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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______________ to _______________
Commission file number 1-10311
KANEB PIPE LINE PARTNERS, L.P.
(Exact name of Registrant as specified in its Charter)
Delaware 75-2287571
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2435 North Central Expressway
Richardson, Texas 75080
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (214) 699-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ---------------------------------------- ---------------------------------
Senior Preference Units New York Stock Exchange
Preference 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(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Subsection 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.[ ]
Aggregate market value of the voting stock held by non-affiliates of
the registrant: $268,020,801. This figure is estimated as of March 15, 1996, at
which date the closing price of the Registrant's Senior Preference Units on the
New York Stock Exchange was $26.00 per share and the closing price of the
Registrant's Preference Units on the New York Stock Exchange was $24.25, and
assumes that only the Registrant's officers and directors were affiliates of
the Registrant.
Number of Senior Preference Units of the Registrant outstanding at
March 15, 1996: 7,250,000. Number of Preference Units of the Registrant
outstanding at March 15, 1996: 4,650,000.
<PAGE> 2
PART I
ITEM I. BUSINESS
GENERAL
The pipeline system of Kaneb Pipe Line Company was initially created
in 1953. In September 1989, Kaneb Pipe Line Partners, L.P. (the
"Partnership"), a Delaware limited partnership, was formed to acquire, own and
operate the refined petroleum products pipeline business (the "East Pipeline")
previously conducted by Kaneb Pipe Line Company, a Delaware corporation ("KPL"
or the "Company"), a wholly owned subsidiary of Kaneb Services, Inc., a
Delaware corporation ("Kaneb"). KPL owns a combined 2% interest as general
partner of the Partnership and of Kaneb Pipe Line Operating Partnership, L.P.,
a Delaware limited partnership ("KPOP"). The pipeline operations of the
Partnership are conducted through KPOP, of which the Partnership is the sole
limited partner and KPL is the sole general partner. The terminaling business
of the Partnership is conducted through (i) Support Terminals Operating
Partnership, L.P. ("STOP"), (ii) Support Terminal Services, Inc., (iii)
StanTrans, Inc., (iv) StanTrans Partners L.P. ("STPP"), and (v) StanTrans
Holdings, Inc. KPOP, STOP and STPP are collectively referred to as the
"Operating Partnerships".
The Partnership is engaged, through its Operating Partnerships, in the
refined petroleum products pipeline business and the independent terminaling of
petroleum products and specialty liquids.
PRODUCTS PIPELINE BUSINESS
Introduction
The Partnership's pipeline business consists primarily of the
transportation, as a common carrier, of refined petroleum products in Kansas,
Nebraska, Iowa, South Dakota, North Dakota, Colorado and Wyoming. The
Partnership owns and operates two pipelines (the "Pipelines") as shown on the
map below:
[MAP]
The acquisition of the West Pipeline in February 1995 increased the
Partnership's pipeline business in South Dakota and expanded it into Wyoming
and Colorado. None of the results for 1994 or prior years include the West
Pipeline.
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East Pipeline
Construction of the East Pipeline commenced in the 1950's with a line
from southern Kansas to Geneva, Nebraska. During the 1960's, the East Pipeline
was expanded north to its present terminus at Jamestown, North Dakota. In
1981, the line from Geneva, Nebraska to North Platte, Nebraska was built and,
in 1982, the 16" line from McPherson, Kansas to Geneva, Nebraska was laid. In
1984, the Partnership acquired a 6" pipeline from Champlin Oil Company. A
portion of this 6" line runs south through Superior, Nebraska, to Hutchinson,
Kansas. The other end of the line runs northeast approximately 175 miles
crossing the main pipeline at Osceola, Nebraska, through a terminal at
Columbus, Nebraska, and later crossing and interconnecting with the
Yankton/Milford line to terminate at Rock Rapids, Iowa.
KPOP owns the entire 2,075 mile East Pipeline except for the 203-mile
North Platte line, which is held under a capitalized lease that expires at the
end of 1998 and which provides rights to renew the lease for five years. KPOP
has the option to purchase the North Platte line at the end of the lease term
for approximately $5 million. If such option is not exercised, the lessor can
require KPOP to purchase such line at a lower price. The East Pipeline also
owns 235 product distribution tanks in Kansas, Nebraska, Iowa, South Dakota and
North Dakota (with total storage capacity of approximately 3.2 million barrels)
and 23 product tanks with total storage capacity of approximately 922,000
barrels at its tank farm installations at McPherson and El Dorado, Kansas. The
East Pipeline further consists of six origin pump stations at refineries in
Kansas and 38 booster pump stations along the system in Kansas, Nebraska, Iowa,
South Dakota and North Dakota. The system also maintains distribution
terminals, various office and warehouse facilities, and an extensive quality
control laboratory. KPOP leases office space for its operating headquarters in
Wichita, Kansas.
The East Pipeline is an integrated pipeline transporting refined
petroleum products, including propane, received from refineries in southeast
Kansas, or from other connecting pipelines, to terminals in Kansas, Nebraska,
Iowa, South Dakota and North Dakota and to receiving pipeline connections in
Kansas. Shippers on the East Pipeline obtain refined petroleum products from
refineries connected to the East Pipeline directly or through other pipelines.
Such refineries obtain crude oil primarily from producing areas in Kansas,
Oklahoma and Texas. Five connecting pipelines deliver propane from gas
processing plants in Texas, New Mexico, Oklahoma and Kansas to the East
Pipeline for shipment.
West Pipeline
On February 24, 1995, KPOP purchased the assets of WYCO Pipe Line
Company (the "West Pipeline"), owned 60% by GATX Terminals Corporation and 40%
by Amoco Pipe Line Company, for a purchase price of $27.1 million. The West
Pipeline assets consists of approximately 550 miles of underground pipe line in
Wyoming, Colorado and South Dakota, four truck loading terminals, numerous pump
stations and other related assets.
The West Pipeline originates at Casper, Wyoming where it is connected
via a Sinclair pipeline to Sinclair's Little America refinery. It also
receives product at Strouds Station, Wyoming, a short distance from Casper,
through a connection with the Seminoe Pipe Line bringing barrels down from the
Billings, Montana area refineries. From Strouds, the 8" main line continues
easterly to Douglas Junction where a 6" lateral line branches off to the Rapid
City, South Dakota terminal approximately 190 miles away. The Rapid City
terminal has two bottom loading truck racks and 268,506 barrels of tankage. The
Rapid City terminal also receives product from Wyoming Refining's Newcastle,
Wyoming refinery through their pipe line which enters the West Pipeline just
before the Wyoming/South Dakota border near Mule Creek, Wyoming.
From Douglas Junction the main 8" line continues southward to a truck
loading terminal at Cheyenne, Wyoming. At Cheyenne, the West Pipeline can
receive product from the Frontier refinery and can deliver product to the
Cheyenne Pipe Line. The Cheyenne terminal has two bottom loading truck racks
with 385,964 barrels of tankage. From Cheyenne, Wyoming the West Pipeline 8"
line extends south into Colorado to West Pipeline's terminal near Denver.
DuPont, its largest terminal, has 6 bottom loading truck lanes with vapor
recovery and 756,948 barrels of storage. At Denver, through its Commerce City
station, the West Pipeline can receive and transfer product to the Total
Petroleum and Conoco Oil refineries and the Phillips Petroleum terminal. From
Commerce City, a 6" line continues south 90 miles to the final terminal at
Fountain, Colorado. The Fountain terminal has five bottom loading truck lanes
and 389,545 barrels of tankage.
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Unlike the East Pipeline service area which is largely agricultural,
the West Pipeline serves the growing Denver and northeastern Colorado markets.
The West Pipeline also supplies the jet fuel for Ellsworth AFB at Rapid City.
The West Pipeline has a relatively small number of shippers, who, with two
exceptions, are also shippers on KPOP's system.
The West Pipeline system is the nearest pipe line paralleling the East
Pipeline system to the west. The East Pipeline North Platte line which
terminates in western Nebraska is approximately 200 miles east of the West
Pipeline's Cheyenne terminal. The small Cheyenne Pipe Line which moves products
from west to east connects the West Pipeline at Cheyenne, Wyoming with North
Platte, Nebraska, although that line has been deactivated from Sidney, Nebraska
(approximately 100 miles from Cheyenne) to North Platte.
The West Pipeline has experienced a number of spills over the years
and there are existing contamination problems. Remediation efforts are
on-going at the DuPont (Denver) and Fountain terminals and will be needed at
other locations. The Partnership received funds from the former owners to
cover known remediation requirements.
The West Pipeline is an interstate pipeline and thus subject to
regulation by the FERC as well as the States of Wyoming and Colorado on
its intrastate rates. It is subject to the same regulations of other
governmental agencies such as the Department of Transportation and the
Environmental Protection Agency as the East Pipeline. Therefore, the following
sections in regard to regulatory matters and the application of certain laws and
regulations of interstate pipe lines apply equally to the West Pipeline system.
The Pipelines' revenues are based on volumes shipped and the distances
over which such volumes are transported. The following table reflects the
total volume and barrel miles of refined petroleum products shipped and total
operating revenues earned by the East Pipeline for each of the periods
indicated and by the West Pipeline since its acquisition on February 24, 1995.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1991 1992 1993 1994 1995
--------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Volume (1) . . . . . . . 51,635 55,111 56,234 54,546 74,965
Barrel miles (2) . . . . 13,245 14,287 14,160 14,460 16,594
Revenues (3) . . . . . . $39,415 $42,179 $44,107 $46,117 $60,192
</TABLE>
(1) Volumes are expressed in thousands of barrels of refined petroleum
product.
(2) Barrel miles are shown in millions. A barrel mile is the movement of
one barrel of refined petroleum product one mile.
(3) Revenues are expressed in thousands of dollars.
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The following table sets forth volumes, in thousands of barrels, of
gasoline, diesel and fuel oil, propane and other refined petroleum products
transported by the East Pipeline during each of the periods indicated and by
the West Pipeline since its acquisition on February 24, 1995.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(THOUSANDS OF BARRELS)
----------------------------------------------------
1991 1992 1993 1994 1995
--------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Gasoline. . . . . . . . 24,152 24,816 25,407 23,958 37,348
Diesel and fuel oil . . 20,047 23,374 25,308 26,340 33,411
Propane . . . . . . . . 4,441 4,676 4,153 4,204 4,146
Other . . . . . . . . . 2,995 2,245 1,366 44 60
--------- --------- -------- --------- ---------
Total. . . . . . . 51,635 55,111 56,234 54,546 74,965
--------- --------- -------- --------- ---------
</TABLE>
Diesel and fuel oil are used in farm machinery and equipment,
over-the-road transportation, rail road fueling and residential fuel oil.
Gasoline is primarily used in over-the-road transportation. Propane is used
for crop drying, residential heating and to power irrigation equipment.
The mix of refined petroleum products delivered varies seasonally,
with gasoline demand peaking in early summer, diesel fuel demand peaking in
late summer and propane demand higher in the fall. In addition, weather
conditions in the markets served by the East Pipeline affect the demand for and
the mix of the refined petroleum products delivered through the East Pipeline,
although historically any impact on the volumes shipped has been short-term.
Tariffs charged shippers for transportation do not vary according to the type
of product delivered.
In October, 1991, two single-use pipelines were acquired from Calnev
Pipe Line Company for $2.65 million. Each system, one of which is located in
Umatilla, Oregon and the other in Rawlins, Wyoming, supplies diesel fuel to
Union Pacific Railroad fueling facilities under contracts expiring in October
1996. Such contracts are renewable thereafter for successive two year terms
unless canceled by either party. The Oregon line is fully automated and the
Wyoming line requires minimal start-up assistance, which is provided by the
railroad. In May 1993, KPOP began operating a newly constructed single-use
pipeline near Pasco, Washington. For the year ended December 31, 1995, the
three systems combined transported a total of 3.3 million barrels of diesel
fuel, representing an aggregate of $1.2 million in revenues.
Maintenance and Monitoring
To prolong the useful lives of the Pipelines, routine preventive
maintenance is performed. Such maintenance includes cathodic protection to
prevent external corrosion and inhibitors for internal corrosion, periodic
internal inspection of the Pipelines and frequent patrols of the Pipelines'
rights-of-way. The Pipelines are patrolled at regular intervals to identify
equipment or activities by third parties, that, if left unchecked, could result
in encroachment of the Pipelines and other problems. Supervisory Control and
Data Acquisition ("SCADA"), a remote supervisory control software program,
continuously monitors the East Pipeline for operational control from the
Wichita office. The program monitors quantities of refined petroleum products
injected in and delivered through the East Pipeline, except at two continuously
manned locations, as well as pressure and temperature variations through the
East Pipeline, and automatically signals any deviation from normal operations
that requires attention. Portions of the systems can be shut down by remote
control. The program is fully operational throughout the East Pipeline.
A new, improved SCADA system was installed and in operation on the
West Pipeline as of October 15, 1995 and is anticipated to be in operation on
the East Pipeline during 1996.
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Pipeline Operations
The Pipelines have been constructed and are maintained consistent with
applicable federal, state and local laws and regulations, standards prescribed
by the American Petroleum Institute and accepted industry practice.
Except for the three single-use pipelines and certain ethanol
facilities, all of the Partnership's pipeline operations constitute common
carrier operations and are subject to federal tariff regulation. Also, certain
of its intrastate common carrier operations are subject to state tariff
regulation. Common carrier activities are those under which transportation
through the Pipelines are available at published tariffs filed with the FERC in
the case of interstate shipments, or the relevant state authority in the case of
intrastate shipments in Kansas, Colorado and Wyoming, to any shipper of refined
petroleum products who requests such services and satisfies the conditions and
specifications for transportation.
In general, a shipper on one of the Pipelines acquires refined
petroleum products from refineries connected to such Pipeline, or, if the
shipper already owns the refined petroleum products, delivers such products to
the Pipeline from those refineries or through pipelines that connect with such
Pipeline. Tariffs for such transportation are charged to shippers based upon
transportation from the origination point on such Pipeline to the point of
delivery. Such tariffs also include charges for terminaling and storage of
product at such Pipeline's terminals. Pipelines are generally the lowest cost
method for intermediate and long-haul overland transportation of refined
petroleum products.
Each shipper is required to supply KPOP with a notice of shipment
indicating sources of products and destinations. All shipments are tested or
receive refinery certifications to ensure compliance with KPOP's
specifications. Shippers are generally invoiced by KPOP immediately upon the
product entering one of the Pipelines. The operations of the Pipelines also
include 20 truck loading terminals through which refined petroleum products are
delivered to petroleum transport trucks.
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The following table shows, with respect to each of such terminals, its
location, number of tanks owned by KPOP, storage capacity in barrels and truck
capacity. Except as indicated in the notes to the table, each terminal is owned
by KPOP.
<TABLE>
<CAPTION>
LOCATION OF NUMBER STORAGE TRUCK
TERMINALS OF TANKS CAPACITY CAPACITY (1)
----------------- ------------ -------- ---------
<S> <C> <C> <C>
COLORADO:
DuPont 17 689,269 6
Fountain 13 365,920 5
IOWA:
LeMars 9 102,914 2
Milford (3) 11 171,937 2
Rock Rapids 12 366,081 2
KANSAS:
Concordia (2) 7 79,339 2
Hutchinson 9 161,690 1
NEBRASKA:
Columbus (4) 12 191,417 2
Geneva 39 678,128 8
Norfolk 16 186,981 4
North Platte 22 197,914 5
Osceola 8 79,444 2
Superior 11 192,027 1
NORTH DAKOTA:
Jamestown 13 188,178 2
SOUTH DAKOTA:
Aberdeen 12 181,450 2
Mitchell 8 71,450 2
Rapid City 13 256,352 2
Wolsey 21 148,499 4
Yankton 25 245,473 4
WYOMING:
Cheyenne 15 345,009 2
----- -----------
TOTALS 293 4,899,472
===== ===========
</TABLE>
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(1) Number of trucks that may be simultaneously loaded.
(2) The Concordia terminal is situated on land leased through the year 2060
for a total rental of $2,000.
(3) The Milford terminal is situated on land leased through August 7, 2007
at an annual rental of $2,400. KPOP has the right to renew such lease
upon its expiration for an additional term of 20 years at the same
annual rental rate.
(4) Also loads rail tank cars.
The East Pipeline includes intermediate storage facilities consisting
of 13 storage tanks at El Dorado, Kansas and 10 storage tanks at McPherson,
Kansas with aggregate capacities of 388,041 and 534,135 barrels, respectively.
During 1995, approximately 55% and 94% of the deliveries of the East Pipeline
and the West Pipeline, respectively, were made through their terminals, and
approximately 45% and 6% of the respective deliveries of such lines were made
to other pipelines and customer owned storage tanks.
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Storage of product at terminals pending delivery is considered by the
Partnership to be an integral part of the product delivery service of the
Pipelines. Shippers generally store refined petroleum products for less than
one week. Ancillary services, including injection of shipper-furnished and
generic additives, are available at each terminal.
Demand for and Sources of Refined Petroleum Products
The Partnership's pipeline business depends in large part on (i) the
level of demand for refined petroleum products in the markets served by the
Pipelines and (ii) the ability and willingness of refiners and marketers having
access to the Pipelines to supply such demand by deliveries through the
Pipelines.
Most of the refined petroleum products delivered through the East
Pipeline are ultimately used in agricultural operations, including fuel for
farm equipment, irrigation systems, trucks transporting crops and crop drying
facilities. Demand for refined petroleum products for agricultural use, and
the relative mix of products required, is affected by weather conditions in
the markets served by the East Pipeline. The agricultural sector is also
affected by government agricultural policies and crop prices. Although periods
of drought suppress agricultural demand for some refined petroleum products,
particularly those used for fueling farm equipment, during such times the
demand for fuel for irrigation systems often increases.
While there is some agricultural demand for the refined petroleum
products delivered through the West Pipeline, as well as military jet fuel
volumes, most of the demand is centered in the Denver and Colorado
Springs/Fountain areas. Because demand on the West Pipeline is significantly
weighted toward urban and suburban areas, the product mix on the West Pipeline
includes a substantially higher percentage of gasoline than the product mix on
the East Pipeline.
The Pipelines are also dependent upon adequate levels of production of
refined petroleum products by refineries connected to the Pipelines, directly
or through connecting pipelines. The refineries are, in turn, dependent upon
adequate supplies of suitable grades of crude oil. The refineries connected
directly to the East Pipeline obtain crude oil from producing fields located
primarily in Kansas, Oklahoma and Texas, and, to a much lesser extent, from
other domestic or foreign sources. The major refineries connected directly to
the West Pipeline are located in Casper and Cheyenne, Wyoming and Denver,
Colorado. Refineries in Billings and Laurel, Montana are connected to the West
Pipeline through other pipelines. These refineries obtain their supplies of
crude oil primarily from Rocky mountain sources. If operations at any one
refinery were discontinued, the Partnership believes (assuming unchanged demand
for refined petroleum products in markets served by the Pipelines) that the
effects thereof would be short-term in nature, and the Partnership's business
would not be materially adversely affected over the long term because such
discontinued production could be replaced by other refineries or by other
sources. Three refineries connected directly to the East Pipeline, located at
El Dorado, Wichita and Augusta, Kansas, and operated by Coastal Refining and
Marketing, Inc., were closed during 1993. Their closure had no material impact
on the Partnership.
The majority of the refined petroleum product transported through the
East Pipeline is produced at three refineries in southeast Kansas located at
McPherson, El Dorado and Arkansas City, Kansas and operated by National
Cooperative Refinery Association ("NCRA"), Texaco, Inc. ("Texaco") and Total
Petroleum, respectively. These refineries, which are connected directly to the
East Pipeline, shipped an aggregate of 33 million barrels of refined petroleum
products through the East Pipeline in 1995. One of such refineries, the
McPherson, Kansas refinery operated by NCRA, accounted for approximately 57.6%
of such amount.
The East Pipeline also has direct access by third party pipelines to
four other refineries in Kansas, Oklahoma and Texas and to Gulf Coast supplies
of products through a connecting pipeline that receives products from a
pipeline originating on the Gulf Coast. Five connecting pipelines deliver
propane from gas processing plants in Texas, New Mexico, Oklahoma and Kansas to
the East Pipeline for shipment.
The majority of the refined petroleum products transported through the
West Pipeline is produced at the Frontier Oil & Refining Company refinery
located at Cheyenne, Wyoming, the Total Petroleum and Conoco Oil refineries
located at Denver, Colorado and Sinclair's Little America refinery located at
Casper, Wyoming. These refineries are connected directly to the West Pipeline.
The West Pipeline also has access to three Billings, Montana area refineries
through a connecting pipeline.
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Principal Customers
KPOP had a total of approximately 76 shippers in 1995. The principal
shippers include four integrated oil companies, two refining companies, three
large farm cooperatives and one railroad. Transportation revenues attributable
to the top 10 shippers were $43.7 million, $35.8 million and $35.6 million,
which accounted for 75%, 80% and 82% of total revenues for each of the years
1995, 1994 and 1993 respectively. These amounts were based upon revenue
shipped during the periods indicated.
Competition and Business Considerations
The East Pipeline's major competitor is an independent regulated
common carrier pipeline system owned by The Williams Companies, Inc. that
operates approximately 100 miles east of and parallel with the East Pipeline.
This competing pipeline system is a substantially more extensive system than
the East Pipeline. Furthermore, Williams and its affiliates have capital and
financial resources substantially greater than those of the Partnership.
Competition with Williams is based primarily on transportation charges, quality
of customer service and proximity to end users, although refined product
pricing at either the origin or terminal point on a pipeline may outweigh
transportation costs. Fifteen of the East Pipeline's 16 delivery terminals are
in direct competition with Williams' terminals located within two to 145 miles.
Upon the expiration of a five year settlement agreement pursuant to
which its tariffs had been frozen, Williams filed a comprehensive new tariff on
January 16, 1990. The filing proposed a tariff design for the future that
would allow Williams substantial flexibility to raise or lower various rates
without regulatory review and specifically provided increases in rates to many
destinations, decreases in rates to other destinations, volume incentive rates
at some terminals and rebates for shipments into certain counties from
specified terminals. Some counties in which rebates would apply lie in the
traditional service area of the East Pipeline. The Partnership intervened in
the Williams tariff proceeding before the FERC and protested the rebates. Nine
shippers also intervened or protested the Williams filing.
On February 15, 1990, FERC suspended the Williams tariff for the
maximum statutory period of seven months. Williams chose a bifurcated
proceeding under the authority of the FERC's ruling in the Buckeye Pipeline
Company case. Under the first phase of such a proceeding, a determination was
to be made whether Williams lacked significant market power in its various
markets. Discrimination issues were also scheduled to be determined during
the first phase. Ultimately Williams would be required to prove that its
tariff rates are just, reasonable and non-discriminatory. The tariff became
effective September 16, 1990 subject to refund depending on the outcome of the
FERC proceedings. A hearing was held before an administrative law judge of the
FERC from June 3 to August 9, 1991 on the first phase of the proceeding. On
January 24, 1992, the judge issued an initial decision which determined that
Williams had market power in 10 of 32 markets in which it operated and deferred
most of the other issues involved to the second phase of the case on the
grounds that they involved cost issues. All active parties have filed briefs
and exceptions to the judge's initial decision. On July 27, 1994, the FERC
issued its Opinion and Order on the Initial Decision. The FERC determined that
Williams had market power in 19 of 32 markets. The FERC also denied Williams'
motion proposing rate standards to apply to Phase II of the proceeding and
directed the administrative law judge to proceed with Phase II for the purpose
of establishing base rates in the 19 markets where Williams had market power.
All discrimination issues were also to be decided in Phase II. Williams filed
its direct testimony in Phase II on January 23, 1995. During the pendency of
the proceeding, Williams has instituted other tariff changes, which have been
permitted to go into effect subsequent to their suspension, subject to refund
depending on the final outcome of the 1990 FERC tariff proceedings. In May
1995, the Partnership reached a settlement with Williams and subsequently
withdrew from the case.
The West Pipeline competes with the truck loading racks of the
Cheyenne and Denver refineries and the Denver terminals of the Chase Pipeline
Company and Phillips Petroleum pipelines. A new Diamond Shamrock terminal in
Colorado Springs connected to a Diamond Shamrock pipeline from their Texas
Panhandle refinery is a major competitor to the West Pipeline's Fountain
terminal in Colorado Springs.
Because pipelines are generally the lowest cost method for
intermediate and long-haul movement of refined petroleum products, the
Pipelines' more significant competitors are common carrier and proprietary
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pipelines owned and operated by major integrated and large independent oil
companies and other companies in the areas where the Pipelines deliver
products. Competition between common carrier pipelines is based primarily on
transportation charges, quality of customer service and proximity to end users.
The Partnership believes high capital costs, tariff regulation, environmental
considerations and problems in acquiring rights-of-way make it unlikely that
other competing pipeline systems comparable in size and scope to the Pipelines
will be built in the near future, provided the Pipelines have available
capacity to satisfy demand and its tariffs remain at reasonable levels.
The costs associated with transporting products from a loading
terminal to end users limit the geographic size of the market that can be
served economically by any terminal. Transportation to end users from the
loading terminals of the Partnership is conducted principally by trucking
operations of unrelated third parties.
Trucks may competitively deliver products in some of the areas served
by the Pipelines. Trucking costs, however, render that mode of transportation
not competitive for longer hauls or larger volumes. The Partnership does not
believe that trucks are, or will be, over the long term effective competition
to its long-haul volumes.
LIQUIDS TERMINALING
Introduction
The Partnership's Support Terminal Services, Inc. operation ("ST") is
one of the largest independent petroleum products and specialty liquids
terminaling companies in the United States. For the year ended December 31,
1995, the Partnership's terminaling business accounted for approximately 38% of
the Partnership's revenues.
As of December 31, 1995, ST operates 31 facilities in 16 states and
the District of Columbia, with a total storage capacity of approximately 16.8
million barrels. ST and its predecessors have been in the terminaling business
for over 30 years and handle a wide variety of products from petroleum products
to specialty chemicals to edible liquids.
ST's terminal facilities provide storage on a fee basis for petroleum
products, specialty chemicals and other liquids. Prior to the Steuart
acquisition (See: "Recent Developments - Steuart Petroleum Company
Acquisition"), ST's three largest terminal facilities were located in Texas
City, Texas, Baltimore, Maryland, and Westwego, Louisiana. These facilities
accounted for approximately 70% of ST's revenues and 48% of its year-end
tankage capacity in 1995.
Description of Terminals- ST Services
Texas City, Texas. The Texas City facility is situated on 39 acres of
land, leased from the Texas City Terminal Railway Company with long-term
renewal options. It is located on Galveston Bay near the mouth of the Houston
Ship Channel and is approximately sixteen miles from open water. The eastern
end of the Texas City site is adjacent to three deep-water docking facilities,
which are also owned by Texas City Terminal Railway. The three deep-water
docks include two 36-foot draft docks and a 40-foot draft dock. The docking
facilities can accommodate any ship or barge capable of navigating the 40-foot
draft of the Houston Ship Channel. ST is charged dockage and wharfage fees on
a per vessel and per unit basis, respectively, by Texas City Terminal Railway,
which it passes directly to the shipper or owner of the incoming or outgoing
products.
ST handles and stores a wide range of specialty chemicals, including
petrochemicals, at the Texas City facility. The facilities are designed to
accommodate a diverse product mix, and include (i) tanks equipped for the
specific storage needs of the various products handled; (ii) piping and
pumping equipment for moving the product between the tanks and the
transportation modes; and (iii) an extensive infrastructure of support
equipment. The tankage at Texas City is constructed of either mild carbon
steel, stainless steel or aluminum. Certain of the tanks, piping and pumping
equipment are equipped for special product needs, including among other things,
linings and/or equipment that can control temperature, air pressure, air
mixture or moisture. ST receives or delivers the majority of the specialty
chemicals that it handles via ship or barge at Texas City. ST also receives
and delivers liquids via rail tank cars and transport trucks, and has direct
pipeline connections to refineries in Texas City.
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The Texas City tank facility consists of 124 tanks with a total
capacity of approximately 2,002 MBbls. All recently built tanks are equipped
with "double bottoms", which provide a leak detection system between the
primary and secondary bottom. ST's facility has been designed with engineered
structural measures to minimize the possibility of the occurrence and level of
damage in the event of a spill or fire. All loading areas, tanks, pipes and
pumping areas are "contained" to collect any spillage and insure that only
properly treated water is discharged from the site.
Baltimore, Maryland. The Baltimore facility is situated on 18 acres
of owned land, located just south of Baltimore near the Harbor Tunnel on the
Chesapeake Bay. ST also owns a 700-foot finger pier with a 33-foot draft
channel and berth. The dock gives ST the ability to receive and deliver
shipments of product to and from barge and ship. Additionally, the terminal
can receive products by pipeline, truck and rail and deliver them to truck and
rail.
Similar to the Texas City facility, Baltimore is a specialty liquids
terminal. The primary products stored at the Baltimore facility include
asphalt, fructose, caustic solutions, military jet fuel, latex and other
chemicals.
The Baltimore tank facility consists of 50 tanks with a total capacity
of approximately 826 MBbls. All of the utilized tanks are dedicated to
specific products of customers under contract. The tanks are specifically
equipped to handle the requirements of the products they store.
Westwego, Louisiana. The Westwego facility (acquired by ST in June
1994) is situated on 27 acres of owned land adjacent to the West bank of the
Mississippi River across from New Orleans. A new dock built in 1992 is capable
of handling ocean going vessels and barges. The terminal has numerous handling
facilities for receiving and shipping by rail and tank truck as well as vessels
and barges.
The Westwego terminal historically has been primarily a terminal for
molasses, and animal and vegetable fats and oils. The former owner, PM Ag
Products, Inc., has contracted with ST for five years for terminaling in five
large molasses tanks. In recent years, the terminal has broadened its product
mix to include fertilizer, latex and caustic solutions. The facility includes
a blending plant for the formulation of certain molasses-based feeds.
The facility consists of 54 tanks with a total capacity of
approximately 858MBbls. There are additional smaller tanks for blending and
formulation of the liquid feeds.
Inland Terminal Sites. In addition to ST's three major facilities
and prior to the Steuart acquisition, ST had 20 inland terminal facilities
throughout the United States. These facilities represented approximately 53%
of ST's total tankage capacity and approximately 30% of its total revenue for
1995. With the exception of the facility in Columbus, Georgia, which handles
petroleum and specialty chemicals, and Winona, Minnesota, which handles
nitrogen fertilizer solutions, these inland facilities primarily store
petroleum products for a variety of customers. These facilities provide ST
with a geographically diverse base of customers and revenue.
The storage and transport of jet fuel for the U.S. Department of
Defense is an important part of ST's business. Nine of ST's terminal sites are
involved in the terminaling or transport (via pipeline) of jet fuel for the
Department of Defense. Six of the nine locations are utilized solely by the
U.S. Government. Five of the STOP locations own pipelines which deliver jet
fuel directly to nearby military bases.
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The following table, which does not include the recently acquired
Steuart assets, outlines ST's terminal locations, capacities, tanks and primary
products handled.
<TABLE>
<CAPTION>
SUMMARY OF TERMINALS AND PIPELINES
------------------------------------------------------------------------------
TANKAGE NO. OF PRIMARY PRODUCTS
FACILITY CAPACITY(f) TANKS HANDLED
------------------ ---------- ------- -----------------------------
<S> <C> <C> <C>
PRIMARY TERMINALS:
Westwego, LA(d) 858 54 Molasses, Fertilizer, Caustic
Baltimore, MD 826 50 Chemicals, Asphalt, Jet Fuel
Texas City, TX 2,002 124 Chemicals and Petrochemicals
INLAND TERMINALS:
Montgomery, AL(a) 162 7 Petroleum, Jet Fuel
Moundville, AL 310 6 Jet Fuel
Tuscon, AZ(b) 90 7 Petroleum
Imperial, CA 124 6 Petroleum
Stockton, CA 314 18 Petroleum
Homestead, FL(a) 72 2 Jet Fuel
Augusta, GA(e) 110 8 Petroleum
Bremen, GA 180 8 Petroleum, Jet Fuel
Columbus, GA 180 25 Petroleum, Chemicals
Macon, GA(a) 307 10 Petroleum
Chillicothe, IL 270 6 Petroleum
Peru, IL 221 8 Petroleum, Fertilizer
Indianapolis, IN 410 18 Petroleum
Salina, KS(c) 98 10 Petroleum
Winona, MN 229 7 Fertilizer
Alamogordo, NM(a) 120 5 Jet Fuel
Drumright, OK 315 4 Jet Fuel
San Antonio, TX 207 4 Jet Fuel
Virginia Beach, VA(a) 40 2 Jet Fuel
Milwaukee, WI 308 7 Petroleum
------ ----
7,753 396
====== ====
</TABLE>
(a) Facility also includes pipelines to U.S. government military base locations.
(b) Represents a 50% interest in a 181 MBbl terminal.
(c) Terminal was purchased by STOP on January 18, 1994.
(d) Terminal was purchased by STOP on June 8, 1994.
(e) Terminal was purchased by STOP on July 21, 1994.
(f) Thousands of barrels.
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Recent Developments - Steuart Petroleum Company Acquisition
On December 19, 1995, the Partnership through its subsidiary
partnership STOP, acquired the liquids terminaling assets of Steuart Petroleum
Company and certain of its affiliates (collectively "Steuart") for $68 million
and the assumption of certain environmental liabilities. The Steuart
terminaling assets consist of eight facilities located in the District of
Columbia, Florida, Georgia, Maryland and Virginia including the pipeline
servicing Andrews Air Force Base in Maryland as shown in the map below:
[MAP]
<TABLE>
<CAPTION>
Location No. of Capacity Modes
Number Locations Tanks (BBLS) Served
------ ------------------------- ----- -------- --------
<S> <C> <C> <C> <C>
1 Piney Point, MD 30 5,511,000 P,V,B,T
2 Jacksonville, FL 28 2,061,000 V,B,T,R
3 Cockpit Point, VA 4 465,000 P,B,T
4 Savannah, GA 12 310,000 V,B,T
5 Brunswick, GA 3 302,000 B,T
6 Farragut St., DC 5 176,000 P,T
7 M Street, DC 3 133,000 P,B,T
8 Andrews AFB Pipeline, MD 3 72,000 P,B
--- ----------
88 9,030,000
B- Barge T- Truck R- Rail P- Pipeline V- Vessel
</TABLE>
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For the year ended December 31, 1995, on a pro forma basis giving
effect to the acquisition of Steuart's terminaling assets, revenues generated
by the assets acquired from Steuart would have accounted for approximately 17%
of the Partnership's revenues. Strategically, the Steuart acquisition gives
the Partnership a significantly increased presence in the East Coast of the
United States. Steuart's two largest facilities are located near Washington,
D.C. and at Jacksonville, Florida.
The largest acquired terminal is located on approximately 400 acres on
the Potomac River at Piney Point, Maryland. The Piney Point terminal has
approximately 5.5 million barrels of storage capacity in 30 tanks and is the
closest deep water facility to Washington, D.C. The Piney Point terminal
competes with other large petroleum terminals in the East Coast, water-borne
market extending from New York Harbor to Norfolk, Virginia. The terminal
currently stores petroleum products, consisting primarily of fuel oils and
asphalt. The terminal has a dock with a 36-foot draft for tankers and four
berths for barges. It also has truck loading facilities and product blending
capabilities and is connected to a pipeline which supplies residual fuel oil to
two power generating stations.
The second largest Steuart terminal, located at Jacksonville, Florida,
is located on the St. John's River and consists of a main terminal and two
annexes with combined storage capacity of approximately 2.1 million barrels in
28 tanks. The Jacksonville terminal is currently used to store petroleum
products including gasoline, No. 2 oil, No. 6 oil, diesel, kerosene and bunker
fuel. This terminal has a tanker berth with a 38-foot draft and six barge
berths. The Jacksonville terminal, located on approximately 86 acres, also
offers truck and rail car loading facilities and facilities to blend residual
fuels for ship bunkering.
Other smaller, newly acquired facilities are located in Brunswick,
Georgia, Dumfries, Virginia, Savannah, Georgia and Washington, D.C. (two
terminals). All of these terminals, except one in Washington, D.C., which is
served by the Colonial pipeline, have facilities to receive product from barges
or ships and facilities to load tank trucks. Except for the Brunswick, Georgia
terminal, which is on leased land, each of these facilities is now owned by the
Partnership.
The eighth facility that the Partnership acquired in the Steuart
transaction consists of a barge receiving dock, an 11.3 mile pipeline, three
24,000 barrel double-bottomed tanks and an administration building located at
Andrews Air Force Base. This facility provides the barge receipt, pipeline
transportation and terminaling services for jet fuel to Andrews Air Force Base
on a tariff basis for the Defense Fuel Supply Center and has served the base
for the past 30 years.
Competition and Business Considerations
In addition to the terminals owned by independent terminal operators,
many major energy and chemical companies own extensive terminal storage
facilities. Although such terminals often have the same capabilities as
terminals owned by independent operators, they generally do not provide
terminaling services to third parties. In many instances, major energy and
chemical companies that own storage and terminaling facilities are also
significant customers of independent terminal operators. Such companies
typically have strong demand for terminals owned by independent operators when
independent terminals have more cost effective locations near key
transportation links such as deep-water ports. Major energy and chemical
companies also need independent terminal storage when their captive storage
facilities are inadequate, either because of size constraints, the nature of
the stored material or specialized handling requirements.
Independent terminal owners compete based on the location and
versatility of terminals, service and price. A favorably located terminal will
have access to various cost effective transportation modes both to and from the
terminal. Possible transportation modes include waterways, railroads, roadways
and pipelines. Terminals located near deep-water port facilities are referred
to as "deep-water terminals" and terminals without such facilities are referred
to as "inland terminals" (some inland facilities are served by barges on
navigable rivers).
Terminal versatility is a function of the operator's ability to offer
handling for diverse products with complex handling requirements. The service
function typically provided by the terminal includes, among other things, the
safe storage of the product at specified temperature, moisture and other
conditions, as well as receipt at and delivery from the terminal. An
increasingly important aspect of versatility and the service function is an
operator's ability to offer
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<PAGE> 15
product handling and storage in compliance with environmental regulations. A
terminal operator's ability to obtain attractive pricing is often dependent on
the quality, versatility and reputation of the facilities owned by the
operator. Although many products require modest terminal modification,
operators with a greater diversity of terminals with versatile storage
applications typically require less modification prior to usage, ultimately
making the storage cost to the customer more attractive.
Several companies offering liquid terminaling facilities have
significantly more capacity than ST. However, the majority of ST's tankage can
be described as "niche" facilities that are equipped to properly handle
"specialty" liquids or provide facilities or services where management believes
they enjoy an advantage over competitors. Most of the larger operators,
including GATX Terminals Corporation, Williams, Northville Industries
Corporation and Petroleum Fuel & Terminal Company, have facilities used
primarily for petroleum related products. As a result, most of Steuart's
terminals will be competing against other large petroleum products terminals
rather than the specialty liquids facilities offered by tankage at ST's
waterfront terminals. Such specialty or "niche" tankage is less abundant in
the U.S., and "specialty" liquids typically command higher terminal fees than
lower-price bulk terminaling for petroleum products.
Capital Expenditures
Capital expenditures, excluding acquisitions, by the Pipelines were
$5.1 million, $2.2 million and $3.4 million, respectively, for the three years
ended from December 31, 1993 to December 31, 1995. Approximately 66% of the
aggregate of these capital expenditures related primarily to maintenance of
existing operations and approximately 28% related to expansion projects.
During these periods, adequate Pipeline capacity existed to accommodate volume
growth, and the expenditures required for environmental and safety improvements
were not material in amount. Capital expenditures, excluding acquisitions, by
ST were $3.0 million, $5.0 million and $5.6 million, respectively, for the
three years ended from December 31, 1993 to December 31, 1995.
Capital expenditures of the Partnership (including ST) for maintenance
of existing operations during 1996 are expected to be approximately $7.5
million. Capital expenditures for expansionary purposes during 1996 are
expected to be approximately $2.0 million. (See: "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Capital Resources
and Liquidity"). Additional expansionary capital expenditures will depend on
future opportunities to expand the Partnership's operation. The General
Partner intends to finance future expansive and some environmental capital
expenditures primarily through Partnership borrowings. Such future
expenditures, however, will depend on many factors beyond the Partnership's
control, including, without limitation, demand for refined petroleum products
and terminaling services in the Partnership's market areas, local, state and
federal governmental regulations, fuel conservation efforts and the
availability of financing on acceptable terms. No assurance can be given that
required capital expenditures will not exceed anticipated amounts during the
year or thereafter or that the Partnership will have the ability and/or choose
to finance such expenditures through borrowing.
REGULATION
Interstate Regulation
General. The interstate common carrier pipeline operations of the
Partnership are subject to rate regulation by FERC under the Interstate
Commerce Act. The Interstate Commerce Act provides, among other things, that
to be lawful the rates of common carrier petroleum pipelines must be "just and
reasonable" and not unduly discriminatory. New and changed rates must be filed
with the FERC, which may investigate their lawfulness on protest or its own
motion. The FERC may suspend the effectiveness of such rates for up to seven
months. If the suspension expires before completion of the investigation, the
rates go into effect, but the pipeline can be required to refund to shippers,
with interest, any difference between the level the FERC determines to be
lawful and the filed rates under investigation. Rates that have become final
and effective may be challenged by complaint to FERC filed by a shipper or on
the FERC's own initiative, and reparations may be recovered by the party filing
the complaint for the two year period prior to the complaint if FERC finds the
rate to be unlawful.
In general, petroleum product pipeline rates are cost-based. Such
rates are permitted to generate operating revenues, based on projected volumes,
not greater than the total of the following components: (i) operating
expenses,
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<PAGE> 16
(ii) depreciation and amortization, (iii) federal and state income taxes
(determined on a separate company basis and adjusted or "normalized" to avoid
year to year variations in rates due to the effect of timing differences
between book and tax accounting for certain expenses, primarily depreciation)
and (iv) an overall allowed rate of return on the pipeline's "rate base".
Generally, rate base is a measure of the investment in, or value of, the common
carrier assets of a petroleum products pipeline.
In 1985, the FERC began issuing a series of opinions ("FERC Opinions")
providing that oil pipeline rates would continue to be cost-based. The FERC
Opinions required that the rate base should be calculated by the net
depreciated "trended original cost" ("TOC") methodology. Under the TOC
methodology, after a starting rate base has been determined, a pipeline's rate
base is to be (i) increased by property additions at cost plus an amount equal
to the equity portion of the rate base multiplied or "trended" by an inflation
factor and (ii) decreased by property retirements, depreciation and
amortization of rate base write-ups reflecting inflation.
The FERC Opinions allow for a rate of return for petroleum products
pipelines determined by adding (i) the product of a rate of return equal to the
nominal cost of debt multiplied by the portion of the rate base that is deemed
to be financed with debt and (ii) the product of a rate of return equal to the
real (i.e., inflation-free) cost of equity multiplied by the portion of the
rate base that is deemed to be financed with equity. The appropriate rate of
return for a petroleum pipeline is determined on a case-by-case basis, taking
into account cost of capital, competitive factors and business and financial
risks associated with pipeline operations.
The Interstate Commerce Commission, which regulated oil pipelines
until 1978, had formerly determined rate base by using a current valuation
methodology. The FERC Opinions abandoned the valuation methodology and
required pipelines to establish a transition rate base for the pipeline's
existing plant. This transition rate base, called the "starting rate base," is
the sum of (i) the net depreciated original cost of the pipeline's property
multiplied by the ratio of debt to total capitalization and (ii) the net
depreciated reproduction portion of the valuation rate base as of 1983,
multiplied by the ratio of equity to total capitalization. The original cost
of land, rights of way less book depreciation, allowed working capital and
plant less book depreciation that were not included in the 1983 valuation may
be added to the starting rate base.
The actual capital structure as of June 28, 1985 of either the
pipeline or its parent is typically used to establish the starting rate base.
In general, the pipeline's structure is used if the pipeline issues long-term
debt to outside investors without any parent guarantee and the parent's
structure is used if the pipeline has no long-term debt, issues long-term debt
to its parent, or its long-term debt is guaranteed by its parent. In
individual cases, however, FERC may determine that the actual capital structure
of the pipeline or its parent is inappropriate for rate regulation purposes.
The FERC may then impute to the pipeline the capital structure it deems
appropriate to the pipeline's risk.
In addition to the TOC methodology, the FERC has indicated a
willingness to consider departures from cost-of-service rates depending upon
whether a pipeline's individual markets are sufficiently competitive. In a
proceeding involving Buckeye Pipeline Company ("Buckeye"), the FERC invited
jurisdictional pipelines to demonstrate that they lack significant market power
in all or some of their markets. In Buckeye, the FERC accepted a three-year
experimental program of light-handed regulation of the pipeline's rates. Under
the program, the FERC permitted the use of the volume-weighted average of
Buckeye's actual rates in those markets where it lacked significant market
power to determine the price cap for rates in non-competitive markets.
The Partnership has not attempted to depart from cost-based rates.
Instead, it has continued to rely on the traditional, cost-based TOC
methodology. The TOC methodology has not been subject to judicial review.
Under Title XVIII of the Energy Policy Act of 1992 (the "EP Act"),
rates that were in effect on October 24, 1991 that were not subject to a
protest, investigation or complaint are deemed to be just and reasonable. Such
rates are subject to challenge only for limited reasons, relating to (i)
substantially changed circumstances in either the economic circumstances of the
subject pipeline or the nature of the services, (ii) a contractual bar that
prevented the complainant from previously challenging the rates or (iii) a
claim that such rates are unduly discriminatory or preferential. Any relief
granted pursuant to such challenges may be prospective only. Because the
Partnership's rates that were in effect on October 24, 1991, were subject to
investigation and protest at that time, its rates were not deemed to be just
and reasonable pursuant to the EP Act. The Partnership's current rates became
final and effective in April 1994, and the
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<PAGE> 17
Partnership believes that its currently effective tariffs are just and
reasonable and would withstand challenge under the FERC's cost-based rate
standards. Because of the complexity of rate making, however, the lawfulness
of any rate is never assured.
The EP Act also required the FERC to issue a final rule establishing a
simplified and generally applicable rate making methodology for oil pipelines
no later than October 24, 1993. The FERC was also required to issue a final
rule to streamline procedures relating to oil pipeline rates "in order to avoid
unnecessary regulatory costs and delays" no later than April 24, 1994.
On October 22, 1993, the FERC issued Order No. 561 implementing the EP
Act. Order No. 561, among other things, adopted a simplified and generally
acceptable rate making methodology for future oil pipeline rate changes in the
form of indexation. Indexation, which is also known as price cap regulation,
establishes ceiling prices on oil pipeline rates based on application of a
broad-based measure of inflation in the general economy to existing rates.
Rate increases up to the ceiling level are to be discretionary for the
pipeline, and, for such rate increases, there will be no need to file
cost-of-service or supporting data. Moreover, so long as the ceiling is not
exceeded, a pipeline may make a limitless number of rate change filings.
The pipeline rates in effect at December 31, 1994, which are
determined to be just and reasonable, become the "Base Rates" for application
of the indexing mechanism. This indexing mechanism calculates a ceiling rate.
The pipeline may increase its rates to this calculated ceiling rate without
filing a formal cost based justification and with limited risk of shipper
protests. Shippers may still be permitted to protest pipeline rates, even if
the rate change does not exceed the index ceiling, if the shipper can
demonstrate that the "increase is so substantially in excess of the actual cost
increase incurred by the pipeline" that the proposed rate would be unjust and
unreasonable. The index is cumulative, attaching to the applicable ceiling
rate and not to the actual rate charged. Thus, a rate that is not increased to
the ceiling level in a given year may still be increased to the ceiling level
in the following year. The pipeline may be required to decrease the current
rate if the rate being charged exceeds the ceiling level.
The index underlying Order No. 561 is to serve as the principal basis
for the establishment of oil pipeline rate changes in the future. As explained
by the FERC in Order Nos. 561 and 561-A, however, there may be circumstances
where the indexing mechanism will not apply. Specifically, the FERC determined
that a pipeline may utilize any one of the following three alternative
methodologies to indexing: (i) a cost-of-service methodology may be utilized
by a pipeline to justify a change in a rate if a pipeline can demonstrate that
its increased costs are prudently incurred and that there is a substantial
divergence between such increased costs and the rate that would be produced by
application of the index; (ii) a pipeline may file a rate change as part of a
settlement when it secures the agreement of all of its existing shippers; and
(iii) consistent with the Buckeye precedent, a pipeline may base its rates upon
a "light-handed" market-based form of regulation if it is able to demonstrate a
lack of significant market power in the relevant markets.
The indexing mechanism does not apply to initial rates of a pipeline,
which will still generally be established using the traditional TOC
methodology. Order No. 561 provides, however, that a pipeline can file an
initial rate based upon the agreement of at least one non-affiliated shipper,
without an accompanying cost-of-service justification for such rate. Yet, if
this agreed-upon rate is protested by another shipper, the pipeline will be
required to justify the initial rate on a cost-or-service basis. The initial
rate that is established by the pipeline becomes the pipeline's "Base Rate",
and the indexing mechanism will be applicable to that rate in subsequent years.
On October 28, 1994, after hearings and public comment period, the
FERC issued Order Nos. 571 and 572, intended as procedural follow-ups to Order
No. 561. In Order No. 571, the FERC (i) articulated cost-of-service and
reporting requirements to be applicable to pipeline initial rates and to
situations where indexing is determined to be inappropriate; (ii) adopted rules
for the establishment of revised depreciation rates; and (iii) revised the
information required to be reported by pipelines in their Form No. 6, "Annual
Report for Oil Pipelines". Order No. 572 establishes the filing requirements
and procedures that must be followed when a pipeline seeks to charge
market-based rates.
On June 15, 1995, the FERC issued a decision involving Lakehead
Pipeline Partners, L.P. ("Lakehead"), an unrelated oil pipeline limited
partnership. In this decision, the FERC partially disallowed Lakehead's
inclusion of income taxes in its cost of service, and thereby reversed the
previous December 1993 ruling of the Presiding Administrative Law Judge on this
issue. Specifically, the FERC held that Lakehead was entitled to receive an
income tax allowance with respect to income attributable to its corporate
partners, but was not entitled to receive such an
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allowance for income attributable to the Partnership interests held by
individuals. Both Lakehead and representatives of its customers have filed
motions for rehearing. It is unlikely, however, that the FERC will reverse
itself on this issue on rehearing. It is possible that either Lakehead or its
customers may ultimately seek judicial review of the FERC decision, and it is
difficult to predict what position would be adopted by a reviewing court on the
income tax issue. In another FERC proceeding that has not yet reached the
hearing stage, involving a different oil pipeline limited partnership, various
shippers have challenged such pipeline's inclusion of an income tax allowance
in its cost of service. The FERC Staff has also filed testimony that supports
the disallowance of income taxes. If the FERC were to disallow the income tax
allowance in the cost of service of the Pipelines on the basis set forth in the
Lakehead order, the General Partner believes that the Partnership's ability to
pay the Minimum Quarterly Distribution to the holders of the Senior Preference
Units, Preference Units and Preference B Units would not be impaired; however,
in view of the uncertainties involved in this issue, there can be no assurance
in this regard.
Intrastate Regulation
General. The intrastate operations of the East Pipeline in Kansas are
subject to regulation by the Kansas Corporation Commission, and the intrastate
operations of the West Pipeline in Colorado and Wyoming are subject to
regulation by the Colorado Public Utility commission and the Wyoming Public
Service Commission, respectively. Like the FERC, the state regulatory
authorities require that shippers be notified of proposed intrastate tariff
increases and have an opportunity to protest such increases. KPOP also files
with such state authorities copies of interstate tariff changes filed with the
FERC. In addition to challenges to new or proposed rates, challenges to
intrastate rates that have already become effective are permitted by complaint
of an interested person or by independent action of the appropriate regulatory
authority.
ENVIRONMENTAL MATTERS
General. The operations of the Partnership are subject to federal,
state and local laws and regulations relating to protection of the environment.
Although the Partnership believes that its operations are in general compliance
with applicable environmental regulations, risks of substantial costs and
liabilities are inherent in pipeline and terminal operations, and there can be
no assurance that significant costs and liabilities will not be incurred by the
Partnership. Moreover, it is possible that other developments, such as
increasingly strict environmental laws, regulations and enforcement policies
thereunder, and claims for damages to property or persons resulting from the
operations of the Partnership, could result in substantial costs and
liabilities to the Partnership.
Water. The Oil Pollution Act ("OPA") was enacted in 1990 and amends
provisions of the Federal Water Pollution Control Act of 1972 ("FWPCA") and
other statutes as they pertain to prevention and response to oil spills. The
OPA subjects owners of facilities to strict, joint and potentially unlimited
liability for removal costs and certain other consequences of an oil spill,
where such spill is into navigable waters, along shorelines or in the exclusive
economic zone. In the event of an oil spill into such waters, substantial
liabilities could be imposed upon the Partnership. States in which the
Partnership operates have also enacted similar laws. Regulations are currently
being developed under OPA and state laws that may also impose additional
regulatory burdens on the Partnership.
The Pipelines cross several navigable rivers and streams. The FWPCA
imposes strict controls against the discharge of oil and its derivatives into
navigable waters. The FWPCA provides penalties for any discharges of petroleum
products in reportable quantities and imposes substantial potential liability
for the costs of removing an oil spill. State laws for the control of water
pollution also provide varying civil and criminal penalties and liabilities in
the case of a release of petroleum or its derivatives in surface waters or into
the groundwater.
Contamination resulting from spills or releases of refined petroleum
products are not unusual within the petroleum pipeline industry. The East
Pipeline has experienced limited groundwater contamination at four terminal
sites (Milford, Iowa, Norfolk and Columbus, Nebraska, and Yankton, South
Dakota) resulting from spills of refined petroleum products. Regulatory
authorities have been notified of these findings and cleanup is underway using
extraction wells and air strippers. The Partnership estimates that $600,000
has been expended to date for remediation at these four sites and that ongoing
remediation expenses at each site will be less than $5,000 per year for the
next several years. Groundwater contamination is also known to exist at East
Pipeline sites in Augusta,
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Kansas and in Potwin, Kansas, but no remediation has been required. Although no
assurances can be made, if remediation is required, the Partnership believes
that the resulting cost would not be material.
The East Pipeline experienced a spill due to third party damage during
the first quarter of 1991. Remediation of the ground water impacted by this
spill has been underway since the second quarter of 1991. The Partnership
estimates that on-going remediation expenses will be in the range of $10,000 to
$15,000 per year. Regulatory authorities have been notified. The Partnership
has filed suit against the third party seeking compensation for damages. The
case is currently scheduled for trial during the second quarter of 1996.
During 1994, the East Pipeline experienced a seam rupture of its 8"
northbound line in Nebraska in January and another similar rupture on the same
line in April. As a result of these ruptures, KPOP reduced the maximum
operating pressure on this line to 60% of the Maximum Allowable Operating
Pressure ("MAOP") and, on May 24, 1994 commenced a hydrostatic test to
determine the integrity of over 80 miles of that line. The test was completed
on the entire 80 miles on May 29, 1994, and the line was authorized to return
to approximately 80% of MAOP pending review by the Department of Transportation
("DOT") of the hydrostatic test results. On July 29, 1994, the DOT authorized
most of the line to return to the historical MAOP. Approximately 30 miles of
the line was authorized to return to slightly less than historical MAOP.
Although the Partnership has expended approximately $170,000 to date for
remediation at these rupture sites, the total amount of remediation expenses
that will be required has not yet been determined. These expenses are not
expected to have a material effect upon the results of the Partnership.
ST has experienced groundwater contamination at its terminal sites at
Baltimore, Maryland, and Alamogordo, New Mexico. Regulatory authorities have
been notified of these findings and cleanup is underway using extraction wells
and air strippers. Groundwater contamination also exists at the ST terminal
site in Stockton, California and in the areas surrounding this site as a result
of the past operations of five of the facilities operating in this area. ST
has entered into an agreement with three of these other companies to allocate
responsibility for the clean up of the contaminated area. Under the initial
estimate of remedial costs, the parties (including ST) at Stockton would pay in
total approximately $752,000. However, the remediation costs have not been
finalized and could ultimately increase or decrease. In addition, ST is
responsible for up to two-thirds of the costs associated with existing
groundwater contamination at a formerly owned terminal at Marcy, New York,
which also is being remedied through extraction wells and air strippers. The
Partnership has expended approximately $350,000 to date for remediation at
these four sites and estimates that on-going remediation expenses will
aggregate approximately $300,000 to $450,000 over the next three years.
Groundwater contamination has been identified at ST terminal sites at
Montgomery, Alabama and Milwaukee, Wisconsin, but no remediation has taken
place. Shell Oil Company has indemnified ST for any contamination at the
Milwaukee site prior to ST's acquisition of the facility. Star Enterprises,
the former owner of the Montgomery terminal, has indemnified ST for
contamination at a portion of the Montgomery site where contamination was
identified prior to ST's acquisition of the facility. A remediation system is
in place to address groundwater contamination at the ST terminal facility in
Augusta, Georgia. Star Enterprises, the former owner of the Augusta terminal,
has indemnified ST for this contamination and has retained responsibility for
the remediation system. There is also a possibility that groundwater
contamination may exist at other facilities. Although no assurance in this
regard can be given, the Partnership believes that such contamination, if
present, could be remedied with extraction wells and air strippers similar to
those that are currently in use and that resulting costs would not be material.
In 1991, the Environmental Protection Agency (the "EPA") implemented
regulations expanding the definition of hazardous waste. The Toxicity
Characteristic Leaching Procedure ("TLC") has broadened the definition of
hazardous waste by including 25 constituents that were not previously included
in determining that a waste is hazardous. Water that comes in contact with
petroleum may fail the "TLC" procedure and require additional treatment prior
to its disposal. The Partnership has installed totally enclosed wastewater
treatment systems at all East Pipeline terminal sites to treat such petroleum
contaminated water, especially tank bottom water.
The EPA has promulgated regulations that may require the Partnership
to apply for permits to discharge storm water runoff. Storm water discharge
permits also may be required in certain states in which the Partnership
19
<PAGE> 20
operates. Where such requirements are applicable, the Partnership has applied
for such permits and, after the permits are received, will be required to
sample storm water effluent before releasing it. The Partnership believes that
effluent limitations could be met, if necessary, with minor modifications to
existing facilities and operations. Although no assurance in this regard can be
given, the Partnership believes that the changes will not have a material effect
on the Partnership's financial condition or results of operations.
Groundwater remediation efforts are ongoing at the West Pipeline's
Dupont, Colorado terminal and will be required at the three other West Pipeline
terminals and one pump station. Regulatory officials have been consulted in
the development of remediation plans. In the course of acquisition
negotiations, KPOP's regulatory group and its outside environmental consultants
agreed upon the expense and costs of these required remediations. In
connection with the purchase of the West Pipeline, KPOP agreed to implement the
agreed remediation plans at these specific sites over the next five years in
return for the payment by Wyco Pipe Line Company of the estimated costs
thereof. At the closing, Wyco Pipe Line Company paid $1,312,000 to KPOP to
cover the discounted future costs of these remediations. In conjunction with
the acquisition, the Partnership accrued $2.1 million for these future
remediation expenses.
The Steuart terminals have experienced groundwater contamination at
the Piney Point, Maryland, Jacksonville, Florida and each of the Washington,
D.C. facilities. Foreseeable remediation expenses are estimated not to exceed
$1.8 million. The Partnership has agreed to assume the existing remediation
and the costs thereof up to $1.8 million. The Asset Purchase Agreements
provide, with respect to unknown environmental damages that are discovered
after the closing and that were caused by operations conducted by Steuart prior
to the closing, that the Partnership and Steuart will share those expenses at a
ratio of 20% for the Partnership and 80% for Steuart until a total of $2.5
million has been expended. Thereafter, such expenses will be the Partnership's
responsibility. This indemnity will expire three years from the closing of the
Steuart terminals acquisition. In conjunction with the acquisition, the
Partnership accrued $2.3 million for these expenses.
Aboveground Storage Tank Acts. A number of the states in which the
Partnership operates have passed statutes regulating aboveground tanks
containing liquid substances. Generally, these statutes require that such
tanks include secondary containment systems or that the operators take certain
alternative precautions to ensure that no contamination results from any leaks
in the tanks. Although there is not currently a federal statute regulating
these above ground tanks, there is a possibility that such a law will be passed
within the next couple of years. The Partnership is in substantial compliance
with all above ground storage tank laws in the states with such laws. Although
no assurance can be given, the Partnership believes that the future
implementation of above ground storage tank laws by either additional states or
by the federal government will not have a material adverse effect on the
Partnership's financial condition or results of operations.
Air Emissions. The operations of the Partnership are subject to the
Federal Clean Air Act and comparable state and local statutes. The Partnership
believes that the operations of the Pipelines are in substantial compliance
with such statues in all states in which they operate.
Amendments to the Federal Clean Air Act enacted in late 1990 will
require most industrial operations in the United States to incur future capital
expenditures in order to meet the air emission control standards that are to be
developed and implemented by the EPA and state environmental agencies during
the next decade. Pursuant to these Clean Air Act Amendments, those Partnership
facilities that emit volatile organic compounds ("VOC") or nitrogen oxides and
are located in non-attainment areas will be subject to increasingly stringent
regulations, including requirements that certain sources install reasonably
available control technology. The EPA is also required to promulgate new
regulations governing the emissions of hazardous air pollutants. Some of the
Partnership's facilities are included within the categories of hazardous air
pollutant sources that will be affected by these regulations. Additionally,
new dockside loading facilities owned or operated by the Partnership will be
subject to the New Source Performance Standards that were proposed in May 1994.
These regulations will control VOC emissions from the loading and unloading of
tank vessels. In 1995, ST completed the installation of a marine vapor
collection system and large flare at its Texas City terminal at a cost of
approximately $2.0 million.
Although the Partnership is in substantial compliance with applicable
air pollution laws, in anticipation of the passage of stricter air control
regulations, the Partnership is taking actions to substantially reduce its air
emissions. The Partnership plans to install bottom loading and vapor recovery
equipment on the loading racks at
20
<PAGE> 21
selected terminal sites that do not already have such emissions control
equipment. These modifications are expected to substantially reduce the total
air emissions from each of these facilities. Having begun in 1993, this
project is being phased in over a period of years.
Solid Waste. The Partnership generates non-hazardous solidwaste that
is subject to the requirements of the Federal Resource Conservation and Recovery
Act ("RCRA") and comparable state statutes. The EPA is considering the adoption
of stricter disposal standards for non-hazardous wastes. RCRA also governs the
disposal of hazardous wastes. At present, the Partnership is not required to
comply with a substantial portion of the RCRA requirements because the
Partnership's operations generate minimal quantities of hazardous wastes.
However, it is anticipated that additional wastes, which could include wastes
currently generated during pipeline operations, will in the future be designated
as "hazardous wastes". Hazardous wastes are subject to more rigorous and costly
disposal requirements than are non- hazardous wastes. Such changes in the
regulations may result in additional capital expenditures or operating expenses
by the Partnership.
At the terminal sites at which groundwater contamination is present,
there is also limited soil contamination as a result of the aforementioned
spills. The Partnership is under no present requirements to remove these
contaminated soils, but the Partnership may be required to do so in the
future. Soil contamination also may be present at other Partnership facilities
at which spills or releases have occurred. Under certain circumstances, the
Partnership may be required to clean up such contaminated soils. Although
these costs should not have a material adverse effect on the Partnership, no
assurance can be given in this regard.
Superfund. The Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), also known as "Superfund," imposes liability, without
regard to fault or the legality of the original act, on certain classes of
persons that contributed to the release of a "hazardous substance" into the
environment. These persons include the owner or operator of the site and
companies that disposed or arranged for the disposal of the hazardous
substances found at the site. CERCLA also authorizes the EPA and, in some
instances, third parties to act in response to threats to the public health or
the environment and to seek to recover from the responsible classes of persons
the costs they incur. In the course of its ordinary operations, the
Partnership may generate waste that may fall within CERCLA's definition of a
"hazardous substance". The Partnership may be responsible under CERCLA for all
or part of the costs required to clean up sites at which such wastes have been
disposed.
ST has been named a potentially responsible party for a site located
at Elkton, Maryland, operated by Spectron, Inc. until August 1988. This site
is presently under the oversight of the EPA and is listed as a federal
"Superfund" site. A small amount of material handled by Spectron was
attributed to ST. The Partnership believes that ST will be able to settle its
potential obligation in connection with this matter for an aggregate cost of
approximately $10,000. However, until a final settlement agreement is signed
with the EPA, there is a possibility that the EPA could bring additional claims
against ST.
Environmental Impact Statement. The National Environmental Policy Act
of 1969 (the "NEPA") applies to certain extensions or additions to a pipeline
system. Under NEPA, if any project that would significantly affect the quality
of the environment requires a permit or approval from any federal agency, a
detailed environmental impact statement must be prepared. The effect of the
NEPA may be to delay or prevent construction of new facilities or to alter
their location, design or method of construction.
Indemnification. KPL has agreed to indemnify the Partnership against
liabilities for damage to the environment resulting from operations of the East
Pipeline prior to October 3, 1989. Such indemnification does not extend to any
liabilities that arise after such date to the extent such liabilities result
from change in environmental laws or regulations. Nevertheless, the
Partnership will remain liable for the remediation of groundwater contamination
resulting from three spills and the possible groundwater contamination at a
pumping and storage site referred to under "Water" to the standards that are in
effect at the time such remediation operations are concluded. In addition,
ST's former owner has agreed to indemnify the Partnership against liabilities
for damages to the environment from operations conducted by such former owners
prior to March 2, 1993. The indemnity, which expires March 1, 1998, is limited
in amount to 60% of any claim exceeding $100,000 until an aggregate amount of
$10 million has been paid by ST's former owner. In addition, with respect to
unknown environmental expenses from operations conducted by Wyco Pipe Line
Company prior to the closing of the Partnership's acquisition of the West
Pipeline, KPOP has agreed to pay the first $150,000 of such expenses, KPOP and
Wyco Pipe Line Company
21
<PAGE> 22
will share, on an equal basis, the next $900,000 of such expenses and Wyco Pipe
Line Company will indemnify KPOP for up to $2,950,000 of such expenses
thereafter. The indemnity expires in August 1999. To the extent environmental
liabilities exceed the amount of such indemnity, KPOP has affirmatively assumed
the excess environmental liabilities.
The Steuart terminals Asset Purchase Agreements provide, with respect
to unknown environmental damages that are discovered after the closing of the
Steuart terminals acquisition and that were caused by operations conducted by
Steuart prior to the closing, that the Partnership and Steuart will share
expenses associated with such environmental damages at a ratio of 20% for the
Partnership and 80% for Steuart until a total of $2.5 million has been
expended. Thereafter, such expenses will be the Partnership's responsibility.
This indemnity will expire three years from the closing of the Steuart
terminals acquisition and will be secured by a cash escrow fund.
SAFETY REGULATION
The Pipelines are subject to regulation by the Department of
Transportation under the Hazardous Liquid Pipeline Safety Act of 1979 ("HLPSA")
relating to the design, installation, testing, construction, operation,
replacement and management of their pipeline facilities. The HLPSA covers
petroleum and petroleum products and requires any entity that owns or operates
pipeline facilities to comply with such plan, to permit access to and copying
of records and to make certain reports and provide information as required by
the Secretary to Transportation.
The Federal Pipeline Safety Act of 1992 amended the HLPSA to include
requirements of the future use of internal inspection devices. The Partnership
does not believe that it will be required to make any substantial capital
expenditures to comply with the requirements of HLPSA as so amended.
The Partnership is subject to the requirements of the Federal
Occupational Safety and Health Act ("OSHA") and comparable state statutes. The
Partnership believes that it is in general compliance with OSHA requirements,
including general industry standards, record keeping requirements and
monitoring of occupational exposure to benzene.
The OSHA hazard communication standard, the EPA community
right-to-know regulations under Title III of the Federal Superfund Amendment
and Reauthorization Act, and comparable state statues require the Partnership
to organize information about the hazardous materials used in its operations.
Certain parts of this information must be reported to employees, state and
local governmental authorities, and local citizens upon request. In general,
the Partnership expects to increase its expenditures during the next decade to
comply with higher industry and regulatory safety standards such as those
described above. Such expenditures cannot be accurately estimated at this
time, although they are not expected to have a material adverse impact on the
Partnership.
EMPLOYEES
The Partnership has no employees. The pipeline business of the
Partnership is conducted by the General Partner, KPL, which at December 31,
1995, employed 168 persons, 59 of whom were salaried and, approximately 109 of
whom were hourly rate employees. Approximately 109 persons employed by KPL
were subject to representation by unions for collective bargaining purposes;
however, the last collective bargaining contract expired in 1967 and the
employees have not operated under a contract since that date.
The Partnership's liquids terminaling business is conducted through
subsidiaries of ST which at December 31, 1995, employed 175 persons,
approximately 105 of whom were salaried and approximately 70 of whom were
hourly rate employees. Approximately 34 persons employed by ST were subject to
representation by the Oil, Chemical and Atomic Workers International Union
AFL-CIO ("OCAW"). ST has an agreement with OCAW regarding conditions of
employment for the above persons, which is in effect through June 28, 1996.
This agreement is subject to automatic renewal for successive one-year periods
unless ST or OCAW serves written notice to terminate or modify such agreement
in a timely manner. In addition to the above, ST employed approximately 28
part-time hourly employees at December 31, 1995.
22
<PAGE> 23
On January 1, 1996, ST hired 79 former employees of Steuart Petroleum
Company who were working at the various terminals. None of these employees are
represented by a union.
ITEM 2. PROPERTIES
Descriptions of properties owned or utilized by the Partnership are
contained in Item 1 of this report and such descriptions are hereby
incorporated by reference into this Item 2. Under the captioned "Leases" in
notes to the Partnership's financial statements included in Item 8 herein
below, additional information is presented concerning obligations for lease and
rental commitments. Said additional information is hereby incorporated by
reference into this Item 2.
ITEM 3. LEGAL PROCEEDINGS
The Partnership is a party to several lawsuits arising in the ordinary
course of business. Subject to certain deductibles and self-insurance
retentions, substantially all the claims made in these lawsuits are covered by
insurance policies.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not hold a meeting of stockholders or otherwise submit
any matter to a vote of security holders in the fourth quarter of 1995.
23
<PAGE> 24
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S SENIOR PREFERENCE UNITS AND RELATED
UNITHOLDER MATTERS
The Partnership's senior preference limited partner interests ("Senior
Preference Units") and Preference Units are listed and traded on the New York
Stock Exchange. At March 15, 1996, there were approximately 1,081 Senior
Preference Unitholders of record and approximately 200 Preference Unitholders of
record. Set forth below are prices for Senior Preference Units and Preference
Units, respectively, on the New York Stock Exchange and cash distributions per
Senior Preference Unit and Preference Unit, respectively, paid for the periods
indicated.
<TABLE>
<CAPTION> SENIOR PREFERENCE
UNIT PRICES
------------------ CASH DISTRIBUTIONS
YEAR HIGH LOW DECLARED
---- ---- --- ------------------
<S> <C> <C> <C>
1994:
First Quarter . . . . . . . . . 28 3/8 24 1/4 .55
Second Quarter . . . . . . . . 26 3/8 23 5/8 .55
Third Quarter . . . . . . . . . 26 23 1/2 .55
Fourth Quarter . . . . . . . . 25 3/8 20 1/2 .55
1995:
First Quarter . . . . . . . . . 24 3/4 20 5/8 .55
Second Quarter . . . . . . . . 24 1/2 20 3/4 .55
Third Quarter . . . . . . . . . 24 3/4 22 3/8 .55
Fourth Quarter . . . . . . . . 25 23 1/8 .55
1996:
First Quarter
(through March 15, 1996) . . . 26 1/2 23 7/8 .55
</TABLE>
<TABLE>
<CAPTION> PREFERENCE
UNIT PRICES
------------------ CASH DISTRIBUTIONS
YEAR HIGH LOW DECLARED
---- ---- --- ------------------
<S> <C> <C> <C>
1995:
Third Quarter* . . . . . . . . 22 5/8 22 .55
Fourth Quarter . . . . . . . . 22 1/2 21 5/8 .55
*Partial Period Data
1996:
First Quarter . . . . . . . . . 24 3/8 22 1/2 .55
(through March 15, 1996)
</TABLE>
The Partnership has paid the Minimum Quarterly Distribution on each
outstanding Senior Preference Unit for each quarter since the Partnership's
inception. The Partnership has also paid the Minimum Quarterly Distribution on
Preference Units with respect to all quarters since inception of the
Partnership, except for the failure to pay distributions in the second, third
and fourth quarters of 1991 totaling $9,323,000. All such arrearages have
since been satisfied and none remain as of December 31, 1995. Prior to 1994,
no distributions were paid on the outstanding Common Units, which are not
entitled to arrearages in the payment of the Minimum Quarterly. In 1994,
distributions totaling $1,738,000 were paid and in 1995, distributions totaling
$4,582,000 were paid.
Under the terms of its financing agreements, the Partnership is
prohibited from declaring or paying any distribution if a default exists
thereunder.
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<PAGE> 25
ITEM 6. SUMMARY HISTORICAL FINANCIAL AND OPERATING DATA
The following table sets forth, for the periods and at the dates
indicated, selected historical financial and operating data for Kaneb Pipe Line
Partners, L.P. and Subsidiaries (the "Partnership"). The data in the table (in
thousands, except per unit amounts) is derived from the historical financial
statements of the Partnership and should be read in conjunction with the
Partnership's audited financial statements. See also "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1991 1992 1993(a) 1994 1995(b)
-------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue . . . . . . . . . . . . $ 39,415 $ 42,179 $ 69,235 $ 78,745 $ 96,928
-------- -------- --------- -------- ---------
Operating costs . . . . . . . . 14,337 14,507 29,012 33,586 40,617
Depreciation and amortization . 3,519 4,124 6,135 7,257 8,261
General and administrative . . 2,861 2,752 4,673 4,924 5,472
Legal expenses for tariff
protest . . . . . . . . . . 2,172 - - - -
-------- -------- --------- -------- ---------
Total costs and expenses . . 22,889 21,383 39,820 45,767 54,350
-------- -------- --------- -------- ---------
Operating income . . . . . . . 16,526 20,796 29,415 32,978 42,578
Interest and other income . . . 1,751 1,721 1,331 1,299 894
Interest expense . . . . . . . (2,259) (2,338) (3,376) (3,706) (6,437)
Minority interest . . . . . . . (159) (200) (266) (295) (360)
-------- -------- --------- -------- ---------
Income before income taxes . . 15,859 19,979 27,104 30,276 36,675
Income taxes(c) . . . . . . . . - - (450) (818) (627)
-------- -------- --------- -------- ---------
Net income . . . . . . . . . . $ 15,859 $ 19,979 $ 26,654 $ 29,458 $ 36,048
======== ======== ========= ======== =========
Allocation of net income
per Senior Preference
Unit(d) . . . . . . . . . . $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20
========= ======== ========== ======== =========
Preference Unit . . . . . . $ .55 $ 2.65 $ 3.40 $ 2.20 $ 2.20
========= ======== ========== ======== =========
Cash distributions declared per
Senior Preference Unit . . $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20
========= ======== ========== ======== =========
Preference Unit . . . . . . $ .55 $ 2.65 $ 3.40 $ 2.20 $ 2.20
========= ======== ========== ======== =========
BALANCE SHEET DATA (AT
PERIOD END):
Property and equipment, net... $ 68,225 $ 66,956 $ 133,436 $145,646 $ 246,471
Total assets.................. 88,530 86,409 162,407 163,105 267,787
Long-term debt................ 16,941 20,864 41,814 43,265 136,489
Partners' capital............. 61,918 55,657 100,598 99,754 100,748
</TABLE>
(a) Includes the operations of ST since its acquisition on March 2, 1993.
(b) Includes the operations of the West Pipeline since its acquisition in
February 1995 and the operations of Steuart since its acquisition in
December 1995.
(c) Subsequent to the acquisition of ST in March 1993, certain operations are
conducted in taxable entities.
(d) Net income of the Partnership for each reporting period is allocated to
the Senior Preference Units ("SPU") and Preference Units ("PU") in an
amount equal to the cash distributions to the SPU and PU declared for
that reporting period.
25
<PAGE> 26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This discussion should be read in conjunction with the consolidated
financial statements of Kaneb Pipe Line Partners, L.P. and notes thereto and
the summary historical and pro forma financial and operating data included
elsewhere in this report.
GENERAL
In September 1989, Kaneb Pipe Line Company ("KPL"), a wholly-owned
subsidiary of Kaneb Services, Inc. ("Kaneb"), formed the Partnership to own and
operate its refined petroleum products pipeline business. The Partnership
operates through KPOP, a limited partnership in which the Partnership holds a
99% interest as limited partner and KPL owns a 1% interest as general partner
in both the Partnership and KPOP. The Partnership is engaged through operating
subsidiaries in the refined petroleum products pipeline business and, since
1993, terminaling of petroleum products and specialty liquids.
The Partnership's pipeline business consists primarily of the
transportation through the East Pipeline and the West Pipeline, as common
carriers, of refined petroleum products. The Partnership acquired the West
Pipeline in February 1995 from Wyco Pipe Line Company, a company jointly owned
by GATX Terminals Corporation and Amoco Pipeline Company, for $27.1 million
plus transaction costs and the assumption of certain environmental liabilities.
The acquisition was financed by the issuance of $27 million of first mortgage
notes due February 24, 2002, which bear interest at the rate of 8.37% per
annum. The East Pipeline and the West Pipeline are collectively referred to as
the "Pipelines." The Pipelines primarily transport gasoline, diesel oil, fuel
oil and propane. The products are transported from refineries connected to the
Pipeline, directly or through other pipelines, to agricultural users, railroads
and wholesale customers in the states in which the Pipelines are located and in
portions of other states. Substantially all of the Pipelines' operations
constitute common carrier operations that are subject to federal or state
tariff regulations. The Partnership has not engaged, nor does it currently
intend to engage, in the merchant function of buying and selling refined
petroleum products.
The Partnership's business of terminaling petroleum products and
specialty liquids is conducted under the name ST Services ("ST"). ST is the
third largest independent terminaling company in the United States. With the
acquisition of Steuart (see below), ST operates 31 facilities in 16 states and
the District of Columbia with an aggregate tankage capacity of approximately
16.8 million barrels. The Texas City terminal is a deep-water facility
primarily serving the Gulf Coast petrochemical industry. The Westwego
terminal, purchased in June 1994 and located on the West bank of the
Mississippi River across from New Orleans, handles molasses, animal and
vegetable oil and fats, fertilizer, latex and caustic solutions. The Baltimore
terminal is the largest independent terminal facility in the Baltimore area and
handles asphalt, fructose, latex, caustic solutions and other liquids.
ST acquired the liquids terminaling assets of Steuart Petroleum Company
and certain of its affiliates (collectively, "Steuart") in December 1995 for
$68 million plus transaction costs and the assumption of certain environmental
liabilities. The acquisition was financed with a $68 million bridge loan from
a bank. The Steuart terminaling assets consist of seven petroleum product
terminal facilities located in the District of Columbia, Florida, Georgia,
Maryland and Virginia and the pipeline and terminaling facilities serving
Andrews Air Force Base in Maryland. The Piney Point, Maryland terminal is the
closest petroleum storage facility to Washington D.C. which has access to deep
water. The Jacksonville terminal has 28 tanks with approximately 2.1 million
barrels of aggregate storage capacity, which are currently used to store
petroleum products. The remainder of ST's terminals primarily handle petroleum
products.
The Partnership acquired ST in March 1993 for approximately $65 million
(including $2 million in acquisition costs). In connection with the
acquisition, the Partnership borrowed $65 million from a group of banks. In
April 1993, the Partnership completed a public offering of 2.25 million Senior
Preference Units at $25.25 per unit. The bank loan was partially repaid with
$50.8 million of the proceeds from the offering, and the balance was refinanced
in December 1994. The Partnership continually evaluates other potential
acquisitions.
26
<PAGE> 27
<TABLE>
<CAPTION>
PIPELINE OPERATIONS Year Ended December 31,
--------------------------------------------------
1993 1994 1995
----------- ----------- ----------
<S> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . $ 44,107 $ 46,117 $ 60,192
Operating costs . . . . . . . . . . . . . . . . . . . 16,453 17,777 22,564
Depreciation and amortization . . . . . . . . . . . . 4,055 4,276 4,843
General and administrative . . . . . . . . . . . . . 3,132 2,908 3,038
----------- ----------- ----------
Operating income . . . . . . . . . . . . . . . . . . $ 20,467 $ 21,156 $ 29,747
=========== =========== ==========
</TABLE>
The Pipelines' revenues are based on volumes shipped and the distances
over which such volumes are transported. Revenues increased $14.1 million and
$2.0 million in 1995 and 1994, respectively. The increase in 1995 is primarily
due to the acquisition of the West Pipeline. The Partnership implemented a
tariff increase of approximately 5.5% in April 1994, which accounted for more
than one-half of its increase in revenues in 1994 over 1993. Because tariff
rates are regulated by the FERC, the Pipelines compete primarily on the basis
of quality of service, including delivering products at convenient locations on
a timely basis to meet the needs of its customers. Barrel miles increased 15%
to 16.6 billion barrel miles in 1995 from 14.5 billion barrel miles in 1994,
due primarily to the acquisition of the West Pipeline.
Operating costs which include fuel and power costs, materials and
supplies, maintenance and repair costs, salaries, wages and employee benefits,
and property and other taxes, increased $4.8 million in 1995 and $1.3 million
in 1994. The 1995 increase is a result of the West Pipeline acquiaition and
the 1994 increase is due to increased barrel miles and utility rates, property
taxes and materials, supplies and outside services due to unusually high repair
and maintenance expenditures. The 1995 increase in depreciation and
amortization is a direct result of the February 1995 acquisition of the West
Pipeline. General and administrative costs include managerial, accounting and
administrative personnel costs, office rental and expense, legal and
professional costs and other non-operating costs.
TERMINALING OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1993 1994 1995
---------- ----------- ----------
Pro Forma Historical Historical
(Unaudited)
<S> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . $ 29,921 $ 32,628 $ 36,736
Operating costs . . . . . . . . . . . . . . . . . . . 15,064 15,809 18,053
Depreciation and amortization . . . . . . . . . . . . 2,496 2,981 3,418
General and administrative . . . . . . . . . . . . . 1,949 2,016 2,434
---------- ----------- ----------
Operating income . . . . . . . . . . . . . . . . . . $ 10,412 $ 11,822 $ 12,831
=========== =========== ==========
</TABLE>
The increases in revenues are attributable to increases in prices
charged for storage and tankage volumes utilized. Revenues increased 13% in
1995 and 9% in 1994. Average annual tankage utilized increased 600,000 barrels
to 6.7 million barrels compared to 6.1 million barrels in 1994 primarily as a
direct result of terminal acquisitions in 1994 and 1995 and increased 200,000
barrels in 1994 over 1993. Average annual revenues per barrel of tankage
utilized increased by $0.13 in 1995 to $5.46 per barrel and increased $0.26 per
barrel in 1994 over 1993. Total tankage capacity (16.8 million barrels at
December 31, 1995) has been, and is expected to remain, adequate to meet
existing customer storage requirements. Customers consider factors such as
location, access to cost effective transportation and quality of service in
addition to pricing when selecting terminal storage. Operating costs increased
$2.2 million and $.7 million and depreciation and amortization increased $.4
and $.5 in 1995 and 1994, respectively, as a result of the terminal
acquisitions in 1995 and 1994.
LIQUIDITY AND CAPITAL RESOURCES
The ratio of current assets to current liabilities was 0.9 to 1 at
December 31, 1995 and 0.8 to 1 at December 31, 1994. Cash provided by
operating activities was $44.5 million, $37.9 million and $37.2 million for the
years 1995, 1994 and 1993 respectively. The increase in cash flow from
operating activities in 1995 was primarily a result of the West Pipeline and
the Westwego terminal acquisitions.
27
<PAGE> 28
Capital expenditures were $8.9 million, $7.1 million and $8.1
million for 1995, 1994 and 1993, respectively. During all periods, adequate
pipeline capacity existed to accommodate volume growth, and the expenditures
required for environmental and safety improvements were not, and are not
expected in the future to be, material. Environmental damages caused by sudden
and accidental occurrences are included under the Partnership's insurance
coverages. Capital expenditures of the Partnership for maintenance of existing
operations during 1996 are expected to be approximately $7.5 million. Capital
expenditures for expansionary purposes during 1996 are expected to be
approximately $2.0 million.
The Partnership makes distributions of 100% of its Available Cash to
Unitholders and the General Partner. Available Cash consists generally of all
the cash receipts less all cash disbursements and reserves. A distribution of
$2.20 per unit was paid to Senior Preference Unitholders in 1995, 1994 and
1993. During 1995, 1994 and 1993, the Partnership paid distributions of $12.4
million, ($2.20 per unit), $12.3 million ($2.20 per unit) and $19.3 million
($2.20 per unit and $1.20 per unit in arrearages) to the holders of Preference
Units. During 1995 and 1994, the Partnership paid distributions of $4.6
million ($1.45 per unit) and $1.7 million ($0.55 per unit) to the holders of
Common Units.
The Partnership expects to fund future cash distributions and
maintenance capital expenditures with existing cash and cash flows from
operating activities. Expansionary capital expenditures and some environmental
expenditures are expected to be funded through additional Partnership
borrowings.
In 1994, a subsidiary of the Partnership issued $33 million of first
mortgage notes ("Notes") to a group of insurance companies. Proceeds from
these notes were used to refinance existing debt of the Partnership that was
incurred in connection with the ST acquisition in 1993 and the terminal
acquisitions in 1994. The notes bear interest at the rate of 8.05% per annum
and are due on December 22, 2001. In 1994, the Partnership entered into the
Credit Agreement with a group of banks that provides a $15 million revolving
credit facility for working capital and other partnership purposes. Borrowings
under the Credit Agreement bear interest at variable rates and are due and
payable in November 1997. The Credit Agreement has a commitment fee of 0.2%
per annum of the unused credit facility. No amounts were drawn under this
credit facility at December 31, 1995. The notes and credit facility are
secured by a mortgage on the East Pipeline.
The Partnership acquired the West Pipeline in February 1995 from Wyco
Pipe Line Company, a company jointly owned by GATX Terminals Corporation and
Amoco Pipeline Company, for $27.1 million. The acquisition was financed by the
issuance of $27 million of Notes due February 24, 2002, which bear interest at
the rate of 8.37% per annum.
The acquisition of the Steuart terminaling assets has been initially
financed by a $68 million bank bridge loan. The bridge loan bears interest at a
variable rate based on the LIBOR rate plus 50 to 100 basis points and its'
maturity has been extended until March 1997. The Partnership expects to
refinance this loan under terms similar to the Notes discussed above. The loan
is secured, pari passu with the existing Notes and credit facility, by a
mortgage on the East Pipeline.
In the FERC's Lakehead decision issued June 15, 1995, the FERC
partially disallowed Lakehead's inclusion of income taxes in its cost of
service. Specifically, the FERC held that Lakehead was entitled to receive an
income tax allowance with respect to income attributable to its corporate
partners, but was not entitled to receive such an allowance for income
attributable to the partnership interests held by individuals. Both Lakehead
and representatives of its customers have filed motions for rehearing. It is
possible that either Lakehead or its customers may ultimately seek judicial
review of the FERC decision. It is difficult to predict what position would be
adopted by a reviewing court on the income tax issue. In another FERC
proceeding that has not yet reached the hearing stage, involving a different
oil pipeline limited partnership, various shippers have challenged such
pipeline's inclusion of an income tax allowance in its cost of service. The
FERC Staff has also filed testimony that supports the disallowance of income
taxes. If the FERC were to disallow the income tax allowance in the cost of
service of the Pipelines on the basis set forth in the Lakehead order, the
General Partner believes that the Partnership's ability to pay the Minimum
Quarterly Distribution to the holders of the Senior Preference Units,
Preference Units and Preference B Units would not be impaired; however, in view
of the uncertainties involved in this issue, there can be no assurance in this
regard.
28
<PAGE> 29
NEW ACCOUNTING PRONOUNCEMENT
In March 1995, The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of
(SFAS 121). SFAS 121 is effective for financial statements for fiscal years
beginning after December 15, 1995 and requires the write-down to market of
certain long-lived assets. The Partnership will adopt SFAS 121 in the first
quarter of 1996 and such adoption will not have a material effect on the
Partnership's financial position or results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data of the Partnership
begin on page F-1 of this report. Such information is hereby incorporated by
reference into this item 8.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
29
<PAGE> 30
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership is a limited partnership and has no directors. The
Partnership is managed by the Company as general partner. Set forth below is
certain information concerning the directors and executive officers of the
Company. All directors of the Company are elected annually by Kaneb, as its
sole stockholder. All officers serve at the discretion of the Board of
Directors of the Company.
<TABLE>
<CAPTION>
SENIOR PREFERENCE
YEARS OF UNITS BENEFICIALLY
POSITION WITH SERVICE WITH OWNED AT % OF
NAME AGE THE COMPANY THE COMPANY MARCH 15, 1996(13) CLASS
- ----------------- --- ------------- ------------ ------------------- -----
<S> <C> <C> <C> <C> <C>
Edward D. Doherty 60 Chairman of the Board 6 (1) 8,326 *
& Chief Executive
Officer
Leon E. Hutchens 61 President 36 (2) 148 *
Douglas M. Easum 56 Vice President - 7 (3) -0- *
Business Development
Howard C. Wadsworth 51 Vice President - 2 (4) -0- *
Treasurer & Secretary
Jimmy L. Harrison 42 Controller 4 (5) -0- *
John R. Barnes 50 Director 9 (6) 76,600 1%
Charles R. Cox 53 Director 1 (7) -0- *
Sangwoo Ahn 57 Director 7 (8) 35,000 *
Preston A. Peak 72 Director 7 (9) -0- *
James R. Whatley 69 Director 7(10) 22,400 *
Ralph A. Rehm 50 Director 5(11) -0- *
Murray A. Biles 63 Director 11(12) 500 *
-------
All Directors and Executive Officers as a group (12 persons) 142,974 2%
======= ==
</TABLE>
<TABLE>
<CAPTION>
PREFERENCE
YEARS OF UNITS BENEFICIALLY
POSITION WITH SERVICE WITH OWNED AT % OF
NAME AGE THE COMPANY THE COMPANY MARCH 15, 1996(13) CLASS
- ----------------- --- ----------- ------------ ------------------- -----
<S> <C> <C> <C> <C> <C>
Edward E. Doherty 60 Chairman of the Board 6 (1) 700 *
& Chief Executive
Officer
John R. Barnes 50 Director 9 (6)
60,500 1%
------
All Directors and Executive Officers as a group (12 persons) 61,200 1%
- --------------------------- ====== ==
*Less than one percent
</TABLE>
(1) Mr. Doherty, Chairman of the Board of the Company since September 1989,
is also Senior Vice President of Kaneb. In addition to the Senior
Preference Units and Preference Units set forth above, Mr. Doherty owns
75,000 Common Units representing an aggregate limited partnership
interest of less than one percent.
(2) Mr. Hutchens assumed his current position in January 1994, having been
with KPL since January 1960. Mr. Hutchens had been Vice President
since January 1981. Mr. Hutchens was Manager of Product Movement from
July 1976 to January 1981.
(3) Mr. Easum has served the Company as Vice President of Business
Development since August 1988, prior to which he was Director of
Purchasing with Union Pacific Railroad Company since August 1980.
30
<PAGE> 31
(4) Mr. Wadsworth serves as an officer of Kaneb. Mr. Wadsworth, currently
Vice President, Treasurer and Secretary, joined Kaneb in October, 1990,
prior to which he served as general manager of Dorchester Hugoton, Ltd.
for more than five years.
(5) Mr. Harrison assumed his present position in November, 1992, prior to
which he served in a variety of financial positions including Assistant
Secretary and Treasurer with ARCO Pipe Line Company for approximately
19 years.
(6) Mr. Barnes, a director of the Company, is also Chairman of the Board,
President and Chief Executive Officer of Kaneb. In addition to the
Senior Preference Units and Preference Units set forth above, Mr.
Barnes owns 79,000 Common Units representing an aggregate limited
partner interest of approximately 1%.
(7) Mr. Cox, a director of the Company since September 1995, is also a
director of Kaneb. Mr. Cox has held senior executive level positions
for more than the past five years of his twenty-six year career with
Fluor Daniel, Inc.
(8) Mr. Ahn, a director of the Company since July 1989, is also a director
of Kaneb. Mr. Ahn has been a partner of Morgan Lewis Githens & Ahn,
L.P., an investment banking firm, since 1982 and currently serves as a
director of Haynes International, Inc., ITI Technologies, Inc., PAR
Technology Corporation, Quaker Fabric Corporation, and Stuart
Entertainment, Inc.
(9) Mr. Peak, a director of the Company since July 1989, is also a director
of Kaneb. Mr. Peak has been General Partner of Dorchester Hugoton,
Ltd., an oil and gas exploration and production partnership, for more
than the past five years.
(10) Mr. Whatley, a director of the Company since July 1989, is also a
director of Kaneb. In addition to serving as Chairman of the Board of
Directors of Kaneb from February 1981 until April 1989, Mr. Whatley was
elected and served in the additional offices of President and Chief
Executive Officer of Kaneb from June until October 1986.
(11) Mr. Ralph Rehm, who is also a director of Kaneb, is President of
Northlake Consulting Company, which provides financial consulting
services. Mr. Rehm provided consulting services on behalf of one of
Kaneb's subsidiaries in 1993 and 1994. Mr. Rehm previously was engaged
in financial consulting services for Northlake Consultants from June
1989 to May 1990, prior to which he served as Senior Vice President of
Finance and Administration of Kaneb from December 1986.
(12) Mr. Biles joined the Company in November 1953 and served as President
from January 1985 until his retirement at the close of 1993.
(13) Units of the Partnership listed are those which are owned by the person
indicated, his spouse or children living at home. None of the directors
of the Company owns more than two percent of the outstanding Senior
Preference Units or Preference Units, respectively, of the Partnership.
Each director had sole power with respect to all or substantially all
of the Units attributed to him.
AUDIT COMMITTEE
Messrs. Sangwoo Ahn, Ralph A. Rehm and Preston A. Peak currently serve
as the members of the Audit Committee of the Company. Such Committee will, on
an annual basis, or more frequently as such Committee may determine to be
appropriate, review policies and practices of the Company and the Partnership
and deal with various matters as to which conflicts of interest may arise.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Board of Directors does not have a compensation committee
or any other committee that performs the equivalent functions. During the
fiscal year ended December 31, 1995, none of the Company's officers or
employees participated in the deliberations of the Company's Board of Directors
concerning executive officer compensation.
31
<PAGE> 32
ITEM 11. EXECUTIVE COMPENSATION
The Partnership has no executive officers, but is obligated to
reimburse the Company for compensation paid to the Company's executive officers
in connection with their operation of the Partnership's business.
The following table sets forth information with respect to the
aggregate compensation paid or accrued by the Company during the fiscal years
1995, 1994 and 1993, to the President and each of the most highly compensated
executive officers and other key policy making personnel of the Company whose
aggregate cash compensation exceeded $100,000.
<TABLE>
<CAPTION>
Summary Compensation Table
--------------------------
Annual Compensation
-------------------
Name and Principal Other Annual All Other
Position Year Salary Bonus Compensation(1) Compensation(2)
------------------ ---- ------ ----- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Edward D. Doherty(4) 1995 $190,833 $133,100 -- $6,096
Chairman of the Board 1994 180,417 40,000 -- 6,833
and Chief Executive 1993 180,000 88,000 -- 7,442
Officer
Leon E. Hutchens 1995 $164,644 $ 5,000 -- $7,278
President 1994 158,403 -- -- 6,465
1993 132,375 -- -- 5,561
Douglas M. Easum(4) 1995 $125,300 -- -- $6,245
Vice President 1994 125,054 -- -- 5,795
Business Development 1993 121,967 -- $6,000(3) 6,232
Jimmy L. Harrison 1995 $100,670 $ 2,000 -- $5,450
Controller
</TABLE>
- ----------------------------
(1) Does not include the values of the personal use of Company paid club
memberships, nor the personal use of assets, facilities and services of
Company employees. The aggregate amount of additional benefits or
compensation to any of the individuals listed in the Summary
Compensation Table above did not exceed 10% of the reported
compensation.
(2) Represents the Company's annual contributions in 1995 to Kaneb's
defined thrift plan and the imputed value of Company-paid group term
life insurance.
(3) Represents a lump sum payment in lieu of cost-of-living salary
increases in 1992 and 1993.
(4) The Compensation for this individual is paid by Kaneb and Kaneb is
reimbursed for all or substantially all of such compensation by the
Company.
32
<PAGE> 33
Retirement Plan
Effective April 1, 1991, Kaneb established a defined contribution
thrift plan applicable to the Company that permits all full-time employees who
have completed one year of service to contribute 2% to 12% of base compensation,
on a pre-tax basis, into participant accounts. In addition to mandatory
contribution equal to 2% of base compensation per year for each plan
participant, the Company makes matching contributions from 25% to 50% of up to
the first 6% of base pay contributed by a plan participant. Employee
contributions, together with earnings thereon, are not subject to forfeiture.
That portion of a participant's account balance attributable to Company
contributions, together with earnings thereon, is vested over a five year period
at 20% per year. Participants are credited with their prior years of service
for vesting purposes, however, no amounts are accrued for the accounts of
participants, including the Company's executive officers, for years of service
previous to the plan commencement date. Participants may direct the investment
of their contributions into a variety of investments, including Kaneb common
stock. Plan assets are held and distributed pursuant to a trust arrangement.
Because levels of future compensation, participant contributions and investment
yields cannot be reliably predicted over the span of time contemplated by a plan
of this nature, it is impractical to estimate the annual benefits payable at
retirement to the individuals listed in the Summary Cash Compensation Table
above.
Director's Fees. During 1995, each member of the Company's Board of
Directors who was not also an employee of the Company or Kaneb was paid an
annual retainer of $4,000 in lieu of all attendance fees.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
At March 15, 1996, the Company owned a combined 2% General Partner
interest in the Partnership and the Operating Partnership, and owned Preference
Units, Preference B Units and Common Units representing an aggregate limited
partner interest of approximately 31%.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company is entitled to certain reimbursements under the Partnership
Agreement. For additional information regarding the nature and amount of such
reimbursements, see Notes 4 and 5 to the Partnership's financial statements.
33
<PAGE> 34
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Set forth below is a list of financial statements appearing in this report.
Kaneb Pipe Line Partners, L.P. and Subsidiaries Financial Statements:
Consolidated Statements of Income - Three Years Ended December 31, 1995 . . . . . . . F - 1
Consolidated Balance Sheets - December 31, 1995 and 1994 . . . . . . . . . . . . . . . F - 2
Consolidated Statements of Cash Flows - Three Years Ended December 31, 1995 . . . . . F - 3
Consolidated Statements of Partners' Capital -
Three years ended December 31, 1995. . . . . . . . . . . . . . . . . . . . . . . . . F - 4
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . F - 5
Report of Independent Accountants. . . . . . . . . . . . . . . . . . . . . . . . . . . F - 12
</TABLE>
(a) (2) FINANCIAL STATEMENT SCHEDULES
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
(a) (3) LIST OF EXHIBITS
3.1 Amended and Restated Agreement of Limited Partnership dated September
27, 1989, filed as Appendix A to the Registrant's Prospectus, dated
September 25, 1989, in connection with the Registrant's Registration
Statement on Form S-1, S.E.C. File No. 33-30330 and incorporated herein
by reference.
10.1 ST Agreement and Plan of Merger date December 21, 1992 by and between
Grace Energy Corporation, Support Terminal Services, Inc., Standard
Transpipe Corp., and Kaneb Pipe Line Operating Partnership, NSTS, Inc.
and NSTI, Inc. as amended by Amendment of STS Merger Agreement dated
March 2, 1993. Said document is on file as Exhibit 10.1 of the exhibits
to Registrant's report on Form 8-K filed with the Securities and
Exchange Commission on March 16, 1993, and said exhibit is hereby
incorporated by reference.
10.2 Note Purchase Agreement dated December 22, 1994. Said document is on
file as Exhibit 10.2 of the exhibits to Registrant's report on Form 8-K
filed on March 13, 1995, and said exhibit is hereby incorporated by
reference.
10.3 Restated Credit Agreement dated December 22, 1994 between Kaneb Pipe
Line Operating Partnership, L.P., Texas Commerce Bank National
Association, and certain Lenders. Said document is on file as Exhibit
10.3 of the exhibits to Registrant's report on Form 10-K filed for the
year ended December 31, 1994, and said exhibit is hereby incorporated by
reference.
10.4 Agreement for Sale and Purchase of Assets dated February 19, 1995 by and
among Wyco Pipe Line Company and Kaneb Pipe Line Operating Partnership,
L.P.. Said document is on file as Exhibit 10.1 of the exhibits to
Registrant's report on Form 8-K filed with the Securities and Exchange
Commission on March 13, 1995, and said exhibit is hereby incorporated by
reference.
10.5 Asset Purchase Agreement by and among Steuart Petroleum Company, SPC
Terminals, Inc., Support Terminals Operating Partnership, L.P. and Kaneb
Pipe Line Operating Partnership, L.P. dated August 27, 1995; Piney Point
Pipeline Asset Purchase Agreement by and among Piney Point Industries,
Inc., Support
34
<PAGE> 35
Teminals Operating Partnership, L.P. and Kaneb Pipe Line Operating
Partnership, L.P. dated August 27, 1995; Purchase Agreement by and among
Steuart Investment Company, Support Terminals Operating Partnership,
L.P. and Kaneb Pipe Line Operating Partnership, L.P. for Cockpit Point
dated August 27, 1995; Amendment to Asset Purchase Agreements by and
among Steuart Petroleum Company, SPC Terminals, Inc. Piney Point
Industries, Inc., Steuart Investment Company, Support Terminals Operating
Partnership, L.P. and Kaneb Pipe Line Operating Partnership, L.P. Said
documents are on file as Exhibits 10.1, 10.2, 10.3, and 10.4 of the
exhibits to Registrant's report on Form 8-K filed with the Securities and
Exchange Commission on January 3, 1996, and said exhibits are hereby
incorporated by reference.
10.6 Bridge Financing Agreement between Kaneb Pipe Line Operating
Partnership, L.P., as Borrower, Texas Commerce Bank National
Association, as Agent and Texas Commerce Bank National Association, as
initial Lender, as amended, dated December 18, 1995, filed herewith.
21 List of Subsidiaries, filed herewith.
24 Powers of Attorney, filed herewith.
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K - NONE.
35
<PAGE> 36
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------
1995 1994 1993
-------------- -------------- ---------------
<S> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . $ 96,928,000 $ 78,745,000 $ 69,235,000
-------------- -------------- ---------------
Costs and expenses:
Operating costs . . . . . . . . . . . . . 40,617,000 33,586,000 29,012,000
Depreciation and amortization . . . . . . 8,261,000 7,257,000 6,135,000
General and administrative . . . . . . . . 5,472,000 4,924,000 4,673,000
-------------- -------------- ---------------
Total costs and expenses . . . . . . . 54,350,000 45,767,000 39,820,000
-------------- -------------- ---------------
Operating income . . . . . . . . . . . . . . 42,578,000 32,978,000 29,415,000
Interest and other income . . . . . . . . . . 894,000 1,299,000 1,331,000
Interest expense . . . . . . . . . . . . . . (6,437,000) (3,706,000) (3,376,000)
-------------- -------------- ---------------
Income before minority
interest and income taxes . . . . . . . . 37,035,000 30,571,000 27,370,000
Minority interest in net income . . . . . . . (360,000) (295,000) (266,000)
Income tax provision . . . . . . . . . . . . (627,000) (818,000) (450,000)
-------------- -------------- ---------------
Net income . . . . . . . . . . . . . . . . 36,048,000 29,458,000 26,654,000
General partner's interest
in net income . . . . . . . . . . . . . . (360,000) (295,000) (266,000)
-------------- -------------- ---------------
in net income . . . . . . . . . . . . . . $ 35,688,000 $ 29,163,000 $ 26,388,000
============== ============== ===============
Allocation of net income per
Senior Preference Unit and
Preference Unit . . . . . . . . . . . . . $ 2.20 $ 2.20 $ 2.20
============== ============== ===============
</TABLE>
See notes to consolidated financial statements.
F-1
<PAGE> 37
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
ASSETS
1995 1994
----------------- -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . $ 6,307,000 $ 4,145,000
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . 10,210,000 5,605,000
Current portion of receivable from general partner . . . . . . . 2,571,000 2,241,000
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . 1,254,000 1,924,000
----------------- -----------------
Total current assets . . . . . . . . . . . . . . . . . . . . 20,342,000 13,915,000
----------------- -----------------
Receivable from general partner, less current portion . . . . . . . 974,000 3,544,000
----------------- -----------------
Property and equipment . . . . . . . . . . . . . . . . . . . . . . 323,671,000 214,556,000
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . 77,200,000 68,910,000
----------------- -----------------
Net property and equipment . . . . . . . . . . . . . . . . . 246,471,000 145,646,000
----------------- -----------------
$ 267,787,000 $ 163,105,000
================= =================
<CAPTION>
LIABILITIES AND PARTNERS' CAPITAL
<S> <C> <C>
Current liabilities:
Current portion of long-term debt . . . . . . . . . . . . . . . $ 1,777,000 $ 1,548,000
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . 3,022,000 4,007,000
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . 3,293,000 1,034,000
Accrued distributions payable . . . . . . . . . . . . . . . . . 9,016,000 7,240,000
Accrued taxes other than income . . . . . . . . . . . . . . . . 1,687,000 1,018,000
Deferred terminaling fees . . . . . . . . . . . . . . . . . . . 2,634,000 1,641,000
Payable to general partner . . . . . . . . . . . . . . . . . . . 963,000 786,000
----------------- -----------------
Total current liabilities . . . . . . . . . . . . . . . . . . 22,392,000 17,274,000
----------------- -----------------
Long-term debt, less current portion . . . . . . . . . . . . . . . 136,489,000 43,265,000
----------------- -----------------
Other liabilities and deferred taxes . . . . . . . . . . . . . . . 7,160,000 1,820,000
----------------- -----------------
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . 998,000 992,000
----------------- -----------------
Partners' capital:
Senior preference unitholders . . . . . . . . . . . . . . . . . 47,288,000 47,288,000
Preference unitholders . . . . . . . . . . . . . . . . . . . . . 37,239,000 45,247,000
Preference B unitholders . . . . . . . . . . . . . . . . . . . . 8,008,000 -
Common unitholders . . . . . . . . . . . . . . . . . . . . . . . 7,215,000 6,227,000
General partner . . . . . . . . . . . . . . . . . . . . . . . . 998,000 992,000
----------------- -----------------
Total partners' capital . . . . . . . . . . . . . . . . . . . 100,748,000 99,754,000
----------------- -----------------
$ 267,787,000 $ 163,105,000
================= =================
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 38
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1995 1994 1993
----------------- ----------------- ----------------
<S> <C> <C> <C>
Operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 36,048,000 $ 29,458,000 $ 26,654,000
----------------- ----------------- ----------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . 8,261,000 7,257,000 6,135,000
Minority interest in net income . . . . . . . . . . . . . 360,000 295,000 266,000
Deferred income taxes . . . . . . . . . . . . . . . . . . 624,000 626,000 414,000
Changes in working capital components:
Accounts receivable . . . . . . . . . . . . . . . . . . (4,605,000) (1,101,000) 2,873,000
Prepaid expenses . . . . . . . . . . . . . . . . . . . . 670,000 (257,000) (954,000)
Accounts payable and accrued expenses . . . . . . . . . 1,943,000 1,241,000 1,761,000
Deferred terminaling fees . . . . . . . . . . . . . . . 993,000 41,000 113,000
Payable to general partner . . . . . . . . . . . . . . . 177,000 293,000 (78,000)
----------------- ----------------- ----------------
Net cash provided by operating activities . . . . . . 44,471,000 37,853,000 37,184,000
----------------- ----------------- ----------------
Investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . (8,946,000) (7,147,000) (8,132,000)
Acquisitions of pipelines and terminals . . . . . . . . . . (97,850,000) (12,320,000) (62,677,000)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 2,429,000 203,000 242,000
----------------- ----------------- ----------------
Net cash used by investing activities . . . . . . . . (104,367,000) (19,264,000) (70,567,000)
----------------- ----------------- ----------------
Financing activities:
Changes in receivable from general partner . . . . . . . . . 2,240,000 1,954,000 1,704,000
Proceeds from issuance of partnership units . . . . . . . . - - 53,159,000
Issuance of long-term debt . . . . . . . . . . . . . . . . . 96,500,000 41,350,000 86,300,000
Payments of long-term debt . . . . . . . . . . . . . . . . . (3,047,000) (42,201,000) (62,677,000)
Distributions:
Senior preference unitholders . . . . . . . . . . . . . . (15,950,000) (15,950,000) (13,475,000)
Preference unitholders . . . . . . . . . . . . . . . . . . (12,430,000) (12,308,000) (19,286,000)
Common unitholders . . . . . . . . . . . . . . . . . . . . (4,582,000) (1,738,000) -
General partner and minority interest . . . . . . . . . . (673,000) (612,000) (669,000)
----------------- ----------------- ----------------
Net cash provided (used) by financing
activities . . . . . . . . . . . . . . . . . . . . . 62,058,000 (29,505,000) 45,056,000
----------------- ----------------- ----------------
Increase (decrease) in cash and cash equivalents . . . . . . . 2,162,000 (10,916,000) 11,673,000
Cash and cash equivalents at beginning of period . . . . . . . 4,145,000 15,061,000 3,388,000
----------------- ----------------- ----------------
Cash and cash equivalents at end of period . . . . . . . . . . $ 6,307,000 $ 4,145,000 $ 15,061,000
================= ================= ================
Supplemental information - Cash paid for interest . . . . . . . $ 5,479,000 $ 3,470,000 $ 3,375,000
================= ================= ================
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 39
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS CAPITAL
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
SENIOR
PREFERENCE PREFERENCE PREFERENCE B COMMON GENERAL
UNITHOLDERS UNITHOLDERS UNITHOLDERS UNITHOLDERS PARTNER TOTAL
----------- ----------- ----------- ----------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Partners' capital at
January 1, 1993 . . . . . . $ 23,934,000 $ 27,047,000 $ - $ 4,120,000 $ 556,000 $ 55,657,000
1993 income allocation . . . 14,342,000 19,286,000 - (7,240,000) 266,000 26,654,000
Allocation of proceeds
from issuance of
partnership units . . . . . 23,354,000 18,200,000 - 10,180,000 524,000 52,258,000
Distributions declared. . . . (14,342,000) (19,286,000) - - (343,000) (33,971,000)
------------ ------------ ---------- ----------- ---------- -------------
Partners' capital at
December 31, 1993. . . . . . 47,288,000 45,247,000 - 7,060,000 1,003,000 100,598,000
1994 income allocation. . . . 15,950,000 12,308,000 - 905,000 295,000 29,458,000
Distributions declared. . . . (15,950,000) (12,308,000) - (1,738,000) (306,000) (30,302,000)
------------ ------------ ---------- ------------ ---------- -------------
Partners' capital at
December 31, 1994 . . . . . 47,288,000 45,247,000 - 6,227,000 992,000 99,754,000
Unit Conversion . . . . . . . - (8,008,000) 8,008,000 - - -
1995 income allocation. . . . 15,950,000 11,880,000 550,000 7,308,000 360,000 36,048,000
Distribution declared . . . . (15,950,000) (11,880,000) (550,000) (6,320,000) (354,000) (35,054,000)
------------ ------------ ---------- ------------ ---------- -------------
Partners' capital at
December 31, 1995 . . . . . $ 47,288,000 $ 37,239,000 $8,008,000 $ 7,215,000 $ 998,000 $ 100,748,000
============ ============ ========== ============ ========== =============
Limited Partnership
Units outstanding at
January 1, 1993 . . . . . . 5,000,000 5,650,000 - 3,160,000 (a) 13,810,000
Limited Partnership
Units issued in 1993 . . . . 2,250,000 - - - 2,250,000
------------ ------------ ---------- ------------ ---------- -------------
Limited Partnership
Units outstanding at
December 31, 1994 . . . . . 7,250,000 5,650,000 - 3,160,000 (a) 16,060,000
Unit Conversion . . . . . . .
- (1,000,000) 1,000,000 - - -
------------ ------------ ---------- ------------ ---------- -------------
Limited Partnership
Units outstanding at
December 31, 1995 . . . . . 7,250,000(b) 4,650,000 1,000,000 3,160,000 (a) 16,060,000
============ ============ ========== ============ ========== =============
</TABLE>
(a) Kaneb Pipe Line Company owns a combined 2% interest in Kaneb Pipe
Line Partners, L.P. as General Partner.
(b) The Partnership Agreement allows for an additional issuance of up to 7.8
million senior preference units.
See notes to consolidated financial statements.
F-4
<PAGE> 40
1. PARTNERSHIP ORGANIZATION
Kaneb Pipe Line Partners, L.P. (the "Partnership"), a master
limited partnership, owns and operates a refined petroleum products
pipeline business and a petroleum products and specialty liquids storage
and terminaling business. The Partnership operates through Kaneb Pipe Line
Operating Partnership, L.P. ("KPOP"), a limited partnership in which the
Partnership holds a 99% interest as limited partner. Kaneb Pipe Line
Company (the "Company"), a wholly-owned subsidiary of Kaneb Services, Inc.
("Kaneb"), as general partner holds a 1% general partner interest in both
the Partnership and KPOP. The Company's 1% interest in KPOP is reflected
as the minority interest in the financial statements.
In April 1993, the Partnership completed a public offering of
2.25 million Senior Performance Units ("SPU") at $25.25 per unit. The net
proceeds from the offering of $52.8 million was allocated among the equity
accounts of the unitholders, general partner and minority interest based
on the ownership percentages of the partnership subsequent to the
offering. The Partnership believes this allocation approximates the
distribution of the net assets upon liquidation, assuming the Partnership
was liquidated at net book value. However, the actual distribution of the
net assets upon liquidation could be significantly different as a result
of the fair market value of the net assets being substantially different
than the net book value of the Partnership's assets in the accompanying
financial statements.
In September 1995, a subsidiary of the Company sold 3.5 million
of the Preference Units ("PU") it held in a public offering and exchanged
1.0 million of its PU's for 1.0 million Preference B Units, which are
subordinate to the PU's. At December 31, 1995, the Company owns an
approximate 31% interest as a limited partner in the form of Preference
Units, Preference B Units and Common Units, and as a general partner owns
a combined 2% interest. The SPU's represent an approximate 44% interest in
the Partnership and the 3.5 million publicly held Preference Units
represent an approximate 22% interest. An approximate 1% ownership
interest in the form of 60,500 PU's and 154,000 Common Units is held by
officers of Kaneb.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are followed by the
Partnership in the preparation of the consolidated financial statements.
The preparation of the Partnership's financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that effect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
CASH AND CASH EQUIVALENTS
The Partnership's policy is to invest cash in highly liquid
investments with maturities of three months or less, upon purchase.
Accordingly, uninvested cash balances are kept at minimum levels. Such
investments are valued at cost, which approximates market, and are
classified as cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are carried at historical cost. Certain
leases have been capitalized and the leased assets have been included in
property and equipment. Additions of new equipment and major renewals and
replacements of existing equipment are capitalized. Repairs and minor
replacements that do not materially increase values or extend useful lives
are expensed. Depreciation of property and equipment is provided on a
straight-line basis at rates based upon expected useful lives of various
classes of assets. The rates used for pipeline and storage facilities of
KPOP are the same as those which have been promulgated by the Federal
Energy Regulatory Commission.
REVENUE AND INCOME RECOGNITION
KPOP provides pipeline transportation of refined petroleum
products and liquified petroleum gases. Revenue is recognized upon receipt
of the products into the pipeline system.
F-5
<PAGE> 41
ST provides terminaling and other ancillary services. Fees are
billed one month in advance and are reported as deferred income. Revenue
is recognized in the month services are provided.
ENVIRONMENTAL MATTERS
The operations of the Partnership are subject to federal, state
and local laws and regulations relating to protection of the environment.
Although the Partnership believes its operations are in general compliance
with applicable environmental regulations, risks of additional costs and
liabilities are inherent in pipeline and terminal operations, and there
can be no assurance significant costs and liabilities will not be incurred
by the Partnership. Moreover, it is possible that other developments, such
as increasingly stringent environmental laws, regulations and enforcement
policies thereunder, and claims for damages to property or persons
resulting from the operations of the Partnership, could result in
substantial costs and liabilities to the Partnership.
Environmental expenditures that relate to current operations are
expensed or capitalized as appropriate. Expenditures that relate to an
existing condition caused by past operations, and which do not contribute
to current or future revenue generation, are expensed. Liabilities are
recorded when environmental assessments and/or remedial efforts are
probable, and the costs can be reasonably estimated. Generally, the timing
of these accruals coincides with the completion of a feasibility study or
the Partnership's commitment to a formal plan of action. The Partnership
has recorded a reserve for environmental claims in the amount of $5.2
million (including $4.4 million relating to the acquisitions of the West
Pipeline and Steuart - see Note 3) at December 31, 1995 in other
liabilities on the accompanying balance sheet.
The Company has indemnified the Partnership against liabilities
for damage to the environment resulting from operations of the pipeline
prior to October 3, 1989 (date of formation of the Partnership). The
indemnification does not extend to any liabilities that arise after such
date to the extent that the liabilities result from changes in
environmental laws and regulations. In addition, ST's former owner has
agreed to indemnify the Partnership against liabilities for damages to
the environment from operations conducted by the former owner prior
to March 2, 1993. The indemnity, which expires March 1, 1998, is limited
in amount to 60% of any claim exceeding $0.1 million, up to a maximum of
$10 million.
INCOME TAX CONSIDERATIONS
Income before income tax expense is made up of the following components:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------
1995 1994 1993
----------------- ----------------- -----------------
<S> <C> <C> <C>
Partnership operations . . . . . . . . . $ 35,269,000 $ 28,156,000 $ 26,088,000
1,406,000 2,120,000 1,016,000
Corporate operations . . . . . . . . . . ------------ ------------ ------------
$ 36,675,000 $ 30,276,000 $ 27,104,000
============ ============ ============
</TABLE>
Partnership operations are not subject to federal or state income
taxes. However, certain operations of ST are conducted through
wholly-owned corporate subsidiaries which are taxable entities. The
provision for income taxes for the periods ended December 31, 1995, 1994
and 1993 consists of deferred U.S. federal income taxes of $.6 million,
$.6 million and $.4 million, respectively, and current federal income
taxes of $.2 million in 1994. The net deferred tax liability of $1.7
million and $1.1 million at December 31, 1995 and 1994, respectively,
consists of deferred tax liabilities of $6.3 million and $4.3 million,
respectively, and deferred tax assets of $4.6 million and $3.2 million,
respectively. The deferred tax liabilites consists primarily of tax
depreciation in excess of book depreciation and the deferred tax assets
consists primarily of net operating losses. The corporate operations have
net operating losses for tax purposes totaling approximately $12.9 million
which expire in years 2008 and 2010.
Since the income or loss of the operations which are conducted
through limited partnerships will be included in the tax return of the
individual partners of the Partnership, no provision for income taxes has
been recorded in the accompanying financial statements on these earnings.
The tax returns of the Partnership are subject to examination by federal
and state taxing authorities. If such examination results in adjustments
to distributive shares of taxable income or loss, the tax liability of the
partners would be adjusted accordingly.
F-6
<PAGE> 42
The tax attributes of the Partnership's net assets flow directly to
each individual partner. Individual partners will have different
investment bases depending upon the timing and prices of acquisition of
partnership units. Further, each partner's tax accounting, which is
partially dependent upon their individual tax position, may
differ from the accounting followed in the financial statements.
Accordingly, there could be significant differences between each
individual partner's tax basis and their proportionate share of the net
assets reported in the financial statements. Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," requires
disclosure by a publicly held partnership of the aggregate difference in
the basis of its net assets for financial and tax reporting purposes.
Management does not believe that, in the Partnership's circumstances, the
aggregate difference would be meaningful information.
ALLOCATION OF NET INCOME AND EARNINGS
Net income is allocated to the limited partnership units in an
amount equal to the cash distributions declared for each reporting period
and any remaining income or loss is allocated to the class of units that
did not receive full distributions (if any). If full distributions are
declared to all classes of units, income will be allocated pro rata based
on the aggregate amount of distributions declared.
Earnings per SPU and PU are calculated by dividing the amount of
net income allocated to the SPU's and PU's by the weighted average number
of SPUs and PUs outstanding, respectively.
CASH DISTRIBUTIONS
The Partnership makes quarterly distributions of 100% of its
Available Cash, as defined in the Partnership Agreement, to holders of
limited partnership units ("Unitholders") and the Company. Available Cash
consists generally of all the cash receipts of the Partnership plus the
beginning cash balance less all of its cash disbursements and reserves.
The Partnership expects to make distributions of Available Cash for each
quarter of not less than $.55 per Unit (the "Minimum Quarterly
Distribution"), or $2.20 per Unit on an annualized basis, for the
foreseeable future, although no assurance is given regarding such
distributions. The Partnership expects to make distributions of all
Available Cash within 45 days after the end of each quarter to holders of
record on the applicable record date. A distribution of $2.20 per unit was
paid to Senior Preference Unitholders in 1995, 1994 and 1993. During 1995,
1994 and 1993, the Partnership paid distributions of $2.20, $2.20, and
$3.41 (includes $1.21 of arrearage payments), respectively, to the
Preference Unitholders. During 1995 and 1994, the Partnership paid
distributions of $1.45 and $.55, respectively, per unit to the Common
Unitholders. As of December 31, 1995, no arrearages existed on any class
of partnership interest.
Distributions by the Partnership of its Available Cash are made 99%
to Unitholders and 1% to the Company, subject to the payment of incentive
distributions to the General Partner if certain target levels of cash
distributions to the Unitholders are achieved. The distribution of
Available Cash for each quarter within the Preference Period, as defined,
is subject to the preferential rights of the holders of the Senior
Preference Units to receive the Minimum Quarterly Distribution for such
quarter, plus any arrearages in the payment of the Minimum Quarterly
Distribution for prior quarters, before any distribution of Available Cash
is made to holders of Preference Units, Preference B Units or Common Units
for such quarter. In addition, for each quarter within the Preference
Period, the distribution of any amounts to holders of Common Units is
subject to the preferential rights of the holders of the Preference B
Units to receive the Minimum Quarterly Distribution for such quarter, plus
any arrearages in the payment of the Minimum Quarterly Distribution for
prior quarters. The Common Units are not entitled to arrearages in the
payment of the Minimum Quarterly Distribution. In general, the Preference
Period will continue indefinitely until the Minimum Distribution has been
paid to the holders of the Senior Preference Units, the Preference Units,
the Preference B Units and the Common Units for twelve consecutive
quarters. The Minimum Quarterly distribution has been paid to all classes
of Unitholders for the quarters ended September 30 and December 31, 1995.
Prior to the end of the Preference Period, up to 2,650,000 of the
Preference Units and the Preference B Units may be converted into Senior
Preference Units on a one-for-one basis if the Third Target Distribution,
as defined, is paid to all Unitholders for four full consecutive quarters.
The Third Target distribution is reached when distributions of Available
Cash equals $2.80 per Limited Partner ("LP") Unit on an annualized basis.
After the Preference Period ends all differences and distinctions between
the three classes of units for the purposes of cash distributions will
cease.
F-7
<PAGE> 43
CHANGE IN PRESENTATION
Certain financial statement items for 1994 and 1993 have been
reclassified to conform with the 1995 presentation.
3. ACQUISITIONS
Effective March 1, 1993, the Partnership acquired Support Terminal
Services, Inc. ("ST"), a petroleum products and specialty liquids storage
and terminaling company headquartered in Dallas, Texas, for approximately
$65 million, including transaction costs. The acquisition was accounted
for as a purchase and, accordingly, the Partnership's consolidated
statements of income include the results of operations of ST since March
1, 1993. In connection with the acquisition, the Partnership borrowed $65
million from a group of banks, which was partially repaid with $50.8
million of the proceeds from a SPU offering. The remaining bank debt was
refinanced in December 1994 with the issuance of first mortgage notes.
In February 1995, the Partnership acquired, through KPOP, the
refined petroleum product pipeline assets (the "West Pipeline") of Wyco
Pipe Line Company for $27.1 million plus transaction costs and the
assumption of certain environmental liabilities. The West Pipeline was
owned 60% by a subsidiary of GATX Terminals Corporation and 40% by a
subsidiary of Amoco Pipe Line Company. The acquisition was financed by the
issuance of $27 million of first mortgage notes. The assets acquired from
Wyco Pipe Line Company did not include certain assets that were leased to
Amoco Pipe Line Company and the purchase agreement did not provide for
either (i) the continuation of an arrangement with Amoco Pipe Line Company
for the monitoring and control of pipeline flows or (ii) the extension or
assumption of certain credit agreements that Wyco Pipe Line Company had
with its shareholders.
In December 1995, the Partnership acquired the liquids
terminaling assets of Steuart Petroleum Company and certain of its
affiliates (collectively, "Steuart") for $68 million plus transaction
costs and the assumption of certain environmental liabilities. The
acquisition price was financed by a $68 million bank bridge loan. The
asset purchase agreement includes a provision for an earn-out payment
based upon revenues of one of the terminals exceeding a specified amount
for a seven-year period beginning in January 1996. The contracts also
include a provision for the continuation of all terminaling contracts in
place at the time of the acquisition, including those contracts with
Steuart.
The acquisitions have been accounted for using the purchase
method of accounting. The total purchase price has been allocated to the
assets and liabilities based on their respective fair values based on
valuations and other studies. The allocation of the Steuart purchase price
presented in the consolidated financial statements is preliminary and
subject to adjustment.
The following summarized unaudited pro forma consolidated results
of operations for the years ended December 31, 1995 and 1994, assume the
acquisitions occurred as of the beginning of each period presented. The
unaudited pro forma financial results have been prepared for comparative
purposes only and may not be indicative of the results that would have
occurred if the Partnership had acquired the pipeline assets of the West
Pipeline and the liquids terminaling assets of Steuart on the dates
indicated or which will be obtained in the future.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1995 1994
------------------ -----------------
(unaudited)
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . $ 117,870,000 $ 118,067,000
================== =================
Net Income . . . . . . . . . . . . . . . . . . . $ 35,690,000 $ 37,243,000
================== =================
Allocation of net income per SPU and PU . . . . $ 2.20 $ 2.20
================== =================
</TABLE>
F-8
<PAGE> 44
4. PROPERTY AND EQUIPMENT
The cost of property and equipment is summarized as follows:
<TABLE>
<CAPTION>
Estimated
Useful December 31,
Life ----------------------------------------
(Years) 1995 1994
------------- --------------- ---------------
<S> <C> <C> <C>
Land . . . . . . . . . . . . . . . . . - $ 9,557,000 $ 4,442,000
Buildings . . . . . . . . . . . . . . . 35 5,134,000 3,659,000
Furniture and fixtures . . . . . . . . 16 1,587,000 1,493,000
Transportation equipment . . . . . . . 6 1,691,000 1,193,000
Machinery and equipment . . . . . . . . 20 - 40 33,465,000 21,967,000
Pipeline and terminating equipment . . 20 - 40 248,274,000 156,990,000
Pipeline equipment under
capitalized lease . . . . . . . . . . 20 - 40 21,972,000 21,901,000
Construction work-in-progress . . . . . - 1,991,000 2,911,000
--------------- --------------
Total . . . . . . . . . . . . . . . . $ 323,671,000 $ 214,556,000
=============== ==============
</TABLE>
5. LONG-TERM DEBT AND LEASES
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1995 1994
------------------ ----------------
<S> <C> <C>
First mortgage notes . . . . . . . . . . . . . . . . . . . $ 60,000,000 $ 33,000,000
Bank bridge loan . . . . . . . . . . . . . . . . . . . . . 68,000,000 -
Obligation under capital lease . . . . . . . . . . . . . . 10,266,000 11,813,000
------------------ -----------------
Total long-term debt . . . . . . . . . . . . . . . . . . . 138,266,000 44,813,000
Less current portion . . . . . . . . . . . . . . . . . . . 1,777,000 1,548,000
------------------ -----------------
Long-term debt, less current portion . . . . . . . . . . . $ 136,489,000 $ 43,265,000
================== =================
</TABLE>
In 1994, a wholly-owned subsidiary of the Partnership issued $33
million of first mortgage notes ("Notes") to a group of insurance
companies. The Notes bear interest at the rate of 8.05% per annum and are
due on December 22, 2001. Also in 1994, another wholly-owned subsidiary
entered into a Restated Credit Agreement with a group of banks that
provides a $15 million revolving credit facility through November 30,
1997. The credit facility bears interest at variable interest rates and
has a commitment fee of .2% per annum of the unused credit facility. No
amounts were drawn under the credit facility at December 31, 1995 or 1994.
In 1995, the Partnership financed the acquisition of the West Pipeline
with the issuance of $27 million of Notes due February 24, 2002 which bear
interest at the rate of 8.37% per annum. The Notes and the credit facility
are secured by a mortgage on substantially all of the pipeline assets of
the Partnership and contain certain financial and operational covenants.
The acquisition of the Steuart terminaling assets has been initially
financed by a $68 million bridge loan from a bank. The bridge loan bears
interest at a variable rate based on the LIBOR rate plus 50 to 100 basis
points and its maturity has been extended until March 1997. The
Partnership expects to refinance this obligation under terms similar to
the Notes discussed above. The bridge loan is secured, pari passu with the
existing Notes and credit facility, by a mortgage on the East Pipeline.
F-9
<PAGE> 45
The following is a schedule by years of future minimum lease
payments under capital and operating leases together with the present
value of net minimum lease payments for capital leases as of December 31,
1995:
<TABLE>
<CAPTION>
Capital Operating
Year ending December 31: Lease (a) Leases
------------------- -----------------
<S> <C> <C>
1996 . . . . . . . . . . . . . . . . . . . . . . . . $ 3,080,000 $ 810,000
1997 . . . . . . . . . . . . . . . . . . . . . . . . 3,080,000 700,000
1998 . . . . . . . . . . . . . . . . . . . . . . . . 7,198,000 639,000
1999 . . . . . . . . . . . . . . . . . . . . . . . . - 500,000
2000 . . . . . . . . . . . . . . . . . . . . . . . . - 435,000
Thereafter . . . . . . . . . . . . . . . . . . . . . - 2,137,000
------------------- -----------------
Total minimum lease payments . . . . . . . . . . . . 13,358,000 $ 5,221,000
=================
Less amount representing interest . . . . . . . . . 3,092,000
-------------------
Present value of net minimum lease payments . . . . 10,266,000
Less current portion . . . . . . . . . . . . . . . . 1,777,000
-------------------
Total obligation under capital lease,
less current portion . . . . . . . . . . . . $ 8,489,000
===================
</TABLE>
(a) The capital lease is secured by certain pipeline equipment and the
Partnership has accrued its option to purchase this equipment for
approximately $4.1 million at the termination of the lease.
Total rent expense under operating leases amounted to $.9 million
for each of the years ended December 31, 1995, 1994 and 1993.
KPOP and the Company entered into a payment priority agreement
related to the capital lease obligation for pipeline equipment under which
the Company is primarily liable for rental payments of approximately $2.9
million per year through April 1997 and KPOP is primarily liable for the
remaining rental payments. KPOP has recorded a receivable of $3.5 million
at December 31, 1995 from the Company for the present value of these
future lease payments. This receivable bears interest at an annual rate of
13.8%, which reflects the imputed interest rate on the capital lease. KPOP
recorded interest income of $.7 million, $.9 million and $1.2 million from
the Company on this receivable balance for the periods ended December 31,
1995, 1994 and 1993, respectively. The amount of the capital lease
obligation that exceeds the receivable from the Company ($6.7 million at
December 31, 1995) represents the present value of the lease obligation
and purchase option due subsequent to April 1997.
The Partnership believes the carrying value of the Notes and the
bank bridge loan represent their estimated fair value and it is not
practicable to estimate the fair value of the capital lease obligation and
the associated receivable from the general partner.
6. RELATED PARTY TRANSACTIONS
The Partnership has no employees and is managed and controlled by
the Company. The Company and Kaneb are entitled to reimbursement of all
direct and indirect costs related to the business activities of the
Partnership. These costs, which totaled $9.5 million, $9.0 million and
$8.7 million for the years ended December 31, 1995, 1994 and 1993,
respectively, include compensation and benefits paid to officers and
employees of the Company and Kaneb, insurance premiums, general and
administrative costs, tax information and reporting costs, legal and audit
fees. Included in this amount is $7.7 million, $7.0 million and $7.0
million of compensation and benefits, including pension costs, paid to
officers and employees of the Company for the periods ended December 31,
1995, 1994 and 1993, respectively, which represent the actual amounts paid
by the Company or Kaneb. In addition, the Partnership paid $.2 million
during each of these respective periods for an allocable portion of the
Company's overhead expenses. At December 31, 1995 and 1994, the
Partnership owed the Company $1.0 million and $.8 million, respectively,
for these expenses which are due under normal invoice terms.
F-10
<PAGE> 46
7. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly operating results for 1995 and 1994 are summarized as follows:
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------------------------------
March 31, June 30, September 30, December 31,
----------------- ----------------- ----------------- --------------
<S> <C> <C> <C> <C>
1995:
Revenues . . . . . . . $ 20,382,000 $ 23,342,000 $ 26,533,000 $ 26,671,000
================= ================= ================ ================
Operating income . . . $ 8,626,000 $ 10,097,000 $ 10,863,000 $ 12,992,000
================= ================= ================ ================
Net income . . . . . . $ 7,299,000 $ 8,458,000 $ 9,209,000 $ 11,082,000
================= ================= ================ ================
Allocation of net
income per
SPU and PU . . . . . $ .55 $ .55 $ .55 $ .55
================= ================= ================ ================
1994:
Revenues . . . . . . . $ 18,434,000 $ 18,773,000 $ 20,718,000 $ 20,820,000
================= ================= ================ ================
Operating
income . . . . . . . $ 7,218,000 $ 8,107,000 $ 9,099,000 $ 8,554,000
================= ================= ================ ================
Net income . . . . . . $ 6,379,000 $ 7,289,000 $ 8,067,000 $ 7,723,000
================= ================= ================ ================
Allocation of net
income per
SPU and PU . . . . . $ .55 $ .55 $ .55 $ .55
================= ================= ================ ================
</TABLE>
F-11
<PAGE> 47
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Kaneb Pipe Line Partners, L.P.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) and (2) on page 34 present fairly, in all
material respects, the financial position of Kaneb Pipe Line Partners, L.P. and
its subsidiaries (the "Partnership") at December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Partnership's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Dallas, Texas
February 27, 1996
F-12
<PAGE> 48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Kaneb Pipe Line Partners, L.P. has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
KANEB PIPE LINE PARTNERS, L.P.
By: Kaneb Pipe Line Company
-----------------------
General Partner
By: EDWARD D. DOHERTY
-------------------------
(Edward D. Doherty)
Chairman of the Board and
Chief Executive Officer
Date: March 28, 1996
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of Kaneb
Pipe Line Partners, L.P. and in the capacities with Kaneb Pipe Line Company and
on the date indicated.
SIGNATURE TITLE DATE
--------- ----- ----
Principal Executive Officer
EDWARD D. DOHERTY
- ----------------------------
(Edward D. Doherty) Chairman of the Board and March 28, 1996
Chief Executive Officer
Principal Accounting Officer
JIMMY L. HARRISON
- ----------------------------
(Jimmy L. Harrison) Controller March 28, 1996
Directors
SANGWOO AHN
- ----------------------------
(Sangwoo Ahn) Director March 28, 1996
JOHN R. BARNES
- ----------------------------
(John R. Barnes) Director March 28, 1996
M.R. BILES
- ----------------------------
(M.R. Biles) Director March 28, 1996
CHARLES R. COX
- ----------------------------
(Charles R. Cox) Director March 28, 1996
EDWARD D. DOHERTY
- ----------------------------
(Edward D. Doherty) Director March 28, 1996
PRESTON A. PEAK
- ----------------------------
(Preston A. Peak) Director March 28, 1996
RALPH A. REHM
- ----------------------------
(Ralph A. Rehm) Director March 28, 1996
JAMES R. WHATLEY
- ----------------------------
(James R. Whatley) Director March 28, 1996
<PAGE> 49
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
------- -----------
3.1 Amended and Restated Agreement of Limited Partnership dated September
27, 1989, filed as Appendix A to the Registrant's Prospectus, dated
September 25, 1989, in connection with the Registrant's Registration
Statement on Form S-1, S.E.C. File No. 33-30330 and incorporated herein
by reference.
10.1 ST Agreement and Plan of Merger date December 21, 1992 by and between
Grace Energy Corporation, Support Terminal Services, Inc., Standard
Transpipe Corp., and Kaneb Pipe Line Operating Partnership, NSTS, Inc.
and NSTI, Inc. as amended by Amendment of STS Merger Agreement dated
March 2, 1993. Said document is on file as Exhibit 10.1 of the exhibits
to Registrant's report on Form 8-K filed with the Securities and
Exchange Commission on March 16, 1993, and said exhibit is hereby
incorporated by reference.
10.2 Note Purchase Agreement dated December 22, 1994. Said document is on
file as Exhibit 10.2 of the exhibits to Registrant's report on Form 8-K
filed on March 13, 1995, and said exhibit is hereby incorporated by
reference.
10.3 Restated Credit Agreement dated December 22, 1994 between Kaneb Pipe
Line Operating Partnership, L.P., Texas Commerce Bank National
Association, and certain Lenders. Said document is on file as Exhibit
10.3 of the exhibits to Registrant's report on Form 10-K filed for the
year ended December 31, 1994, and said exhibit is hereby incorporated by
reference.
10.4 Agreement for Sale and Purchase of Assets dated February 19, 1995 by and
among Wyco Pipe Line Company and Kaneb Pipe Line Operating Partnership,
L.P.. Said document is on file as Exhibit 10.1 of the exhibits to
Registrant's report on Form 8-K filed with the Securities and Exchange
Commission on March 13, 1995, and said exhibit is hereby incorporated by
reference.
10.5 Asset Purchase Agreement by and among Steuart Petroleum Company, SPC
Terminals, Inc., Support Terminals Operating Partnership, L.P. and Kaneb
Pipe Line Operating Partnership, L.P. dated August 27, 1995; Piney Point
Pipeline Asset Purchase Agreement by and among Piney Point Industries,
Inc., Support Teminals Operating Partnership, L.P. and Kaneb Pipe Line
Operating Partnership, L.P. dated August 27, 1995; Purchase Agreement by
and among Steuart Investment Company, Support Terminals Operating
Partnership, L.P. and Kaneb Pipe Line Operating Partnership, L.P. for
Cockpit Point dated August 27, 1995; Amendment to Asset Purchase
Agreements by and among Steuart Petroleum Company, SPC Terminals, Inc.
Piney Point Industries, Inc., Steuart Investment Company, Support
Terminals Operating Partnership, L.P. and Kaneb Pipe Line Operating
Partnership, L.P. Said documents are on file as Exhibits 10.1, 10.2,
10.3, and 10.4 of the exhibits to Registrant's report on Form 8-K filed
with the Securities and Exchange Commission on January 3, 1996, and said
exhibits are hereby incorporated by reference.
10.6 Bridge Financing Agreement between Kaneb Pipe Line Operating
Partnership, L.P., as Borrower, Texas Commerce Bank National
Association, as Agent and Texas Commerce Bank National Association, as
initial Lender, as amended, dated December 18, 1995, filed herewith.
21 List of Subsidiaries, filed herewith.
24 Powers of Attorney, filed herewith.
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.6
CONFORMED BRIDGE FINANCING AGREEMENT*
between
KANEB PIPE LINE OPERATING PARTNERSHIP, L.P.,
as Borrower,
TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
as Agent,
and
TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
as initial Lender
$68,000,000
DECEMBER 18, 1995
* Conformed as executed.
<PAGE> 2
TABLE OF CONTENTS
Exhibit 10.6
<TABLE>
<S> <C> <C>
SECTION 1 DEFINITIONS AND TERMS 1
1.1 Definitions 1
1.2 Time References 12
1.3 Other References 12
1.4 Accounting Principles 12
SECTION 2 BORROWINGS 12
2.1 Commitments 12
2.2 Borrowings 12
2.3 Termination 13
SECTION 3 PAYMENT TERMS 13
3.1 Notes and Payments 13
3.2 Interest and Principal Payments 13
3.3 Interest Options 14
3.4 Quotation of Rates 14
3.5 Default Rate 14
3.6 Interest Recapture 14
3.7 Interest Calculations 15
3.8 Maximum Rate 15
3.9 Interest Periods 15
3.10 Conversions 15
3.11 Order of Application 16
3.12 Sharing of Payments, Etc. 16
3.13 Offset 16
3.14 Booking Borrowings 16
3.15 Basis Unavailable or Inadequate for LIBOR Rate 16
3.16 Additional Costs 17
3.17 Change in Laws 18
3.18 Foreign Lenders 18
3.19 Funding Loss 18
SECTION 4 FEES 18
4.1 Treatment of Fees 18
4.2 Agent's and Syndication Agents' Fees 18
4.3 Commitment Fee 18
SECTION 5 SECURITY 19
5.1 Guaranty 19
5.2 Collateral 19
5.3 Additional Security and Guaranties 19
5.4 Collateral Documentation 19
SECTION 6 CONDITIONS PRECEDENT 19
6.1 Initial Borrowing 19
6.2 All Borrowings 19
6.3 General 19
SECTION 7 REPRESENTATIONS AND WARRANTIES 20
7.1 Purpose of Credit Facility 20
7.2 Existence, Good Standing, and Authority 20
7.3 Subsidiaries 20
7.4 [INTENTIONALLY BLANK] 20
</TABLE>
(ii)
<PAGE> 3
<TABLE>
<S> <C> <C>
7.5 Authorization and Contravention 20
7.6 Binding Effect 20
7.7 Financial Statements 20
7.8 Litigation 21
7.9 Taxes 21
7.10 Environmental Matters 21
7.11 Employee Plans 21
7.12 Properties; Liens 21
7.13 Government Regulations 21
7.14 Affiliate Transactions 22
7.15 [INTENTIONALLY BLANK]. 22
7.16 Material Agreements 22
7.17 Insurance 22
7.18 Labor Matters 22
7.19 Solvency 22
7.20 Trade Names 22
7.21 Intellectual Property 22
7.22 Full Disclosure 22
SECTION 8 AFFIRMATIVE COVENANTS 23
8.1 Items to be Furnished 23
8.2 Use of Proceeds 24
8.3 Books and Records 24
8.4 Inspections 24
8.5 Taxes 25
8.6 Payment of Obligations 25
8.7 Expenses 25
8.8 Maintenance of Existence, Assets, and Business 25
8.9 Insurance 25
8.10 Preservation and Protection of Rights; Separate Legal Entities 25
8.11 Environmental Laws 25
8.12 Subsidiaries 26
8.13 Indemnification 26
SECTION 9 NEGATIVE COVENANTS 26
9.1 Taxes 26
9.2 Employee Plans 26
9.3 Funded Debt 26
9.4 Liens 27
9.5 Affiliate Transactions 28
9.6 Compliance with Laws and Documents 28
9.7 Loans, Advances, and Investments 28
9.8 Distributions 28
9.9 Asset Transfers 30
9.10 Dissolutions, Mergers, and Consolidations 31
9.11 Assignment 31
9.12 Fiscal Year and Accounting Methods 32
9.13 New Businesses 32
9.14 Government Regulations 32
SECTION 10 FINANCIAL COVENANTS 32
10.1 Current Ratio 32
10.2 Tangible Net Worth 32
10.3 Leverage Ratio 32
</TABLE>
(iii)
<PAGE> 4
<TABLE>
<S> <C> <C>
10.4 Fixed Charges Coverage Ratio 32
SECTION 11 DEFAULT 32
11.1 Obligation 32
11.2 Covenants 32
11.3 Debtor Relief 33
11.4 Misrepresentation 33
11.5 Judgments and Attachments 33
11.6 1994 Credit Agreement, Note Agreements, or Intercreditor Agreement 33
11.7 Default Under Other Agreements 33
11.8 Validity and Enforceability of Loan Papers 33
11.9 Change of Control 33
11.10 KPC Merger or Consolidation 33
SECTION 12 RIGHTS AND REMEDIES 34
12.1 Remedies Upon Default 34
12.2 KPP Company Waivers. 34
12.3 Performance by Agent 34
12.4 Not in Control 34
12.5 Course of Dealing 34
12.6 Cumulative Rights 35
12.7 Application of Proceeds 35
12.8 Diminution in Value of Collateral 35
12.9 Certain Proceedings 35
SECTION 13 AGREEMENT AMONG LENDERS 35
13.1 Agent 35
13.2 Expenses 36
13.3 Proportionate Absorption of Losses 37
13.4 Delegation of Duties; Reliance 37
13.5 Limitation of Agent's Liability 37
13.6 Default; Collateral 38
13.7 Limitation of Liability 38
13.8 Relationship of Lenders 38
13.9 Collateral Matters. 38
13.10 Benefits of Agreement 39
SECTION 14 MISCELLANEOUS 39
14.1 Nonbusiness Days 39
14.2 Communications 39
14.3 Form and Number of Documents 39
14.4 Exceptions to Covenants 40
14.5 Survival 40
14.6 Governing Law 40
14.7 Invalid Provisions 40
14.8 Venue; Service of Process; Jury Trial 40
14.9 Amendments, Consents, Conflicts, and Waivers 40
14.10 Multiple Counterparts 41
14.11 Successors and Assigns; Participations 41
14.12 Discharge Only Upon Payment in Full; Reinstatement in Certain Circumstances 43
14.13 Entirety 43
</TABLE>
(iv)
<PAGE> 5
SCHEDULES AND EXHIBITS
<TABLE>
<S> <C>
Schedule 2.1 Lenders, Commitments, and Wiring Instructions
Schedule 6.1 Closing Documents
Schedule 7.2 Jurisdictions of Organization and Business
Schedule 7.3 Organizational Structure
Schedule 7.8 Litigation
Schedule 7.10 Environmental Matters
Schedule 7.16 Material Agreements
Schedule 7.20 Trade Names
Schedule 8.9 Insurance
Schedule 9.7 Permitted Investments
Exhibit A Promissory Note
Exhibit B Guaranty
Exhibit C-1 Amendment to Intercreditor Agreement
Exhibit C-2 Amendment to Pledge Agreement
Exhibit C-3 Modification to Mortgage
Exhibit D-1 Notice of Borrowing
Exhibit D-2 Notice of Conversion
Exhibit D-3 Compliance Certificate
Exhibit D-4 Financial Statements Certificate
Exhibit E Opinion of General Counsel
Exhibit F Assignment
</TABLE>
(v)
<PAGE> 6
BRIDGE FINANCING AGREEMENT
THIS AGREEMENT is entered into as of December 18, 1995, between KANEB
PIPE LINE OPERATING PARTNERSHIP, L.P., a Delaware limited partnership
("BORROWER"), Lenders (defined below), and TEXAS COMMERCE BANK NATIONAL
ASSOCIATION as agent for Lenders. Terms used in this agreement are defined in
SECTION 1.
A. Borrower and STOP have entered into the Acquisition Agreement
with Steuart Petroleum and certain of its Affiliates for the purpose of
acquiring the Steuart Assets. Borrower has requested Agent and Lenders to
enter into this agreement to provide Borrowings (that may never exceed the
total Commitments) to Borrower on a revolving basis to finance, in part, the
acquisition of the Steuart Assets.
B. As of December 22, 1994 (1) Borrower, Agent, and certain
financial institutions entered into the December Credit Agreement, (2) Borrower
and the other KPP Companies entered into the Note Agreements with Noteholders,
and (3) Collateral Trustee, Agent, those certain financial institutions, and
Noteholders entered into -- and Borrower and the other KPP Companies consented
to -- the Intercreditor Agreement.
C. The Obligation under this agreement is (1) "Qualifying Debt,"
as that term is defined in the 1994 Credit Agreement, the Note Purchase
Agreements, and the Intercreditor Agreement and (2) therefore permitted to be
secured by the Collateral on a pari passu basis with the indebtedness under the
December Credit Agreement and the Note Agreements.
D. Subject to and upon the terms and conditions of the Loan
Papers, Agent and Lenders have agreed to extend Borrowings under the agreement
to Borrower.
ACCORDINGLY, for adequate and sufficient consideration, Borrower,
Lenders, and Agent agree as follows:
SECTION I. DEFINITIONS AND TERMS.
1.1 Definitions. As used in the Loan Papers:
ACQUISITION AGREEMENT means, collectively, (a) the Asset Purchase
Agreement dated as of August 27, 1995, between Steuart Petroleum, SPC
Terminals, Incorporated, STOP, and Borrower, (b) the Piney Point Pipeline Asset
Purchase Agreement, dated as of August 27, 1995, between Piney Point
Industries, Inc., STOP, and Borrower, and (c) the Purchase Agreement dated as
of August 27, 1995, between Steuart Investment Company, STOP, and Borrower, for
the purchase of assets at Cockpit Point, as each may be amended from time to
time, providing for the purchase by STOP of the Steuart Assets and the guaranty
of STOP's payment and performance under each of the above by Borrower.
ACTUAL TERMINATION DATE means the earlier of either (a) the Stated
Termination Date or (b) the effective date that the Commitments are otherwise
canceled or terminated under this agreement.
AFFILIATE of a Person means any other individual or entity who
(directly or indirectly through ownership, voting securities, contract, or
otherwise) controls, is controlled by, or under common control with that
Person. For purposes of this definition (a) "control" or similar terms mean
the power to direct or cause the direction of management or policies of that
Person, but (b) none of the KPP Companies or Restricted Subsidiaries at any
time are "Affiliates" of each other.
AGENT means, at any time, Texas Commerce Bank National Association (or
its successor appointed under SECTION 13) acting as agent for Lenders under the
Loan Papers.
ALTERNATE BASE RATE means, for any day, the annual interest rate
(rounded upward, if necessary, to the nearest 0.0625%) equal to the highest of
either (a) the Prime Rate, (b) the Secondary CD Rate plus 1%, or (c) the
Federal Funds Rate plus 0.50%.
<PAGE> 7
ALTERNATE BASE RATE BORROWING means a Borrowing bearing interest at the
Alternate Base Rate.
BANK OF SCOTLAND LOAN AGREEMENT means the Loan Agreement dated as of
December 1, 1995, between KSI, KPC, and Bank of Scotland, providing for a
revolving line of credit up to an aggregate amount of $15,000,000.
BORROWER is defined in the preamble to this agreement.
BORROWER COMPANIES means Borrower and its Subsidiaries (other than,
for all purposes except financial reporting and financial covenant
calculations, its Insignificant Subsidiaries).
BORROWER PARTNERSHIP AGREEMENT means the Amended and Restated
Agreement of Limited Partnership of Kaneb Pipe Line Operating Partnership,
L.P., dated September 27, 1989, a certified copy of which has been delivered to
Agent under SCHEDULE 6.1.
BORROWING means any amount disbursed (a) by one or more Lenders to
Borrower under the Loan Papers, either as an original disbursement of funds or
the continuation of an outstanding amount, or (b) by any Agent or Lender in
accordance with, and to satisfy the obligations of any KPP Company under, any
Loan Paper.
BORROWING DATE is defined in SECTION 2.2(a).
BUSINESS DAY means (a) for all purposes, any day other than Saturday,
Sunday, and any other day that commercial banks are authorized by Law to be
closed in Texas or New York and (b) for purposes of any LIBOR Rate Borrowing, a
day when commercial banks are open for international business in London.
CLOSING DATE means the initial Borrowing Date, which must be no later
than December 19, 1995, if ever.
CODE means the Internal Revenue Code of 1986.
COLLATERAL means all types and items of property described as
collateral in the Security Documents.
COLLATERAL TRUSTEE means, at any time, Texas Commerce Bank National
Association (or its successor appointed under the Intercreditor Agreement)
acting as collateral trustee under the Intercreditor Agreement, Mortgage, and
Pledge Agreement.
COMMITMENT means, for each Lender, the amount stated beside its name
on SCHEDULE 2.1, which amount is subject to reduction and cancellation under
this agreement.
COMMITMENT PERCENTAGE means, for any Lender, the proportion (stated as
a percentage) that its Commitment bears to the total Commitments.
COMPLIANCE CERTIFICATE means, for any Person, a certificate
substantially in the form of EXHIBIT D-3 and signed by a Responsible Officer of
that Person.
CURRENT FINANCIALS means, for KPP or Borrower, as the case may be (a)
either (i) their respective consolidated Financial Statements for the year
ending December 31, 1994, together with their Financial Statements for the
portion of the fiscal year ending on September 30, 1995, or (ii) at any time
after their respective annual Financial Statements are first delivered under
SECTION 8.1, their annual consolidated Financial Statements then most recently
delivered to Lenders under SECTION 8.1, together with their quarterly Financial
Statements then most recently delivered to Lenders under SECTION 8.1, but (b)
does not include the results of operation and cash flows for any Company
(except for Steuart Petroleum) for the time period before it becomes a member
of KPP's or Borrower's, as the case may be, consolidated group except
<PAGE> 8
for any periods for which that Company's Financial Statements were audited by
an accounting firm reasonably acceptable to Agent.
DEBT -- for any Person, at any time, and without duplication -- means
(a) any obligation of that Person either for borrowed money or incurred for the
purchase price of assets or services, (b) any indebtedness or obligation
secured by or constituting a Lien on property of that Person, whether or not
that Person is directly liable for that indebtedness or obligation, (c) the
face amount of all letters of credit, bankers' acceptances, or similar
facilities, whether drawn or undrawn, for which that Person is the account
party, (d) every lease obligation that should under GAAP be reflected on that
Person's balance sheet as a capitalized-lease obligation, (e) the net amount
payable by that Person for settlement of all interest-rate swaps or similar
arrangements (based on the assumption that each such swap or similar
arrangement terminated) as of the end of the most-recently-ended-fiscal quarter
of that Person, and (f) all Guaranty Liabilities of that Person in respect of
Debt of any other person or entity.
DEBTOR LAWS means the Bankruptcy Code of the United States of America
and all other applicable liquidation, conservatorship, bankruptcy, moratorium,
rearrangement, receivership, insolvency, reorganization, suspension of
payments, fraudulent transfer or conveyance, or similar Laws generally
affecting creditors' Rights.
DEFAULT is defined in SECTION 11.
DEFAULT PERCENTAGE means, for any Lender, the proportion (stated as a
percentage) that the Principal Debt owed to it bears to the total Principal
Debt.
DEFAULT RATE means, for any day, an annual interest rate equal from
day to day to the lesser of either (a) the then-existing Alternate Base Rate
plus 2.0% or (b) the Maximum Rate.
DETERMINING LENDERS means, at any time, any combination of Lenders
holding at least 51% of either the total Commitments or, if the Commitments
have been canceled or terminated, the Principal Debt.
DISTRIBUTION, for any shares of any capital stock, partnership units
or interests, or other equity securities or interests (for purposes of this
definition, "SECURITIES") issued by a Person, means (a) the retirement,
redemption, purchase, or other acquisition for value of those securities, (b)
the declaration or payment of any dividend or other distribution with respect
to those securities, (c) any loan or advance by that Person to, or other
investment by that Person in, the holder of any of those securities, and (d)
any other payment by that Person with respect to those securities.
EBITDA -- for any Person, for any period, and without duplication --
means the sum of net income plus (to the extent actually deducted in
calculating net income) deferred Taxes, depreciation, amortization, and cash
interest payments on Debt (including the interest portion of capitalized
leases).
(a) For the purpose of determining LIBOR Rate, whether
Funded Debt may be assumed or incurred in connection with the purchase
of assets of any Person or in connection with a merger or
consolidation, and the ratios described in SECTIONS 10.3 and 10.4:
(i) the determination of consolidated EBITDA for
any 12-calendar-month period includes the consolidated EBITDA
attributable solely to the assets or Person that has been or
is proposed to be purchased or merged or consolidated with for
that period, after elimination of the portions of earnings
included in that consolidated EBITDA that are or may be
attributable to (A) operations to be discontinued, (B) sources
of revenues that are unavailable to the KPP Companies after
the purchase, merger, or consolidation, (C) the gain (net of
any Tax effect) resulting from the sale of any capital assets
other than in the ordinary course of business, (D) the total
amount of unusual or nonrecurring gains (net of any Tax
effect), and (E) other adjustments (such as additional or
increased expenses) appropriate to reflect the earnings that
would have been realized by the KPP Companies had the purchase
of property or Person or the merger or consolidation occurred
at the inception of that period; only if
<PAGE> 9
(ii) KPP's chief financial officer provides to
Agent a certificate, in form and substance acceptable to
Agent, reflecting the determination of the earnings so
attributable to that property or Person, which certificate
must specifically be based upon, reference and attach either
(A) audited Financial Statements that reflect the earnings
figures used in that determination and any other source of
information used in that certificate or (B) unaudited
Financial Statements that reflect the earnings figures used in
that determination, which must be prepared in accordance with
GAAP (and be accompanied by a certificate of that chief
financial officer certifying that they were so prepared), be
in form and detail (and otherwise) acceptable to Determining
Lenders in their reasonable discretion.
(b) For purposes of this definition, the term net income
in respect of KPP and its Subsidiaries excludes (i) portions of
earnings properly attributable to minority interests (but without
excluding the portion of earnings attributable to KPC's 1% general
partnership ownership in Borrower), (ii) the loss or earnings of any
Subsidiary that is not consolidated with KPP for financial reporting
purposes, (iii) except as otherwise expressly provided, the loss or
earnings of any Subsidiary for the period before it became a
Subsidiary, (iv) the loss or gain of any sale of any capital assets
other than in the ordinary course of business, and (iv) all
nonrecurring losses or gains (net of any Tax effect).
EMPLOYEE PLAN means an employee pension benefit plan covered by Title
IV of ERISA and established or maintained by any KPP Company.
ENVIRONMENTAL LAW means any Law that relates to the pollution or
protection of the environment or to Hazardous Substances.
ERISA means the Employee Retirement Income Security Act of 1974.
FEDERAL-FUNDS RATE means, for any day, the annual rate (rounded
upwards, if necessary, to the nearest 0.01%) determined (which determination is
conclusive and binding, absent manifest error) by Agent to be equal to (a) the
weighted average of the rates on overnight federal-funds transactions with
member banks of the Federal Reserve System arranged by federal-funds brokers on
that day, as published by the Federal Reserve Bank of New York on the next
Business Day, or (b) if those rates are not published for any day, the average
of the quotations at approximately 10:00 a.m. received by Agent from three
federal-funds brokers of recognized standing selected by Agent in its sole
discretion.
FINANCIAL HEDGE means a swap, collar, floor, cap, or other contract
between Borrower and Agent or any Lender or another Person reasonably
acceptable to Determining Lenders, which is intended to reduce or eliminate the
risk of fluctuations in interest rates and which is legal and enforceable under
applicable Law.
FINANCIAL STATEMENTS, for a Person, means balance sheets, profit and
loss statements, reconciliations of capital and surplus or partners' capital
accounts, and statements of cash flow prepared (a) according to GAAP, (b)
except as stated in SECTION 1.4, in comparative form to prior year-end figures
or corresponding periods of the preceding fiscal year, as applicable, and (c)
on a consolidated basis if that Person had any consolidated Subsidiaries during
the applicable period.
FINANCIAL STATEMENTS CERTIFICATE means a certificate substantially in
the form of EXHIBIT D-4
FUNDED DEBT -- for any Person, at any time, and without duplication --
means (a) any obligation (including, without limitation, the scheduled current
portion of that obligation) of that Person (i) either for borrowed money or
incurred for the purchase price of assets or services and (ii) which has a
final maturity of (or is renewable or extendable at that Person's option to a
final maturity beyond) one year or more from the date that obligation was
incurred, (b) any indebtedness or obligation secured by or constituting a Lien
on property of that Person, whether or not that Person is directly liable for
that indebtedness or obligation, (c) the face amount of all letters of credit,
bankers' acceptances, or similar facilities, whether drawn or
<PAGE> 10
undrawn, for which that Person is the account party and which have a final
maturity of one year or more from the date of issuance or creation, as the case
may be, (d) every lease obligation that should under GAAP be reflected on that
Person's balance sheet as a capitalized-lease obligation, (e) the net amount
payable by that Person for settlement of all interest-rate swaps or similar
arrangements (based on the assumption that each such swap or similar
arrangement terminated) as of the end of the most-recently-ended-fiscal quarter
of that Person, and (f) all Guaranty Liabilities of that Person in respect of
Funded Debt of any other person or entity.
FUNDING LOSS means any loss or expense that any Lender reasonably
incurs because (a) Borrower fails or refuses (for any reason whatsoever other
than a default by Agent or the Lender claiming such loss or expense) to take
any Borrowing that it has requested under this agreement, or (b) Borrower
prepays or pays any LIBOR Rate Borrowing or converts any LIBOR Rate Borrowing
to an Alternate Base Rate Borrowing, in each case, before the last day of the
applicable Interest Period.
GAAP means generally accepted accounting principles of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
the Financial Accounting Standards Board that are applicable from time to time.
GECC LEASES means the equipment leases, as amended, dated December 1,
1981, and March 31, 1982, executed by First Security Bank of Utah, N.A., and
Robert S. Clark (each acting as a trustee under a trust indenture dated
December 1, 1981), General Electric Capital Corporation (as lessor), and KPC
(as original lessee), all of KPC's obligations under which have been assumed by
Borrower under an assumption agreement dated September 21, 1989.
GUARANTORS means KPP, STS, STOP, and STI.
GUARANTY means the Guaranty substantially in the form of EXHIBIT B.
GUARANTY LIABILITY -- of any Person, at any time, and without
duplication -- means (a) any guarantee or endorsement by that Person of
obligations of any other person or entity (other than endorsements for purposes
of collection in the ordinary course of business), (b) any obligation of that
Person to purchase goods, services, notes, or securities for the purpose of
supplying funds for the purchase, payment, or satisfaction of (or measured by)
any obligations of any other person or entity, (c) any other contingent
obligation of that Person in respect of, or to purchase or otherwise acquire or
service, obligations of, any other person or entity, (d) any obligation of that
Person, whether or not contingent, in respect of the obligations of a general
or limited partnership of which that Person is a general partner (unless the
holder of that obligation has agreed to waive all recourse to that Person for
that obligation), and (e) every obligation of that Person for obligations of
any other person or entity if that Person has in effect guaranteed by an
agreement (contingent or otherwise) to (i) make a loan, advance, or capital
contribution to, or other investment in, that other person or entity for the
purpose of assuring or maintaining a minimum equity, asset base, working
capital, or other balance sheet condition for that other person or entity on
any date, (ii) provide funds for the payment of any liability, dividend, or
stock liquidation payment of or by that other person or entity, or (iii)
otherwise supply funds to or in any manner invest in that other person or
entity for that purpose.
HAZARDOUS SUBSTANCE means any substance (a) the presence of which
requires removal, remediation, or investigation under any Environmental Law, or
(b) that is defined or classified as a hazardous waste, hazardous material,
pollutant, contaminant, or toxic or hazardous substance under any Environmental
Law.
INSIGNIFICANT SUBSIDIARY means a Subsidiary that contributes less than
5% of its parent's consolidated EBITDA, except that (a) if all of the
Subsidiaries that would have otherwise been "Insignificant Subsidiaries" of a
common parent collectively contribute 5% or more of the parent's consolidated
EBITDA, then none of those Subsidiaries are "Insignificant Subsidiaries," and
(b) no KPP Company or Restricted Subsidiary is ever an "Insignificant
Subsidiary" under any circumstances.
<PAGE> 11
INTERCREDITOR AGREEMENT means the Collateral Trust and Intercreditor
Agreement dated as of December 22, 1994, between Texas Commerce Bank National
Association as Agent under the 1994 Credit Agreement, certain financial
institutions as Lenders under the 1994 Credit Agreement, Noteholders, and
Collateral Trustee, and consented to by each KPP Company, as amended by, among
other things, an amendment in substantially the form of EXHIBIT C-1.
INTEREST PERIOD is determined in accordance with SECTION 3.9.
KPC means Kaneb Pipe Line Company, a Delaware corporation.
KPC COMPANIES means KPC and its Subsidiaries (other than its
Insignificant Subsidiaries).
KPP means Kaneb Pipe Line Partners, L.P., a Delaware limited
partnership.
KPP COMPANIES means KPP, Borrower, STS, STOP, and STI.
KPP PARTNERSHIP AGREEMENT means the Amended and Restated Agreement of
Limited Partnership of Kaneb Pipe Line Partners, L.P., dated April 26, 1993, a
certified copy of which has been delivered to Agent under SCHEDULE 6.1.
KSI means Kaneb Services, Inc., a Delaware corporation.
LAWS means all applicable statutes, laws, treaties, ordinances, rules,
regulations, orders, writs, injunctions, decrees, judgments, opinions, and
interpretations of any Tribunal.
LENDER LIENS means Liens in favor of Agent for Lenders, in favor of
any Lender, or in favor of Collateral Trustee and securing any of the
Obligation, which Liens are, unless otherwise specified, subject to the
Intercreditor Agreement until it has been terminated.
LENDERS means the financial institutions -- including, without
limitation, Agent (in respect of its share of Borrowings) -- named on SCHEDULE
2.1 or on the most recently amended SCHEDULE 2.1, if any, delivered by Agent
under this agreement, and, subject to this agreement, their respective
successors and assigns (but not any Participant who is not otherwise a party to
this agreement).
LIBOR RATE means, for a LIBOR Rate Borrowing and for its Interest
Period, the annual interest rate (rounded upward, if necessary, to the nearest
0.01%) equal to the sum of:
(a) The quotient obtained by dividing (i) the rate that
deposits in United States dollars are offered by major banks to other
major banks in the London interbank market at approximately 11:00 a.m.
(London time) two Business Days before the first day of that Interest
Period in an amount comparable to the amount of that LIBOR Rate
Borrowing and having a maturity approximately equal to the applicable
Interest Period, by (b) one minus the Reserve Requirement (expressed
as a decimal) for that relevant Interest Period; plus
<PAGE> 12
(b) A margin of interest that, for any day, is determined
on the basis of the ratio of the KPP's consolidated Funded Debt to
EBITDA as follows:
RATIO OF FUNDED DEBT TO EBITDA MARGIN
================================================================
2.75 to 1.00 or more 1.000%
----------------------------------------------------------------
Less than 2.75 to 1.00, but 2.25 to 1.00 or more 0.750%
----------------------------------------------------------------
Less than 2.25 to 1.00, but 1.50 to 1.00 or more 0.625%
----------------------------------------------------------------
Less than 1.50 0.500%
================================================================
For purposes of calculating that ratio, EBITDA is calculated for the
KPP Companies' most recently-completed- four-fiscal quarters, and
Funded Debt is determined as of the day the margin of interest is
determined. EBITDA is determined from the Current Financials and
related Compliance Certificate then most recently delivered to Agent,
effective as of the date received by Agent. If Borrower fails to
timely furnish to Agent any Financial Statements and related
Compliance Certificates required by this agreement, then the margin of
1.000% shall apply and remain in effect until Borrower furnishes them
to Agent.
LIBOR RATE BORROWING means a Borrowing bearing interest at the LIBOR
Rate.
LIEN means, with respect to any asset, any Right or interest in that
asset of a creditor to secure obligations, indebtedness, or claims owed to that
creditor or any other arrangement with that creditor that provides for the
payment of that obligation, indebtedness, or claim out of that asset or which
allows that creditor to have that obligation, indebtedness, or claim satisfied
out of that asset in priority to the general creditors of any owner of it,
including, without limitation (a) any lien, mortgage, security interest,
pledge, deposit, production payment, Rights of a vendor under any title
retention or conditional sale agreement or lease substantially equivalent to
it, Tax lien, mechanic's or materialman's lien, any other charge or encumbrance
for security purposes, whether arising by Law or agreement, or otherwise, and
(b) any filed financing statement, any registration of a pledge (such as with
an issuer of unregistered securities), or any other arrangement or action which
would serve to perfect a Lien otherwise described above, regardless of whether
that financing statement is filed, registration is made, or arrangement or
action is undertaken before or after the Lien exists.
LITIGATION means any action by or before any Tribunal.
LOAN PAPERS means (a) this agreement, certificates and reports
delivered under this agreement, and exhibits and schedules attached to this
agreement, (b) the Notes, the Security Documents, and all other agreements,
documents, and instruments in favor of Agent or Lenders (or Agent on behalf of
Lenders) ever delivered under this agreement, (c) any Financial Hedge between
Borrower and any Lender, and (d) all renewals, extensions, refinancings, and
restatements of, and amendments and supplements to, any of the foregoing.
MATERIAL ADVERSE EVENT means any circumstance or event that,
individually or collectively, reasonably is expected to result in any (a)
impairment of the ability of any party (other than Agent and Lenders) to any
Loan Paper to perform any of its payment or other material obligations under
any Loan Paper or the ability of Agent or any Lender to enforce any of those
obligations or any of their respective Rights under the Loan Papers, (b)
material and adverse effect on the financial condition of the KPC Companies as
a whole as represented to Lenders in the Current Financials, (c) material and
adverse effect on any part of the Collateral having a fair market value of at
least $5,000,000 at such time, or (d) Default or Potential Default.
MATERIAL AGREEMENT means, for any Person, any agreement (excluding
purchase orders for material or inventory in the ordinary course of business)
to which that Person is a party, by which that
<PAGE> 13
Person is bound, or to which any assets of that Person may be subject, and that
is not cancelable by that Person upon 30 or fewer days notice without liability
for further payment other than nominal penalty, and that requires that Person
to pay more than $5,000,000 during any 12-month period.
MAXIMUM AMOUNT and MAXIMUM RATE respectively mean, for a Lender, the
maximum non-usurious amount and the maximum non-usurious rate of interest that,
under applicable Law, the Lender is permitted to contract for, charge, take,
reserve, or receive on the Obligation.
MORTGAGE means the First Amended and Restated Mortgage and Security
Agreement (And Financing Statement and Fixture Filing) dated as of December 22,
1994, executed and delivered by KPP, Borrower, and Collateral Trustee, covering
properties situated in (and duly recorded in the official records of) six
counties in Iowa, 13 counties in Kansas, 24 counties in Nebraska, 11 counties
in South Dakota, and three counties in North Dakota -- as more particularly
reflected on SCHEDULE 6.1 -- as amended by, and among other things, an
amendment in substantially the form of EXHIBIT C-3.
MULTIEMPLOYER PLAN means a multiemployer plan as defined in Sections
3(37) or 4001(a)(3) of ERISA or Section 414(f) of the Code to which any Person
(that for purposes of Title IV of ERISA, is a member of Borrower's controlled
group or is under common control with Borrower within the meaning of Section
414 of the Code) is making, or has made, or is accruing, or has accrued, an
obligation to make contributions.
1994 CREDIT AGREEMENT means the Restated Credit Agreement dated as of
December 22, 1994, between Borrower, certain lenders, and Agent acting as agent
for those lenders, providing for extensions of credit to Borrower of up to
$19,118,000.
1994 GUARANTY means the "Guaranty," as that term is defined in the
1994 Credit Agreement.
1994 NOTES means the "Notes," as that term is defined in the 1994
Credit Agreement.
1994 SECURITY DOCUMENTS means the "Security Documents," as that term
is defined in this 1994 Credit Agreement.
NOTE means a promissory note substantially in the form of EXHIBIT A
and executed and delivered by Borrower under this agreement.
NOTE AGREEMENTS means the Note Purchase Agreements dated as of
December 22, 1994, between KPP, Borrower, STS, STOP, and each Noteholder,
collectively providing for the issuance by Borrower of its First Mortgage Notes
in the total stated principal amount of $27,000,000 and the issuance by STI of
its First Mortgage Notes in the total stated principal amount of $33,000,000.
NOTEHOLDERS means American General Life Insurance Company, Merit Life
Insurance Company, MONY Life Insurance Company of America, The Mutual Life
Insurance Company of New York, Principal Mutual Life Insurance Company, and The
Variable Annuity Life Insurance Company, together with the successor holders of
notes issued under the Note Agreements.
NOTICE OF BORROWING means a notice substantially in the form of
EXHIBIT D-1.
NOTICE OF CONVERSION means a notice substantially in the form of
EXHIBIT D-2.
OBLIGATION means all present and future indebtedness, liabilities,
and obligations, and all renewals, increases, and extensions thereof, or any
part thereof, now or hereafter owed to Agent, Syndication Agent, or any Lender
by any Person under any Loan Paper, together with all interest accruing
thereon, fees, costs, and expenses (including, without limitation, all
reasonable attorneys' fees and expenses incurred in the enforcement or
collection thereof) payable under the Loan Papers or in connection with the
protection of Rights under the Loan Papers.
PARTICIPANT is defined in SECTION 14.11(B).
<PAGE> 14
PBGC means the Pension Benefit Guaranty Corporation.
PERMITTED-FUNDED DEBT means, at any time, Funded Debt permitted under
SECTION 9.3.
PERMITTED INVESTMENTS means those items described on SCHEDULE 9.7.
PERMITTED LIENS means, at any time, the Lenders Liens and other Liens
permitted under SECTION 9.4.
PERMITTED TRANSFER means, at any time, the Transfers permitted under
SECTION 9.9.
PERSON means any individual, Tribunal, or other entity.
PLEDGE AGREEMENT means the Stock Pledge Agreement dated as of December
22, 1994, executed and delivered by Borrower in favor of Collateral Trustee,
and amended by, among other things, an amendment substantially in the form of
EXHIBIT C-2.
POTENTIAL DEFAULT means the occurrence of any event or existence of
any circumstance that would, upon notice or lapse of time or both, become a
Default.
PRIME RATE means, for any day, the prime rate per annum most recently
announced by Agent as its prime rate in effect at its principal office in
Dallas and thereafter entered into the minutes of Agent's Loan and Discount
Committee, automatically fluctuating upward and downward with and at the time
specified in each such announcement without special notice to Borrower or any
other Person, which prime rate may not necessarily represent the lowest or best
rate actually charged to a customer.
PRINCIPAL DEBT means, at any time, the unpaid principal balance of all
Borrowings.
PURCHASER is defined in SECTION 14.11(C).
QUALIFYING DEBT means, at any time, Funded Debt for money borrowed by
Borrower with respect to which all of the following are true:
(a) that Debt is permitted to be incurred under SECTION
9.3 at the time it is incurred;
(b) that Debt is permitted to be incurred by the terms
of, or a prior written consent or waiver under, each agreement,
document, or instrument governing other Debt of any KPP Company or any
of their Subsidiaries;
(c) that Debt is permitted to be pari passu secured with
all other Debt that is secured by the Collateral by the terms of, or a
prior written consent or waiver under, each agreement, document, or
instrument governing all Debt that is secured by the Collateral;
(d) each of the one or more initial holders of that Debt
(i) is either a commercial bank chartered under (or duly authorized to
operate a branch in the United States under) the Laws of the United
States of America or any of its states or an insurance company or
commercial finance company organized under the Laws of any such state,
and (ii) has capital and surplus in excess of $100,000,000 at the time
it becomes the holder of that Debt;
(e) that Debt is not guarantied in any manner by any
Person and is not secured by any Lien unless any such guaranty or Lien
concurrently pari passu assures and secures the Obligation; and
(f) Borrower has delivered to Agent a certificate (in
form and substance acceptable to Agent) of a Responsible Officer of
KPC at least 30 days before the incurrence of that Debt certifying
that (i) Borrower intends to secure that Debt with the Collateral and
(ii) the Debt complies with each of the provisions of this definition
in order to constitute "Qualifying Debt."
<PAGE> 15
REPRESENTATIVES means representatives, officers, directors, employees,
attorneys, accountants, and agents.
RESERVE REQUIREMENT means, for any LIBOR Rate Borrowing for the
relevant Interest Period, the maximum aggregate reserve requirements (including
all basic, supplemental, emergency, special, marginal, and other reserves
required by applicable Law) applicable to a member bank of the Federal Reserve
System for eurocurrency fundings or liabilities.
RESPONSIBLE OFFICER of a Person means its chairman, president, chief
executive officer, chief financial officer, or treasurer.
RESTRICTED SUBSIDIARY means, at any time, each Subsidiary of KPP other
than those that KPP has designated -- by a certificate of its chief financial
officer executed and delivered to Agent in form and substance acceptable to
Agent - - as NOT being a Restricted Subsidiary, which KPP may do from time to
time and at any time so long as (a) Borrower, STS, STI, STOP, and any other
Subsidiary ever designated by KPP as a Restricted Subsidiary is always a
Restricted Subsidiary for purposes of this agreement and (b) immediately after
that designation, no Default or Potential Default exists and $1.00 of
additional Funded Debt could be incurred under SECTION 9.3.
RIGHTS means rights, remedies, powers, privileges, and benefits.
SECONDARY CD RATE means, for any day, an annual rate of interest equal
to the sum (rounded upward, if necessary, to the nearest 0.01%) of (a) the
quotient of (i) the secondary market rate for 90-day certificates of deposit
(secondary market) of major United States money market banks for the most
recent weekly period ending Friday either (A) as reported in the Federal
Reserve Statistical release entitled "Selected Interest Rates" (currently
Publication H.15[519]) or any successor publication released during the week
for which the rate is being determined, which rate shall be in effect for
purposes of this determination for each day of the week in which the release
date of such publication occurs, or (B) if not so reported, as determined by
Agent on the basis of bids quoted to Agent at approximately 9:00 a.m. on such
day by three New York certificate of deposit dealers selected by Agent and of
recognized standing for secondary market morning offerings of negotiable
certificates of deposit, with maturities of 90 days, of major United States
money market banks, divided by (ii) a percentage equal to 100% minus the
then-stated maximum rate of all reserve requirements under regulations issued
by the Federal Reserve Board (including, without limitation, any margin,
emergency, supplemental, special, or other reserves for a member of the Federal
Reserve System having deposits in excess of $1,000,000,000 required by Law)
applicable to any Lender, plus (b) the actual (or, if not known, the estimated)
per annum assessment rate (rounded upward, if necessary, to the nearest 0.01%)
payable by Agent to The Federal Deposit Insurance Corporation (or its
successor) for insuring liability for time deposits, as in effect from time to
time.
SECURITY DOCUMENTS means, collectively, the Intercreditor Agreement,
Pledge Agreement, and Mortgage and any other document, financing statements,
and stock powers creating or perfecting Lender Liens.
SOLVENT means, as to a Person, that (a) the aggregate fair market
value of its assets exceeds its liabilities, (b) it has sufficient cash flow to
enable it to pay its Debts as they mature, and (c) it does not have
unreasonably small capital to conduct its businesses as currently, or proposed
to be, conducted.
STATED TERMINATION DATE means December 17, 1996.
STEUART ASSETS mean substantially all of the assets of Steuart
Petroleum and its affiliates, including, without limitation, (a) seven
petroleum-products terminals and (b) the pipelines and related tankage serving
Andrews Air Force Base.
STEUART PETROLEUM means Steuart Petroleum Co., a Delaware corporation.
STI means StanTrans, Inc., a Delaware corporation that is a wholly
owned Subsidiary of STS.
<PAGE> 16
STOP means Support Terminals Operating Partnership, L.P., a Delaware
limited partnership, of which Borrower is a 99% limited partner and STS is a 1%
general partner.
STS means Support Terminal Services, Inc., a Delaware corporation that
is a wholly owned Subsidiary of Borrower.
SUBSIDIARY of any Person means any entity of which at least 50% (in
number of votes) of the stock, partnership, or equivalent interests is owned of
record or beneficially, directly or indirectly, by that Person.
SYNDICATION AGENT means, at any time, Chemical Securities, Inc. acting
as syndication agent under the Loan Papers.
TANGIBLE NET WORTH, for any Person and at any time, means the sum of
(a) stockholders' equity or partner capital accounts, as the case may be, as
shown on a balance sheet, minus (b) treasury stock, if applicable, minus (c)
any surplus resulting from the write-up of assets, minus (d) goodwill,
including, without limitation, any amounts representing the excess of the
purchase price paid for acquired assets, stock, or partnership interests over
the book value assigned to them, minus (e) patents, trademarks, service marks,
trade names, and copyrights, minus (f) other intangible assets.
TAXES means, for any Person, taxes, assessments, or other
governmental charges or levies imposed upon it, its income, or any of its
properties, franchises, or assets.
TERM GUARANTIES means the "Guaranties," as that term is defined in the
Note Agreements as in effect on the Closing Date.
TERM NOTES means the "Notes," as the term is defined in the Note
Agreements as in effect on the Closing Date.
TRANSFER means to sell, lease, transfer, or otherwise dispose or, as
the context requires, a sale, lease, transfer, or other disposition.
TRIBUNAL means any (a) local, state, or federal judicial, executive,
or legislative instrumentality, (b) private arbitration board or panel, or (c)
central bank.
TYPE means any type of Borrowing determined with respect to the
applicable interest option.
1.2 Time References. Unless otherwise specified, in the
Loan Papers (a) time references (e.g., 10:00 a.m.) are to time in Dallas, Texas,
and (b) in calculating a period from one date to another, the word "from" means
"from and including" and the word "to" or "until" means "to but excluding."
1.3 Other References. Unless otherwise specified, in the
Loan Papers (a) where appropriate, the singular includes the plural and vice
versa, and words of any gender include each other gender, (b) heading and
caption references may not be construed in interpreting provisions, (c) monetary
references are to currency of the United States of America, (d) section,
paragraph, annex, schedule, exhibit, and similar references are to the
particular Loan Paper in which they are used, (e) references to "telecopy,"
"facsimile," "fax," or similar terms are to facsimile or telecopy transmissions,
(f) references to "including" mean including without limiting the generality of
any description preceding that word, (g) the rule of construction that
references to general items that follow references to specific items are limited
to the same type or character of those specific items is not applicable in the
Loan Papers, (h) references to any Person include that Person's heirs, personal
representatives, successors, trustees, receivers, and permitted assigns, (i)
references to any Law include every amendment or supplement to it, rule and
regulation adopted under it, and successor or replacement for it, and (j)
references to any Loan Paper or other document include every renewal, extension,
and refinancing of it, amendment and supplement to it, and replacement or
substitution for it.
<PAGE> 17
1.4 Accounting Principles. Unless otherwise specified,
in the Loan Papers (a) GAAPetermines all accounting and financial terms and
compliance with financial covenants, (b) GAAP in effect on the date of this
agreement determines compliance with financial covenants, (c) otherwise, all
accounting principles applied in a current period must be comparable in all
material respects to those applied during the preceding comparable period, and
(d) while KPP has any consolidated Subsidiaries (i) all accounting and financial
terms and compliance with reporting covenants applicable to KPP must be on a
consolidating and consolidated basis, as applicable and (ii) compliance with
financial covenants applicable to KPP must be on a consolidated basis.
SECTION 2 BORROWINGS.
2.1 Commitments. Subject to the provisions in the Loan
Papers, each Lender severally and not jointly agrees to lend to Borrower that
Lender's Commitment Percentage of Borrowings -- which Borrowings may be
borrowed, repaid, and reborrowed -- so long as (a) each Borrowing must be made
on a Business Day before the Actual Termination Date, (b) the Principal Debt may
never exceed the total Commitments, and (c) the Principal Debt owed any Lender
may never exceed its Commitment.
2.2 Borrowings.
(a) Borrower may request a Borrowing by submitting
to Agent a Notice of Borrowing -- which, subject to CLAUSE (D), is
irrevocable and binding on Borrower. It must be received by Agent no
later than 10:00 a.m. on the third Business Day before the date on
which funds are requested (the "BORROWING DATE") for any LIBOR Rate
Borrowing or on the Business Day immediately before the Borrowing Date
for any Alternate Base Rate Borrowing. Each Borrowing must be at least
$100,000 or a $50,000 greater multiple.
(b) Each Lender shall remit its Commitment
Percentage of each requested Borrowing to Agent's principal office in
Dallas, Texas, by wire transfer according to Agent's wiring
instructions on SCHEDULE 2.1, in funds that are available for immediate
use by Agent by 12:00 Noon on the Borrowing Date. Subject to receipt
of those funds, Agent shall (unless to its actual knowledge any of the
applicable conditions precedent have not been satisfied by Borrower or
waived by Determining Lenders) make those funds available to Borrower
as directed in the Notice of Borrowing.
(c) Absent contrary written notice from a Lender,
Agent may assume that each Lender has made its Commitment Percentage of
the requested Borrowing available to Agent on the Borrowing Date, and
Agent may, in reliance upon that assumption (but shall not be required
to), make available to Borrower a corresponding amount. If a Lender
fails to make its Commitment Percentage of any requested Borrowing
available to Agent on the Borrowing Date, Agent may recover the
applicable amount on demand (i) from that Lender, together with
interest at an annual rate equal to the Federal Funds Rate during the
period from the date the amount was made available to Borrower by Agent
and until the date Agent recovers the amount from that Lender, or (ii)
if that Lender fails to pay its amount upon demand, then from Borrower
-- who is not liable for any related Funding Loss but is liable for
interest at an annual interest rate equal to the rate applicable to the
requested Borrowing during the period from the Borrowing Date and until
the date Agent recovers the amount from Borrower. No Lender is
responsible for the failure of any other Lender to make its Commitment
Percentage of any Borrowing. However, failure of any Lender to make
its Commitment Percentage of any Borrowing does not excuse any other
Lender from making its Commitment Percentage of any Borrowing. As soon
as is reasonably practical, Agent shall notify Borrower if a Lender has
failed to make its Commitment Percentage of any Borrowing.
(d) Borrower may revoke a Notice of Borrowing that
requests a LIBOR Rate Borrowing -- and not be liable for any resulting
Funding Loss -- if, before the LIBOR Rate for the requested Borrowing
is established, SECTION 3.15 or 3.17 becomes applicable to it.
<PAGE> 18
2.3 Termination. The Commitments are automatically
terminated on the Actual Termination Date. The Commitments are automatically
terminated in whole or in part, as the case may be, by prepayments in accordance
with SECTION 3.2(C). Furthermore, without premium or penalty, and upon giving at
least three Business Days prior written and irrevocable notice to Agent,
Borrower may, before the Actual Termination Date, terminate all or part of the
unused portion of the total Commitments. Each voluntary partial termination
must be at least $1,000,000 or a $50,000 greater multiple and must be ratable
for Lenders based on their respective Commitment Percentages. Once terminated,
no part of any Commitment may be reinstated without the prior written approval
of all Lenders.
SECTION 3 PAYMENT TERMS.
3.1. Notes and Payments.
(a) Principal Debt of Borrowings under SECTION 2.2
shall be evidenced by the Notes, one payable to each Lender in the
stated principal amount of its Commitment.
(b) Borrower must make each payment and prepayment
on the Obligation to Agent's principal office in Dallas, Texas, by wire
transfer according to Agent's wiring instructions on SCHEDULE 2.1, in
funds that will be available for immediate use by Agent by 12:00 Noon
on the day due. Otherwise, but subject to SECTION 3.8, those funds
continue to accrue interest as if they were received on the next
Business Day. Agent shall pay to each Lender, by wire transfer
according to its wiring instructions on SCHEDULE 2.1, any payment or
prepayment to which that Lender is entitled on the same day Agent
receives the funds from Borrower if Agent receives the payment or
prepayment before 12:00 Noon, and otherwise before 12:00 Noon on the
following Business Day. If and to the extent that Agent does not make
payments to Lenders when due, unpaid amounts shall accrue interest at
an annual rate equal to the Federal Funds Rate from the due date until
(but not including) the payment date.
3.2 Interest and Principal Payments.
(a) Accrued interest on each LIBOR Rate Borrowing is
due and payable on the last day of its respective Interest Period. If
any Interest Period is a period greater than three months, then accrued
interest is also due and payable on the date ending each three month
period after the commencement of the Interest Period. Accrued interest
on each Alternate Base Rate Borrowing is due and payable on the last
day of each January, April, July, and October (commencing January 31,
1996), with a final scheduled interest payment on Borrowings on the
Actual Termination Date.
(b) Unless the Actual Termination Date occurs as a
result of the exercise of Rights and acceleration of the Obligation
under SECTION 12.1, then the Principal Debt on the Actual Termination
Date is due and payable on the Actual Termination Date.
(c) If Borrower incurs any Funded Debt other than
Funded Debt incurred under the 1994 Credit Agreement or the Note
Agreements (each a "SUBJECT FUNDED DEBT INCURRENCE") then, concurrently
with receipt of proceeds from a subject Funded Debt incurrence,
Borrower shall prepay to Agent for Lenders (with any resulting Funding
Loss) an amount equal at that time to the greater of either the total
proceeds received from that subject Funded Debt incurrence or the total
Obligation. The prepayment shall be applied in accordance with SECTION
3.11(B). This section applies to every subject Funded Debt
incurrence, if more than one, until the Obligation is fully paid. The
Commitments are automatically terminated in part by the amount of
Principal Debt prepaid under this section and are automatically
terminated in full by the full payment of the Principal Debt by
prepayments under this section.
(d) If any of the limitations in SECTION 2.1 are
ever exceeded, then Borrower shall prepay the Principal Debt, in at
least the amount of that excess, together with (i) all accrued and
unpaid interest on the principal amount so prepaid and (ii) any
resulting Funding Loss.
<PAGE> 19
3.3 Interest Options. Except where specifically
otherwise provided, Borrowings bear interest at an annual rate equal to the
lesser of either (a) the Alternate Base Rate or the LIBOR Rate (in each case as
designated or deemed designated by Borrower), as the case may be, or (b) the
Maximum Rate. Each change in the Alternate Base Rate, the Applicable Margin,
and the Maximum Rate is effective, without notice to Borrower or any other
Person, upon the effective date of change.
3.4 Quotation of Rates. A Responsible Officer of
Borrower may call Agent before delivering a Notice of Borrowing to receive an
indication of the interest rates then in effect, but the indicated rates do not
bind Agent or Lenders or affect the interest rate that is actually in effect
when Borrower delivers its Notice of Borrowing or on the Borrowing Date.
3.5 Default Rate. If permitted by Law, all past-due
Principal Debt and accrued interest thereon bears interest from maturity (stated
or by acceleration) at the Default Rate until paid, regardless whether payment
is made before or after entry of a judgment.
3.6 Interest Recapture. If the designated interest rate
applicable to any Borrowing exceeds the Maximum Rate, the interest rate on that
Borrowing is limited to the Maximum Rate, but any subsequent reductions in the
designated rate shall not reduce the interest rate thereon below the Maximum
Rate until the total amount of accrued interest equals the amount of interest
that would have accrued if that designated rate had always been in effect. If
at maturity (stated or by acceleration), or at final payment of the Notes, the
total interest paid or accrued is less than the interest that would have accrued
if the designated rates had always been in effect, then, at that time and to the
extent permitted by Law, Borrower shall pay an amount equal to the difference
between (a) the lesser of the amount of interest that would have accrued if the
designated rates had always been in effect and the amount of interest that would
have accrued if the Maximum Rate had always been in effect, and (b) the amount
of interest actually paid or accrued on the Notes.
3.7 Interest Calculations.
(a) Interest will be calculated on the basis of
actual number of days (including the first day but excluding the last
day) elapsed but computed as if each calendar year consisted of 360
days for LIBOR Rate Borrowings and Alternate Base Rate Borrowings based
on Secondary CD Rate or the Federal Funds Rate (unless the calculation
would result in an interest rate greater than the Maximum Rate, in
which event interest will be calculated on the basis of a year of 365
or 366 days, as the case may be), and 365 or 366 days, as the case may
be, for Alternate Base Rate Borrowings based on the Prime Rate. All
interest rate determinations and calculations by Agent are conclusive
and binding absent manifest error.
(b) The provisions of this agreement relating to
calculation of the Alternate Base Rate and the LIBOR Rate are included
only for the purpose of determining the rate of interest or other
amounts to be paid under this agreement that are based upon those
rates. Each Lender may fund and maintain its funding of all or any
part of each Borrowing as it selects.
3.8 Maximum Rate. Regardless of any provision contained
in any Loan Paper, no Lender is entitled to contract for, charge, take, reserve,
receive, or apply, as interest on all or any part of the Obligation any amount
in excess of the Maximum Rate, and, if Lenders ever do so, then any excess shall
be treated as a partial prepayment of principal and any remaining excess shall
be refunded to Borrower. In determining if the interest paid or payable exceeds
the Maximum Rate, Borrower and Lenders shall, to the maximum extent permitted
under applicable Law, (a) treat all Borrowings as but a single extension of
credit (and Lenders and Borrower agree that is the case and that the provision
in this agreement for multiple Borrowings is for convenience only), (b)
characterize any nonprincipal payment as an expense, fee, or premium rather than
as interest, (c) exclude voluntary prepayments and their effects, and (d)
amortize, prorate, allocate, and spread the total amount of interest throughout
the entire contemplated term of the Obligation. However, if the Obligation is
paid in full before the end of its full contemplated term, and if the interest
received for its actual period of existence exceeds the Maximum Amount, Lenders
shall refund any excess (and Lenders may not, to the extent permitted by Law, be
subject to any penalties provided by any Laws for contracting for, charging,
taking, reserving, or receiving interest in excess of the Maximum
<PAGE> 20
Amount). If the Laws of the State of Texas are applicable for purposes of
determining the "Maximum Rate" or the "Maximum Amount," then those terms mean
the "indicated rate ceiling" from time to time in effect under Article 1.04,
Title 79, Revised Civil Statutes of Texas, as amended. Borrower agrees that
Chapter 15, Subtitle 79, Revised Civil Statutes of Texas, 1925, as amended
(which regulates certain revolving credit loan accounts and revolving triparty
accounts), does not apply to the Obligation.
3.9 Interest Periods. When Borrower requests any LIBOR
Rate Borrowing, Borrower may elect the applicable interest period (each an
"INTEREST PERIOD"), which may be, at Borrower's option, one, two, three, or six
months, subject to the following conditions: (a) the initial Interest Period
commences on the applicable Borrowing Date or conversion date, and each
subsequent applicable Interest Period commences on the day when the next
preceding applicable Interest Period expires; (b) if any Interest Period begins
on a day for which no numerically corresponding Business Day in the calendar
month at the end of the Interest Period exists, then the Interest Period ends on
the last Business Day of that calendar month; (c) no Interest Period for any
portion of Principal Debt may extend beyond the scheduled repayment date for
that portion of Principal Debt; and (d) no more than five Interest Periods may
be in effect at one time.
3.10 Conversions. Subject to the dollar limits and
denominations of SECTION 2.1, Borrower may (a) convert a LIBOR Rate Borrowing on
the last day of the applicable Interest Period to an Alternate Base Rate
Borrowing, (b) convert an Alternate Base Rate Borrowing at any time to a LIBOR
Rate Borrowing, and (c) elect a new Interest Period for a LIBOR Rate Borrowing,
by giving a Notice of Conversion to Agent no later than 10:00 a.m. on the third
Business Day before the conversion date or the last day of the Interest Period,
as the case may be (for conversion to a LIBOR Rate Borrowing or election of a
new Interest Period), and no later than 10:00 a.m. one Business Day before the
last day of the Interest Period (for conversion to an Alternate Base Rate
Borrowing). Absent Borrower's notice of conversion or election of a new
Interest Period, a LIBOR Rate Borrowing shall be deemed converted to an
Alternate Base Rate Borrowing effective when the applicable Interest Period
expires.
3.11 Order of Application. The following provisions apply
except when and to the extent superseded by SECTION 4.09 of the Intercreditor
Agreement.
(a) If CLAUSE (B) below is not applicable, payments
on the Obligation must be applied as required by applicable Loan Paper
provisions other than CLAUSE (B) below.
(b) Any payment or prepayment (while a Default or
Potential Default exists) and any prepayment under SECTION 3.2(C) must
be applied in the following order: (i) All fees and expenses for which
Agent or Lenders have not been paid or reimbursed in accordance with
the Loan Papers (and if such payment is less than all unpaid or
unreimbursed fees and expenses, then the payment shall be paid against
unpaid and unreimbursed fees and expenses in the order of incurrence or
due date); (ii) accrued interest on the Principal Debt; (iii) the
remaining Principal Debt in the order as Determining Lenders may elect
(but Determining Lenders agree to apply payments in an order that will
minimize any Funding Loss); and (iv) the remaining Obligation in the
order and manner Determining Lenders deem appropriate.
(c) Agent and Lenders shall attempt to
apply mandatory payments against the Obligation in a manner that
minimizes Funding Losses.
3.12 Sharing of Payments, Etc.. If any Lender obtains any
payment (whether voluntary, involuntary, or otherwise, including, without
limitation, as a result of exercising its Rights under SECTION 3.13) that
exceeds its Commitment Percentage (or, if a Default exists, its Default
Percentage) of that amount, then that Lender shall purchase from the other
Lenders participations that will cause the purchasing Lender to share the excess
payment ratably with each other Lender per their respective Commitment
Percentages or Default Percentages, as applicable. If all or any portion of any
excess payment is subsequently recovered from the purchasing Lender, then the
purchase shall be rescinded and the purchase price restored to the extent of the
recovery. Borrower agrees that any Lender purchasing a participation from
another Lender under this SECTION 3.12 may, to the fullest extent permitted by
Law,
<PAGE> 21
exercise all of its Rights of payment (including the Right of offset) with
respect to that participation as fully as if that Lender were the direct
creditor of Borrower in the amount of that participation.
3.13 Offset. If a Default exists, each Lender is entitled
to exercise (for the benefit of all Lenders in accordance with SECTION 3.12) the
Rights of offset and banker's Lien against each and every account and other
property, or any interest therein, that any party to a Loan Paper (other than
Lenders and Agent) may now or hereafter have with, or which is now or hereafter
in the possession of, that Lender to the extent of the full amount of the
Obligation owed to it. Each Lender shall promptly notify Borrower of its
actions taken under this SECTION 3.13.
3.14 Booking Borrowings. To the extent permitted by Law,
any Lender may make, carry, or transfer its Borrowings at, to, or for the
account of any of its branch offices or the office of any of its Affiliates.
However, no Affiliate is entitled to receive any greater payment under SECTION
3.16 than the transferor Lender would have been entitled to receive with respect
to those Borrowings. Each Lender agrees that it will use its reasonable efforts
(consistent with its internal policies and applicable Law) to make, carry,
maintain, or transfer its part of any Borrowing with its Affiliates or branch
offices in an effort to eliminate or reduce to the extent possible the aggregate
amounts due to it under SECTIONS 3.16 and 3.17 if, in its reasonable judgment,
such efforts will not be disadvantageous to it.
3.15 Basis Unavailable or Inadequate for LIBOR Rate. If,
on or before any date when a LIBOR Rate is to be determined for a Borrowing,
Agent or any Lender determines (and Determining Lenders agree with that
determination) that the basis for determining the applicable rate is not
available or that the resulting rate does not accurately reflect the cost to
Lenders of making or converting Borrowings at that rate for the applicable
Interest Period, then Agent shall promptly notify Borrower and Lenders of that
determination (which is conclusive and binding on Borrower absent manifest
error). Unless Borrower has revoked the applicable Notice of Borrowing under
SECTION 2.2(D), the applicable Borrowing shall bear interest at the sum of the
Alternate Base Rate plus the Applicable Margin. Until Agent notifies Borrower
that those circumstances no longer exist, Lenders' commitments under this
agreement to make or convert to LIBOR Rate Borrowings are suspended.
3.16 Additional Costs.
(a) With respect to any LIBOR Rate Borrowing, (i) if any
present or future Law imposes, modifies, or deems applicable (or if
compliance by any Lender with any requirement of any Tribunal results
in) any requirement that any reserves (including, without limitation,
any marginal, emergency, supplemental, or special reserves) be
maintained, and if (ii) those reserves reduce any sums receivable by
that Lender under this agreement or increase the costs incurred by that
Lender in advancing or maintaining any portion of any LIBOR Rate
Borrowing and (iii) that Lender determines that the reduction or
increase is material (and it may, in determining the material nature of
the reduction or increase, utilize reasonable assumptions and
allocations of costs and expenses and use any reasonable averaging or
attribution method), then (iv) that Lender (through Agent) shall
deliver to Borrower a certificate setting forth in reasonable detail
the calculation of the amount necessary to compensate it for its
reduction or increase (which certificate is conclusive and binding
absent manifest error), and (iv) Borrower shall pay that amount to that
Lender within ten days after demand. The provisions of and
undertakings and indemnification set forth in this CLAUSE (A) shall
survive the satisfaction and payment of the Obligation and termination
of this agreement.
(b) With respect to any Borrowing, if any present or future
Law regarding capital adequacy or compliance by any Lender with any
request, directive, or requirement now existing or hereafter imposed by
any Tribunal regarding capital adequacy, or any change in its written
policies or in the risk category of this transaction, reduces the rate
of return on its capital as a consequence of its obligations under this
agreement to a level below that which it otherwise could have achieved
(taking into consideration its policies with respect to capital
adequacy) by an amount deemed by it to be material (and it may, in
determining the amount, utilize reasonable assumptions and allocations
of costs and expenses and use any reasonable averaging or attribution
method), then (unless the effect is already reflected in the rate of
interest then applicable under this
<PAGE> 22
agreement) that Lender (through Agent) shall notify Borrower and
deliver to Borrower a certificate setting forth in reasonable detail
the calculation of the amount necessary to compensate it (which
certificate is conclusive and binding absent manifest error), and
Borrower shall pay that amount to Lender within ten days after demand.
The provisions of and undertakings and indemnification set forth in
this CLAUSE (B) shall survive the satisfaction and payment of the
Obligation and termination of this agreement.
(c) Any Taxes payable by Agent or any Lender or ruled (by a
Tribunal) payable by Agent or any Lender in respect of this agreement
or any other Loan Paper shall -- if permitted by Law and if deemed
material by that Agent or Lender (who may, in determining the material
nature of the amount payable, utilize reasonable assumptions and
allocations of costs and expenses and use any reasonable averaging or
attribution method) -- be paid by Borrower, together with interest and
penalties, if any (except for Taxes payable on the overall net income
of that Agent or that Lender and except for interest and penalties
incurred as a result of the gross negligence or willful misconduct of
Agent or any Lender). That Agent or Lender (through Agent) shall
notify Borrower and deliver to Borrower a certificate setting forth in
reasonable detail the calculation of the amount of payable Taxes, which
certificate is conclusive and binding (absent manifest error), and
Borrower shall pay that amount to Agent for the account of that Agent
or Lender, as the case may be, within ten days after demand. If that
Agent or that Lender subsequently receives a refund of the Taxes paid
to it by Borrower, then the recipient shall promptly pay the refund to
Borrower.
3.17 Change in Laws. If any Law makes it unlawful for any
Lender to make or maintain LIBOR Rate Borrowings, then that Lender shall
promptly notify Borrower and Agent, and (a) as to undisbursed funds, that
requested Borrowing shall be made as an Alternate Base Rate Borrowing unless
Borrower has revoked the applicable Notice of Borrowing under SECTION 2.2(D),
(b), as to any outstanding Borrowing, (i) if maintaining the Borrowing until the
last day of the applicable Interest Period is unlawful, the Borrowing shall be
converted to an Alternate Base Rate Borrowing as of the date of notice, and
Borrower shall pay any related Funding Loss, or (ii) if not prohibited by Law,
the Borrowing shall be converted to an Alternate Base Rate Borrowing as of the
last day of the applicable Interest Period, or (iii) if any conversion will not
resolve the unlawfulness, Borrower shall promptly prepay the Borrowing, without
penalty, together with any related Funding Loss. No Notice of Conversion is
required to be delivered in connection with any conversion under this SECTION
3.17.
3.18 Foreign Lenders. Each Lender that is organized under
the laws of any jurisdiction other than the United States of America or any of
its states (a) represents to Agent and Borrower that (i) no Taxes are required
to be withheld by Agent or Borrower with respect to any payments to be made to
it in respect of the Obligation and (ii) it has furnished to Agent and Borrower
two duly completed copies of either U.S. Internal Revenue Service Form 4224,
Form 1001, or Form W-8 (wherein it claims entitlement to complete exemption from
U.S. federal withholding Tax on all interest payments under the Loan Papers),
and (b) covenants to (i) provide Agent and Borrower a new Form 4224, Form 1001,
or Form W-8 upon the expiration or obsolescence of any previously delivered form
according to Law, duly executed and completed by it, and (ii) comply from time
to time with all Laws with regard to the withholding tax exemption. If any of
the foregoing is not true or the applicable forms are not provided, then
Borrower and Agent (without duplication) may deduct and withhold from interest
payments under the Loan Papers United States federal income Tax at the full rate
applicable under the Code.
3.19 Funding Loss. Borrower agrees to indemnify each
Lender against, and pay to it upon demand, any Funding Loss of that Lender.
When any Lender demands that Borrower pay any Funding Loss, that Lender shall
deliver to Borrower and Agent a certificate setting forth in reasonable detail
the basis for imposing Funding Loss and the calculation of the amount, which
calculation is conclusive and binding absent manifest error. The provisions of
and undertakings and indemnification set forth in this SECTION 3.19 survives the
satisfaction and payment of the Obligation and termination of this agreement.
<PAGE> 23
SECTION 4 FEES.
4.1 Treatment of Fees. The fees described in this SECTION
4 (a) are not compensation for the use, detention, or forbearance of money, (b)
are in addition to, and not in lieu of, interest and expenses otherwise
described in this agreement, (c) are payable in accordance with SECTION 3.1, (d)
are non-refundable, (e) to the fullest extent permitted by Law, bear interest,
if not paid when due, at the Default Rate, and (f) are calculated on the basis
of actual number of days (including the first day but excluding the last day)
elapsed, but computed as if each calendar year consisted of 360 days, unless
computation would result in an interest rate in excess of the Maximum Rate in
which event the computation is made on the basis of a year of 365 or 366 days,
as the case may be.
4.2 Agent's and Syndication Agents' Fees. Borrower shall
pay to Agent and Syndication Agent the fees described in the letter agreement
dated as of the date of this agreement between Borrower, Agent, and Syndication
Agent.
4.3 Commitment Fee. Borrower shall pay to Agent for the
account of Lenders (based on their respective Commitment Percentages) a
commitment fee, payable as it accrues from the date of this agreement as of the
last day of each January, April, July, and October (commencing January 31,
1996), and on the Actual Termination Date, equal to 0.20% (per annum) of the
amount by which (a) the total Commitments exceed (b) the average-daily Principal
Debt, determined for the calendar quarter (or portion of a calendar quarter
commencing on the date of this agreement or ending on the Actual Termination
Date) preceding and including the date it is due.
SECTION 5 SECURITY.
5.1 Guaranty. Full and complete payment of the Obligation
is guaranteed in accordance with the Guaranty executed by Guarantors.
5.2 Collateral. Full and complete payment of the
Obligation is secured by the Lender Liens on all of the Collateral. No
Collateral may be subordinated, substituted, or released without the prior
written consent of all Lenders.
5.3 Additional Security and Guaranties. Lenders may (as
contemplated in connection with Qualifying Debt or otherwise), without notice or
demand and without affecting any Person's obligations under the Loan Papers,
from time to time (a) receive and hold additional collateral from any Person for
the payment of all or any part of the Obligation and exchange, enforce, or
release all or any part of that collateral and (b) accept and hold any
endorsement or guaranty of payment of all or any part of the Obligation and
release any endorser or guarantor, or any Person who has given any other
security for the payment of all or any part of the Obligation, or any other
Person in any way obligated to pay all or any part of the Obligation.
5.4 Collateral Documentation. Borrower shall execute, or
cause to be executed, financing statements, stock powers, assignments, consents
of partners and other Persons, and other agreements, documents, and instruments,
each in the form and content reasonably required by Agent, and Borrower shall
pay all costs of filing any financing, continuation, or termination statements,
or other action taken by Agent relating to the Collateral, including, without
limitation, costs and expenses of any Lien search reasonably required by Agent.
SECTION 6 CONDITIONS PRECEDENT.
6.1 Initial Borrowing. Lenders are not obligated to fund
the initial Borrowing unless Agent has received all of the items described in
SCHEDULE 6.1 on or before the Closing Date, each in form and substance
acceptable to Agent and its counsel.
6.2 All Borrowings. Lenders are not obligated to fund (as
opposed to continue or convert) any Borrowing, unless on the applicable
Borrowing Date (and after giving effect to the requested
<PAGE> 24
Borrowing: (a) Agent has timely received a Notice of Borrowing; (b) all of the
representations and warranties in the Loan Papers are true and correct in all
material respects (except to the extent that (i) the representations and
warranties speak to a specific date or (ii) the facts on which such
representations and warranties are based have been changed by transactions
contemplated or permitted by this agreement); (c) no Material Adverse Event,
Default, or Potential Default exists; and (d) the funding of the Borrowing is
permitted by Law. Upon Agent's request, Borrower has delivered to Agent
reasonable evidence substantiating any of the matters in the Loan Papers that
are necessary to enable Borrower to qualify for the Borrowing.
6.3 General. Each condition precedent in this agreement
(including, without limitation, each in SCHEDULE 6.1) is material to the
transactions contemplated by this agreement, and time is of the essence with
respect to each condition precedent. If Determining Lenders have first
approved, Lenders may fund any Borrowing without all conditions being
satisfied. To the extent permitted by Law, that funding or issuance may not be
deemed to be a waiver of the requirement that each condition precedent be
satisfied as a prerequisite for any subsequent funding or issuance, unless
Determining Lenders specifically waive each item in writing.
SECTION 7 REPRESENTATIONS AND WARRANTIES. Borrower represents
and warrants to Agent and Lenders as follows:
7.1 Purpose of Credit Facility. Borrower will use
proceeds of Borrowings only as described in the recitals to this agreement.
Borrower is not engaged principally, or as one of its important activities, in
the business of extending credit for the purpose of purchasing or carrying any
"margin stock" within the meaning of Regulation U of the Board of Governors of
the Federal Reserve System. No part of the proceeds of any Borrowing will be
used, directly or indirectly, for a purpose that violates any Law, including,
without limitation, the provisions of Regulation U.
7.2 Existence, Good Standing, and Authority. Each KPP
Company is duly organized, validly existing, and in good standing under the Laws
of its jurisdiction of organization as identified on SCHEDULE 7.2. Except where
failure is not a Material Adverse Event, each KPP Company (a) is duly qualified
to transact business and in good standing as a foreign entity in each
jurisdiction where (i) the Collateral is or may be located and (ii) the nature
and extent of its business and properties require due qualification and good
standing (those jurisdictions for CLAUSES (I) and (II) being identified on
SCHEDULE 7.2 and as otherwise disclosed in writing to Agent and Lenders from
time to time after the date of this agreement) and (b) possesses all requisite
authority and power to conduct its business as is now being, or is contemplated
by this agreement to be, conducted, except where failure is not a Material
Adverse Event. As used in this SECTION 7.2, the concept of "good standing" is
inapplicable to each KPP Company that is a partnership.
7.3 Subsidiaries. Excluding Insignificant Subsidiaries,
KPC has no Subsidiaries except as disclosed on SCHEDULE 7.3 (and as otherwise
disclosed in writing to Agent and Lenders from time to time after the date of
this agreement to reflect any changes to the schedule as a result of
transactions permitted by this agreement). All of the outstanding shares of
capital stock (or similar voting interests) of those Subsidiaries are duly
authorized, validly issued, fully paid, and nonassessable, and are owned of
record and beneficially as set forth thereon, free and clear of any Liens,
restrictions, claims, or Rights of another Person, other than Permitted Liens,
and are not subject to any warrant, option, or other acquisition Right of any
Person or subject to any transfer restriction except for restrictions imposed by
securities Laws and general corporate or partnership Laws.
<PAGE> 25
7.4 [INTENTIONALLY BLANK].
7.5 Authorization and Contravention. The execution and
delivery by each KPP Company of each Loan Paper to which it is a party and the
performance by it of its obligations thereunder (a) are within its corporate or
partnership power, (b) have been duly authorized by all necessary corporate or
partnership action, (c) require no action by or filing with any Tribunal (other
than any action or filing that has been taken or made on or before the date of
this agreement), (d) do not violate any provision of its certificate or
agreement of limited partnership, certificate or articles of incorporation, or
bylaws (as applicable), (e) do not violate any provision of Law applicable to
it, other than violations that individually or collectively are not a Material
Adverse Event, (f) do not violate any Material Agreements to which it is a
party, other than violations that are not a Material Adverse Event, or (g) do
not result in the creation or imposition of any Lien (other than the Lender
Liens) on any asset of any KPP Company.
7.6 Binding Effect. Upon execution and delivery by all
parties thereto, each Loan Paper will constitute a legal and binding obligation
of each KPP Company party thereto, enforceable against it in accordance with its
terms, except as enforceability may be limited by applicable Debtor Laws and
general principles of equity.
7.7 Financial Statements. The Current Financials of KPP
were prepared in accordance with GAAP and present fairly the consolidated
financial condition, results of operations, and cash flows of the KPP Companies
as of, and for the portion of the fiscal year ending on the date or dates
thereof (subject only to normal year-end adjustments). All material liabilities
of the KPP Companies as of the date or dates of the Current Financials are
reflected therein or in the notes thereto. Except for transactions directly
related to, or specifically contemplated by, the Loan Papers, no subsequent
material adverse changes have occurred in the consolidated financial condition
of the KPP Companies from that shown in the Current Financials of KPP, nor has
any KPP Company incurred any subsequent material liability.
7.8 Litigation. Except as disclosed on SCHEDULE 7.8 and
as otherwise disclosed in writing to Agent and Lenders from time to time after
the date of this agreement (if the disclosures are approved by Determining
Lenders), no KPP Company or Restricted Subsidiary is subject to, or aware of the
threat of, any Litigation that is reasonably likely to be determined adversely
to any KPP Company, any Collateral, or any Restricted Subsidiary, or, if so
adversely determined, is a Material Adverse Event. No outstanding or unpaid
judgments exist against any KPP Company, any Collateral, or any Restricted
Subsidiary.
7.9 Taxes. All Tax returns of each KPP Company or
Restricted Subsidiary required to be filed have been filed (or extensions have
been granted) before delinquency, except for returns for which the failure to
file is not a Material Adverse Event, and all Taxes imposed upon each KPP
Company and Restricted Subsidiary or any Collateral that are due and payable
have been paid before delinquency, other than Taxes for which the relevant
criteria for Permitted Liens have been satisfied or for which nonpayment is not
a Material Adverse Event.
7.10 Environmental Matters. Except as disclosed on
SCHEDULE 7.10 and as otherwise disclosed in writing to Agent and Lenders from
time to time after the date of this agreement (if the disclosures are approved
by Determining Lenders), and other than conditions, circumstances, or violations
that are not, individually or in the aggregate, a Material Adverse Event,
Borrower (a) knows of no environmental condition or circumstance materially and
adversely affecting any KPP Company's or Restricted Subsidiary's properties
(including, without limitation, the Collateral) or operations, (b) has received
no report of any KPP Company's or Restricted Subsidiary's violation of any
Environmental Law, and (c) is not aware that any KPP Company or Restricted
Subsidiary is under any obligation to remedy any violation of any Environmental
Law. Each KPP Company and Restricted Subsidiary has taken prudent steps to
determine that its properties (including, without limitation, the Collateral)
and operations do not violate any Environmental Law, other than violations that
are not, individually or in the aggregate, a Material Adverse Event.
<PAGE> 26
7.11 Employee Plans. Except where occurrence or existence
is not a Material Adverse Event, (a) no Employee Plan has incurred an
"accumulated funding deficiency" (as defined in Section 302 of ERISA or Section
412 of the Code), (b) no KPP Company or Restricted Subsidiary has incurred
liability under ERISA to the PBGC in connection with any Employee Plan, (c) no
KPP Company or Restricted Subsidiary has withdrawn in whole or in part from
participation in a Multiemployer Plan, (d) no KPP Company or Restricted
Subsidiary has engaged in any "prohibited transaction" (as defined in Section
406 of ERISA or Section 4975 of the Code), and (e) no "reportable event" (as
defined in Section 4043 of ERISA) has occurred, excluding events for which the
notice requirement is waived under applicable PBGC regulations.
7.12 Properties; Liens. Each KPP Company and Restricted
Subsidiary has good and marketable title to all its property (including, without
limitation, the Collateral) reflected on the Current Financials -- except for
title impairments described in SECTION 9.4(b)(ii)(B), property that is obsolete,
or (c) property that has been disposed in the ordinary course of business or,
after the date of this agreement, as otherwise permitted by SECTION 9.10 or
SECTION 9.11. Except for Permitted Liens, no Lien exists on any property of any
KPP Company (including, without limitation, the Collateral), and the execution,
delivery, performance, or observance of the Loan Papers will not require or
result in the creation of any Lien (other than Lender Liens) on any property of
any KPP Company or Restricted Subsidiary (including, without limitation, the
Collateral).
7.13 Government Regulations. No KPP Company or Restricted
Subsidiary is subject to regulation under the Investment Company Act of 1940, as
amended, the Public Utility Holding Company Act of 1935, as amended, or any
other Law (other than Regulations G, T, U, and X of the Board of Governors of
the Federal Reserve System) that regulates the incurrence of Debt.
7.14 Affiliate Transactions. No KPP Company or Restricted
Subsidiary is a party to a material (i.e., requiring it to pay more than
$100,000 during the term of the governing agreement) transaction with any of its
Affiliates other than transactions in the ordinary course of business and upon
fair and reasonable terms not materially less favorable than it could obtain or
could become entitled to in an arm's-length transaction with a Person that was
not its Affiliate.
7.15 [INTENTIONALLY BLANK].
7.16 Material Agreements. No KPP Company or Restricted
Subsidiary is a party to any Material Agreement, other than the Loan Papers, the
Note Agreements, and the Material Agreements described on SCHEDULE 7.16. All
described Material Agreements are in full force and effect, and no default or
potential default exists on the part of any KPP Company or Restricted Subsidiary
thereunder that is a Material Adverse Event.
7.17 Insurance. Each KPP Company and Restricted Subsidiary
maintains with financially sound, responsible, and reputable insurance companies
or associations (or, as to workers' compensation or similar insurance, with an
insurance fund or by self-insurance authorized by the jurisdictions in which it
operates) insurance concerning its properties (including, without limitation,
the Collateral) and businesses against casualties and contingencies and of types
and in amounts (and with co-insurance and deductibles) as is customary in the
case of similar businesses.
7.18 Labor Matters. No actual or -- to Borrower's
knowledge -- threatened strikes, labor disputes, slow downs, walkouts, or other
concerted interruptions of operations by the employees of any KPP Company or
Restricted Subsidiary exist that are a Material Adverse Event. Hours worked by
and payment made to employees of each KPP Company and Restricted Subsidiary have
not been in violation of the Fair Labor Standards Act or any other applicable
Law dealing with labor matters, other than any violations, individually or
collectively, that are not a Material Adverse Event. All payments due from any
KPP Company or Restricted Subsidiary for employee health and welfare insurance
have been paid or accrued as a liability on its books, other than any
nonpayments that are not, individually or collectively, a Material Adverse
Event.
7.19 Solvency. On each Borrowing Date, each KPP Company
is, and after giving effect to the requested Borrowing will be, Solvent.
<PAGE> 27
7.20 Trade Names. No KPP Company has used or transacted
business under any other corporate, partnership, or trade name in the five-year
period preceding the initial Borrowing Date, except as disclosed on SCHEDULE
7.20.
7.21 Intellectual Property. Each KPP Company and
Restricted Subsidiary owns all material licenses, patents, patent applications,
copyrights, service marks, trademarks, trademark applications, and trade names
necessary to continue to conduct its businesses as presently conducted by it and
proposed to be conducted by it immediately after the date of this agreement.
Each KPP Company and Restricted Subsidiary is conducting its business without
infringement or claim of infringement of any license, patent, copyright, service
mark, trademark, trade name, trade secret, or other intellectual property right
of others, other than any infringements or claims that, if successfully asserted
against or determined adversely to any KPP Company, would not, individually or
collectively, constitute a Material Adverse Event. To the knowledge of
Borrower, no infringement or claim of infringement by others of any material
license, patent, copyright, service mark, trademark, trade name, trade secret,
or Restricted Subsidiary or other intellectual property of any KPP Company
exists.
7.22 Full Disclosure. Each material fact or condition
relating to the Loan Papers or the financial condition, business, or property of
any KPP Company and Restricted Subsidiary that is a Material Adverse Event has
been disclosed in writing to Agent. All information previously furnished by any
KPP Company and Restricted Subsidiary to Agent in connection with the Loan
Papers was, and all information hereafter furnished by any KPP Company and
Restricted Subsidiary to Agent will be, true and accurate in all material
respects or based on reasonable estimates on the date the information is stated
or certified.
SECTION 8 AFFIRMATIVE COVENANTS. Until no Lender has any
commitment to extend any credit under any Loan Paper, and the Obligation is
fully paid and performed -- unless Borrower receives a prior written consent to
the contrary by Agent on behalf of Determining Lenders -- Borrower covenants and
agrees as follows:
8.1 Items to be Furnished. Borrower shall cause the
following to be furnished to Agent and each Lender:
A. Promptly after preparation, and no
later than 95 days after the last day of each fiscal year of KPP,
Financial Statements showing the consolidated financial condition and
results of operations of the KPP Companies and its Subsidiaries as of,
and for the year ended on, that last day, accompanied by:
(a) the unqualified opinion of a firm of
nationally-recognized independent certified public
accountants, based on an audit using generally accepted
auditing standards, that the Financial Statements were
prepared in accordance with GAAP and present fairly, in
all material respects, the consolidated financial
condition and results of operations of KPP and its
Subsidiaries;
(b) any management letter prepared by the
accounting firm delivered in connection with its audit;
(c) a certificate from the accounting firm
to Agent indicating that during its audit it obtained no
knowledge of any Default or Potential Default or, if it
obtained knowledge, the nature and period of existence
thereof; and
(d) a Compliance Certificate.
B. Promptly after preparation, and no
later than 95 days after the last day of each fiscal year ofBorrower,
Financial Statements showing the consolidated financial condition and
results of operations of the Borrower Companies as of, and for the
year ended on, that last day,
<PAGE> 28
accompanied by (i) a Financial Statements Certificate executed by the
chief financial officer of Borrower and (ii) any audit opinion
delivered in connection with the Financial Statements.
C. Promptly after preparation, and no
later than 50 days after the last day of each of the first three
fiscal quarters of KPP, Financial Statements showing the consolidated
financial condition and results of operations of KPP and its
Subsidiaries for the applicable fiscal quarter and for the period from
the beginning of the current fiscal year to the last day of that
fiscal quarter, accompanied by a Compliance Certificate.
D. Promptly after preparation, and no
later than 50 days after the last day of each of the first three
fiscal quarters of Borrower, Financial Statements showing the
consolidated financial condition and results of operations of the
Borrower Companies for the applicable fiscal quarter and for the
period from the beginning of the current fiscal year to the last day
of that fiscal quarter, accompanied by a Financial Statements
Certificate executed by the chief financial officer of Borrower.
E. Promptly after receipt, a copy of each
interim or special audit report and management letter issued by
independent accountants with respect to any KPP Company or Restricted
Subsidiary or its financial records.
F. Notice, promptly after Borrower knows,
of (i) the commencement of any Litigation that, if determined
adversely to any KPP Company or Restricted Subsidiary or the
Collateral, would be a Material Adverse Event, (ii) any change in any
material fact or circumstance represented or warranted by any KPP
Company in any Loan Paper, (iii) the receipt by any KPP Company or
Restricted Subsidiary of notice of any violation or alleged violation
of any Environmental Law (which individually or collectively with
other violations or allegations could constitute a Material Adverse
Event), (iv) a Default or Potential Default, specifying the nature
thereof and what action Borrower or any other KPP Company or
Restricted Subsidiary has taken, is taking, or proposes to take, or
(v) the incurrence of any Funded Debt other than under this agreement.
G. Promptly after filing, true, correct,
and complete copies of all material reports or filings filed by or on
behalf of any KPP Company with any Tribunal.
H. Upon request by Agent at the request of
Determining Lenders, full information as to the insurance carried by
the KPP Companies and Restricted Subsidiaries, and promptly after
receipt by any KPP Company or Restricted Subsidiary, notice from any
insurer of any notice of cancellation or nonrenewal of a material
insurance policy or material change in insurance coverage from that
existing on the date of this agreement.
I. Promptly after publication, copies of
all press releases and other statements made available generally by
any KPP Company or Restricted Subsidiary to the public concerning
material developments in its business.
J. As soon as is reasonably practical,
upon reasonable request by Agent or Determining Lenders (through
Agent), information (not otherwise required to be furnished under the
Loan Papers) respecting the business affairs, assets (including,
without limitation, the Collateral), and liabilities of the KPP
Companies and Restricted Subsidiaries, and opinions, certifications,
and documents in addition to those mentioned in this agreement.
8.2 Use of Proceeds. Borrower shall use the proceeds of
Borrowings only for the purposes represented in this agreement.
8.3 Books and Records. Each KPP Company and Restricted
Subsidiary shall maintain books, records, and accounts necessary to prepare
financial statements in accordance with GAAP (except for any departure with
respect to the accounting treatment of the pipeline, terminals, and related
assets acquired by Borrower).
<PAGE> 29
8.4 Inspections. Upon reasonable request, each KPP
Company and Restricted Subsidiary shall allow Agent or its Representatives (who
shall comply with the safety rules disclosed to it or them at the time of
inspection) to inspect any of its properties (including, without limitation, the
Collateral), to review reports, files, and other records and to make and take
away copies, to conduct tests or investigations, and to discuss any of its
affairs, conditions, and finances with its other creditors, directors, officers,
employees, or representatives from time to time, during reasonable business
hours. Fees and expenses incurred under this SECTION 8.4 shall be borne by
Agent unless Agent acted under this SECTION 8.4 in order to perform its duties
under the Loan Papers or preserve or protect the Rights of Agent and Lenders
under the Loan Papers. Agent and its Representatives agree to treat
confidential those matters disclosed by Borrower as being confidential; however,
Agent and its Representatives may disclose confidential matters (a) to Agent,
each Lender, and each actual or prospective Participant or Purchaser, (b) to any
Tribunal having jurisdiction over it, and (c) that are public knowledge.
8.5 Taxes. Each KPP Company and Restricted Subsidiary
shall promptly pay when due any and all Taxes other than Taxes which are being
contested in good faith by lawful proceedings diligently conducted, against
which reserve or other provision required by GAAP has been made, and in respect
of which levy and execution of any Lien have been and continue to be stayed.
8.6 Payment of Obligations. Each KPP Company and
Restricted Subsidiary shall promptly pay (or renew and extend) all of its
material obligations as they become due (unless the obligations are being
contested in good faith by appropriate proceedings).
8.7 Expenses. Borrower shall promptly pay upon demand (a)
all costs, fees, and expenses paid or incurred by Agent incident to any Loan
Paper (including, but not limited to, the reasonable fees and expenses of
Agent's counsel in connection with the negotiation, preparation, delivery, and
execution of the Loan Papers and any related amendment, waiver, or consent), and
(b) all reasonable costs and expenses of Lenders or Agent incurred by Agent or
any Lender in connection with the enforcement of the obligations of any Person
arising under the Loan Papers or the exercise of any Rights arising under the
Loan Papers (including, but not limited to, reasonable attorneys' fees and court
costs), all of which shall be a part of the Obligation and shall bear interest,
if not paid upon demand, at the Default Rate until repaid.
8.8 Maintenance of Existence, Assets, and Business.
Except as otherwise permitted by SECTION 9.10, each KPP Company and Restricted
Subsidiary shall (a) maintain its corporate or partnership existence and good
standing in its state of organization and its authority to transact business in
all other states where the Collateral is or may be located and, additionally,
where failure to maintain its authority to transact business is a Material
Adverse Event; (b) maintain all licenses, permits, and franchises necessary for
its business where failure is a Material Adverse Event; (iii) keep all of its
assets that are useful in and necessary to its business in good working order
and condition (ordinary wear and tear excepted) and make all necessary repairs
and replacements.
8.9 Insurance. Each KPP Company and Restricted
Subsidiary, at its cost and expense, shall maintain insurance with financially
sound and reputable insurers, in such amounts, and covering such risks, as is
ordinary and customary for similar Persons in the industry. However, the
insurance coverage, at a minimum, must be in the amounts and cover the risks
described on SCHEDULE 8.9. At Agent's request, each KPP Company and Restricted
Subsidiary shall deliver to Agent certificates of insurance for each policy of
insurance. If any insurance policy covered by an insurance certificate
previously delivered to Agent is altered or canceled, then Borrower shall cause
to be promptly delivered to Agent a replacement certificate (in form and
substance satisfactory to Agent).
8.10 Preservation and Protection of Rights; Separate Legal
Entities. Each KPP Company and Restricted Subsidiary shall perform the acts and
duly authorize, execute, acknowledge, deliver, file, and record any additional
writings as Agent or Determining Lenders may reasonably deem necessary or
appropriate to perfect and maintain the Lender Liens and preserve and protect
the Rights of Agent and Lenders under any Loan Paper.
<PAGE> 30
8.11 Environmental Laws. Each KPP Company and Restricted
Subsidiary shall (a) conduct its business and operate the Collateral so as to
comply with all applicable Environmental Laws and shall promptly take corrective
action to remedy any non-compliance with any Environmental Law, and (b)
establish and maintain a management system designed to ensure compliance with
applicable Environmental Laws and minimize financial and other risks to each KPP
Company and Restricted Subsidiary arising under applicable Environmental Laws or
as the result of environmentally related injuries to Persons or property
(including, without limitation, the Collateral). Borrower shall deliver
reasonable evidence of compliance with the foregoing covenant to Agent within 30
days after any request from Determining Lenders.
8.12 Subsidiaries. Each Person that becomes a Restricted
Subsidiary after the date of this agreement (whether as a result of acquisition,
creation, or otherwise) shall execute and deliver a Guaranty within ten days
after becoming a Restricted Subsidiary.
8.13 Indemnification. EACH KPP COMPANY, JOINTLY AND
SEVERALLY, INDEMNIFIES, PROTECTS, AND HOLDS AGENT, LENDERS, AND THEIR RESPECTIVE
PARENTS, SUBSIDIARIES, REPRESENTATIVES, SUCCESSORS, AND ASSIGNS (COLLECTIVELY,
THE "INDEMNIFIED PARTIES") HARMLESS FROM AND AGAINST ANY AND ALL LIABILITIES,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, CLAIMS, AND
PROCEEDINGS AND ALL COSTS, EXPENSES (INCLUDING, WITHOUT LIMITATION, ALL
ATTORNEYS' FEES AND LEGAL EXPENSES WHETHER OR NOT SUIT IS BROUGHT), AND
DISBURSEMENTS OF ANY KIND OR NATURE (THE "INDEMNIFIED LIABILITIES") THAT MAY AT
ANY TIME BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST ANY INDEMNIFIED PARTY,
IN ANY WAY RELATING TO OR ARISING OUT OF (A) THE DIRECT OR INDIRECT RESULT OF
THE VIOLATION BY ANY KPP COMPANY OF ANY ENVIRONMENTAL LAW, (B) ANY KPP COMPANY'S
GENERATION, MANUFACTURE, PRODUCTION, STORAGE, RELEASE, THREATENED RELEASE,
DISCHARGE, DISPOSAL, OR PRESENCE IN CONNECTION WITH ITS PROPERTIES (INCLUDING,
WITHOUT LIMITATION, THE COLLATERAL) OF A HAZARDOUS SUBSTANCE (INCLUDING, WITHOUT
LIMITATION, (I) ALL DAMAGES FROM ANY USE, GENERATION, MANUFACTURE, PRODUCTION,
STORAGE, RELEASE, THREATENED RELEASE, DISCHARGE, DISPOSAL, OR PRESENCE, OR (II)
THE COSTS OF ANY ENVIRONMENTAL INVESTIGATION, MONITORING, REPAIR, CLEANUP, OR
DETOXIFICATION AND THE PREPARATION AND IMPLEMENTATION OF ANY CLOSURE, REMEDIAL,
OR OTHER PLANS), (C) THE LOAN PAPERS OR ANY OF THE TRANSACTIONS CONTEMPLATED IN
THEM, AND (D) ANY INDEMNIFIED PARTY'S SOLE OR CONCURRENT ORDINARY NEGLIGENCE.
HOWEVER, NO INDEMNIFIED PARTY IS ENTITLED TO BE INDEMNIFIED UNDER THE LOAN
PAPERS FOR ITS OWN FRAUD, GROSS NEGLIGENCE, OR WILLFUL MISCONDUCT. The
provisions of and undertakings and indemnification in this SECTION 8.13 survive
the satisfaction and payment of the Obligation and termination of this
agreement.
SECTION 9 NEGATIVE COVENANTS. Until neither Agent, nor any
Affiliate of Agent, nor any Lender has any commitment to extend any credit under
any Loan Paper and the Obligation is fully paid and performed -- unless Borrower
receives a prior written consent to the contrary by Agent on behalf of
Determining Lenders -- Borrower covenants and agrees as follows:
9.1 Taxes. No KPP Company or Restricted Subsidiary may
use any portion of the proceeds of any Borrowing to pay the wages of employees
unless a timely payment to or deposit with the United States of America of all
amounts of Tax required to be deducted and withheld with respect to such wages
is also made.
9.2 Employee Plans. Except where a Material Adverse Event
would not result, no event or circumstance described in SECTION 7.11 may exist
or occur.
9.3 Funded Debt. No KPP Company or Restricted Subsidiary
may create, incur, of suffer to exist any Funded Debt except the following:
(a) Funded Debt evidenced by the Notes, Guaranty,
1994 Notes, 1994 Guaranty, Term Notes, and Term Guaranties;
and
(b) other Funded Debt of any KPP Company or any
Restricted Subsidiary so long as -- at the time of, and
immediately after giving effect to, the incurrence of
(including any
<PAGE> 31
amendments and modifications of, but excluding any amendment,
modification, renewal, extension, or refunding that has the
effect of extending the final maturity or increasing the
principal amount of) it and immediately after giving effect to
the concurrent application of any proceeds of it to retire
other Funded Debt -- (i) no Default or Potential Default
exists and (ii) the ratio of KPP's consolidated Funded Debt to
its consolidated EBITDA does not equal or exceed 3.15 to 1.00,
with (A) EBITDA being determined for a 12-calendar-month
period ending no more than three months before the date on
which that KPP Company or Restricted Subsidiary incurs that
other Funded Debt and (B) Funded Debt being determined as of
the date of the incurrence of the Funded Debt for which the
calculation in this CLAUSE (B) is being made.
9.4 Liens.
(a) No KPP Company or Restricted Subsidiary may
(i) create, assume, or otherwise incur or suffer to exist any
Lien upon -- or, whether by Transfer to any other KPP Company
or Restricted Subsidiary or otherwise, subject to the priority
payment of any obligations, indebtedness, or claim other than
the Obligation -- any present, future, real, personal,
tangible, or intangible assets (including, without limitation,
stock or other securities) of any KPP Company or Restricted
Subsidiary, whether now owned or acquired in the future, or
any income or profits from any of those assets, (ii) own or
acquire or agree to acquire any of those assets subject to or
encumbered by any Lien, or (iii) suffer to exist any
obligations, indebtedness, or claim of any KPP Company or
Restricted Subsidiary or claims or demands against any KPP
Company or Restricted Subsidiary, which obligations,
indebtedness, claims, or demands, if unpaid, would (in the
hands of the holder of any of them, any guarantor of any of
them, or any Person who has any Right or obligation to
purchase any of them), by law or upon bankruptcy or insolvency
or otherwise, be given any priority whatsoever over that KPP
Company's or Restricted Subsidiary's general creditors.
(b) The restrictions in CLAUSE (A) above neither
(i) apply to (A) Lender Liens, (B) other liens under the
Security Documents that are subject to the Intercreditor
Agreement, or (C) Liens under the 1994 Credit Agreement and
the 1994 Security Documents, nor (ii) prevent:
(A) any Lien that is incidental to the
normal conduct of business or ownership of assets by
any KPP Company or Restricted Subsidiary so long as
that Lien does not secure Debt and does not
materially impair the use of those assets in the
operation of that KPP Company's or Restricted
Subsidiary's businesses; or
(B) any (1) Lien for Taxes not yet due
and payable or the nonpayment of which is permitted
by SECTION 8.5, (2) survey exceptions, encumbrances,
easements, or reservations of, or Rights of others
for, Rights of way, sewers, electric lines, telegraph
and telephone lines and other similar purposes, or
zoning or other restrictions as to the use of real
property, and Rights of eminent domain so long as all
of the foregoing do not collectively have a material-
adverse effect on any assets of any KPP Company or
Restricted Subsidiary or materially impair their use
in the operation of its businesses, or (3) mechanic's
Liens and materialman's Liens for services or
materials for which payment is not yet due and
payable and which do not materially impair the use by
any KPP Company or Restricted Subsidiary in the
operation of its businesses; or
(C) any Lien in respect of assets
acquired by a KPP Company or Restricted Subsidiary
after the date of this agreement to secure Debt
assumed or incurred to finance all or any part of the
purchase price so long as that Lien (1) must at all
times apply solely to the assets so acquired and any
improvements on them that become fixtures or
accessions to them, (2) secures only a principal
amount of Debt that never exceeds the lesser of
either the fair market value of the acquired assets
at the time of their acquisition or the cost of those
assets, (3) must be either existing at the time of
the acquisition or created within 120 days after the
time of the acquisition, and (4) secures only Debt
permitted by SECTION 9.3 at the time the Debt is
incurred; or
<PAGE> 32
(D) any of the following Liens if (1)
the validity, applicability or amount of it is being
contested in good faith and by appropriate and lawful
proceedings diligently conducted, (2) the KPP Company
or Restricted Subsidiary in question has set aside on
its books, reserves for it that are deemed adequate
in its reasonable opinion, (3) levy and execution of
that Lien continue to be stayed, (4) it covers any
Collateral and is subordinate to the Lender Liens,
and (5) all such Liens do not collectively materially
detract from the value of the property of the KPP
Company or Restricted Subsidiary in question or
materially impair the use of that property in the
operation of its business: (a) All claims and Liens
of mechanics, materialmen, warehousemen -- other
than those described in SECTION 9.4(b)(ii)(B)(3), and
(b) adverse judgments or orders on appeal for the
payment of money not in excess of the total amount of
$25,000,000; or
(E) any Lien securing Qualifying Debt; or
(F) any Lien on assets that are not Collateral and
securing Debt permitted by SECTION 9.3 so long as
the total amount of Debt so secured never exceeds
10% of KPP's consolidated partners' capital.
9.5 Affiliate Transactions. No KPP Company or Restricted
Subsidiary may engage in any transaction with an Affiliate on terms less
favorable to it than would have been obtainable in arm's length dealing in the
ordinary course of business with a Person not an Affiliate.
9.6 Compliance with Laws and Documents. No KPP Company or
Restricted Subsidiary may (a) violate the provisions of any Laws applicable to
it or of any Material Agreement to which it is a party if that violation alone,
or when aggregated with all other violations, would be a Material Adverse Event,
or (b) violate, repeal, replace, or amend any provision of its certificate or
agreement of limited partnership, certificate or articles of incorporation, or
bylaws (as applicable).
9.7 Loans, Advances, and Investments. No KPP Company or
Restricted Subsidiary may make any loan, advance, extension of credit, or
capital contribution to, make any investment in, or purchase or commit to
purchase any stock or other securities or evidences of Debt of, or interests in,
any other Person, except (a) as permitted by SECTIONS 9.8 or 9.10 or (b)
Permitted Investments.
9.8 Distributions. No KPP Company or Restricted
Subsidiary may enter into or permit to exist any arrangement or agreement that
prohibits it from paying Distributions to its equity holders -- other than this
agreement and its charter documents in effect as of the date of this agreement
- -- and neither KPP nor Borrower may declare, make, or pay any Distribution:
(a) if it would violate the KPP Partnership
Agreement or Borrower Partnership Agreement or a Default or
Potential Default is continuing; or
(b) for (i) Borrower, the total
Distributions paid by it in any calendar quarter would exceed
100% of the "Borrower Available Cash" for the calendar quarter
immediately preceding the quarter in which those Distributions
are paid, or (ii) KPP, the total Distributions paid by it in
any calendar quarter would exceed the "KPP Available Cash"
that constitutes "Cash from Operations" or "Cash from Interim
Capital Transactions" for the calendar quarter immediately
preceding the quarter in which those Distributions are paid.
<PAGE> 33
For purposes of this SECTION 9.8 only:
BORROWER AVAILABLE CASH means, with respect to any calendar
quarter (i) the sum of (a) all cash receipts of Borrower during that
quarter from all sources, plus (b) any reduction in reserves
established in prior quarters, minus (ii) the sum of (aa) all cash
disbursements of Borrower during that quarter, including, without
limitation, disbursements for operating expenses, debt service
(including the payment of principal, premium, and interest), capital
expenditures, and contributions, if any, to any Subsidiary (but
excluding all cash Distributions by Borrower), plus (bb) any reserves
established in that quarter in such amounts as KPC determines in its
reasonable discretion to be necessary or appropriate to provide for
the proper conduct of Borrower's business (including reserves for
future capital expenditures), plus (cc) any other reserves established
in that quarter in such amounts as KPC determines in its reasonable
discretion to be necessary because the Distribution of those amounts
would be prohibited by applicable Law or by any loan agreement,
security agreement, mortgage, debt instrument, or other agreement or
obligation to which Borrower is a party or by which it is bound or its
assets are subject. For purposes of this definition, notwithstanding
the foregoing, "Borrower Available Cash" may not include any cash
receipts or reductions in reserves or take into account any
disbursements made or reserves established after commencement of the
dissolution and liquidation of Borrower.
CASH FROM INTERIM CAPITAL TRANSACTIONS means, on any day, the
amount of KPP Available Cash that KPC determines to be Cash from
Interim Capital Transactions in accordance with Section 5.3 of the KPP
Partnership Agreement.
CASH FROM OPERATIONS means, on any day before commencement of
the dissolution and liquidation of KPP -- on a cumulative basis -- the
sum of (a) the sum of all cash receipts of KPP plus $3,526,000 --
including Distributions of cash received from Borrower and excluding
any cash proceeds from any Interim Capital Transactions or Terminating
Capital Transactions during the period since the commencement of
operations by KPP through that day -- minus (b) the sum of (i) all
cash operating expenditures of KPP during that period, including,
without limitation, Taxes on KPP as an entity or Taxes paid by KPP on
behalf of, or amounts withheld with respect to, all (but not less than
all) of its unitholders, if any, plus (ii) all cash debt service
payments of KPP during that period -- other than payments or
prepayments of principal and premium required by reason of loan
agreements (including covenants and default provisions therein) or by
lenders, in each case in connection with sales or other dispositions
of assets or made in connection with refinancings or refundings of
indebtedness (provided that any payment or prepayment of principal,
whether or not then due, must be determined at the election and in the
discretion of KPC, to be refunded or refinanced by any indebtedness
incurred or to be incurred by KPP simultaneously with or within 180
days before or after that payment or prepayment to the extent of the
principal amount of that indebtedness so incurred), plus (iii) all
cash capital expenditures of KPP during that period -- other than (A)
Expansive Capital Expenditures and (B) cash expenditures made in
payment of transaction expenses relating to Interim Capital
Transactions -- plus (iv) an amount equal to revenues collected
pursuant to a rate increase that are subject to possible refund, plus
(v) any additional reserves outstanding as of that day which KPP
determines in its reasonable discretion to be necessary or appropriate
to provide for the future cash payment of items of the type referred
to in CLAUSES (i) through (iii) above, plus (vi) any reserves that KPC
determines in its reasonable discretion to be necessary or appropriate
to provide funds for Distributions with respect to any one or more of
the next four calendar quarters, all as determined on a consolidated
basis and after elimination of intercompany items and of the interest
attributable to the general partner interest in Borrower. For
purposes of this definition, Taxes paid by KPP on behalf of less than
all of its unitholders may not be considered cash operating
expenditures of KPP which reduce "Cash from Operations."
EXPANSIVE CAPITAL EXPENDITURES means cash capital expenditures
made to increase the throughput or deliverable capacity or terminaling
capacity (assuming normal operating
<PAGE> 34
conditions, including down-time and maintenance) of the assets of KPP
or Borrower, taken as a whole, from the throughput or deliverable
capacity or terminaling capacity (assuming normal operating
conditions, including down-time maintenance) existing immediately
before those capital expenditures. For purposes of this definition,
when cash capital expenditures are made in part to increase the
throughput or deliverable capacity or terminaling capacity of the
assets of KPP, taken as a whole, and in part for other purposes, KPP's
good-faith allocation thereof between the portion increasing capacity
and the portion for other purposes is conclusive.
INTERIM CAPITAL TRANSACTION means (a) borrowing and sales of
debt securities (other than for working capital purposes and items
purchased on open account in the ordinary course of business) by KPP
or Borrower, (b) sales of interest in KPP by KPP or Borrower, and (c)
sales or other voluntary or involuntary dispositions of any assets of
KPP or Borrower, other than (i) sales or other disposition of
inventory in the ordinary course of business, (ii) sales or other
dispositions of other current assets including receivables and
accounts, or (iii) sales or other dispositions of assets as a part of
normal retirements or replacements -- in each case before the
commencement of the dissolution and liquidation of KPP.
KPP AVAILABLE CASH means, with respect to any calendar quarter
(a) the sum of (i) all cash receipts of KPP during that quarter from
all sources (including Distributions of cash received from Borrower)
plus (ii) any reduction in reserves established in prior quarters,
minus (b) the sum of (i) all cash disbursements of KPP during that
quarter, including, without limitation, disbursements for operating
expenses, Taxes on KPP as an entity or paid by KPP on behalf of, or
amounts withheld with respect to, all (but not less than all) of its
unitholders, if any, debt service (including the payment of principal,
premium, and interest), capital expenditures, and contributions, if
any, to a subsidiary corporation or partnership (but excluding all
cash Distributions to its partners), plus (ii) any reserves
established in that quarter in such amounts as KPC determines in its
reasonable discretion to be necessary or appropriate (A) to provide
for the proper conduct of KPP's business (including reserves for
future capital expenditures) or (B) to provide funds for Distributions
with respect to any one or more of the next four calendar quarters,
plus (iii) any other reserves established in that quarter in such
amounts as KPC determines in its reasonable discretion to be necessary
because the Distribution of such amounts would be prohibited by
applicable Law or by any loan agreement, security agreement, mortgage,
debt instrument, or other agreement or obligation to which KPP is a
party or by which it is bound or its assets are subject. For purposes
of this definition, Taxes paid by KPP on behalf of, or amounts
withheld with respect to, less than all of KPP's unitholders may not
be considered cash disbursements of KPP which reduce "KPP Available
Cash," and, notwithstanding the foregoing, "KPP Available Cash" may
not include any cash receipts or reductions in reserves or take into
account any disbursements made or reserves established after
commencement of the dissolution and liquidation of KPP.
TERMINATING CAPITAL TRANSACTION means any sale or other
disposition of assets of KPP or Borrower following commencement of the
dissolution and liquidation of KPP or Borrower.
9.9 Asset Transfers. No KPP Company or Restricted
Subsidiary may Transfer any of its assets, issue or sell shares of its capital
stock or its partnership units, or Transfer any capital stock or partnership
units of a Restricted Subsidiary other than the following:
(a) a Transfer in the ordinary course of business
(including any Transfer of obsolete or worn-out assets);
(b) a Transfer pursuant to a transaction
permitted under SECTION 9.10;
(c) a Transfer and lease-back of any property
within 180 days following the acquisition of the property so
long as no Default or Potential Default exists at the time of
and after giving effect to that transaction;
(d) a Transfer at the time of which and
immediately after giving effect to which (i) the Transfer is
for fair market value and in the best interests of the Person
making it, (ii) no Default or Potential Default exists or
would exist after giving effect to it, or (iii) all such
Transfers which
<PAGE> 35
are to be treated as "Permitted Transfers" under this CLAUSE
(D) in any fiscal year consist of assets or of capital stock
of a KPP Subsidiary that do not have a total book value (or
total fair market value, whichever is higher) -- determined
with regard to each such asset or such capital stock at the
time the same is Transferred -- of more than 10% of KPP's
consolidated partners' capital as of the end of the
immediately preceding fiscal year;
(e) a Transfer for cash so long as, within one
year from the date of the Transfer, the KPP Companies or their
Subsidiaries use the full amount of the proceeds received from
the Transfer, net of all expenses of the KPP Companies or
their Subsidiaries incurred in connection with it, either (1)
to acquire assets used in the storage, terminaling, pipeline,
and transportation business, (2) to pay Funded Debt of the KPP
Companies, or (3) any combination of the two;
(f) a Transfer to any other KPP Company or wholly
owned Restricted Subsidiary;
(g) issuance or sale of its capital stock to
another KPP Company or wholly owned Restricted Subsidiary;
(h) new issuances of limited partnership units of
KPP in exchange for cash or property representing fair
consideration in the determination of the Board of Directors
of KPC;
(i) a merger or consolidation that complies with
the provisions of SECTION 9.10; or
(j) a contribution of capital stock of a
Restricted Subsidiary to a joint venture so long as, following
that contribution, an additional $1 of Funded Debt could be
incurred under SECTION 9.3.
9.10 Dissolutions, Mergers, and Consolidations. No KPP
Company or Restricted Subsidiary may liquidate, wind up, or dissolve or merge or
consolidate with any other Person other than (a) a Subsidiary of KPP may be
merged into or consolidated with another KPP Company or wholly owned Subsidiary
of KPP so long as a KPP Company or a wholly owned Subsidiary of KPP (which must
be a Restricted Subsidiary if one is involved in the merger or consolidation) is
the surviving Person, and (b) a KPP Company or Restricted Subsidiary may merge
or consolidate with another corporation, partnership, or limited liability
company (other than KSI or KPC) so long as (i) both before and immediately after
the merger or consolidation, no Default or Potential Default exists, (ii)
following the merger or consolidation, the successor company is a corporation,
partnership, or limited liability company that is duly organized and existing
under the Laws of the United States of America or any of its states, is Solvent,
and maintains substantially all of its assets in the United States of America,
(iii) that successor (if not the KPP Company involved) expressly assumes the due
and punctual performance and observance of all the obligations, terms,
covenants, agreements, and conditions of the Loan Papers to be performed or
observed by that KPP Company confirms that the Obligation constitutes a
senior-secured obligation of that successor, all by a written instrument in form
and substance satisfactory to Agent and Determining Lenders and furnished to
Agent and Lenders, (iv) following the merger or consolidation, an additional $1
of Funded Debt could be incurred under SECTION 9.3(C), and (v) immediately
before the merger or consolidation, Agent receives (A) a certificate of
Responsible Officer of KPP certifying that the merger or consolidation complies
with all requirements of this SECTION 9.10 and (B) an opinion of outside counsel
in form and substance satisfactory to Agent stating that the merger or
consolidation complies with the requirements of CLAUSES (II) (except as to
solvency) and (III) preceding.
9.11 Assignment. No KPP Company may assign or transfer any
of its Rights, duties, or obligations under any of the Loan Papers except as a
result of a merger or consolidation permitted under SECTION 9.10, in which case
the assignment or transfer of the Rights, duties, and obligations of the non-
surviving KPP Company is permitted if the survivor assumes in writing all
Rights, duties, and obligations of the non-surviving KPP Company under the Loan
Papers.
9.12 Fiscal Year and Accounting Methods. No KPP Company or
Restricted Subsidiary may change its fiscal year or its method of accounting
(other than immaterial changes in methods or as required by GAAP).
<PAGE> 36
9.13 New Businesses. No KPP Company or Restricted
Subsidiary may engage in any business except the businesses in which they are
presently engaged and any other reasonably related business.
9.14 Government Regulations. No KPP Company or Restricted
Subsidiary may conduct its business in a way that it becomes regulated under the
Investment Company Act of 1940, as amended, the Public Utility Holding Company
Act of 1935, as amended, or any other Law (other than Regulations G, T, U, and X
of the Board of Governors of the Federal Reserve System) that regulates the
incurrence of Debt.
SECTION 10 FINANCIAL COVENANTS. Until no Lender has any
commitment to extend any credit under any Loan Paper and the Obligation is
fully paid and performed -- unless Borrower receives a prior written consent to
the contrary by Agent on behalf of Determining Lenders -- Borrower covenants
and agrees as follows:
10.1 Current Ratio. The ratio of the current liabilities
(excluding current maturities of Funded Debt and Distributions permitted by this
agreement that have been declared but not yet paid) of the KPP Companies and
their Subsidiaries to their current assets may never exceed 1.00 to 1.00.
10.2 Tangible Net Worth. The Tangible Net Worth of the KPP
Companies and their Subsidiaries may never be less than the sum of (a)
$70,000,000 plus (b) if contributed to Borrower by KPP, 100% of the net cash
proceeds (i.e., the gross cash proceeds less usual and customary costs and
expenses related to the offering) received by KPP upon its issuance of partner
interests of any kind.
10.3 Leverage Ratio. The ratio of the total Debt of the KPP
Companies and their Subsidiaries on the last day of any fiscal quarter to their
EBITDA for the four-consecutive quarters ending on that last day may never
exceed 3.15 to 1.00.
10.4 Fixed Charges Coverage Ratio. For any
four-consecutive-quarterly period, the ratio of the amount in CLAUSE (A) below
to the amount in CLAUSE (B) below may never be less than 1.25 to 1.00:
(a) The sum (without duplication) of EBITDA
of the KPP Companies and their Subsidiaries plus (to the
extent actually deducted in calculating net income feature of
EBITDA) cash operating lease payments.
(b) The sum (without duplication) of the
KPP Companies' and their Subsidiaries' (i) cash interest
payments on Debt (including the interest portion of
capitalized leases), plus (ii) cash operating lease payments,
plus (iii) scheduled cash payments of Funded Debt, plus (iv)
cash payments of capital expenditures.
SECTION 11 DEFAULT. The term "DEFAULT" means the occurrence of
any one or more of the following events:
11.1 Obligation. The failure or refusal of (a) Borrower to
make any interest payment within five Business Days after it becomes due and
payable under the Loan Papers or (b) any KPP Company to pay any other part of
the Obligation after it becomes due and payable under the Loan Papers.
11.2 Covenants. The failure or refusal of Borrower (and, if
applicable, any other KPP Company) to punctually and properly perform, observe,
and comply with any other covenant, agreement, or condition contained in any
Loan Paper -- other than the covenants to pay the Obligation -- and that failure
or refusal is in respect of a covenant, agreement, or condition (a) in either
SECTION 9 or SECTION 10 and it continues for 30 days, or (b) elsewhere in any
Loan Paper and it continues for 30 days after the earlier of either (i) any KPP
Company receives notice of it or (ii) any Responsible Officer of any KPP Company
otherwise obtains knowledge of it.
<PAGE> 37
11.3 Debtor Relief. Any KPC Company (a) is not Solvent,
(b) fails to pay its Debts generally as they become due, (c) voluntarily
seeks, consents to, or acquiesces in the benefit of any Debtor Relief Law, or
(d) becomes a party to or is made the subject of any proceeding provided for by
any Debtor Relief Law, other than as a creditor or claimant, that could suspend
or otherwise adversely affect the Rights of Agent or any Lender granted in the
Loan Papers (unless, if the proceeding is involuntary, the applicable petition
is dismissed within 60 days after its filing).
11.4 Misrepresentation. Any material representation or
warranty made by any party (other than Agent and Lenders) contained in any Loan
Paper at any time proves to have been materially incorrect when made.
11.5 Judgments and Attachments. Any KPP Company or
Restricted Subsidiary fails, within 60 days after entry, to pay, bond, or
otherwise discharge any judgment or order for the payment of money in excess of
$5,000,000 (individually or collectively) or any warrant of attachment,
sequestration, or similar proceeding against any KPP Company's or Restricted
Subsidiary's assets having a value (individually or collectively) of $5,000,000,
which is neither (a) stayed on appeal nor (b) diligently contested in good faith
by appropriate proceedings and adequate reserves have been set aside on its
books in accordance with GAAP.
11.6 1994 Credit Agreement, Note Agreements, or
Intercreditor Agreement. (a) A payment Default or Event of Default, as the case
may be, occurs under the 1994 Credit Agreement or any Note Agreement, and the
applicable grace period under the 1994 Credit Agreement or that Note Agreement,
as the case may be, has expired; (b) any other Default or Event of Default, as
the case may be, occurs under the 1994 Credit Agreement or any Note Agreement
that has not been cured or permanently waived before expiration of the
applicable grace period under the 1994 Credit Agreement or that Note Agreement,
as the case may be; or (c) the occurrence and continuance of any Event of
Default as defined in the Intercreditor Agreement.
11.7 Default Under Other Agreements. (a) Any KPP Company or
Restricted Subsidiary fails to pay when due (after lapse of any applicable grace
period) any Debt in excess (individually or collectively) of $5,000,000; (b) any
default exists under any agreement to which a KPP Company or Restricted
Subsidiary is a party, the effect of which is to cause, or to permit any Person
(other than a KPP Company or Restricted Subsidiary) to cause, an amount in
excess (individually or collectively) of $5,000,000 to become due and payable
by any KPP Company or Restricted Subsidiary before its stated maturity, and such
default is not cured or amount is not paid, as the case may be, within the
required time period under the applicable agreement; or (c) any Debt in excess
(individually or collectively) of $5,000,000 is declared to be due and payable
or required to be prepaid by any KPP Company or Restricted Subsidiary before its
stated maturity.
11.8 Validity and Enforceability of Loan Papers. Except in
accordance with its terms or as otherwise expressly permitted by this agreement,
any Loan Paper, at any time after its execution and delivery ceases to be in
full force and effect in any material respect or is declared to be null and void
or its validity or enforceability is contested by any party (other than Agent
and Lenders) to any Loan Paper, if party thereto, or any party (other than Agent
and Lenders) denies that it has any further liability or obligations under any
Loan Paper to which it is a party.
11.9 Change of Control. KPC fails to be the sole general
partner of KPP and Borrower, or KPP fails to be the sole limited partner of
Borrower.
11.10 KPC Merger or Consolidation. Whether it is the
survivor or not, KPC is merged into or consolidated with KSI.
<PAGE> 38
SECTION 12 RIGHTS AND REMEDIES.
12.1 Remedies Upon Default.
(a) If a Default exists under SECTION 11.3, the
commitment to extend credit under this agreement automatically
terminates and the entire unpaid balance of the Obligation
automatically becomes due and payable without any action of
any kind whatsoever.
(b) If any Default exists, subject to the terms of
SECTION 13.5(B), Agent may (with the consent of, and must,
upon the request of, Determining Lenders), do any one or more
of the following: (i) if the maturity of the Obligation has
not already been accelerated under SECTION 12.1(A), declare
the entire unpaid balance of all or any part of the Obligation
immediately due and payable, whereupon it is due and payable;
(ii) terminate the commitments of Lenders to extend credit
under this agreement; (iii) reduce any claim to judgment; (iv)
to the extent permitted by Law, exercise (or request each
Lender to, and each Lender is entitled to, exercise) the
Rights of offset or banker's Lien against the interest of any
KPP Company in and to every account and other property of any
KPP Company that are in the possession of Agent or any Lender
to the extent of the full amount of the Obligation (and to the
extent permitted by Law, each KPP Company is deemed directly
obligated to each Lender in the full amount of the Obligation
for this purpose); and (v) exercise any and all other legal or
equitable Rights afforded by the Loan Papers, the Laws of the
State of Texas, or any other applicable jurisdiction.
(c) If, in reliance on SECTION 13.5(B), Agent
refuses to take any action under SECTION 12.1(B) at the
request of Determining Lenders, then Determining Lenders may
take that action.
12.2 KPP Company Waivers. To the extent permitted by Law,
each KPP Company waives presentment and demand for payment, protest, notice of
intention to accelerate, notice of acceleration, and notice of protest and
nonpayment, and agrees that its liability with respect to all or any part of the
Obligation is not affected by any renewal or extension in the time of payment of
all or any part of the Obligation, by any indulgence, or by any release or
change in any security for the payment of all or any part of the Obligation.
12.3 Performance by Agent. If any covenant, duty, or
agreement of any KPP Company is not performed in accordance with the terms of
the Loan Papers, Agent may, while a Default exists, at its option (but subject
to the approval of Determining Lenders), perform or attempt to perform that
covenant, duty, or agreement on behalf of that KPP Company (and any amount
expended by Agent in its performance or attempted performance is payable by the
KPP Companies, jointly and severally, to Agent on demand, becomes part of the
Obligation, and bears interest at the Default Rate from the date of Agent's
expenditure until paid). However, Agent does not assume and shall never have,
except by its express written consent, any liability or responsibility for the
performance of any covenant, duty, or agreement of any KPP Company. Agent shall
promptly notify Borrower of any action taken under this SECTION 12.3.
12.4 Not in Control. None of the covenants or other
provisions contained in any Loan Paper shall, or shall be deemed to, give Agent
or Lenders the Right to exercise control over the assets (including, without
limitation, real property), affairs, or management of any KPP Company; the power
of Agent and Lenders is limited to the Right to exercise the remedies provided
in this SECTION 12.
12.5 Course of Dealing. The acceptance by Agent or Lenders
of any partial payment on the Obligation shall not be deemed to be a waiver of
any Default then existing. No waiver by Agent, Determining Lenders, or Lenders
of any Default shall be deemed to be a waiver of any other then-existing or
subsequent Default. No delay or omission by Agent, Determining Lenders, or
Lenders in exercising any Right under the Loan Papers will impair that Right or
be construed as a waiver thereof or any acquiescence therein, nor will any
single or partial exercise of any Right preclude other or further exercise
thereof or the exercise of any other Right under the Loan Papers or otherwise.
<PAGE> 39
12.6 Cumulative Rights. All Rights available to Agent,
Determining Lenders, and Lenders under the Loan Papers are cumulative of and in
addition to all other Rights granted to Agent, Determining Lenders, and Lenders
at law or in equity, whether or not the Obligation is due and payable and
whether or not Agent, Determining Lenders, or Lenders have instituted any suit
for collection, foreclosure, or other action in connection with the Loan
Papers.
12.7 Application of Proceeds. Any and all proceeds ever
received by Agent or Lenders from the exercise of any Rights pertaining to the
Obligation shall be applied to the Obligation according to SECTION 3.
12.8 Diminution in Value of Collateral. Neither Agent nor
any Lender has any liability or responsibility whatsoever for any diminution in
or loss of value of any collateral now or hereafter securing payment or
performance of all or any part of the Obligation (other than diminution in or
loss of value caused by its gross negligence or willful misconduct).
12.9 Certain Proceedings. Borrower will promptly execute
and deliver, or cause the execution and delivery of, all applications,
certificates, instruments, registration statements, and all other documents and
papers Agent or Determining Lenders reasonably request in connection with the
obtaining of any consent, approval, registration, qualification, permit,
license, or authorization of any Tribunal or other Person necessary or
appropriate for the effective exercise of any Rights under the Loan Papers.
Because Borrower agrees that Agent's and Determining Lenders' remedies at Law
for failure of Borrower to comply with the provisions of this paragraph would be
inadequate and that failure would not be adequately compensable in damages,
Borrower agrees that the covenants of this paragraph may be specifically
enforced.
SECTION 13 AGREEMENT AMONG LENDERS.
13.1 Agent.
(a) Each Lender appoints Agent (and Agent accepts
appointment) as its nominee and agent, in its name and on its
behalf to: (i) act as its nominee and on its behalf in and
under all Loan Papers; (ii) take any action that it properly
requests under the Loan Papers (subject to the concurrence of
other Lenders as may be required under the Loan Papers); (iii)
receive all documents and items to be furnished to it under
the Loan Papers; (iv) be the secured party, mortgagee,
beneficiary, recipient, and similar party in respect of any
collateral for the benefit of Lenders; (v) distribute to it
all material information, requests, documents, and items
required to be delivered to it under the Loan Papers after any
KPP Company delivers the same to Agent; and (vi) deliver to
the appropriate Persons requests, demands, approvals, and
consents received from it. However, Agent may not be required
to take any action that exposes it to personal liability or
that is contrary to any Loan Paper or applicable Law.
(b) Each Lender appoints Agent (and Agent accepts
appointment) as its nominee and agent, in its name and on its
behalf to: (i) arrange the means whereby its funds are to be
made available to Borrower under the Loan Papers; and (ii)
promptly distribute to it its ratable part of each payment or
prepayment (whether voluntary, as proceeds of collateral upon
or after foreclosure, as proceeds of insurance thereon, or
otherwise) in accordance with the terms of the Loan Papers.
However, Agent may not be required to take any action that
exposes it to personal liability or that is contrary to any
Loan Paper or applicable Law.
(c) If the initial or any successor Agent ever
ceases to be a party to this agreement or if the initial or
any successor Agent ever resigns (whether voluntarily or at
the request of Determining Lenders), then Determining Lenders
shall appoint the successor Agent from among the Lenders
(other than the resigning Agent). If Determining Lenders fail
to appoint a successor Agent within 30 days after the
resigning Agent has given notice of resignation or Determining
Lenders have removed the resigning Agent, then the resigning
Agent may, on behalf of Lenders, appoint a successor Agent,
which must be a commercial bank having a combined capital and
surplus of at least $1,000,000,000 (as shown on its most
recently published statement
<PAGE> 40
of condition). Upon its acceptance of appointment as
successor Agent, the successor Agent succeeds to and becomes
vested with all of the Rights of the prior Agent, and the
prior Agent is discharged from its duties and obligations of
Agent under the Loan Papers, and each Lender shall execute the
documents as any Lender, the resigning or removed Agent, or
the successor Agent reasonably request to reflect the change.
After Agent's resignation or removal as Agent under the Loan
Papers, the provisions of this SECTION 13 inure to its benefit
as to any actions taken or omitted to be taken by it while it
was Agent under the Loan Papers.
(d) Agent, in its capacity as a Lender, has the
same Rights under the Loan Papers as any other Lender and may
exercise those Rights as if it were not acting as Agent; the
term "Lender" shall, unless the context otherwise indicates,
include Agent; and Agent's resignation or removal shall not
impair or otherwise affect any Rights that it has or may have
in its capacity as an individual Lender. Each Lender and
Borrower agree that Agent is not a fiduciary for Lenders or
for Borrower or any other party to a Loan Paper but simply is
acting in the capacity described in this agreement to
alleviate administrative burdens for Borrower, Lenders, and
other parties to the Loan Papers, that Agent has no duties or
responsibilities to Lenders or Borrower or other parties to
the Loan Papers except those expressly set forth in the Loan
Papers, and that Agent in its capacity as a Lender has all
Rights of any other Lender.
(e) Each KPP Company and Lender acknowledges and
agrees that (i) Agent is acting as agent for Lenders under the
Loan Papers, is a Lender under the Loan Papers, is acting as
agent for certain financial institutions under the 1994 Credit
Agreement, acted as the private-placement adviser to Borrower
and STI in respect of the transactions contemplated in the
Note Agreements, and is acting as the Collateral Trustee, and
(ii) none of those roles constitutes a conflict of interest
for Agent. Furthermore, Agent may now or hereafter be engaged
in one or more loan, letter of credit, leasing, or other
financing transactions with a KPC Company, act as trustee or
depositary for any KPC Company, or otherwise be engaged in
other transactions with any KPC Company (collectively, the
"OTHER ACTIVITIES") not the subject of the Loan Papers.
Without limiting the Rights of Lenders specifically set forth
in the Loan Papers, Agent is not responsible to account to
Lenders for those other activities, and no Lender shall have
any interest in any other activities, any present or future
guaranties by or for the account of any KPC Company that are
not contemplated or included in the Loan Papers, any present
or future offset exercised by Agent in respect of those other
activities, any present or future property taken as security
for any of those other activities, or any property now or
hereafter in Agent's possession or control that may be or
become security for the obligations of any KPC Company arising
under the Loan Papers by reason of the general description of
indebtedness secured or of property contained in any other
agreements, documents, or instruments related to any of those
other activities (but, if any payments in respect of those
guaranties or that property or the proceeds thereof is applied
by Agent to reduce the Obligation, then each Lender is
entitled to share ratably in the application as provided in
the Loan Papers).
13.2 Expenses. Each Lender shall pay its Default
Percentage of any reasonable expenses (including, without limitation, court
costs, reasonable attorneys' fees and other costs of collection) incurred by
Agent (while acting in such capacity) in connection with any of the Loan Papers
if Agent is not reimbursed from other sources within 30 days after incurrence.
Each Lender is entitled to receive its Default Percentage of any reimbursement
that it makes to Agent if Agent is subsequently reimbursed from other sources.
13.3 Proportionate Absorption of Losses. Except as
otherwise provided in the Loan Papers, nothing in the Loan Papers gives any
Lender any advantage over any other Lender insofar as the Obligation is
concerned or to relieve any Lender from ratably absorbing any losses sustained
with respect to the Obligation (except to the extent unilateral actions or
inactions by any Lender result in any KPP Company or any other obligor on the
Obligation having any credit, allowance, setoff, defense, or counterclaim solely
with respect to all or any part of that Lender's Default Percentage of the
Obligation).
13.4 Delegation of Duties; Reliance. Subject to the Rights
(including, without limitation, any required consent) of Agent or any or all
Lenders described elsewhere in this agreement, a
<PAGE> 41
Lender may perform its duties and exercise its Rights under the Loan Papers by
or through Agent, and Lenders and Agent may perform their duties and exercise
their Rights under the Loan Papers by or through their respective
Representatives (but a Lender's Representatives must work by or through Agent or
their respective Representatives). Agent, Lenders, and their respective
Representatives (a) are entitled to rely upon (and shall be protected in relying
upon) any written or oral statement believed by it or them to be genuine and
correct and to have been signed or made by the proper Person and, with respect
to legal matters, upon opinion of counsel selected by Agent or that Lender (but
nothing in this CLAUSE (A) permits Agent to rely on (i) oral statements if a
writing is required by this agreement or (ii) any other writing if a specific
writing is required by this agreement), (b) are entitled to deem and treat each
Lender as the owner and holder of its Default Percentage of the Principal Debt
for all purposes until, subject to SECTION 14.11, written notice of the
assignment or transfer is given to and received by Agent (and any request,
authorization, consent, or approval of any Lender is conclusive and binding on
each subsequent holder, assignee, or transferee of or Participant in that
Lender's Default Percentage of the Principal Debt until that notice is given and
received), (c) are not deemed to have notice of the occurrence of a Default
unless a responsible officer of Agent, who handles matters associated with the
Loan Papers and transactions thereunder, has actual knowledge or Agent has been
notified by a Lender or Borrower, and (d) are entitled to consult with legal
counsel (including counsel for any KPP Company), independent accountants, and
other experts selected by Agent and are not liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of
counsel, accountants, or experts.
13.5 Limitation of Agent's Liability.
(a) Neither Agent nor any of its respective
Representatives will be liable for any action taken or omitted
to be taken by it under the Loan Papers in good faith and
believed by it to be within the discretion or power conferred
upon it or them by the Loan Papers or be responsible for the
consequences of any error of judgment (except for fraud, gross
negligence, or willful misconduct), and neither Agent nor any
of its respective Representatives has a fiduciary relationship
with any Lender by virtue of the Loan Papers (but nothing in
this agreement negates the obligation of Agent to account for
funds received by it for the account of any Lender).
(b) Unless indemnified to its satisfaction against
loss, cost, liability, and expense, Agent may not be compelled
to do any act under the Loan Papers or to take any action
toward the execution or enforcement of the powers thereby
created or to prosecute or defend any suit in respect of the
Loan Papers. If Agent requests instructions from Lenders, or
Determining Lenders, as the case may be, with respect to any
act or action in connection with any Loan Paper, Agent is
entitled to refrain (without incurring any liability to any
Person by so refraining) from that act or action unless and
until it has received instructions. In no event, however, may
Agent or any of its Representatives be required to take any
action that it or they determine could incur for it or them
criminal or onerous civil liability. Without limiting the
generality of the foregoing, no Lender has any right of action
against Agent as a result of Agent's acting or refraining from
acting under this agreement in accordance with instructions of
Determining Lenders.
(c) Agent is not responsible to any Lender or any
Participant for, and each Lender represents and warrants that
it has not relied upon Agent in respect of, (i) the
creditworthiness of any party to any Loan Paper and the risks
involved to that Lender, (ii) the effectiveness,
enforceability, genuineness, validity, or the due execution of
any Loan Paper (other than by Agent), (iii) any representation,
warranty, document, certificate, report, or statement made
therein (other than by Agent) or furnished thereunder or in
connection therewith, (iv) the adequacy of any collateral now
or hereafter securing the Obligation or the existence,
priority, or perfection of any Lien now or hereafter granted or
purported to be granted on the collateral under any Loan Paper,
or (v) observation of or compliance with any of the terms,
covenants, or conditions of any Loan Paper on the part of any
KPP Company. Each Lender agrees to indemnify Agent and its
respective Representatives and hold them harmless from and
against (but limited to such Lender's Default Percentage of)
any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, reasonable
expenses, and reasonable disbursements of any kind or nature
whatsoever that may be imposed on, asserted against, or
incurred by them in any way relating to or arising out of the
Loan Papers or any action taken or omitted by them under the
Loan Papers if the applicable
<PAGE> 42
Person is not reimbursed for such amounts by any KPP Company.
Although Agent and its respective Representatives have the
right to be indemnified under this agreement for its or their
own ordinary negligence, none of those Persons have the right
to be indemnified under this agreement for its or their own
fraud, gross negligence, or willful misconduct.
13.6 Default; Collateral. If a Default exists, Lenders
agree to promptly confer in order that Determining Lenders or Lenders, as the
case may be, may agree upon a course of action for the enforcement of the Rights
of Lenders; and Agent is entitled to refrain from taking any action (without
incurring any liability to any Person for so refraining) unless and until it has
received instructions from Determining Lenders. In actions with respect to any
property of any KPP Company, Agent is acting for the ratable benefit of each
Lender. Agent shall hold, for the ratable benefit of all Lenders, any security
it receives for the Obligation or any guaranty of the Obligation it receives
upon or in lieu of foreclosure.
13.7 Limitation of Liability. No Lender or any Participant
will incur any liability to any other Lender or Participant except for acts or
omissions in bad faith, and neither Agent, Lender nor any Participant will incur
any liability to any other Person for any act or omission of Agent, any Lender,
or any Participant.
13.8 Relationship of Lenders. The Loan Papers do not
create a partnership or joint venture among Agent and Lenders or among Lenders.
13.9 Collateral Matters.
(a) Each Lender authorizes and directs
Agent to enter into the Security Documents for the ratable
benefit of Lenders. Each Lender agrees that any action taken
by Agent concerning any Collateral with the consent of, or at
the request of, all Lenders in accordance with the provisions
of this agreement, the Security Documents, or the other Loan
Papers, and the exercise by Agent (with the consent of, or at
the request of, all Lenders) of powers concerning any
Collateral set forth in any Loan Paper, together with other
reasonably incidental powers, shall be authorized and binding
upon all Lenders.
(b) Agent is authorized on behalf of all
Lenders, without the necessity of any notice to or further
consent from any Lender, from time to time before a Default or
Potential Default, to take any action with respect to any
Collateral or Security Documents that may be necessary to
perfect and maintain perfected the Lender Liens upon the
Collateral granted by the Security Documents.
(c) Agent has no obligation whatsoever to
any Lender or to any other Person to assure that the
Collateral exists or is owned by any KPP Company or is cared
for, protected, or insured or has been encumbered or that the
Liens granted to Agent for the benefit of Lenders under the
Security Documents have been properly or sufficiently or
lawfully created, perfected, protected, or enforced, or are
entitled to any particular priority.
(d) Agent shall exercise the same care and
prudent judgment with respect to the Collateral and the
Security Documents as it normally and customarily exercises in
respect of similar collateral and security documents.
(e) Lenders irrevocably authorize Agent, at
its option and in its discretion, to release any Lender Lien
upon any Collateral (i) upon full payment of the Obligation;
(ii) constituting property being sold or disposed of as
permitted under SECTION 9.9, if Agent determines that the
property being sold or disposed is being sold or disposed in
accordance with the requirements and limitations of SECTION
9.9; (iii) constituting property in which no KPP Company owned
any interest at the time the Lender Lien was granted or at any
time thereafter; (iv) constituting property leased to any KPP
Company under a lease that has expired or been terminated in a
transaction permitted under this agreement or is about to
expire and that has not been, and is not intended by that KPP
Company to be, renewed; or (v) consisting of an instrument
evidencing Debt pledged to Agent (for the benefit of Lenders),
if the Debt evidenced thereby has
<PAGE> 43
been paid in full. Upon request by Agent at any time, Lenders
will confirm in writing Agent's authority to release
particular types or items of Collateral under this SECTION
13.9(E).
13.10 Benefits of Agreement. None of the provisions of this
SECTION 13 inure to the benefit of any KPP Company or any other Person other
than Agent and Lenders; consequently, no KPP Company or any other Person is
entitled to rely upon, or to raise as a defense, in any manner whatsoever, the
failure of Agent or any Lender to comply with these provisions.
SECTION 14 MISCELLANEOUS.
14.1 Nonbusiness Days. Any payment or action that is due
under any Loan Paper on a non- Business Day may be delayed until the
next-succeeding Business Day (but interest shall continue to accrue on any
applicable payment until payment is in fact made) unless the payment concerns a
LIBOR Rate Borrowing, in which case if the next-succeeding Business Day is in
the next calendar month, then such payment shall be made on the next-preceding
Business Day.
14.2 Communications. Unless otherwise stated, when a Loan
Paper requires or permits any consent, approval, notice, request, or demand from
one party to another, it must be written and is deemed given:
if by telecopy, when transmitted to the appropriate telecopy
number (but, without affecting the date deemed given, a
telecopy communication must be promptly confirmed by
telephone);
if by mail, on the third Business Day after enclosed in a
properly addressed, stamped, and sealed envelope deposited in
the appropriate official postal service; and
if by other means, when actually delivered.
Until changed by notice, the address and telecopy number are stated
for (a) Borrower and Agent, beside their names on the signature pages
below, and (b) each Lender, beside its name on SCHEDULE 2.1.
14.3 Form and Number of Documents. The form, substance,
and number of counterparts of each writing to be furnished under this agreement
must be satisfactory to Agent and its counsel.
14.4 Exceptions to Covenants. No party to a Loan Paper may
take or fail to take any action that is permitted as an exception to any of the
covenants contained in any Loan Paper if that action or omission would result in
the breach of any other covenant contained in any Loan Paper.
14.5 Survival. All covenants, agreements, undertakings,
representations, and warranties made in any of the Loan Papers survive all
closings under the Loan Papers and, except as otherwise indicated, are not
affected by any investigation made by any party.
14.6 Governing Law. The Laws (other than conflict-of-laws
provisions) of the State of Texas and of the United States of America govern the
Rights and duties of the parties to the Loan Papers and the validity,
construction, enforcement, and interpretation of the Loan Papers.
14.7 Invalid Provisions. Any provision in any Loan Paper
held to be illegal, invalid, or unenforceable is fully severable; the
appropriate Loan Paper shall be construed and enforced as if that provision had
never been included; and the remaining provisions shall remain in full force and
effect and shall not be affected by the severed provision. Agent Lenders,
Borrower, and each other party to the affected Loan Paper shall negotiate, in
good faith, the terms of a replacement provision as similar to the severed
provision as may be possible and be legal, valid, and enforceable.
14.8 Venue; Service of Process; Jury Trial. EACH PARTY TO
ANY LOAN PAPER, IN EACH CASE FOR ITSELF, ITS SUCCESSORS AND PERMITTED ASSIGNS,
(A) IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE STATE AND
FEDERAL COURTS OF THE STATE OF TEXAS,
<PAGE> 44
(B) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION
THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY LITIGATION
ARISING OUT OF OR IN CONNECTION WITH THE LOAN PAPERS AND THE OBLIGATION BROUGHT
IN DISTRICT COURTS OF DALLAS COUNTY, TEXAS, OR IN THE UNITED STATES DISTRICT
COURT FOR THE NORTHERN DISTRICT OF TEXAS, DALLAS DIVISION, (C) IRREVOCABLY
WAIVES ANY CLAIMS THAT ANY LITIGATION BROUGHT IN ANY OF THE AFOREMENTIONED
COURTS HAS BEEN BROUGHT IN AN INCONVENIENT FORUM, (D) IRREVOCABLY CONSENTS TO
THE SERVICE OF PROCESS OUT OF ANY OF THOSE COURTS IN ANY LITIGATION BY THE
MAILING OF COPIES THEREOF BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, POSTAGE
PREPAID, BY HAND-DELIVERY, OR BY DELIVERY BY A NATIONALLY RECOGNIZED COURIER
SERVICE, AND SERVICE SHALL BE DEEMED COMPLETE UPON DELIVERY OF THE LEGAL PROCESS
AT ITS ADDRESS SET FORTH IN THIS AGREEMENT, (E) IRREVOCABLY AGREES THAT ANY
LEGAL PROCEEDING AGAINST ANY PARTY TO ANY LOAN PAPER ARISING OUT OF OR IN
CONNECTION WITH THE LOAN PAPERS OR THE OBLIGATION MAY BE BROUGHT IN ONE OF THE
AFOREMENTIONED COURTS, AND (F) IRREVOCABLY WAIVES TO THE FULLEST EXTENT
PERMITTED BY LAW, ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF ANY LOAN PAPER. The scope of each of the
foregoing waivers is intended to be all-encompassing of any and all disputes
that may be filed in any court and that relate to the subject matter of this
transaction, including, without limitation, contract claims, tort claims, breach
of duty claims, and all other common law and statutory claims. Borrower
acknowledges that these waivers are a material inducement to Agent's,
Syndication Agent's, and each Lender's agreement to enter into a business
relationship, that Agent and each Lender has already relied on these waivers in
entering into this agreement, and that Agent and each Lender will continue to
rely on each of these waivers in related future dealings. Borrower further
warrants and represents that it has reviewed these waivers with its legal
counsel, and that it knowingly and voluntarily agrees to each waiver following
consultation with legal counsel. THE WAIVERS IN THIS SECTION 14.8 ARE
IRREVOCABLE, MEANING THAT THEY MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING,
AND THESE WAIVERS SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, SUPPLEMENTS, AND
REPLACEMENTS TO OR OF THIS OR ANY OTHER LOAN PAPER. In the event of Litigation,
this agreement may be filed as a written consent to a trial by the court.
14.9 Amendments, Consents, Conflicts, and Waivers.
(a) Unless otherwise specifically provided,
(i) this agreement may be amended only by an instrument in
writing executed by Borrower, Agent, and Determining Lenders
and supplemented only by documents delivered or to be
delivered in accordance with the express terms of this
agreement, and (ii) the other Loan Papers may only be the
subject of an amendment, modification, or waiver that has been
approved by Determining Lenders and the Person(s) party to
those other Loan Papers.
(b) Any amendment to or consent or waiver
under this agreement or any Loan Paper that purports to
accomplish any of the following must be by an instrument in
writing executed by each party thereto (and, if not a party
thereto, Agent) and executed (or approved, as the case may be)
by each Lender: (i) extends the due date or decreases the
amount of any scheduled payment of the Obligation beyond the
date specified in the Loan Papers; (ii) decreases any rate or
amount of interest, fees, or other sums payable to Agent or
Lenders under this agreement (except such reductions as are
contemplated by this agreement); (iii) changes the definition
of "COMMITMENT," "COMMITMENT PERCENTAGE," "DETERMINING
LENDERS," "ACTUAL TERMINATION DATE," or "STATED TERMINATION
DATE"; (iv) increases any one or more Lenders' Commitments;
(v) waives compliance with, amends, or releases (in whole or
in part) any Guaranty or any Collateral; or (vi) changes this
CLAUSE (B) or any other matter specifically requiring the
consent of all Lenders under this agreement.
(c) Any conflict or ambiguity between the
terms and provisions of this agreement and terms and
provisions in any other Loan Paper is controlled by the terms
and provisions of this agreement.
(d) No course of dealing or any failure or
delay by Agent, any Lender, or any of their respective
Representatives with respect to exercising any Right of Agent
or any Lender
<PAGE> 45
under this agreement operates as a waiver thereof. A waiver
must be in writing and signed by Agent and Lenders (or
Determining Lenders, if permitted under this agreement) to be
effective, and a waiver will be effective only in the specific
instance and for the specific purpose for which it is given.
14.10 Multiple Counterparts. Any Loan Paper may be executed
in a number of identical counterparts, each of which shall be deemed an original
for all purposes and all of which constitute, collectively, one agreement; but,
in making proof of this agreement, it shall not be necessary to produce or
account for more than one counterpart. Each Lender need not execute the same
counterpart of this agreement so long as identical counterparts are executed by
Borrower, each Lender and Agent. This agreement shall become effective when
counterparts of this agreement have been executed and delivered to Agent by each
Lender, Agent and Borrower, or, in the case only of Lenders, when Agent has
received telecopied, telexed, or other evidence satisfactory to it that each
Lender has executed and is delivering to Agent a counterpart of this agreement.
14.11 Successors and Assigns; Participations.
(a) Each Loan Paper binds and inures to the
benefit of the parties thereto, any intended beneficiary
thereof, and each of their respective successors and permitted
assigns. No Lender may transfer, pledge, assign, sell any
participation in, or otherwise encumber its portion of the
Obligation except as permitted by this SECTION 14.11.
(b) Subject to the provisions of this
section and in accordance with applicable Law, any Lender may,
in the ordinary course of its commercial banking business, at
any time sell to one or more Persons (each a "PARTICIPANT")
participating interests in its portion of the Obligation. The
selling Lender shall remain a "Lender" under this agreement
(and the Participant shall not constitute a "Lender" under
this agreement) and its obligations under this agreement shall
remain unchanged. The selling Lender shall remain solely
responsible for the performance of its obligations under the
Loan Papers and shall remain the holder of its share of the
Principal Debt for all purposes under this agreement. Each
party to any Loan Paper and Agent shall continue to deal
solely and directly with the selling Lender in connection with
that Lender's Rights and obligations under the Loan Papers.
Participants have no Rights under the Loan Papers, other than
those of a Lender under SECTIONS 3, 8.1, 8.4, and 8.13, and
certain voting Rights as provided below. Subject to the
following, each Lender may obtain (on behalf of its
Participants) the benefits of SECTION 3 with respect to all
participations in its part of the Obligation outstanding from
time to time so long as Borrower is not obligated to pay any
amount in excess of the amount that would be due to that
Lender under SECTION 3 calculated as though no participations
have been made. No Lender may sell any participating interest
under which the Participant has any Rights to approve any
amendment, modification, or waiver of any Loan Paper, except
to the extent the amendment, modification, or waiver extends
the due date for payment of any principal, interest, or fees
due under the Loan Papers, reduces the interest rate or the
amount of principal or fees applicable to the Obligation
(except reductions contemplated by this agreement), or
releases any Guaranty or any collateral, if any, for the
Obligation (other than releases of collateral permitted by
SECTION 13.9(E)). Except in the case of the sale of a
participating interest to another Lender, the relevant
participation agreement shall prohibit the Participant from
transferring, pledging, assigning, selling participations in,
or otherwise encumbering its portion of the Obligation.
(c) Subject to the provisions of this
section, any Lender may at any time, in the ordinary course of
its commercial banking business, assign a proportionate part
(not less than $5,000,000) of all or any part of its Rights
and obligations under the Loan Papers (i) without the consent
of any Person (including, without limitation, any KPP Company
or Agent) to any of its Affiliates, and (ii) if no Default
exists and if Borrower and Syndication Agent first consent
(which consent may not be unreasonably withheld), to any of
the following, if the potential assignee does not own any
equity interests or Rights (excluding Rights under the
<PAGE> 46
Security Documents) to acquire any equity interests in any KSI
Company: (A) a commercial bank that is organized under Laws
of the United States of America or any of its states and has
total assets in excess of $1,000,000,000; (B) a commercial
bank that is organized under the Laws of another country that
is a member of the Organization for Economic Cooperation and
Development (the "OECD") -- or a political subdivision of any
such country, has total assets in excess of $1,000,000,000,
and is acting either through its main office or a branch or an
agency that has total assets in excess of $1,000,000,000 and
is located in the country of its organization or another
country that is also a member of the OECD; (C) the central
bank of any country that is a member of the OECD; or (D) a
finance company, insurance company, or other financial
institution or fund that has total assets in excess of
$1,000,000,000. Each such permitted assignee is called a
"PURCHASER."
(d) In each case, the Purchaser shall
assume those Rights and obligations under an assignment
agreement substantially in the form of the attached EXHIBIT F.
Each assignment under this SECTION 14.11(C) shall include a
ratable interest in the assigning Lender's Rights and
obligations under the Loan Papers. Upon (i) delivery of an
executed copy of the assignment agreement to Borrower, Agent,
and Syndication Agent and (ii) payment of a fee of $1,500 from
the transferor to Agent, from and after the assignment's
effective date (which shall be after the date of delivery),
the Purchaser shall for all purposes be a Lender party to this
agreement and shall have all the Rights and obligations of a
Lender under this agreement to the same extent as if it were
an original party to this agreement with Commitments as set
forth in the assignment agreement, and the transferor Lender
shall be released from its obligations under this agreement to
a corresponding extent, and, except as provided in the
following sentence, no further consent or action by Borrower,
Lenders, Agent, or Syndication Agent shall be required. Upon
the consummation of any transfer to a Purchaser under this
CLAUSE (D), then (x) the then-existing SCHEDULE 2.1 shall
automatically be deemed to reflect the name, address, and
Commitment of such Purchaser, (y) Borrower shall execute and
deliver to each of the transferor Lender and the Purchaser a
Note in the face amount of its respective Commitment following
transfer, and (z) upon receipt of its new Note, the transferor
Lender shall return to Borrower the Note previously delivered
to it under this agreement. A Purchaser is subject to all the
provisions in this section as if it were a Lender signatory to
this agreement as of the date of this agreement.
(e) Any Lender may at any time, without the
consent of any Person (including, without limitation, any KPP
Company, Agent, or Syndication Agent), assign all or any part
of its Rights under the Loan Papers to a Federal Reserve Bank
without releasing the transferor Lender from its obligations
thereunder.
(f) Notwithstanding any contrary provision
in this agreement, a Lender may not sell or participate any of
its interests for a purchase price that, directly or
indirectly, reflects a discount from face value, without first
offering the sale or participation to the other Lenders on a
Default Percentage basis (which must be accepted or rejected
within five Business Days after the offer).
14.12 Discharge Only Upon Payment in Full; Reinstatement in
Certain Circumstances. Each Person's obligations under the Loan Papers remain
in full force and effect until the total Commitments are terminated and the
Obligation is paid in full (except for provisions under the Loan Papers
expressly intended to survive payment of the Obligation and termination of the
Loan Papers). If at any time any payment of the principal of or interest on any
Note or any other amount payable by any KPP Company or any other obligor on the
Obligation under any Loan Paper is rescinded or must be restored or returned
upon the insolvency, bankruptcy, or reorganization of any Person or otherwise,
the obligations of each Person under the Loan Papers with respect to that
payment shall be reinstated as though the payment had been due but not made at
that time.
14.13 Entirety. THE LOAN PAPERS REPRESENT THE FINAL
AGREEMENT BETWEEN BORROWER, LENDERS, AGENT, AND SYNDICATION AGENT AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENT
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGE FOLLOWS.
<PAGE> 47
EXECUTED as of the day and year first mentioned.
2435 North Central Expressway KANEB PIPE LINE OPERATING
Suite 700 PARTNERSHIP, L.P., as Borrower
Richardson, Texas 75080
Attn: Edward D. Doherty, By: KANEB PIPE LINE COMPANY,
Chairman General Partner
Telecopy: 214/699-4025
By /s/ Edward D. Doherty
---------------------------
Edward D. Doherty, Chairman
2200 Ross Avenue TEXAS COMMERCE BANK NATIONAL
Dallas, Texas 75266-0197 ASSOCIATION, as Agent and a Lender
Attn: Dale S. Hurd
Senior Vice President
Telecopy: 214/965-2389
By /s/ Dale S. Hurd
------------------------
Dale S. Hurd, Senior Vice President
SIGNATURE PAGE TO BRIDGE FINANCING AGREEMENT
<PAGE> 48
EXHIBIT 10.6
FIRST AMENDMENT TO BRIDGE FINANCING AGREEMENT
THIS AMENDMENT is entered into as of March 26, 1996, between KANEB
PIPE LINE OPERATING PARTNERSHIP, a Delaware limited partnership ("BORROWER"),
and TEXAS COMMERCE BANK NATIONAL ASSOCIATION ("AGENT") as Agent and initial
Lender.
Borrower and Agent are party to the Bridge Financing Agreement (as
renewed, extended, and amended, the "BRIDGE AGREEMENT") dated as of December
18, 1995, providing for a $68,000,000 revolving credit facility. Borrower and
Agent have agreed, upon the following terms and conditions, to amend the Bridge
Agreement to provide for an extension of the stated date of maturity for the
facility. Accordingly, for adequate and sufficient consideration, Borrower and
Agent agree as follows:
1. TERMS AND REFERENCES. Unless otherwise stated in this
amendment, terms defined in the Bridge Agreement have the same meanings when
used in this amendment.
2. AMENDMENT TO BRIDGE AGREEMENT. The Bridge Agreement is
amended as follows:
(a) Section 1 of the Bridge Agreement is amended
by entirely amending the following term:
STATED TERMINATION DATE means March 25, 1997.
(b) Exhibit A is entirely amended in the form of
-- and all references in the Bridge Agreement to Exhibit A are
changed to -- the attached AMENDED EXHIBIT A.
3. CONDITIONS PRECEDENT. PARAGRAPH 2 above is not effective
until Agent receives counterparts of this amendment executed by each KPP
Company and Agent.
4. RATIFICATIONS. Borrower (a) ratifies and confirms all
provisions of the Loan Papers as amended by this amendment, (b) ratifies and
confirms that all guaranties, assurances, and Liens granted, conveyed, or
assigned to Agent under the Loan Papers are not released, reduced, or otherwise
adversely affected by this amendment and continue to guarantee, assure, and
secure full payment and performance of the present and future Obligation, and
(c) agrees to perform such acts and duly authorize, execute, acknowledge,
deliver, file, and record such additional documents and certificates as Agent
may request in order to create, perfect, preserve, and protect those
guaranties, assurances, and Liens.
5. REPRESENTATIONS. Borrower represents and warrants to Agent
that as of the date of this amendment (a) all representations and warranties in
the Loan Papers are true and correct in all material respects except to the
extent that (i) any of them speak to a different specific date or (ii) the
facts on which any of them were based have been changed by transactions
contemplated or permitted by the Bridge Agreement, and (b) no Material Adverse
Event, Default or Potential Default exists.
Exhibit 10.6
<PAGE> 49
6. ENTIRETIES. THE BRIDGE AGREEMENT AS AMENDED BY THIS AMENDMENT
REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES ABOUT THE SUBJECT MATTER OF
THE BRIDGE AGREEMENT AS AMENDED BY THIS AMENDMENT AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
7. PARTIES. This amendment binds and inures to Borrower, Agent
and their respective successors and assigns.
Exhibit 10.6
- 2 -
<PAGE> 50
EXECUTED as of the date first stated above.
KANEB PIPE LINE OPERATING TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
PARTNERSHIP, as Borrower as Agent and Lender
By KANEB PIPE LINE COMPANY,
General Partner
By /s/ Edward D. Doherty By /s/ Donna German
---------------------------- -----------------------------------
Edward D. Doherty, Chairman Donna German, Senior Vice President
To induce Agent to enter into this amendment, the undersigned consent
and agree (a) to its execution and delivery, (b) that this amendment in no way
releases, diminishes, impairs, reduces, or otherwise adversely affects any
Liens, guaranties, assurances, or other obligations or undertakings of any of
the undersigned under any Loan Papers, and (c) waive notice of acceptance of
this consent and agreement, which consent and agreement binds the undersigned
and their successors and permitted assigns and inures to Agent and their
respective successors and permitted assigns.
KANEB PIPE LINE PARTNERS, L.P. SUPPORT TERMINALS OPERATING
PARTNERSHIP, L.P., as a Guarantor
By: KANEB PIPE LINE COMPANY,
General Partner By: SUPPORT TERMINAL SERVICES, INC.,
as General Partner
By /s/ Edward D. Doherty By /s/ Edward D. Doherty
--------------------------- --------------------------------
Edward D. Doherty, Chairman Edward D. Doherty, Chairman
STANTRANS, INC., AND SUPPORT TERMINAL
SERVICES, INC., as Guarantors
By /s/ Edward D. Doherty
---------------------------------
Edward D. Doherty, Chairman of
both the above corporations
FIRST AMENDMENT SIGNATURE PAGE
<PAGE> 51
AMENDED EXHIBIT A
AMENDED AND RESTATED PROMISSORY NOTE
$68,000,000 March 22, 1996
FOR VALUE RECEIVED, KANEB PIPE LINE OPERATING PARTNERSHIP, L.P., a
Delaware limited partnership ("MAKER"), promises to pay to the order of Texas
Commerce Bank national Association ("PAYEE") that portion of the principal
amount of $68,000,000 that may be disbursed and outstanding under this note,
together with interest.
This note is one of the "Notes" under the Bridge Financing Agreement
(as renewed, extended, amended, or restated, the "BRIDGE AGREEMENT") dated as
of the date of this note, between Maker, Payee, certain other "Lenders," and
Texas Commerce Bank National Association, as Agent for Lenders. All of the
defined terms in the Bridge Agreement have the same meanings when used in this
note.
This note incorporates by reference the principal and interest payment
terms in the Bridge Agreement for this note -- including, without limitation,
the final maturity indicated as the earlier of either (a) the Stated
Termination Date, or (b) the effective date that the Commitments are otherwise
canceled or terminated under the Bridge Agreement. Maker must make those
payments to Agent for Payee or Agent's offices at 2200 Ross Avenue, Dallas,
Dallas County, Texas.
This note incorporates by reference all other provisions in the Bridge
Agreement applicable to this note -- such as provisions for disbursements of
principal, applicable interest rates before and after Default, prepayments,
acceleration of maturity, exercise of Rights, payment of attorneys' fees, court
costs, and other costs of collection, certain waivers by Maker and other
obligors, assurances and security, choice of Texas and United States federal
law, usury savings, and other matters applicable to "Loan Papers" under the
Bridge Agreement.
This note amends and completely restates, but does not extinguish
amounts left owing and unpaid on that certain Promissory Note dated December
18, 1995, in the stated principal amount of $68,000,000 executed and delivered
by Maker and payable to the order of Payee.
KANEB PIPE LINE OPERATING PARTNERSHIP, L.P.,
Maker
By: KANEB PIPE LINE COMPANY, General Partner
By /s/ E. D. DOHERTY
--------------------------------------
Edward D. Doherty, Chairman
Amended Exhibit A
<PAGE> 1
EXHIBIT 21
KANEB PIPE LINE PARTNERS, L.P.
LIST OF SUBSIDIARIES
KANEB PIPE LINE OPERATING PARTNERSHIP, L.P.
SUPPORT TERMINALS OPERATING PARTNERSHIP, L.P.
SUPPORT TERMINAL SERVICES, INC.
STANTRANS, INC.
STANTRANS HOLDING, INC.
STANTRANS PARTNERS, L.P.
<PAGE> 1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of
Kaneb Pipe Line Company, a Delaware corporation ("KPL"), as General Partner of
Kaneb Pipe Line Partners, L.P. ("KPP"), does hereby constitute and appoint Tony
M. Regan or Edward D. Doherty with full power of substitution, as his true and
lawful attorney and agent to execute and sign, for and on behalf of the
undersigned, the name of the undersigned as a director of KPL to the Annual
Report on Form 10-K for KPP for the fiscal year ended December 31, 1995, or to
any amendment thereto, to be filed with the Securities and Exchange Commission,
pursuant to the Securities Exchange Act of 1934, and to any instrument or
document filed as a part of, as an exhibit to or in connection with said Form
10-K or any amendment thereto; and the undersigned does hereby ratify and
confirm as his own act and deed all that said attorney and agent shall do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
26th day of March, 1996.
SANGWOO AHN
- --------------------------
Sangwoo Ahn
In the Presence of:
H. MATTESON
- --------------------------
H. Matteson
EXHIBIT 24
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of
Kaneb Pipe Line Company, a Delaware corporation ("KPL"), as General Partner of
Kaneb Pipe Line Partners, L.P. ("KPP"), does hereby constitute and appoint Tony
M. Regan or Edward D. Doherty with full power of substitution, as his true and
lawful attorney and agent to execute and sign, for and on behalf of the
undersigned, the name of the undersigned as a director of KPL to the Annual
Report on Form 10-K for KPP for the fiscal year ended December 31, 1995, or to
any amendment thereto, to be filed with the Securities and Exchange Commission,
pursuant to the Securities Exchange Act of 1934, and to any instrument or
document filed as a part of, as an exhibit to or in connection with said Form
10-K or any amendment thereto; and the undersigned does hereby ratify and
confirm as his own act and deed all that said attorney and agent shall do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
26th day of March, 1996.
JOHN R. BARNES
- --------------------------
John R. Barnes
In the Presence of:
HEATHER R. BULBA
- --------------------------
Heather R. Bulba
EXHIBIT 24
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of
Kaneb Pipe Line Company, a Delaware corporation ("KPL"), as General Partner of
Kaneb Pipe Line Partners, L.P. ("KPP"), does hereby constitute and appoint Tony
M. Regan or Edward D. Doherty with full power of substitution, as his true and
lawful attorney and agent to execute and sign, for and on behalf of the
undersigned, the name of the undersigned as a director of KPL to the Annual
Report on Form 10-K for KPP for the fiscal year ended December 31, 1995, or to
any amendment thereto, to be filed with the Securities and Exchange Commission,
pursuant to the Securities Exchange Act of 1934, and to any instrument or
document filed as a part of, as an exhibit to or in connection with said Form
10-K or any amendment thereto; and the undersigned does hereby ratify and
confirm as his own act and deed all that said attorney and agent shall do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
26th day of March, 1996.
MURRAY R. BILES
- --------------------------
Murray R. Biles
In the Presence of:
LEANNE M. LECHNER
- -------------------------
Leanne M. Lechner
EXHIBIT 24
<PAGE> 4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of
Kaneb Pipe Line Company, a Delaware corporation ("KPL"), as General Partner of
Kaneb Pipe Line Partners, L.P. ("KPP"), does hereby constitute and appoint Tony
M. Regan or Edward D. Doherty with full power of substitution, as his true and
lawful attorney and agent to execute and sign, for and on behalf of the
undersigned, the name of the undersigned as a director of KPL to the Annual
Report on Form 10-K for KPP for the fiscal year ended December 31, 1995, or to
any amendment thereto, to be filed with the Securities and Exchange Commission,
pursuant to the Securities Exchange Act of 1934, and to any instrument or
document filed as a part of, as an exhibit to or in connection with said Form
10-K or any amendment thereto; and the undersigned does hereby ratify and
confirm as his own act and deed all that said attorney and agent shall do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
28th day of March, 1996.
CHARLES R. COX
- --------------------------
Charles R. Cox
In the Presence of:
JUNE KERSHAW
- --------------------------
June Kershaw
EXHIBIT 24
<PAGE> 5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of
Kaneb Pipe Line Company, a Delaware corporation ("KPL"), as General Partner of
Kaneb Pipe Line Partners, L.P. ("KPP"), does hereby constitute and appoint Tony
M. Regan or Edward D. Doherty with full power of substitution, as his true and
lawful attorney and agent to execute and sign, for and on behalf of the
undersigned, the name of the undersigned as a director of KPL to the Annual
Report on Form 10-K for KPP for the fiscal year ended December 31, 1995, or to
any amendment thereto, to be filed with the Securities and Exchange Commission,
pursuant to the Securities Exchange Act of 1934, and to any instrument or
document filed as a part of, as an exhibit to or in connection with said Form
10-K or any amendment thereto; and the undersigned does hereby ratify and
confirm as his own act and deed all that said attorney and agent shall do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
26th day of March, 1996.
EDWARD D. DOHERTY
- --------------------------
Edward D. Doherty
In the Presence of:
HEATHER R. BULBA
- --------------------------
Heather R. Bulba
EXHIBIT 24
<PAGE> 6
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer of
Kaneb Pipe Line Company, a Delaware corporation ("KPL"), as General Partner of
Kaneb Pipe Line Partners, L.P. ("KPP"), does hereby constitute and appoint Tony
M. Regan or Edward D. Doherty with full power of substitution, as his true and
lawful attorney and agent to execute and sign, for and on behalf of the
undersigned, the name of the undersigned as an officer of KPL to the Annual
Report on Form 10-K for KPP for the fiscal year ended December 31, 1995, or to
any amendment thereto, to be filed with the Securities and Exchange Commission,
pursuant to the Securities Exchange Act of 1934, and to any instrument or
document filed as a part of, as an exhibit to or in connection with said Form
10-K or any amendment thereto; and the undersigned does hereby ratify and
confirm as his own act and deed all that said attorney and agent shall do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
28th day of March, 1996.
JIMMY L. HARRISON
- --------------------------
Jimmy L. Harrison
In the Presence of:
LEANNE M. LECHNER
- --------------------------
Leanne M. Lechner
EXHIBIT 24
<PAGE> 7
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of
Kaneb Pipe Line Company, a Delaware corporation ("KPL"), as General Partner of
Kaneb Pipe Line Partners, L.P. ("KPP"), does hereby constitute and appoint Tony
M. Regan or Edward D. Doherty with full power of substitution, as his true and
lawful attorney and agent to execute and sign, for and on behalf of the
undersigned, the name of the undersigned as a director of KPL to the Annual
Report on Form 10-K for KPP for the fiscal year ended December 31, 1995, or to
any amendment thereto, to be filed with the Securities and Exchange Commission,
pursuant to the Securities Exchange Act of 1934, and to any instrument or
document filed as a part of, as an exhibit to or in connection with said Form
10-K or any amendment thereto; and the undersigned does hereby ratify and
confirm as his own act and deed all that said attorney and agent shall do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
26th day of March, 1996.
PRESTON A. PEAK
- --------------------------
Preston A. Peak
In the Presence of:
HEATHER R. BULBA
- --------------------------
Heather R. Bulba
EXHIBIT 24
<PAGE> 8
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of
Kaneb Pipe Line Company, a Delaware corporation ("KPL"), as General Partner of
Kaneb Pipe Line Partners, L.P. ("KPP"), does hereby constitute and appoint Tony
M. Regan or Edward D. Doherty with full power of substitution, as his true and
lawful attorney and agent to execute and sign, for and on behalf of the
undersigned, the name of the undersigned as a director of KPL to the Annual
Report on Form 10-K for KPP for the fiscal year ended December 31, 1995, or to
any amendment thereto, to be filed with the Securities and Exchange Commission,
pursuant to the Securities Exchange Act of 1934, and to any instrument or
document filed as a part of, as an exhibit to or in connection with said Form
10-K or any amendment thereto; and the undersigned does hereby ratify and
confirm as his own act and deed all that said attorney and agent shall do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
26th day of March, 1996.
RALPH A. REHM
- --------------------------
Ralph A. Rehm
In the Presence of:
HEATHER R. BULBA
- --------------------------
Heather R. Bulba
EXHIBIT 24
<PAGE> 9
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of
Kaneb Pipe Line Company, a Delaware corporation ("KPL"), as General Partner of
Kaneb Pipe Line Partners, L.P. ("KPP"), does hereby constitute and appoint Tony
M. Regan or Edward D. Doherty with full power of substitution, as his true and
lawful attorney and agent to execute and sign, for and on behalf of the
undersigned, the name of the undersigned as a director of KPL to the Annual
Report on Form 10-K for KPP for the fiscal year ended December 31, 1995, or to
any amendment thereto, to be filed with the Securities and Exchange Commission,
pursuant to the Securities Exchange Act of 1934, and to any instrument or
document filed as a part of, as an exhibit to or in connection with said Form
10-K or any amendment thereto; and the undersigned does hereby ratify and
confirm as his own act and deed all that said attorney and agent shall do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
26th day of March, 1996.
JAMES R. WHATLEY
- --------------------------
James R. Whatley
In the Presence of:
NATHLYE H. CHASTAIN
- --------------------------
Nathlye H. Chastain
EXHIBIT 24
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 6,307
<SECURITIES> 0
<RECEIVABLES> 10,210
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 20,342
<PP&E> 323,671
<DEPRECIATION> 77,200
<TOTAL-ASSETS> 267,787
<CURRENT-LIABILITIES> 22,392
<BONDS> 136,489
<COMMON> 0
0
0
<OTHER-SE> 100,748
<TOTAL-LIABILITY-AND-EQUITY> 267,787
<SALES> 0
<TOTAL-REVENUES> 96,928
<CGS> 0
<TOTAL-COSTS> 54,350
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,437
<INCOME-PRETAX> 36,675
<INCOME-TAX> 627
<INCOME-CONTINUING> 36,048
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<NET-INCOME> 36,048
<EPS-PRIMARY> 2.20
<EPS-DILUTED> 2.20
</TABLE>
