3% at
December 31, 1997 and 1996, Respectively) and
Collateralized by a Standby Letter of Credit
Issued by a Bank.
Total 37,967,000 27,924,000
Less Amount Classified as Current 1,449,000 -
Net Long-Term Debt $36,518,000 $27,924,000
</TABLE>
All of the Partnership's assets serve as collateral for this debt.
Minimum required principal payments, as of December 31, 1997 (assuming the
newly issued convertible debt does not convert), under the Partnerships debt
agreements are as follows:
<TABLE>
<S> <C>
1998 $ 1,449,000
1999 657,000
2000 657,000
2001 1,657,000
2002 1,657,000
Thereafter 31,890,000
$37,967,000
</TABLE>
Upon the conversion of some or all of the convertible debt into partnership
units, the amount of minimum required cash principal payments subsequent to
2002 will be reduced by the amount of the debt so converted.
Note 3. Extraordinary Gain and Related Costs
On December 30, 1996, Huntway Partners, L.P. emerged from bankruptcy following
consummation of its prepackaged plan of reorganization (reorganization
plan). Huntway filed its reorganization plan in U.S. Bankruptcy Court in
Wilmington, Delaware, on November 12, 1996. The reorganization plan was
confirmed by the Court on December 12, 1996.
Under the terms of the reorganization plan total debt, including accrued
interest, declined $71,748,000 to $27,924,000 from $99,672,000 as measured at
November 30, 1996. In exchange for this reduction in debt and accrued
interest, 13,786,404 units (valued at $13,080,000 based on a 30 day average
unit price) were issued to the partnerships senior and junior lenders raising
total units outstanding to 25,342,654. At December 31, 1996, total debt and
accrued interest on all senior and junior debt totaled $28,172,000.
The Partnership was forced to file its prepackaged plan of reorganization
because it was unable to secure unanimous approval of all of its senior
lenders to its restructuring agreement. In April 1996, four of five (or 80%)
of its senior lenders representing 86% of its senior debt agreed to the
restructuring plan. Unanimous approval of the prepackaged plan of
reorganization was obtained just prior to the December 12, 1996 confirmation
of the plan when Huntways one remaining senior lender, representing 14% of
senior debt, agreed to join the other senior lenders in agreeing to a
consensual restructuring.
In addition to Huntways senior lenders, the reorganization plan was approved
by 100% of warrant holders, 100% of junior noteholders and 98.6% of voting
unitholders. The approval of these impaired parties to the reorganization
plan was obtained during the solicitation time period of October 11, 1996
through November 7, 1996.
Accordingly, for the year ended December 31, 1996, the Partnership reported an
extraordinary gain of $58,668,000 determined as follows:
<TABLE>
<S> <C>
Pre-existing debt and accrued interest $99,672,000
Less:
New Senior Debt 23,500,000
New Junior Debt 2,070,000
Accrued Interest on New Debt 2,354,000
Total Book Value of New Debt (27,924,000)
Capital Contribution of New Units Exchanged (13,080,000)
Extraordinary Gain on Refinancing $58,668,000
</TABLE>
Total limited partnership units outstanding at December 31, 1997, was
14,583,958 while at December 31, 1996 and 1995 limited partnership units
totaled 25,342,654 and 11,556,250 respectively. As part of the 1997
refinancing (see Note 2) 10,758,696 units were redeemed on October 31, 1997.
As part of the 1996 restructuring, 13,786,404 new units were issued effective
November 30, 1996.
NOTE 4. PLANT CLOSURE
In August 1993, the Partnership suspended operations at its Sunbelt refinery
located in Coolidge, Arizona. The primary factors involved in this decision
were poor margins at the facility, limited working capital availability and,
to a lesser extent, the impact of an environmental lawsuit and investigation
filed by the State of Arizona, which was settled in 1993.
Accordingly, at June 30, 1993, the Partnership wrote down the carrying value
of the refinery and related assets by $13,413,000 to their then estimated fair
values as well as providing $2,600,000 for closure and maintenance costs
during the shutdown period. Closure was substantially completed in 1997 at
which time $2,562,000 had been charged against the provision.
At December 31, 1995, pursuant to an evaluation of the operating potential of
the facility, the plant was further written down by $9,492,000 to $1,227,000.
This write down considered, among other things, the outlook for the asphalt
market in Arizona, the regulatory environment impacting both the plant
operations as well as the formulation requirements of diesel and jet fuel in
the markets the plant would serve and the ability of the Partnership to market
those products. This evaluation indicated and it is the opinion of management
that the likelihood of operation as a petroleum refinery in the future is
remote, but that the facility may be operated effectively as a crude or
products terminal and storage facility at some time in the future.
NOTE 5. LEASE COMMITMENTS
The Partnership has entered into certain ground leases for its refinery
facilities. Such leases range from five to 41 years in duration. All such
leases are classified as operating leases.
The Partnership also leases a deep-water terminal facility in Benicia,
California. Under terms of the lease agreement, the Partnership pays minimum
annual lease payments of approximately $385,000 through the year 2031, subject
to an escalation clause. This lease is cancelable upon one year's notice and
is accounted for as an operating lease.
Future minimum annual rental payments required under operating leases, which
have non-cancelable lease terms of one year or more, as of December 31, 1997
are:
<TABLE>
<S> <C>
1998 732,000
1999 349,000
2000 352,000
2001 313,000
2002 and Beyond 521,000
Total $2,267,000
</TABLE>
Rental expense for all operating leases (some of which have terms of less than
a year) was $1,042,000, $1,046,000 and $1,022,000 for the years ended
December 31, 1997, 1996 and 1995, respectively.
NOTE 6. BASIC AND DILUTED UNITS OUTSTANDING, EARNINGS PER UNIT AND ALLOCATION
OF INCOME AND LOSS
On October 31, 1997, pursuant to the issuance of the Convertible Debt, the
partnership redeemed 10,758,696 units reducing the total number of units
outstanding to 14,583,958 from 25,342,654.
The 1996 debt restructuring increased limited partnership units outstanding by
13,786,404 to 25,342,654 from 11,556,250 effective November 30, 1996.
Additionally, as part of the restructuring warrants exercisable to purchase
3,340,757 units and options held by management to acquire 1,022,000 units were
cancelled. The debt restructuring provided that new options to purchase
3,415,850 units at $.50 a unit were issued (2,815,450 issued to Huntway
employees and management) while an option to purchase 546,059 units remained
outstanding.
Earnings per unit is calculated based upon the weighted average number of
limited partner equivalent units outstanding. Limited partner equivalent
units is calculated by adding to actual limited partnership units outstanding
a general partnership interest representing an overall 1% interest.
For purposes of computing basic earnings per unit the weighted average limited
partner equivalent units outstanding for the year ended December 31, 1997,
1996 and 1995 was 23,787,412; 12,871,509 and 11,672,979 respectively. On a
diluted basis, the weighted average limited partners equivalent units
outstanding for the year ended December 31, 1997, 1996 and 1995 was
26,481,847; 12,871,509 and 11,672,979 respectively.
Generally, partnership income and loss are allocated 1% to the general
partners and 99% to the limited partners.
The following table reconciles the calculation of basic and fully diluted
earnings per unit:
<TABLE>
<CAPTION>
For the Year Ended December 31, 1997
Income Units Per-Unit
(Numerator) (Denominator) Amount
<S> <C> <C> <C>
Income (Loss) from
Operations $1,132
Unit Equivalent of General
Partner Interest 238
Limited Partner Units 23,549
Basic Earnings Per Unit $1,132 23,787 $0.05
Effect of Dilutive Securities
Unit Options 2,695
Diluted Earnings Per Unit $1,132 26,482 $0.04
For the Year Ended December 31, 1996
Income (Loss) from Operation $(94)
Unit Equivalent of General
Partner Interest 129
Limited Partner Units 12,742
Basic Earnings Per Unit $(94) 12,871 $(0.01)
Effect of Dilutive Securities
Unit Options
Diluted Earnings Per Unit $(94) 12,871 $(0.01)
For the Year Ended December 31, 1995
Income (Loss) from Operation $(14,461)
Unit Equivalent of General
Partner Interest 117
Limited Partner Units 11,556
Basic Earnings Per Unit $(14,461) 11,673 $(1.24)
Effect of Dilutive Securities
Unit Options
Diluted Earnings Per Unit $(14,461) 11,673 $(1.24)
</TABLE>
Options to purchase 1,022,000 units were outstanding in 1995 and 1996 at
prices which ranged from $0.85 to $1.00 but were not included in the
computation of diluted EPU because their effect was antidilutive. These
options are no longer outstanding at December 31, 1997.
During 1997, the Partnership issued convertible notes which may be converted
into equity at $1.50 per unit. These notes are not included in the
computation of calculated EPU because the effect of their assumed exercise
would be antidilutive. These notes mature on October 15, 2007.
NOTE 7. PROFIT SHARING AND TAX DEFERRED SAVINGS (401K) PLAN AND PENSION PLAN
The Partnership has a profit sharing and tax deferred savings (401K) plan and
a defined contribution pension plan. The Partnership' contributions to the
plans generally vest to participants on the basis of length of employment.
Beginning in 1994, the Partnership matches up to 2% of participants base
compensation to the tax deferred savings (401K) plan.
Profit sharing contributions by the Partnership will be made from profits in
an amount up to 10 percent of the aggregate base compensation of all
participants in the plan, not to exceed the Partnership's current net income.
No contributions were made to the plan during the last three years.
The Partnership also makes a minimum pension contribution equal to 4% of
participants' base compensation, which is made each year regardless of current
profits or losses.
The amount of the Partnership contributions to the plans charged to income
for the years ended December 31, 1997, 1996 and 1995 were $286,000, $275,000,
and $218,000, respectively.
NOTE 8. CONTINGENCIES
As the Partnership business is the refining of crude oil into liquid asphalt
and other light-end products, it is subject to certain environmental laws and
regulations. Accordingly, adherence to environmental laws and regulations
creates the opportunity for unknown costs and loss contingencies to arise in
the future. Unknown costs and loss contingencies could also occur due to the
nature of the Partnerships business. The Partnership is not aware of any
costs or loss contingencies relating to environmental laws and regulations
that have not been recorded in its financial statements. However, future
environmental costs cannot be reasonably estimated due to unknown factors.
Although environmental costs may have a significant impact on results of
operations for any single period, the partnership believes that such costs
will not have a material adverse effect on the Partnerships financial
position, results of operations or cash flows.
The Partnership is party to a number of additional lawsuits and other
proceedings arising out of the ordinary course of its business. While the
results of such lawsuits and proceedings cannot be predicted with certainty,
management does not expect that the ultimate liability, if any, will have a
material adverse effect on the financial position, results of operations, or
cash flows of the Partnership.
NOTE 9. UNIT OPTIONS
In 1996, pursuant to the reorganization plan, the Partnership created a new
option plan for its employees and management entitled the 1996 Huntway
Employee Incentive Option Plan (the Plan). The plan is administered by
the Operating Committee or by a committee comprised of persons appointed by
the Operating Committee. The 1996 plan terminates on June 30, 2006. No
person serving on the Operating Committee or the plan committee, who is not an
employee of Huntway, is eligible to participate in the plan.
The new plan was approved by the unitholders, senior lenders and junior
lenders, among others, as well as by the U.S. Bankruptcy Court pursuant to the
confirmation of the Partnerships prepackaged reorganization plan.
The new plan limits the number of common units which could be purchased under
the plan to 4,000,000 common units and authorized out of this amount 2,815,850
units be issued commensurate with the confirmation of the Partnerships
prepackaged plan of reorganization. Accordingly, 2,815,850 units were granted
on December 18, 1996 at an exercise price of $.50 per unit. All full-time
employees of the Partnership at December 18, 1996 received options under the
plan.
Also, as part of this plan, 1,022,000 previously-issued options at exercise
prices of $.625 and $1.00 per unit were cancelled, however, vesting rights
under these prior options were retained as part of the new grant. In
addition, restructuring warrants exercisable to purchase an aggregate of
3,340,757 units held by the senior lenders were cancelled while an option to
purchase 546,059 units at $.50 per unit held by a unitholder and consultant
remained outstanding.
Of the 2,815,850 units granted on December 18, 1996, 439,600 units were fully
vested at the date of grant with 2,376,250 units vesting on August 22, 1998.
In addition, an option for 600,000 units was issued to a unitholder and
consultant at $.50 a unit.
Options granted on December 18, 1996 at $.50 a unit pursuant to the
reorganization plan were originally contemplated as part of the January 8,
1996 debt restructuring term sheet that had been approved by holders of 86% of
senior debt and by all the Partnerships junior noteholders. The market price
of the Partnerships units at January 8, 1996 was $.375. However, on
December 18, 1996, the unit price was $.6875. Accordingly, in accordance with
Accounting Principles Board Opinion No. 25, $447,000 in deferred compensation
expense will be charged against Partners capital through 1998 represented by
the difference between the value of the units at the date of grant and the
option price times the number of units vested under the plan. Related
compensation expense was recorded in 1997 and 1996 of $265,000 and $81,000,
respectively.
During 1997, options for 21,850 units were canceled. On January 27, 1998,
1,098,500 units options were granted at $1.50. These options vest on October
15, 2000. On the grant date, the market price of the Partnership units was
$2.125 accordingly, $687,000 in deferred compensation expense will be charged
against Partners Capital through 2000.
The Partnership accounts for its plan in accordance with Accounting Principles
Board Opinion No. 25. Had compensation cost for the plan been determined
consistent with Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation, pro forma net income and net
income per unit would have been $572,000 and $.02 respectively for 1997 and
$56,262,000 and $4.37, respectively for 1996.
The weighted average fair value of stock options granted during 1996 was
$1,380,000. The fair value of stock options was estimated on the grant date
using the Black Scholes option pricing model with the following weighted
average assumptions: Risk free interest rate of 7%; expected life of five
years; and expected volatility of 73%.
NOTE 10. SIGNIFICANT CUSTOMERS
One unrelated customer, Ultramar Diamond Shamrock, accounted for approximately
25% of revenues in 1997. Another, Chevron, Inc., accounted for approximately
15% of revenues in 1996 and 17% of revenues in 1995.
PART III
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Huntway Operating Committee
The Partnerships business and affairs are managed by the Managing General
partner rather than a board of directors. The Managing General Partner is
itself a partnership and its business and affairs are managed by its general
partner, Reprise Holdings, Inc. ("Reprise Holdings"), rather than a board of
directors. Reprise Holdings is owned 90% by First Chicago Equity Corporation
("FCEC") and 10% by Madison Dearborn partners III ("MDP III"). Reprise
Holdings, as sole general partner of the Managing General partner, has
established an operating committee (the Operating Committee) to consult
with the sole director of Reprise Holdings with respect to the management of
the Managing General partner and the Partnership, and has elected the
following individuals (each of whom has served since 1988) as members of the
Operating Committee:
Juan Y. Forster, age 61, has been principally employed as the President
and Chief Executive Officer of Huntway for the past eight years.
Samuel M. Mencoff, age 41, has been principally employed as a Vice
President of Madison Dearborn Partners, Inc. ("MDP"), a private equity
investment firm and an affiliate of MDP III, since January, 1993. Prior
to January, 1993, Mr. Mencoff served as Vice President of First Chicago
Venture Capital ("FCVC"), a private equity investment firm and an
affiliate of FCEC. Mr. Mencoff is sole director, President and
Treasurer of Reprise Holdings and is a general partner of MDP III. Mr.
Mencoff also serves as a director of Buckeye Technologies, Inc. and
Riverwood International Corp., forest products companies.
Justin S. Huscher, age 44, has been principally employed as a Vice
President of MDP since January, 1993. Prior to January, 1993, Mr.
Huscher served as a Senior Investment Manager of First Chicago
Investment Corporation, a private equity investment firm and an
affiliate of FCEC. Mr. Huscher is Vice President and Secretary of
Reprise Holdings and is a general partner of MDP III. Mr. Huscher also
serves as a director of Homeside, Inc., a residential mortgage company.
Raymond M. O'Keefe, age 72, has been principally employed for the last
six years as President and Chief Executive Officer of Rokmanage, Inc., a
management services firm.
Members of the Operating Committee currently receive no compensation
from the Partnership or the Managing General Partner for their services
as members of the Operating Committee. The Partnership reimburses the
Operating Committee members for expenses incurred in connection with
such services.
Conversion to Corporate Form
The Partnership is currently pursuing a proposal that, if approved, will
result in the conversion of the Partnership to corporate form
(the conversion). The Partnerships limited partners will vote on a
proposal to merge the Partnership with and into Huntway Refining Company, a
newly formed Delaware corporation. Immediately following the conversion, the
business and affairs of Huntway will be managed by a Board of Directors of the
Corporation. Immediately following the conversion, the Board of Directors
will consist of Messrs. Forster, Mencoff, Huscher and the following additional
four persons:
Harris Kaplan, 47, currently serves as President of Eastgate Management
Corporation, an offshore and domestic money management firm, and has
served in such capacity since 1996. Mr. Kaplan served as a member of
the management team of Nabors Industries, an oil service company, from
1988 to 1996.
J.C. "Mac" McFarland, 51, currently acts as a consultant, having
served as Chairman and Chief Executive Officer of McFarland Energy,
Inc., an exploration and production company, from 1992 to 1997.
Warren Nelson, 47, has been principally employed as the Executive Vice
President and Chief Financial Officer of Huntway for the past five
years.
Richard Spencer, 45, currently serves as a Manager of Westcliff
Management, LLC, a money management firm, and has served in such
capacity since 1993.
Section 16 of the Securities and Exchange Act of 1934, as amended, requires
the Partnerships executive officers, members of the Operating Committee and
persons who beneficially own greater than 10% of the Units to file reports of
ownership and changes in ownership with the SEC. Based solely upon its review
of copies of the Section 16 reports the Partnership has received, the
Partnership believes that during its fiscal year ended December 31, 1997, all
of its executive officers, members of the Operating Committee and greater than
10% beneficial owners were in compliance with their filing requirements.
Officers
The following list sets forth: (i) the name and age of each officer of the
Partnership; (ii) the year in which each such person first joined the
Partnership; and (iii) all positions with the Partnership presently held by
each such person.
<TABLE>
<CAPTION>
Year
Joined
Name Age Huntway Office
<S> <C> <C> <C>
Juan Y. Forster 61 1979 President and Chief Executive Officer
Lucian A. Nawrocki 52 1982 Executive Vice President, Asphalt Sales
Warren J. Nelson 47 1993 Executive Vice President and
Chief Financial Officer
Terrance L. Stringer 56 1992 Executive Vice President
Charles R. Bassett 62 1982 Manager of Operations/Benicia
William G. Darnell 61 1982 Vice President and General Manager/Benicia
Earl G. Fleisher 47 1991 Controller and Tax Manager
Michael W. Miller 39 1979 Manager of Operations/Wilmington
Stephen P. Piatek 42 1989 Vice President and General Counsel
</TABLE>
Each of the persons named above has held the position with Huntway set forth
above for at least the past five years, except as follows:
Stephen P. Piatek joined Huntway as Environmental and Safety Manager in 1989.
In July 1997 Stephen was named Vice President, Environmental, Safety and
General Counsel.
Each also holds a similar position with the Corporation and will continue to
act in such capacity immediately following the Conversion. Each of the
above-named officers and members of the Operating Committee was acting in
such capacity at the time of the 1996 Restructuring.
Item 11. EXECUTIVE COMPENSATION
Operating Committee Compensation
The Partnership does not pay any salaried employee of the Partnership
additional compensation for service on the Operating Committee, and does not
pay any fee for participation on, or as a result of, attending Operating
Committee meetings for those members of the Operating Committee who are not
salaried employees of the Partnership. The Committee does reimburse Operating
Committee members for out-of-pocket costs associated with attending Operating
Committee meetings (such as travel costs, food and lodging).
Compensation Committee Interlocks and Insider Participation
Messrs. Mencoff, O'Keefe and Forster are members of the Compensation and
Benefits Committee. During 1997, neither Mr. Mencoff or Mr. O'Keefe were
officers or employees of the Partnership, or any of its subsidiaries, nor did
any of them have any relationship with the Partnership requiring disclosure by
the Partnership under Item 404 of Regulation S-K. From 1987 through the
present, Mr. Forster has been President and Chief Executive Officer of the
Partnership.
Executive Compensation:
Cash Compensation
The following summary compensation table shows certain compensation
information for the Chief Executive Officer and the four other most-highly
compensated officers. The information includes the dollar value of base
salaries, bonus awards and long-term incentive plan payments, the number of
stock options granted and certain other compensation paid during the fiscal
years ended December 31, 1997, 1996 and 1995.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term
Annual Compensation Compensation
Salary Bonus(1) Other Annual Option
Name and Principal Position Year $ $ Compensation(2) Grants(3)
<S> <C> <C> <C> <C> <C>
J. Y. Forster 1997 $297,336 $ 75,000 $10,200 -
President and Chief
Executive Officer 1996 277,879 106,000 10,200 560,250
1995 277,878 - 8,356 -
L. A. Nawrocki 1997 149,800 51,000 - -
Executive Vice
President Asphalt 1996 140,000 56,000 - 272,500
Marketing 1995 140,000 - - -
W. J. Nelson 1997 187,000 100,000 10,200 -
Executive Vice President
and Chief Financial Officer 1996 203,164(4) 76,000 10,200 615,000
1995 164,831 - 8,356 -
T. L. Stringer 1997 186,972 62,000 10,200 -
Executive Vice President
Supply and Planning 1996 174,740 70,000 10,200 295,000
1995 174,740 - 8,356 -
W. G. Darnell 1997 117,180 45,000 - -
Vice President and
General Manager -- 1996 109,515 50,000 - 192,500
Benicia 1995 109,514 - - -
</TABLE>
(1) Includes balance of 1996 bonus paid in cash in 1997 of $71,000 for Mr.
Forster, $31,000 for Mr. Nawrocki, $41,000 for Mr. Nelson, $38,000 for
Mr. Stringer and $28,000 for Mr. Darnell.
Also includes 1997 bonus awards paid in 1998 of $75,000 for Mr. Forster,
$100,000 for Mr. Nelson, $62,000 for Mr. Stringer and $45,000 for Mr.
Darnell. Mr. Nawrocki received a 1997 bonus of $51,000 of which $11,000
was paid in 1997 and $40,000 was paid in 1998.
(2) All amounts shown represent increased monthly compensation of $850
beginning March 1995 for Mr. Forster, Mr. Nelson and Mr. Stringer in
lieu of receiving Partnership paid automobiles. Partnership paid
automobiles were provided for Forster, Nelson and Stringer in 1994 and
through February 1995. Partnership paid automobiles were provided to
Mr. Nawrocki and Mr. Darnell in 1995, 1996 and 1997.
(3) 1995 and 1996 grants vest on August 22, 1998. The 1997 grant vests on
October 15, 2000.
(4) Includes $16,667 in retroactive salary adjustment earned in 1995 but
paid in 1996.
There were no options granted in 1997. On January 27, 1998 1,098,500 options
were granted to all full-time employees of the partnership at $1.50 a unit
when the unit price on that date was $2.125. Of this total 180,000 were each
granted to Mr. Forster and Mr. Nelson, 110,000 were each granted to Mr.
Nawrocki and Mr. Stringer while Mr. Darnell received a grant of 90,000
options. These options vest on October 15, 2000. In the event of any change
in control of the Partnership, as defined, then each option will immediately
become fully exercisable as of the date of the change in control.
The following table sets forth the aggregate options exercised in the last
fiscal year and fiscal year and fiscal yearend option values for the named
executive officers:
<TABLE>
<CAPTION>
Shares Number of Securities Value of Unexercised In-
Acquired Underlying Unexercised The-Money Options at
on Value Options Fiscal Yr-End Fiscal Year End(1)
Name & Exer- Exer- Exer- Unexer- Exer- Unexer-
Principal cise cised cisable cisable cisable cisable
Position
<S> <C> <C> <C> <C> <C> <C>
J.Y.Forster - - 78,750 481,500 $167,344 $1,023,188
President and
Chief Executive
Officer
L. A. Nawrocki - - 27,500 245,000 58,438 520,625
Executive Vice President
Asphalt Marketing
W. J. Nelson - - 125,000 490,000 265,625 1,041,250
Executive Vice
President and
Chief Financial
Officer
T. L. Stringer - - 50,000 245,000 106,250 520,625
Executive Vice
President
Supply and Planning
W. G. Darnell - - 20,000 170,000 42,500 361,250
Vice President
and General
Manager-Benicia
Total - - 301,250 1,631,500 $640,157 $3,466,938
</TABLE>
(1) Based on the closing price of $2.625 of the common units on the New York
Stock Exchange on December 31, 1997.
Compensation Pursuant to Plans
Pension Plan. The Partnership currently has in effect a defined contribution
pension plan as well as a 401-K deferred savings and profit sharing plan.
Pursuant to the terms of the pension plan, each year the Partnership
contributes to the plan an amount equal to 4% of each employees annual base
compensation which includes base salary and overtime, but excludes any cash
bonuses. Each full-time employee of the Partnership participates in the
pension plan. Contributions made to the pension plan vest in equal increments
over a period beginning upon completion of two years of service and ending
upon completion of seven years of service. The terms of the 401-K deferred
savings plan provide that the Partnership match the employee's contributions
up to 2% of qualifying compensation. For the year ended December 31, 1997,
the Partnership paid or accrued $43,365.54 to these plans on behalf of its
officers as a group.
Item 12. Principal Unitholders
The following tables set forth information regarding the number of Limited
Partnership Units owned as of March 17, 1998 by each person known by the
Partnership to be the beneficial owner of more than five percent of all
Limited Partnership Units outstanding. Except as indicated below, each of the
persons named in the table has sole voting and investment power with respect
to the Units set forth opposite his or its name.
<TABLE>
Beneficial Ownership
<CAPTION>
Beneficial Owner Units Percent
<S> <C> <C>
Common Units:
First Chicago Corporation 5,320,518(1) 36.1
of Chicago
One First National Plaza
Chicago, IL 60670
Lighthouse Investors, LLC 8,257,433(2) 37.4
200 Seventh Avenue, Suite 105
Santa Cruz, CA 95062
DDJ Capital Management, LLC 5,333,333(3) 26.6
141 Linden Street, Suite S-4
Wellesley, MA 02181
Contrarian Capital Advisors, L.L.C. 2,790,931(4) 16.8
411 West Putnam Avenue, Suite 225
Greenwich, CT 06830
Mr. Andre Danesh 2,060,059(5) 13.0
Allied Financial Corp.
1583 Beacon Street
Brookline, MA 02146
All Officers and Operating 9,470,381(6) 42.3
Committee Members as a Group
(11 persons)
</TABLE>
(1) Includes 147,313 Limited Partner Equivalent Common Units corresponding to
the general partnership interest of the General Partners (to which 1% of
each item of the partnerships taxable income, gain, loss or deduction is
allocated).
(2) Includes 7,333,333 Common Units which Westcliff Capital Management, LLC,
Westcliff, LLC, Lighthouse Investors, LLC, Lighthouse Capital, LLC and
Lighthouse LLC have the right to acquire after May 15, 1998 through the
conversion of Convertible Notes.
(3) Consists of Common Units which DDJ Capital Management, LLC and DDJ
Capital III, LLC have the right to acquire after May 15, 1998 through the
conversion of Convertible Notes.
(4) Includes 1,833,333 Common Units which Contrarian Capital Advisors, L.L.C.
and Contrarian Capital Management, L.L.C. have the right to acquire after
May 15, 1998 through the conversion of Convertible Notes.
(5) Includes 1,146,059 Common Units, which Mr. Danesh currently has the right
to acquire through the exercise of options.
(6) Includes 7,637,083 Common Units which executive officers, Operating
Committee Members and directors currently have, or will have after May
15, 1998, the right to acquire.
Exhibit
Number Description of Exhibit Page
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K
The financial statement schedules and exhibits listed below are filed as a
part of this annual report.
(a)(2) Financial Statements Schedules
None
The financial statements schedules of the Partnership are omitted because of
the absence of the conditions under which they are required or because the
required information is included in the financial statements or notes thereto.
(a)(3) Exhibits
Exhibit
Number Description of Exhibit
3.1 Amended and Restated Agreement of Limited Partnership of Huntway
Partners, L.P. (incorporated by reference herein to Exhibit A to
the Prospectus included in the Registration Statement on Form S-1,
filed September 26, 1988, Registration No. 33-24445).
3.2 Huntway Partners, L.P. Bylaws (incorporated by reference
herein to Exhibit 3.2 of the Registration Statement on
Form S-1, as amended by Amendment No. 2, filed November 2,
1988, Registration No. 33-24445).
3.3 Amendment of Agreement of Limited Partnership of Huntway
Partners, L.P. dated as of December 20, 1989 (incorporated
by reference herein to Exhibit 3.3 of the Annual Report on
Form 10-K, filed March 30, 1990, Commission file No. 1-10091)
3.4 Amendment of Agreement of Limited Partnership of Huntway
Partners, L.P. dated as of December 12, 1996 (incorporated
by reference herein to Appendix E of the Consent Solicitation and
Disclosure Statement on Schedule 14A, filed October 15, 1996,
Commission file No. 1-10091)
4.1 Deposit Agreement by and among Huntway Partners, L.P., Page 60
The First Bank of Boston and Huntway Managing Partner, L.P.
Exhibit
Number Description of Exhibit
4.2 Indenture dated as of October 31, 1997 between the Company
and State Street Bank and Trust Company, as trustee
("State Street"), pursuant to which the 91/2% Senior
Subordinated Secured Convertible Notes due 2007 were issued.
(incorporated by reference herein to Exhibit 4.1 of the
Report on Form 8-K, filed November 17, 1997, Commission
file No. 1-10091)
4.3 Form of 91/2% Senior Subordinated Secured Convertible Note
(included in Exhibit 4.2). (incorporated by reference herein to
Exhibit 4.2 of the Report on Form 8-K, filed November 17, 1997,
Commission file No. 1-10091)
10.1 Amended and Restated Agreement of Limited Partnership of
Huntway Managing Partner, L.P. dated as of December 22,
1989 (incorporated by reference herein to Exhibit 10.1 of
the Annual Report on Form 10-K, filed March 30, 1990,
Commission file No. 1-10091)
10.2 Amended and Restated Agreement of Limited Partnership of
Huntway Holdings, L.P. dated as of December 22, 1989
(incorporated by reference herein to Exhibit 10.12 of
the Annual Report on Form 10-K, filed March 30, 1990,
Commission file No. 1-10091)
10.3 Second Amended and Restated Agreement of Limited Partnership
of Sunbelt Refining Company, L.P. (incorporated by reference
herein to Exhibit 10.8 of the Annual Report on Form 10-K,
filed March 30, 1990, Commission file No. 1-10091)
10.4 Amended and Restated Ground Lease dated as of July 31,
1987 by and between Industrial Asphalt and Huntway Refining
Company (incorporated by reference herein to Exhibit 10.7
of the Registration Statement on Form S-1, filed September 26,
1988, Registration No. 33-24445).
10.5 Huntway Partners, L.P. Amended and Restated Profit Sharing
and Tax Deferred Savings Plan (incorporated by reference
herein to Exhibit 10.2 of the Annual Report on Form 10-K,
filed March 29, 1989, Commission file No. 1-10091)
10.6 Huntway Partners, L.P. Money Purchase Pension Plan
(incorporated by reference herein to Exhibit 10.4 of the
Registration Statement on Form S-1, filed September 26,
1988, Registration No. 33-24445).
10.7 Indenture dated as of December 12, 1996 between the Registrant and
Fleet National Bank, relating to the 12% Senior Secured Notes Due
2005, including related security documents, guaranties and forms
of securities (incorporated by reference herein to Exhibit 4.1 of
the report on Form 8-K filed December 27, 1996, Commission File
No. 1-0091)
Exhibit
Number Description of Exhibit
10.8 Indenture dated as of December 12, 1996 between the Registrant and
IBJ Schroder Bank & Trust Company, relating to the Junior
Subordinated Notes Due 2005, including the forms of security.
(incorporated by reference herein to Exhibit 4.2 of the report on
Form 8-K filed December 27, 1996, Commission File No. 1-0091)
10.9 Registration Rights Agreement dated as of December 12, 1996 by and
among Huntway Partners, L.P. and certain of its security holders
named therein. (incorporated by reference herein to Exhibit 4.4 of
the report on Form 8-K filed December 27, 1996, Commission File
No. 1-0091)
10.10 Unitholders Agreement dated as of December 12, 1996 by and
among Huntway Partners, L.P. and certain of its Unitholders
named therein. (incorporated by reference herein to Exhibit
4.3 of the report on Form 8-K filed December 27, 1996,
Commission File No. 1-0091)
10.11 Letter of Credit and Reimbursement Agreement Dated as of
June 22, 1993 between Huntway Partners, L.P., Sunbelt
Refining Company, L.P. and Bankers Trust Company
(incorporated by reference herein to Exhibit 10.31 of the
Current Report on Form 8-K, filed July 13, 1993, Commission
file No. 1-10091)
10.12 First Amendment to Letter of Credit and Reimbursement
Agreement dated as of December 12, 1996 between Huntway
Partners, L.P., Sunbelt Refining Company, L.P. and Bankers
Trust Company. (incorporated by reference herein it Exhibit
10.12 of the Annual Report in Form 10K, filed March 31, 1997,
Commission file No. 1-10091).
10.13 Huntway Partners, L.P. 1996 Employee Incentive Option Plan
dated as of December 12, 1996 (incorporated by reference
herein to Appendix C of the Consent Solicitation and
Disclosure Statement on Schedule 14A filed October 15, 1996.
Commission file No. 1-10091).
10.14 Indemnification Agreement dated as of November 9, 1988
(incorporated by reference herein to Exhibit 10.12 of the
Annual Report on Form 10-K, filed March 29, 1989,
Commission file No. 1-10091)
10.15 Definitive Agreement between Huntway Partners, L.P. and
Reprise Holdings, L.P. dated as of May 3, 1990
(incorporated by reference herein to Exhibit 10.14 of
the Quarterly Report on Form 10-Q, filed May 15, 1990,
Commission file No. 1-10091)
Exhibit
Number Description of Exhibit
10.16 Termination Agreement (incorporated by reference herein to
Exhibit 10.41 of the Current Report on Form 8-K, filed
July 13, 1993, Commission file No. 1-10091)
10.17 Sequencing and Amendatory Agreement dated as of October 31, 1997
among the Company, Sunbelt Refining Company, L.P., Lighthouse
Investors, L.L.C., B III Capital Partners, L.P., Contrarian
Capital Fund I L.P., Contrarian Capital Fund II L.P., Bankers
Trust Company, Massachusetts Mutual Life Insurance Company, Mellon
Bank, N.A., as trustee for First Plaza Group Trust, Oppenheimer &
Company, Inc., as agent for itself and as agent for Oppenheimer
Horizon Partners, L.P., Oppenheimer Institutional Horizon
Partners, L.P., Oppenheimer International Horizon Fund II Ltd. and
The & Trust, The IBM Retirement Plan Trust, Lindner Growth Fund,
Madison Dearborn Partners III and First Chicago Equity
Corporation, United States Trust Company of New York, as
Collateral Agent under the Intercreditor Agreement, State Street
Bank and Trust Company, as trustee under the indenture pursuant to
which the Company's 91/2% Senior Subordinated Secured Convertible
Notes were issued, and Fleet National Bank, as trustee under the
indenture pursuant to which the 12% Senior Notes (Other) were
issued. (incorporated by reference herein to Exhibit 10.1 of the
Report on Form 8-K, filed November 17, 1997, Commission file No.
1-10091)
10.18 Exchange and Purchase Agreement entered into as of October 31,
1997, by and among the Company, Lighthouse Investors, L.L.C.,
B III Capital Partners, L.P., Contrarian Capital Fund I, L.P.,
Contrarian Capital Fund II, L.P., Oppenheimer & Company, Inc.,
Oppenheimer Horizon Partners, L.P., Oppenheimer Institutional
Horizon Partners, L.P., Oppenheimer Institutional Horizon
Partners, L.P. and The & Trust, First Plaza Group Trust and The
IBM Retirement Plan Trust. (incorporated by reference herein to
Exhibit 10.2 of the Report on Form 8-K, filed November 17, 1997,
Commission file No. 1-10091)
10.19 Amended and Restated Registration Rights Agreement entered into as
of October 31, 1997, by and among the Company, Lighthouse
Investors, L.L.C., B III Capital Partners, L.P., Contrarian
Capital Fund I, L.P., Contrarian Capital Fund II, L.P., Mellon
Bank, N.A., as trustee for First Plaza Group Trust, Oppenheimer &
Company, Inc., as agent for itself and Oppenheimer Horizon
Partners, L.P., Oppenheimer Institutional Horizon Partners, L.P.,
Oppenheimer Institutional Horizon Partners, L.P., The & Trust and
The IBM Retirement Plan Trust, First Chicago Equity Corporation
and Madison Dearborn Partners III. (incorporated by reference
herein to Exhibit 10.3 of the Report on Form 8-K, filed November
17, 1997, Commission file No. 1-10091)
Exhibit
Number Description of Exhibit
10.20 First Supplemental Indenture dated as of October 31, 1997 between
the Partnership and Fleet National Bank, relating to the
Partnership's 12% Senior Secured Notes Due 2005.(incorporated by
reference herein to Exhibit 10.1 of the Report on Form 8-K, filed
March 31, 1998, Commission file No. 1-10091)
10.21 Second Supplemental Indenture dated as of November 30, 1997
between the Partnership and Fleet National Bank, relating to the
Partnership's 12% Senior Secured Notes Due 2005.(incorporated
by reference herein to Exhibit 10.2 of the Report on Form 8-K,
filed March 31, 1998, Commission file No. 1-10091)
10.22 First Supplemental Indenture dated as of October 31, 1997 between
the partneship and IBJ Schroder Bank & Trust Company, relating to
the Partnership's Junior Subordinated Notes Due 2005.(incorporated
by reference herein to Exhibit 10.3 of the Report on Form 8-K,
filed March 31, 1998, Commission file No. 1-10091)
10.23 First Supplemental Indenture dated as of January 14, 1998 between
the Partnership and State Street Bank & Trust Company, as trustee,
relating to the Partnership's 12% Senior Subordinated Secured
Convertible Notes Due 2007. (incorporated by reference herein to
Exhibit 10.4 of the Report on Form 8-K, filed March 31, 1998,
Commission file No. 1-10091)
10.24 Third Amendment ot Letter of Credit and Reimbursement Agreement
dated as of November 30, 1997 between the Partnership, Sunblet
Refining Company, L.P. and Bankers Trust Company. (incorporated
by reference herein to Exhibit 10.5 of the Report on Form 8-K,
filed March 31, 1998, Commission file No. 1-10091)
21 Schedule of Subsidiaries (incorporated by reference herein
to Exhibit 22 of the Registration Statement on Form S-1, as
amended by Amendment No. 2, filed November 2, 1988,
Registration No. 33-24445).
99.1 Complaint in Neal v. Forster, et al., No. 92-7264 SVW
(C.D. Cal.) (incorporated by reference herein to Exhibit
28.5 of the Current Report on Form 8-K, filed March 1, 1993,
Commission file No. 1-10091)
Exhibit
Number Description of Exhibit
99.2 Complaint in Van Elgort et al. v. Huntway Partners, L.P.,
et al., No. 92-7314R (C.D. Cal.) (incorporated by
reference herein to Exhibit \28.6 of the Current Report
on Form 8-K, filed March 1, 1993, Commission file No. 1-10091)
(b) Reports on Form 8-K
A report on Form 8-K was filed on November 14, 1997 to file the
following documents:
Indenture dated as of October 31, 1997 between the Company and State
Street Bank and Trust Company, as trustee ("State Street"), pursuant
to which the 9 1/2% Senior Subordinated Secured Convertible Notes due 2007
were issued.
Form of 9 1/2% Senior Subordinated Secured Convertible Note.
Sequencing and Amendatory Agreement dated as of October 31, 1997 among
the Company, Sunbelt Refining Company, L.P., Lighthouse Investors,
L.L.C., B III Capital Partners, L.P., Contrarian Capital Fund I L.P.,
Contrarian Capital Fund II L.P., Bankers Trust Company, Massachusetts
Mutual Life Insurance Company, Mellon Bank, N.A., as trustee for First
Plaza Group Trust, Oppenheimer & Company, Inc., as agent for itself and
as agent for Oppenheimer Horizon Partners, L.P., Oppenheimer
Institutional Horizon Partners, L.P., Oppenheimer International Horizon
Fund II Ltd. and The & Trust, The IBM Retirement Plan Trust, Lindner
Growth Fund, Madison Dearborn Partners III and First Chicago Equity
Corporation, United States Trust Company of New York, as Collateral
Agent under the Intercreditor Agreement, State Street Bank and Trust
Company, as trustee under the indenture pursuant to which the Companys
9 1/2% Senior Subordinated Secured Convertible Notes were issued, and
Fleet National Bank, as trustee under the indenture pursuant to which
the 12% Senior Notes (Other) were issued.
Exchange and Purchase Agreement entered into as of October 31, 1997, by
and among the Company, Lighthouse Investors, L.L.C., B III Capital
Partners, L.P., Contrarian Capital Fund I, L.P., Contrarian Capital Fund
II, L.P., Oppenheimer & Company, Inc., Oppenheimer Horizon Partners,
L.P., Oppenheimer Institutional Horizon Partners, L.P., Oppenheimer
Institutional Horizon Partners, L.P. and The & Trust, First Plaza Group
Trust and The IBM Retirement Plan Trust.
Amended and Restated Registration Rights Agreement entered into as of
October 31, 1997, by and among the Company, Lighthouse Investors,
L.L.C., B III Capital Partners, L.P., Contrarian Capital Fund I, L.P.,
Contrarian Capital Fund II, L.P., Mellon Bank, N.A., as trustee for
First Plaza Group Trust, Oppenheimer & Company, Inc., as agent for
itself and Oppenheimer Horizon Partners, L.P., Oppenheimer Institutional
Horizon Partners, L.P., Oppenheimer Institutional Horizon Partners,
L.P., The & Trust and The IBM Retirement Plan Trust, First Chicago
Equity Corporation and Madison Dearborn Partners III.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Huntway Partners, L.P. has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly
authorized, on the 31st day of March, 1997.
HUNTWAY PARTNERS, L.P.
By: /s/ Juan Y. Forster
Juan Y. Forster
Chairman of the Operating Committee
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 31, 1997.
Signature Title
/s/ Juan Y. Forster
Juan Y. Forster Member of Operating Committee and
Chief Executive Officer
/s/ Warren J. Nelson
Warren J. Nelson Executive Vice President and
Chief Financial and Accounting Officer
/s/ Justin S. Huscher
Justin S. Huscher Member of Operating Committee
/s/ Samuel M. Mencoff
Samuel M. Mencoff Member of Operating Committee
/s/ Raymond M. O'Keefe
Raymond M. O'Keefe Member of Operating Committee
DEPOSIT AGREEMENT
This Agreement, entered into as of the 12th day of May, 1994, by
and among HUNTWAY PARTNERS, L. P., a Delaware limited partnership (the
"partnership"), THE FIRST NATIONAL BANK OF BOSTON, a national banking
association, as depositary hereunder (the "Depositary"), and Huntway
Managing Partner, L.P., a Delaware limited partnership, as attorney-in-
fact for the holders of Depositary Receipts issued hereunder.
WITNESSETH:
WHEREAS, the partnership is a Delaware limited partnership formed
in 1988 with Huntway Managing Partner, L.P. as the Managing General Partner
and Huntway Holdings, L.P., a Delaware limited partnership as the Special
General Partner; and
WHEREAS, the Limited Partners of the Partnership desire to deposit
their limited partner interests in the Partnership in a single convenient
depositary institution for the purposes set forth herein and for the issuance
hereunder of Depositary Receipts evidencing deposited limited partner
interests; and
WHEREAS, the Limited Partners may from time to time wish to
transfer their limited partner interests, and such transfers would be
facilitated by having one institution act as depositary for such limited
partner interests;
NOW, THEREFORE, in consideration of the premises and the promises
hereinafter contained, it is agreed by and among the parties hereto as
follows:
ARTICLE I
DEFINITIONS
Unless otherwise clearly indicated to the contrary, the following
definitions shall be applied for all purposes to the terms used herein.
"Affiliate" shall mean, with respect to any Person, a Person
that directly or indirectly controls, is controlled by or is under common
control with such Person. As used in such definition, "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through
ownership of voting securities, by contract or otherwise.
"Agreement" shall mean this Deposit Agreement, as it may be
amended or restated from time to time.
"Assignee" shall mean a Person to whom one or more Units have
been transferred, by assignment of a Depositary Receipt or otherwise in a
manner permitted under this Agreement or the Partnership Agreement.
"Business Day" shall mean Monday through Friday of each week,
except that a legal holiday recognized as such by the federal government or
the States of Delaware, California or Massachusetts shall not be a Business
Day.
"Certificate" shall mean a non-negotiable certificate issued by
the Partnership, substantially in the form of Annex I to the Partnership
Agreement, evidencing ownership of one or more Partnership Units.
"Delaware Act" shall mean the Delaware Revised Uniform Limited
Partnership Act, Sections 17-101 through 17-1108 of Title Six of the Delaware
Code, as it may be amended and in effect from time to time, and any successor
to such statute.
"Depositary" shall mean The First National Bank of Boston, or
any successor depository hereunder. The Office of the Depositary shall be
at 150 Royall Street, Canton, Massachusetts 02021. Notice of the Depositary
shall be given in the manner provided in Section 11.4.
"Depositary Receipt" shall mean a receipt, substantially in the
form of Exhibit A hereto, issued by the Depositary or the Depositary's Agents
in accordance herewith, evidencing ownership of one or more Depositary Units.
"Depositary Unit" shall mean the security representing a single
Partnership Unit deposited under this Agreement together with all other
securities, property and cash received by the Depositary in respect of or
in lieu of such deposited Partnership Unit.
"Depositary's Agents" shall mean an agent appointed by the
Depositary pursuant to Section 8.5 hereof.
"General Partners" shall mean the Managing General Partner, the
Special General Partner and their successors under the Partnership Agreement.
"Limited Partner" shall mean a limited partner of the
partnership as determined pursuant to the partnership Agreement and certified
by the Partnership to the Depositary.
"Managing General Partner" shall mean Huntway Managing Partner,
L.P., a Delaware limited partnership having its principal office at 25129 The
Old Road, Newhall, California 91381 or any successor to it under the
Partnership Agreement.
"Partnership" shall mean Huntway Partners, L.P., a Delaware
limited partnership having its principal office at
25129 The Old Road, Newhall, California 91381.
"Partnership Agreement" shall mean the Amended and
Restated Agreement of Limited Partnership of the Partnership, as it may be
amended or restated from time to time. A copy of the Partnership Agreement
as in effect on the date hereof is attached as Exhibit B hereto and made a
part hereof for all purposes.
"Partnership Unit" shall mean a unit of limited partner interest
in the Partnership evidenced by a Certificate.
"Person" shall mean an individual, corporation, partnership,
trust, unincorporated organization, association or other entity.
"Record Date" shall mean the date established by the Partnership
for determining the identity of (a) the Limited Partners entitled to
notice of or to vote at any meeting of Limited Partners or entitled to vote by
ballot, to give consent in writing to Partnership action without a meeting or
to exercise rights in respect of any other lawful action of Limited Partners
or (b) the Record Holders entitled to receive any report or distribution. The
Partnership will notify the Depositary of all Record Dates in writing or by
such other means as the Depositary and the Partnership may from time to time
agree.
"Record Holder" shall mean the Person in whose name a Depositary
Receipt is registered on the register maintained by the Registrar.
"Registrar" shall mean the Depositary or any other Person
appointed to register the Depositary Receipts pursuant to Section 3.12
hereof.
"Special General Partner" shall mean Huntway Holdings, L.P., a
Delaware limited partnership having its principal office at 25129 The Old
Road, Newhall, California 91381 or any successor to it under the Partnership
Agreement.
"Transfer Agent" shall mean the Depositary or other Person
appointed to act as transfer agent for the Depositary Receipts pursuant to
Section 3.12 hereof.
"Transfer Application" shall mean an application and agreement for
transfer of Depositary Units in the form set forth on the back of the
Depositary Receipts or in a form substantially to the same effect in a
separate instrument by which a transferee (a) requests; admission as a
Limited Partner, (b) agrees to be bound by the terms and conditions of
this Agreement and the Partnership Agreement, (c) represents that he has
authority to enter into this Agreement and the Partnership Agreement, (d)
grants a power of attorney to the General Partners and any liquidator of
the Partnership and (e) makes the consents and waivers contained in the
Partnership Agreement.
ARTICLE II
DEPOSIT OF CERTIFICATES; DEPOSIT ACCOUNT
Section 2.1 Deposits of Certificates. Subject to the terms
and conditions hereof, any Certificate representing Partnership Units may be
deposited hereunder by delivering such Certificate to the Depositary at its
Office.
Section 2.2 Deposit Account. The Depositary may establish, at
its Office, an account or accounts, in a form and manner satisfactory to the
Partnership, in which deposited Partnership Units, evidenced by Certificates,
will be held.
Section 2.3 Representations and Warranties of Depositor. Each
Person depositing Certificates hereunder shall be deemed thereby to represent
and warrant that (a) he is, or is duly authorized to act for, a Limited
Partner and (b) he is the owner of such Certificates, or is duly authorized by
the owner thereof to make the deposit. The Depositary shall not be liable to
the General Partners, the Partnership, any Limited Partner or any other Person
for any expense or damage incurred as a result of any breach by a Person
depositing Certificates hereunder of these representations and warranties,
which shall survive the deposit of Certificates and the issuance of Depositary
Receipts.
Section 2.4 Representations and Warranties of the Partnership.
The Partnership hereby represents and warrants that (a) upon issuance, each
Partnership Unit and each Certificate evidencing such Units will be validly
issued, fully paid and nonassessable, except as provided by the Delaware
Act, (b) any Depositary Receipt issued by the Depositary or any Transfer
Agent, if duly issued in the manner provided herein, will be fully paid and
nonassessable, except as provided by the Delaware Act, and (c) the
Partnership will not at any time deposit or cause to be deposited any
Certificates, unless the Partnership Units evidenced by such Certificates, and
the Depositary Units to be issued with respect to such Certificates were
issued pursuant to an effective registration statement under the
Securities Act of 1933, as amended, or in a transaction not requiring
registration under such Act. The Depositary shall not be liable to any
Person for any expense or damage incurred as a result of any breach by the
Partnership of these representations and warranties, which shall survive the
deposit of Certificates and the issuance of Depositary Receipts.
ARTICLE III
DEPOSITARY RECEIPTS
Section 3.1 Issuance.
(a) Upon the deposit of Certificates, the payment of any tax or
other governmental charge in respect of the deposit of Certificates and the
payment of any fee of the Depositary provided for in Article VII hereof, the
Depositary shall issue to the Person making such Deposit one or more
Depositary Receipts and shall deliver such Depositary Receipts to the Person
making such Deposit at the Depositary's Office or, subject to the
requirements of Section 3.1(b) hereof, to a Person designated by him. One
Depositary Receipt shall be issued in a denomination evidencing all of the
Depositary Units held by such Person unless the Person making such deposit
elects to have Depositary Receipts issued in smaller denominations, subject to
Section 3.3(b) hereof.
(b) If a Person making such Deposit wishes to have any
Depositary Receipt registered in the name of another Person designated
by him, the transaction shall be treated as a transfer and shall be governed
by the provisions of Article IV hereof and the Person making such deposit and
such Person shall comply with such requirements as the Depositary or the
Partnership may impose, including the requirement that such person execute a
Transfer Application.
Section 3.2 Effect of Acceptance. By acceptance of a
Depositary Receipt, a Person depositing Certificates becomes a party to
this Agreement, assents to all of its provisions and becomes bound by the
terms and conditions of this Agreement and the Depositary Receipt. The effect
of acceptance of a Depositary Receipt upon a Person designated by the Person
making such deposit pursuant to Section 3.1(b) hereof shall be as
provided in Section 4.1 hereof in respect of a transferee.
Section 3.3 Form; Denominations; Execution.
(a) Depositary Receipts shall be engraved, printed or
lithographed on steel-engraved borders at the Partnership's expense and shall
be substantially in the form of Exhibit A hereto, with appropriate insertions,
modifications and omissions. The Depositary Receipts shall conform to the
requirements of any securities exchange upon which the Depositary Units are or
may be listed or admitted to trading. Depositary Receipts may be issued in
denominations of any whole number of Depositary Units.
(b) The Partnership may authorize the exchange of
Depositary Receipts for other Depositary Receipts printed or engraved
in such other manner as it shall determine at the Partnership's
expense. The Depositary and the Partnership acknowledge that the
"Preference Period" for the Partnership's "Preference Units," as such
terms are defined in the Partnership Agreement, expired on January 1, 1994 and
that effective such date all Preference Units, pursuant to the terms of the
Partnership Agreement, automatically became Common Units. The Depositary
agrees that upon presentation for transfer of any Depositary Receipts formerly
representing Preference Units, the Depositary shall issue to the transferee a
Depositary Receipt representing Common Units. Until exchanged for a
Depositary Receipt representing Common Units, the Depositary shall
treat all outstanding Depositary Receipts formerly representing Preference
Units as Depositary Receipts representing Common Units in accordance with the
terms of the Partnership Agreement.
(c) Depositary Receipts may be endorsed with, or have
incorporated in the text thereof, such legends or recitals not inconsistent
with the provisions hereof as may be required to comply with the provisions of
this Agreement or the Partnership Agreement, any applicable law or regulation
or the rules and regulations of any securities exchange upon which the
Depositary Units are or may be listed or admitted to trading, to conform with
any usage with respect thereto, to indicate any special limitation or
restriction to which a Depositary Unit may be subject or for any other reason.
(d) Each Depositary Receipt shall be signed on behalf of the
Depositary by the manual signature of a duly authorized employee of the
Depositary, except that such signature may be a facsimile if a Registrar has
been appointed and the Depositary Receipt is countersigned by the manual
signature of a duly authorized employee of the Registrar. No Depositary
Receipt shall be entitled to any benefits hereunder or shall be valid or
obligatory for any purpose, unless it has been so signed or countersigned.
Depositary Receipts bearing the facsimile signature of a Person who was at any
time duly authorized to sign Depositary Receipts on behalf of the Depositary
shall bind the Depositary, notwithstanding that such Person has ceased to be
an employee prior to signature by the Registrar and delivery of such
Depositary Receipts or was not an employee at the date of issuance of such
Depositary Receipts or the execution hereof.
Section 3.4 Numbering and Registration.
(a) Depositary Receipts issued by the Depositary shall be
numbered in such manner as the Depositary may from time to time select and the
Partnership may have approved. Each Record Holder shall be registered on
the books of the Depositary and any Registrar or Transfer Agent in a
manner permitting identification, by Persons authorized to have access to the
books, of all Record Holders, their Depositary Receipts and the number of
Depositary Units evidenced thereby.
(b) The Depositary shall keep records to prepare
accurately such lists as the Partnership may request from time to time lists
of the Record Holders subject to any special limitations or restrictions by,
or stop transfer order from, the Partnership and a list of the Record Holders
of Depositary Receipts which are listed or admitted to trading on a securities
exchange.
Section 3.5 Combinations and Split-ups. Upon surrender by a
Record Holder of a Depositary Receipt for split-up or combination of the
Depositary Units evidenced thereby at the Depositary's Office, and subject to
the terms and conditions hereof, the Depositary shall execute and deliver at
such Office a new Depositary Receipt in authorized denominations evidencing
the same aggregate number of Depositary Units as evidenced by the Depositary
Receipt surrendered. Upon the written request of the Partnership, the
Depositary shall execute and deliver new Depositary Receipts and shall
take such other appropriate action as may be necessary if the outstanding
Depositary Units shall be divided into a greater number of Depositary Units or
shall be cancelled to be combined into a smaller number of Depositary Units.
Section 3.6 Lost Depositary Receipts. If any Depositary
Receipt is mutilated, destroyed, lost or stolen, the Depositary shall execute
and deliver a new Depositary Receipt of like form and terms in exchange and
substitution for the mutilated, destroyed, lost or stolen Depositary Receipt;
provided that the Depositary shall require the Record Holder thereof to
furnish to the Depositary and the Partnership, in a form and manner
satisfactory to the Depositary, proof of the mutilation, destruction, loss
or theft, and of his ownership thereof, and reasonable indemnification
(including the posting of an indemnity bond for the benefit of the
Depositary and the Partnership) satisfactory to the Depositary.
Section 3.7 Limitations on Execution and Delivery, Transfer,
Surrender and Exchange. As a condition precedent to the execution and
delivery, transfer, split-up, combination, surrender or exchange of any
Depositary Unit or Depositary Receipt, the Depositary or any Transfer
Agent may require (a) payment of a sum sufficient for reimbursement of any
tax or other governmental charge with respect thereto (including any such tax
or charge with respect to Certificates or Depositary Units being deposited or
withdrawn), (b) proof reasonably satisfactory to it as to the identity of
any Person involved in such action and the genuineness of any signature or as
to the due authorization of the action and (c) compliance with such
regulations consistent herewith as the Depositary may reasonably establish.
Section 3.8 Cancellation and Return of Surrendered Depositary
Receipts. All Depositary Receipts surrendered to the Depositary shall be
cancelled. The Depositary shall return to the Partnership cancelled
Depositary Receipts and shall retain or return to the Partnership other
instruments, documents and records in accordance with the policies and
regulations of the Depositary, federal securities laws and rules and
regulations of any securities exchange upon which the Depositary Units are or
may be listed or admitted to trading.
Section.3.9 Supply of Depositary Receipts. The Partnership
shall deliver to the Depositary from time to time such quantities of
Depositary Receipts as the Depositary may request to enable the Depositary to
perform its obligations hereunder.
Section 3.10 Filing Proofs, Certificates and Other Information.
Any Person presenting a Certificate for deposit or any Record Holder may be
required from time to time to execute such certificates, and to make such
representations and warranties, as the Depositary or the Partnership may
reasonably request in order carry out the purposes hereof. The Depositary may
withhold the delivery, transfer or exchange of any Depositary Receipt or any
distribution in respect thereof until such certificates are executed or
such representations and warranties are made.
Section 3.11 Refusal of Deposit, Transfer, etc.
(a) The deposit of Certificates and the delivery,
transfer, surrender or exchange of Depositary Receipts may be
suspended, during any period when any register of Record Holders is closed, or
if such action is deemed necessary or advisable by the Depositary or the
Partnership at any time or from time to time because of any applicable law or
regulation of any government or governmental body or commission, the rules and
regulations of any securities exchange upon which the Depositary Units are or
may be listed or admitted to trading or any provision hereof. Without
limitation of the foregoing, the Depositary shall not knowingly issue or
deliver Depositary Receipts, if to the knowledge of the Depositary (i) such
issuance or delivery is required to be registered under the Securities Act of
1933, as amended, or applicable securities laws of any state and (ii) such
registration requirements have not been met.
(b) The Partnership may give written instructions to the
Depositary to place an appropriate legend on any Depositary receipt pursuant
to Section 3.3(c) hereof. The Partnership may deliver a stop transfer order
to the Depositary in writing, specifying the name of the Record Holder and the
number of Depositary Units so restricted. The Depositary may rely upon such
legend or stop transfer order until instructed in writing by the Partnership
to remove such legend or to lift such stop transfer order.
Section 3.12 Registrar Transfer Agent.
(a) The Partnership shall, to the extent required by
applicable law or regulation or the rules and regulations of any securities
exchange on which the Depositary Units are listed or admitted for trading,
appoint one or more Registrars and one or more Transfer Agents for the
Depositary Receipts. The Depositary is hereby appointed as the sole Registrar
and Transfer Agent.
A Registrar or Transfer Agent may be removed and a substitute appointed by the
Partnership.
(b) The Depositary shall, at the request of the
Partnership, arrange for such facilities for the delivery, transfer,
surrender and exchange of the Depositary Receipts as may be required by any
applicable law or regulation or the rules and regulations of any securities
exchange upon which the Depositary Receipts are or may be listed or admitted
to trading.
ARTICLE IV
TRANSFER OF RECEIPTS
Section 4.1 Transferability. Depositary Units are investment
securities and are transferable in accordance with the laws governing
transfers of investment securities. In addition to the other rights acquired
upon transfer, a transferee who properly executes and delivers a Transfer
Application pursuant to Section 4.2 hereof receives the right to request
admission as a Limited Partner in respect of the transferred Depositary Units.
A transferee who does not properly execute and deliver a Transfer Application
receives only (a) the right to transfer such Depositary Units to another
transferee and (b) the right to transfer the right to request admission as a
Limited Partner to such other transferee in respect of the transferred
Depositary Units. Whether or not a transferee executes a Transfer
Application, the transferee, by acceptance of a Depositary Receipt
evidencing the Depositary Units, is deemed to become a party to this
Agreement, thereby assenting to all of its provisions, to be bound by the
terms and conditions of this Agreement and the Depositary Receipt. A
transferor of Depositary Units has a duty to provide his transferee
all information necessary to obtain recordation of the transfer of the
Depositary Units, but a transferee agrees by acceptance of a Depositary
Receipt evidencing such Depositary Units, that his transferor has no duty
to cause the execution and delivery of a Transfer Application by the
transferee and has no liability or responsibility if the transferee neglects
or chooses not to execute and deliver a Transfer Application. It is a
condition of the Depositary Receipt, and every successive holder thereof
by acceptance of a Depositary Receipt consents and agrees, that, until a
Depositary Unit has been transferred on the books of the Depositary
or a Transfer Agent pursuant to Section 4.2 hereof, the Depositary, any
Transfer Agent and the Partnership, notwithstanding any notice to the contrary
or any notation or other writing on the Depositary Receipt, may treat the
Record Holder at such time as the absolute owner of the Depositary Unit for
all purposes.
Section 4.2 Registration of Transfer. Subject to the terms
and conditions hereof, the Depositary shall transfer Depositary Units on
its books, from time to time, upon surrender of the Depositary Receipt
evidencing such Depositary Units by the Record Holder, in person or by duly
authorized attorney, to the Depositary. Any Depositary Receipt so surrendered
for transfer shall be properly endorsed or accompanied by a properly executed
instrument of transfer and accompanied by a properly executed Transfer
Application. Thereupon the Depositary shall issue or cause to be issued a
new Depositary Receipt evidencing the same aggregate number of Depositary
Units as evidenced by the Depositary Receipt surrendered and shall deliver the
new Depositary Receipt to or upon the order of the Person entitled thereto.
The Depositary shall not register the transfer of Depositary Units unless the
transferee has delivered a properly executed Transfer Application.
Section 4.3 Status of Record Holder. The Record Holder
of a Depositary Unit, unless and until admitted as a Limited Partner pursuant
to the Partnership Agreement, has in respect of each Depositary Unit so1ely
the rights and obligations appurtenant to a Partnership Unit to share in the
allocations and distributions, including liquidating distributions, of the
Partnership and (b) otherwise subject to the limitations under the Delaware
Act on the rights of an assignee who has not become an additional limited
partner. The rights of each Record Holder whether or not admitted as a
Limited Partner are subject to and shall be governed by the Partnership
Agreement.
Section 4.4 Filing Notice of Transfers with Managing General Partner. The
Depositary shall prepare, as of the close of business on the last Business Day
of each month, a list or other appropriate evidence, in such form as may be
requested by the Managing General Partner, setting forth transfers of
Depositary Units registered by all Transfer Agents since the last Business Day
of the preceding month and the Business Day on which each Limited Partner was
admitted to the Partnership during such period. As promptly as practicable
after the last Business Day of each month, the Depositary shall submit such
transfer record to the Managing General Partner.
ARTICLE V
WITHDRAWAL OF UNITS
Section 5.1 Withdrawal of Depositary Units.
(a) A Record Holder may not withdraw Partnership Units from
deposit unless he is a Limited Partner. Subject to the terms and conditions
of this Agreement and the Partnership Agreement, at the written request of a
Limited Partner for withdrawal of Partnership Units from deposit hereunder,
and upon surrender to the Depositary at its Office of Depositary Receipts
evidencing a number of Depositary Units at least equal to the number of
Partnership Units to be withdrawn, accompanied by proof satisfactory to the
Depositary and the Partnership that the Person surrendering such Depositary
Receipts is the Record Holder thereof or a Person duly authorized to act for
such Record Holder, the Depositary shall deliver a Certificate evidencing
an appropriate number of Partnership Units to and in the name of the Record
Holder or shall forward it to such place as may be specified by the Record
Holder, at the risk and expense of the Record Holder. In satisfying its
obligation to deliver a Certificate, subject to Sections 3.7 and 3.11,
Article VI and the other terms and conditions hereof, (i) if the Depositary
has on deposit a Certificate in the appropriate denomination in the name
of such Record Holder the Depositary shall deliver such Certificate to such
Record Holder, and (ii) if the Depositary has no such Certificate on deposit,
the Depositary shall surrender to the Partnership a Certificate or
Certificates representing an adequate number of Partnership Units and shall
request the Partnership to issue and deliver at the Depositarys Office and
the Partnership hereby agrees to so issue and deliver (A) a Certificate in the
appropriate denomination in the name of the Record Holder and (B) if
necessary, a Certificate in the appropriate denomination in the name of the
Depositary, representing the difference between the denomination of the
Certificate surrendered to the Partnership and the denomination of the
Certificate issued in the name of the Record Holder pursuant to clause (A).
The Depositary shall give notice of any withdrawal pursuant to this Section
5.1 to the Partnership, any Registrar or Transfer Agent other than the
Depositary and any securities exchange upon which the Depositary Units are
or may be listed or admitted to trading.
(b) The Depositary may require that a Depositary Receipt
surrendered pursuant to Section 5.l(a) hereof be properly endorsed in blank
or accompanied by a properly executed instrument of transfer in blank,
and that the Record Holder execute and deliver to the Depositary a written
order directing the Depositary to cause the Certificate evidencing the
Partnership Units being withdrawn to be delivered to or upon the written order
of such Record Holder.
Section 5.2 Redeposit.
(a) Partnership Units withdrawn from deposit may be redeposited
pursuant to the terms hereof. Redeposit of Certificates evidencing Partnership
Units that have been withdrawn shall be subject to receipt by the Depositary
of 60 days' prior written notice and to such other conditions as may be
prescribed in the Partnership Agreement, except that the Partnership and its
Affiliates need not give any notice of redeposit. The Depositary shall
promptly notify the Partnership of any redeposit of Certificates.
(b) Upon each delivery to the Depositary of a Certificate to be
redeposited, the Depositary shall (i) as soon as transfer and recordation
can be accomplished, present such Certificate to the Partnership for
transfer and recordation of the Partnership Units being deposited in the name
of the Depositary, and (ii) issue and deliver, to or upon the order of the
Persons designated by the Person redepositing, a Depositary Receipt registered
in the name and representing a number of Depositary Units equal to the number
of Partnership Units evidenced by the redeposited Certificate.
ARTICLE VI
RESIGNATION; REMOVAL; AMENDMENT; TERMINATION
Section 6.1 Resignation and Removal of Depositary Appointment
of Successor Depositary. (a) The Depositary may at any time resign as
Depositary hereunder by written notice delivered to the Partnership. Such
resignation shall be effective upon the appointment of a successor depositary
and its acceptance of such appointment as hereinafter provided.
(b) The Depositary may at any time be removed as
depositary hereunder by the Partnership by written notice delivered to the
Depositary. Such removal shall be effective upon the appointment of a
successor depositary and its acceptance of such appointment as hereinafter
provided.
(c) If the Depositary resigns or is removed, the
Partnership shall, within 30 days after the delivery of the notice of
resignation or removal, as the case may be, appoint a successor depositary,
which shall be a bank or trust company having a combined capital and
surplus of at least $50,000,000. If within 30 days after the delivery of such
notice of resignation no successor depositary has been appointed, the Managing
General Partner shall act as the depositary until the Partnership appoints a
successor depositary. Any successor depositary shall execute and deliver to
its predecessor and the Partnership an instrument in writing accepting
its appointment, and thereupon such successor depositary, without any further
act or deed, shall become fully vested with all the rights, powers, duties and
obligations of its predecessor. The predecessor, upon payment of all sums due
it and upon the written request of the Partnership, shall execute and deliver
an instrument transferring to the successor depositary all of its rights
and powers hereunder, shall duly transfer all Certificates on deposit to the
successor depositary and shall deliver to the successor depositary a list of
all Record Holders. Any successor depositary shall promptly mail notice
of its appointment to all Record Holders.
(d) Any corporation into or with which the Depositary may be
merged or consolidated shall be the successor of the Depositary
without the execution or filing of any document or any further act.
Section 6.2 Amendment.
(a) Any provision hereof, including the form of Depositary
Receipt and the Transfer Application, may at any time and from time to
time be amended by agreement between the Partnership and the Depositary
in any respect deemed necessary or desirable by them. A Record Holder at
the time any amendment hereof becomes effective shall be deemed, by continuing
to hold Depositary Units, to consent to the amendment and to agree to be bound
by this Agreement as amended thereby.
(b) The Depositary shall give notice of any material amendment
hereof to any securities exchange upon which the Depositary Units are
or may be listed or admitted to trading, or in the absence of such listing
by publication in a newspaper of general circulation in the Borough of
Manhattan, New York, and shall also give notice thereof in writing to all
Record Holders. In the reasonable discretion of the Depositary and with the
approval of the Partnership, the text or substance of any amendment may be
incorporated into the Depositary Receipts issued after adoption.
(c) No amendment hereof shall impair the right of a Limited
Partner to withdraw any or all of his Partnership Units pursuant to Section
5.1 hereof. Notwithstanding anything herein to the contrary, no amendment
hereto shall override or supersede the terms and provisions of the Partnership
Agreement.
Section 6.3 Termination
(a) Whenever directed by the Partnership, the Depositary shall
terminate this Agreement by mailing notice of termination to the Record
Holders at least 30 days before the date fixed in such notice for termination.
(b) Upon termination hereof, the Depositary shall discontinue the
transfer of Depositary Units, shall suspend the distribution of reports,
notices and disbursements to Record Holders and shall not give any further
notices (other than notice of such termination) or perform any further acts
hereunder, except that the Depositary shall continue to deliver Certificates,
together with any distributions received with respect thereto, pursuant to
Section 5.1 hereof. Upon request of the Partnership, the Depositary shall
deliver all books, records, Certificates, Depositary Receipts and other
documents respecting the subject matter hereof to the Partnership.
(c) Upon termination hereof, the Partnership and the Record
Holders shall be discharged from all obligations hereunder, except for the
obligations of the Partnership pursuant to Article VII and Section 10.5
hereof.
ARTICLE VII
CHARGES; FEES; EXPENSES
Section 7.1 In General. The charges, fees or
reimbursements for services provided hereunder should be determined by mutual
agreement of the Depositary and the Partnership.
Section 7.2 Responsibility for Expense Charges. The
Partnership shall pay all charges, fees and reimbursements of the Depositary
as set forth on Annex I, other than those expressly provided herein to be paid
by other Persons, or as otherwise agreed in writing from time to time between
the Depositary and the Partnership.
Section 7.3 Governmental Charges. If any tax or other
governmental charge becomes payable with respect to a Certificate, Partnership
Unit, Depositary Unit or Depositary Receipt, or with respect to the deposit,
transfer or withdrawal of any of the foregoing, such tax or governmental
charge shall be payable by the holder of such Certificate, Partnership Unit,
Depositary Unit or Depositary Receipt or by the transferee in the case of a
transfer. Transfer of Depositary Units or withdrawal of Partnership Units may
be refused until such payment is made, and any cash or other distribution may
be withheld and applied to payment of such tax or other governmental charge,
with such holder or transferee to remain liable for any deficiency.
Section 7.4 Special Charges. If at the request of the
holder or transferee of a Certificate, Partnership Unit, Depositary Unit or
Depositary Receipt, any delivery or communication from the Depositary is made
by telegram, telex, telefacs or similar telecommunication mode, or if the
Depositary incurs any charge or expense for which it or the Partnership is not
otherwise liable hereunder, such holder or transferee shall be liable for such
charge or expense.
Section 7.5 Notice Requirement. The Depositary shall give
notice of the imposition of any charge or fee or increase thereof, other than
the charges described in Sections 7.3 and 7.4 hereof, upon holders or
transferees of Certificates, Partnership Units, Depositary Units or Depositary
Receipts, or any charge therein, to any securities exchange upon which the
Depositary Units are or may be listed or admitted to trading, or in the
absence of such listing by publication in a newspaper of general circulation
in the Borough of Manhattan, New York, and shall also give notice thereof in
writing to all Record Holders. The imposition of or any increase in any such
charge or fee shall not become effective until 90 days after the date of such
notice.
ARTICLE VIII
DUTIES OF DEPOSITARY
Section 8.1 Reports. (a) The Depositary shall make
available for Inspection by Record Holders at its office during normal
business hours (and shall, upon the request of the Partnership and as
required by applicable law or the rules and regulations of the Securities and
Exchange Commission, furnish to the Securities and Exchange Commission) any
report, financial statement or communication of or from the Partnership that
is both received by the Depositary in its capacity as depositary and made
generally available to Limited Partners or Record Holders.
(b) The Depositary shall keep all records required to be kept
and, upon the request and at the expense of the Partnership, shall promptly
furnish to or file with the Securities and Exchange Commission all materials
or reports required by applicable law or the rules and regulations of the
Securities and Exchange Commission to be filed or provided thereto under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended, by virtue of the Depositary's agreement to act as depositary,
Registrar and Transfer Agent hereunder. A copy of any material or report
filed with the Securities and Exchange commission shall be mailed to the
Partnership at least two Business Days prior to its filing. To the extent
that such material or report requires information from the Partnership, such
information shall be furnished to the Depositary by the Partnership in
sufficient quantity and a sufficient time in advance of the date on which the
material or report is required to be filed to enable the Depositary to comply
with the filing requirement.
Section 8.2 Lists of Record Holders. As promptly as
practicable upon request by the Partnership, the Depositary shall furnish to
the Partnerships list of the names and addresses of all Record holders and the
number of Depositary Units held by them, as of the date requested by the
Partnership. A Record Holder shall have the right, upon notifying the
Depositary of a proper purpose related to his interest in the Partnership, to
have furnished to him at such Record Holders expense a list of the names and
addresses of all Record Ho1ders and the number of Depositary Units held by
them, as of the date requested.
Section 8.3 Maintenance of Offices, Agencies and
Transfer Books.
a) The Depositary shall maintain at its office and at any other
office as may be required by any securities exchange upon which the Depositary
Units are or may be listed or admitted to trading, facilities for the
execution and delivery, transfer, surrender and exchange of Depositary
Units and Depositary Receipts.
(b) The Depositary shall keep books at its Office for the
registration of transfer of Depositary Units. Such books shall be open at all
reasonable times for inspection by Record Holders; provided that such
inspection shall not be for the purpose of communicating with Record Holders
in the interest of a business or object other than the business of the
Partnership or a matter related to this Agreement or the Receipts.
Section 8.4 Other Obligations. In performing the services
set forth herein, the Depositary shall comply with any additional requirements
that may be imposed by virtue of its being deemed a transfer agent for
Depositary Units or Depositary Receipts by any securities exchange upon which
the Depositary Units are or may be listed or admitted to trading.
Section 8.5 Depositarys Agents. The Depositary may from time
to time, with the prior written consent of the Partnership, appoint agents,
which may include a General Partner, the Partnership and its Affiliates, for
the purposes hereof and may vary or terminate the appointment of such agents.
ARTICLE IX
INFORMATION; DISTRIBUTIONS; VOTING RIGHTS
Section 9.1 Duty to Furnish and Transmit Certain Information.
The Managing General Partner may be required by the Partnership Agreement to
furnish to Record Holders certain reports and notices. If the Partnership
elects to have the Depositary deliver any such reports or notices, the
Managing General Partner shall furnish to the Depositary a sufficient quantity
of each such report or notice for transmittal to the Record Holders. Upon
receipt of any such report or notice from the Managing General Partner, the
Depositary shall mail such report or notice within five Business Days to the
Record Holders as of the close of business on the last Business Day of the
month preceding the month in which such report or notice is received by the
Depositary, or as of such other date as may be specified in such notice by the
Managing General Partner.
Section 9.2 Distributions.
(a) To facilitate cash or other distributions made by the
Partnership to Limited Partners, the Depositary shall, at the Managing General
Partners request, furnish or cause to be furnished to the Managing
General Partner as promptly as practicable a list of the Record
Holders and the number of Depositary units held by each of them, as
recorded on the books of the Depositary as of the close of business on the
last Business Day of the month preceding the month in which such request is
made, or as of such other date as may be specified in such notice by the
Managing General Partner.
(b) The Managing General Partner may request the Depositary
to act as paying agent with respect to cash or other distribution made by the
Partnership. A request to serve in such capacity shall be made by the
Managing General Partner by giving notice of a proposed distribution to
Limited Partners, and a calculation of the amount of the proposed distribution
to be allocated to each Partnership Unit to the Depositary at least ten days
before the distribution is to be made. If cash is to be distributed, the
Managing General Partner, on behalf of the Partnership, shall deposit with the
Depositary, before the date on which the distribution is to be made funds
sufficient to pay the distribution. The Depositary sha11 calculate the
amount of the distribution to which each Record Holder is entitled based upon
the number of Depositary Units registered in his name. On the date set by the
Partnership for the distribution, the Depositary shall distribute the funds
received from the Managing General Partner to the Record Holders as of the
Record Date. Such distributions shall be made to the Record Holders as of the
Record Date, notwithstanding the length of time any such Record Holder has
held any Depositary Unit.
(c) The Partnership may appoint a co-paying agent, including,
without limitation, a General Partner or an Affiliate of the Partnership, for
purposes of this Section 9.2.
Section 9.3 Voting. Upon receipt from the Partnership of
notice of any meeting of which Limited Partners are entitled to vote or of
which they are entitled to notice, the Depositary shall, at the request and
expense of the Partnership, mail to each Record Holder as of the Record Date
specified in the notice of the meeting a copy of such notice. The
Partnership shall furnish sufficient copies of such notice to accomplish the
foregoing. The right of a Limited Partner to vote on any matter concerning
the Partnership shall be governed solely by the terms of the Partnership
Agreement applicable law.
ARTICLE X
STATUS AND OTHER ACTIVITIES OF DEPOSITARY; FORCE MAJEURE; IMMUNITIES;
INDEMNIFICATION
Section 10.1 Depositary Not a Trustee, Issuer etc. The
Depositary shall not be deemed a trustee and nothing in this Agreement shall
be deemed to give rise to any fiduciary obligations of the Depositary with
respect to any Limited Partner or Record Ho1der. The Depositary shall not
have any legal or equitable title to the Partnership Units deposited
hereunder. The Depositary shall have no right or power to sell, invest in,
pledge, mortgage or borrow against any Partnership Units deposited hereunder
(except for a possessory lien that may be imposed by the Depositary upon
books, records, documents or other properties for nonpayment of fees or
expenses hereunder). The Depositary shall not have any right by virtue
hereof to vote in meetings of, to receive distributions from (except as
provided in Section 9.2(b) hereof) or to have any interest in the Partnership.
The Depositary sha11 not be liable for assessments by the Partnership. The
Depositary shall not be deemed to be an "issuer" of securities, including
Partnership Units and Depositary Units, under the federal securities laws or
applicable state securities laws, and the parties hereto expressly agree
hereby that the Depositary is acting hereunder only in a ministerial capacity
as depositary for the Partnership Units.
Section 10.2 Other Activities of Depositary. The
Depositary may own and deal in, and may act as registrar or transfer agent
for, any class of Securities of the Managing General Partner, its Affiliates
or the Partnership, including the Certificates, Partnership Units, Depositary
Units and Depositary Receipts.
Section 10.3 Force Majeure. The Depositary, nor either of
the General Partners (or the General Partner's partners or officers) nor
the Partnership shall incur any liability to any holder of a Partnership
Unit, Certificate, Depositary Unit or Depositary Receipt if, by reason of
any present or future law or regulation thereunder of the federal
government or any other governmental authority (or, in the case of the
Depositary by reason of any provision, present or future, of the Partnership
Agreement), or by reason of any act of God, war or other circumstance beyond
its control, the Depositary, either of the General Partners (or the General
Partner's partners or officers) or the Partnership is prevented or
forbidden from doing or performing any act or thing required by the terms
hereof to be done or performed; nor shall the Depositary, either of the
General Partners (or the General Partners partners or officers) or
the Partnership incur any liability to any holder of a Partnership
Unit, Certificate, Depositary Unit or Depositary Receipt by
reason of any nonperformance or delay caused as aforesaid in the
performance of any act or thing required by the terms hereof to be done
or performed, or by reason of any exercise of, or failure to exercise, any
discretion provided for herein.
Section 10.4 Immunities. (a) Neither the Depositary, nor the
General Partners (or the partners or officers of the General Partners)
nor the Partnership assumes hereby any obligation or shall be subject to any
liability hereunder to any holder of a Partnership Unit, Certificate,
Depositary Unit or Depositary Receipt other than to perform its duties as
are expressly set forth herein without negligence, bad faith or intentional
misconduct.
(b) Neither the Depositary, nor the General Partners (or the partners or
officers of the General Partners) nor the Partnership shall be under any
obligation to appear in, prosecute or defend any action, suit or other
proceeding in respect of the Partnership Unit, Certificate, Depositary
Units or Depositary Receipts that in its opinion may involve expense or
liability, unless indemnity, in addition to that provided to the Depositary
pursuant to Section 10.5 hereof, satisfactory to it against such expense and
liability has been furnished.
(c) Neither the Depositary, nor the General Partners (or the
partners or officers of the General Partners) nor the Partnership
shall be liable for any action or inaction by it in reasonable reliance upon
the advice of or information from legal counsel, accountants, any Depositor,
any holder of a Partnership Unit, Certificate, Depositary Unit or Depositary
Receipt or any other Person reasonably believed by it to be competent to give
such advice or information. The Depositary, the General Partners (or the
partners or officers of the Managing General Partner) and the Partnership may
rely and shall be protected in acting upon any written notice, request,
direction or other document reasonably believed by them to be genuine and to
have been signed or presented by the proper Person.
(d) The Depositary (its officers, directors, employees or
agents) makes no representation and shall have no responsibility as to the
validity of the Partnership Units, the Partnership Agreement, the
Certificates, any registration statement filed under the Securities Act of
1933, as amended, related to such Partnership Units or the Depositary Units or
any instruments referred to herein or therein, or as to the correctness of any
statement made herein or therein; provided that the Depositary shall be
responsible for (i) its representations in this Agreement and (ii) the
validity of any action taken or required to be taken by the Depositary in
Connection herewith.
Section 10.5 Indemnification of Depositary. The Partnership
shall indemnify the Depositary against, and hold the Depositary harmless from
all claims, liabilities, losses, damages, judgments, fines, settlements,
costs and expenses (including legal costs and expenses relating thereto,
including reasonable attorneys fees) incurred by it in connection with the
exercise or performance of any of its powers or duties hereunder.
The Depositary shall notify the Partnership promptly of any claim for which it
may seek indemnity. The Partnership need not pay for any settlement made
without its written consent or as to which prompt notice of a claim for
indemnity has not been received; provided that the Partnership has been
prejudiced by the failure to deliver prompt notice of a claim. The
Partnership need not reimburse any expense or indemnify against any loss or
liability, incurred by the Depositary through the Depositary's negligence,
bad faith or intentional misconduct.
Section 10.6 Certain Rights of Depositary. Subject to the
provisions of Section 10.5.
(a) The Depositary may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate
statement, instrument, report, notice, request, direction, consent, order or
other paper or document believed by it to be genuine and to have been signed
or presented by the proper party or parties;
(b) whenever in the administration of this Agreement the
Depositary shall reasonably deem it desirable that a matter be proved or
established prior to taking, suffering or omitting any action Hereunder, the
Depositary (unless other evidence be herein specifically prescribed) may, in
the absence of bad faith on its part, rely upon a certificate from the
Managing General Partner.
c) the Depositary may consult with counsel and the written
advice of such counsel or any opinion of counsel to the Depositary shall be
full and complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance thereon,
Section 10.7 Tax Matters. Except as required by law, the
Depositary shall have no duty, obligation or liability with respect to (a)
the allocation of tax benefits or liabilities related to the
Partnership, the General Partners, the Limited Partners or any Record
Holder who has not become a Limited Partner or (b) any income or other tax
reporting obligations imposed upon the Partnership, the General Partners any
Limited Partner or any Record Holder by the Internal Revenue Service or any
other federal, state or local taxing authority.
ARTICLE XI
GENERAL PROVISIONS
Section 11.1 Counterparts. This Agreement may be executed
in any number of counterparts, each of which shall be deemed an original and
all of which shall constitute one and the same instrument. Copies hereof
shall be filed with the Depositary and shall be open to inspection during
business hours at the Depositorys Office by any Record Holder.
Section 11.2 Exclusive Benefit of Parties. This Agreement is
for the exclusive benefit of the parties hereto and their respective
successors and assigns and shall not be deemed to give any legal or equitable
right, remedy or claim to any other person.
Section 11.3 Invalidity of Provisions. If any provision of
this Agreement or the Depositary Receipts is or becomes invalid,
illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein or therein shall
not be affected thereby.
Section 11.4 Notices. (a) Any notice to be given to the
parties hereto sha11 be deemed to have been duly given if
personally delivered, sent by registered mail, or sent by telegram or telex
confirmed by letter, addressed to the party in the manner and at the address
specified in Article I of this Agreement, or at such address as the party
has specified in a notice given in accordance with this Section 11.4.
(b) Any notice to be given to any Record Holder shall be deemed
to have been duly given if personally delivered or sent by mail, or, by
telegram or telex confirmed by letter, addressed to him at his address as it
appears on the books of the Depositary, or if he has filed with the Depositary
a written request that notices intended for him be mailed to some other
address, at the address designated in such request.
(c) Delivery of a notice sent by mail or by telegraph or telex
shall be deemed to be effected at the time when a duly addressed letter
containing the same (or a confirmation thereof in the case of a telegram or
telex) is deposited, postage prepaid, in a post office letter box. The
Depositary and the Partnership may, however, act upon any telegram or telex
received by them from any the parties hereto.
Section 11.5 Holders to be Parties. The holders from time to
time of Depositary Units and Depositary Receipts shall be parties hereto and
shall be bound by all of the terms and conditions of this Agreement
and the Depositary Receipts by acceptance thereof.
Section 11.6 Pronouns and Plurals. Whenever the context
may, require, any pronoun used herein shall include the corresponding
masculine, feminine or neuter forms, and the singular nouns, pronouns and
verbs shall include the plural and vice versa.
Section 11.7 Applicable Laws. This Agreement, and the rights,
duties, obligations and immunities of the Depositary hereunder or in
respect of the Depositary Receipts, shall be governed by and construed in
accordance with the laws of the State of New York.
Section 11.8 Captions. The headings of articles and sections
of this Agreement and in the form of Depositary Receipt set forth as Exhibit A
hereto have been inserted for convenience only and shall not be regarded as a
part of this Agreement or the Depositary Receipt or to have any bearing upon
the meaning or interpretation of any provision contained in this Agreement or
the Depositary Receipt.
Section 11.9 Partnership Assets. Liability for the
obligations of the Partnership hereunder shall be without recourse to the
assets of the General Partners (or the partners or officers of the Managing
General Partner) other than their partnership interest in the
Partnership, whether or not distributed.
Section 11.10 Further Action. The parties shall execute and
deliver all documents, provide all information and take or refrain from taking
all action as may be necessary or advisable in the opinion of the Partnership
and the Depositary to achieve the purposes hereof.
Section 11.11 Binding Effect. Subject to the provisions hereof,
each and all of the covenants, terms, provisions and agreements herein
contained shall be binding upon and shall inure to the benefit of the
successors and assigns of the parties hereto.
Section 11.12 Waiver. No failure by any party to insist upon the
strict performance of any covenant, duty, agreement or condition hereof or to
exercise any right or remedy consequent upon a breach thereof shall constitute
a waiver of any such breach or any other covenant, duty, agreement or
condition.
* * * * * * * * *
IN WITNESS WHEREOF, the Partnership, the Depositary and the Managing General
Partner, for itself and as attorney-in-fact of the holders of Depositary
Units and Depositary Receipts, have duly executed this Agreement as of
the day and year first above set forth.
HUNTWAY PARTNERS, L. P.
Huntway Managing Partner, L.P., General
Partner
By: REPRISE HOLDINGS, INC., General Partner
BY:
Samuel M. Mencoff, President
THE FIRST NATIONAL BANK OF BOSTON
BY:
Authorized Signatory
HOLDERS OF DEPOSTTARY UNTTS AND DEPOSITARY
RECEIPTS
By: Huntway Managing Partner, L.P. as
attorney-in-fact
By: REPRISE HOLDINGS, INC., General Partner
By:
Samuel M. Mencoff, President
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
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0
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<TOTAL-LIABILITY-AND-EQUITY> 80243000
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