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 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number 1-10311
KANEB PIPE LINE PARTNERS, L.P.
(Exact name of Registrant as specified in its Charter)
Delaware 75-2287571
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2435 North Central Expressway
Richardson, Texas 75080
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (972) 699-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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
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 Units held by non-affiliates of
the registrant: $402,081,103. This figure is estimated as of March 15, 1999, at
which date the closing price of the Registrant's Units on the New York Stock
Exchange was $31.6875 per Unit and assumes that only the General Partner of the
Registrant (the "General Partner"), officers and directors of the General
Partner and its parent and wholly owned subsidiaries of the General Partner and
its parent were affiliates.
Number of Units of the Registrant outstanding at March 15, 1999:
16,060,000.
<PAGE>
PART I
Item I. Business
General
Kaneb Pipe Line Partners, L.P., a Delaware limited partnership (the
"Partnership"), is engaged in the refined petroleum products pipeline business
and the terminaling of petroleum products and specialty liquids. Formed in
September 1989 to acquire, own and operate the pipeline system and operations
that had been previously conducted by Kaneb Pipe Line Company, a Delaware
corporation ("KPL" or the "Company"), since 1953, 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 Partnership's
pipeline operations 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 Support Terminals Operating
Partnership, L.P. ("STOP"), and its affiliated partnerships and corporate
entities, which operate under the trade names "ST Services" and "StanTrans,"
among others. KPOP and STOP are, collectively with their subsidiaries, referred
to as the "Operating Partnerships." KPL is a wholly-owned subsidiary of Kaneb
Services, Inc., a Delaware corporation ("Kaneb") (NYSE: KAB).
Products Pipeline Business
Introduction
The Partnership's pipeline business consists primarily of the
transportation of refined petroleum products in Kansas, Nebraska, Iowa, South
Dakota, North Dakota, Colorado and Wyoming, as a common carrier. The Partnership
owns and operates two common carrier pipelines (the "Pipelines") described
below.
East Pipeline
Construction of the East Pipeline commenced in the 1950s with a line
from southern Kansas to Geneva, Nebraska. During the 1960s, the East Pipeline
was extended north to its present terminus at Jamestown, North Dakota. In the
1980's, the lines from Geneva, Nebraska to North Platte, Nebraska and the 16"
line from McPherson, Kansas to Geneva, Nebraska were built and the Partnership
acquired a 6" pipeline from Champlin Oil Company, a portion of which originally
ran south from Geneva, Nebraska through Windom, Kansas terminating in
Hutchinson, Kansas. In 1997, the Partnership completed construction of a new 6"
pipeline from Conway, Kansas to Windom, Kansas (approximately 22 miles north of
Hutchinson) that allows the Hutchinson terminal to be supplied directly from
McPherson; a significantly shorter route than was previously used. As a result
of this pipeline becoming operational, a 158 mile segment of the former Champlin
line was shut down, including a terminal located at Superior, Nebraska. The
other end of the line runs northeast approximately 175 miles, crossing the main
pipeline at Osceola, Nebraska, continuing through a terminal at Columbus,
Nebraska, and later interconnecting with the Partnership's Yankton/Milford line
to terminate at Rock Rapids, Iowa. In December 1998, KPOP acquired from Amoco
Oil Company a 175 mile pipeline that runs from Council Bluffs, Iowa to Sioux
Falls, South Dakota and the terminal at Sioux Falls. On December 31, 1998 KPOP,
pursuant to its option, purchased the 203 mile North Platte line for
approximately $5 million at the end of a lease. In January 1999, a connection
was completed to service the Sioux Falls terminal through the main East
Pipeline.
The East Pipeline system also consists of 16 product terminals in
Kansas, Nebraska, Iowa, South Dakota and North Dakota with total storage
capacity of approximately 3.5 million barrels and an additional 23 product tanks
with total storage capacity of approximately 922,000 barrels at its tank farm
installations at McPherson and El Dorado, Kansas. The system also has six origin
pump stations in Kansas and 38 booster pump stations throughout the system.
Additionally, the system maintains various office and warehouse facilities, and
an extensive quality control laboratory. KPOP owns the entire 2,090 mile East
Pipeline. KPOP leases office space for its operating headquarters in Wichita,
Kansas.
The East Pipeline transports refined petroleum products, including
propane, received from refineries in southeast Kansas and other connecting
pipelines to its terminals along the system and to receiving pipeline
connections in Kansas. Shippers on the East Pipeline obtain refined petroleum
products from refineries connected to the East Pipeline or through other
pipelines directly connected to the pipeline system. Five connecting pipelines
can deliver propane for shipment through the East Pipeline from gas processing
plants in Texas, New Mexico, Oklahoma and Kansas.
West Pipeline
KPOP acquired the West Pipeline in February 1995, through an asset
purchase from Wyco Pipe Line Company for a purchase price of $27.1 million,
increasing the Partnership's pipeline business in South Dakota and expanding it
into Wyoming and Colorado. The West Pipeline system includes approximately 550
miles of pipeline in Wyoming, Colorado and South Dakota, four truck loading
terminals and numerous pump stations situated along the system. The system's
four product terminals have a total storage capacity of over 1.7 million
barrels.
The West Pipeline originates at Casper, Wyoming and travels east to the
Strouds station, where it serves as a connecting point with Sinclair's Little
America refinery and the Seminoe pipeline that transports product from Billings,
Montana-area refineries. From Strouds, the West Pipeline continues easterly
through its 8" line to Douglas, Wyoming, where a 6" pipeline branches off to
serve the Partnership's Rapid City, South Dakota terminal approximately 190
miles away. The Rapid City terminal has a three bay, bottom-loading truck rack
and storage tank capacity of 256,000 barrels. The 6" pipeline also receives
product from Wyoming Refining's pipeline at a connection located near the
Wyoming/South Dakota border, approximately 30 miles south of Wyoming Refining's
Newcastle, Wyoming refinery. From Douglas, the Partnership's 8" pipeline
continues southward through a delivery point at the Burlington Northern junction
to the terminal at Cheyenne, Wyoming. The Cheyenne terminal has a two bay,
bottom-loading truck rack, storage tank capacity of 345,000 barrels and serves
as a receiving point for products from the Frontier Oil & Refining Company
refinery at Cheyenne, as well as a product delivery point to the Cheyenne
pipeline. From the Cheyenne terminal, the 8" pipeline extends south into
Colorado to the Dupont terminal located in the Denver metropolitan area. The
Dupont terminal is the largest terminal on the West Pipeline system, with a six
bay, bottom-loading truck rack and tankage capacity of 692,000 barrels. The 8"
pipeline continues to the Commerce City station, where the West Pipeline can
receive from and transfer product to the Ultramar Diamond Shamrock and Conoco
refineries and the Phillips Petroleum terminal. From Commerce City, a 6" line
continues south 90 miles where the system terminates at the Fountain, Colorado
terminal serving the Colorado Springs area. The Fountain terminal has a five
bay, bottom-loading truck rack and storage tank capacity of 366,000 barrels.
The West Pipeline system parallels the Partnership's East Pipeline to
the west. The East Pipeline's North Platte line terminates in western Nebraska,
approximately 200 miles east of the West Pipeline's Cheyenne, Wyoming terminal.
Conoco's Cheyenne pipeline runs from west to east from the Cheyenne terminal to
near the East Pipeline's North Platte terminal, although a portion of the line
from Sidney, Nebraska (approximately 100 miles from Cheyenne) to North Platte
has been deactivated. The West Pipeline serves Denver and other eastern Colorado
markets and supplies jet fuel to Ellsworth Air Force Base at Rapid City, South
Dakota, as compared to the East Pipeline's largely agricultural service area.
The West Pipeline has a relatively small number of shippers, who, with a few
exceptions, are also shippers on the Partnership's East Pipeline system.
Other Systems
The Partnership also owns three single-use pipelines, located in
Umatilla, Oregon; Rawlins, Wyoming and Pasco, Washington, each of which supplies
diesel fuel to a railroad fueling facility. The Oregon and Washington lines are
fully automated, though the Wyoming line requires minimal start-up assistance,
which is provided by the railroad. For the year ended December 31, 1998, these
three systems combined transported a total of 3.2 million barrels of diesel
fuel, representing an aggregate of $1.3 million in revenues.
Pipelines Products and Activities
The Pipelines' revenues are based upon volumes and distances of product
shipped. The following table reflects the total volume and barrel miles of
refined petroleum products shipped and total operating revenues earned by the
Pipelines for each of the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------
1998 1997 1996 1995(4) 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Volume (1)................. 77,965 69,984 73,839 74,965 54,546
Barrel miles (2)........... 17,007 16,144 16,735 16,594 14,460
Revenues (3)............... $63,421 $61,320 $63,441 $60,192 $46,117
</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.
(4) Amounts for 1995 and subsequent periods also include amounts
attributable to the West Pipeline, acquired by the Partnership in
February 1995.
The following table sets forth volumes of propane and various types of
other refined petroleum products transported by the Pipelines during each of the
periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
(Thousands of Barrels)
-----------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Gasoline................. 33,133 32,237 36,063 37,348 23,958
Diesel and fuel oil...... 41,087 33,541 32,934 33,411 26,340
Propane.................. 3,745 4,206 4,842 4,146 4,204
Other.................... - - - 60 44
----------- ----------- ----------- ----------- -----------
Total............... 77,965 69,984 73,839 74,965 54,546
=========== =========== =========== =========== ===========
</TABLE>
Diesel and fuel oil are used in farm machinery and equipment,
over-the-road transportation, railroad fueling and residential fuel oil.
Gasoline is primarily used in over-the-road transportation and 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 areas served
by the East Pipeline affect both the demand for and the mix of the refined
petroleum products delivered through the East Pipeline, although historically
any overall impact on the total volumes shipped has been short-term. Tariffs
charged to shippers for transportation of products do not vary according to the
type of product delivered.
Maintenance and Monitoring
The Pipelines have been constructed and are maintained in a manner
consistent with applicable Federal, state and local laws and regulations,
standards prescribed by the American Petroleum Institute and accepted industry
practice. Further, protective measures are taken and routine preventive
maintenance is performed on the Pipelines, in order to prolong the useful lives
of the Pipelines. Such measures includes cathodic protection to prevent external
corrosion, inhibitors to prevent internal corrosion and periodic inspection of
the Pipelines. Additionally, the Pipelines are patrolled at regular intervals to
identify equipment or activities by third parties that, if left unchecked, could
result in encroachment upon the rights-of-way for the Pipelines and possible
damage to the Pipelines.
The Partnership uses a state-of-the-art Supervisory Control and Data
Acquisition remote supervisory control software program to continuously monitor
and control the Pipelines from the Wichita, Kansas headquarters. The system
monitors quantities of refined petroleum products injected in and delivered
through the Pipelines and automatically signals the Wichita headquarters upon
deviations from normal operations that requires attention.
Pipeline Operations
Both the East Pipeline and the West Pipeline are interstate pipelines
and thus subject to Federal regulation by such governmental agencies as the
Federal Energy Regulatory Commission ("FERC"), the Department of Transportation,
and the Environmental Protection Agency. Additionally, the West Pipeline is
subject to state regulation of certain intrastate rates in Colorado and Wyoming
and the East Pipeline is subject to state regulation in Kansas. See
"Regulation."
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. In May 1998,
KPOP was authorized by the FERC to adopt market-based rates in approximately
one-half of its markets. 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 is available at published
tariffs filed, in the case of interstate shipments, with the FERC, or in the
case of intrastate shipments in Kansas, Colorado and Wyoming, with the relevant
state authority, 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 delivers products to the
pipeline from refineries or pipelines that connect to the pipeline. The
Pipelines' operations also include 20 truck loading terminals through which
refined petroleum products are delivered to storage tanks and then loaded into
petroleum transport trucks. Tariffs for transportation are charged to shippers
based upon transportation from the origination point on the pipeline to the
point of delivery. Such tariffs also include charges for terminaling and storage
of product at the Pipeline's terminals. Pipelines are generally the lowest cost
method for intermediate and long-haul overland transportation of refined
petroleum products.
Each shipper transporting product on a pipeline 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 following table shows the number of tanks owned by KPOP at each
terminal location at December 31, 1998 (except as indicated), the storage
capacity in barrels and truck capacity of each terminal location.
Location of Number Tankage Truck
Terminals of Tanks Capacity Capacity(a)
- -------------------- ---------- ---------- ----------
Colorado:
Dupont 18 692,000 6
Fountain 13 366,000 5
Iowa:
LeMars 9 103,000 2
Milford(b) 11 172,000 2
Rock Rapids 12 366,000 2
Kansas:
Concordia(c) 7 79,000 2
Hutchinson 9 162,000 1
Nebraska:
Columbus(d) 12 191,000 2
Geneva 39 678,000 8
Norfolk 16 187,000 4
North Platte 22 198,000 5
Osceola 8 79,000 2
North Dakota:
Jamestown 13 188,000 2
South Dakota:
Aberdeen 12 181,000 2
Mitchell 8 72,000 2
Rapid City 13 256,000 3
Sioux Falls 9 394,000 2
Wolsey 21 149,000 4
Yankton 25 246,000 4
Wyoming:
Cheyenne 15 345,000 2
------ -----------
Totals 292 5,104,000
====== ===========
(a) Number of trucks that may be simultaneously loaded.
(b) This terminal is situated on land leased through August 7, 2007 at an
annual rental of $2,400. KPOP has the right to renew the lease upon its
expiration for an additional term of 20 years at the same annual rental
rate.
(c) This terminal is situated on land leased through the year 2060 for a
total rental of $2,000.
(d) Also loads rail tank cars.
The East Pipeline also has intermediate storage facilities consisting
of 13 storage tanks at El Dorado, Kansas and 10 storage tanks at McPherson,
Kansas, with aggregate capacities of approximately 388,000 and 534,000 barrels,
respectively. During 1998, approximately 55% and 87% of the deliveries of the
East Pipeline and the West Pipeline, respectively, were made through their
terminals, and the remainder of the respective deliveries of such lines were
made to other pipelines and customer owned storage tanks.
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 as fuel for railroads or in agricultural
operations, including fuel for farm equipment, irrigation systems, trucks used
for 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,
the demand for fuel for irrigation systems often increases during such times.
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 area.
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. Refineries in Kansas, Oklahoma and Texas are
connected to the East Pipeline through other pipelines. These refineries obtain
their supplies of crude oil from a variety of sources. The 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.
The majority of the refined petroleum product transported through the
East Pipeline in 1998 was produced at three refineries located at McPherson and
El Dorado, Kansas and Ponca City, Oklahoma, and operated by National Cooperative
Refinery Association ("NCRA"), Texaco, Inc. and Conoco, Inc. respectively. The
NCRA and Texaco refineries are connected directly to the East Pipeline. The
McPherson, Kansas refinery operated by NCRA, accounted for approximately 36% of
the total amount of product shipped over the East Pipeline in 1998. 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 connecting pipelines that receive products from a pipeline originating
on the Gulf Coast. Five connecting pipelines can 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 refinery located at Cheyenne, Wyoming,
the Ultramar Diamond Shamrock and Conoco refineries located at Denver, Colorado,
and Sinclair's Little America refinery located at Casper, Wyoming, all of which
are connected directly to the West Pipeline. The West Pipeline also has access
to three Billings, Montana, area refineries through a connecting pipeline.
Principal Customers
KPOP had a total of approximately 50 shippers in 1998. The principal
shippers include four integrated oil companies, three refining companies, two
large farm cooperatives and one railroad. Transportation revenues attributable
to the top 10 shippers of the Pipelines were $48.3 million, $43.8 million and
$46.5 million, which accounted for 76%, 74% and 76% of total revenues shipped
for each of the years 1998, 1997 and 1996, respectively.
Competition and Business Considerations
The East Pipeline's major competitor is an independent, regulated
common carrier pipeline system owned by The Williams Companies, Inc.
("Williams") that operates approximately 100 miles east of and parallel to the
East Pipeline. The Williams system is a substantially more extensive system than
the East Pipeline. Furthermore, Williams and its affiliates have capital and
financial resources that are 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 located within 2 to 145 miles of, and in direct competition with
Williams' terminals.
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. Diamond Shamrock terminals in Denver and Colorado
Springs, connected to a Diamond Shamrock pipeline from their Texas Panhandle
refinery, are major competitors to the West Pipeline's Denver and Fountain
terminals, respectively.
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 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. However, trucking costs render that mode of
transportation not competitive for longer hauls or larger volumes. The
Partnership does not believe that trucks are, or will be, effective competition
to its long-haul volumes over the long term.
Liquids Terminaling
Introduction
The Partnership's Support Terminal Services 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, 1998, the
Partnership's terminaling business accounted for approximately 50% of the
Partnership's revenues. As of December 31, 1998, ST operated 33 facilities in 18
states and the District of Columbia, with a total storage capacity of
approximately 22.2 million barrels. In January 1999, ST made its first
international acquisition, with the purchase of six terminals located in the
United Kingdom, having a total capacity of approximately 5.5 million barrels
(see: "Recent Development"). ST and its predecessors have been in the
terminaling business for over 40 years and handle a wide variety of liquids 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. ST's six largest domestic
terminal facilities are located in Piney Point, Maryland; Linden, New Jersey
(50% owned joint venture); Jacksonville, Florida; Texas City, Texas; Baltimore,
Maryland; and, Westwego, Louisiana. Excluding the Linden, New Jersey facility,
which was acquired by ST in November 1998 (see: "Description of Largest Terminal
Facilities"), these facilities accounted for approximately 67.6% of ST's
revenues and 64.8% of its tankage capacity in 1998.
Description of Largest Terminal Facilities
Piney Point, Maryland. The largest terminal currently owned by ST is
located on approximately 400 acres on the Potomac River. The facility was
acquired as part of the purchase of the liquids terminaling assets of Steuart
Petroleum Company and certain of its affiliates (collectively "Steuart") in
December 1995. The Piney Point terminal has approximately 5.4 million barrels of
storage capacity in 28 tanks and is the closest deep water facility to
Washington, D.C. This 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, asphalt and caustic soda solution. The terminal has a dock with a
36-foot draft for tankers and four berths for barges. It also has truck loading
facilities, product blending capabilities and is connected to a pipeline which
supplies residual fuel oil to two power generating stations.
Linden, New Jersey. In October 1998, ST entered into a joint venture
relationship with Northville Industries Corp. ("Northville") to acquire the
management of and a 50% ownership interest in the terminal facility at Linden,
New Jersey that was previously owned by Northville. The 44 acre facility
provides ST with deep-water terminaling capabilities at New York Harbor and
primarily stores petroleum products, including gasoline, jet fuel and fuel oils.
The facility has a total capacity of approximately 3.9 million barrels in 22
tanks, can receive products via ship, barge and pipeline and delivers product by
ship, barge, pipeline and truck. The terminal has two docks (and leases a third)
with draft limits of 35 and 24 feet, respectively.
Jacksonville, Florida. The Jacksonville terminal, also acquired as part
of the Steuart transaction, is located on approximately 86 acres 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 30 tanks. The terminal
is currently used to store petroleum products including gasoline, No. 2 oil, No.
6 oil, diesel and kerosene. This terminal has a tanker berth with a 38-foot
draft and four barge berths and also offers truck and rail car loading
facilities and facilities to blend residual fuels for ship bunkering.
Texas City, Texas. The Texas City facility is situated on 39 acres of
land leased from the Texas City Terminal Railway Company ("TCTRC") with
long-term renewal options. Located on Galveston Bay near the mouth of the
Houston Ship Channel, approximately sixteen miles from open water, the Texas
City terminal consists of 124 tanks with a total capacity of approximately 2
million barrels. The eastern end of the Texas City site is adjacent to three
deep-water docking facilities, which are also owned by TCTRC. 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 TCTRC, which it passes
on to its customers.
The Texas City facility is designed to accommodate a diverse product
mix, including specialty chemicals, such as petrochemicals and has tanks
equipped for the specific storage needs of the various products handled; piping
and pumping equipment for moving the product between the tanks and the
transportation modes; and, an extensive infrastructure of support equipment. 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.
ST's facility has been designed with engineered structural measures to
minimize the possibility of the occurrence and the 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 at the facility. The dock gives ST the ability to receive and deliver
shipments of product from and to barge and ship. Additionally, the terminal can
receive products by pipeline, truck and rail and deliver them via 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 49 tanks with a total capacity of
approximately 821,000 barrels. 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 is situated on 27 acres of
owned land on the west bank of the Mississippi River across from New Orleans.
Its dock is capable of handling ocean-going vessels and barges. The terminal has
multiple facilities for receiving and shipping by rail and tank truck, as well
as vessels and barges. The facility consists of 54 tanks with a total capacity
of approximately 858,000 barrels. The facility also includes a blending plant
for the formulation of certain molasses-based feeds which has additional smaller
tanks for blending and formulation of the liquid feeds. The Westwego terminal
historically has been primarily a terminal for molasses and animal and vegetable
fats and oils. In recent years, the terminal has broadened its product mix to
include fertilizer, herbicides, latex and caustic solutions.
Other Terminal Sites. In addition to the six major facilities described
above, ST has 27 other terminal facilities located throughout the United States,
and, as a result of a January 1999 transaction, six facilities in the United
Kingdom. Two domestic facilities, located in Blue Island, Illinois and
Vancouver, Washington, were acquired during 1998. ST also expanded the capacity
of its Stockton, California facility through two additional transactions, one of
which involved the disposition of a ST terminal facility located in Imperial,
California. During 1998, ST also elected not to proceed with its previously
announced purchase, from Stolthaven Chicago, Inc. of a Chicago area terminal
facility. The 27 facilities represented approximately 35.2% of ST's total
tankage capacity and approximately 32.4% of its total revenue for 1998. With the
exception of the facilities in Columbus, Georgia, which handles aviation
gasoline and specialty chemicals; Winona, Minnesota, which handles nitrogen
fertilizer solutions; Savannah, Georgia, which handles chemicals and caustic
solutions; and, Vancouver, Washington, which handles chemicals and bulk
fertilizer, these facilities primarily store petroleum products for a variety of
customers. These facilities provide ST with a geographically diverse base of
customers and revenue.
Recent Development. In January 1999, ST acquired six terminals located
in the United Kingdom from GATX Terminals Limited for (pound)22.6 million
(approximately $37.4 million) plus the assumption of certain liabilities. The
terminals have an aggregate capacity of 5.5 million barrels in 307 tanks, are
served by deep water marine docks and handle a wide variety of liquids,
including petroleum products, chemicals (including fats and vegetable oils) and
molten sulfur. The transaction, the first international acquisition by ST, was
financed by bank borrowings. Three of the terminals are located in England, two
in Scotland and one in Northern Ireland.
<PAGE>
The following table outlines ST's terminal locations, capacities, tanks
and primary products handled:
<TABLE>
<CAPTION>
Tankage No. of Primary Products
Facility Capacity Tanks Handled
--------------------------- ---------- --------- ---------------------------------
<S> <C> <C> <C>
Primary Terminals:
Piney Point, MD 5,403,000 28 Petroleum
Linden, NJ(a) 3,884,000 22 Petroleum
Jacksonville, FL 2,066,000 30 Petroleum
Texas City, TX 2,002,000 124 Chemicals and Petrochemicals
Westwego, LA 858,000 54 Molasses, Fertilizer, Caustic
Baltimore, MD 821,000 49 Chemicals, Asphalt, Jet Fuel
Other Terminals:
Montgomery, AL(b) 162,000 7 Petroleum, Jet Fuel
Moundville, AL 310,000 6 Jet Fuel
Tuscon, AZ(b) 181,000 7 Petroleum
Stockton, CA 551,000 25 Petroleum
Farragut St., DC 176,000 5 Petroleum
M Street, DC 133,000 3 Petroleum
Homestead, FL(b) 72,000 2 Jet Fuel
Augusta, GA 110,000 8 Petroleum
Bremen, GA 180,000 8 Petroleum, Jet Fuel
Brunswick, GA 302,000 3 Petroleum, Pulp Liquor
Columbus, GA 180,000 25 Petroleum, Chemicals
Macon, GA(b) 307,000 10 Petroleum, Jet Fuel
Savannah, GA 861,000 19 Petroleum, Chemicals
Blue Island, IL 752,000 19 Petroleum
Chillicothe, IL 270,000 6 Petroleum
Peru, IL 221,000 8 Petroleum, Fertilizer
Indianapolis, IN 410,000 18 Petroleum
Salina, KS 98,000 10 Petroleum
Andrews AFB Pipeline, MD 72,000 3 Jet Fuel
Winona, MN 229,000 7 Fertilizer
Alamogordo, NM(b) 120,000 5 Jet Fuel
Drumright, OK 315,000 4 Jet Fuel
San Antonio, TX 207,000 4 Jet Fuel
Cockpit Point, VA 554,000 16 Petroleum, Asphalt
Virginia Beach, VA(b) 40,000 2 Jet Fuel
Vancouver, WA 94,000 31 Chemicals, Fertilizer
Milwaukee, WI 308,000 7 Petroleum
Grays, England 1,950,000 53 Petroleum
Eastham, England 2,250,000 162 Chemicals, Animal Fats
Runcorn, England 145,000 4 Molten sulphur
Glasgow, Scotland 344,000 16 Petroleum
Leith, Scotland 458,000 34 Petroleum
Belfast, Northern Ireland 315,000 38 Petroleum
--------------- -------
27,711,000 882
=============== =======
</TABLE>
(a) The terminal is 50% owned by ST.
(b) Facility also includes pipelines to U.S. government military base
locations.
Customers
The storage and transport of jet fuel for the U.S. Department of
Defense is an important part of ST's business. Eleven of ST's terminal sites are
involved in the terminaling or transport (via pipeline) of jet fuel for the
Department of Defense and seven of the eleven locations have been utilized
solely by the U.S. Government. Two of these locations are presently without
government business. Of the eleven locations, six include pipelines which
deliver jet fuel directly to nearby military bases, while another location
supplies Andrews Air Force Base, Maryland and consists of a barge receiving
dock, an 11.3 mile pipeline, three 24,000 barrel double-bottomed tanks and an
administration building located on the 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,
such as ST, 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 as ST. 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 owned storage
facilities are inadequate, either because of size constraints, the nature of the
stored material or specialized handling requirements.
Independent terminal owners generally compete on the basis of 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"; though 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, all of which
must be in compliance with applicable 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 capabilities 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, much 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, and Petroleum Fuel & Terminal Company, have
facilities used primarily for petroleum related products. As a result, many of
ST's terminals compete against other large petroleum products terminals, rather
than specialty liquids facilities. 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 by the Pipelines, excluding acquisitions, were
$5.0 million, $4.5 million and $3.4 million for 1998, 1997 and 1996,
respectively. During these periods, adequate capacity existed on the Pipelines
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 $4.4 million, $6.1 million and $3.6 million, for 1998,
1997 and 1996, respectively.
Capital expenditures of the Partnership during 1999 are expected to be
approximately $12 million to $16 million. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources." Additional expansion-related capital expenditures will
depend on future opportunities to expand the Partnership's operations. The
General Partner intends to finance future expansion 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 to finance such expenditures through
borrowings or choose to do so.
Regulation
Interstate Regulation. 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.
The FERC allows 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.
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. 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 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.
On October 22, 1993, the FERC issued Order No. 561 which adopted a
simplified 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. This indexing mechanism
calculates a ceiling rate. Rate decreases are required if the indexing mechanism
operates to reduce the ceiling rate below a pipeline's existing rates. 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.
The indexation method is to serve as the principal basis for the
establishment of oil pipeline rate changes in the future. However, the FERC
determined that a pipeline may utilize any one of the following 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; and (ii) 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.
On September 15, 1997, the Partnership filed an Application for Market
Power Determination with the FERC seeking market based rates for approximately
half of its markets. In May 1998, the FERC granted the Partnership's application
and approximately half of the pipelines markets subsequently became subject to
market force regulation.
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. Lakehead's motion
for rehearing was denied by the FERC and Lakehead appealed the decision to the
U.S. Court of Appeals. Subsequently, the case was settled by Lakehead and the
appeal was withdrawn. In another FERC proceeding involving a different oil
pipeline limited partnership, various shippers challenged such pipeline's
inclusion of an income tax allowance in its cost of service. The FERC Staff also
supported the disallowance of income taxes. The FERC recently decided this case
on the same basis as the Lakehead case. 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 distributions to the holders of the 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. 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 the protection of the
environment in the United States and, since February 1999, the environmental
laws and regulations of the United Kingdom in regard to the terminals acquired
from GATX Terminals, Limited, in the United Kingdom. See "Liquids Terminaling -
Recent Development." 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, past and present, 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 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. Regulations concerning the environment are
continually being developed and revised in ways that may impose additional
regulatory burdens on the Partnership.
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 five terminal
sites (Milford, Iowa; Norfolk and Columbus, Nebraska; and Aberdeen and Yankton,
South Dakota) resulting from spills of refined petroleum products. Regulatory
authorities have been notified of these findings and remediation projects are
underway or under construction using various remediation techniques. The
Partnership estimates that $1,260,000 has been expended to date for remediation
at these five sites and that ongoing remediation expenses at each site will not
have a material effect on the East Pipeline. Groundwater contamination is also
known to exist at East Pipeline sites in Augusta, 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.
Groundwater remediation efforts are ongoing at all four of the West
Pipeline's terminals and at a Wyoming pump station. Regulatory officials have
been consulted in the development of remediation plans. In connection with the
purchase of the West Pipeline, KPOP agreed to implement remediation plans at
these specific sites over the succeeding five years following the acquisition in
return for the payment by the seller, Wyco Pipe Line Company, of $1,312,000 to
KPOP to cover the discounted estimated future costs of these remediations. In
conjunction with the acquisition, the Partnership accrued $1.8 million for these
future remediation expenses.
In May 1998, the West Pipeline, at a point between Dupont, Colorado and
Fountain, Colorado failed, and approximately 1,000 barrels of product was
released. Containment and remedial action was immediately commenced. Upon
investigation, it appeared that the failure of the pipeline was due to damage
caused by third party excavations. The Partnership has made claim to the third
party as well as to its insurance carriers. The Partnership has entered into a
Compliance Order on Consent with the State of Colorado with respect to the
remediation. As of December 31, 1998, the Partnership has incurred $1.1 million
of costs in connection with this incident. Future costs are not anticipated to
be significant, and the Partnership expects to recover substantially all of its
costs from either the third party or its insurance carrier.
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 current
approach, clean up will not be required, however based on risk assessment, the
site will continue to be monitored and tested. 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 remediated through extraction wells and air strippers. The Partnership has
expended approximately $878,000 through 1998 for remediation at these four sites
and estimates that on-going remediation expenses will aggregate approximately
$200,000 to $300,000 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 ("TCLP") 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 TCLP 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 also 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 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 contamination has been experienced at ST's Piney Point,
Maryland, Jacksonville, Florida and each of the Washington, D.C. facilities.
Foreseeable remediation expenses are estimated not to exceed $1.6 million.
Aboveground Storage Tank Acts. A number of the states in which the
Partnership operates in the United States 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 or spills from 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 in the United States 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 statutes in all states in which they operate.
Amendments to the Federal Clean Air Act enacted in 1990 require or will
require most industrial operations in the United States to incur future capital
expenditures in order to meet the air emission control standards that have been
and are to be developed and implemented by the EPA and state environmental
agencies. Pursuant to these Clean Air Act Amendments, those Partnership
facilities that emit volatile organic compounds ("VOC") or nitrogen oxides are
subject to increasingly stringent regulations, including requirements that
certain sources install maximum or reasonably available control technology. In
addition, the 1999 Federal Clean Air Act Amendments include a new operating
permit for major sources ("Title V Permits"), which applies to some of the
Partnership's facilities. Additionally, new dockside loading facilities owned or
operated by the Partnership in the United States 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.
Although the Partnership is in substantial compliance with applicable
air pollution laws, in anticipation of the implementation 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 selected terminal sites along the
East Pipeline that do not already have such emissions control equipment. These
modifications will 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 solid waste that
is subject to the requirements of the Federal Resource Conservation and Recovery
Act ("RCRA") and comparable state statutes in the United States. 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" or "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.
Environmental Impact Statement. The United States 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 United States 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. Under such indemnity, KPL is
presently 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 owner prior to March 2,
1993. The indemnity, which expired 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 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 that environmental
liabilities exceed the amount of such indemnity, KPOP has affirmatively assumed
the excess environmental liabilities.
Safety Regulation
The Pipelines are subject to regulation by the United States 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 pipelines and requires any entity that
owns or operates pipeline facilities to comply with such safety regulations and
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 United States
Federal Occupational Safety and Health Act ("OSHA") and comparable state
statutes that regulate the protection of the health and safety of workers. In
addition, the OSHA hazard communication standard requires that certain
information be maintained about hazardous materials used or produced in
operations and that this information be provided to employees, state and local
authorities and citizens. 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 statutes 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 business of the Partnership is
conducted by the General Partner, KPL, which at December 31, 1998, employed 540
persons. Approximately 183 of the persons employed by KPL were subject to
representation by unions for collective bargaining purposes; however, only 77
persons employed at four of KPL's terminal unit locations were subject to
collective bargaining or similar contracts at that date. Union contracts
regarding conditions on employment for 36, 12, 20 and 9 employees are in effect
through June 28, 1999, November 1, 2000, June 30, 2001 and February 28, 2002,
respectively. All such contracts are subject to automatic renewal for successive
one year periods unless either party provides written notice to terminate or
modify such agreement in a timely manner.
Item 2. Properties
The properties owned or utilized by the Partnership and its
subsidiaries are generally described in Item 1 of this Report. Additional
information concerning the obligations of the Partnership and its subsidiaries
for lease and rental commitments is presented under the caption "Commitments and
Contingencies" in Note 6 to the Partnership's consolidated financial statements.
Such descriptions and information are hereby incorporated by reference into this
Item 2.
The properties used in the operations of the Pipelines are owned by
KPP, through its subsidiary entities, except for KPL's operational headquarters,
located in Wichita, Kansas, which is held under a lease that expires in 2004.
The majority of ST's facilities are owned, while the remainder, including most
of its terminal facilities located in port areas and its operational
headquarters, located in Dallas, Texas, are held pursuant to lease agreements
having various expiration dates, rental rates and other terms.
Item 3. Legal Proceedings
Certain subsidiaries of the Partnership are defendants in a lawsuit
filed in a Texas state court in 1997 by Grace Energy Corporation ("Grace"), the
entity from whom the Partnership acquired ST in 1993, involving certain issues
allegedly arising out of the Partnership's acquisition of ST. Grace alleges that
the defendants assumed responsibility for certain environmental damages to a
former ST facility located in Massachusetts that occurred at a time prior to the
Partnership's acquisition of ST. The defendants have also received and responded
to inquiries from two governmental authorities in connection with the same
allegation by Grace. The defendants' consistent position is that it did not
acquire the facility in question as part of the 1993 ST transaction and,
consequently, did not assume any responsibility for the environmental damage.
The case is set for trial in June, 1999.
Additionally, the Partnership is a party to several lawsuits arising,
from time to time, 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 Partnership did not hold a meeting of Unitholders or otherwise
submit any matter to a vote of security holders in the fourth quarter of 1998.
PART II
Item 5. Market for the Registrant's Units and Related Unitholder Matters
The Partnership's limited partnership interests ("Units") are listed
and traded on the New York Stock Exchange (the "NYSE"), under the symbol "KPP."
At March 15, 1999, there were approximately 1,000 Unitholders. On August 14,
1998, the Partnership paid its regular quarterly cash distribution of $0.65 per
Unit to the holders of each class of the Partnership's outstanding Units. This
cash distribution represented the twelfth consecutive quarterly cash
distribution of Available Cash constituting Cash from Operations in an amount
equal to or exceeding the $0.55 Minimum Quarterly Distribution, as such terms
are defined in the Partnership's Amended and Restated Agreement of Limited
Partnership (the "Partnership Agreement"). As a result of this payment, pursuant
to the terms of the Partnership Agreement, the Preference Period ended effective
July 1, 1998, and all differences and distinctions between Senior Preference,
Preference and Common Units automatically ceased as of such date. Consequently,
as of August 14, 1998, all outstanding units of limited partnership interests in
the Partnership were designated as "Units," constituting a single class of
securities. Set forth below are prices on the NYSE and cash distributions for
the periods indicated for Senior Preference Units and Preference Units,
respectively, through August 14, 1998 and, thereafter, for Units.
<TABLE>
<CAPTION>
Senior Preference Preference Cash
Unit Prices (1) Unit Prices (1) Unit Prices (2) Distributions
Year High Low High Low High Low Declared(3)
- ---- --------------------- --------------------- --------------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997:
First Quarter 31 1/4 28 28 5/8 26 1/2 $ .60
Second Quarter 30 1/4 27 1/8 28 3/8 26 1/4 .60
Third Quarter 31 13/16 29 30 7/8 27 7/8 .65
Fourth Quarter 36 11/16 29 13/16 36 1/2 29 5/8 .65
1998:
First Quarter 37 1/2 34 11/16 36 1/8 33 1/4 .65
Second Quarter 37 7/8 34 35 5/8 33 5/16 .65
Third Quarter 37 7/8 32 3/16 35 3/8 32 1/8 33 29 7/5 .65
Fourth Quarter 33 1/4 29 5/8 .65
1999:
First Quarter 34 7/16 29 3/8
(through March 15, 1999)
</TABLE>
(1) Through August 14, 1998
(2) From August 14, 1998
(3) The amounts shown were paid on each class of units.
Under the terms of its financing agreements, the Partnership is
prohibited from declaring or paying any distribution if a default exists
thereunder.
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,
--------------------------------------------------------------------
1998 1997 1996 1995(a) 1994
--------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues............................ $ 125,812 $ 121,156 $ 117,554 $ 96,928 $ 78,745
--------- ---------- --------- ---------- ----------
Operating costs..................... 52,200 50,183 49,925 40,617 33,586
Depreciation and amortization....... 12,148 11,711 10,981 8,261 7,257
General and administrative.......... 6,261 5,793 5,259 5,472 4,924
--------- ---------- --------- ---------- ----------
Total costs and expenses.......... 70,609 67,687 66,165 54,350 45,767
--------- ---------- --------- ---------- ----------
Operating income.................... 55,203 53,469 51,389 42,578 32,978
Interest and other income........... 626 562 776 894 1,299
Interest expense.................... (11,304) (11,332) (11,033) (6,437) (3,706)
Minority interest in net income..... (441) (420) (403) (360) (295)
--------- ----------- ---------- ----------- -----------
Income before income taxes.......... 44,084 42,279 40,729 36,675 30,276
Income tax provision (b)............ (418) (718) (822) (627) (818)
--------- ----------- ---------- ----------- -----------
Net income.......................... $ 43,666 $ 41,561 $ 39,907 $ 36,048 $ 29,458
========= ========== ========= ========== ==========
Allocation of net income (c)(d) per:
Unit............................ $ 2.67
=========
Senior Preference Unit ......... $ 2.55 $ 2.46 $ 2.20 $ 2.20
========== ========= ========== ==========
Preference Unit................. $ 2.55 $ 2.46 $ 2.20 $ 2.20
========== ========= ========== ==========
Cash Distributions declared per (d):
Unit............................ $ 2.60
=========
Senior Preference Unit.......... $ 2.50 $ 2.30 $ 2.20 $ 2.20
========== ========= ========== ==========
Preference Unit................. $ 2.50 $ 2.30 $ 2.20 $ 2.20
========== ========= ========== ==========
Balance Sheet Data (at period end):
Property and equipment, net......... $ 289,631 $ 247,132 $ 249,733 $ 246,471 $ 145,646
Total assets........................ 308,432 269,032 274,765 267,787 163,105
Long-term debt...................... 153,000 132,118 139,453 136,489 43,265
Partners' capital................... 105,388 104,196 103,340 100,748 99,754
</TABLE>
(a) Includes the operations of the West Pipeline since its acquisition in
February 1995 and the operations of Steuart since its acquisition in
December 1995.
(b) Subsequent to the acquisition of ST in March 1993, certain operations
are conducted in taxable entities.
(c) 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 any class of units that
did not receive the same amount of cash distributions per unit (if
any). If the same cash distributions per unit are declared for all
classes of units, income or loss is allocated pro rata based on the
aggregate amount of distributions declared.
(d) Prior to the third quarter of 1998, the Partnership had three classes
of partnership interests designated as Senior Preference Units,
Preference Units and Common Units, respectively. Pursuant to the
Partnership Agreement, on August 14, 1998, each such class of units
were converted into a single class designated as "Units", effective
July 1, 1998. Allocations of net income and cash distributions declared
were equal for all classes of units in 1998. See "Item 5 - Market for
Registrant's Units and Related Unitholder Matters."
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 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 and storage 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 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").
On October 30, 1998, the Partnership, through a wholly-owned
subsidiary, entered into acquisition and joint venture agreements with
Northville Industries Corp. ("Northville") to acquire and manage the former
Northville terminal located in Linden, New Jersey. Under the agreements, the
Partnership acquired a 50% interest in the newly-formed ST Linden Terminal LLC
for $20.5 million plus transaction costs. The petroleum storage facility, which
has capacity of 3.9 million barrels in 22 tanks, was financed by the
Partnership's existing revolving credit facility and a revolving promissory
note.
On February 1, 1999, the Partnership, through two wholly-owned indirect
subsidiaries, acquired six terminals in the United Kingdom from GATX Terminal
Limited for (pound)22.6 million (approximately $37.4 million) plus transaction
costs and the assumption of certain liabilities. The acquisition of the six
locations, which have an aggregate tankage capacity of 5.5 million barrels, was
financed by term loans from a bank. Three of the terminals, handling petroleum
products, chemicals and molten sulfur, respectively, operate in England. The
remaining three facilities, two in Scotland and one in Northern Ireland, are
primarily petroleum terminals. All six terminals are served by deepwater marine
docks.
The Partnership is the third largest independent liquids terminaling
company in the United States. At December 31, 1998, ST operated 33 facilities in
18 states and the District of Columbia with an aggregate tankage capacity of
approximately 22.2 million barrels.
Pipeline Operations
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1998 1997 1996
----------- -------------- -----------
(in thousands)
<S> <C> <C> <C>
Revenues................................................ $ 63,421 $ 61,320 $ 63,441
Operating costs......................................... 22,057 21,696 23,692
Depreciation and amortization........................... 4,619 4,885 4,817
General and administrative.............................. 3,115 2,912 2,711
----------- ----------- -----------
Operating income........................................ $ 33,630 $ 31,827 $ 32,221
=========== =========== ===========
</TABLE>
Pipelines revenues are based on volumes shipped and the distances over
which such volumes are transported. For the year ended December 31, 1998,
revenues increased by $2.1 million, or 3%, compared to 1997, due to an overall
increase in volumes shipped, primarily on the East Pipeline. For the year ended
December 31, 1997, revenues decreased by $2.1 million, or 3%, compared to 1996,
primarily as a result of adverse effects on product demand caused by abnormal
weather patterns in the Midwest and shifts in the distribution of product
supplies in the Rocky Mountain area. 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 totaled 17.0 billion, 16.1 billion and
16.7 billion for the years ended December 31, 1998, 1997 and 1996, respectively.
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 $0.4 million in 1998 and decreased $2.0
million in 1997. The changes in both years were primarily in materials and
supplies, including additives, that are volume related, and in outside services.
General and administrative costs, which include managerial, accounting and
administrative personnel costs, office rental expense, legal and professional
costs and other non-operating costs, increased by $0.2 million in each of the
years ended December 31, 1998 and 1997.
Terminaling Operations
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1998 1997 1996
----------- -------------- -----------
(in thousands)
<S> <C> <C> <C>
Revenues................................................ $ 62,391 $ 59,836 $ 54,113
Operating costs......................................... 30,143 28,487 26,233
Depreciation and amortization........................... 7,529 6,826 6,164
General and administrative.............................. 3,146 2,881 2,548
----------- ----------- -----------
Operating income........................................ $ 21,573 $ 21,642 $ 19,168
=========== =========== ===========
</TABLE>
For the years ended December 31, 1998 and 1997, revenues increased by
$2.6 million and $5.7 million, respectively, due to terminal acquisitions and
increased utilization of existing terminals due to favorable market conditions,
partially offset by a decrease in the overall price realized for storage in
1998. Average annual tankage utilized for the years ended December 31, 1998,
1997 and 1996 aggregated 15.2 million barrels, 12.4 million barrels and 11.9
million barrels, respectively. The 1998 and 1997 increases in average annual
tankage utilized resulted from increased storage at the Partnership's largest
petroleum storage facility and the terminal acquisitions. Average revenues per
barrel of tankage utilized for the years ended December 31, 1998, 1997 and 1996
was $4.11, $4.83 and $4.55, respectively. The decrease in 1998 was due to the
storage of a larger proportionate volume of petroleum products, which are
historically at lower rates per barrel than specialty chemicals.
Operating costs increased by $1.7 million in 1998 and $2.3 in 1997, due
to the increases in tank utilization and terminal acquisitions. General and
administrative expense increased by $0.3 million in each of the years ended
December 31, 1998 and 1997.
Total tankage capacity (22.2 million barrels at December 31, 1998) 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.
Liquidity and Capital Resources
Cash provided by operating activities was $58.8 million, $54.8 million
and $49.2 million for the years 1998, 1997 and 1996, respectively. The increase
in cash provided by operations in 1998 resulted primarily from overall
improvements in revenues and operating income in the pipeline operations from
increased volumes shipped. The increase in 1997 was primarily a result of
improvements in revenues and operating income in the terminaling operations.
At December 31, 1998, the Partnership had a net working capital deficit
of approximately $23.1 million resulting from, among other factors, cash paid
and short-term debt incurred for acquisitions which closed near the end of 1998.
The General Partner believes that the Partnership will be able to meets its
ongoing obligations with cash flows from operations, along with the
Partnership's ability to refinance and/or issue additional debt, and that the
Partnership's ability to pay distributions to the holders of Units has not been
impaired; however, there can be no assurance in this regard.
Capital expenditures, excluding expansion capital expenditures, were
$9.4 million, $10.6 million and $7.1 million for 1998, 1997 and 1996,
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 during 1999 are expected to be approximately $12 million to $16
million. 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 to finance
such expenditures through borrowings or choose to do so.
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 less all cash disbursements and reserves. Distributions of
$2.60 per unit were declared to Unitholders in 1998, $2.50 per unit was declared
in 1997 and $2.30 per unit was declared in 1996. Payment of the August 14, 1998,
regular cash distribution represented the twelfth consecutive quarterly
distribution of Available Cash constituting Cash from Operations in an amount
equal to or exceeding the $0.55 Minimum Quarterly Distribution specified in the
Partnership Agreement. Accordingly, pursuant to the terms of the Partnership
Agreement, all differences and distinctions between Senior Preference Units,
Preference Units and Common Units automatically ceased as of such date. At that
time, all outstanding units of limited partnership interest in the Partnership
became "Units" constituting a single class of equity securities, which trade on
the New York Stock Exchange under the symbol "KPP".
The Partnership expects to fund future cash distributions and
maintenance capital expenditures with existing cash and cash flows from
operating activities. Expansionary capital expenditures are expected to be
funded through additional Partnership borrowings and/or future public unit
offerings.
In October 1998, a wholly-owned subsidiary of the Partnership entered
into a Promissory Note Agreement with a bank that, as amended on February 1,
1999, provides a $15 million revolving credit availability through June 30,
1999. The Promissory Note Agreement bears interest at variable interest rates
and has a commitment fee of 0.35% per annum of the unused available balance. At
December 31, 1998, $10.0 million was drawn under the Promissory Note Agreement.
The Partnership has a Credit Agreement with two banks that currently
provides a $25 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 January 2001. The Credit Agreement has
a commitment fee of 0.15% per annum of the unused credit facility. At December
31, 1998, $25.0 million was drawn under this credit facility.
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. Lakehead's motion
for rehearing was denied by the FERC and Lakehead appealed the decision to the
U. S. Court of Appeals. Subsequently, the case was settled by Lakehead and the
appeal was withdrawn. In another FERC proceeding involving a different oil
pipeline limited partnership, various shippers challenged such pipeline's
inclusion of an income tax allowance in its cost of service. The FERC Staff also
supported the disallowance of income taxes. The FERC recently decided the case
on the same basis as the Lakehead case. 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 distributions to the holders of the Units would not be impaired; however,
in view of the uncertainties involved in this issue, there can be no assurance
in this regard.
Year 2000 Issue
Although the Partnership believes that most of its activities and
operations are not materially impacted by Year 2000 Issues ("Y2K"), the
Partnership recognizes the challenges associated with Y2K and has undertaken a
review and testing of its computer systems to identify Y2K-related issues
associated with any items of software or hardware used in its business
operations. Most of the software systems used by the Partnership are licensed
from third parties and are Y2K compliant or will be upgraded to Y2K compliant
releases before the end of 1999. This issue is being addressed by the
Partnership in multiple phases, including assessment, remediation, testing and
implementation, and progress is being monitored by the general partner's senior
management. All material systems, including non-information technology systems
which may house non-compliant, embedded technology are being evaluated.
In addition to addressing the Partnership's own systems, as described
above, the Partnership must assess the state of readiness of the systems of
other entities with which it does business. Failure by these third parties to
adequately resolve their Y2K problems could have a material adverse effect on
the Partnership's operations.
The Partnership believes its success in being Y2K compliant will not be
conclusively known until the year 2000 is actually reached. Although failure by
one or more of the Partnership's own systems could result in lost revenues
and/or additional expenses required to carry out manual processing of
transactions, the Partnership cannot predict the effect that external forces
could have on its business. Failures by banking institutions, the
telecommunications industry and others could have far-reaching effects on the
entire economy and the Partnership.
The Partnership's operations (including both information technology and
non-information technology systems) are in varying states of readiness for
compliance with Y2K issues. The initial assessment phase has been completed for
substantially all of the Partnership's operations, and in many cases,
remediation, testing and implementation activities have also been completed. The
Partnership expects to complete all phases of its Y2K program prior to December
31, 1999.
The Partnership believes that it is not possible to determine with
certainty that all Y2K problems affecting the Partnership have been identified
or corrected. The number of devices that could be affected and the interactions
among these devices are simply too numerous. In addition, the Partnership cannot
accurately predict how many failures related to the Y2K problem will occur or
the severity, duration or financial consequences of such failures. The
Partnership has hired an outside Y2K consultant to assist the Partnership in
meeting its goals and in developing contingency plans to define and address the
worst-case scenario likely to be faced by the Partnership. The plan is expected
to be in place by the end of the second quarter of 1999.
Expenses incurred by the Partnership during 1998 and 1997, related to
assessing, remediating and testing its information technology systems, which
were not material, have been expensed as incurred and funded from operations.
The Partnership does not anticipate that the cost to become fully Y2K compliant
will be material.
Allocation of Net Income and Earnings
Net income or loss is allocated between limited partner interests and
the general partner pro rata based on the aggregate amount of cash distributions
declared (including general partner incentive distributions). Beginning in 1997,
distributions by the Partnership of Available Cash reached the Second Target
Distribution, as defined in the Partnership Agreement, which entitled the
general partner to receive certain incentive distributions at different levels
of cash distributions. Earnings per Unit shown on the consolidated statements of
income are calculated by dividing the limited partners' interest in net income
by the weighted average number of Units outstanding. If the allocation of income
had been made as if all income had been distributed in cash, earnings per Unit
would have been $2.66 and $2.53 for the years ended December 31, 1998 and 1997,
respectively.
Item 7(a). Quantitative and Qualitative Disclosure About Market Risk
The principal market risks (i.e., the risk of loss arising from the
adverse changes in market rates and prices) to which the Partnership is exposed
are interest rates on the Partnership's debt and investment portfolios. The
Partnership centrally manages its debt and investment portfolios considering
investment opportunities and risks and overall financing strategies. The
Partnership's investment portfolio consists of cash equivalents; accordingly,
the carrying amounts approximate fair value. The Partnership's investments are
not material to the financial position or performance of the Partnership.
Assuming year-end 1998 variable rate debt and investment levels, a one percent
change in interest rates would increase net interest expense by approximately
$0.4 million.
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.
Reference is made to the Registrant's Current Reports on Forms 8-K and
8-K/A, dated November 6, 1998 and March 9, 1999, respectively, which reports are
incorporated herein by reference.
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 KPL as general partner. Set forth below is certain
information concerning the directors and executive officers of KPL. 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 KPL.
<TABLE>
<CAPTION>
Position with Years of Service % of
Name Age KPL With KPL Units(m) O/S
- -------------------- ------- ---------------------------------- ------------------------ --------------- -----------
<S> <C> <C> <C> <C>
Edward D. Doherty 63 Chairman of the Board and 9 (a) 85,626 *
Chief Executive Officer
Leon E. Hutchens 64 President 39 (b) 500 *
Ronald D. Scoggins 44 Senior Vice President 2 (c) 824 *
Jimmy L. Harrison 45 Vice President and Controller 7 (d) -0- *
Howard C. Wadsworth 54 Vice President, Treasurer 5 (e) -0- *
and Secretary
Sangwoo Ahn 60 Director 10 (f) 33,000 *
John R. Barnes 54 Director 12 (g) 216,100 1%
Murray A. Biles 68 Director 45 (h) 500 *
Frank M. Burke, Jr. 59 Director 2 (i) -0- *
Charles R. Cox 56 Director 4 (j) 500 *
Hans Kessler 49 Director 2 (k) -0- *
James R. Whatley 72 Director 10 (l) 22,400 *
All Officers and Directors as a group (12 persons) 359,450 2.0%
</TABLE>
*Less than one percent
(a) Mr. Doherty, Chairman of the Board and Chief Executive Officer of KPL
since September 1989, is also Senior Vice President of Kaneb.
(b) 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.
(c) Mr. Scoggins became an executive officer of KPL in August 1997, prior
to which he served in senior level positions for ST for more than 10
years.
(d) 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.
(e) Mr. Wadsworth also serves as Vice President, Treasurer and Secretary
for Kaneb. Mr. Wadsworth joined Kaneb in October 1990.
(f) Mr. Ahn, a director of KPL since July 1989, is also a director of
Kaneb. Mr. Ahn has been a general partner of Morgan Lewis Githens &
Ahn, an investment banking firm, since 1982 and currently serves as a
director of Gradall Industries, Inc., ITI Technologies, Inc., PAR
Technology Corporation, Quaker Fabric Corporation, and Stuart
Entertainment, Inc.
(g) Mr. Barnes, a director of KPL, is also Chairman of the Board, President
and Chief Executive Officer of Kaneb.
(h) Mr. Biles joined KPL in November 1953 and served as President from
January 1985 until his retirement at the close of 1993.
(i) Mr. Burke, a director of KPL since January 1997, is also a director of
Kaneb. Mr. Burke has been Chairman and Managing General Partner of
Burke, Mayborn Company, Ltd., a private investment company, for more
than the past five years. Mr. Burke also currently serves as a director
of Medicalcontrol, Inc. He was previously associated with Peat,
Marwick, Mitchell & Co. (now KPMG LLP), an international firm of
certified public accountants, for twenty-four years.
(j) Mr. Cox, a director of KPL since September 1995, is also a director of
Kaneb. Mr. Cox has been a private business consultant since retiring in
January 1998 from Fluor Daniel, Inc., an international services
company, where he served in senior executive level positions during a
27 year career with that organization.
(k) Mr. Kessler was elected to the Board on February 19, 1998 to fill a
vacancy. Mr. Kessler has served as Chairman and Managing Director of
KMB Kessler + Partner GmbH since 1992. He was previously a Managing
Director and Vice President of a European Division of Tyco
International Ltd.
(l) Mr. Whatley, a director of KPL since July 1989, is also a director of
Kaneb and served as Chairman of the Board of Directors of Kaneb from
February 1981 until April 1989.
(m) Partnership Units listed are those beneficially owned by the person
indicated, his spouse or children living at home and do not include
Units in which the person has disclaimed any beneficial interest.
Audit Committee
Messrs. Sangwoo Ahn and Frank M. Burke, Jr. serve as the members of the
Audit Committee of KPL. 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 potential conflicts of interest may arise.
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, 1998, none of KPL's officers or employees participated
in the deliberations of KPL's Board of Directors concerning executive officer
compensation.
Section 16(a) Beneficial Ownership Reporting Compliance Statement
Section 16(a) of the Securities and Exchange Act of 1934, as amended
("Section 16(a)") requires the Company's officers and directors, among others,
to file reports of ownership and changes of ownership in the Partnership's
equity securities with the Securities and Exchange Commission and the New York
Stock Exchange. Such persons are also required by related regulations to furnish
the Company with copies of all Section 16(a) forms that they file.
Based solely on its review of the copies of such forms received by it,
KPL believes that, since January 1, 1998, its officers and directors have
complied with all applicable filing requirements with respect to the
Partnership's equity securities, except that rather than being reported on a
timely Form 4, Mr. Barnes reported on a Form 5 two acquisitions of a small
number of Units by a family trust of which he is neither the grantor, trustee
nor beneficiary and in which he disclaims any beneficial ownership.
Item 11. Executive Compensation
The Partnership has no executive officers, but is obligated to
reimburse the Company for compensation paid to KPL'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
1998, 1997 and 1996, to the Chief Executive Officer and each of the other most
highly compensated executive officers of KPL.
SUMMARY COMPENSATION TABLE
Name and Principal Annual Compensation All Other
Position Year Salary(a) Bonus(b) Compensation(c)
- -------------------- ----- ----------------------------- ---------------
Edward D. Doherty(d) 1998 $ 216,758 $ -0- $ 6,402
Chairman of the 1997 208,350 18,420(f) 6,541
Board and Chief 1996 200,333 93,040 6,832
Executive Officer
Leon E. Hutchens 1998 188,083 10,000 7,027
President 1997 180,617 -0- 7,338
1996 173,700 15,000 7,051
Ronald D. Scoggins(d) 1998 161,348(e) -0- 6,100
Senior Vice 1997 139,899(e) 9,210(g) 5,003
President
Jimmy L. Harrison 1998 117,000 5,000 3,120
Vice President 1997 110,532 -0- 2,854
Controller 1996 105,532 4,000 3,775
(a) Amounts for 1998, 1997 and 1996, respectively, include deferred
compensation for Mr. Doherty ($13,692, $12,980 and $14,901); Mr.
Hutchens ($4,869, $922 and $2,529); and Mr. Scoggins ($10,600 and
$7,950).
(b) Amounts earned in year shown and paid the following year.
(c) Represents the Company's contributions to Kaneb's Savings Investment
Plan (a 401(k) plan) and the imputed value of Company-paid group term
life insurance.
(d) The compensation for these individuals is paid by Kaneb, which is
reimbursed for all or substantially all of such compensation by KPL.
(e) Amounts for 1998 and 1997, respectively, include $31,131 and $13,608 in
the form of Partnership Units (412 and 227) and Kaneb Services, Inc.
Common Stock (1,322 and 1,927).
(f) Includes deferred compensation of $18,420.
(g) Includes deferred compensation of $9,210.
Director's Fees
During 1998, each member of KPL's Board of Directors who was not also
an employee of the Company or Kaneb was paid an annual retainer of $10,000 in
lieu of all attendance fees.
Item 12. Security Ownership of Certain Beneficial Owners and Management
At March 15, 1999, KPL owned a combined 2% General Partner interest in the
Partnership and KPOP and, together with its affiliates, owned Units representing
an aggregate limited partner interest of approximately 31%.
Item 13. Certain Relationships and Related Transactions
KPL is entitled to certain reimbursements under the Partnership
Agreement. For additional information regarding the nature and amount of such
reimbursements, see Note 7 to the Partnership's consolidated financial
statements.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1)Financial Statements Beginning
Page
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, 1998.......................... F - 1
Consolidated Balance Sheets - December 31, 1998 and 1997....... F - 2
Consolidated Statements of Cash Flows -
Three Years Ended December 31, 1998.......................... F - 3
Consolidated Statements of Partners' Capital -
Three Years ended December 31, 1998.......................... F - 4
Notes to Consolidated Financial Statements..................... F - 5
Reports of Independent Accountants............................. F - 13
(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) which exhibit is
hereby incorporated 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, filed as Exhibit 10.1 of the exhibits to Registrant's
Current Report on Form 8-K ("Form 8-K"), dated March 16, 1993, which
exhibit is hereby incorporated by reference.
10.2 Restated Credit Agreement between Kaneb Operating Partnership, L.P.
("KPOP"), Texas Commerce Bank, N.A., ("TCB"), and certain other
Lenders, dated December 22, 1994 (the "TCB Loan Agreement"), filed as
Exhibit 10.13 of the exhibits to the Registrant's Annual Report on Form
10-K ("Form 10-K") for the year ended December 31, 1994, which exhibit
is hereby incorporated by reference.
10.3 Amendmentto the TCB Loan Agreement, dated January 30, 1998, filed as
Exhibit 10.3 to the Registrant's Form 10-K for the year ended December
31, 1997.
10.4 Pledge and Security Agreement between Kaneb Pipe Line Company ("KPL")
and TCB, dated October 11, 1993 (the "TCB Security Agreement"), filed
as Exhibit 10.3 of the exhibits to the Registrant's Form 10-K for the
year ended December 31, 1993, which exhibit is hereby incorporated by
reference.
10.5 Amendment to the TCB Security Agreement, filed herewith.
10.5 Note Purchase Agreements, dated December 22, 1994, filed as Exhibit
10.2 of the exhibits to Registrant's Form 8-K, dated March 13, 1995
(the "March 1995 Form 8-K"), which exhibit is hereby incorporated by
reference.
10.6 Note Purchase Agreements, dated June 27, 1996, filed as Exhibit 10.5 of
the exhibits to the Registrant's Form 10-K for the year ended December
31, 1996, which exhibit is hereby incorporated by reference.
10.7 Agreement for Sale and Purchase of Assets between Wyco Pipe Line
Company and KPOP, dated February 19, 1995, filed as Exhibit 10.1 of the
exhibits to the Registrant's March 1995 Form 8-K, which exhibit is
hereby incorporated by reference.
10.8 Asset Purchase Agreements between and among Steuart Petroleum Company,
SPC Terminals, Inc., Piney Point Industries, Inc., Steuart Investment
Company, Support Terminals Operating Partnership, L.P. and KPOP, as
amended, dated August 27, 1995, filed as Exhibits 10.1, 10.2, 10.3, and
10.4 of the exhibits to Registrant's Current Report on Form 8-K dated
January 3, 1996, which exhibits are hereby incorporated by reference.
10.9 Formationand Purchase Agreement, between and among Support Terminal
Operating Partnership, L.P., Northville Industries Corp. and AFFCO,
Corp., dated October 30, 1998, filed herewith.
10.10 Agreement, between and among, GATX Terminals Limited, ST Services,
Ltd., ST Eastham, Ltd., GATX Termianls Corporation, Support Terminals
Operating Partnership, L.P. and Kaneb Pipe Line Partners, L.P., dated
January 26, 1999, filed herewith.
10.11 Credit Agreement, between and among, Kaneb Pipe Line Operating
Partnership, L.P., ST Services, Ltd. and Suntrust Bank, Atlanta, dated
January 27, 1999, filed herewith.
21 List of Subsidiaries, filed herewith.
27 Financial Data Schedule, filed herewith.
(b) Reports on Form 8-K
Current Report on Form 8-K regarding a change in the Registrant's
Certifying Accountant, dated November 6, 1998.
Current Report on Form 8-K regarding the Acquisition of certain Terminal
Storage Facilities located in the United Kingdom, dated February 12, 1999.
Current report on Form 8-K/A regarding a change in the Registrant's
Certifying Accountant, dated March 9, 1999.
<PAGE>
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1998 1997 1996
------------- ------------- --------------
<S> <C> <C> <C>
Revenues.............................................. $ 125,812,000 $ 121,156,000 $ 117,554,000
------------- ------------- --------------
Costs and expenses:
Operating costs.................................... 52,200,000 50,183,000 49,925,000
Depreciation and amortization...................... 12,148,000 11,711,000 10,981,000
General and administrative......................... 6,261,000 5,793,000 5,259,000
------------- ------------- --------------
Total costs and expenses........................ 70,609,000 67,687,000 66,165,000
------------- ------------- --------------
Operating income...................................... 55,203,000 53,469,000 51,389,000
Interest and other income............................. 626,000 562,000 776,000
Interest expense...................................... (11,304,000) (11,332,000) (11,033,000)
------------- -------------- ---------------
Income before minority
interest and income taxes.......................... 44,525,000 42,699,000 41,132,000
Minority interest in net income....................... (441,000) (420,000) (403,000)
Income tax provision.................................. (418,000) (718,000) (822,000)
------------- -------------- ---------------
Net income ........................................... 43,666,000 41,561,000 39,907,000
General partner's interest
in net income...................................... (735,000) (560,000) (403,000)
------------- -------------- ---------------
Limited partners' interest
in net income...................................... $ 42,931,000 $ 41,001,000 $ 39,504,000
============= ============= ==============
Allocation of net income per
Unit as described in Note 2........................ $ 2.67 $ 2.55 $ 2.46
============= ============= ==============
Weighted average number of Partnership
units outstanding.................................. 16,060,000 16,060,000 16,060,000
============= ============= ==============
</TABLE>
<PAGE>
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
-----------------------------------
1998 1997
------------- --------------
ASSETS
Current assets:
Cash and cash equivalents........... $ 849,000 $ 6,376,000
Accounts receivable................. 13,917,000 11,503,000
Prepaid expenses.................... 4,035,000 4,021,000
------------- --------------
Total current assets............. 18,801,000 21,900,000
------------- --------------
Property and equipment................. 398,253,000 345,802,000
Less accumulated depreciation.......... 108,622,000 98,670,000
------------- --------------
Net property and equipment....... 289,631,000 247,132,000
------------- --------------
$ 308,432,000 $ 269,032,000
============= ==============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Short-term and current portion
of long-term debt................. $ 10,000,000 $ 2,335,000
Accounts payable.................... 3,939,000 2,400,000
Accrued expenses.................... 4,809,000 3,297,000
Accrued distributions payable....... 10,725,000 10,725,000
Accrued taxes, other than
income taxes...................... 2,080,000 1,957,000
Deferred terminaling fees........... 3,526,000 2,892,000
Payable to general partner.......... 6,785,000 1,143,000
------------- --------------
Total current liabilities........ 41,864,000 24,749,000
------------- --------------
Long-term debt, less current portion... 153,000,000 132,118,000
Other liabilities and deferred taxes... 7,131,000 6,935,000
Minority interest...................... 1,049,000 1,034,000
Commitments and contingencies
Partners' capital:
Limited partners.................... 104,342,000 103,167,000
General partner..................... 1,046,000 1,029,000
------------- --------------
Total partners' capital.......... 105,388,000 104,196,000
------------- --------------
$ 308,432,000 $ 269,032,000
============= ==============
<PAGE>
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1998 1997 1996
-------------- ---------------- ----------------
<S> <C> <C> <C>
Operating activities:
Net income ........................................ $ 43,666,000 $ 41,561,000 $ 39,907,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization................... 12,148,000 11,711,000 10,981,000
Minority interest in net income................. 441,000 420,000 403,000
Deferred income taxes........................... 481,000 651,000 601,000
Changes in working capital components:
Accounts receivable........................... (2,414,000) 37,000 (1,330,000)
Prepaid expenses.............................. (14,000) 300,000 (3,067,000)
Accounts payable and accrued expenses......... 3,174,000 (336,000) 1,697,000
Deferred terminaling fees..................... 634,000 18,000 240,000
Payable to general partner.................... 642,000 432,000 (252,000)
------------- ------------- --------------
Net cash provided by operating activities.. 58,758,000 54,794,000 49,180,000
------------- ------------- --------------
Investing activities:
Capital expenditures............................... (9,401,000) (10,641,000) (7,075,000)
Acquisitions of pipelines and terminals............ (44,410,000) - (8,507,000)
Other.............................................. (1,121,000) 313,000 (630,000)
------------- -------------- --------------
Net cash used in investing activities...... (54,932,000) (10,328,000) (16,212,000)
------------- ------------- --------------
Financing activities:
Changes in amounts due to/from
general partner................................. 5,000,000 975,000 2,570,000
Issuance of short-term and long-term debt.......... 35,000,000 - 73,000,000
Payments of long-term debt and capital lease....... (6,453,000) (7,036,000) (69,777,000)
Distributions, including minority interest......... (42,900,000) (40,225,000) (36,872,000)
------------- ------------- --------------
Net cash used in financing activities...... (9,353,000) (46,286,000) (31,079,000)
------------- ------------- --------------
Increase (decrease) in cash and cash equivalents...... (5,527,000) (1,820,000) 1,889,000
Cash and cash equivalents at beginning of period...... 6,376,000 8,196,000 6,307,000
------------- ------------- --------------
Cash and cash equivalents at end of period............ $ 849,000 $ 6,376,000 $ 8,196,000
============= ============= ==============
Supplemental information - Cash paid for interest..... $ 11,156,000 $ 11,346,000 $ 10,368,000
============= ============= ==============
</TABLE>
<PAGE>
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
Limited General
Partners (a) Partner Total
-------------- ------------- --------------
<S> <C> <C> <C>
Partners' capital at January 1, 1996...................... $ 99,750,000 $ 998,000 $ 100,748,000
1996 income allocation.................................... 39,504,000 403,000 39,907,000
Distributions declared.................................... (36,938,000) (377,000) (37,315,000)
-------------- ------------- --------------
Partners' capital at December 31, 1996.................... 102,316,000 1,024,000 103,340,000
1997 income allocation.................................... 41,001,000 560,000 41,561,000
Distributions declared.................................... (40,150,000) (555,000) (40,705,000)
-------------- ------------- --------------
Partners' capital at December 31, 1997.................... 103,167,000 1,029,000 104,196,000
1998 income allocation.................................... 42,931,000 735,000 43,666,000
Distributions declared.................................... (41,756,000) (718,000) (42,474,000)
-------------- ------------- --------------
Partners' capital at December 31, 1998.................... $ 104,342,000 $ 1,046,000 $ 105,388,000
============== ============= ==============
Limited partnership units outstanding at
December 31, 1998, 1997 and 1996........................ 16,060,000 (b) 16,060,000
============== ============= ==============
</TABLE>
(a) Prior to the third quarter of 1998, the Partnership had three classes
of partnership interests designated Senior Preference Units, Preference
Units and Common Units, respectively. Pursuant to the Partnership
Agreement, on August 14, 1998, each such class of units were converted
into a single class designated "Units", effective July 1, 1998. See
Note 2.
(b) KPL owns a combined 2% interest in the Partnership as General Partner.
<PAGE>
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. PARTNERSHIP ORGANIZATION
Kaneb Pipe Line Partners, L.P. ("KPP" or 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. At December 31,
1998, the Company, together with its affiliates, owned an approximate 31%
interest as a limited partner and as a general partner owned a combined 2%
interest.
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 affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Cash and cash equivalents
The Partnership's policy is to invest cash in highly liquid
investments with original maturities of three months or less. Accordingly,
uninvested cash balances are kept at minimum levels. Such investments are
valued at cost, which approximates market, and are classified as cash
equivalents. The Partnership does not have any derivative financial
instruments.
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, as disclosed in Note 4. 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.
The Partnership's Support Terminal Services operation ("ST")
provides terminaling and other ancillary services. Storage fees are billed
one month in advance and are reported as deferred income. Revenue is
recognized in the month services are provided.
Environmental matters
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.
Income tax considerations
Income before income tax expense is made up of the following components:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1998 1997 1996
------------- ------------- --------------
<S> <C> <C> <C>
Partnership operations......................... $ 42,827,000 $ 40,317,000 $ 37,950,000
Corporate operations........................... 1,257,000 1,962,000 2,779,000
------------- ------------- --------------
$ 44,084,000 $ 42,279,000 $ 40,729,000
============= ============= ==============
</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, 1998, 1997
and 1996 primarily consists of deferred U.S. Federal income taxes of $.5
million, $.7 million and $.6 million, respectively. The net deferred tax
liability of $3.6 million and $3.1 million at December 31, 1998 and 1997,
respectively, consists of deferred tax liabilities of $8.8 million and
$8.2 million, respectively, and deferred tax assets of $5.2 million and
$5.2 million, respectively. The deferred tax liabilities consist primarily
of tax depreciation in excess of book depreciation and the deferred tax
assets consist primarily of net operating losses. The corporate operations
have net operating loss carryforwards for tax purposes totaling
approximately $14.4 million which expire in years 2008 through 2013.
Since the income or loss of the operations which are conducted
through limited partnerships will be included in the tax returns 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 any such examination results in
adjustments to distributive shares of taxable income or loss, the tax
liability of the partners would be adjusted accordingly.
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 ("SFAS")
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.
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 all Available Cash within
45 days after the end of each quarter to Unitholders of record on the
applicable record date. Distributions of $2.60, $2.50 and $2.30 per Unit
were declared to all classes of Units in 1998, 1997 and 1996,
respectively.
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 during the Preference Period, as defined,
was subject to the preferential rights of the holders of the Senior
Preference Units ("SPUs") 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 was made to holders of Preference Units ("PUs") or Common
Units ("CUs") for such quarter. The CU's were not entitled to arrearages
in the payment of the Minimum Quarterly Distribution. In general, the
Preference Period continued until such time as the Minimum Quarterly
Distribution had been paid to the holders of the SPU's, the PU's and the
CU's for twelve consecutive quarters. Payment of the August 14, 1998
regular cash distribution represented the twelfth consecutive quarterly
distribution of Available Cash constituting Cash from Operations in an
amount equal to or exceeding the $.55 Minimum Quarterly Distribution
specified in the Partnership Agreement. Accordingly, pursuant to the terms
of the Partnership Agreement, all differences and distinctions between
SPU's, PU's and CU's automatically ceased as of such date. At that time,
all outstanding units of limited partnership interest in the Partnership
became "Units," constituting a single class of equity securities, which
trade on the New York Stock Exchange under the symbol "KPP".
Allocation of net income and earnings
For the periods presented, net income or loss has been allocated
between limited partner interests and the general partner pro rata based
on the aggregate amount of cash distributions declared (including general
partner incentive distributions). Beginning in 1997, distributions by the
Partnership of Available Cash reached the Second Target Distribution, as
defined in the Partnership Agreement, which entitled the general partner
to certain incentive distributions at different levels of cash
distributions. Earnings per Unit shown on the consolidated statements of
income are calculated by dividing the amount of limited partners' interest
in net income, by the weighted average number of Units outstanding. If the
allocation of income had been made as if all income had been distributed
in cash, earnings per Unit would have been $2.66 and $2.53 for the years
ended December 31, 1998 and 1997, respectively.
Change in presentation
Certain prior year financial statement items have been reclassified
to conform with the 1998 presentation.
3. ACQUISITIONS
On October 30, 1998, the Partnership, through a wholly-owned
subsidiary, entered into acquisition and joint venture agreements with
Northville Industries Corp. ("Northville") to acquire and manage the
former Northville terminal located in Linden, New Jersey. Under the
agreements, the Partnership acquired a 50% interest in the newly-formed ST
Linden Terminal LLC for $20.5 million plus transaction costs. The
investment was financed by the Partnership's existing revolving credit
facility and a revolving promissory note. The investment is being
accounted for by the equity method of accounting, with the excess cost
over net book value of the equity investment being amortized over the life
of the underlying assets. During 1998, the Partnership acquired other
terminals and pipelines for aggregate consideration of $23.9 million. The
pro forma effects of these acquisitions, including the Northville
transaction, were not material.
On February 1, 1999, the Partnership, through two wholly-owned
indirect subsidiaries, acquired six terminals in the United Kingdom from
GATX Terminal Limited for (pound)22.6 million (approximately $37.4
million) plus transaction costs and the assumption of certain liabilities.
The acquisition was financed with term loans from a bank. The acquisition
will be accounted for, beginning in February 1999, using the purchase
method of accounting.
4. PROPERTY AND EQUIPMENT
The cost of property and equipment is summarized as follows:
<TABLE>
<CAPTION>
Estimated
Useful
Life December 31,
(Years) -------------------------------------
1998 1997
-------------- --------------- --------------
<S> <C> <C> <C>
Land.................................. - $ 19,744,000 $ 18,663,000
Buildings............................. 35 7,626,000 6,728,000
Furniture and fixtures................ 16 2,710,000 2,509,000
Transportation equipment.............. 6 4,131,000 3,687,000
Machinery and equipment............... 20 - 40 31,226,000 28,507,000
Pipeline and terminaling equipment.... 20 - 40 305,745,000 259,467,000
Pipeline equipment under
capitalized lease................... 20 - 40 - 22,513,000
Investment in ST Linden
Terminal LLC........................ 25 21,005,000 -
Construction work-in-progress......... - 6,066,000 3,728,000
------------- --------------
Total property and equipment.......... 398,253,000 345,802,000
Accumulated depreciation.............. (108,622,000) (98,670,000)
------------- --------------
Net property and equipment............ $ 289,631,000 $ 247,132,000
============= ==============
</TABLE>
In December 1998, the Partnership exercised its option to purchase
pipeline equipment previously held under a capital lease for $5.1 million
in cash.
5. DEBT
In October 1998, a wholly-owned subsidiary of KPP entered into a
Promissory Note Agreement with a bank that, as amended on February 1,
1999, provides for a $15 million revolving credit availability through
June 30, 1999. The Promissory Note Agreement bears interest at variable
interest rates and has a commitment fee of 0.35% per annum of the unused
available balance. At December 31, 1998, $10.0 million was drawn under the
Promissory Note Agreement and included in current liabilities.
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1998 1997
--------------- --------------
<S> <C> <C>
First mortgage notes due 2001 and 2002.......................... $ 60,000,000 $ 60,000,000
First mortgage notes due 2001 through 2016...................... 68,000,000 68,000,000
Obligation under capital lease.................................. - 6,453,000
Revolving credit facility....................................... 25,000,000 -
------------- --------------
Total long-term debt............................................ 153,000,000 134,453,000
Less current portion............................................ - 2,335,000
------------- --------------
Long-term debt, less current portion............................ $ 153,000,000 $ 132,118,000
============= ==============
</TABLE>
In 1994, a wholly-owned subsidiary entered into a restated credit
agreement with a group of banks that, as subsequently amended, provides a
$25 million revolving credit facility through January 31, 2001. The credit
facility bears interest at variable interest rates and has a commitment
fee of 0.15% per annum of the unused credit facility. At December 31,
1998, $25.0 million was drawn under the credit facility.
Also, in 1994, another 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. In 1995, the Partnership issued
$27 million of additional 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 the East Pipeline and contain certain financial
and operational covenants.
In June 1996, the Partnership issued $68 million of new first
mortgage notes bearing interest at rates ranging from 7.08% to 7.98%.
$35.0 million of these notes is due June 2001, $8.0 million is due June
2003, $10.0 million is due June 2006 and $15.0 million is due June 2016.
The loan is secured, pari passu with the existing Notes and credit
facility, by a mortgage on the East Pipeline.
6. COMMITMENTS AND CONTINGENCIES
The following is a schedule by years of future minimum lease
payments under operating leases as of December 31, 1998:
Year ending December 31:
1999......................................... $ 1,355,000
2000......................................... 1,341,000
2001......................................... 1,261,000
2002......................................... 1,082,000
2003......................................... 1,088,000
Thereafter................................... 1,023,000
-------------
Total minimum lease payments................. $ 7,150,000
=============
Total rent expense under operating leases amounted to $1.1 million,
$1.3 million and $1.2 million for the years ended December 31, 1998, 1997
and 1996, respectively.
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 that 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. The
Partnership has recorded an undiscounted reserve for environmental claims
in the amount of $5.3 million at December 31, 1998, including $4.5 million
related to acquisitions of pipelines and terminals. During 1998, the
Partnership incurred $0.6 million of costs related to such acquisition
reserves and reduced the liability accordingly.
The Company has indemnified the Partnership against liabilities
for damage to the environment resulting from operations of the pipeline
prior to October 3, 1989 (the 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 December 1995, the Partnership acquired the liquids terminaling
assets of Steuart Petroleum Company and certain of its affiliates
(collectively, "Steuart"). 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 ending in
December 2002. No amount was payable under the earn-out provision in 1996,
1997 and 1998.
Certain subsidiaries of the Partnership are defendants in a
lawsuit filed in a Texas state court in 1997 by Grace Energy Corporation
("Grace"), the entity from whom the Partnership acquired ST in 1993,
involving certain issues allegedly arising out of the Partnership's
acquisition of ST. Grace alleges that the defendants assumed
responsibility for certain environmental damages to a former ST facility
located in Massachusetts that occurred at a time prior to the
Partnership's acquisition of ST. The defendants have also received and
responded to inquiries from two governmental authorities in connection
with the same allegation by Grace. The defendants' consistent position is
that it did not acquire the facility in question as part of the 1993 ST
transaction and, consequently, did not assume any responsibility for the
environmental damage. The case is set for trial in June, 1999.
The Partnership has other contingent liabilities resulting from
litigation, claims and commitments incident to the ordinary course of
business. Management believes, based on the advice of counsel, that the
ultimate resolution of such contingencies, including the Grace litigation
described above, will not have a materially adverse effect on the
financial position or results of operations of the Partnership.
7. 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 $11.3 million, $10.8 million and
$10.5 million for the years ended December 31, 1998, 1997 and 1996,
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 $9.3 million, $9.0 million and $8.4
million of compensation and benefits, paid to officers and employees of
the Company for the years ended December 31, 1998, 1997 and 1996,
respectively, which represent the actual amounts paid by the Company or
Kaneb. In addition, the Partnership paid $.2 million during each of these
respective years for an allocable portion of the Company's overhead
expenses. At December 31, 1998 and 1997, the Partnership owed the Company
$1.8 million and $1.1 million, respectively, for these expenses which are
due under normal invoice terms. Additionally, at December 31, 1998, $5.0
million was payable to the Company under a short-term promissory note
agreement. The promissory note, which accrued interest at 6.75% per annum,
was repaid in February 1999.
8. BUSINESS SEGMENT DATA
The following information is presented in accordance with SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131"). The Partnership's adoption of SFAS No. 131, effective
January 1, 1998 and applied retroactively, did not alter the composition
of its reportable operating segments.
The Partnership conducts business through two principal
operations; the "Pipeline Operations," which consists primarily of the
transportation of refined petroleum products in the Midwestern states as a
common carrier, and the "Terminaling Operations," which provide storage
for petroleum products, specialty chemicals and other liquids. At December
31, 1998, all Pipeline and Terminaling Operations were conducted
domestically.
The Partnership measures segment profit as operating income. Total
assets are those assets controlled by each reportable segment.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------
1998 1997 1996
---------------- --------------- --------------
<S> <C> <C> <C>
Business segment revenues:
Pipeline operations.................................... $ 63,421,000 $ 61,320,000 $ 63,441,000
Terminaling operations................................. 62,391,000 59,836,000 54,113,000
---------------- --------------- --------------
$ 125,812,000 $ 121,156,000 $ 117,554,000
================ =============== ==============
Business segment profit:
Pipeline operations.................................... $ 33,630,000 $ 31,827,000 $ 32,221,000
Terminaling operations................................. 21,573,000 21,642,000 19,168,000
---------------- --------------- --------------
Operating income..................................... 55,203,000 53,469,000 51,389,000
Interest expense....................................... (11,304,000) (11,332,000) (11,033,000)
Interest and other income ............................. 626,000 562,000 776,000
---------------- --------------- --------------
Income before minority interest and income taxes..... $ 44,525,000 $ 42,699,000 $ 41,132,000
================ =============== ==============
Business segment assets:
Depreciation and amortization:
Pipeline operations.................................. $ 4,619,000 $ 4,885,000 $ 4,817,000
Terminaling operations............................... 7,529,000 6,826,000 6,164,000
---------------- --------------- --------------
$ 12,148,000 $ 11,711,000 $ 10,981,000
================ =============== ==============
Capital expenditures (including capitalized
leases and excluding acquisitions):
Pipeline operations.................................. $ 5,020,000 $ 4,496,000 $ 3,446,000
Terminaling operations............................... 4,381,000 6,145,000 3,629,000
---------------- --------------- --------------
$ 9,401,000 $ 10,641,000 $ 7,075,000
================ =============== ==============
December 31,
------------------------------------------------------
1998 1997 1996
---------------- --------------- --------------
Total assets:
Pipeline operations.................................. $ 103,966,000 $ 97,666,000 $ 102,391,000
Terminaling operations............................... 204,466,000 171,366,000 172,374,000
---------------- --------------- --------------
$ 308,432,000 $ 269,032,000 $ 274,765,000
================ =============== ==============
</TABLE>
9. FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
The estimated fair value of all debt as of December 31, 1998 and
1997 was approximately $171 million and $134 million, as compared to the
carrying value of $163 million and $128 million, respectively. These fair
values were estimated using discounted cash flow analysis, based on the
Partnership's current incremental borrowing rates for similar types of
borrowing arrangements. These estimates are not necessarily indicative of
the amounts that would be realized in a current market exchange.
The Partnership has no derivative financial instruments.
The Partnership markets and sells its services to a broad base of
customers and performs ongoing credit evaluations of its customers. The
Partnership does not believe it has a significant concentration of credit
risk at December 31, 1998. No customer constituted 10 percent or more of
consolidated revenues in 1998, 1997 or 1996.
10. QUARTERLY FINANCIAL DATA (unaudited)
Quarterly operating results for 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------------------------
March 31, June 30, September 30, December 31,
---------------- ---------------- --------------- --------------
<S> <C> <C> <C> <C>
1998:
Revenues...................... $ 28,070,000 $ 30,553,000 $ 33,709,000 $ 33,480,000
================ ================ =============== ==============
Operating income.............. $ 11,900,000 $ 12,946,000 $ 15,710,000 $ 14,647,000
================ ================ =============== ==============
Net income.................... $ 8,960,000 $ 10,030,000 $ 12,598,000 $ 12,078,000
================ ================ =============== ==============
Allocation of net income
per Unit.................... $ .55 $ .61 $ .77 $ .74
================ ================ =============== ==============
1997:
Revenues...................... $ 28,579,000 $ 29,793,000 $ 31,465,000 $ 31,319,000
================ ================ =============== ==============
Operating income.............. $ 12,029,000 $ 12,919,000 $ 13,956,000 $ 14,565,000
================ ================ =============== ==============
Net income.................... $ 8,907,000 $ 9,949,000 $ 10,975,000 $ 11,730,000
================ ================ =============== ==============
Allocation of net income
per Unit.................... $ .55 $ .61 $ .68 $ .71
================ ================ =============== ==============
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Kaneb Pipe Line Partners, L.P.
We have audited the 1998 consolidated financial statements of Kaneb Pipe Line
Partners, L.P. and its subsidiaries (the "Partnership") as listed in the index
appearing under Item 14(a)(1) on page 29. These consolidated financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on the consolidated financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Partnership as
of December 31, 1998, and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
KPMG LLP
Dallas, Texas
February 25, 1999
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Kaneb Pipe Line Partners, L.P.
In our opinion, the consolidated balance sheet and the related consolidated
statements of income, of cash flows and of changes in partners' capital as of
and for each of the two years in the period ended December 31, 1997 (listed in
the index appearing under Item 14(a)(1) on page 29) present fairly, in all
material respects, the financial position, results of operations and cash flows
of Kaneb Pipe Line Partners, L.P. and its subsidiaries (the "Partnership") as of
and for each of the two years in the period ended December 31, 1997, 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. We have not audited the consolidated financial statements of Kaneb Pipe
Line Partners, L.P. and its subsidiaries for any period subsequent to December
31, 1997.
PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
February 19, 1998
<PAGE>
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
Chairman of the Board and
Chief Executive Officer
Date: March 25, 1999
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 Chairman of the Board March 25, 1999
and Chief Executive Officer
Principal Accounting Officer
JIMMY L. HARRISON Controller March 25, 1999
Directors
SANGWOO AHN Director March 25, 1999
JOHN R. BARNES Director March 25, 1999
M.R. BILES Director March 25, 1999
FRANK M. BURKE, JR. Director March 25, 1999
CHARLES R. COX Director March 25, 1999
HANS KESSLER Director March 25, 1999
JAMES R. WHATLEY Director March 25, 1999
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------- ----------------------------------------------------------------------
10.5 TCB Security Agreement
10.9 Formationand Purchase Agreement, between and among Support Terminal
Operating Partnership, L.P., Northville Industries Corp. and AFFCO,
Corp., dated October 30, 1998
10.10 Agreement, between and among, GATX Terminals Limited, ST Services,
Ltd., ST Eastham, Ltd., GATX Termianls Corporation, Support Terminals
Operating Partnership, L.P. and Kaneb Pipe Line Partners, L.P., dated
January 26, 1999
10.11 Credit Agreement, between and among, Kaneb Pipe Line Operating
Partnership, L.P., ST Services, Ltd. and Suntrust Bank, Atlanta,
dated January 27, 1999
22 List of Subsidiaries, filed herewith.
27 Financial Data Schedule, filed herewith.
EXHIBIT 10.5
FOURTH MODIFICATION OF FIRST AMENDED AND
RESTATED MORTGAGE AND SECURITY AGREEMENT
(And Financing Statement, Fixture Filing, and Assignment
of Accounts)*
THIS FOURTH MODIFICATION OF FIRST AMENDED AND RESTATED MORTGAGE AND SECURITY
AGREEMENT (and Financing Statement, Fixture Filing, and Assignment of Accounts)
is entered into as of February 1, 1999, by:
o KANEB PIPE LINE OPERATING PARTNERSHIP, L.P., a Delaware limited
partnership ("KPOP," as that term is further defined below), whose
mailing address is 2435 North Central Expressway, Suite 700,
Richardson, Texas 75080, and whose Federal Tax Identification Number is
75-2287683;
o KANEB PIPE LINE COMPANY, a Delaware corporation that is the sole
General Partner of KPOP ("General Partner," as that term is further
defined below), whose mailing address is 2435 North Central Expressway,
Suite 700, Richardson, Texas 75080, and whose Federal Tax
Identification Number is 74-1191271; and
o CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, formerly known as Texas
Commerce Bank National Association, as Collateral Trustee pursuant to
the Intercreditor Agreement, as defined below, for the Original Banks,
the Purchasers described below, the 1996 Noteholders described below,
SunTrust, and such other creditors as may hereafter become parties to
the Intercreditor Agreement (in that capacity, "Mortgagee," as that
term is further defined below), whose mailing address is 2200 Ross
Avenue, 5th Floor, Dallas, Texas 75201, and whose Federal Tax
Identification Number is 74-0800980.
RECITALS
1. KPOP and General Partner executed that certain Mortgage and Security
Agreement dated as of March 1, 1993, recorded as set forth in the attached
Schedule 1 (the "Prior Mortgage") covering the property legally described in
Exhibits A, B, and C of the Mortgage (as defined below) in favor of Texas
Commerce Bank National Association (the successor by merger with Texas Commerce
Bank, National Association), as the agent lender for the lenders under that
certain Credit Agreement dated as of March 1, 1993 (as amended, the "1993 Credit
Agreement") between KPOP, that agent, and those lenders.
2. KPOP, StanTrans, Inc. ("STI"), Kaneb Pipe Line Partners, L.P.
("KPP"), Support Terminal Services, Inc. ("STS"), and Support Terminals
Operating Partnership, L.P. ("STOP") have entered into Note Purchase Agreements
each dated as of December 22, 1994 (as from time to time amended, restated,
renewed, or extended, or otherwise modified, and all other agreements given in
substitution, the "Note Agreements") with each of the Purchasers (as defined in
the Mortgage), pursuant to which (a) KPOP issued and sold to the Purchasers
First Mortgage Notes, Series A, due seven years after issuance, in an aggregate
principal amount of $27,000,000 and (b) STI issued and sold to Purchasers 8.05%
First Mortgage Notes, Series B, due December 22, 2001, in an aggregate principal
amount of $33,000,000.
3. KPOP, certain lenders (the "Original Banks"), and Chase Bank of
Texas, National Association (formerly Texas Commerce Bank National Association
and acting as agent lender for the Original Banks) are party to the Restated
Credit Agreement (as from time to time amended, restated, renewed, or extended,
the "1994 Credit Agreement") dated as of December 22, 1994, which entirely
amended, restated, and replaced the 1993 Credit Agreement.
4. KPOP, KPP, STS, STI, STOP, StanTrans Holdings, Inc., StanTrans
Partners, L.P. and each of Metropolitan Life Insurance Company, Provident Life
and Accident Insurance Company, Pacific Mutual Life Insurance Company, AID
Association for Lutherans, and American General Life and Accident Insurance
Company (collectively, the "1996 Noteholders") have entered into Note Purchase
Agreements (as renewed, extended, amended, or restated, the "1996 Note
Agreements") dated as of June 27, 1996, pursuant to which KPOP has issued the
1996 Notes (as defined in the Mortgage).
5. Purchasers, 1996 Noteholders, the Original Banks, and Mortgagee have
entered into, and KPOP, STI, Kaneb Pipe Line Partners, L.P., Support Terminal
Services, Inc. and Support Terminals Operating Partnership, L.P. have consented
to, the Collateral Trust and Intercreditor Agreement dated as of December 22,
1994 (as amended by the Intercreditor Amendment defined below and as further
amended, restated, renewed, or extended from time to time, the "Intercreditor
Agreement").
6. KPOP and General Partner have executed and delivered a First Amended
and Restated Mortgage and Security Agreement (and Financing Statement, Fixture
Filing and Assignment of Accounts) dated as of December 22, 1994, recorded as
set forth in the attached Schedule 2 (as amended, restated, extended or modified
from time to time, the "Mortgage"), granting to the Mortgagee a lien and
security interest, for the benefit of the Purchasers, the 1996 Noteholders, and
the Original Banks, in the property as described in Exhibits A, B, and C of the
Mortgage, which entirely amended and restated the Prior Mortgage.
7. The Mortgage has been modified by the (a) Modification of First
Amended and Restated Mortgage and Security Agreement dated as of December 18,
1995, recorded as set forth on the attached Schedule 3, (b) Second Modification
of First Amended and Restated Mortgage and Security Agreement dated as of June
27, 1996, recorded as set forth on the attached Schedule 4, and (c) Third
Modification of First Amended and Restated Mortgage and Security Agreement dated
as of January 30, 1998, recorded as set forth on the attached Schedule 5.
8. KPOP and Chase Bank of Texas, National Association (in its
individual capacity, "Chase Bank"), have entered into the Revolving Promissory
Note With Agreement (as renewed, extended, amended, or restated, the "Chase
Revolving Note") dated as of February 1, 1999, providing for a revolving line of
credit to KPOP of up to $15,000,000.
9. KPOP, ST Services, Ltd. ("ST"), and SunTrust Bank, Atlanta, a
Georgia banking corporation, as Lender ("SunTrust") have agreed to enter into
the Credit Agreement (as from time to time amended, restated, renewed, or
extended, the "SunTrust Credit Agreement") dated as of January 27, 1999.
10. KPOP, General Partner, and Mortgagee, are entering into this
document in order for the indebtedness under the Chase Revolving Note and the
SunTrust Credit Agreement to be fully secured by -- and for Chase Bank or
SunTrust to be entitled to the benefits of -- the security interests, pledges,
and other rights, benefits, and privileges of the Mortgage on a pari passu basis
with the other indebtedness secured by the Mortgage and with Original Banks,
Purchasers, and 1996 Noteholders.
11. KPOP and General Partner are collectively referred to in this
document as "Grantors".
ACCORDINGLY, for adequate and sufficient consideration, Grantors and
Mortgagee agree as follows:
1. TERMS AND REFERENCES. Unless otherwise stated in this document (A) terms
defined in the Mortgage have the same meanings when used in this document and
(B) references to "Sections" are to the Mortgage's sections.
2. AMENDMENTS. The Mortgage is amended as follows:
(A) Section 1.1 is entirely amended as follows:
1.1 This Mortgage and all Rights, titles, interests, and Liens
created by or arising under it are given to secure payment and
performance of the indebtedness, liabilities, and obligations (the
"Obligation") described below. Certain clauses below are included for
greater certainty and not in limitation of any other such clauses.
(a) All indebtedness and other obligations now or
hereafter incurred or arising evidenced by the Purchased Notes
(each of the Purchased Notes bearing interest and an
"Applicable Premium Amount" as therein provided and containing
a provision for the payment of additional amounts as
attorneys' fees), all indebtedness and other obligations now
or hereafter incurred or arising pursuant to the provisions of
the Note Purchase Agreements, this Mortgage, or any other Note
Purchase Document now or hereafter evidencing, governing,
guaranteeing, or securing the Obligation owing to the
Purchasers;
(b) All indebtedness and other obligations now or
hereafter incurred or arising evidenced by the 1996 Notes
(each of the 1996 Notes bearing interest and an "Applicable
Premium Amount" as therein provided and containing a provision
for the payment of additional amounts as attorneys' fees), all
indebtedness and other obligations now or hereafter incurred
or arising pursuant to the provisions of the 1996 Note
Agreements, this Mortgage, or any other 1996 Note Document now
or hereafter evidencing, governing, guaranteeing or securing
the Obligation owing to the 1996 Noteholders;
(c) All indebtedness and other obligations of
Grantors now or hereafter incurred or arising pursuant to the
provisions of the Credit Agreement or any Promissory Note
executed and delivered pursuant to the Credit Agreement, such
Promissory Notes bearing interest as therein provided and
containing a provision for the payment of additional amounts
as attorneys' fees, this Mortgage, or any other Loan Paper now
or hereafter evidencing, governing, guaranteeing, or securing
the Obligation owing to the Banks;
(d) All indebtedness and other obligations of
Grantors now or hereafter incurred or arising pursuant to the
provisions of the Chase Revolving Note as therein provided and
containing a provision for the payment of additional amounts
as attorneys' fees, this Mortgage, or any other Loan Paper now
or hereafter evidencing, governing, guaranteeing, or securing
the Obligation owing to Chase;
(e) All indebtedness and other obligations of
Grantors now or hereafter incurred or arising pursuant to the
provisions of the SunTrust Credit Agreement or the SunTrust
Promissory Notes executed and delivered pursuant to the
SunTrust Credit Agreement as therein provided and containing a
provision for the payment of additional amounts as attorneys'
fees, this Mortgage, or any other Loan Paper now or hereafter
evidencing, governing, guaranteeing, or securing the
Obligation owing to SunTrust;
(f) All obligations, indebtedness or liabilities of
KPOP under the terms of that certain Guaranty dated as of
December 22, 1994, executed by KPOP in favor of Purchasers;
(g) All sums owing to Mortgagee under this
Mortgage; and
(h) Without limiting the generality of the foregoing,
all post-petition interest, expenses, and other duties and
liabilities with respect to indebtedness or other obligations
described above in this Section 1 which would be owed but for
the fact that they are unenforceable or not allowable due to
the existence of a bankruptcy, reorganization, or similar
proceeding.
NOTICE: This Mortgage secures credit in an amount not to exceed the sum
of $186,300,000 denominated in United States Dollars and
(pound)16,000,000 denominated United Kingdom Pound Sterling. Loans and
advances up to such total amount, together with interest, are senior to
indebtedness to other creditors under subsequently recorded or filed
mortgages and liens.
NOTICE: NOTWITHSTANDING THE ABOVE--SOLELY IN RESPECT OF MORTGAGED
PROPERTY IN KANSAS--THIS INSTRUMENT ONLY SECURES UP TO $15,000,000 OF
THE OBLIGATION DESCRIBED IN SECTION 1.1(c) ABOVE, AND NONE OF THE
OBLIGATION DESCRIBED IN SECTIONS 1.1(d) AND (e) ABOVE AND THEREFORE,
DOES NOT SECURE PRINCIPAL DEBT IN EXCESS OF $143,000,000.
(B) A new Section 2.5 is added to the Mortgage as follows:
2.5 KPOP, General Partner, and Mortgagee covenant and agree
with each other and for the benefit of all of the beneficiaries of this
Mortgage that promptly upon the request of Chase, SunTrust, or any
Required Holders under the Intercreditor Agreement, they shall execute,
deliver, acknowledge, and effect the proper recordation of an
appropriate modification of this Mortgage in order to increase, by any
amount up to the full amounts secured by this Mortgage, the amount of
indebtedness secured by this Mortgage on properties in the State of
Kansas, notwithstanding the Notices at the end of Section 1.1 of this
Mortgage.
(C) Section 4.18 is amended to add or entirely amend the following
definitions in alphabetical order with the other definitions in that
section:
"Bank" means the Original Banks, Chase, and SunTrust.
"Chase" means Chase Bank of Texas, National Association, in
its individual banking capacity.
"Chase Revolving Note" means -- effective as of the date that
the 30-day notice period under Section 6.02(b)(vi) of the Intercreditor
Agreement has lapsed (or on February 13, 1999) -- the Revolving
Promissory Note With Agreement dated as of February 1, 1999, between
KPOP and Chase, in the stated principal amount of up to $15,000,000, as
from time to time amended, restated, renewed, or extended.
"Loan Paper" means, collectively, the 1994 Credit Agreement,
the Promissory Notes, the Chase Revolving Note, the SunTrust Credit
Agreement, the SunTrust Promissory Notes, the Security Documents, the
Intercreditor Agreement, all other agreements, certificates, documents,
instruments, and writings at any time delivered in connection herewith
or therewith, and any refinancings which extend the maturity thereof,
amendments, modifications, extensions, renewals, or restatements
(exclusive of term sheets, commitment letters, correspondence, and
similar documents used in the negotiation thereof, except to the extent
the same contain information about the Grantors of their Affiliates,
properties, business, or prospects).
"Security Documents" means this Mortgage, the Stock Pledge
Agreement dated as of December 22, 1994 (as amended by the Amendment to
Stock Pledge Agreement dated as of December 18, 1995, and the Second
Amendment to Stock Pledge Agreement dated as of June 27, 1996) executed
by KPOP in favor of Mortgagee, all other security agreements, deeds of
trust, mortgages, chattel mortgages, pledges, guaranties, financing
statements, continuation statements, extension agreements, other
agreements or instruments and all refinancings to extend the maturities
thereof, renewals, modifications, amendments, or restatements thereof,
subject to the Intercreditor Agreement and that are now, heretofore, or
hereafter delivered by any person to Mortgagee, any Purchaser, any 1996
Noteholder, or any Bank in connection with the Note Agreements, the
1996 Note Agreements, the Credit Agreement, the Chase Revolving Note,
SunTrust Credit Agreement, or any transaction contemplated thereby to
secure or guarantee the payment of any part of the Purchased Notes, the
1996 Notes, the Promissory Notes, the Chase Revolving Note, the
SunTrust Promissory Notes, or the performance of any duties and
obligations of KPOP or STI under the Note Purchase Documents, the 1996
Note Documents, or the Loan Papers.
"SunTrust" means SunTrust Bank, Atlanta, a Georgia banking
corporation.
"SunTrust Credit Agreement" means the Credit Agreement
dated as of January 27, 1999, between KPOP, ST Services, Ltd., and
SunTrust, as from time to time amended, restated, renewed, or extended.
"SunTrust Promissory Notes" means -- as each of the same may
from time to time be renewed, extended, amended, modified, restated,
replaced, or substituted -- collectively (a) effective as of February
1, 1999,(i) the two different Term Loan A Notes dated February 1, 1999,
made jointly by KPOP and ST Services, Ltd., to the order of SunTrust,
in the single original principal amount of (pound)16,000,000, and (ii)
Term Loan B Note dated February 1, 1999, made by KPOP to the order of
SunTrust in the original principal amount of $13,300,000, and (b)
effective as of the date that the 30-day notice period under Section
6.02(b)(vi) of the Intercreditor Agreement has lapsed (or on February
13, 1999), Term Loan C Note dated February 1, 1999, made by KPOP to the
order of SunTrust in the original principal amount of $5,000,000.
3. RATIFICATIONS. Grantors (A) ratify and confirm all provisions of the Mortgage
as amended by this document, (B) ratify and confirm that all security interests,
pledges, and other rights, benefits, and privileges granted, conveyed, or
assigned to Mortgagee under the Mortgage are not released, reduced, or otherwise
adversely affected by this document and continue to secure full payment and
performance of the present and future Obligation, as modified by this document,
and (C) agree to perform such acts and duly authorize, execute, acknowledge,
deliver, file, and record such additional documents, and certificates as
Mortgagee may request in order to create, perfect, preserve, and protect those
security interests, pledges, and other rights, benefits, and privileges.
4. LEGAL DESCRIPTION/MASTER AGREEMENT. The property covered by the Mortgage, as
amended by this document, is legally described in the attached Exhibits A, B,
and C. Executed original counterparts of this document to be filed for record in
the records of the jurisdictions where the Mortgaged Property is situated may
have annexed to them as Exhibits A, B, and C only the portions or divisions
containing specific descriptions of the Mortgaged Property located in those
jurisdictions. Whenever a recorded counterpart of this document contains
specific descriptions which are less than all of the descriptions contained in
any full counterparts on file with Mortgagee, the omitted descriptions are
hereby included by reference in that recorded counterpart as if each recorded
counterpart conformed to any full counterpart on file with Mortgagee. A
counterpart of this document containing all specific descriptions of Mortgaged
Property wherever located, shall be recorded with the Register of Deeds in
Sedgwick County, Kansas.
5. REPRESENTATIONS. KPOP represents and warrants to Mortgagee that as of the
date of this document all representations and warranties in the Mortgage
applicable to KPOP or any of the Mortgaged Property are true and correct in all
material respects.
6. MISCELLANEOUS. Unless stated otherwise (A) the singular number includes the
plural and vice versa and words of any gender include each other gender, in each
case, as appropriate, (B) headings and captions may not be construed in
interpreting provisions, (C) this document must be construed -- and its
performance enforced -- as provided in Section 4.9 of the Mortgage, (D) if any
part of this document is for any reason found to be unenforceable, all other
portions of it nevertheless remain enforceable, and (E) this document may be
executed in any number of counterparts with the same effect as if all
signatories had signed the same document, and all of those counterparts must be
construed together to constitute the same document.
7. ENTIRETIES. THE MORTGAGE AS MODIFIED BY THIS DOCUMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES ABOUT THE SUBJECT MATTER OF THE MORTGAGE AS
MODIFIED BY THIS DOCUMENT 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.
8. PARTIES. This document binds and inures to Grantors, their respective
successors and assigns, Mortgagee and its successors and assigns (on behalf of
the Purchasers, 1996 Noteholders, Original Banks, SunTrust, and their respective
successors and assigns).
9. ACKNOWLEDGMENT. Grantors acknowledge receipt of a copy of this document
signed by Grantors and copies of all documents, instruments and agreements
executed in connection with this document.
IMPORTANT: READ BEFORE SIGNING. THE TERMS OF THIS DOCUMENT SHOULD BE
READ CAREFULLY BECAUSE ONLY THOSE TERMS IN WRITING ARE ENFORCEABLE IN RESPECT OF
ANY MORTGAGED PROPERTY IN IOWA. NO OTHER TERMS OR ORAL PROMISES NOT CONTAINED OR
INCORPORATED BY REFERENCE IN THIS WRITTEN INSTRUMENT MAY BE LEGALLY ENFORCED
WITH RESPECT OF ANY MORTGAGED PROPERTY IN IOWA. THE PARTIES MAY CHANGE THE TERMS
OF THE MORTGAGE ONLY BY ANOTHER WRITTEN INSTRUMENT. THIS NOTIFICATION IS
EFFECTIVE WITH RESPECT TO ALL OTHER CREDIT AGREEMENTS NOW IN EFFECT BETWEEN THE
PARTIES.
Signature Page
EXECUTED as of the date first stated in this Fourth Modification of First
Amended and Restated Mortgage and Security Agreement.
ATTEST:
Michael B. Glazer, Assistant Secretary
ATTEST:
Michael B. Glazer, Assistant Secretary
ATTEST:
Name:
Title:
KANEB PIPE LINE OPERATING PARTNERSHIP, L.P., as KPOP and as a Grantor
By KANEB PIPE LINE COMPANY, General Partner
By Edward D. Doherty, Chairman
KANEB PIPE LINE COMPANY, as General Partner and as a Grantor
By Edward D. Doherty, Chairman
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, formerly known as Texas Commerce Bank
National Association, as Mortgagee
By
Name:
Title:
EXHIBIT 10.9
FORMATION AND PURCHASE AGREEMENT
Dated as of October __, 1998
by and among
SUPPORT TERMINAL OPERATING PARTNERSHIP, L.P.
(a subsidiary of Kaneb Pipe Line Partners, L.P.),
and
NORTHVILLE INDUSTRIES CORP.
and
AFFCO, CORP.
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. Certain Definitions.......................................2
SECTION 2. Formation of LLC; Contribution of Assets..................8
2.1 Formation of LLC .........................................8
2.2 Assumption of Future Obligations..........................9
2.3 Closing Adjustments.......................................12
SECTION 3. Purchase and Sale of LLC Interests;
Consideration for LLC Interests; and Managing
Member Appointment .......................................13
3.1 Purchase and Sale of LLC Interests........................13
3.2 Amount of Purchase Price..................................14
3.3 Payment of Purchase Price.................................14
3.4 Tax Elections Regarding Step-Up Basis.....................15
LLC Agreement.............................................15
SECTION 4. Representations and Warranties of Seller
and AFFCO.................................................15
Good Standing.............................................15
41 Authorization.............................................16
42 Financial Data............................................17
43 Competing Interest........................................17
44 Records and Books of Account..............................19
45 Liabilities...............................................19
46 Title to Assets; Liens and Encumbrances...................19
47 Fixed Assets; Real Property; Leased Premises..............20
48 Trademarks, Service Marks, Trade Names, Patents
and Copyrights............................................24
Contracts.................................................24
Labor Relations...........................................27
41 Legal Proceedings.........................................27
42 Compliance With Law; Permits and Licenses.................28
43 Actions Not in Ordinary Course............................28
44 Employee Matters..........................................29
45 Capital Projects and Expenditures.........................29
46 Environmental Protection..................................29
47 Employee Benefits.........................................32
48 Governmental Approvals....................................32
49 No Omissions..............................................33
410 Purchased LLC Interests...................................33
SECTION 5. Representations and Warranties of the Buyer...............34
5.1 Representations and Warranties of the Buyer...............34
(A) Good Standing....................................34
(B) Authorization....................................34
SECTION 6. Condition of Acquired Assets and Buyers
Due Diligence.............................................35
As Is.....................................................35
61 Conduct of Business.......................................35
62 Access....................................................36
SECTION 7. Conditions of Buyers Obligations to Close.................36
Agreements and Conditions.................................37
71 Accuracy of Representations and Warranties................37
72 Governmental Approvals; Consents..........................37
73 Material Adverse Change...................................38
74 No Actions or Proceedings.................................38
75 Bring-down Certificate....................................39
76 Good Standing Certificates................................40
77 Certified Charter Documents...............................40
78 Matters Satisfactory to the Buyers Counsel................40
79 Due Diligence.............................................40
710 Corporate Action..........................................41
711 Secretarys Certificate....................................41
712 Title Reports.............................................41
713 FIRPTA Affidavit..........................................42
714 Antitrust Improvements Act................................42
715 Deliveries................................................43
716 Product Storage Agreement.................................43
717 LLC Agreement.............................................43
SECTION 8. Conditions of the Seller=s Obligations to Close...........43
8.1 Agreements and Conditions.................................43
8.2 Accuracy of Representations and Warranties................44
8.3 Governmental Approvals; Consents..........................44
8.4 No Actions or Proceedings.................................44
8.5 General Partner=s Certificate.............................45
8.6 General Partner=s Certificate of Authorization............45
8.7 Antitrust Improvement Act.................................46
8.8 Product Storage Agreement.................................46
8.9 Deliveries................................................46
8.10 LLC Agreement.............................................46
SECTION 9. Deliveries of Seller......................................46
9.1 Title to Acquired Assets..................................47
9.2 Consents..................................................47
9.3 Good Standing Certificate.................................47
9.4 Secretary=s Certificate...................................47
9.5 Possession of Acquired Assets.............................48
9.6 Other Deliveries..........................................48
SECTION 10. Deliveries of Buyer, Seller, AFFCO and the
LLC at the LLC Interest Closing...........................48
A. Buyers Deliveries
10.1 Purchase Price............................................48
10.2 Certificate...............................................48
10.3 Other Deliveries..........................................48
B. LLC Deliveries
10.4 Certificates and LLC Agreement............................49
10.5 Other Deliveries..........................................49
10.6 Product Storage Agreement.................................49
C. Seller=s and AFFCO=s Deliveries
LLC Units Transfer........................................49
Other Deliveries..........................................49
SECTION 11. Additional Covenants............................................49
11.1 Consents Report; Inventory List...........................49
11.2 Sellers Employees.........................................52
11.3 Cooperation...............................................53
11.4 Receivables; Mail ........................................54
11.5 Further Assurances........................................54
SECTION 12. Indemnification
Indemnification by Seller..........................................55
11 Indemnification by the LLC....................................56
12 Indemnification by the Buyer..................................56
13 Procedures for Indemnification................................56
14 Right of Setoff...............................................58
SECTION 13.Survival of Representations; Effect of Certificates..............58
Survival Representations...........................................58
15 Effect of Certificates........................................58
SECTION 14. Fees and Disbursements..........................................58
SECTION 15. No Broker.......................................................59
SECTION 16. Notices.........................................................59
SECTION 17. Miscellaneous...................................................61
Entire Agreement...................................................61
16 Taxes.........................................................62
17 Governing Law.................................................62
18 Benefit of Parties; Assignment................................62
19 Pronouns......................................................63
110 Public Announcements..........................................63
111 Headings......................................................63
<PAGE>
LIST OF SCHEDULES and EXHIBITS
SCHEDULE A: Description of Real Property
Annex 1- Linden Terminal Inventory
SCHEDULE B: Tankage Information, Linden Facility
Description of Facility
Three Crest Engineering Associates Inc. Surveys
dated A10/15/98@
SCHEDULE 4.3: Operating and Financial Data
SCHEDULE 4.4: Competing Interests
SCHEDULE 4.6: Liabilities
SCHEDULE 4.7(a): Liens on Acquired Assets
SCHEDULE 4.7(b): Terminal Assets not Acquired
SCHEDULE 4.8(a): Assets Not in Good Repair and Operating
Condition
SCHEDULE 4.8(b): Violations of Law
SCHEDULE 4.8(c): Lease, Easement and License Agreements
(ALeased Premises@)
SCHEDULE 4.8(d): Notices: Insurance Co./Board of Fire Underwriters
SCHEDULE 4.8(e): Permits, Licenses and Plans
SCHEDULE 4.10: Assumed Contracts
SCHEDULE 4.12: Legal Proceedings
SCHEDULE 4.13: Compliance with Law; Permits and Licenses
SCHEDULE 4.15: Linden Terminal Employees
SCHEDULE 4.16: Capital Projects and Expenditures
SCHEDULE 4.17: Discharge History of Hazardous Substances and
Wastes
SCHEDULE 8.8: Product Storage Agreement
SCHEDULE 11: Inspection Schedule
EXHIBIT A: Limited Liability Company Agreement
EXHIBIT B: Amended and Restated Limited Liability Company
Agreement
<PAGE>
AGREEMENT dated as of October __, 1998 by and among Support
Terminal Operating, Partnership, L.P., a Delaware limited Partnership (the
"Buyer"); Northville Industries Corp., a New York corporation ("Seller"), and
AFFCO, Corp., a New York corporation that is an affiliate of Seller (AAFFCO@).
W I T N E S S E T H:
WHEREAS, Seller and AFFCO have formed a Delaware limited liability
company named ST Linden Terminal, LLC (the ALLC@); and
WHEREAS, Seller intends to contribute to the LLC all of the assets,
properties and rights of Seller relating to the Terminal(as defined below) (the
AContribution@) pursuant to the terms and conditions hereinafter set forth; and
WHEREAS, Seller, Buyer and AFFCO desire that immediately after the
Contribution (i) Seller and AFFCO sell to Buyer, and Buyer purchase from Seller
and AFFCO, one-half each of Seller=s and AFFCO=s interest in the LLC, and (ii)
Buyer be named manager of the LLC, all pursuant to the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and for other good and valuable consideration set forth herein, the parties
hereto agree as follows: . For purposes of this Agreement, the following terms
shall have the respective meanings set forth below: "Acquired Assets" means the
Terminal, the Real Property and the Fixtures and all the assets, properties and
rights of or relating to the Terminal of every kind and description, wherever
located, including, without limitation, all assets, property and rights listed
on Schedule A attached hereto. The Acquired Assets include all real, personal,
intangible and tangible property relating to the Terminal, inventories of fuel
and oil for Terminal equipment operation, pipeline fill machinery, Fixtures,
equipment, tools, spare parts, pumps, racks, drums, tanks, pipelines, marine
facilities, assignable permits and licenses, boats and other vessels, Contracts,
claims and rights(other than accounts receivables as of the Formation Closing
under Contracts of Seller relating to the Terminal and assigned to the LLC),
computer software owned or used by Seller in the operation of the Terminal, and
true copies of all books, records and documents of Seller relating to the
assets, properties and rights of the Terminal (including, without limitation,
operational files, blueprints, plans, specifications and drawings, but excluding
books, records and documents of Seller's business such as inactive inventory
records and customer storage and throughput records). "Actions" means any
claims, actions, suits, proceedings and investigations, whether at law, in
equity or in admiralty or before any court, arbitrator, arbitration panel or
Governmental Authority. "Code" means the Internal Revenue Code of 1986, as
amended. "Contracts" means all contracts, agreements, documents, instruments,
indentures, licenses, leases, commitments, plans, arrangements, sales orders and
purchase orders of every kind, whether written or oral. AControl' and all
derivations thereof means the direct or indirect ability or power to either
(i)vote (or direct the vote of) 50% or more of the voting interests in any
Person or (ii) direct the affairs of another, whether through voting power,
contract or otherwise. "Damages" means losses, liabilities, costs,(including
costs of remediation) damages, claims, expenses, fees, fines and penalties
(including reasonable attorneys fees and disbursements). "Environmental Laws"
means all Governmental Requirements related to and/or regulating (a) the
prevention or control of pollution or protection of the environment, (b) solid,
gasesous or liquid waste generation, handling, treatment, storage, disposal,
discharge, release, emission or transportation or (c) exposure to Hazardous
Materials. AEnvironmental Laws@ include the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, 42 U.S.C. " 9601, et seq., as
amended, the Emergency Planning and Community Right-To-Know Act of 1986, 42
U.S.C. " 11001, et seq., as amended, the Resource Conservation and Recovery Act
of 1976,42 U.S.C. " 6901, et seq., as amended, the Toxic Substances Control Act,
15 U.S.C. " 2601, et seq., the Federal Insecticide, Fungicide, and Rodenticide
Act, 7 U.S.C. " 136, et seq., as amended, the Clean Air Act, 42 U.S.C. " 7401,
et seq., as amended, the Clean Water Act (Federal Water Pollution Control Act),
33 U.S.C. " 1251 et seq., as amended, the Safe Drinking Water Act,42 U.S.C. "
300f et seq., as amended, the Occupational Safety and Health Act, 29 U.S.C. "
641 et seq., as amended, and the Hazardous Materials Transportation Act, 49
U.S.C. " 1801 et seq., as amended. "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended, and the rules and regulations promulgated
thereunder. "Financial Data" means the operating and financial data relating to
the Terminal furnished by Seller to the Buyer listed on Schedule 4.3. "Fixtures"
means all improvements and fixtures in all of their forms located on, under or
about the Terminal, including the marine facilities, all improvements and
equipment listed on Annex I to Schedule A hereto, all Parts thereof and all
accessions, additions, attachments, alterations, improvements, modifications,
substitutions and replacements thereto and therefor, and any reference to a
Fixture shall also include any related Part or any other interest therein.
AFormation Closing@ means the date and time determined as contemplated by
paragraph 2.1. "GAAP" means generally accepted United States accounting
principles. "Governmental Authority" means any and all foreign, federal, state
or local governments, governmental institutions, legislative bodies, public
authorities and governmental entities of any nature whatsoever, and any
subdivisions or instrumentalities thereof, including departments, boards,
bureaus, commissions, agencies, courts, administrations and panels, and any
divisions or instrumentalities thereof, whether permanent or ad hoc and whether
now or hereafter constituted or existing. AHazardous Materials@ means (1) any
Ahazardous waste@ as defined by the Resource Conservation and Recovery Act of
1976, 42.U.S.C. " 6901 et seq., as amended from time to time, and regulations
promulgated thereunder, (2) any Ahazardous substance@ as defined by the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42
U.S.C. "9601, et seq., as amended from time to time, (3) asbestos, (4)
polychlorinated biphenyls, (5) underground storage tanks, whether empty, filled
or partially filled with any substance, (6) petroleum or any petroleum product,
(7) any other substance the presence of which is prohibited or restricted by any
law or other governmental requirement and, (8) any other substance which by any
law or other governmental requirement requires special handling or notification
of any federal, state or local governmental entity in its collection, storage,
treatment, recycling, or disposal. Aincludes@ and Aincluding@ means Aincluding,
without limitation@ or Aincludes, without limitation@, and all derivations
thereof shall have corresponding meanings. "LLC Interest Closing" means the
closing of the purchase and sale between Buyer, AFFCO, and Seller of interests
in the LLC as contemplated hereby, which shall take place at the offices of
Herzfeld & Rubin, P.C., 40 Wall Street, New York, New York, on or about October
30, 1998 at 10:00 a.m., or at such other time or place as the parties may agree
upon in writing. "Laws" mean laws, rules, regulations, codes, orders,
ordinances, judgments, injunctions and decrees. "Liabilities" means debts,
liabilities, obligations, duties and responsibilities of any kind and
description, whether absolute or contingent, monetary or non-monetary, direct or
indirect, known or unknown or matured or unmatured, or of any other nature.
"Lien" means any security interest, lien, mortgage, claim, charge, pledge,
restriction, equitable interest or encumbrance of any nature. "Parts" means all
appliances, parts, instruments, appurtenances, accessories, furnishings and
other equipment of whatever nature that may from time to time be incorporated or
installed in or attached to any item of equipment used in connection with the
operation of the Terminal or Fixture. "Person" means any natural person,
corporation, business trust, joint venture, association, company, firm,
partnership or other entity or government or Governmental Authority.
"Proprietary Rights" means any trade name, trademark, service mark, patent or
copyright and any application for any of the foregoing. "Real Property" means
all real property included in the Acquired Assets, including land, buildings,
improvements and structures owned by Seller relating to the Terminal. "Taxes"
means all taxes, charges, fees, levies or other assessments, including, without
limitation, income, gross receipts, excise, real and personal property, sales,
transfer, license, payroll and franchise taxes, imposed by any Governmental
Authority and shall include any interest, penalties or additions to tax
attributable to any of the foregoing.
"Terminal" means Seller's 3.9 million barrel capacity
petroleum storage terminal located in Linden, New Jersey, including the real
estate upon which it is located, excess land adjacent thereto and related marine
facilities, as more particularly described in the documents entitled "Tankage
Information, Linden Facility@, ADescription of Facility@, and three Crest
Engineering Associates Inc. surveys, dated A10/15/98@, all of which are attached
hereto as Schedule B.
.ECTION 2.Formation of LLC; Contribution of Assets
. Immediately prior to the closing of the sale of interests in
the LLC from Seller and AFFCO to Buyer as contemplated by paragraph 3.1 (the
ALLC Interest Closing@), Seller and AFFCO will complete the formation of the LLC
pursuant to and in accordance with the Limited Liability Company Agreement
attached hereto as Exhibit A, with such changes therein as may be approved in
writing by Seller and Buyer. The date and time of completion of the formation of
the LLC and the transfer of the Acquired Assets is referred to herein as the
AFormation Closing.@ Seller shall, with the approval of Buyer (which approval
shall not be unreasonably withheld, conditioned or delayed), file with the
Secretary of State of Delaware all documents necessary to complete the formation
of the LLC immediately prior to the LLC Interest Closing. In connection with
formation of the LLC, but prior to the LLC Interest Closing, (i) Seller shall
contribute and transfer, and deliver possession and control of, the Acquired
Assets to the LLC in return for 99,000 LLC Units (as defined in the LLC
Agreement), and AFFCO will contribute $410,101 to the LLC in return for 1,000
Units.
2.2 Assumption of Future Obligations. From and after the Formation
Closing, the LLC shall assume and discharge the future obligations of Seller
under the Contracts set forth on Schedule 4.10 hereto (the AAssumed Contracts@)
solely to the extent to be performed after the Formation Closing, provided that
the LLC specifically shall not assume, or be treated as having assumed, any
liabilities of Seller under such Contracts with respect to any breaches of such
Contracts occurring on or before the Formation Closing or any damage to third
parties resulting from acts, events or omissions occurring on or before the
Formation Closing (the obligations assumed pursuant to this sentence being
referred to herein as the "Assumed Obligations"). Except as provided in the
preceding sentence, and notwithstanding anything else to the contrary contained
herein, the LLC is not assuming and shall not be liable for any Liabilities of
Seller of any nature whatsoever. Specifically, without limiting the generality
of the foregoing, the LLC is not assuming and shall not be liable for any
Liabilities (i) under Contracts which shall not have been assigned to the LLC
pursuant to this Agreement;(ii) by reason of or arising out of any default or
breach by Seller of any Contract, for any penalty against Seller under any
Contract, or relating to or arising out of any event which with the passage of
time or after giving of notice, or both, would constitute or give rise to such a
breach, default or penalty, whether or not such Contract is being assigned to
and assumed by the LLC pursuant to this Agreement; (iii) the existence of which
would conflict with or constitute a breach of any representation, warranty or
agreement of Seller contained herein; (iv) for fees and disbursements referred
to in Section 14 hereof; (v) to any shareholder or affiliate of Seller or to any
present or former employee, officer or director of Seller (or the beneficiaries
and dependents of such individuals, as applicable) including, without
limitation, Liabilities for any bonuses, any termination, vacation or severance
pay related to the termination of employees by Seller in connection with the
transactions contemplated hereby, and Liabilities arising under or pursuant to
any "employee benefit plan," as defined in Section 3(3) of ERISA, or other
compensation or benefit arrangement, including, without limitation, any post
retirement medical benefits and any Liabilities relating to the group health
plan continuation coverage requirements of Section 4980B of the Code and Part 6
of Title I of ERISA; (vi) relating to the execution, delivery and consummation
of this Agreement and the transactions contemplated hereby, including, without
limitation, any and all Taxes incurred as a result of the sale contemplated by
this Agreement except as set forth in Section 17.2 hereof;(vii) for any Taxes
accrued or incurred prior to the Formation Closing or relating to any period (or
portion of a period) prior thereto; (viii) relating to or arising out of any
environmental matter, including, without limitation, any violation of any
Environmental Law or any other Law relating to health and safety of the public
or the employees of Seller relating to the Terminal which existed prior to the
Formation Closing; (ix) relating to, or arising out of, services rendered by
Seller, or the conduct or operation of the Terminal, on or prior to the
Formation Closing; (x) arising with respect to any Actions (whether now in
existence or hereafter arising) relating to matters occurring on or prior to the
Formation Closing; and (xi) of Seller arising under or pursuant to this
Agreement. The LLC shall not assume or be bound by any Liabilities of Seller,
except for the Assumed Obligations expressly assumed by the LLC pursuant to the
first sentence of this paragraph 2.2. Seller hereby agrees to indemnify and hold
the LLC harmless from and against any and all Liabilities of Seller other than
the Assumed Obligations, and the LLC hereby agrees to indemnify and hold Seller
harmless from and against any and all Liabilities of Seller that constitute
Assumed Obligations assumed by the LLC pursuant to the first sentence of this
paragraph 2.2. Nothing contained in this paragraph 2.2 shall relieve or release
Seller from any obligations under covenants, warranties or agreements contained
this Agreement.
2.3 Closing Adjustments.
(a) All adjustments customary in asset acquisitions,
including, without limitation, rents, security deposits, real estate taxes,
water charges and other taxes and charges related to any Real Property, and any
tax certiorari proceedings and refunds or assessments related thereto, if
relating to a period before and after the Formation Closing, shall be
apportioned between Seller and the LLC. All such adjustments shall be made at
the time of the Formation Closing except for those adjustments that cannot be
determined as of the Formation Closing. If such adjustment cannot be determined
as of the Formation Closing it shall be determined as promptly as practicable
following the end of the period to which it related and paid not later than two
business days after such determination. Promptly after the final determination
of all adjustments, the adjustments shall be netted, and any net adjustment
amount owing shall be paid in cash by the Seller or the LLC, as the case may be,
to the other.
(b) Seller shall pay to the LLC at the time of the Formation
Closing the aggregate amount of all prepayments made to or advances received by
Seller under all Contracts being assigned to the LLC pursuant to this Agreement
including, but not limited to, all deposits made with respect to such agreements
for services to be rendered after the Formation Closing.
(c) The LLC shall pay to Seller at the time of the Formation
Closing the aggregate amount of all prepayments or advances made by the Seller
under all Contracts assigned to and assumed by the LLC pursuant to this
Agreement, but only to the extent such prepayments or advances apply to
shipments to be made by vendors or received at the Terminal after the Formation
Closing.
LLC Interests; and Managing Member Appointment.ests; Consideration for
3.1 Purchase and Sale of LLC Interests. On the LLC Interest
Closing date, and immediately after completion of the Formation Closing, Seller
and AFFCO will sell and transfer to Buyer, and Buyer will purchase from Seller
and AFFCO, free and clear of any liens or encumbrances of any nature whatsoever,
an aggregate of 50,000 LLC Units in the LLC, which will represent fifty percent
(50%) of the LLC Units owned by Seller, and fifty percent (50%) of the LLC Units
owned by AFFCO, and which in the aggregate will represent fifty percent (50%) of
all outstanding LLC Units (collectively the APurchased LLC Units@).
3.2 Amount of Purchase Price. The total consideration (the
"Purchase Price") to be paid by Buyer to the Seller and to AFFCO in exchange for
the Purchased LLC Units shall be $20,505,051 (the ABase Price@) plus one-half
(1/2) of the value of the pipeline fill transferred by Seller to the LLC in
connection with the Formation Closing, as determined pursuant to the provisions
of Section 11(the ALine Fill Price@).
3.3 On the LLC Interest Closing date, the Buyer shall pay (i)
the Base Price (payable $20,300,000 to Seller and $205,051 to AFFCO); and (ii)
Buyer=s good faith estimate of the Line Fill Price, each by means of a wire
transfer of immediately available funds to an account number and depository
designated by Seller and AFFCO not less than three days prior to the LLC
Interest Closing by notice in writing to Buyer. As soon as possible after the
LLC Interest Closing, Seller and Buyer shall determine the actual Line Fill
Price. If the estimated Line Fill Price paid by Buyer to Seller on the LLC
Interest Closing date is greater than the actual Line Fill Price, Seller shall,
within five(5)days after the determination of the actual Line Fill Price, pay to
Buyer in cash the amount of the difference between the estimated Line Fill Price
paid on the LLC Interest Closing date and the actual Line Fill Price. If the
actual Line Fill Price is greater than the estimated Line Fill Price paid by
Buyer to Seller on the LLC Interest Closing date, Buyer shall, within five (5)
days after determination of the actual Line Fill price, pay to Seller in cash
the amount of the difference between the estimated Line Fill Price paid on the
LLC Interest Closing date and the actual Line Fill Price.
3.4 Tax Elections Regarding Step-Up Basis. Seller, Buyer and AFFCO
agree that, in connection with the purchase of the Purchased LLC Units by Buyer,
the LLC shall make any and all elections necessary or appropriate under any and
all state and federal taxation laws to permit Buyer to obtain the benefit of a
step-up in basis of the Acquired Assets, including elections under Sections 743
and 754 of the Code.
..5 Contemporaneous with the LLC Interest Closing, Seller,
Buyer and AFFCO shall take all actions necessary to cause said parties to
complete and execute an Amended and Restated Limited Liability Company Agreement
for the LLC in the form attached hereto of Exhibit B (Athe LLC Agreement@).
SECTION 4.Representations and Warranties of Seller and AFFCO.
Seller and AFFCO jointly and severally hereby warrant and represent to and agree
with the LLC and Buyer as follows:
. (a)Seller is a corporation duly organized, validly existing
and in good standing under the laws of the State of New York and has full power
and authority to own, lease and operate its properties and assets and to conduct
its business as now being conducted. Seller is duly qualified and in good
standing as a foreign corporation authorized to do business in the State of New
Jersey.
(b) AFFCO is a corporation duly organized, validly
existing and in good standing under the laws of the State of New York and has
full power and authority to own, lease and operate its properties and
assets and to conduct its business as now being
conducted.
..2 The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by the Board of Directors of Seller and AFFCO, and all other corporate action of
Seller and AFFCO, including all shareholder approvals, authorizations and
ratifications, necessary to authorize the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby and
thereby have been taken. This Agreement constitutes the valid and binding
obligations of Seller and AFFCO enforceable against them in accordance with its
terms. Seller and AFFCO have received the consent of all lenders, trustees or
security holders of Seller or AFFCO and all other Persons required for Seller
and AFFCO to enter into and deliver this Agreement or to consummate the
transactions contemplated hereby. Neither the Articles of Incorporation or
By-Laws of Seller or AFFCO or any Contract to which Seller or AFFCO is bound or
affecting any of its properties conflicts with or restricts the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby.
. Annexed hereto as Schedule 4.3 are copies of the Financial
Data furnished by Seller to the Buyer. The Financial Data in each case are true
and complete with respect to each item therein and fairly present the revenues,
expenses and throughput relating to the Terminal for the periods covered
thereby. Since August 31,1998, Seller has conducted its business relating to the
Terminal in a consistent manner without any material change of policy or
procedure, and there has been no occurrence of any event or any omissions, that
has resulted, or could reasonably be expected to result with the passage of time
or the giving of notice or both, in a material adverse effect on the Terminal,
the Acquired Assets or the business conducted thereat or therewith.
4.4 Competing Interests. Except as disclosed on Schedule 4.4,
to the best knowledge of Seller and its directors, neither Seller nor its
stockholders, nor any Associate (as hereinafter defined) of Seller or its
stockholders, nor, any director or officer of Seller:
owns, directly or indirectly, any equity interests in, or is a
director, officer or employee of, or consultant to, any
entity which is a competitor, supplier or customer of the
Terminal or the business of Seller operated thereat
(except for ownership, if any, of less than one percent
(1%) by value of the outstanding capital stock of any
corporation the capital stock of which is traded on a
nationally recognized securities exchange); or
owns, directly or indirectly, in whole or in part, any
property, asset or right which is associated with the
Terminal, the Acquired Assets or the business conducted
thereat or therewith or which Seller is presently
operating or using in connection with or the use of which
is necessary for or material to the operation of the
business conducted at the Terminal or with the Acquired
Assets.
For purposes of this Agreement, the term AAssociate@ means:
(x) with respect to an individual:
(i) the spouse of the individual and all ancestors
and lineal descendants of the individual and the
spouse, any trust in which the individual or any
person described in (i) above has an interest or any
trustee of such a trust, and
(i) any business entity which is directly or
indirectly Controlled by any of the foregoing; and with respect to a
Person other than a natural person, any Person Controlling, Controlled
by or under common Control
with such Person, and any director or officer of such Person.
. The records and books of account of Seller relating to the
Terminal have been regularly kept and maintained in conformity with GAAP
consistently applied.
. To Seller's knowledge, there are no Liabilities of Seller
relating to or affecting the Terminal (including, but not limited to,
Liabilities for Taxes or environmental matters relating to any prior period)
other than those Liabilities disclosed or provided for on Schedule 4.6 attached
hereto.
. The Seller is the owner of all of the Acquired Assets, and
has and will convey to the LLC good and insurable title to all real property
included in the Acquired Assets and good and marketable title to all other
property included in the Acquired Assets, in each case free and clear of all
Liens except for the Liens, if any, set forth on Schedule 4.7(a) hereto. The
Seller owns (or has the right to use pursuant to a valid lease, easement, or
license disclosed on Schedule 4.8 (c)and included in the Acquired Assets) all of
the assets used by it in the operation of the Terminal, or required by Seller
for the normal operation of the Terminal as such operation have been conducted
by Seller during the past 12 months. The Acquired Assets include all of the
assets real or personal, tangible or intangible, used in, related to or required
for, the conduct of operation of the Terminal as such operations have been
conducted by Seller during the past 12 months, except for the assets described
on Schedule 4.7 (b).
4.8 Fixed Assets; Real Property; Leased Premises
(a) Schedule A hereto sets forth a true and complete
description of all Real Property that constitutes, or is used in or necessary
for the operation of, the Terminal as it has been operated by Seller during the
past 12 months, and a true and complete list of the Acquired Assets. Except as
disclosed on Schedule 4.8 (a), each of the tangible assets included in the
Acquired Assets is in good repair and operating condition, normal wear and tear
excepted, and is currently capable of being used for its intended purpose in the
operation of the Terminal. Except as set forth on Schedule 4.8 (b), there are no
violations of any Law that affect or purport to affect any of the Acquired
Assets or any of the operations thereof. All water, utility and other charges,
sewer rent and assessments affecting the Real Property or Leased Premises or any
part thereof, and all Taxes, permit fees or charges imposed against or affecting
the Real Property or Leased Premises (to the extent payable by Seller) or any
part thereof, have been paid in full. Seller has not received notice of any
assessments, or of the commencement of any proceedings by any agency or
authority having jurisdiction seeking a Ataking@ or condemnation of all or any
part of the Terminal, and has no knowledge of any such pending assessments or
condemnation proceedings, affecting the Real Property or Leased Premises.
(b) The Real Property includes, and there will be transferred
to the LLC at the time of the Formation Closing, all of Seller's right, title
and interest, if any, in and to all strips, gores, easements, rights of way,
privileges, appurtenances, land lying in the bed of any street, road or avenue,
whether opened or proposed or in front of or adjoining the Real Property to the
center line thereof, any rights arising from damage to the Real Property or any
part thereof by reason of change of grade or closing of any street, road,
highway or avenue, underwater rights and rights of way, beach, marine
facilities, navigation markers and all rights belonging and inuring to the
benefit of the Real Property. Except as set forth on the surveys attached hereto
in Exhibit B or as on Schedules 4.7(a) or 4.8(c) the buildings, driveways and
all other structures and improvements upon the Real Property are within the
boundary lines thereof and do not encroach upon the property of any other
Persons. All Real Property shall be conveyed to the LLC by a Bargain and Sale
Deed with Covenant against Grantor=s Acts, subject only to the Liens, if any,
set forth on Schedule 4.7 (a) attached hereto.
(c) Schedule 4.8 (c) sets forth a true and complete list of
each lease of premises, easement, license or right-of-way, executed by or
binding upon Seller relating to the Terminal as lessee, sub-lessee, licensee,
tenant or assignee (the "Leased Premises") setting forth in each case a brief
description of the type of agreement, the rental payable thereunder and the term
(including any extensions available) thereunder. Except as set forth on Schedule
4.8(c), each such lease is in full force and effect on the date hereof without
any default or breach thereof by Seller or any other party thereto. Except as
set forth on Schedule 4.8(c), no consent of any landlord or any other party is
required under any such lease in order to assign each such lease to the LLC (or
its designee) and to keep such lease in full force and effect after the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby. True and complete copies of all leases
required to be listed on Schedule 4.8(c), including all amendments, addenda,
waivers and all other binding documents affecting the tenant's rights
thereunder, have heretofore been delivered to the Buyer.
(d) Except as set forth on Schedule 4.8(d) attached hereto,
within the past five years Seller has not received any notice of or writing
referring to any requirements or recommendations by any insurance company which
was issued a policy covering any part of any Real Property or Leased Premises or
by any board of fire underwriters or other body exercising similar functions,
requiring or recommending any repairs or work to be done on any part of any Real
Property or Leased Premises. All of the public utilities required for the
operation of the Real Property or Leased Premises in the manner currently
operated are installed and operating, and all installation and connection
charges have been paid in full or provided for. To the best knowledge of Seller,
except as disclosed by Seller to Buyer or that could reasonably be determined by
the Buyer in the course of its site inspections or due diligence, (i) the
plumbing, electrical, heating, air conditioning, ventilating and all other
structural or material mechanical systems in the buildings upon the Real
Property and Leased Premises or relating to tanks, pipelines, gauges, pumps,
diesel engines and other equipment are in reasonable operating condition and
repair, normal wear and tear excepted, and are adequate for the operation of the
Terminal as heretofore conducted and (ii) the roof, basement, tanks, platforms,
shore line structures, piers and foundation walls of the buildings of the Real
Property and Leased Premises are free of leaks and other defects which would
interfere with the operations of each such Real Property or Leased Premises.
(e) The rights of Seller to operate and maintain the Terminal are
subject to the permits, licenses and plans listed on Schedule 4.8(e)hereto.
. Seller does not use any Proprietary Rights in the conduct of
the Terminal. No claim has been asserted or, to Seller's knowledge, threatened,
by any Person with respect to the ownership, validity, license or use of, or any
infringement resulting from, any alleged use of Proprietary Rights by Seller at
the Terminal.
..10 Except for (a) the leases described in Schedule
4.8(c)hereto, and (b) as set forth on Schedule 4.10 hereto, Seller is not a
party to, or subject to or bound by, (and no offers are outstanding the
acceptance of which would result in a Contract binding upon Seller with respect
to the Terminal or the Acquired Assets) any of the following which relate to or
affect the Terminal or the Acquired Assets: any (i) lease; (ii) royalty,
distribution, agency, territorial or license agreement (iii) Contract (for
employment or otherwise) with any officer, employee, director or shareholder (or
any affiliate of any such officer, employee, director or shareholder) or any
professional person or firm, consultant, independent contractor or advertising
firm or agency; (iv) Contract or collective bargaining agreement with any labor
union or representative of employees; (v) Contract guaranteeing the payment or
performance of the obligations of others; (vi) Contract pursuant to which
indebtedness may be incurred; (vii) Contract limiting the freedom of Seller to
engage in any line of business or to compete with any Person; (viii) Contract
not entered into in the ordinary course of business of the Terminal; (ix)
Contract which may have, or which if canceled, modified or not transferred may
have, a potential adverse impact on the business or operations of the Terminal
or the Acquired Assets; (x) shareholders' agreement, joint venture agreement or
other Contract with respect to the operation or management of the Terminal; (xi)
Contract that places any limits or restrictions on the Acquired Assets; or (xii)
Contract that involves payments by or to Seller at a rate of $10,000 or more per
annum. Schedule 4.10 hereto contains a true and complete description of the
terms and conditions of each contract which is not in writing to which Seller is
a party or to which it is subject or by which it is bound that involves payments
by or to Seller at an annualized rate of $10,000 or more. True and complete
copies of all written Contracts (and all amendments thereto) listed on Schedule
4.10 have heretofore been delivered by Seller to the Buyer. Except as set forth
on Schedule 4.10, no Contract to which Seller is a party or to which it is
subject or by which it is bound relating to or affecting the Terminal or the
Acquired Assets requires the consent of any other Person by reason of the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby. To Seller's knowledge, each of the Contracts to which
Seller is a party or to which it is subject or by which it is bound relating to
or affecting the Terminal or the Acquired Assets (including, without limitation,
those set forth on Schedule 4.10 hereto) is a valid and subsisting Contract of
all of the parties thereto in full force and effect without modification. Seller
has performed all obligations required to be performed by it and is not in
default under any Contract to which it is a party or to which it is subject or
by which it is bound relating to or affecting the Terminal or the Acquired
Assets, and no event has occurred thereunder which, with or without the lapse of
time or the giving of notice, or both, would constitute a default by it
thereunder. Except as set forth on Schedule 4.10, to the Seller's knowledge, no
other party is in default under any such Contract. Except for matters which are
publicly available, or have been disclosed by Seller to the Buyer in this
Agreement or the Schedules annexed hereto. Seller has no knowledge of any facts
or conditions relating to the Contracts which may result in or have a material
adverse effect on or relate to the Terminal.
..11 There are no labor strikes, disputes, slow downs, work
stoppages or other labor troubles or grievances pending or, to Seller's
knowledge, threatened against or involving Seller relating to or affecting the
Terminal. No unfair labor practice complaint before the National Labor Relations
Board, no discharge or grievance before the Equal Employment Opportunity
Commission and no complaint, charge or grievance of any nature before any
similar or comparable state or local agency, in any case relating to the
Terminal or the conduct of the business at the Terminal is pending or, to
Seller's knowledge, threatened. Seller has not received notice, and has no
knowledge, of the intent of any Governmental Authority responsible for the
enforcement of labor or employment laws to conduct any investigation of or
relating to the Terminal.
..12 Except as set forth on Schedule 4.12, there are no
actions, orders or decrees (whether or not purportedly on behalf of Seller)
pending or, to the knowledge of Seller, threatened against or affecting the
Terminal or the Acquired Assets or the business conducted thereat or therewith.
Seller is not in default with respect to any order, writ, agreement, permit,
permission, injunction or decree of any Governmental Authority relating to or
affecting the Terminal or the Acquired Assets or the business conducted thereat
or therewith.
.ompliance With Law; Permits and Licenses
(a) Except as set forth on Schedule 4.13, Seller has complied
and is in compliance in all material respects with all Laws of any Governmental
Authority applicable to the Terminal or the Acquired Assets or the business
conducted thereat or therewith.
(b) Except as set forth on Schedule 4.13, Seller holds all the
permits, permissions, licenses and franchises which are necessary for or
material to its current ownership, use, occupancy or operation of the Acquired
Assets or the conduct of the business at the Terminal, which permits,
permissions, licenses and franchises are listed on Schedule 4.8(e) hereto and
which are assignable without any consents, except as set forth on such Schedule
4.8(e). To the best of Seller=s knowledge, all of such permits, permissions,
licenses and franchises, if any, are in full force and effect and the Seller is
not in default of any conditions or requirements thereto or therefor.
. From and after August 31, 1998, Seller has not (i) incurred
any Liability relating to the Terminal, except current liabilities in the
ordinary course of business and Liabilities incurred under Contracts entered
into in the ordinary course of business; (ii) sold or transferred any assets
relating to the Terminal; (iii) except in the ordinary course of business and in
accordance with normal policy of performance review and salary increases,
increased the compensation payable to any of the Terminal's employees, directors
or officers or increased the aggregate payment of any fees or granted any
bonuses; or (iv) entered into any transaction relating to or affecting the
Terminal not in the ordinary course of business or agreed (whether or not in
writing) to do any of the foregoing.
On the LLC Interest Closing date there will be no bonuses, profit
sharing, incentives, commissions or other compensation of any kind with respect
to work done prior to the LLC Interest Closing due to or expected by present or
former employees of Seller relating to the Terminal for which Buyer or the LLC
would be liable. Schedule 4.15 sets forth a true and complete list of the names
of each employee of Seller utilized in connection with the operation of the
Terminal, and Seller has delivered to Buyer a true and correct Schedule of the
current annual compensation of each such employee.
. Except as set forth on such Schedule 4.16, Seller does not have any
commitments for capital expenditures relating to the Terminal.
..17 Environmental Protection
(a) Except as set forth on Schedule 4.17 attached hereto, to
the best knowledge of Seller, Seller has obtained all permits, licenses,
permissions, consents, certificates and other authorizations which are required
with respect to its operation of the Terminal under any Environmental Laws and
all such permits, licenses, permissions, consents, certificates and other
authorizations are listed on Schedule 4.8(e) hereto. Except as set forth on
Schedule 4.17 attached hereto, to the best knowledge of Seller, Seller has
complied in all material respects with all Environmental Laws relating to or
affecting the Terminal.
(b) Except as set forth on Schedule 4.17 attached hereto, to
the best knowledge of Seller, Seller is in compliance in all material respects
with all the terms of all permits, licenses, permissions, consents and
authorizations required by any Environmental Laws, and is in substantial
compliance with all other material limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in any Environmental Laws or contained in any regulation, code, plan,
order, decree, judgment, injunction, notice or demand letter issued, entered or
approved thereunder. Except as set forth on Schedule 4.17 attached hereto, to
the best knowledge of Seller, all business conducted at the Terminal prior to
the date hereof is or was in compliance in all material respects with all
Environmental Laws applicable thereto. To the best of Seller's knowledge, Seller
has delivered to the Buyer true and complete copies of all environmental
studies, audits, assessments and reports available to Seller made in the last
ten years by or known by Seller relating to the Terminal or Assets.
(c) Except as set forth on Schedule 4.17 attached hereto,
there is no pending or, to Seller's knowledge, threatened civil, criminal or
administrative Action, demand, claim, hearing, notice of violation,
investigation, proceeding, notice or demand letter that in any material respect
affects or applies to the Terminal, its business or assets, the services it
provided or past practices at the Terminal relating in any way to any
Environmental Laws or any regulation, code, plan, order, decree, judgment,
injunction, notice or demand letter issued, entered or approved thereunder.
(d) Except as set forth on Schedules 4.12 and 4.17 attached
hereto, to the best knowledge of Seller there are and have been no past or
present (or, to the knowledge of Seller, and not otherwise disclosed to the
Buyer during its due diligence or, based on information publicly available to
the Buyer, anticipated) events of disposal, spill or release of hazardous
substances or wastes, arising out of the use of the Terminal which may interfere
with or prevent compliance or continued compliance by Seller with any
Environmental Laws or with any regulation, code, plan, order, decree, judgment,
injunction, notice or demand letter issued, entered or approved thereunder, or
which may give rise to any common law or legal liability, or otherwise form the
basis of any claim, action, demand, suit, proceeding, hearing, notice of
violation, study or investigation, based on or related to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling, or the emission, discharge, release or threatened release into the
environment, of any petroleum product, pollutant, contaminant, chemical or
industrial, toxic or hazardous substance or waste.
..18 Employee Benefits
(a) The reporting and disclosure requirements of ERISA and the
Code, as applicable, and the group health plan continuation coverage
requirements of Section 4980B of the Code and Part 6 of Title I or ERISA, with
respect to the employees of Seller have been fulfilled in all material respects.
(b) Seller contributes to the United Service Workers of
America Security Fund which is a "multiemployer plan," as such term is defined
in Section 3(37) of ERISA covering employees at the Terminal. The terms of such
contribution are set out in Article 15 of the collective bargaining agreement
set forth on Schedule 4.10.
. Except as set forth on Schedule 4.8(e) attached hereto, no
governmental authorization, approval, order, license, permit, franchise, or
consent and no notice, registration, declaration or filing by Seller or any
shareholder of Seller with any Governmental Authority is required in connection
with the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby.
. No representation or warranty by Seller contained in this Agreement,
and no statement contained in any Schedule, Exhibit, certificate or other
instrument furnished to Buyer under or in connection with this Agreement,
contains any untrue statement of any material fact, or omits to state any
material fact necessary in order to make the statements contained herein or
therein not misleading.
4.21 Purchased LLC Interests. Immediately prior to the LLC Interest
Closing, Seller and AFFCO will own all right, title and interest in and to the
Purchased LLC Units, free and clear of any liens or encumbrances of any nature
whatsoever, and the consummation of the sale of the Purchased LLC Units to Buyer
as contemplated hereby will transfer to Buyer good and marketable title to the
Purchased LLC Interests, free and clear of any liens or encumbrances of any
nature whatsoever. The Purchased LLC Units, at the time of the LLC Interest
Closing, will represent fifty percent (50%) of the interest in the LLC owned by
each of Seller and AFFCO and in the aggregate wi11 represent fifty percent (50%)
of all outstanding LLC Units. As of the time of the LLC Interest Closing, the
organizational and governing documents of the LLC will consist of only a
Certificate of Limited Liability Company(in a form, and containing such
provisions, as is approved by Buyer) and the Limited Liability Company Agreement
as set forth in Exhibit A, with such changes therein as may have been approved
in writing by the Seller and Buyer. Immediately prior to the LLC Interest
Closing, the total outstanding LLC Units will be 100,000 with 99,000 being owned
by Seller and 1,000 being owned by AFFCO. At the time of the LLC Interest
Closing, there will not exist any rights of any Person other than Buyer to
acquire any interest in the LLC (whether from the LLC or any existing owner of
the LLC), and the LLC will not have (i) any obligation to purchase or redeem any
interest in the LLC, or (ii) any obligation or liability of any nature other
than the Assumed Obligations, its obligations under this Agreement and its
obligations under the LLC Agreement. Prior to the Formation Closing, the LLC
will not have conducted any business or operations or taken any actions other
than as necessary to consummate its organization under Delaware law.
SECTION 5. Representations and Warranties of the Buyer.
5.1 Representations and Warranties of the Buyer. The Buyer
warrants and represents to and agrees with Seller as follows:
. The Buyer is a limited partnership duly organized, validly
existing and in good standing under the laws of Delaware. .
The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been
duly authorized by the general partner of the Buyer in
accordance with its partnership agreement, and all other
action of the Buyer, including all approvals, authorizations
and ratifications, necessary to authorize the execution and
delivery of this Agreement and the consummation of the
transactions contemplated hereby have been taken. This
Agreement constitutes a binding obligation of the Buyer,
enforceable against the Buyer in accordance with its terms. No
consents of any lender, trustee or security holder of the
Buyer or any other Person is required for the Buyer to enter
into and deliver this Agreement and to consummate the
transactions contemplated hereby. .ECTION 6. Condition of
Acquired Assets and Buyer=s Due Diligence 6.1 @As Is@. Except
as may be otherwise set forth in the representations and
warranties contained in Section 4 above, the Acquired Assets
are being contributed and transferred by Seller to the LLC Aas
is@, at the date of this Agreement, and in their present
physical condition subject only to natural deterioration
between the date hereof and the Formation Closing. This
Agreement, as written, contains all of the terms of the
agreement entered into between the parties as of the date
hereof, and Buyer acknowledges that Seller has made no
representations, and held out no inducements to Buyer or the
LLC, other than those herein specifically expressed. Except as
specifically stated herein, the Buyer has not relied on any
statements, representations or warranties of Seller, either
express or implied. The Seller is not liable or bound in any
manner by any verbal or written statements pertaining to the
Acquired Assets or the operation, expense, condition or income
of the Terminal, unless the same are specifically set forth
herein. Except for those representations and warranties of
Seller which are set forth in this Agreement, Buyer is
entering into this Agreement based solely upon its own
investigation and inspection and not upon any information,
data, statements or representations, written or oral as to the
physical condition, state of repair, use, cost of operation,
or any other matter related to the Acquired Assets. 6.2
Conduct of Business. From the date of this Agreement through
the LLC Interest Closing date, Seller shall, and shall cause
the LLC to, conduct the operations and business of the
Terminal in the ordinary course consistent with the operations
and business of the Terminal as it has been conducted by
Seller during the past 12 months. 6.3 Access. From the date of
this Agreement through the LLC Interest Closing date, Seller
shall provide Buyer and its representatives full and complete
access to the Acquired Assets, the Terminal and its books and
records related thereto, at all reasonable times. SECTION 7.
Conditions of Buyers' Obligations to Close. The obligations of
Buyer under this Agreement are, at the option of the Buyer,
subject to the conditions set forth below, which conditions
may be waived by the Buyer without releasing or waiving any of
its rights hereunder. 7.1 Agreements and Conditions. On or
before the LLC Interest Closing, Seller and AFFCO shall have
effected the Formation Closing and the other transactions
contemplated by Section 2.1 of this Agreement, and shall have
complied in all material respects with all covenants,
obligations and agreements required by this Agreement to be
performed or complied with by Seller or AFFCO prior to or at
the LLC Interest Closing. 7.2 Accuracy of Representations and
Warranties. Each of the representations and warranties of the
Seller and AFFCO contained in this Agreement and in any
certificate delivered to the Buyer or to the LLC pursuant
hereto shall be true and correct in all material respects on
and as of the LLC Interest Closing, with the same force and
effect as though made on and as of the LLC Interest Closing(or
on the date to which it relates, in the case of any
representation or warranty which specifically relates to an
earlier date). 7.3 Governmental Approvals; Consents. All
consents, permits, approvals, licenses or orders from any
Governmental Authority or other third party required to be
obtained for the lawful consummation of the transactions
contemplated by this Agreement (and each other agreement
delivered or to be delivered in connection herewith) shall
have been obtained (including, without limitation, those set
forth on Schedules 4.13 and 4.19). 7.4 Material Adverse
Change. From the date of the Financial Data to the date of the
LLC Interest Closing, neither Seller nor AFFCO shall not have
suffered any change which has or could have a material adverse
effect on (i) the results of operations, business or prospects
of the Terminal, (ii) the ability of the Seller or AFFCO to
consummate the transactions contemplated by this Agreement, or
(iii) the ability of the LLC to conduct its business and
operate the Terminal after the consummation of the
transactions contemplated by this Agreement. 7.5 No Actions or
Proceedings. There shall not have been any action taken, or
any statute, rule, regulation, decree, judgment, order or
injunction proposed, promulgated, enacted, issued or entered
by any Governmental Authority or judicial authority, and there
shall be no action, suit or proceeding pending or threatened
which, in the Buyer's reasonable judgment, (i) makes, or may
make, this Agreement (and each other agreement delivered or to
be delivered in connection herewith) or any of the
transactions contemplated hereby or thereby illegal or
imposes, or may impose, material damages or penalties in
connection therewith, (ii) imposes, or may result in the
imposition of, material limitations on the ability of the
Buyer effectively to exercise full rights of ownership of the
Purchased LLC Units or makes the holding by the Buyer of the
Purchased LLC Units illegal or subject to any materially
burdensome requirement or condition, (iii) imposes, or may
result in the imposition of, material limitations on the
ability of the LLC effectively to exercise full rights of
ownership over the Acquired Assets or makes the holding by the
LLC of any of the Acquired Assets illegal or subject to any
materially burdensome requirement or condition,(iv) requires,
or may require, the Buyer or any of its affiliates to cease or
refrain from engaging in any material business,(v) otherwise
prohibits, restricts or delays the consummation of the
transactions contemplated by this Agreement (and each other
agreement delivered or to be delivered in connection
herewith), (vi) increases, or may increase, in any material
respect the liabilities or obligations of the Buyer arising
out of this Agreement (and each other agreement delivered or
to be delivered in connection herewith) or any of the other
transactions contemplated hereby and thereby, or (vii)impairs,
or may impair, the contemplated benefits to the Buyer of any
of the transactions contemplated by this Agreement (and each
other agreement delivered or to be delivered in connection
herewith). 7.6 Bring-down Certificate. The Buyer shall have
received a certificate from each of Seller and AFFCO, executed
by an executive officer of the each of Seller and AFFCO and
dated the date of the LLC Interest Closing, satisfactory in
form and substance to the Buyer and its counsel, certifying as
to the satisfaction by such parties of the conditions set
forth in Sections 7.1 and 7.2 hereof. 7.7 Good Standing
Certificates. The Buyer shall have received certificates
issued by the appropriate Governmental Authorities evidencing,
as of a recent date, the existence and good standing of (i)
each of the Seller and AFFCO in its jurisdiction of
incorporation and in the jurisdictions in which it is
qualified to do business, and (ii) the LLC in its jurisdiction
of formation and in the jurisdictions in which it is qualified
to do business. 7.8 Certified Charter Documents. The Buyer
shall have received a copy of the Certificate of Limited
Liability Company of the LLC, certified by the appropriate
Governmental Authorities. 7.9 Matters Satisfactory to the
Buyer's Counsel. All actions, proceedings, opinions and
ancillary documents required or incidental to the consummation
of the transactions contemplated by this Agreement (and each
other agreement delivered or to be delivered in connection
herewith), and all legal matters related thereto, shall be
reasonably satisfactory to counsel for the Buyer. 7.10 Due
Diligence. All due diligence (financial, legal or otherwise)
reviews of the Seller, the Terminal, the Acquired Assets and
the LLC shall have been completed and shall be satisfactory to
the Buyer and its counsel. 7.11 Corporate Action. All
corporate or other actions necessary to authorize (i) the
execution, delivery and performance by each of the Seller and
AFFCO of this Agreement (and each other agreement delivered or
to be delivered in connection herewith) and (ii) the
consummation of the transactions contemplated hereby and
thereby, shall have been duly and validly taken by the Seller
and AFFCO respectively, and shall be in full force and effect.
7.12 Secretary's Certificate. The Buyer shall have received
from the Seller and AFFCO a certificate, executed by the
Secretary or an Assistant Secretary of the Seller and AFFCO
and dated the date of the LLC Interest Closing, with respect
to the accuracy and completeness of the resolutions adopted by
the Board of Directors of the Seller and AFFCO authorizing
this Agreement(and each other agreement delivered or to be
delivered in connection herewith) and the consummation of the
transactions contemplated hereby and thereby. 7.13 Title
Reports. Prior to the date of the LLC Interest Closing, the
LLC shall have obtained, at the LLC=s expense, a commitment
for an owner's policy of title insurance for each of the
parcels of land comprising the Real Property, in which the
title insurance company issuing said commitment shall agree to
insure, without extra premium, title to such Real Property by
a standard ALTA Form with such endorsements as may be
reasonably acceptable to the Buyer, including, without
limitation, easements and appurtenances thereto, free and
clear of all leases, tenancies, rights or claims of occupancy
by others, Contracts, mortgages, Liens and other evidences of
indebtedness, except as set forth on Schedule 4.7 (a) or
approved by the Buyer and except for liens for taxes not due
and payable on the Closing Date. Within ten (10) days of
receipt of final title reports and surveys for all the real
property, the Buyer shall notify Seller of any matters which
render the title to any Real Property unsatisfactory to the
Buyer. 7.14 FIRPTA Affidavit. Buyer shall have received from
Seller all necessary certificates and notices pursuant to
Section 1445 of the Code to the effect that Seller is not a
foreign corporation or a "United States Real Property Holding
Corporation." 7.15 Antitrust Improvements Act. If applicable,
the thirty day waiting period required by the HSR Act shall
have expired or been terminated without a request from any
appropriate governmental agency for additional information or,
if additional information has been requested, the twenty day
extended waiting period shall have expired and no party shall
have received any notice from the Federal Trade Commission or
the Department of Justice that the transactions contemplated
by this Agreement violate Section 5 of the Federal Trade
Commission Act or Section 7 of the Clayton Act. 7.16
Deliveries. Buyer and the LLC shall have respectively received
the deliveries to be made by Seller and AFFCO pursuant to
Sections 9, 10.8 and 10.9. All consents shall have been
obtained and the LLC shall have received all permits,
permissions, licenses, approvals and authorizations necessary
to enable it to own and operate the Acquired Assets. 7.17
Product Storage Agreement. Buyer and the LLC have received a
duly executed Product Storage Agreement substantially in the
form set out in Schedule 8.8 providing Seller with tankage at
the Linden Terminal. 7.18 LLC Agreement. Buyer shall have
received an LLC Agreement duly executed and delivered by
Seller and AFFCO. SECTION 8. Conditions of the Seller's
Obligations to Close. The obligations of Seller under this
Agreement are, at the option of Seller, subject to the
following express conditions, which conditions may be waived
by Seller without releasing or waiving any of its rights
hereunder. 8.1 Agreements and Conditions. On or before the LLC
Interest Closing, Buyer shall have complied in all material
respects with all covenants, obligations and agreements
required by this Agreement to be performed or complied with by
Buyer prior to or at the LLC Interest Closing. 8.2 Accuracy of
Representations and Warranties. Each of the representations
and warranties of the Buyer contained in this Agreement and in
any certificate delivered to the Seller pursuant hereto shall
be true and correct in all material respects on and as of the
date of the LLC Interest Closing, with the same force and
effect as though made on and as of the date of the LLC
Interest Closing (or on the date to which it relates, in the
case of any representation or warranty which specifically
relates to an earlier date). 8.3 Governmental Approvals;
Consents. All consents, permits, approvals, licenses or orders
from any Governmental Authority or other third party required
to be obtained for the lawful consummation of the transactions
contemplated by this Agreement (and each other agreement
delivered or to be delivered in connection herewith) shall
have been obtained. 8.4 No Actions or Proceedings. There shall
not have been any action taken, or any statute, rule,
regulation, decree, judgment, order or injunction proposed,
promulgated, enacted, issued or entered by any Governmental
Authority or judicial authority, and there shall be no action,
suit or proceeding pending or threatened which, in the
reasonable judgment of the Seller, (i) makes, or may make,
this Agreement (and each other agreement delivered or to be
delivered in connection herewith) or any of the transactions
contemplated hereby or thereby illegal or imposes, or may
impose, material damages or penalties in connection
therewith,(ii) otherwise prohibits, restricts or delays the
consummation of the transactions contemplated by this
Agreement (and each other agreement delivered or to be
delivered in connection herewith),(iii) increases, or may
increase, in any material respect the liabilities or
obligations of such party arising out of this Agreement (and
each other agreement delivered or to be delivered in
connection herewith) or any of the other transactions
contemplated hereby and thereby, or (iv) impairs, or may
impair, the contemplated benefits to the Seller of any of the
transactions contemplated by this Agreement (and each other
agreement delivered or to be delivered in connection
herewith). 8.5 General Partner's Certificate. The Seller shall
have received from the Buyer a certificate, executed by its
general partner and dated the date of the LLC Interest
Closing, satisfactory in form and substance to the Seller and
its counsel, certifying as to the satisfaction of the
conditions set forth in Sections 8.1 and 8.2 hereof. 8.6
General Partner's Certificate of Authorization. The Seller
shall have received from the Buyer a certificate, executed by
the general partner of the Buyer, dated the date of the LLC
Interest Closing, with respect to the accuracy and
completeness of the resolutions adopted by the general partner
of Buyer authorizing this Agreement (and each other agreement
delivered or to be delivered in connection herewith) and the
consummation of the transactions contemplated hereby and
thereby. 8.7 Antitrust Improvements Act. If applicable, the
thirty day waiting period required by the HSR Act shall have
expired or been terminated without a request from any
appropriate governmental agency for additional information or,
if additional information has been requested, the twenty day
extended waiting period shall have expired and no party shall
have received any notice from the Federal Trade Commission or
the Department of Justice that the transactions contemplated
by this Agreement violate Section 5 of the Federal Trade
Commission Act or Section 7 of the Clayton Act. 8.8 Product
Storage Agreement. Seller shall have received a duly executed
Product Storage Agreement substantially in the form set out in
Schedule 8.8 providing Seller with tankage at the Linden
Terminal. 8.9 Deliveries. Seller shall have received the
deliveries to be made by Buyers pursuant to Sections 10.1 and
---------- 10.2 of this Agreement. 8.10 LLC Agreement. Seller
shall have received an LLC Agreement duly executed and
delivered by Buyer. . Seller agrees at the Formation Closing
to deliver to the LLC and Buyer as appropriate, the following:
. All conveyances, covenants, warranties, deeds, assignments,
bills of sale, confirmations, powers of attorney, approvals,
consents and any and all further instruments as may be
necessary, expedient or proper in order to complete any and
all conveyances, transfers and assignments provided for herein
and to convey to the LLC such title to the Acquired Assets as
Seller is obligated hereunder to convey as described in
Sections 4.7 and 4.8. . All Consents required in connection
with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby. . Good
Standing Certificates, dated as of a recent date, from (i) the
Secretary of State of the State of New York, showing Seller
and AFFCO to be in existenance and good standing in New York,
Seller's and AFFCO=s jurisdiction of incorporation and (ii)
from the Secretary of State of the State of New Jersey,
showing Seller to be authorized to conduct business in New
Jersey. . A certificate of the Secretary or an Assistant
Secretary of each of Seller and AFFCO, in form and substance
reasonably satisfactory to the Buyer and the Buyer's title
insurer, setting forth a copy of the resolutions adopted by
the Board of Directors of Seller and AFFCO authorizing and
approving the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby. .
Possession of the Acquired Assets, including all books,
records, Contracts and other documents relating to the
Acquired Assets, required to be delivered hereunder. . Such
other documents or instruments as Buyer or the LLC or their
counsel may reasonably request. .ECTION 10. Deliveries of
Buyer, Seller, AFFCO and the LLC at the LLC Interest Closing
A. The Buyer agrees at the LLC Interest Closing to deliver to
Seller the following: . The Purchase Price to be delivered
pursuant to paragraph 3.3 hereof. 10.2 Certificate. A
certificate of the general partner of the Buyer setting forth
a copy of the resolutions adopted by the general partner of
Buyer authorizing and approving the execution and delivery of
this Agreement and the consummation of the transactions
contemplated hereby. . Such other documents or instruments as
Seller and AFFCO may reasonably request. The LLC agrees at the
LLC Interest Closing to deliver the following: . Duly executed
certificates and an LLC Agreement and such other documents or
instruments representing or in connection with the LLC
Interests to each of the Seller, AFFCO and the Buyer. . Such
other documents or instruments as either of the Buyer, the
Seller or AFFCO may reasonably request. 10.6 Product Storage
Agreement. A duly executed Product Storage Agreement
substantially in the form set out in Schedule 8.8 providing
Seller with tankage at the Linden Terminal. C. Seller and
AFFCO agree on the LLC Interest Closing to deliver the
following: 10.7 LLC Units Transfer. Such transfer documents as
Buyer may reasonably require to transfer the Purchased LLC
Units to Buyer as contemplated hereby. 10.8 Other Deliveries.
Such other documents or instruments as either of the Buyer or
LLC may reasonably request, including an executed Product
Storage Agreement substantially in the form set out in
Schedule 8.8. .ECTION 11. Additional Covenants .1.1 Contents
Report; Inventory List (a) Buyer and Seller shall conduct a
reconciliation of all pipeline fill and product stored at the
Linden Terminal (whether contained in storage or utilized as
line-fill) on the LLC Interest Closing date(the ACut-Off
Date@). At that time, an independent inspector, whose
selection shall be mutually agreed upon by the parties hereto
(the AInspector@), shall conduct a physical audit of the
amount, type and quality of product contained in each storage
tank and line at the Linden Terminal. Buyer and Seller shall
each designate a single representative to accompany the
Inspector during the course of the audit. The Inspector shall
conduct the tests described in the Inspection Schedule
attached hereto as Schedule 11. The fees and expenses of the
Inspector will be shared equally by Buyer and Seller. During
the audit, the storage tanks and lines are to be gauged in
accordance with standard industry practice. Seller shall
produce a book inventory of customer product at the Linden
terminal as of the Cut-Off Date. The results of such audit
(AReconciliation Audit@) will be provided to Buyer and Seller
promptly following the date of the LLC Interest Closing.
Seller, with the participation of Buyer, will reconcile ABook
to Physical@ for each customer and confirm the account of each
customer by letter in a form to be agreed to by the parties
with each customer. Seller will keep a true and correct record
of any changes in the customer inventory from the date of the
Reconciliation Audit to the time of the LLC Interest Closing
(AFinal Monitoring@). Any changes noted in the Final
Monitoring will be confirmed with the relevant customers in a
follow-up letter similar to the letter in the form of letter
referred to above. If the Reconciliation Audit and Final
Monitoring determine that the quantity of product as described
in the books and records of Seller as of the LLC Interest
Closing is either greater or less than the quantity of product
as determined by the Inspector in the course of the physical
audit, any shortfall or overage in the amount of product will
be entirely for the account of the Seller, and Seller shall
settle any disputes or differences with its customers
resulting from such shortfalls or overages. Seller will use
its best efforts to reach any such settlement within 30 days
after Closing and will keep Buyer appraised of the status of
such efforts. (b) At the time of the Reconciliation Audit the
Inspector will take (and appropriately label) representative
samples of product from each of the tanks and, possible, all
pipelines. The Inspector shall retain such samples for a
period of one (1) year from the LLC Interest Closing. The
retained samples, together with the tests described in
Schedule 11, shall be conclusive as between the parties as to
the quality of the product stored at the Linden Terminal as of
the LLC Interest Closing. If the samples and/or the tests as
appropriate reflect any degradation of product quality as of
the LLC Interest Closing, any liability associated therewith
shall be for the account of the Seller, who shall settle any
dispute or differences with its customers related thereto. Any
product degradation occurring after the LLC Interest Closing
will be for the account of the LLC. (c) Seller represents to
Buyer and the LLC that the pipeline fill contained in the
Terminal pipelines was owned by Seller prior to the Formation
Closing as inventory and is included in the Acquired Assets.
Buyer and Seller agree that the amount and type of such
pipeline fill shall be determined based on the report of the
independent inspector as set forth above, and that the value
of such pipeline fill shall be determined by Buyer and Seller
as soon as possible after the LLC Interest Closing, the value
as so determined will be used to calculate the final Line Fill
Price based on prices equal to the mean New York Harbor
product prices published in Platts Oilgram plus any applicable
taxes as of the LLC Interest Closing. 11.2 Sellers Employees.
Seller agrees that it will terminate the employment of all its
employees at the Terminal, it being understood that the LLC
either directly or through an affiliate of the Buyer will
offer to employ a substantial number of such employees on
substantially the same terms as they are presently employed by
Seller. In addition, on the LLC Interest Closing, Seller shall
assign and the LLC either directly or through an affiliate of
the Buyer shall assume, the collective bargaining agreement
set forth on Schedule 4.10 except for matters contained
therein relating to the pension plans, which shall be the
subject of collective bargaining between the LLC directly or
an affiliate of the Buyer and Local 355 of the Service
Employees International Union (ASEIU@). The foregoing
provision shall be subject to good faith collective bargaining
having been successfully completed between the assuming party
and Local 355-SEIU as to matters not expressly addressed in
the collective bargaining agreement set forth on Schedule
4.10. . Seller will cooperate with Buyer and the LLC, and
Seller will use its best efforts to have the officers,
directors and other employees of Seller cooperate with Buyer
and the LLC, at the LLC's or the Buyer's request and at the
Seller=s expense, on and after the LLC Interest Closing, in
furnishing information, evidence, testimony and other
assistance in connection with any actions, proceedings,
arrangements or disputes involving the Seller and/or Buyer or
the LLC and based upon contracts, arrangements, commitments or
acts of Seller which were in effect or occurred on or prior to
the Formation Closing (collectively AThird Party Disputes@).
Provided, however, that in the event such Third Party Dispute
arises out of or is related to actions (other than actions of
Seller and its affiliates), which occur subsequent to the LLC
Interest Closing, then all of Seller=s reasonable expenses
incurred hereunder should be reimbursed by the LLC. After the
Formation Closing, Seller agrees that Buyer and the LLC shall
have the right for any proper purpose to inspect and make
copies of any books, records and files in its possession
relating to the business, assets or operations of the Terminal
prior to the Formation Closing. . Seller agrees that it will
promptly transfer and deliver to the LLC any cash or other
property that Seller may receive in respect of any receivables
or other items to which the LLC is entitled by reason of this
Agreement. Seller agrees to deliver to the LLC promptly upon
receipt any mail, checks or other documents received by it to
which the LLC is entitled by reason of this Agreement
pertaining to the Acquired Assets or otherwise to the
Terminal, as conducted by the LLC, or any of the Assumed
Liabilities. The LLC shall agree to deliver to Seller any
mail, cash, or other receivables or other items which it
receives to which it is not entitled by reason of this
Agreement or otherwise and to which Seller is entitled. .
Buyer, Seller and AFFCO agree at any time and from time to
time after the Formation Closing, upon the request of any
other party, that they shall, and shall cause the LLC to, do,
execute, acknowledge and deliver, or to cause to be done,
executed, acknowledged and delivered, all such further acts,
assignments, transfers, powers of attorney and assurances as
may be required for the better assigning, transferring,
conveying and confirming to the other party, or to its
successors and assigns, of any or all of the Acquired Assets
or the Purchased LLC Units and to carry out the terms and
conditions of this Agreement; provided, however, that each
party shall pay its own expenses incurred in connection
therewith. .ECTION 12. Indemnification . Seller agrees to
indemnify Buyer and the LLC against and hold them harmless
from any and all Damages which Buyer or the LLC may sustain at
any time by reason of any of the following, whether contingent
or absolute, direct or indirect, known or unknown, matured or
unmatured and regardless of when discovered or asserted: (i)
noncompliance with any applicable bulk sales or transfer law,
(ii) any Liability or Contract of, or claim against,
Seller,(including but not limited to Liabilities for Taxes),
that are not Assumed Obligations, (iii) any Liability or claim
made by a third party (including any Government Authority)
arising in any way from any product manufactured or sold, or
service rendered, or action taken or omitted by, or relating
to the operations of, Seller, the Terminal or the Acquired
Assets on or prior to the LLC Interest Closing, (iv) any
Liability or claim (including remedial, removal, response,
abatement, clean-up, investigation and monitoring costs and
any other related costs and expenses) under any Environmental
Laws or environmental permits or with respect to any Hazardous
Material or waste relating to or resulting from any event,
action or failure to act which occurred on or prior to the LLC
Interest Closing, including, without limitation, those listed
on Schedule 4.17 attached hereto, or (v) the breach of or
failure to comply with any of the warranties, representations,
conditions, covenants or agreements of Seller contained in
this Agreement or in any agreement or document delivered
pursuant hereto or in connection herewith, or arising out of
the consummation of the transactions contemplated hereby. . In
connection with the Formation Closing, and thereafter the LLC
shall agree, to indemnify and hold Seller harmless from and
against any and all Damages which Seller may sustain at any
time by reason of any Assumed Obligation, or the LLC's
ownership or operation of the Terminal after the LLC Interest
Closing. 12.3 Indemnification by the Buyer. Buyer agrees to
indemnify and hold Seller harmless from and against any and
all Damages which Seller may sustain at any time by reason of
the breach of or failure to comply with any warranties,
representations, conditions, covenants or agreements of or by
Buyer contained in this Agreement or in any agreement,
certificate or document delivered pursuant to or in connection
with this Agreement or arising out of the consummation of the
transactions contemplated hereby. . In the event that any
claim is asserted against any party hereto, or any party
hereto is made a party defendant in any action or proceeding,
and such claim, action or proceeding involves a matter which
is the subject of this indemnification, then such party (an
"Indemnified Party") shall give written notice to the other
party hereto (the "Indemnifying Party") of such claim, action
or proceeding, and such Indemnifying Party shall have the
right to join in the defense of said claim, action or
proceeding at such Indemnifying Party's own cost and expense
and, if the Indemnifying Party agrees in writing to be bound
by and to promptly pay the full amount of any final judgment
from which no further appeal may be taken and if the
Indemnified Party is reasonably assured of the Indemnifying
Party's ability to satisfy such agreement, then at the option
of the Indemnifying Party, such Indemnifying Party may take
over the defense of such claim, action or proceeding, except
that, in such case, the Indemnified Party shall have the right
to join in the defense of said claim, action or proceeding at
its own cost and expense. Any indemnification obligation
contained herein shall also include the obligation to
indemnify the Indemnified Party with respect to any amounts
expended by the Indemnified Party to enforce and collect on
its indemnification rights, including legal fees and expenses.
The parties agree to consult and cooperate reasonably with
each other and their respective consultants, professionals or
other experts, if any in connection with the joint defense of
any indemnified obligation hereunder, or in connection with
any investigations or settlement proceedings relating to such
matters. 12.5 Right of Setoff. Each Indemnified Party may
offset any amounts to which it is entitled to indemnity
hereunder against any amounts owed by the Indemnified Party to
the Indemnifying Party. .ECTION 13. Survival of
Representations; Effect of Certificates 13.1 Survival
Representations. The parties hereto agree that all
representations, warranties, covenants, conditions and
agreements contained herein or in any instrument or other
document delivered pursuant to this Agreement or in connection
with the transactions contemplated hereby shall survive the
execution and delivery of this Agreement, the consummation of
the transactions contemplated hereby and any investigation or
audit made by any party hereto. 13.2 Effect of Certificates.
Each statement contained in any certificate delivered in
connection with this Agreement or the consummation of the
transactions contemplated hereby shall constitute the
representation, warranty and agreement of the party delivering
such certificate and shall have the same force and effect as
if it had been incorporated into this Agreement as a
representation, warranty and agreement by such party. . No
part of the fees and disbursements of the counsel, accountants
or auditors retained by any party in connection with the
negotiation, preparation, execution and performance of this
Agreement shall be paid or assumed by any other party, it
being the intent of the parties that each party shall bear
such fees. . Buyer, on the one hand, and Seller, on the other
hand, each represents to the other that no broker or finder
has been involved with any of the transactions relating to
this Agreement. In the event of a claim by any broker or
finder that such broker or finder represented or was retained
by Seller, on the one hand, or Buyer, on the other hand, in
connection herewith, Seller or Buyer, as the case may be,
agrees to indemnify and hold the other harmless from and
against any and all loss, liability, cost, damage, claim and
expense, including, without limitation, attorneys' fees and
disbursements, which may be incurred in connection with such
claim. . All notices, requests, demands and other
communications provided for by this Agreement shall be in
writing and shall be deemed to have been given when hand
delivered to the person to receive such notice, or when
received if sent by telecopier or by same day or overnight
recognized commercial courier service or by certified, return
receipt requested, United States mail, at the address of the
parties stated below or to such changed address as such party
may have fixed by notice: To Seller: Northville Industries
Corp. and AFFCO 25 Melville Park Road Melville, NY 11747
Attention: Peter J. Ripp Telecopier: 516-753-4253
with a copy to: Northville Industries Corp.
25 Melville Park Road
Melville, NY 11747
Attn: Elizabeth Ann McConaghy, Esq.
Telecopier: 516-753-4253
and Herzfeld & Rubin, P.C.
40 Wall Street
New York, NY 10025
Attention: Harry Braunstein, Esq.
Telecopier: 212-344-3333
To Buyer: Support Terminal Operating Partnership, L.P.
2435 North Central Expressway
Suite 700
Richardson, Texas 75080-2731
Attention: Edward D. Doherty
Chairman & Chief
Executive Officer
Telecopier: 972-699-1894
with a copy to: Mr. Fred Johnson
President
Support Terminal Services, Inc.
17304 Preston Road, Suite 1000
Dallas, Texas 75252
Telecopier: 972-931-6526
and Fulbright & Jaworski
2200 Ross Avenue, Suite 2800
Dallas, Texas 75201
Attention: Kenneth L. Stewart
Telecopier: 214-855-8200
To the LLC TO ALL PARTIES SET FORTH ABOVE
AS PROVIDED
provided, that any notice of change of address shall be effective only upon
receipt.
.ECTION 17. Miscellaneous
. This Agreement, including the Exhibits and Schedules hereto, sets
forth the entire agreement and understanding among Seller, AFFCO and the Buyer
with respect to the transactions contemplated hereby and merges and supersedes
all prior discussions, agreements and understandings of every kind and nature
among them as to the subject matter hereof, and no party shall be bound by any
condition, definition, warranty or representation other than as expressly
provided for in this Agreement or as may be on a date on or subsequent to the
date hereof duly set forth in writing signed by each party which is to be bound
thereby. Unless otherwise expressly defined, terms defined in this Agreement
shall have the same meanings when used in any Exhibit or Schedule and terms
defined in any Exhibit or Schedule shall have the same meanings when used in the
Agreement or in any other Exhibit or Schedule. This Agreement (including the
Exhibits and Schedules hereto) shall not be changed, modified or amended except
by a writing signed by each party to be charged and this Agreement may not be
discharged except by performance in accordance with its terms or by a writing
signed by each party to be charged.
. Transfer taxes payable to the state of New Jersey on the sale or
transfer of the Real Property contemplated hereby, if any, shall be paid by
Seller.
. THIS AGREEMENT AND ITS VALIDITY, CONSTRUCTION AND PERFORMANCE SHALL
BE GOVERNED IN ALL RESPECTS BY THE LAWS OF NEW YORK, WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAWS, EXCEPT FOR THE PROVISIONS OF THIS AGREEMENT
WHICH RELATE TO THE TRANSFER OF THE REAL PROPERTY, WHICH SHALL BE GOVERNED BY
NEW JERSEY REAL PROPERTY LAW AND EXCEPT FOR MATTERS RELATING TO THE LLC
INTERESTS TO THE EXTENT GOVERNED BY THE DELAWARE LIMITED LIABILITY COMPANY ACT.
. This Agreement shall be binding upon and shall inure to the benefit
of the Buyer, AFFCO and Seller and their respective successors and permitted
assigns. Prior to LLC Interest Closing, the Agreement may not be assigned by
Seller, AFFCO or the Buyer except with the prior written consent of the other
parties; provided, however, that without Seller's or AFFCO=s consent, the Buyer
may assign this Agreement and its rights and obligations hereunder to any
subsidiary or affiliate of the Buyer. Except as expressly provided herein and
for all rights and benefits which shall inure to the Buyer or the LLC, nothing
herein contained shall confer or is intended to confer on any third party or
entity which is not a party to this Agreement any rights under this Agreement.
. Whenever the context requires, the use in this Agreement of a pronoun
of any gender shall be deemed to refer also to any other gender, and the use of
the singular shall be deemed to refer also to the plural.
. Seller and the Buyer agree that they will consult with each other
before issuing any press releases or otherwise making any public statements with
respect to this Agreement or the transactions contemplated hereby and shall not
issue any press release or make any public statement prior to such consultation,
except as may be required by law.
. The headings in the sections, paragraphs, Schedules and Exhibits of
this Agreement are inserted for convenience of reference only and shall not
constitute a part hereof. The words "herein," "hereof," "hereto" and hereunder,"
and other words of similar import refer to this Agreement as a whole and not to
any particular provision of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed on the day and year first above written.
NORTHVILLE INDUSTRIES CORP.
By:
Name:
Title:
AFFCO CORP.
By: ___________________________
Name:
Title:
SUPPORT TERMINAL OPERATING
PARTNERSHIP, L.P.
By:
Name:
Title:
CONFORMED COPY
DATED 26TH JANUARY 1999
AGREEMENT
relating to the sale and purchase of certain GATX UK Terminals Assets
GATX TERMINALS LIMITED (1)
ST SERVICES LTD. (2)
ST EASTHAM LTD. (3)
GATX TERMINALS CORPORATION (4)
SUPPORT TERMINALS OPERATING PARTNERSHIP, L.P. (5)
KANEB PIPE LINE PARTNERS, L.P. (6)
LAWRENCE GRAHAM
190 Strand,
London WC2R 1JN
Tel: 0171-379 0000
Fax: 0171-379 6854
Ref.: JR/G2086/67
<PAGE>
CONTENTS
No. Heading Page
1. DEFINITIONS AND INTERPRETATION............................................8
2. ASSETS TO BE SOLD........................................................18
3. CONSIDERATION............................................................19
4. PAYMENT DUE ON COMPLETION................................................20
5. CONDITIONS PRECEDENT.....................................................21
6. COMPLETION...............................................................24
7. COMPLETION STATEMENT.....................................................26
8. ACTION PENDING THE COMPLETION DATE.......................................27
9. TITLE AND RISK...........................................................29
10. PERMITS.................................................................30
11. CONTRACTS...............................................................31
12. TANK AUDIT..............................................................32
13. MUTUAL INDEMNITY........................................................33
14. EMPLOYEES...............................................................33
15. ENVIRONMENTAL...........................................................35
16. THE VENDOR'S RECEIVABLES................................................37
17. NAMES AND SIGNAGE.......................................................38
18. POST-COMPLETION ACCESS AND SERVICES.....................................38
19. VAT ....................................................................39
20. REPRESENTATIONS AND WARRANTIES..........................................41
21. LIMITATIONS ON LIABILITY................................................43
22. GUARANTEES AND INDEMNITIES..............................................45
23. KANEB, STOP AND PURCHASER'S WARRANTIES..................................46
24. ASSIGNMENT..............................................................47
25. WAIVER..................................................................48
26. NATURE OF AGREEMENT.....................................................48
27. COSTS...................................................................48
28. ANNOUNCEMENTS...........................................................48
29. CONFIDENTIALITY.........................................................49
30. FURTHER ASSURANCE.......................................................50
31. LAW AND JURISDICTION....................................................50
32. NOTICES.................................................................50
33. VARIATIONS..............................................................53
34. COUNTERPARTS............................................................53
<PAGE>
SCHEDULE 1 - TERMINALS
SCHEDULE 2 - EXCLUDED ASSETS
SCHEDULE 3 - COMPLETION STATEMENT
SCHEDULE 4 - THE WARRANTIES
SCHEDULE 5 - GTC GUARANTEES
SCHEDULE 6 - EMPLOYEES
SCHEDULE 7 - ENGLISH FREEHOLD AND LEASEHOLD SCHEDULE
SCHEDULE 8 - SCOTTISH LEASEHOLD SCHEDULE
SCHEDULE 9 - N.I. LEASEHOLD SCHEDULE
SCHEDULE 10 - PERMITS
SCHEDULE 11 - CUSTOMER CONTRACTS
SCHEDULE 12 - HIRE EQUIPMENT
SCHEDULE 13 - SUPPLIER CONTRACTS
SCHEDULE 14 - THIRD PARTY EQUIPMENT
SCHEDULE 15 - ESCROW TERMS
SCHEDULE 16 - BILLING PROCEDURES
SCHEDULE 17 - POST-COMPLETION SERVICES
SCHEDULE 18 - SOFTWARE APPLICATIONS
APPENDIX A - DATA ROOM INDEX
APPENDIX B - ASSIGNMENT CONTRACT
APPENDIX C - PRO FORMA SUB-CONTRACT
APPENDIX D - INSPECTION SCHEDULE (EASTHAM PRODUCT TESTING)
APPENDIX E - RUNCORN TANK 3 REPAIRS SCOPE OF WORK
APPENDIX F - ENGLISH PROPERTY DOCUMENTS
APPENDIX G - ENGLISH DEED OF INDEMNITY
APPENDIX H - MAIDENHEAD LICENCE TO UNDERLET AND UNDERLEASE
APPENDIX I - MURCO DEED OF RELEASE
APPENDIX J - SCOTTISH PROPERTY DOCUMENTS
APPENDIX K - NORTHERN IRELAND PROPERTY DOCUMENTS
APPENDIX L - BELFAST AGREEMENT FOR LEASE (DRAFT LEASE ATTACHED)
APPENDIX M - NORTHERN IRELAND DEED OF INDEMNITY
APPENDIX N - MANCHESTER SHIP CANAL LICENCES AND AGREEMENT
APPENDIX O - PROPERTY BUNDLE
APPENDIX P - RAILTRACK HEADS OF TERMS
<PAGE>
THIS AGREEMENT is made 26TH JANUARY 1999
BETWEEN:
(1) GATX TERMINALS LIMITED whose registered office is at Nicholson House,
High Street, Maidenhead, Berkshire SL6 1LQ, England ("the Vendor");
(2) ST SERVICES LTD. (No. 3618750) whose registered office is at 5 Appold
Street, London EC2A 2HA ("the Purchaser");
(3) ST EASTHAM LTD. (No. 3619979) whose registered office is at 5 Appold
Street, London EC2A 2HA ("Eastham Terminal Purchaser");
(4) GATX TERMINALS CORPORATION of 500 West Monroe Street, Chicago,
Illinois 60661, USA ("GTC");
(5) SUPPORT TERMINALS OPERATING PARTNERSHIP of 17304 Preston Road, Suite
1000, Dallas, Texas,
75252 USA ("STOP"); and
(6) KANEB PIPE LINE PARTNERS, L.P. of 2453 North Central Expressway, Suite
700, Richardson, Texas 75080-2731, USA ("Kaneb").
WHEREAS:
(A) The Vendor owns certain freehold and leasehold interests in the
Terminals (as hereinafter defined) and the businesses carried on at or
in relation to the Terminals and the Vendor has agreed to transfer its
interest in the Terminals and the Business (as hereinafter defined) to
the Purchaser subject to and upon the terms of this Agreement.
(B) GTC is the parent company of the Vendor and has entered into this
Agreement at the request of the Purchaser to guarantee the Warranties
(as hereinafter defined) and the performance of the obligations of the
Vendor subject to and upon the terms of this Agreement.
(C) STOP is the parent company of the Purchaser and Kaneb is the ultimate
parent company of STOP and the ultimate parent company of the
Purchaser, and each of STOP and Kaneb has entered into this Agreement
at the request of the Vendor to guarantee the warranties and the
performance of the obligations of the Purchaser subject to and upon the
terms of this Agreement.
NOW IT IS AGREED as follows:
<PAGE>
1. DEFINITIONS AND INTERPRETATION
1.1 In this Agreement (including the Recitals and Schedules hereto) the
following words and expressions shall, where the context so admits,
have the following respective meanings:
"Advanced Billings" the aggregate of all advanced billings and
other payments (exclusive of VAT) due to or received by the
Vendor in respect of any obligations of the Business
committed to in the ordinary course of trading prior to the
Completion Date but to be performed after the Completion
Date;
"Agreement" this contract made between the Vendor, the Purchaser,
the Eastham Terminal Purchaser, GTC, STOP and Kaneb for the
sale and purchase of the Business and the Assets;
"Assets" the Terminals, the I.T. Systems, the Contracts, the
Goodwill, the Vendor's Fixtures and Fittings, the Vendor's
Chattels, and all other property, rights and assets of the
Vendor used in the Business (other than the Excluded Assets)
described in Clause 2;
"Assignable Key Permits" those permits listed in Part A of
Schedule 10;
"Assumed Liabilities" amounts which will fall due for payment to
creditors of the Vendor in relation to the Business but
which are not yet payable as at the Completion Date (with
the exception of all amounts which will fall due for payment
under any of the Leases) and other accruals;
"Books and Records" the lists of customers and suppliers,
financial and tax records, manuals and operating procedures,
and all other records relating to the Business on whatsoever
medium they are stored (unless otherwise provided in this
Agreement), including the right and licence to use the same
for the purposes of the Business;
"Business" the business carried on at the date of this Agreement
by the Vendor at the Terminals being the business of the
storage of bulk liquids and related activities;
"Business Day" a day other than a Saturday on which banks are
open for business in England;
"CashFloat" the sum of the cash floats held by the Vendor at
each Terminal on the Completion Date;
"CHAPS" clearing houses automated payment system;
"Completion" completion of the sale and purchase of the Business
and the Assets in accordance with the provisions of Clause
6;
"Completion Date" 00.01 hours on Monday 1st February 1999, or
such other date as the parties may agree;
"Completion Statement" the statement to be prepared and delivered
in accordance with the provisions of Clause 7;
"Conditions Precedent" the conditions specified in Clause 5.1;
"Consideration" the consideration for the sale of the Business
and the Assets as described in Clause 3;
"Contaminated Land Regime" the liability regime in respect of
contaminated land whensoever brought into force pursuant to
the provisions in Part IIA of the Environmental Protection
Act 1990 and any statutory guidance notes, regulations and
equivalent controls enacted at any time under those
provisions;
"Contracts" all contracts and agreements entered into prior to
the Completion Date binding on the Vendor in connection with
the Business (and no other part of the business of the
Vendor) listed in Schedules 11, 12, 13 and 18 including the
Customer Contracts, the Supplier Contracts, and any computer
maintenance and service contracts which at the Completion
Date remain (in whole or in part) to be completed or
performed, but excluding any Excluded Assets (other than
Supplier Contracts relating to Hire Equipment) and any
leases, subleases, licences, tenancy agreements or other
contracts relating to the Terminals that are subject to the
provisions of the Property Conditions Schedules;
"Customer Contracts" all contracts and agreements entered into
prior to the Completion Date binding on the Vendor with
customers for the provision of services by the Vendor in
connection with the Business which at the Completion Date
remain (in whole or in part) to be completed or performed
including (without limitation) those listed in Schedule 11
headed "Customer Contracts";
"Cut Off Time" bears the meaning ascribed to it in Clause 12.1;
"DataRoom Index" the data room index identified as such and
annexed hereto as Appendix `A';
"Defaulting Party" bears the meaning ascribed to it in Clause
6.3;
"Disclosure Letter" a letter of the same date as this Agreement,
with the attachments thereto, addressed by the Vendor to the
Purchaser in relation to the Warranties in accordance with
Clause 22;
"Employees" those persons who are listed in Schedule 6;
"Encumbrance" any mortgage, charge, pledge, lien, claim,
security, or other third party right or interest (legal or
equitable) or restriction over or in respect of the use of
the relevant asset, security or right;
"English Freehold and Leasehold Schedule" Schedule 7 containing
the terms and conditions of sale of the Terminals in England
to which the Vendor holds a freehold or leasehold title;
"English Leases" the leases specified in the Second Addition to
the English Freehold and Leasehold Schedule;
"Environment" all or any of the following media: air (including
air within buildings and other natural or man-made
structures above or below ground), water (including
groundwater, surface and sub-surface water) and land
(including all land whether at surface or below ground) and
shall include any living organisms or other ecological
systems supported by the said media;
"Environmental Laws" means (i) all laws (whether of England and
Wales or any other jurisdiction whatsoever) whether
presently existing or in future, including without prejudice
to the generality of the foregoing European Union
Directives, national and local statutes, codes, legislation,
rules, regulations, statutory instruments, orders, notices
and (ii) all common law or other judgments or orders,
instructions or awards of any court or competent authority
whatsoever (whether of England and Wales or any other
jurisdiction whatsoever) whether presently existing or in
future insofar as anything referred to in (i) or (ii) above
relates to (a) health and/or safety or (b) pollution and/or
protection and/or condition of the Environment including all
statutory nuisance and the manufacture, processing,
distribution, use, treatment, storage, disposal, transport
and handling (including without limitation thereto the leak,
emission, seepage, discharge, burial, dumping, deposit,
release and migration) of any waste or other hazardous
material;
"Environmental Permits" all Permits which are required under
Environmental Law in order to carry on the Business in
compliance with Environmental Laws;
"Escrow Account" shall bear the meaning ascribed to it in
Paragraph 1 of Schedule 15;
"Escrow Amount" the aggregate amount of the Tank 1 Retention and
the Tank 3 Retention (as those terms are defined in Schedule
15);
"Escrow Terms" the terms set out in Schedule 15;
"Executive Summary" the document entitled "Executive Summary"
dated 13th March 1998 and delivered by the Vendor to the
Purchaser prior to the date hereof.
"Excluded Assets" the items set out in Schedule 2;
"Excluded Employees" any employees of the Vendor who are not
Employees;
"Final Claim Date" 31st March 2000;
"Final Monitoring" bears the meaning ascribed to it in Clause
12.2;
"Final Payment Date" the date falling 14 days after the net
amount payable pursuant to the Completion Statement has been
finalised and communicated to each of the Vendor and the
Purchaser pursuant to Clause 7;
"Financial Summaries" the financial summary for each Terminal,
attached to the Disclosure Letter;
"Goodwill" the goodwill of the Business (excluding any goodwill
associated with the Names) together with the right for the
Purchaser to hold itself out as carrying on that part of the
Business previously carried on from each Terminal;
"GTC Guarantees" those guarantees provided by GTC, short
particulars of which are set out in Schedule 5;
"GTC Indemnified Claims" bears the meaning ascribed to it in
Clause 22.5;
"Hazardous Waste" any material not held by the Vendor under
contract, the disposition of which is subject to regulation
as "special waste" under Environmental Laws;
"HireEquipment" any equipment on hire or lease located at the
Terminals at the date hereof and not owned by the Vendor
listed in Schedule 12 headed "Hire Equipment";
"ICTA" Income and Corporation Taxes Act 1988;
"Inspector" bears the meaning ascribed to it in Clause 12.1;
"I.T.Systems" all the computer equipment and software (excluding
Novell Groupwise) owned or licensed for use at the Terminals
or Maidenhead by the Vendor and/or GTC;
"Kaneb" Kaneb Pipe Line Partners, L.P.;
"Key Customer Contracts" those Customer Contracts so identified
in Schedule 11;
"Leases" the English Leases, the Scottish Leases and the N.I.
Lease;
"Liability" shall have the meaning given thereto in sub-Clause
21.1;
"Names" "GATX", "GATX Terminals Corporation", "GATX Terminals
Limited" "GTC", "GTL" or "GATX Corporation";
"N.I.Lease" the lease specified in Paragraph 6 of the N.I.
Leasehold Schedule;
"N.I.Leasehold Schedule" Schedule 9 containing the terms and
conditions of sale of the Terminal in Northern Ireland to
which the Vendor holds a leasehold title;
"Non-Assignable Key Permits" those Permits listed in Part B of
Schedule 10;
"Non-Defaulting Party" bears the meaning ascribed to it in Clause
6.3;
"PAYE" income tax paid under "Pay As You Earn" deduction;
"Permits" any licences, consents, approvals, certificates,
registrations, qualifications, specifications or any other
authorisation required to carry on the proper and efficient
operation of all or part of the Business listed in Schedule
10 headed "Permits";
"Prepayments" the aggregate amount of all payments made by the
Vendor prior to the Completion Date for goods to be supplied
or services to be performed in respect of the Business after
the Completion Date (with the exception of any payments made
under any of the Leases);
"Properties" the properties described in the Property Conditions
Schedules;
"Property Bundle" the bundle of documents and correspondence
annexed as Appendix O;
"Property Conditions Schedules" the English Freehold and
Leasehold Schedule, the Scottish Leasehold Schedule and the
N.I. Leasehold Schedule;
"Pro Rated Adjustment" the value of the Vendor's Stock, the Cash
Float and the Prepayments less the value of the Assumed
Liabilities and the Advanced Billings (to the extent payment
of Advanced Billings has been received by the Vendor as at
the Completion Date) as at the Completion Date, determined
as described in Clause 7.2;
"Purchase Price" the price for the sale of the Business and the
Assets, being the sum of Twenty two million six hundred and
forty eight thousand pounds ((pound)22,648,000), which shall
be apportioned between the Assets in accordance with Clause
3.1;
"Purchaser" ST Eastham Ltd. with respect to the Assets and
Business associated with the Eastham Terminal and ST
Services Ltd. with respect to the Assets and Business
associated with the other Terminals;
"Purchaser's Accountants" KPMG Peat Marwick or such other firm of
chartered accountants as the Purchaser may specify from time
to time;
"Purchaser's Group" the Purchaser, its ultimate holding company,
and any subsidiary of such holding company;
"Purchaser's Solicitors" Ashurst Morris Crisp of Broadwalk House,
5 Appold Street, London EC2A 2HA or such other firm of
solicitors as the Purchaser may specify from time to time;
"Reconciliation Audit" bears the meaning ascribed to it in Clause
12.1;
"Regulatory Action" any action taken by a Regulatory Authority
pursuant to Environmental Laws requiring Remediation Works
whether on a voluntary or mandatory basis;
"Regulatory Authority" a regulatory authority empowered under
Environ-mental Laws to regulate the Environment and/or
implement or enforce Environmental Laws including without
limitation the Environmental Agency and local authorities;
"Remediation Works" all or any works required by a Regulatory
Authority to be carried out in order to clean up, remove,
treat, remediate or otherwise deal with any pollution or
contamination of the Environment;
"Replies to Pre-contract Enquiries" Property the replies to
enquiries before contract relating to property matters which
are contained in the Property Bundle;
"Rights" shall have the meaning given thereto in Clause 25;
"Schemes" bears the meaning ascribed to it in Paragraph 5.5 of
Schedule 4;
"Scottish Leases" the leases specified in the Second Addition to
the Scottish Leasehold Schedule;
"Scottish Leasehold Schedule" Schedule 8 containing the terms and
conditions of sale of the Terminals in Scotland to which the
Vendor holds a leasehold title;
"Signage" all signs, posters, panels, name plates, and lettering
at any of the Terminals carrying any of the Names or
otherwise relating to the Vendor's corporate identity;
"STOP" Support Terminals Operating Partnership, L.P.;
"Supplier Contracts" all contracts and agreements entered into
prior to the Completion Date binding on the Vendor with
suppliers (i) for the sale of goods or the provision of
services to the Vendor primarily in connection with the
Business or (ii) in relation to the Hire Equipment, which in
either case remain (in whole or in part) to be completed or
performed at the Completion Date, (but excluding any
Excluded Assets and any leases, subleases, licences, tenancy
agreements or other contracts relating to Terminals that are
subject to the provisions of the Property Conditions
Schedules) including (without limitation) those listed in
Schedule 13 headed "Supplier Contracts";
"Taxation" all forms of taxation and statutory, governmental,
state, provincial, local government or municipal
impositions, duties, contributions and levies, in each case
whether of the United Kingdom or elsewhere, whenever imposed
and all penalties, charges, costs and interest relating
thereto;
"Terminals" the bulk liquid storage terminal sites short
particulars of which are set out in Schedule 1 (and referred
to in the Property Conditions Schedules in each case as "the
Property");
"Third Party Equipment" any special equipment supplied and owned
by any customer of the Business for use in the storage or
handling of any products stored by that customer at the
Terminals listed in Schedule 14 headed "Third Party
Equipment";
"Transfer Regulations" the Transfer of Undertakings (Protection
of Employment) Regulations 1981 and the Collective
Redundancies and Transfer of Undertakings (Protection of
Employment) (Amendment) Regulations 1985;
"VAT" United Kingdom Value Added Tax;
"VATA 1994" the Value Added Tax Act 1994;
"VAT Order" the Value Added Tax (Special Provisions) Order 1995;
"Vendor" GATX Terminals Limited;
"Vendor's Accountants" Messrs Ernst & Young of Becket House, 1
Lambeth Palace Road, London SE1 7EU or such other auditors
of the Vendor for the time being;
"Vendor's Chattels" all loose plant, machinery, spare parts,
tools, equipment and chattels owned by the Vendor and used
primarily in connection with the Business as carried on by
the Vendor for the period of six months prior to the
Completion Date at any of the Terminals, but excluding Hire
Equipment;
"Vendor's Fixtures and Fittings" all fixed and immovable plant,
machinery and equipment on each Terminal (which for the
purposes of this Agreement, including the Property
Conditions Schedule, shall be treated as forming part of
each relevant Terminal) and used primarily in connection
with the Business as carried on by the Vendor for the period
of six months prior to the Completion Date at any of the
Terminals, but excluding Hire Equipment;
"Vendor's Group" the Vendor, its ultimate holding company and any
subsidiary of such holding company;
"Vendor's Pension Scheme" the GATX-UK Pension Scheme established
by a deed dated 31st August 1990;
"Vendor's Receivables" all payments accrued or accruing due to
the Vendor as at the Completion Date for services supplied
by the Vendor in the course of carrying on the Business
prior to the Completion Date;
"Vendor's Solicitors" Messrs. Lawrence Graham of 190 Strand,
London WC2R 1JN;
"Vendor's Stock" the Vendor's inventory of fuel oil and nitrogen
owned by the Vendor for use at the Terminals valued at
replacement cost;
"Vendor's Terminal Manager" the GATX terminal manager at each of
the Terminals on the date hereof; and
"Warranties" the representations and warranties set out in Clause
20 and Schedule 4.
1.2 References to Clauses, sub-clauses and Schedules are unless otherwise stated
references to Clauses and sub-clauses of and Schedules to this Agreement, and
the Schedules shall form part of this Agreement and shall have the same force
and effect as if expressly set out in the body of this Agreement.
1.3 Any document expressed to be "in the agreed form" means a document in a form
agreed by (and for the purpose of identification signed or initialled by or on
behalf of) the parties hereto.
1.4 References in this Agreement to statutory provisions shall be construed as
references to those provisions as respectively amended or re-enacted (whether
before or after the date hereof) from time to time and shall include any
provisions of which they are re-enactments (whether with or without
modification) and any subordinate legislation made from time to time under such
provisions (but, with the exception of the application of the provisions of
Clause 15, not so as to produce any greater liability for any of the parties
hereto than would have existed under the relevant provision in the form in which
it stood as at the date hereof).
1.5 The table of contents and headings in this Agreement are for convenience
only and shall not affect the construction hereof.
1.6 A reference to one gender shall denote all genders and a reference to the
singular shall include the plural and vice versa.
1.7 References to a "company" shall be construed so as to include any company,
corporation or other body corporate, wherever and however incorporated or
established; references to a "person" shall be construed so as to include any
individual, firm, company, government, state or agency of the state or any joint
venture, association or partnership (whether or not being a separate legal
personality).
1.8 In the event of any conflict or inconsistency between the provisions of the
Property Conditions Schedule and any other provisions of this Agreement, the
Property Conditions Schedule shall prevail.
1.9 References to "Purchaser" shall, unless the context otherwise requires,
include the Eastham Terminal Purchaser.
2. ASSETS TO BE SOLD
2.1 The Vendor shall sell and the Purchaser shall purchase as a going concern as
at and with effect from the Completion Date (subject to the Conditions
Precedent) the Business and the Assets (other than the Excluded Assets),
comprising:
2.1.1 Grays Freehold
2.1.2 the Vendor's interests in the Leases;
2.1.3 the Goodwill;
2.1.4 the Vendor's Fixtures and Fittings;
2.1.5 the Vendor's Chattels and I.T. Systems;
2.1.6 the benefit of the Contracts;
2.1.7 the benefit of any sums to which the Vendor is entitled
either from third parties or insurers in respect of
damage or injury to the Terminals or other Assets, save
for any entitlement to any sums from contractual
warranty or insurance claims specifically excluded in
the second paragraph of Clause 15.2 and save to the
extent of sums properly expended prior to the
Completion Date in making good damage or injury; and
2.1.8 the Books and Records.
2.2 The Vendor hereby represents, warrants, covenants and undertakes with the
Purchaser as follows:
2.2.1 that it has the right to dispose of the interests in
the Business and the Assets which it purports to sell;
and
2.2.2 that it is disposing of its interests in the Assets and
the Business free from any Encumbrance (but subject to
and upon the terms of this Agreement, and except as
provided in the Property Conditions Schedules) together
with all such rights now or hereafter attaching
thereto.
2.3 The Vendor makes no warranty or representation as to the currency, accuracy
or legal compliance of any of its manuals, operating procedures or other written
materials relating to the manner in which the Vendor operated any of the
Terminals immediately prior to the Completion Date which may be delivered to the
Purchaser and accordingly any use which the Purchaser may make of any such
materials is entirely at the Purchaser's own risk and the Purchaser shall
indemnify and hold the Vendor indemnified accordingly. In the event of any
conflict or inconsistency between this Clause 2.3 and the Warranties, the
provisions of this Clause 2.3 shall prevail. 3. CONSIDERATION 3.1The
Consideration in respect of the Assets referred to in this sub-Clause 3.1 shall
be the Purchase Price which shall be apportioned between the Assets concerned as
set out in sub-clauses 3.1.1 to 3.1.7:
3.1.1 the Grays Freehold - (pound)601,000;
3.1.2 the Leases - -(pound)5,000;
3.1.3 the Goodwill - (pound)1;
3.1.4 the Vendor's Fixtures and Fittings - (pound)20,432,000;
3.1.5 the Vendor's Chattels and I.T. Systems
- (pound)1,609,997;
3.1.6 the Contracts - (pound)1; and
3.1.7 the Books and Records- (pound)1.
3.2That part of the Purchase Price apportioned to the Leases set out in
sub-Clause 3.1.2, and the Vendor's Fixtures and Fittings set out in sub-Clause
3.1.4, and the Vendor's Chattels and I.T. Systems set out in sub-clause 3.1.5,
shall be further apportioned between the individual Terminals as follows:
Grays F&F- (pound)4,934,000
Grays Chattels and I.T. Systems - (pound)474,000
Eastham Lease - (pound)1,000
Eastham F&F - (pound)10,141,000
Eastham Chattels and I.T. Systems - (pound)627,000
Runcorn Lease - (pound)1,000
Runcorn F&F - (pound)779,000
Runcorn Chattels and I.T. Systems - (pound)74,000
Belfast Lease - (pound)1,000
Belfast F&F - (pound)1,872,000
Belfast Chattels and I.T. Systems - (pound)178,997
Leith Lease - (pound)1,000
Leith F&F - (pound)1,353,000
Leith Chattels and I.T. Systems - (pound)128,000
Glasgow Lease - (pound)1,000
Glasgow F&F - (pound)1,353,000
Glasgow Chattels and I.T. Systems - (pound)128,000.
3.3 The Pro Rated Adjustment and any other relevant adjustments shall be
determined pursuant to the Completion Statement and/or the Property Conditions
Schedule.
4. PAYMENT DUE ON COMPLETION
4.1 On Completion the Purchaser shall pay to the Vendor the Purchase Price
together with or subject to (as the case may be) such amount (negative or
positive) as the Vendor shall bona fide estimate and not less than three
Business Days prior to the Completion Date shall notify to the Purchaser to be
the value of:
4.1.1 the Pro Rated Adjustment; and
4.1.2 any other adjustments to be made pursuant to the
Property Conditions Schedule.
4.2 Such payment shall be made in Pounds Sterling by CHAPS and/or other
electronic means giving immediate value to the Vendor or such other person as
the Vendor shall direct or in such other manner as may be agreed between the
payer and payee.
4.3 Any money which shall be sent by wire transfer or CHAPS shall be deemed to
have been paid at such time as the receiving bank shall have received it
provided that if the day of receipt shall not be a Business Day then the day of
receipt shall be deemed to be the next Business Day.
5. CONDITIONS PRECEDENT
5.1 Completion is conditional on the following conditions being satisfied on or
before the Completion Date:
5.1.1 the grant of landlords' licences to assign (or consents
to assignation, where appropriate) in accordance with
the Property Conditions Schedules;
5.1.2 the grant of the landlord's licence to sub-let
the Maidenhead office referred to in Paragraph 17 of
Schedule 7;
5.1.3 the assignment by the Vendor to the Purchaser of all
Assignable Key Permits and the grant to the Purchaser
by the relevant issuing authority of all Non-Assignable
Key Permits, in each case in order that the Vendor is
able to deliver to the Purchaser at Completion the
documents referred to in Clause 6.1.6(f) (in the case
of such documents described as being the Vendor's
letter, in a form approved by the Purchaser);
5.1.4 the assignment by the Vendor to the Purchaser of the
Key Customer Contracts (including the attainment of any
third party consents thereto if applicable) and the
execution of novation agreements for any Key Customer
Contracts not capable of assignment;
5.1.5 the Warranties being true and accurate in all material
respects immediately prior to Completion as though then
made, and as though the Completion Date was substituted
for the date hereof through the Warranties;
5.1.6 the performance or compliance by the Vendor in all
material respects, with all covenants, agreements, and
conditions contained in this Agreement to be performed
or complied by the Vendor prior to or as of the
Completion Date without regard to any exceptions set
forth in the certificate provided pursuant to Clause
6.1.6(I); and
5.1.7 except as permitted or contemplated by, or disclosed
in, this Agreement or the Disclosure letter, there has
been no event or circumstance or series of events or
circumstances which individually or in the aggregate
would have a material adverse effect on the operations
of the Terminals since the date of this Agreement.
5.2
5.2.1 The Purchaser shall use all reasonable endeavours to
satisfy the Conditions Precedent in Clause 5.1.3 (with
respect to Non-Assignable Key Permits) and the
Purchaser shall use all reasonable endeavours to assist
the Vendor to satisfy the Conditions Precedent in
Clauses 5.1.1 to 5.1.2, 5.1.3 (with respect to
Assignable Key Permits) and 5.1.4 .
5.2.2 Without prejudice to the generality of sub-clause
5.2.1, in order to procure the grant of the landlords'
licences to assign referred to in Clause 5.1.1:
(a) Kaneb shall offer, by deed, to guarantee the
performance of the lessee's covenants and
obligations contained in the relevant Lease (as
amended or varied by any other document) on
terms reasonably acceptable to the landlord but
not more onerous than those existing for the
Vendor's Group; and
(b) the Purchaser shall offer to enter into a direct
covenant with the landlord to observe and
perform the lessee's or grantee's covenants and
obligations contained in the relevant Lease (as
amended or varied by any other document) in the
form reasonably required by the landlord but not
under terms more onerous than those existing for
the Vendor's Group.
5.3
5.3.1 The Vendor shall use all reasonable endeavours to
fulfil the Conditions Precedent in Clauses 5.1.1 to
5.1.2, 5.1.3 (with respect to Assignable Key Permits),
and 5.1.4 and the Vendor shall use all reasonable
endeavours to assist the Purchaser to satisfy the
Conditions Precedent in Clauses 5.1.1 and 5.1.3 (with
respect to Non-Assignable Key Permits).
5.3.2 Without prejudice to the generality of sub-clause
5.3.1, the Vendor agrees to make all applications and
submissions of information to Regulatory Authorities as
required or expected of a going concern in order to
seek to procure the assignment of the Assignable Key
Permits to the Purchaser.
5.4 If at any time either party becomes aware of a matter that might prevent a
Condition Precedent being satisfied, it shall immediately inform the other
party, and the other party may then seek to satisfy such condition.
5.5 At any time, the Purchaser may without prejudice to any rights it may have
under this Agreement (but subject to Clause 5.7) waive a Condition Precedent by
notice in writing to the Vendor, on any terms it decides.
5.6 Subject to Clause 5.7, if a Condition Precedent has not been waived by the
Purchaser and has not been satisfied on or before the Completion Date, the
Purchaser may on that date by notice in writing to the Vendor:
5.6.1 waive the Condition Precedent; or
5.6.2 postpone the Completion Date by not more than 10
Business Days (but the Purchaser may not postpone
Completion more than once without the Vendor's written
consent); or
5.6.3 terminate this Agreement.
5.7 In the event that the Vendor's certificate to be furnished pursuant to
Clause 6.1.6(i) states any exceptions to the Warranties being true and accurate
in all material respects at and as of the Completion Date (other than the
exceptions in the Disclosure Letter), Completion shall at the written request of
the Vendor be postponed for a period of thirty days from the date that the
Vendor tenders such certificate to allow the Vendor an opportunity to cure any
such matter identified in such certificate. If the Vendor is unable to cure or
in the exercise of its commercial judgment cannot economically justify curing
such exception and therefore chooses not to do so, then the Purchaser may either
terminate this Agreement by written notice to the Vendor (in which case this
Agreement shall be deemed to have been terminated without liability on the part
of any party hereto save for any reimbursement due pursuant to Clause 5.8) or
may elect to proceed to Completion in which event it shall be deemed to have
waived such material exception.
5.8 In the event that Completion is postponed or this Agreement is terminated
pursuant to Clause 5.7 then the Vendor shall reimburse to the Purchaser the
Purchaser's cost of borrowing such sum as is provided for in Clause 4.1 during
the period of postponement (being either the period until the actual Completion
Date or until the date of termination of this Agreement or for a period of 30
days, whichever is the shorter). The Purchaser's "cost of borrowing" for this
purpose shall be the cost which the Purchaser shall reasonably and properly
incur to its bankers in drawing down the relevant amount from its borrowing
facility, less the amount of any interest or other financial benefit which
accrues to the Purchaser on the redeployment of such monies. The Purchaser shall
use its reasonable endeavours to mitigate its cost of borrowing. The Purchaser's
cost of borrowing and benefit of redeployment shall be certified by the
Purchaser and verified by such supporting evidence as the Vendor may reasonably
require.
5.9 If the Purchaser postpones the Completion Date in accordance with clause
5.6.2, the provisions of this Agreement apply as if that other date is the date
set for Completion in clause 6.1.
5.10 If the Purchaser terminates this Agreement pursuant to clause 5.6.3, each
party's further rights and obligations cease immediately on termination, but
termination does not affect a party's accrued rights and obligations at the date
of termination.
6. COMPLETION
6.1 Subject to Clause 5, Completion shall take place at the offices of the
Vendor's Solicitors by not later than 12 noon on the Completion Date when all
(unless the parties otherwise agree) of the following business shall be
transacted:
6.1.1 the Vendor shall complete the sale of the Terminals
(upon the terms of the Property Conditions Schedules)
and the Business and the Assets;
6.1.2 the Purchaser shall pay to the Vendor such sum as is
provided for in Clause 4.1;
6.1.3 the Vendor shall pay the Escrow Amount into the Escrow
Account (and the Escrow Terms shall then apply thereto)
for the repair of tanks 1 and 3 at the Runcorn
terminal;
6.1.4 the Vendor shall give possession to the Purchaser of
the Terminals and the Assets hereby agreed to be sold;
6.1.5 the Vendor and the Purchaser shall complete the
sub-lease of 4th floor, Nicholson House, Nicholson's
Walk, Maidenhead; and
6.1.6 the Vendor shall deliver or make available to the
Purchaser:
(a) the Books and Records;
(b) such of the Assets as are capable of transfer by
delivery (it being agreed that such delivery
shall take place at the place where they are
situated);
(c) the software licences or registered user
agreements for those I.T. Systems where the
licences or agreements are equipment specific,
together with assignments of such licences or
agreements for those IT Systems which are
subject to assignable licences or agreements,
and notices to the licensors for those licences
identified as "equipment specific" (in each case
as identified on the Schedule of Software
Applications in Schedule 18);
(d) duly executed assignments and/or novations of
the Key Customer Contracts (and of such other
Customer Contracts as may then be available) and
consents thereto in the agreed form;
(e) duly executed assignments and/or novations of
such of the Supplier Contracts as may then be
available;
(f) the documents relating to the Permits described
in Column 5 (under the heading "Completion
Document") in Schedule 10;
(g) a certified copy of Board resolutions passed at
a meeting of the Vendor's board of directors at
which its directors shall have approved the
Vendor entering into this Agreement and the
agreements and arrangements contemplated under
this Agreement;
(h) releases under seal of any Encumbrance to which
any of the Assets are subject duly executed by
those entitled to the benefit thereof, provided
that for the purposes of this clause 6.1.6(h)
only the expression "Assets" shall not include
any Assets in respect of which the provisions of
the Property Conditions Schedules apply; and
(i) a certificate signed by a duly authorised
officer on behalf of the Vendor stating that,
subject to the exceptions in the Disclosure
Letter, the Warranties are true and accurate in
all material respects as at the Completion Date
as though then made and as though the Completion
Date was substituted for the date hereof
throughout the Warranties,
whereupon the title thereto shall pass to the Purchaser by such delivery.
6.2 If either the Purchaser or the Vendor does not comply in any respect with
its obligations under sub-Clause 6.1 then the party not in default:
6.2.1 may agree that Completion shall take place notwith-
standing any such failure; or
6.2.2 shall be entitled (in addition and without prejudice to
any other rights available to it) to give notice
prescribing a new date for Completion (such date being
a date that is not less than 7 days and not more than
28 days after the original agreed date of Completion)
in which case the provisions of Clause 6 (other than
this sub-clause 6.2) shall apply to Completion as so
deferred; or
6.2.3 if, following an adjournment of Completion pursuant to
Clause 6.2.2, Completion does not take place on the new
date then in addition to the remedies in Clause 6.2 the
non-defaulting party shall terminate the Agreement with
effect from the new date set for Completion and neither
party shall have any claim against the other under it,
except for any claim arising from breach of the
undertakings in Clauses 29 and 30 and as provided in
Clause 6.3 hereof.
6.3 In the event that either party ("the Defaulting Party") does not comply with
its obligations under Clause 6.1, then the other party ("the Non-Defaulting
Party") shall be entitled (in addition and without prejudice to any other rights
or remedies available to it) to terminate this Agreement, but in the event that
the Non-Defaulting Party elects to proceed pursuant to Clause 6.2.2. but
Completion is thereby delayed the Defaulting Party shall pay interest on the
amount payable pursuant to Clauses 6.1.2 and 6.1.3 hereof at the base rate of
the Royal Bank of Scotland from time to time for the period from and including
the Completion Date until and including the day prior to the date of Completion
or the date of termination of the Agreement (as the case may be), which interest
shall be deemed to be payable to the Non-Defaulting Party notwithstanding
termination of the Agreement.
7. COMPLETION STATEMENT
7.1 As soon as possible after the Completion Date the Vendor shall prepare and
the Vendor and the Purchaser shall jointly instruct the Vendor's Accountants to
certify a statement (the "Completion Statement") for the purposes of calculating
and certifying the net amount payable on the Final Payment Date on the basis of
such calculation. The parties will respectively endeavour to procure that any
information reasonably required by the Vendor's Accountants will be made
available to enable the said certification to be completed.
7.2 For the purpose of calculating the net amount payable described in
sub-Clause 7.1, the Completion Statement shall be prepared in accordance with
the principles set out in Schedule 3 and the Vendor's Accountants shall issue a
certificate with respect thereto jointly addressed to each of the Vendor and the
Purchaser. The Vendor and the Purchaser shall each afford every assistance and
use all reasonable endeavours to ensure that the Completion Statement shall be
prepared and delivered to the Vendor and the Purchaser as soon as possible after
the Completion Date.
7.3 Subject to Clause 7.4, the certificate of the Vendor's Accountants referred
to in sub-clause 7.1 as to the net amount payable pursuant to the Completion
Statement shall be binding on the parties hereto and the amount due shall be
paid by the relevant party on the Final Payment Date by CHAPS and/or other
electronic means giving immediate value.
7.4 The Purchaser shall notify the Vendor in writing within 14 business days of
receiving the Completion Statement either that it approves the Completion
Statement, or that it does not so approve it together with written details of
the matters relating to the Completion Statement which it disputes.
7.5 Any matter which the Purchaser shall dispute may be referred for final
settlement to a chartered accountant nominated jointly by the Vendor and the
Purchaser or, failing such nomination within 14 days after the request of either
of those parties to the other, nominated at the request of either of those
parties by the President for the time being of the Institute of Chartered
Accountants in England and Wales. The chartered accountant (howsoever appointed)
shall act as an expert and not as an arbitrator and his or her decision as to
the matter in dispute shall (in the absence of manifest error) be final and
binding on the parties. In the event that the amount in dispute is determined by
the expert to vary from the amount certified by the Vendor's Accountants by more
than 5% of the certified amount, then the expert's fees shall be paid by the
Vendor, but shall otherwise be paid by the Purchaser.
7.6 Following settlement of any such matter which the Purchaser shall have
disputed (whether settled pursuant to sub-Clause 7.5 or otherwise by agreement
between the Vendor and the Purchaser), the Completion Statement shall be
finalised in accordance with that settlement and payment shall then be made in
accordance with sub-clause 7.3.
7.7 The Completion Statement is subject to correction and adjustment by either
party for a period of 3 months following it being finalised to take into account
any matter that would have affected the calculation of the Completion Statement
in accordance with this Clause 7 but not included at the time it was calculated,
or to rectify any miscalculation not identified at the time the Completion
Statement was calculated in accordance with Clause 7, and such correction and
adjustment shall be agreed by the parties in accordance with the provisions set
out in Clauses 7.2 to 7.6 inclusive.
8. ACTION PENDING THE COMPLETION DATE
8.1 The Vendor undertakes that prior to the Completion Date except at the
written request or with the consent of the Purchaser (such consent not to be
unreasonably withheld or delayed) or otherwise as provided in the Property
Conditions Schedules:
8.1.1 that all reasonable measures are taken to protect and
preserve the Business and Assets and that the Business
will be carried on as a going concern in the ordinary
course of business as if this Agreement had not been
entered into and, for the avoidance of doubt, the
Vendor will not voluntarily cease to carry on any such
business at any of the Terminals nor seek to transfer
all or any part of any such business away from any of
the Terminals to another terminal;
8.1.2 the Purchaser and its approved agents will be given
such access to the Terminals (at the Purchaser's own
risk and subject to the Purchaser indemnifying the
Vendor against any loss or damage suffered or incurred
by the Vendor arising out of or in connection with the
acts, omissions or defaults of the Purchaser or its
agents whilst at any of the Terminals) and shall be
provided with such information about the Books and
Records as the Purchaser may reasonably request and, in
the case of information, as is readily available to the
Vendor; provided that the obligations of the Vendor
under this sub-clause 8.1.2 shall not extend to
allowing access or providing information which would in
the reasonable opinion of the Vendor interfere with the
normal operations and employee relationships of the
Business or where such information is regarded by the
Vendor as confidential to the activities of the Vendor
otherwise than in connection with the Business;
8.1.3 it shall conduct the Business in accordance with and
will use all reasonable endeavours to maintain all
Permits which have been obtained for the carrying on of
the Business;
8.1.4 it shall not terminate any of the Customer Contracts
without the prior written consent of the Purchaser;
8.1.5 it shall keep the Purchaser fully informed as soon as
is reasonably practicable of all on-going negotiations,
communications and discussions (including in the case
of correspondence and any other written documentation,
providing the Purchaser with copies thereof) with any
trade union or other such organisation, or with the
Employees occurring from the date hereof up until
Completion pursuant to the Employment Rights Act 1996
and the Trade Union and Labour Relations
(Consolidation) Act 1992 and Regulation 10 of the
Transfer Regulations;
8.1.6 it shall not:
(a) dispose of or remove all or any part of the
Assets from any of the Terminals without
replacing the same with items of similar
quantity and quality approved by the Purchaser;
(b) enter into, amend or terminate any contract or
commitment or submit any new tender involving an
amount greater than (pound)10,000, or committing
the Vendor for a period longer than one calendar
year;
(c) enter into any leasing, hire purchase or other
agreement or arrangement for payment on deferred
terms in excess of (pound)5,000; or
(d) create or extend any Encumbrance (excluding any
supplier's retention of title provision in the
ordinary course of business) over any of the
Assets;
(e) take any action which makes any policy of
insurance void or voidable or permit any
insurance to lapse;
(f) increase compensation or benefits paid, or to
become payable, to any of the Employees, or
agree to do the same, except for scheduled
increases in the ordinary course of business;
(g) appoint any new employee or make any material
variation in the terms of employment of any
Employee whose annual remuneration exceeds
(pound)17,500;
(h) make or propose a material change to any benefit
of any kind which is payable on a person's
retirement, death or disability to or in respect
of any of the Employees or to any pension scheme
(other than any change required by law) or,
without limiting the foregoing, carry out any
action in relation to any such scheme other than
in the ordinary course of operating such
schemes;
(i) make any material change in the nature or
organisation of the Business;
(j) enter into or vary in any material respects any
transaction in respect of the Business otherwise
than in the ordinary course of business and on
arms' length terms;
(k) compromise or settle any litigation, arbitration
or mediation proceedings which would have an
adverse effect on the Business after Completion
or which would otherwise be binding upon the
Purchaser, save for (i) debt collection
conducted in the ordinary course of business or
(ii) proceedings where the amount claimed does
not exceed (pound)20,000;
8.1.7 it shall immediately notify the Purchaser in writing of
any fact or circumstance which the Vendor appreciates
is likely to cause any of the Warranties (whether as
given on the date hereof, or when repeated immediately
prior to Completion) to be untrue or misleading, or of
any material adverse change which the Vendor
appreciates is likely to occur in relation to the
Business, its customers or suppliers, or the Employees.
9. TITLE AND RISK
9.1 Subject to the Conditions Precedent, title to the Assets and risk of loss or
damage to the Assets shall pass to the Purchaser on the Completion Date.
9.2 Without prejudice to the rights of the Purchaser under sub-Clause 9.4, in
the event that there is physical destruction of or physical damage to any of the
physical assets at any of the Terminals (or if any such physical assets are
condemned or threatened to be condemned) between the date hereof and Completion
which is quantified at more than (pound)2,400,000 in the aggregate (or, if not
capable of quantification at the Completion Date, reasonably estimated by the
Vendor or the Purchaser to exceed (pound)2,400,000) then either party may by
notice to the other party rescind this Agreement. In the event that both parties
elect to proceed to Completion then the Consideration shall be reduced by the
value of such loss or damage as determined by an independent valuer to be
jointly appointed by the Vendor and the Purchaser and whose assessment shall (in
the absence of manifest error) be final and binding on the parties, but such
reduction in the value of the Consideration shall be the sole remedy of the
Purchaser in relation to any such loss or damage. In the event that there is
physical destruction of or physical damage to any of the physical assets at any
of the Terminals (or if any such physical assets are condemned or threatened to
be condemned) between the date hereof and Completion which is quantified at more
than (pound)10,000 but equal to or less than (pound)2,400,000 then the
Consideration shall be reduced by the value of such loss or damage as determined
by an independent valuer to be jointly appointed by the Vendor and the Purchaser
and whose assessment shall (in the absence of manifest error) be final and
binding on the parties, but such reduction in the value of the Consideration
shall be the sole remedy of the Purchaser in relation to any such loss or damage
9.3 If such loss, destruction, condemnation or threat of condemnation as is
referred to in Clause 9.2 occurs within a ten (10) day period prior to the
Completion Date, Completion shall be postponed to the date ten (10) days after
the Vendor provides notice thereof to the Purchaser (or the first Business Day
after such 10 day period) to enable the applicable elections to be made by the
Purchaser under Clause 9.2.
9.4 In the event of any breach of this Agreement (including the breach or
non-fulfilment of any of the Warranties) by the Vendor prior to the Completion
Date in relation to which the amount of damages claimed by the Purchaser is less
than (pound)2,400,000, the Purchaser shall have no right to rescind the
Agreement but shall only be entitled to claim damages. In the event of any
breach of this Agreement (including the breach or non-fulfilment of any of the
Warranties) by the Vendor prior to the Completion Date in relation to which the
amount of damages reasonably claimed by the Purchaser exceeds (pound)2,400,000
the Purchaser shall be entitled to rescind this Agreement. For the avoidance of
doubt, in no event may the Purchaser rescind this Agreement after the Completion
Date.
9.5 Title to the Terminals has been deduced by the Vendor to the Purchaser or
the Purchaser's Solicitors in accordance with the Property Conditions Schedules
prior to the date of this Agreement and the Purchaser shall not raise any
requisition or objection in relation to the title.
10. PERMITS
10.1 The Purchaser shall use all reasonable endeavours at its own cost to
procure the benefit of any non-assignable Permits and the Vendor shall
co-operate at its own cost with the Purchaser's reasonable requests in procuring
any non-assignable Permits required by the Purchaser as a result of the transfer
of the Business under this Agreement. The Vendor shall use all reasonable
endeavours at its own cost to procure the assignment of any assignable Key
Permits required by the Purchaser as a result of the transfer of the Business
under this Agreement.
11. CONTRACTS
11.1 The Vendor shall take all reasonable steps and co-operate with the
Purchaser (each party bearing its own costs) in order to procure the assignment
of the Contracts to the Purchaser (and this obligation shall continue
notwithstanding the Completion of this Agreement) and without prejudice to the
generality of the foregoing the Vendor shall execute and deliver to the
Purchaser at Completion an assignment of the Contracts in the form annexed as
Appendix B. 11.2 To the extent that any of the Contracts are not assignable
without the consent of another party or without a novation agreement, this
Agreement shall not constitute an assignment or an attempt at assignment if such
assignment or attempted assignment would constitute a breach of the relevant
Contract. In the event that such consent or novation is required for any such
assignment, the Vendor will use all reasonable endeavours to obtain the consent
of the other party to such assignment or to procure that the other party enters
into such novation to the Purchaser, if so requested by the Purchaser.
11.3 Unless and until such consent or novation is obtained, the Vendor will
co-operate with the Purchaser in any reasonable arrangements proposed by the
Purchaser designed to provide for the Purchaser the benefits under any of the
Contracts, including enforcement at the cost and for the account of the
Purchaser of any and all rights of the Vendor against the other party thereto
whether arising out of the cancellation by such other party or otherwise, and
the Purchaser shall perform all of the obligations and meet all of the
liabilities of the Vendor under any such Contracts. Prior to any such
arrangements the Vendor shall be deemed to hold the benefit of each such
Contract on trust for the Purchaser and shall fully account to and be
indemnified by the Purchaser accordingly.
If and to the extent that any such arrangements cannot be made in
respect of any such Contract within 6 months of the Completion
Date, then, provided that the third party thereto has not given
notice to terminate that Contract (other than upon the expiry of
its term), the Vendor shall sub-contract such Contract to the
Purchaser in the terms of the sub-contract annexed as Appendix C
and in such event the Purchaser shall accept such sub-contract and
the Purchaser shall then continue to perform the obligations and
meet the liabilities of the Vendor under that Contract upon the
terms and conditions of that Contract with effect on and from the
Completion Date and at no cost to the Vendor.
In these circumstances, the Vendor shall at all times in its name
and at the request and upon receipt of a satisfactory costs
indemnity from the Purchaser take such steps (including legal
proceedings) as the Purchaser may reasonably require in order to
enforce any debts, obligations and liabilities of the relevant
customer arising under the Contract for the benefit of the
Purchaser. The Purchaser shall indemnify the Vendor and keep it
indemnified in respect of any debts, obligations, liabilities,
losses, damages, costs, charges and expenses suffered or incurred
by the Vendor arising under the Contract.
If and to the extent that any such arrangements cannot be made in
respect of any such Contract and the third party thereto has given
notice to terminate that Contract (other than upon the expiry of
its term) then upon such termination neither the Vendor nor the
Purchaser shall have any further obligation to each other relating
thereto, and any further liability in relation to such Contract
shall rest with the Vendor, provided that the Vendor has done (by
commission or omission) nothing to increase the liabilities under
such applicable Contract then the amount or extent of the liability
of the Vendor in respect thereof shall be no greater than the
liability to which the Vendor would have been subject had the
relevant Contract been terminated by the Vendor as at the
Completion Date. Any such further liability shall rest with the
Purchaser and from that time onwards such contract shall no longer
be held to be a Contract for the purposes of the Agreement.
11.4 Subject to Clause 11.3, with effect from the Completion Date, the Purchaser
shall be entitled to the benefit of the Contracts and shall fully indemnify the
Vendor against all losses, liabilities, costs, charges, expenses, actions,
proceedings, claims and demands brought or made against or incurred by the
Vendor in respect of such Contract by reason of or in connection with the
non-performance or the negligent or defective performance by the Purchaser to
the extent that such Contract has not been carried out or completed in the
ordinary course in a proper and workmanlike manner and in accordance with its
terms (excluding from such indemnity the effects of any previous failure in
performance by or on behalf of the Vendor prior to the Completion Date) or any
defect in or error of any kind arising from goods sold or services provided
after the Completion Date and in particular (but without prejudice to the
generality of the foregoing) any claim under any warranty or under the Sale of
Goods Act 1979 or the Supply of Goods and Services Act 1982.
12. TANK AUDIT
12.1 The Purchaser and the Vendor shall conduct a reconciliation of the Vendor's
customers' product stored at the Terminals (whether contained in storage or
utilised as line-fill) on the Completion Date no more than seventy two (72)
hours prior to Completion ("the Cut Off Time"). At that time, an independent
inspector, whose selection shall be mutually agreed upon by the Vendor and
Purchaser ("the Inspector") shall conduct a physical audit of the amount, type
and quality of product contained in each storage tank and line at the Terminals.
The Purchaser and the Vendor shall each designate a single representative for
each Terminal to accompany the Inspector during the course of the audit. The
Inspector shall conduct the tests described in the Inspection Schedule attached
hereto as Appendix D. The fees and expenses of the Inspector will be shared
equally by the Purchaser and the Vendor. During the audit, the storage tanks and
lines are to be gauged in accord with standard industry practice. The results of
such audit ("Reconciliation Audit") will be provided to the Purchaser and the
Vendor promptly following the Completion Date.
12.2 The Vendor shall produce a book inventory of customer product at the
Terminals as of the Cut Off Time. The Vendor, with the participation of the
Purchaser, will reconcile "book to physical" for each customer, and communicate
the results thereof by letter in a form to be agreed to by the Vendor and the
Purchaser with each customer regarding the results of the Reconciliation Audit
as it pertains to such customer. The Vendor will keep a true and correct record
of any changes in the customer inventory from the Cut Off Time to the Completion
Date ("Final Monitoring"). Any changes in the Final Monitoring will be confirmed
with the relevant customers in the letter referred to above.
12.3 If the Reconciliation Audit and Final Monitoring determine that the
quantity of product as described in the books and records of the Vendor as of
the Completion Date is either greater or less than the quantity of product as
determined by the Inspector in the course of the physical audit, any shortfall
or overage in the amount of product will be entirely for the account of the
Vendor, and the Vendor shall settle any disputes or differences with its
customers resulting from such shortfalls or overages. The Vendor will use its
best endeavours to reach any such settlement within 30 days after the Completion
Date and will keep the Purchaser apprised of the status of such efforts.
12.4 At the time of the Reconciliation Audit, the Inspector will take (and
appropriately label) representative samples of product from each of the tanks
and pipelines. The Inspector shall retain such samples for a period of one (1)
year from the Completion Date. The retained samples, together with the tests
described in Appendix D, shall be conclusive as between the parties as to the
quality of the product stored at the Terminals as of the Completion Date, unless
either party is able to adduce evidence to establish that product degradation
occurred between the Cut Off Time and the Completion Date. If the samples and/or
the tests as appropriate reflect any degradation of product quality as of the
Completion Date, any liability associated therewith shall be for the account of
the Vendor, who shall settle any dispute or differences with its customers
related thereto. Any product degradation occurring after the Completion Date
shall be for the account of the Purchaser.
13. MUTUAL INDEMNITY
13.1 Save as otherwise provided in this Agreement (including in respect of the
Assumed Liabilities), the Vendor shall bear and discharge all debts, liabilities
and obligations of the Business and in respect of the Assets accruing or
incurred up to the Completion Date, and shall at all times indemnify the
Purchaser and keep it indemnified in respect of such debts, obligations and
liabilities and in respect of any liability accruing or arising in connection
with the carrying on of the Business prior to the Completion Date (including for
the avoidance of doubt the Contracts).
13.2 Save as otherwise provided in this Agreement, the Purchaser shall with
effect on and from the Completion Date assume and perform the Vendor's
obligations in respect of the Assumed liabilities and the Contracts and bear and
discharge all debts, liabilities and obligations arising by virtue of its
carrying on the Business with effect from the Completion Date, and shall at all
times indemnify the Vendor and keep it indemnified in respect of such debts,
obligations and liabilities and in respect of any liability accruing or arising
in connection with the carrying on of the Business by the Purchaser after the
Completion Date.
14. EMPLOYEES
14.1 The parties accept that this Agreement and the sale of the Business to be
effected by it are governed by the Transfer Regulations and the Completion Date
shall be the "time of transfer" under the Transfer Regulations.
14.2 The Purchaser shall treat the contract or other terms of employment of each
of the Employees as automatically transferred to it with effect from the
Completion Date in accordance with the Transfer Regulations.
14.3 The Purchaser shall on and from the Completion Date assume responsibility
for the performance of all the obligations of the employer in relation to the
Employees in respect of the period after the Completion Date and the Purchaser
shall discharge and hereby undertakes to indemnify the Vendor against all
liabilities, obligations, costs and claims in respect of the Employees arising
from events occurring after Completion (including the performance of all
obligations of the Purchaser as employer of the Employees after Completion).
14.4 All salaries, wages and other compensation, all Taxation (for which an
employer is accountable), and all other normal employment costs in each case in
respect of the Employees shall be borne by the Vendor down to the Completion
Date and thereafter by the Purchaser and shall be apportioned accordingly.
Entitlement to holiday pay shall be apportioned on a time basis over the holiday
year so that the Vendor shall bear as at the Completion Date the cost of untaken
but accrued holiday less the cost of any holiday taken in excess of entitlement.
The cost of accrued holidays for prior years shall be borne by the Vendor.
14.5 The Purchaser shall indemnify and keep indemnified the Vendor against any
costs, claims, liabilities and expenses which the Purchaser may incur in respect
of the period after the Completion Date as a result of any act or omission by
the Purchaser including any failure to discharge the Purchaser's obligations to
any Employee after the Completion Date.
14.6 The Vendor shall indemnify and keep indemnified the Purchaser against any
costs, claims, liabilities and expenses which the Purchaser may incur in respect
of the period prior to the Completion Date as a result of any act or omission by
the Vendor including any failure to discharge its obligations to any employee
including but not limited to any Employees prior to the Completion Date.
14.7 Insofar as the Transfer Regulations are found to apply to any Excluded
Employee the Vendor agrees that:
14.7.1 in consultation with the Purchaser, it will, within
seven days of being so requested by the Purchaser, make
to each such person an offer in writing to employ him
under a new contract of employment to take effect upon
the termination referred to below; and
14.7.2 the offer to be made will be such that the provisions
of the new contract as to the capacity and place in
which the person will be employed and as to the other
terms and conditions of his employment will not differ
from the corresponding provisions of his contract of
employment as existing immediately prior to Completion.
Upon that offer being made (or at any time after the expiry of the
seven days if the offer is not made as requested), the Purchaser
shall terminate the employment of the person concerned and provided
that the Purchaser shall have complied with its obligations under
this Clause 14.7, the Vendor shall indemnify and hold the Purchaser
indemnified against any costs, claims, liabilities and expenses
which the Purchaser may incur in respect of any such person as
aforesaid.
15. ENVIRONMENTAL
15.1 Each of the Purchaser and Kaneb acknowledges that:
15.1.1 the Terminals may have been contaminated prior to the
date of this Agreement in connection with their usage
as oil and chemical storage terminals;
15.1.2 they have had full opportunity to inspect and survey
the Terminals and carry out investigations thereon;
15.1.3 they rely at their own risk on the contents of any
report, plan and/or other written material and/or
information either disclosed to them and/or orally
communicated to them by the Vendor both as to the
condition of the Terminals and as to the nature and
effect of any remedial works which may have been
carried out or which may be required to be carried out
and no warranty is given and/or no representation made
by the Vendor in respect thereof.
It is the intention of both parties that the effect of Clause 15
shall be that pursuant to the provisions of the Contaminated Land
Regime the Purchaser and/or Kaneb shall effectively transfer to
them GTC's and/or the Vendor's liability for remediation of the
Terminals pursuant to the Contaminated Land Regime.
15.2 With regard to pollution or contamination which pre-dates GTC's and/or the
Vendor's ownership and/or occupation of the Terminals the Purchaser and/or Kaneb
may assume any rights which GTC and/or the Vendor may have pursuant to the
Contaminated Land Regime to claim a right of contribution or indemnity from any
third parties (except GTC and/or the Vendor and subject to the exclusions
described in sub-clause 15.2) who may have caused or contributed to the
pollution or contamination giving rise to liabilities arising under the
Contaminated Land Regime.
15.3 Each of the Purchaser and Kaneb hereby covenants to carry out any
Remediation Works necessary at the Terminals and hereby jointly and severally
indemnifies and shall hold the Vendor or GTC indemnified from and against all or
any losses, damages, actions, proceedings, claims, costs, charges, expenses,
obligations and liabilities suffered or incurred by the Vendor or GTC arising
out of or in connection with any Remediation Works necessary as a result of
pollution or contamination at or emanating from the Terminals (whether arising
before or after the Completion Date) including all ancillary costs including
legal costs directly consequent thereon and any other costs necessary to ensure
compliance with Environmental Laws directly consequent thereon (excepting any
matters in respect of which the Vendor and GTC indemnifies the Purchaser and
Kaneb at Clauses 15.4 and 15.5.1 hereunder which shall remain the responsibility
of the Vendor and GTC).
In the event that a demand is made on either the Purchaser or Kaneb
to carry out Remediation Works pursuant to this Clause 15.3, the
Purchaser or Kaneb as the case may be shall have the right to
assume the conduct and benefit of all claims or demands (including
civil claims) for contribution in respect of the subject of
Remediation Works that GTC or the Vendor has or may have against
any third parties (but excluding contractual warranty and/or
insurance claims) and may in their own name and at their sole
expense proceed to enforce such claims for contribution with
respect to the subject of the Remediation Work. In the event that
such claim may only be brought in the name of the Vendor or GTC,
then Kaneb or the Purchaser may demand the Vendor or GTC pursues
such claim for and on behalf of the Purchaser or Kaneb, provided
that such demand is accompanied by:
15.3.1 a written commitment by the Purchaser and/or Kaneb to
pay any and all costs (including legal costs) incurred
by the Vendor or GTC in the prosecution of such claim;
and
15.3.2 a written opinion of an attorney reasonably
satisfactory to the Vendor or GTC that a reasonable
basis exists in law to successfully pursue such claim.
15.4 The Vendor and GTC hereby indemnify and (without limitation in time) shall
hold the Purchaser and Kaneb indemnified from and against any and all fines or
penalties. For purposes of this Clause 15, fines and penalties are all or any
fines or penalties levied by a Regulatory Authority and all ancillary costs
including legal costs directly consequent thereon (a) in connection with any
Remediation Works; or (b) as a result of a breach of Environmental Laws; but in
either case resulting from acts or omissions occurring prior to the Completion
Date.
15.5.1 The Vendor and GTC hereby indemnify and (without limitation in
time) shall hold the Purchaser indemnified from and against any third
party claims and all ancillary costs including legal costs directly
consequent thereon arising out of or in connection with any pollution
or contamination at or emanating from the Terminals caused prior to
the Completion Date. Upon accepting their indemnity obligations
therefor in writing the Vendor and GTC shall then be free to deal with
the said claims as it considers appropriate and neither the Purchaser
nor Kaneb by act or omission shall agree, compromise or settle any
third party claims pursuant to the provisions of this clause. If the
Vendor and GTC have accepted their indemnity obligations hereunder,
the Purchaser and Kaneb will not incur any costs or expenses in
relation to any such claims without the prior written agreement of the
Vendor (such agreement not to be unreasonably withheld).
15.5.2 The Purchaser and Kaneb hereby indemnify and (without
limitation in time) shall hold the Vendor and GTC indemnified from and
against any third party claims and all ancillary costs including legal
costs directly consequent thereon arising out of or in connection with
any pollution or contamination at or emanating from the Terminals
caused on or after the Completion Date. Upon accepting their indemnity
obligations therefor in writing the Purchaser and Kaneb shall then be
free to deal with the said claims as they consider appropriate and
neither the Vendor nor GTC by act or omission shall agree, compromise
or settle any third party claims pursuant to the provisions of this
clause. If the Purchaser and Kaneb have accepted their indemnity
obligations hereunder, the Vendor and GTC will not incur any costs or
expenses in relation to any such claims without the prior written
agreement of the Purchaser (such agreement not to be unreasonably
withheld).
15.5.3 Upon receipt of any notification to it of any third
party claims, the Purchaser shall notify the Vendor and
GTC in writing as soon as reasonably practicable
specifying in reasonable detail the nature and extent
of the claims. In such case, the Purchaser and Kaneb
shall ensure that the Vendor receives all material
information held by them in connection with the said
claims as soon as reasonably practicable.
15.6 All Hazardous Waste stored on site including but not limited to that stored
in barrels, tanks and water collection or treatment systems remains the property
of the Vendor and GTC and will be removed from the Terminals before the
Completion Date, but excluding any such waste stored on behalf of a customer
under a Customer Contract or any minor levels of waste stored in slop tanks in
the ordinary course of business.
15.7 Notwithstanding Clause 24.1 the indemnities under this Clause 15 shall be
personal to the parties and shall not be capable of assignment.
16. THE VENDOR'S RECEIVABLES
16.1 The Vendor shall remain entitled to the Vendor's Receivables. At the end of
the calendar month in which Completion occurs the Purchaser shall invoice
customers for monies due to the Vendor up to Completion for the billing period
in which the Completion occurs in accordance with the billing procedures set out
in Schedule 16.
16.2 The Purchaser shall provide reasonable assistance to the Vendor to collect
the Vendor's Receivables, provided that the Purchaser shall in no event be
liable to the Vendor for any uncollected Vendor's Receivables. Subject to Clause
16.3, should the Purchaser receive any monies in respect of the Vendor's
Receivables the Purchaser shall pay all such monies forthwith to the Vendor.
16.3 In the event that the Purchaser shall receive any payment from a third
party from whom monies are due both in respect of the Vendor's Receivables and
in respect of receivables of the Purchaser, where payment has not been allocated
or identified by the payer, then the Purchaser forthwith shall request
confirmations from the payer that such monies are to be applied towards the
payment of the Vendor's Receivables and shall hold the monies on trust until it
has received such confirmation.
16.4 The Vendor shall remain entitled to all payments due to the Vendor for
goods or services to the extent supplied by the Vendor prior to the Completion
Date in the course of carrying on the Business.
16.5 The Vendor shall obtain the Purchaser's consent (not to be unreasonably
withheld or delayed) prior to commencing a bankruptcy action against any person
who is or becomes a customer of the Purchaser at a Terminal pursuant to this
Agreement.
16.6 After the expiration of three months from the Completion Date the
obligations of the Purchaser under this clause 16 shall cease save that if
thereafter any payments are made to the Purchaser in respect of Vendor's
Receivables the Purchaser shall forthwith remit the same to the Vendor.
17. NAMES AND SIGNAGE
17.1 The Purchaser shall not use or carry on business under any of the Names or
words substantially similar to the Names or hold itself out as being part of or
associated with the Vendor or GTC or use in any way whatsoever any trademarks
(whether registered or unregistered) of GTC, including any logos, insignia or
other devices used at the date hereof in the Business. Except as otherwise
expressly agreed in writing between the parties, the Purchaser shall remove all
references to the Names from all Signage as soon as practicable (and in any
event within 6 weeks) after the Completion Date. For the avoidance of doubt the
Purchaser shall not be in breach of this Clause 17.1 during such 6 week period.
17.2 The Purchaser shall procure that as soon as practicable (and in any event
within 6 weeks) after the Completion Date, the Names and the VAT registration
number and company registration number of the Vendor shall be removed or
permanently obliterated from or covered over in all printed matter used in
connection with the Business (including without limitation all business
stationery, invoices, advertising materials and promotional material) and so far
as practicable, and subject to the Reversioner's (as defined in Schedule 7)
licence and consent (where necessary) all Terminals.
18. POST-COMPLETION ACCESS AND SERVICES
18.1 Upon 7 days' prior written notice, where reasonably practicable and during
normal business hours and without prejudice to the provisions of Clauses 19 and
29, and for 12 months following Completion, the Purchaser shall allow
representatives of the Vendor reasonable access (including the right to take
copies where applicable subject to payment of a reasonable charge therefor) to
the Employees, the Terminals, the Maidenhead office and other Assets, and all
books, records and other documents relating exclusively to the Business prior to
the Completion Date as it may reasonably require and as are reasonably
available.
18.2 Upon 7 days' prior written notice, where reasonably practicable, and during
normal business hours, and for 12 months following Completion, the Vendor shall
allow representatives of the Purchaser reasonable access (including the right to
take copies where applicable subject to payment of a reasonable charge therefor)
(the Purchaser bearing its own cost) to all books, records and other documents
relating to the Business prior to the Completion Date as it may reasonably
require and as are reasonably available.
18.3 The Purchaser shall for a period of not less than seven years from
Completion use its reasonable endeavours to preserve all the books, records and
other documents of the Business delivered to it pursuant to the Agreement and,
upon being given reasonable notice by the Vendor or its agents that access
thereto is required the Purchaser shall make those records available to the
Vendor or its agents during normal business hours for inspection and/or for
copying (at the Vendor's expense).
18.4 The provisions of Clause 29 shall apply to any information obtained
under the provisions of this Clause 18.
18.5 The rights of access under this Clause 18 shall not apply to any documents
or records if such access is requested during the course of legal proceedings
between the parties hereto to which such documents or records are relevant, or
during any period when any claim has been intimated by either party pursuant to
the terms of the Agreement and remains unresolved.
18.6 Following Completion the Purchaser shall use its reasonable endeavours to
provide the services set out in Schedule 17 to and/or for the benefit of the
Vendor (and shall grant the Vendor the rights related to the benefit of such
services described in Schedule 17) and the Vendor shall reimburse to the
Purchaser any actual third party costs that the Purchaser may incur in this
respect upon receipt of the relevant third party invoice or similar cost
verification.
19. VAT
19.1 All amounts expressed in this Agreement as being payable by or to the
Purchaser are expressed exclusive of any Value Added Tax which may be chargeable
thereon and the amount of any such Value Added Tax shall be payable in addition
thereto subject as hereinafter provided. 19.2 The parties intend that the
Business shall be transferred as a going concern for the purposes of Section 49
VATA 1994 and Article 5 of the VAT Order and accordingly application shall be
made to H.M. Customs & Excise to obtain a direction that all records referred to
in Section 49 VATA 1994 may be retained by the Vendor. The Vendor undertakes to
preserve those records in such a manner and for such periods as may be required
by law and to give to the Purchaser as from the Completion Date reasonable
access during normal business hours to such records.
19.3 Both the Vendor and the Purchaser shall use all reasonable endeavours to
secure that the sale of the Business is treated under the VAT Order as neither a
supply of goods nor a supply of services and accordingly that no VAT shall be
payable under Clause 19.1, and within 7 days of the date hereof (a) the Vendor
shall write in terms agreed with the Purchaser to H M Customs & Excise seeking
confirmation of that treatment and (b) the Purchaser shall supply to the Vendor
evidence satisfactory to the Vendor of the registration of the Purchaser for VAT
purposes.
19.4 If and to the extent that H.M. Customs & Excise have before the Completion
Date expressly indicated that the sale of the Business cannot be treated in the
manner contemplated by Clause 19.3, or if the Purchaser shall have indicated
that it no longer intends to carry on the Business in the same manner as the
Vendor for the purposes of the VAT Order, the Purchaser shall (against
production of tax invoices in respect thereof and in addition to any amounts
expressed in the Agreement to be payable by the Purchaser) pay on the Completion
Date the amount of any VAT which as a result of that indication may be
chargeable on the sale of the Business under the Agreement. If no such
indication shall have been given before the Completion Date, then no amount in
respect of VAT shall be paid by the Purchaser on the Completion Date, but to the
extent that VAT shall subsequently be determined by H.M. Customs & Excise to be
payable on the sale, the Purchaser shall in addition to any amount expressed in
the Agreement to be payable by the Purchaser pay to the Vendor such VAT and any
penalty or interest incurred by the Vendor for late payment thereof (other than
where incurred due to the fault or negligence of the Vendor), such payment by
the Purchaser to be made forthwith against evidence that the due date for
payment of such tax has fallen due or will fall due within seven days, or if
later against delivery by the Vendor to the Purchaser of the appropriate tax
invoice.
19.5 If requested by the Purchaser, the Vendor shall make any appeal which is
reasonable and necessary against any determination of H.M. Customs & Excise that
the sale is not going to be treated as the transfer of a going concern, at the
sole cost and expense of the Purchaser.
19.6 If any amount paid by the Purchaser to the Vendor in respect of VAT
pursuant to the Agreement is subsequently found to have been paid in error and,
if it has not yet accounted for such VAT to Customs & Excise, the Vendor shall
promptly repay such amount to the Purchaser. If the Vendor has already so
accounted then it shall at the expense of the Purchaser use all reasonable
endeavours to obtain repayment from H.M. Customs & Excise and forthwith on
receiving repayment from H.M. Customs & Excise shall pay to the Purchaser the
amount repaid together with the amount of any interest payable by H M Customs &
Excise.
19.7 After the Completion Date the Purchaser shall as required by the VAT Order
use the assets of the Business in carrying on the same kind of business, whether
or not as part of any existing business of the Purchaser, as that carried on by
the Vendor, and authorises the Vendor to make this known to H.M. Customs &
Excise in any application (including under Clause 19.3) seeking confirmation
that Article 5 of the VAT Order shall apply to the sale of the Business.
19.8 VAT payable in respect of goods and services supplied, or deemed to be
supplied, by the Vendor prior to the Completion Date and all interest payable
thereon and penalties attributable thereto shall be paid to H.M. Customs &
Excise by the Vendor. The Vendor shall be entitled to receive and retain all
reimbursement or credit from H.M. Customs & Excise for VAT borne by the Vendor
on goods and services supplied to the Vendor prior thereto and any payments
received in respect of VAT overpaid to H.M. Customs & Excise prior thereto.
19.9 Where in relation to any Terminal the Vendor has made an election under
paragraph 2 of Schedule 10 VATA 1994, that fact has been notified by the Vendor
to the Purchaser prior to the date hereof and the Vendor has delivered to the
Purchaser a copy of the acknowledgement by HM Customs & Excise of the
notification of such election, together with a copy of the written permission of
H.M. Customs & Excise to make such election where such written permission is
required by paragraph 3 of Schedule 10 VATA 1994, the Purchaser shall elect to
waive exemption under Paragraph 2 of Schedule 10 VATA 1994 in relation to that
Terminal with effect on or prior to the earliest date on which the Terminal
concerned is to be transferred and shall give written notification to H.M.
Customs & Excise as required by the VAT Order no later than that date. The
Purchaser shall deliver copies of the notification of such election showing
receipt thereof by H.M. Customs & Excise by Completion and in default of
delivery thereof shall, notwithstanding Clause 19.1, in addition to any amounts
expressed in the Agreement to be payable by the Purchaser in respect of the said
Terminal pay to the Vendor at Completion (against delivery by the Vendor of an
appropriate tax invoice for VAT purposes) an additional amount in respect of VAT
thereon.
20. REPRESENTATIONS AND WARRANTIES
20.1 The Vendor hereby warrants and represents to the Purchaser as at the date
hereof in the terms of Schedule 4 and so that the remedies of the Purchaser in
respect of any of the Warranties shall continue to subsist notwithstanding
Completion.
20.2 The said warranties and representations shall be subject to:
20.2.1 any matters fairly and accurately disclosed in or
pursuant to the Disclosure Letter;
20.2.2 any matter provided for under the terms of this
Agreement;
20.2.3 the provisions of the Property Condition Schedules Show
and matters therein subject to which the Terminals
are sold; and
20.2.4 the limitations on the liability of the Vendor set out
in Clause 21.
20.3 The benefit of the representations and warranties given hereunder or
pursuant hereto may not be assigned in whole or in part.
20.4 The Vendor undertakes to notify the Purchaser of any material breach of
Warranty as soon as reasonably practicable after it becomes aware of any such
breach up to the Completion Date.
20.5 Each of the Warranties shall be construed as a separate representation or
warranty (as the case may be) and (save as expressly provided) shall not be
limited by the terms of any other Warranties.
20.6 None of the limitations contained in clause 21 shall apply to any breach of
the Warranties which (or the delay in discovery of which) is the consequence of
fraud, wilful misconduct or wilful concealment by the Vendor or any officer or
employee of the Vendor or any member of the Vendor's Group.
20.7 The Vendor acknowledges that the Purchaser has entered into this Agreement
in reliance upon the Warranties and the representations and warranties contained
in Clause 2.2 of this Agreement.
20.8 The Purchaser acknowledges that it does not rely on and has not been
induced to enter into this Agreement on the basis of any warranties,
representations, covenants, undertakings, indemnities or other statements
(including any forecast or expression of opinion) whatsoever including, without
prejudice to the generality of the foregoing, any statement, forecast or
expression of opinion contained in any of the documents listed on the Data Room
Index, other than the Warranties and the Replies to Pre-Contract Property
Enquiries and further acknowledges that neither the Vendor nor any of its
servants, agents, officers or employees have given any such other warranties,
representations, covenants, undertakings or indemnities. The Purchaser further
acknowledges and agrees that the Executive Summary does not form part, or any
basis, of this or any other agreement between the Vendor and the Purchaser.
20.9 Without prejudice to the provisions of Clause 9.3 in respect of the period
prior to Completion, notwithstanding that the Purchaser becomes aware at any
time that there has been any breach of the Warranties or any other term of this
Agreement, the Purchaser shall not be entitled at any time after Completion to
treat this Agreement as terminated or to rescind this Agreement but shall be
entitled to claim damages or exercise any other right, power or remedy under
this Agreement.
20.10 Where any of the Warranties are expressed as being "so far as the Vendor
is aware" or otherwise qualified by any similar expression, such reference shall
be deemed to be a reference to the actual and constructive state of knowledge or
awareness of the Vendor's and GTC's directors and officers (including directors
and officers at the Maidenhead office) and the Vendor's Terminal Managers on the
date hereof who shall for the purposes of constructive knowledge in respect of
each Warranty so expressed each be deemed to have carried out such due and
diligent enquiry into the relevant matter as may be described in the relevant
Warranty.
20.11 Any information supplied by any Employee to the Vendor or its agents or
accountants, solicitors or other advisers in connection with the Warranties, the
Disclosure Letter or otherwise in relation to the Business and Assets shall not
constitute a representation or warranty or guarantee as to the accuracy thereof
by such Employee and the Vendor hereby waives any and all claims which it might
otherwise have against such Employee in respect thereof.
20.12 No information relating to the Business or the Assets of which the
Purchaser has knowledge (actual or constructive) other than that contained in or
referred to in this Agreement and the Disclosure Letter and no investigation by
or on behalf of the Purchaser shall prejudice any claim by the Purchaser under
the Warranties or operate to reduce any amount recoverable thereunder.
21. LIMITATIONS ON LIABILITY
21.1 The liability of the Vendor in respect of or arising out of any breach of
the provisions of Clause 20 and/or the Warranties (the liability of the Vendor
being referred to herein as `Liability') shall be limited as set out in Clause
20 and in this Clause 21.
21.2 No Liability shall in any event arise unless and until the aggregate amount
of loss sustained in respect of any claims permitted to be made under this
Clause 21.2 shall equal or exceed (pound)720,000 but once the figure is exceeded
the Purchaser shall be entitled to recover the whole of such amount and not just
the excess. Thereafter, no liability shall arise unless the amount of the loss
sustained in respect of each individual claim shall equal or exceed (pound)5,000
in which event the liability shall be in respect of the whole amount and not
merely the excess.
21.3 The aggregate Liability shall not exceed the Consideration (as adjusted by
the net amount payable pursuant to the Completion Statement under Clause 7.1
and/or any reduction in accordance with Clauses 9 or 11.3).
21.4 No claim in respect of any Liability shall be brought by the Purchaser
against the Vendor unless notice in writing of any such claim (specifying in
reasonable detail the nature of the breach and so far as practicable the amount
claimed in respect thereof) has been given to the Vendor by no later than the
Final Claim Date.
21.5 Unless proceedings in respect thereof shall have been commenced against the
Vendor and/or GTC, any claim which has been made or shall be made before the
Final Claim Date shall if it has not been previously satisfied settled or
withdrawn be deemed to have been withdrawn and shall become fully barred and
unenforceable on the expiry of the period of six months commencing on the Final
Claim Date. For this purpose, proceedings shall not be deemed to have been
commenced unless they shall have been issued and served upon the Vendor or GTC
or, as the case may be, the Vendor's or GTC's Solicitors.
21.6 The Purchaser shall reimburse to the Vendor any sum paid to the Purchaser
by the Vendor in respect of any Liability which is subsequently recovered by or
paid to the Purchaser from any third party together (if the Vendor shall not
have already recovered back from the Purchaser the full amount paid by the
Vendor) with any repayment supplement under Section 825 of ICTA or other
interest (less any taxation thereon) in respect thereof.
21.7 No Liability shall arise and the Purchaser shall have no claim whatsoever
against the Vendor in respect thereof:
21.7.1 if and to the extent that allowance, provision or
reserve has been made in the Completion Statement in
respect of the matter to which such claim relates or
such matter was taken into account in computing the
amount of any such allowance, provision or reserve;
21.7.2 if and to the extent that such claim would not have
arisen but for any claim, election, surrender or
disclaimer made or notice or consent given or any other
thing done after Completion by the Purchaser or any
person connected with the Purchaser or the failure or
omission of the Purchaser or any person connected with
the Purchaser to make any such claim, election,
surrender or disclaimer or give such notice or consent
or do any other thing under the provisions of any
enactment or regulation relating to Taxation;
21.7.3 if and to the extent that the Purchaser has an
indemnity for or will recover the loss or damage
suffered by the Purchaser arising out of such breach or
claim under the terms of any insurance policy of the
Purchaser or from any third party provided that the
Vendor shall indemnify the Purchaser for any costs
incurred in connection with the Purchaser obtaining
such indemnity or recovery (providing that such
indemnity does not entail any greater liability or
obligation of the Vendor than it would have incurred as
a liability for breach of Warranty); or
21.7.4 if and to the extent that such claim relates to a claim
or liability for Taxation and would not have arisen but
for any winding up or cessation after Completion of the
Business or any trade or business carried on by the
Purchaser.
21.8 All amounts available for set-off or otherwise liable to be deducted
pursuant to Clause 21.7 above shall not be deducted for the purpose of
determining the amount of loss sustained in connection with the de minimis
limits referred to in Clause 21.2 above.
21.9 The Purchaser shall not be entitled to recover damages from the Vendor in
respect of any Liability to the extent that the Purchaser has already received
reimbursement or restitution in respect of the same Liability.
21.10 If any claim by any third party comes to the notice of the Purchaser by
reason or in consequence of which any Liability may arise the Purchaser shall:
21.10.1 as soon as reasonably practicable (and if possible
within such a period as will afford the Vendor
reasonable opportunity to lodge a timely appeal against
such claim) give written notice thereof to the Vendor;
and
21.10.2 not make any admission of liability, agreement or
compromise with any person body or authority in
relation thereto without the prior agreement of the
Vendor (not to be unreasonably withheld or delayed).
21.11 Provided that the Vendor acknowledges its obligation to indemnify the
Purchaser in accordance with Clause 21.12, without prejudice to Clause 21.10
above and Clause 21.12 below, if the Purchaser considers that it will or may
make a claim against the Vendor for any Liability, it shall as soon as
practicable so notify the Vendor pursuant to Clause 21.4, and for a period of 60
days after such notification shall grant the Vendor the opportunity to take
steps to remedy or avert such Liability.
21.12 The Purchaser shall take such action as the Vendor may reasonably request
(provided that such action would not harm or be to the detriment of the Business
or any part thereof as carried on by the Purchaser after the Completion Date) to
avoid, dispute, resist, appeal, compromise or defend or mitigate any claim which
would give rise to any Liability on the basis that the Purchaser shall be
indemnified by the Vendor as to all reasonable costs and expenses which it may
reasonably incur by reason of such action.
21.13 In assessing any damage or other amounts recoverable in respect of any
Liability there shall be taken into account the value of any immediate financial
benefit obtained by the Purchaser in consequence of the event or breach giving
rise thereto.
21.14 For the avoidance of doubt nothing in this Clause 21 shall in any way
restrict or limit the general obligation at law of the Purchaser to mitigate any
loss or damage which it may suffer in consequence of any Liability.
21.15 Any amount paid by the Vendor pursuant to the provisions of the Agreement
in respect of a breach of any of the Warranties or other provisions of the
Agreement shall be treated as a reduction in the Consideration paid by the
Purchaser.
22. GUARANTEES AND INDEMNITIES
22.1 In consideration of the Purchaser entering into this Agreement at the
request of GTC, GTC hereby undertakes to the Purchaser that the Vendor shall
perform its obligations and meet its liabilities under the provisions of this
Agreement.
22.2 If the Vendor shall fail in any respect to perform any such obligations or
meet any such liabilities under this Agreement or breach any of the Warranties
then GTC shall forthwith perform or take any steps necessary or desirable to
achieve the due and faithful performance of the obligations or satisfaction of
the liabilities of the Vendor and GTC shall indemnify and hold indemnified the
Purchaser against any losses, damages, costs, charges and expenses for which the
Vendor would have been liable arising out of or in connection with the said
failure or breach.
22.3 In consideration of the Vendor entering into this Agreement at the request
of Kaneb and STOP, each of Kaneb and STOP hereby jointly and severally undertake
to the Vendor and to GTC that the Purchaser shall perform its obligations and
meet its liabilities under the provisions of this Agreement.
22.4 If the Purchaser shall fail in any respect to perform any such obligations
or meet any such liabilities under this Agreement then Kaneb and STOP shall
forthwith perform or take any steps necessary or desirable to achieve the due
and faithful performance of the obligations or satisfaction of the liabilities
of the Purchaser and Kaneb and STOP shall each indemnify and hold indemnified
the Vendor against any losses, damages, costs, charges and expenses for which
the Purchaser would have been liable arising out of or in connection with the
said failure or breach.
22.5 In consideration for GTC guaranteeing the obligations and Warranties of the
Vendor to the Purchaser under sub-clauses 22.1 and 22.2 above at the request of
the Purchaser and Kaneb, the Purchaser shall use all reasonable endeavours to
procure that GTC is released and discharged from the GTC Guarantees, and without
prejudice to the generality of the foregoing, Kaneb shall provide such guarantee
(or other suitable guarantee from within the Kaneb group of companies) as may be
required for that purpose, provided that such guarantee is no more onerous than
the current GTC Guarantee. Pending such release and discharge each of the
Purchaser and Kaneb hereby jointly and severally indemnifies and shall hold GTC
fully indemnified from and against any and all actions, proceedings, losses,
damages, liabilities, obligations, costs, claims, charges and expenses suffered
or incurred by GTC of whatsoever nature arising out of or in connection with all
or any GTC Guarantees ("the GTC Indemnified Claims") to the extent that such GTC
Indemnified Claims relate to periods after the Completion Date.
23. KANEB, STOP AND PURCHASER'S WARRANTIES
23.1 Each of Kaneb, STOP and the Purchaser hereby warrants and represents to the
Vendor that:
23.1.1 it has full power and authority to enter into and
perform the Agreement and the Agreement when executed
will constitute a legal, valid and binding obligation
on it in accordance with its terms;
23.1.2 the execution and delivery of, and the performance by
it of its obligations under, the Agreement will not:
(a) result in a breach of or conflict with any
provision of its memorandum or articles of asso-
ciation (or other constitutional document); or
(b) result in a breach of or conflict with any
order, judgment or decree of any court or
governmental agency or any ordinance, regulation
or agreement to which it is a party or by which
it or its assets are bound; or
(c) require the consent of its partners and/or
shareholders (as the case may be) or any other
person, except to the extent such consent has
been obtained;
23.1.3 it acts as principal for the purposes of this Agreement
and not as broker or agent for another person or in
concert with another person and has not at the date of
the Agreement any arrangement in place; and
23.1.4 it and its employees or advisers have no actual
knowledge of any event, act or circumstances which it
appreciates at the date hereof constitutes a breach of
the Warranties.
23.2 On Completion, each of Kaneb and STOP shall deliver to the Vendor's
solicitors opinions of Kaneb's corporate counsel addressed to the Vendor (upon
terms to be agreed) relating to the execution of this Agreement by each of Kaneb
and STOP and their respective capacities to enter into the guarantees,
indemnities and other provisions herein contained.
24. ASSIGNMENT
24.1 This Agreement shall be binding on and shall enure for the benefit of each
party, its successors and permitted assigns provided that, save as set out in
clauses 24.2 and 24.3, neither party shall be entitled to assign all or any of
their respective rights and obligations hereunder without prior written consent
of the other.
24.2 Any party's rights under this Agreement ("Rights") may be assigned by it to
any associated company, and by such associated company to any other company
which is associated with both the original party to this Agreement and the
assignor, provided that:
24.2.1 if such company to which Rights are assigned ceases to
be so associated, it shall assign the Rights to an
associated company and, until such assignment becomes
effective, the Rights shall cease to be enforceable;
and
24.2.2 in each case such assignee undertakes in writing to the
assignor, for itself and on behalf of the other parties
hereto, to be bound by and (where applicable) to
perform all the relevant obligations and limitations of
the assignor under this agreement in relation to the
rights assigned.
For the purposes of this Clause 24.2 "associated company" means any
holding company of the relevant party and any subsidiary of such
holding company.
24.3 Obligations under this Agreement shall not be assignable.
25. WAIVER
25.1 No waiver by either party of any of the requirements hereof or any of the
rights hereunder shall release the other from full performance of its remaining
obligations as herein stated.
25.2 No breach of any provision of this Agreement shall be waived or discharged
except with the express written consent of the relevant party.
26. NATURE OF AGREEMENT
26.1 The parties acknowledge that the Agreement shall constitute and form the
entire agreement between them relating to the sale and purchase of the Business
and the Assets to the exclusion of any antecedent statement or representation
whether oral written or implied or whether contained in any advertisement
particulars or other matters issued (including without prejudice to the
generality of the foregoing the Executive Summary) or in any correspondence
entered into by the Vendor or any of its employees, servants or agents and the
Purchaser hereby acknowledges that the Purchaser has not entered into the
Agreement in reliance upon any such statement or representation.
26.2 If at any time any provision of this Agreement is or becomes illegal,
invalid or unenforceable in any respect under the law of any jurisdiction, that
shall not affect or impair:
26.2.1 the legality, validity or enforceability in that juris-
diction of any other provisions of this Agreement; or
26.2.2 the legality, validity or enforceability under the law
of any other jurisdiction of that or any other
provision of this Agreement.
26.3 All provisions of the Agreement so far as they are capable of being
performed or observed and all representations and warranties herein contained
shall continue in full force and effect notwithstanding Completion except in
respect of those matters then already performed.
26.4 The Agreement shall remain in full force and effect in so far as
unimplemented notwithstanding Completion.
27. COSTS
Subject to any express provisions in the Agreement to the contrary,
each Party shall bear its own costs and expenses incurred by it in
connection with the Agreement and the transactions contemplated
hereby.
28. ANNOUNCEMENTS
28.1 Subject to sub-clause 28.2, no announcement concerning the subject matter
of the Agreement or any ancillary matter shall be made by either party without
the prior written approval of the other, such approval not to be unreasonably
withheld or delayed.
28.2 Either party may make an announcement concerning the subject matter of the
Agreement or any ancillary matter if required by:
28.2.1 the law of any relevant jurisdiction; or
28.2.2 any securities exchange or regulatory or governmental
body to which that party is subject or submits,
wherever situated, including (without limitation) The
London Stock Exchange, whether or not the requirement
has the force of law,
in which case the party concerned shall take all such steps as may
be reasonable and practicable in the circumstances to agree the
contents of such announcement with the other party before making
such announcement provided that, in any event, any such
announcement shall be made only after notice to the other party.
29. CONFIDENTIALITY
29.1 Subject to sub-clause 29.2, each party shall treat as strictly confidential
all information received or obtained as a result of entering into or performing
the Agreement which relates to:
29.1.1 the provisions of the Agreement;
29.1.2 the negotiations relating to the Agreement;
29.1.3 the subject matter of the Agreement; or
29.1.4 the other party.
29.2 Either party may disclose information which would otherwise be confidential
if and to the extent:
29.2.1 required by the law of any relevant jurisdiction;
29.2.2 required by any securities exchange or regulatory or
governmental body to which either party is subject or
submits, wherever situated, including (without
limitation) The London Stock Exchange, whether or not
the requirement for information has the force of law;
29.2.3 required to vest the full benefit of the Agreement in
either party;
29.2.4 that such information is only disclosed to the profes-
sional advisers, auditors and bankers of each party;
29.2.5 the information has come into the public domain through
no fault of that party; or
29.2.6 the other party has given its prior written approval to
the disclosure, such approval not to be unreasonably
withheld or delayed,
provided that any such information disclosed pursuant to
sub-clauses 29.2.1 to 29.2.2 shall be disclosed only after notice
to the other party, provided that nothing in this Agreement shall
preclude the Purchaser from giving notice to the Reversioner (as
defined in Schedule 7) in accordance with the requirements of the
Leases following Completion.
30. FURTHER ASSURANCE
30.1 Following the Completion Date, the Vendor shall, from time to time
immediately upon request from the Purchaser, at the Vendor's expense, do or
procure the doing of all acts and/or execute or procure the execution of all
such documents in a form satisfactory to the Purchaser to give the Purchaser
full legal and beneficial title to the Assets.
30.2 Each party agrees to execute and deliver to the other or do as appropriate
all such other documents, assurances and acts as may be reasonably necessary to
fulfil the provisions of the Agreement or to carry into effect the intentions of
the parties as expressed herein.
31. LAW AND JURISDICTION
31.1 This Agreement, save for the Scottish Leasehold Schedule and the N.I.
Leasehold Schedule (and any documents entered into pursuant to either of those
Schedules), is governed by and shall be construed in accordance with English law
and the parties hereby irrevocably submit to the exclusive jurisdiction of the
English Courts in respect of any dispute arising herefrom or any other
contractual relationship between the parties hereto (save to the extent that any
such disputes relate to the Scottish Leasehold Schedule or the Scottish Leases
or the N.I. Leasehold Schedule or the N.I. Lease).
31.2 This Agreement and such documents, to the extent that they relate to the
Scottish Leasehold Schedule or the Scottish Leases, shall be governed by and
construed in accordance with Scots law and the Courts of Scotland shall have
exclusive jurisdiction in relation to disputes arising therefrom.
31.3 This Agreement and such documents, to the extent that they relate to the
N.I. Leasehold Schedule or the N.I. Lease, shall be governed by and construed in
accordance with the laws of Northern Ireland and the Courts of Northern Ireland
shall have exclusive jurisdiction in relation to disputes arising therefrom.
32. NOTICES
32.1 Any notice or other communication given or made under or in connection with
the matters contemplated by the Agreement shall be in writing (other than
writing on the screen of a visual display unit or other similar device which
shall not be treated as writing for the purposes of this Clause).
32.2 Any such notice or other communication shall be addressed as provided in
sub-Clause 32.3 and, if so addressed, shall be deemed to have been duly given or
made as follows:
32.2.1 if sent by personal delivery, upon delivery at the
address of the relevant party;
32.2.2 if sent by first class post, when received;
32.2.3 if sent by telex, when despatched but only if the
recipient's answerback appears correctly at the start
and end of the sender's telex; and
32.2.4 if sent by facsimile, when despatched (provided that
it is received between the hours of 9 a.m. to 5 p.m. on
a Business Day otherwise it will be deemed received by
10 a.m. on the next following Business Day)
provided that if, in accordance with the above provisions, any such
notice or other communication would otherwise be deemed to be given
or made outside working hours, such notice or other communication
shall be deemed to be given or made at the start of working hours
on the next Business Day.
32.3 The relevant addressee, address and facsimile number of each party for the
purposes of the Agreement, subject to sub-Clause 32.4 are:
Name of Party Addr Facsimile No.
The Vendor: .................... c/o GATX Terminals Corporation 0013126216647
500 West Monroe Street
Chicago, Illinois 60661, USA
For the attention of:
R.J. Ciancio .................... As above As above
Legal Department
And
Copied to:
Jonathan Riley ................. 190 Strand 0171 379 6854
Lawrence Graham ................ London WC2R 1JN
The Purchaser, KANEB or STOP: .. Kaneb Pipe Line Company 0019726991894
For the attention of: ........... 2435 N Central Expressway
Edward D Doherty ................ Suite 700
Kaneb Pipe Line Company ......... Richardson, Texas 75080-2731
Copied to: ...................... Ashurst Morris Crisp 0171 972 7990
David Kershaw ................... Broadwalk House
Ashurst Morris Crisp ............ 5 Appold Street
London EC2A 2HA
Copied to: ..................... Support Terminals Operating 001 972 931 6526
Fred T. Johnson ................ Partnership, L.P.
Support Terminals Operating 17304 Preston Road
Partnership, L.P................ Suite 1000
Dallas, Texas 75252
GTC: ........................... 500 West Monroe Street 001 312 621 6647
Chicago, Illinois 60661, USA
for the attention of:
Anthony J. Andrukaitis
President
Copied to: R J Ciancio
Legal Department
Copied to:
Jonathan Riley 190 Strand 0171 379 6854
Lawrence Graham ................... London WC2R 1JN
32.4 Either party may notify the other party to the Agreement of a change to its
name, relevant addressee, address, telex number or facsimile number for the
purposes of sub-Clause 32.3 provided that such notification shall only be
effective on:
32.4.1 the date specified in the notification as the date
on which the change is to take place; or
32.4.2 if no date is specified or the date specified is less
than the five clear business days after the date on
which notice is given, the date falling five clear
business days after notice of any such change has been
given.
33. VARIATIONS
This Agreement may not be released, discharged, supplemented,
amended, varied or modified except by an instrument in writing
signed by a duly authorised representative of each of the parties
hereto.
34. COUNTERPARTS
This Agreement may be executed in any number of counterparts and by
the different parties in different counterparts each of which when
executed and delivered is an original. Any party may enter into
this Agreement by executing a counterpart and this Agreement shall
not take effect until it has been executed by all the parties but
all such counterparts shall be deemed to constitute one and the
same instrument.
AS WITNESS the hands of the parties or their duly authorised representatives the
day and year first before written.
Executed and delivered as a deed )
by GATX TERMINALS LIMITED )
pursuant to a resolution of the )
Board of Directors )
acting by )
B. P. HUGHES Director
S. SEXTON Director/Secretary
Executed and delivered as a deed )
by ST SERVICES LTD. )
pursuant to a resolution of the )
Board of Directors )
acting by )
ED DOHERTY Director
RONALD SCOGGINS Director/Secretary
Executed and delivered as a deed )
by ST EASTHAM LTD. )
pursuant to a Resolution of the )
Board of Directors )
acting by )
ED DOHERTY Director
RONALD SCOGGINS Director/Secretary
Executed and delivered as a deed )
by GATX TERMINALS CORPORATION )
pursuant to a resolution of the )
Board of Directors )
acting by )
RICHARD J. DESIDERIO Vice President
BRONIA WASSERMAN Assistant Secretary
Executed and delivered as a deed )
by KANEB PIPE LINE PARTNERS L.P. )
pursuant to a resolution of the )
Board of Directors of Kaneb Pipe Line )
Company as the General Partner )
acting by )
RONALD SCOGGINS Sr. Vice President
MICHAEL GLAZER Assistant Secretary
Executed and delivered as a deed )
by SUPPORT TERMINALS )
OPERATING PARTNERSHIP, L.P. )
pursuant to a resolution of the )
Board of Directors of Support Terminal )
Services Inc. as the General Partner )
acting by )
RONALD SCOGGINS Sr. Vice President
MICHAEL GLAZER Assistant Secretary
CREDIT AGREEMENT
between
KANEB PIPE LINE OPERATING PARTNERSHIP, L.P., and
ST SERVICES, LTD.,
as Borrowers,
and
SUNTRUST BANK, ATLANTA,
as Lender
(pound)16,000,000 Term Loan A in Sterling
$13,300,000 Term Loan B in Dollars
$5,000,000 Term Loan C in Dollars
January 29, 1999
PREPARED BY HAYNES AND BOONE, L.L.P.
TABLE OF CONTENTS
SECTION 1 DEFINITIONS AND TERMS 1
1.1 Definitions 1
1.2 Time References 13
1.3 Other References 13
1.4 Accounting Principles 13
SECTION 2 TERM LOANS 13
SECTION 3 PAYMENT TERMS 14
3.1 Notes and Payments 14
3.2 Payments 14
3.3 Interest Rates 14
3.4 Quotation of LIBOR Rates 14
3.5 Default Rate 15
3.6 Interest Recapture 15
3.7 Interest Calculations 15
3.8 Maximum Rate 15
3.9 Interest Periods 16
3.10 Continuations 16
3.11 Order of Application 16
3.12 Offset 16
3.13 Booking Borrowings 16
3.14 Basis Unavailable or Inadequate for LIBOR Rate 16
3.15 Additional Costs 17
3.16 Change in Laws 18
3.17 Funding Loss 18
3.18 Joint and Several Liability 18
3.19 Introduction of the Euro 19
SECTION 4 SECURITY 20
4.1 Guaranty 20
4.2 Collateral 20
4.3 Additional Security and Guaranties 21
4.4 Collateral Documentation 21
SECTION 5 CONDITIONS PRECEDENT 21
SECTION 6 REPRESENTATIONS AND WARRANTIES 21
6.1 Purpose of Credit Facility 21
6.2 Existence, Good Standing, and Authority 22
6.3 Subsidiaries 22
6.4 [INTENTIONALLY BLANK] 22
6.5 Authorization and Contravention 22
6.6 Binding Effect 22
6.7 Financial Statements 23
6.8 Litigation 23
6.9 Taxes 23
6.10 Environmental Matters 23
6.11 Employee Plans 23
6.12 Properties; Liens 23
6.13 Government Regulations 24
6.14 Affiliate Transactions 24
6.15 Debt Cross Defaults 24
6.16 Material Agreements 24
6.17 Insurance 24
6.18 Labor Matters 24
6.19 Solvency 24
6.20 Trade Names 25
6.21 Intellectual Property 25
6.22 Y2K Issue 25
6.23 Full Disclosure 25
SECTION 7 AFFIRMATIVE COVENANTS 25
7.1 Items to be Furnished 25
7.2 Use of Proceeds 27
7.3 Books and Records 27
7.4 Inspections 27
7.5 Taxes 27
7.6 Payment of Obligations 28
7.7 Expenses 28
7.8 Maintenance of Existence, Assets, and Business 28
7.9 Insurance 28
7.10 Preservation and Protection of Rights 28
7.11 Environmental Laws 28
7.12 Subsidiaries 29
7.13 Indemnification 29
SECTION 8 NEGATIVE COVENANTS 29
8.1 Taxes 29
8.2 [INTENTIONALLY BLANK] 29
8.3 Employee Plans 29
8.4 Funded Debt 29
8.5 Liens 30
8.6 Affiliate Transactions 31
8.7 Compliance with Laws and Documents 32
8.8 Loans, Advances, and Investments 32
8.9 Distributions 32
8.10 Asset Transfers 34
8.11 Dissolutions, Mergers, and Consolidations 35
8.12 Assignment 35
8.13 Fiscal Year and Accounting Methods 36
8.14 New Businesses 36
8.15 Government Regulations 36
SECTION 9 FINANCIAL COVENANTS 36
9.1 Current Ratio 36
9.2 Tangible Net Worth 36
9.3 Leverage Ratio 36
9.4 Fixed Charges Coverage Ratio 36
SECTION 10 DEFAULT 36
10.1 Obligation 37
10.2 Covenants 37
10.3 Debtor Relief 37
10.4 Misrepresentation 37
10.5 Judgments and Attachments 37
10.6 Certain Debt 37
10.7 Default Under Other Agreements 37
10.8 Validity and Enforceability of Loan Papers 38
10.9 Change of Control 38
10.10 KPC Merger or Consolidation 38
SECTION 11 RIGHTS AND REMEDIES 38
11.1 Remedies Upon Default 38
11.2 KPP Company Waivers. 38
11.3 Performance by Lender 38
11.4 Not in Control 39
11.5 Course of Dealing 39
11.6 Cumulative Rights 39
11.7 Application of Proceeds 39
11.8 Diminution in Value of Collateral 39
11.9 Certain Proceedings 39
11.10 Judgment Currency 39
SECTION 12 MISCELLANEOUS 40
12.1 Nonbusiness Days 40
12.2 Communications 40
12.3 Form and Number of Documents 40
12.4 Exceptions to Covenants 40
12.5 Survival 40
12.6 Governing Law 41
12.7 Invalid Provisions 41
12.8 Venue; Service of Process; Jury Trial 41
12.9 Amendments, Consents, Conflicts, and Waivers 41
12.10 Multiple Counterparts 42
12.11 Successors and Assigns; Syndication 42
12.12 Discharge Only Upon Payment in Full;
Reinstatement in Certain Circumstances 42
12.13 Entirety 42
SCHEDULES AND EXHIBITS
Schedule 5 Closing Documents
Schedule 6.2 Jurisdictions of Organization and Business
Schedule 6.3 Organizational Structure
Schedule 6.8 Litigation
Schedule 6.10 Environmental Matters
Schedule 6.16 Material Agreements
Schedule 6.20 Trade Names
Schedule 9.9 Insurance
Schedule 9.8 Permitted Investments
Exhibit A-1 Term Loan A Note
Exhibit A-2 Term Loan B Note
Exhibit A-3 Term Loan C Note
Exhibit B Guaranty
Exhibit C-1 Supplement to Collateral Trust and Intercreditor Agreement
Exhibit C-2 Third Amendment to Stock Pledge Agreement
Exhibit C-3 Fourth Modification to First Amended and Restated
Mortgage and Security Agreement
Exhibit D-1 Notice of Continuation
Exhibit D-2 Compliance Certificate
Exhibit D-3 Financial Statements Certificate
Exhibit E Opinion of Counsel
CREDIT AGREEMENT
THIS AGREEMENT is entered into as of January 29, 1999, between KANEB PIPE LINE
OPERATING PARTNERSHIP, L.P., a Delaware limited partnership ("Borrower KPOP"),
ST SERVICES, LTD., an English company that is a wholly owned Subsidiary of
Borrower KPOP ("Borrower ST"), and SUNTRUST BANK, ATLANTA, a Georgia banking
corporation ("Lender").
Terms used in this agreement are defined in Section 1.
A. Borrower ST and Borrower KPOP (collectively, "Borrowers") have requested that
Lender make the following term loans:
(1) To Borrower ST and Borrower KPOP jointly, a (pound)16,000,000 term loan (the
"Term Loan A"), denominated in Sterling, to be used by Borrowers in the
acquisition from GATX Terminals Corporation of six terminals located in the
United Kingdom (the "GATX Terminals").
(2) To Borrower KPOP, the Dollar Equivalent of an (pound)8,000,000 term loan
(the "Term Loan B"), denominated in Dollars also to be used by Borrower KPOP in
the acquisition from GATX Terminals.
(3) To Borrower KPOP, a $5,000,000 term loan (the "Term Loan C"), denominated in
Dollars, to be used by Borrower KPOP for general corporate purposes.
B. Borrower KPOP is the borrower under the Chase Credit Agreement and the Note
Agreements, the indebtedness from time to time owed under which are or will be,
as provided in the Intercreditor Agreement, pari passu guaranteed by all
Restricted Companies and secured by all Collateral.
C. Lender has agreed to make Term Loan A, Term Loan B, and Term Loan C
(collectively, the "Term Loans") upon the terms and conditions of this
agreement, including the conditions that the Obligation shall at all times be
(on a pari passu basis with the indebtedness from time to time owed under the
Chase Credit Agreement, the Note Agreements, and the Chase Revolving Note and as
provided in the Intercreditor Agreement) (1) guaranteed by all Restricted
Companies and (2) secured by all Collateral effective (a) in respect of Term
Loan A and Term Loan B, as a condition precedent to the making of those Term
Loans, and (b) in respect of Term Loan C, upon that Term Loan satisfying all of
the conditions to being Qualifying Debt as defined in the Chase Credit Agreement
and the Note Agreements.
ACCORDINGLY, for adequate and sufficient consideration, Borrowers and Lender
agree as follows:
SECTION 1 DEFINITIONS AND TERMS.
1.1 Definitions. As used in the Loan Papers:
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.
Base Rate means, for any day, the higher of either (a) the Prime Rate for that
day or (b) the sum of the Federal Funds Rate for that day plus 0.50%, with each
change in any interest rate provided for in this agreement based upon the Base
Rate resulting from a change in the Base Rate taking effect at the time of that
change in the Base Rate.
Base Rate Borrowing means a Borrowing bearing interest at the Base Rate.
Borrower KPOP is defined in the introductory paragraph of this agreement.
Borrower ST is defined in the introductory paragraph of this agreement and is a
wholly owned Subsidiary of STOP.
Borrowers is defined in the recitals to this agreement.
Borrowing means any amount disbursed (a) by Lender to either Borrower under the
Loan Papers, either as an original disbursement of funds or the continuation of
an outstanding amount or (b) by Lender in accordance with, and to satisfy the
obligations of any KPP Company under, any Loan Paper.
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
Georgia or New York and (b) for purposes of any LIBOR Rate Borrowing, a day when
commercial banks are open for international business in London.
Chase means Chase Bank of Texas, National Association, in its individual banking
capacity.
Chase Credit Agreement means the Credit Agreement dated as of December 22, 1994,
between Borrower KPOP, certain lenders, Chase Bank of Texas, National
Association (formerly Texas Commerce Bank National Association), acting as agent
for those lenders.
Chase Revolving Note means the Revolving Promissory Note With Agreement dated as
of February 1, 1999, between Borrower KPOP and Chase, in the stated principal
amount of $15,000,000.
Closing Date means February 1, 1999.
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.
Compliance Certificate means, for any Person, a certificate substantially in the
form of Exhibit D-2 and signed by a Responsible Officer of that Person.
Current Financials means, for KPP or Borrower KPOP, as the case may be (a)
either (i) their respective consolidated Financial Statements for the year
ending December 31, 1997, together with their Financial Statements for the
portion of the fiscal year ending on September 30, 1998, or (ii) at any time
after their respective annual Financial Statements are first delivered under
Section 7.1, their annual consolidated Financial Statements then most recently
delivered to Lender under Section 7.1, together with their quarterly Financial
Statements then most recently delivered to Lender under Section 7.1, but (b)
does not include the results of operation and cash flows for any Company for the
time period before it becomes a member of KPP's or KPOP's, as the case may be,
consolidated group except for any periods for which that Company's Financial
Statements were audited by an accounting firm reasonably acceptable to Lender.
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 applicable in any jurisdiction in the United States or the
United Kingdom.
Default is defined in Section 10.
Default Rate means, for any day, an annual interest rate equal from day to day
to the lesser of either (a) the Maximum Rate or (b) the sum of 2.0% plus:
(i) for a LIBOR Rate Borrowing either (A) the LIBOR Rate then in effect for that
Borrowing until the end of its current Interest Period or (B) the Base Rate
thereafter;
(ii) for a Base Rate Borrowing, the Base Rate; and
(iii) for a Fixed Rate Borrowing, the Fixed Rate.
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.
Dollars and the symbol $ mean lawful currency of the United States of America.
Dollar Equivalent, on any day, means (a) any amount denominated in Dollars and
(b) for any amount denominated in Sterling, the equivalent in Dollars of an
amount of Sterling, determined at the rate of exchange quoted by Lender at
approximately 10:00 a.m. (Atlanta, Georgia time) on that day to prime banks in
New York, New York for the spot purchase in the New York foreign exchange market
of that amount of Sterling with Dollars.
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 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 of determining the ratios
described in Sections 9.3 and 9.4:
(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
(ii) KPP's chief financial officer provides to Lender a certificate, in form and
substance acceptable to Lender, 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 Lender in its 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 KPOP), (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 interest rate (rounded upward,
if necessary, to the nearest 0.001%) equal to the weighted average of the rates
on overnight Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers on such day, as published by the
Federal Reserve Bank of New York on the Business Day next succeeding such day,
provided that (a) if that day is not a Business Day, then the Federal Funds Rate
for that day shall be such rate on such transactions on the next preceding
Business Day as so published on the next succeeding Business Day, and (b) if no
such rate is so published on such next succeeding Business Day, the Federal
Funds Rate for that day shall be the average rate quoted to the Lender on that
day on such transactions.
Financial Hedge means a swap, collar, floor, cap, or other contract between a
Borrower and Lender or another Person reasonably acceptable to Lender 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.
Fixed Rate means an annual interest rate of 7.14%.
Fixed Rate Borrowing means Term Loan A bearing interest at the Fixed Rate.
Financial Statements Certificate means a certificate substantially in the form
of Exhibit D-3.
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 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:
(a) In respect of any LIBOR Rate Borrowing, any loss or expense that Lender
reasonably incurs because Borrower KPOP (i) fails or refuses (for any reason
whatsoever other than a default by Lender) to take that Borrowing on the Closing
Date or (ii) prepays or pays that Borrowing or that Borrowing is converted under
this agreement for any reason to the Base Rate, in each case, before the last
day of its Interest Period; and
(b) In respect of a Fixed Rate Borrowing, the loss that Lender is deemed to have
incurred because either Borrower prepays Term Loan A before its stated maturity,
which loss shall be calculated by Lender to be equal to the amount, if any, that
Term Loan A is exceeded by an amount, expressed as a percentage (rounded to
three decimal places, 0.0005 being rounded down), at which the gross redemption
yield on Term Loan A (if it were to be purchased at such price on the [third
dealing day before] the date of the prepayment) would equal the gross redemption
yield on such dealing day of 9-3/4% United Kingdom Treasury Stock due August 27,
2002 or (if that stock is no longer in issue) of such other United Kingdom
government stock as Lender (with the advice of any combination of three leading
brokers operating in the gilt-edged market, gilt-edged market makers, or such
other three persons operating in the gilt-edged market as Lender may approve)
shall determine to be appropriate (i.e., the "reference security") as quoted on
Bloomberg's Page BSUK at 2:00 p.m.( London, England, time or 9:00 a.m. New York
time) (and for purposes of this provision, the term "gross redemption yield" on
Term Loan A and the reference security shall be expressed as a percentage and
calculated on the basis indicated by the Joint Index and Classification
Committee of the Institute and Faculty of Actuaries as reported in the Journal
of the Institute of Actuaries, Vol. 105, Part 1, 1978 Page 18 or on such other
basis as Lender may approve).
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.
Guarantors means KPP, STS, STOP, STI, STP, STH, Borrower ST, STE, and any other
Restricted Subsidiary or other Person that now or in the future guaranties the
Obligation.
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, with respect to any Person, 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.
Intercreditor Agreement means the Collateral Trust and Intercreditor Agreement
dated as of December 22, 1994, between the lenders and agent under the Chase
Credit Agreement, Noteholders, and Collateral Trustee, consented to by each KPP
Company.
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 KPOP, STS, STOP, STI, STP, STH, Borrower ST,
and STE.
KPP Partnership Agreement means the Amended and Restated Agreement of Limited
Partnership of Kaneb Pipe Line Partners, L.P., dated September 18, 1995, a
certified copy of which has been delivered to Lender under Schedule 5.
KSI means Kaneb Services, Inc., a Delaware corporation.
KSI Companies means KSI and its Subsidiaries (other than its Insignificant
Subsidiaries).
Laws means all applicable statutes, laws, treaties, ordinances, rules,
regulations, orders, writs, injunctions, decrees, judgments, opinions, and
interpretations of any Tribunal.
Lender is defined in the introductory paragraph of this agreement.
Lender Liens means Liens in favor of 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.
LIBOR Rate means, for a LIBOR Rate Borrowing and its Interest Period, the sum of
(a) 0.75% plus (b) the quotient of (i) the annual interest rate for deposits in
Dollars of amounts equal or comparable to the principal amount of that LIBOR
Rate Borrowing offered for a term comparable to that Interest Rate, which rate
appears on the Telerate Page 3750 as of 11:00 a.m. (London, England time) two
Business Days before the beginning of that Interest Period or, if no such
offered rates appear on such page, then the rate used for that Interest Period
shall be the arithmetic average (rounded upwards, if necessary, to the next
higher 0.001%) of rate offered by Lender to not less than two major banks in New
York, New York at approximately 10:00 a.m. (Atlanta, Georgia time) two Business
Days before the beginning of that Interest Period for deposits in Dollars in the
London interbank market of amounts equal or comparable to the principal amount
of that LIBOR Borrowing offered for a term comparable to that Interest Period,
divided by (ii) a number equal to 1.00 minus the LIBOR Reserve Percentage. The
rate so determined in accordance herewith shall be rounded upwards to the
nearest multiple of 0.001%, and the term "Telerate Page 3750" means the display
designated as "Page 3750" on the Dow Jones Markets Service, Inc. (or such other
page as may replace Page 3750 on that service or another service as may be
nominated by the British Bankers' Association as the information vendor for the
purpose of displaying British Bankers' Association Interest Settlement Rates for
Dollars).
LIBOR Rate Borrowing means a Borrowing bearing interest at the LIBOR Rate.
LIBOR Reserve Percentage means, any Interest Period with respect to a LIBOR Rate
Borrowing, the reserve percentage applicable to that Interest Period (or, if
more than one such percentage shall be so applicable, then the daily average of
such percentages for those days in that Interest Period during which any such
percentage shall be applicable) under regulations issued from time to time by
the Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement (including any emergency,
supplemental, or other marginal reserve requirement) for Lender with respect to
liabilities or assets consisting of or including "eurocurrency liabilities" (as
defined in Regulation D of the Board of Governors of the Federal Reserve System,
as in effect from time to time) having a term equal to that Interest Period.
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 Lender ever delivered under this agreement, (c) any
Financial Hedge between a Borrower and 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 Lender) to any Loan Paper to perform any of its
payment or other material obligations under any Loan Paper or the ability of
Lender to enforce any of those obligations or any of its Rights under the Loan
Papers, (b) material and adverse effect on the financial condition of the KPC
Companies as a whole as represented to Lender 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 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, 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) executed and delivered KPP,
Borrower KPOP, and Collateral Trustee.
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 KPOP's controlled group
or is under common control with Borrower KPOP 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 Note Agreements mean the six Note Purchase Agreements dated as of December
22, 1994, between KPP, Borrower KPOP, STS, STOP, and each 1994 Noteholder,
collectively providing for the issuance by Borrower KPOP 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.
1994 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 1994 Note Agreements.
1996 Note Agreements mean the five Note Purchase Agreements dated as of June 27,
1996, between KPP, Borrower KPOP, STS, STOP, STI, STP, STH, and each 1996
Noteholder, collectively providing for the issuance by Borrower KPOP of its
First Mortgage Notes in the total stated principal amount of $68,000,000.
1996 Noteholders means Metropolitan Life Insurance Company, Provident Life and
Accident Insurance Company, Pacific Mutual Life Insurance Company, AID
Association for Lutherans, and American General Life Insurance Company, together
with the successor holders of notes issued under the 1996 Note Agreements.
Note means Term Loan A Note, Term Loan B Note, and Term Loan C Note.
Noteholders means the 1994 Noteholders and the 1996 Noteholders.
Note Agreements means the 1994 Note Agreements and the 1996 Note Agreements.
Notice of Continuation means a notice substantially in the form of Exhibit D-1.
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 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.
PBGC means the Pension Benefit Guaranty Corporation.
Permitted-Funded Debt means, at any time, Funded Debt permitted under Section
8.4.
Permitted Investments means those items described on Schedule 8.8.
Permitted Liens means, at any time, the Lenders Liens and other Liens permitted
under Section 8.5.
Permitted Transfer means, at any time, the Transfers permitted under Section
8.10.
Person means any individual, Tribunal, or other entity.
Pledge Agreement means the Stock Pledge Agreement dated as of December 22, 1994,
and executed and delivered by Borrower KPOP in favor of Collateral Trustee.
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 annual interest rate designated from time to
time by Lender at its principal office in Atlanta, Georgia, to be its prime
rate, which rate of interest may not be the lowest rate available to customers
of the Lender, with any change in the Prime Rate to be effective as of the date
of that change.
Principal Debt means, at any time, the unpaid principal balance of all
Borrowings.
Qualifying Debt means, at any time, Funded Debt for money borrowed by Borrower
KPOP with respect to which all of the following are true:
(a) that Debt is permitted to be incurred under Section 8.4(c) 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 that guaranty or Lien concurrently pari passu assures and
secures the Obligation; and
(f) Borrower KPOP has delivered to Lender a certificate (in form and substance
acceptable to Lender) of a Responsible Officer of KPC at least 30 days before
the incurrence of that Debt certifying that (i) Borrower KPOP 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."
Representatives means representatives, officers, directors, employees,
attorneys, accountants, and agents.
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 Lender in form and substance acceptable to Lender --
as not being a Restricted Subsidiary, which KPP may do from time to time and at
any time so long as (a) Borrower KPOP, STS, STOP, STI, STP, STH, Borrower ST,
STE, 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 8.4.
Rights means rights, remedies, powers, privileges, and benefits.
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.
Series Guaranties means the "Guaranties," as that term is defined in the Note
Agreements as in effect on the date of this agreement.
Series Notes means the "Notes," as that term is defined in the Note Agreements
as in effect on the date of this agreement.
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.
STE means ST Eastham, Ltd., an English company that is a wholly owned Subsidiary
of Borrower ST.
Sterling and the symbol (pound) means the lawful currency of the United Kingdom.
STH means StanTrans Holdings, Inc., a Delaware corporation that is a wholly
owned Subsidiary of STI.
STI means StanTrans, Inc., a Delaware corporation that is a wholly owned
Subsidiary of STS.
STOP means Support Terminals Operating Partnership, L.P., a Delaware limited
partnership, of which Borrower KPOP is a 99% limited partner and STS is a 1%
general partner.
STP means StanTrans Partners, L.P., a Delaware limited partnership, of which STH
is a 99% limited partner and STI is a 1% general partner.
STS means Support Terminal Services, Inc., a Delaware corporation that is a
wholly owned Subsidiary of Borrower KPOP.
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.
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 Loan A is defined in the recitals to this agreement.
Term Loan A Note means the note substantially in the form of Exhibit A-1.
Term Loan B is defined in the recitals to this agreement.
Term Loan B Note means the note substantially in the form of Exhibit A-2.
Term Loan C is defined in the recitals to this agreement.
Term Loan C Note means the note substantially in the form of Exhibit A-3.
Term Loans is defined in the recitals to this agreement.
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.
Y2K Issue means the risk that computer applications used by the KPP Companies or
by any of their respective suppliers or vendors may be unable properly to
recognize and perform date-sensitive functions.
1.2 Time References. Unless otherwise specified, in the Loan Papers (a) time
references (e.g., 10:00 a.m.) are to time in Atlanta, Georgia, 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.
1.4 Accounting Principles. Unless otherwise specified, in the Loan
Papers (a) GAAP determines 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 TERM LOANS. Subject to and upon the terms and conditions of this
agreement and on the Closing Date, Lender shall make Term Loan A to Borrowers
jointly denominated in Sterling and make Term Loan B and Term Loan C to Borrower
KPOP denominated in Dollars. Term Loan A shall at all times be a Fixed Rate
Borrowing. Term Loan B and Term Loan C shall be LIBOR Rate Borrowings and for
Interest Periods (subject to Section 3.9) as shall have been designated in
writing to Lender by Borrower KPOP at least two Business Days before the date of
the Closing Date. No portion of any Term Loan may be reborrowed under this
agreement once repaid.
SECTION 3 PAYMENT TERMS.
3.1 Notes and Payments.
(a) The Principal Debt (and interest thereon) of Term Loan A shall be evidenced
by Term Loan A Notes, one executed by each Borrower, and payable to the order of
Lender. The Principal Debt (and interest thereon) of Term Loan B and Term Loan C
shall be evidenced respectively by the Term Loan B Note and the Term Loan C
Note, executed by Borrower KPOP, and payable to the order of Lender. The
Borrowers must make each payment and prepayment on the Obligation to Lender's
principal office in Atlanta, Georgia, by wire transfer according to Lender's
wiring instructions from time to time provided to Borrowers, in funds that will
be available for immediate use by Lender 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.
(b) All payments on Term Loan B and on Term Loan C must be denominated in
Dollars. All payments on Term Loan A must be denominated in Sterling. It shall
not be a Default, however, if Borrowers fail to make a payment in Sterling if
Lender has notified the Borrowers that Sterling has ceased to be freely
transferable and convertible into Dollars in the relevant interbank market;
provided that Borrowers shall pay (i) on the due date, the Dollar Equivalent (as
calculated by Lender in good faith) of the amount of Sterling due on that date
and (ii) within ten days after demand by Lender, the amount that will (in the
reasonable determination of Lender) reimburse Lender for any loss or expense
caused by the failure of Borrowers to make that payment or prepayment in
Sterling on the date due. Lender shall submit a statement as to any such loss or
expense (including calculations in reasonable detail) to Borrowers, which shall,
in the absence of manifest error, be conclusive and binding on Borrowers.
3.2 Payments. The Principal Debt of the Term Loan A Note is due and payable on
January 31, 2002. The Principal Debt of the Term Loan B Note and of the Term
Loan C Note is due and payable on June 30, 1999. 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 at the
Fixed Rate is due and payable on the last Business Day of each March, June,
September, and December (commencing March 30, 1999). In any event all accrued
and unpaid interest on any Note is due and payable at its maturity (stated or by
acceleration).
3.3 Interest Rates. Except where specifically otherwise provided, Borrowings
bear interest at an annual rate equal to the lesser of either (a) the Maximum
Rate or (b) in respect of (i) Term Loan A, the Fixed Rate, and (ii) Term Loan B
and Term Loan C, the LIBOR Rate. Each change in the Maximum Rate is effective,
without notice to either Borrower or any other Person, upon the effective date
of change.
3.4 Quotation of LIBOR Rates. A Responsible Officer of Borrower KPOP may call
Lender before the Closing Date or before delivering a Notice of Continuation to
receive an indication of the LIBOR Rates then in effect, but the indicated rates
do not bind Lender or affect the LIBOR Rate that is actually in effect on the
Closing Date or when Borrower KPOP delivers any Notice of Continuation.
3.5 Default Rate. 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 a Note, 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, the maker of that Note 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 that Note.
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 (or 365 days for Fixed Rate Borrowings)
(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). All interest rate determinations and
calculations by Lender are conclusive and binding absent manifest error.
(b) The provisions of this agreement relating to calculation of 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. Lender
may fund and maintain its funding of all or any part of each Borrowing as it
selects.
3.8 Maximum Rate.
Rate. Regardless of any provision contained in any Loan Paper, Lender is not
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 Lender ever does so, then any excess shall be treated as a partial
prepayment of principal and any remaining excess shall be refunded to the
applicable Borrower. In determining if the interest paid or payable exceeds the
Maximum Rate, Borrowers and Lender shall, to the maximum extent permitted under
applicable Law, (a) treat all Borrowings as but a single extension of credit
(and Lender and Borrowers agree that that is the case and that 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, Lender shall refund
any excess (and Lender 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 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.
3.9 Interest Periods. When Borrower KPOP requests any LIBOR Rate Borrowing,
Borrower KPOP may elect the applicable interest period (each an "Interest
Period"), which may be, at Borrower KPOP's option, three or six months, subject
to the following conditions: (a) the initial Interest Period commences on the
Closing 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 one Interest Period may be in effect at one time for each of Term Loan B
and Term Loan C.
3.10 Continuations. Borrower KPOP may elect a new Interest Period for a LIBOR
Rate Borrowing, by giving a Notice of Continuation to Lender no later than 10:00
a.m. on the second Business Day before the last day of the Interest Period.
Absent Borrower KPOP's notice of election of a new Interest Period, a LIBOR Rate
Borrowing shall be deemed continued for the same Interest Period.
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 no Default or Potential Default exists, payments on the Obligation must
be applied as required by applicable Loan Paper provisions other than clause (b)
below.
(b) If a Default or Potential Default exists, any payment must be applied in the
following order: (i) all fees and expenses for which Lender has not been paid or
reimbursed in accordance with the Loan Papers; (ii) accrued interest on the
Principal Debt; (iii) the remaining Principal Debt in the order as Lender may
elect (but Lender agrees to apply payments in an order that will minimize any
Funding Loss); and (iv) the remaining Obligation in the order and manner Lender
deems appropriate.
3.12 Offset. If a Default exists, Lender is entitled to exercise 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 Lender) 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. Lender
shall promptly notify each Borrower of its actions taken under this Section
3.12.
3.13 Booking Borrowings. To the extent permitted by Law, 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 3.15 than Lender would
have been entitled to receive with respect to those Borrowings. 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
3.15 and 3.16 if, in its reasonable judgment, such efforts will not be
disadvantageous to it.
3.14 Basis Unavailable or Inadequate for LIBOR Rate. If (on or before any date
when a LIBOR Rate is to be determined for a Borrowing) Lender determines that
the basis for determining the applicable rate is not available or that the
resulting rate does not accurately reflect the cost to Lender of making or
continuing Borrowings at that rate for the applicable Interest Period, then
Lender shall promptly notify Borrower KPOP of that determination (which is
conclusive and binding on Borrower KPOP absent manifest error). Until Lender
notifies Borrower KPOP that those circumstances no longer exist. then the
Principal Debt of the Term Loan B Note and of the Term Loan C Note shall bear
interest at an annual rate equal to the lesser of either the Base Rate or the
Maximum Rate.
3.15 Additional Costs.
With respect to any LIBOR Rate Borrowing, (i) if any present or future Law
imposes, modifies, or deems applicable (or if compliance by Lender with any
requirement of any Tribunal results in) any requirement that any reserves
(including any marginal, emergency, supplemental, or special reserves) be
maintained, and (ii) if those reserves reduce any sums receivable by Lender
under this agreement or increase the costs incurred by Lender in advancing or
maintaining any portion of any LIBOR Rate Borrowing, and (iii) if 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 (A) Lender shall deliver to Borrower KPOP
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 (B) Borrower KPOP shall pay
that amount to 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 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
agreement) Lender shall notify Borrowers and deliver to Borrowers 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 Borrowers shall jointly and severally 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) All payments by each Borrower under each Loan Paper shall be made free and
clear of and without deduction for any and all present or future Taxes or
withholdings and all liabilities with respect thereto, excluding, (i) Taxes
measured by Lender's net income, franchise, and similar Taxes imposed on it, by
the jurisdiction under the Laws of which it is organized or any political
subdivision thereof, by the jurisdiction of Lender's applicable lending office
or any political subdivision thereof, and (ii) if Lender is entitled at such
time to a total or partial exemption from withholding that is required to be
evidenced by a United Kingdom Inland Revenue Form FD13 or any successor or
additional form, Taxes imposed by reason of any failure of Lender to deliver to
the U.S. Internal Revenue Service, such Form FD13 or, in each case, any
successor or additional form (all such non-excluded Taxes, withholdings, and
liabilities being hereinafter referred to as the "indemnified Taxes"; provided
however, that such exemption shall not be available if Inland Revenue Service
for any reason does not accept Lender's Form FD13). If a Borrower shall be
required by law to deduct any indemnified Taxes from or in respect of any sum
payable hereunder to Lender (i) the sum payable shall be increased (the
"gross-up") as may be necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section
3.15(c)), Lender receives an amount equal to the sum it would have received had
no such deductions been made, (ii) that Borrower shall make those deductions,
(iii) that Borrower shall pay the full amount deducted to the relevant taxing
authority or other authority in accordance with applicable Law, and (iv) that
Borrower shall deliver to Lender evidence of that payment to the relevant
taxation or other authority. Notwithstanding the foregoing, Borrower KPOP shall
be liable for any excluded Taxes arising pursuant to Section 3.15(c)(ii).
(d) Any Taxes (other than under clause (c) above) payable by Lender or ruled (by
a Tribunal) payable by Lender in respect of this agreement or any other Loan
Paper shall -- if permitted by Law and if deemed material by 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 Borrowers, together with interest
and penalties, if any (except for Taxes payable on the overall net income of
Lender and except for interest and penalties incurred as a result of the gross
negligence or willful misconduct of Lender). Lender shall notify each Borrower
and deliver to each 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 Borrowers shall pay that amount to
Lender within ten days after demand. If Lender subsequently receives a refund of
the Taxes paid to it by Borrowers, then the recipient shall promptly pay the
refund to Borrowers.
3.16 Change in Laws. If any Law makes it unlawful for Lender to make or maintain
LIBOR Rate Borrowings, then Lender shall promptly notify Borrower KPOP, and (a)
if maintaining the Borrowing until the last day of the applicable Interest
Period is unlawful, the Borrowing shall be converted to the Base Rate as of the
date of notice, and Borrower KPOP shall pay any related Funding Loss, or (b) if
not prohibited by Law, the Borrowing shall be converted to the Base Rate as of
the last day of the applicable Interest Period, or (c) if any conversion will
not resolve the unlawfulness, Borrower KPOP shall promptly prepay the Borrowing,
without penalty, together with any related Funding Loss. No Notice of
Continuation is required to be delivered in connection with any conversion under
this Section 3.16.
3.17 Funding Loss. Borrowers jointly and severally agree to indemnify Lender
against, and pay to it upon demand, any Funding Loss. When Lender demands that
Borrowers pay any Funding Loss, Lender shall deliver to Borrowers 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 3.17 survive the satisfaction and payment of the Obligation and
termination of this agreement.
3.18 Joint and Several Liability
(a) The Obligation in respect of Term Loan A and certain other payment
obligations under the Loan Papers (for purposes of this section, "joint and
several obligations") shall constitute one joint and several direct and general
obligation of Borrowers, notwithstanding whether any advance is stated to be
made to both or either of the Borrowers, and notwithstanding anything to the
contrary contained in any Loan Papers, each Borrower shall be directly and
unconditionally liable to Lender on all joint and several obligations and shall
have the obligations of co-maker with respect thereto, it being agreed that the
joint and several obligations inure to the benefit of Borrowers and that Lender
is relying on the joint and several liability of Borrowers as co-makers in
respect thereof. Each Borrower unconditionally and irrevocably agrees that upon
default in the payment when due (whether at stated maturity, by acceleration or
otherwise) of any joint and several obligations, it will forthwith pay the same,
without notice or demand.
(b) No payment or payments made by a Borrower or any other Person or received or
collected by Lender from the other Borrower or any other Person by virtue of any
action or proceeding or any set-off or appropriation or application at any time
or from time to time in reduction of or in payment of the joint and several
obligations shall be deemed to modify, reduce, release, or otherwise affect the
liability of each Borrower, which shall remain liable for such joint and several
obligations until all such obligations are paid in full and this agreement is
terminated.
(c) Each Borrower agrees that its joint and several liability with respect to
any of the joint and several obligations shall not be impaired or affected by
any modification, supplement, extension, or amendment of any contract or
agreement to which the other Borrower may hereafter agree (other than an
agreement signed by Lender specifically releasing such liability), nor by any
delay, extension of time, renewal, compromise, or other indulgence granted by
Lender with respect to any of the joint and several obligations nor by any other
agreement or arrangements whatever with the other Borrower or with anyone else,
each Borrower hereby waiving all notice of such delay, extension, release,
substitution, renewal, compromise, or other indulgence, and hereby consenting to
be bound thereby as fully and effectually as if it has expressly agreed thereto
in advance. The liability of each Borrower is direct and unconditional as to all
of the joint and several obligations, and may be enforced without requiring
Lender to resort to any other right, remedy, or security. Each Borrower
expressly waives promptness, diligence, notice of acceptance, and any other
notice with respect to any of the joint and several obligations and any
requirement that Lender protect, secure, perfect, or insure any Lien or any
property subject thereto or exhaust any right or take any action against any
Person or any Collateral.
3.19 Introduction of the Euro
(a) If, as a result of the implementation of the European economic and monetary
union ("EMU") either Sterling ceases to be lawful currency of the United Kingdom
and is replaced by a European single or common currency (the "Euro") or Sterling
and the Euro are at the same time both recognized by the central bank of the
United Kingdom as lawful currency of the United Kingdom, then (i) if Sterling is
still a recognized lawful currency in the United Kingdom, then any amount
payable under any Loan Paper in Sterling (including any Borrowing) shall
continue to be payable in Sterling, (ii) if Sterling is no longer recognized as
a lawful currency in the United Kingdom, then any amount payable under any Loan
Paper in Sterling (including any Borrowing) shall instead be payable in the
Euro, and the amount so payable shall be determined by redenominating or
converting such amount into the Euro at the exchange rate officially fixed by
the European Central Bank for the purpose of implementing the EMU, (iii) if any
EMU legislation provides that an amount denominated either in the Euro or in
Sterling can be paid either in the Euro or in Sterling, each party to the Loan
Papers shall pay or repay such amount in Sterling, and (iv) if any EMU
legislation provides that an amount denominated in Sterling must be paid in the
Euro, then each party to the Loan Papers shall be entitled to pay or repay such
amount in the Euro. Before the occurrence of the event or events described
above, each amount payable under any Loan Paper in Sterling shall, except as
otherwise specifically provided in the Loan Papers, continue to be payable only
in Sterling.
(b) Borrowers shall, in respect of Term Loan A, from time to time, at Lender's
request, pay to Lender the amount of any cost or increased cost incurred by, or
of any reduction in any amount payable to or in the effective return on its
capital to, or of interest or other return foregone by, Lender or any holding
company of Lender as a result of the introduction of, changeover to, or
operation of the Euro in the United Kingdom.
(c) Each Loan Paper (including the calculation of the Fixed Rate) shall be
amended to the extent determined by Lender to be necessary to reflect any
implementation of the EMU and change in currency and to put Lender and Borrowers
in the same position, so far as possible, that they would have been in if that
implementation and change in currency had not occurred.
(d) Except as specifically provided in the foregoing provisions of this Section
3.19, no such implementation or change in currency nor any economic consequences
resulting therefrom shall (i) give rise to any Right to terminate prematurely,
contest, cancel, rescind, alter, modify, or renegotiate the provisions of any
Loan Paper or (ii) discharge, excuse, or otherwise affect the performance of any
obligations of Borrowers or any other obligor with respect to any of the
Obligation under any Loan Paper.
SECTION 4 SECURITY.
4.1 Guaranty. Full and complete payment of the Obligation shall be guaranteed in
accordance with the Guaranty executed by Guarantors.
4.2 Collateral. Full and complete payment of the Obligation shall be secured
(effective, for Term Loan A and Term Loan B, as of the Closing Date, and for
Term Loan C, as of the date that it constitutes Qualifying Debt under the Chase
Credit Agreement, the Note Agreements, and the Intercreditor Agreement) by the
Lender Liens on all of the Collateral. No Collateral may be subordinated,
substituted, or released without the prior written consent of Lender.
(ai In furtherance of the above, Borrower KPOP represents and warrants to Lender
that Borrower KPOP has given all required notices and certifications to
Collateral Trustee, the Noteholders, and the agent and banks under the Chase
Credit Agreement in order for the Obligation under this agreement to be
"Qualifying Debt" under the Intercreditor Agreement, the Note Agreements, and
the Chase Credit Agreement other than the execution and delivery of the
Supplement to Collateral Trust and Intercreditor Agreement in substantially the
form of Exhibit C-1 (which Borrower KPOP covenants and agrees with Lender that
Borrower KPOP shall execute and deliver and shall cause Collateral Trustee to
execute and deliver on or before the Closing Date).
(bi Borrower KPOP further represents and warrants to Lender that, upon the
execution and delivery of the supplement referred to in clause (a) above and the
execution and delivery of the documents described on Schedule 5, the Obligation
shall be fully guarantied by all Guaranties and secured by first and prior
perfected Liens that rank pari passu with the guaranties of, and Liens securing,
the indebtedness under the Chase Credit Agreement, the Note Agreements, and the
Chase Revolving Note.
(ci Borrower KPOP further covenants and agrees with Lender (a) within 30 days
after the Closing Date, to cause STOP and Borrower ST to enter into all
appropriate agreements and documents and take such action as may be appropriate
in order to create and perfect Lender Liens (ranking pari passu with Liens in
favor of the Collateral Trustee for the benefit of the other "Creditors" under
the Intercreditor Agreement) in all of the issued and outstanding capital stock
of Borrower ST and STE, (b) within 30 days after the Closing Date, to cause STOP
and Borrower ST to amend the Articles of Association for Borrower ST and STE to
remove the absolute discretion of the directors of those companies to refuse to
register a transfer of shares of those companies, (c) within 45 days after the
written request of Lender, to cause the Intercreditor Agreement to be amended to
ensure to Lender rights, remedies, and voting parity with the other"Creditors"
under the Intercreditor Agreement (in similar form to the first and second
amendments to the Intercreditor Agreement), and (c) promptly upon Lender's
request, to enter into all appropriate amendments, supplements, and
modifications to the Security Documents (as defined in the Intercreditor
Agreement) so that the Obligation is secured thereby on a pari passu basis with
all other Funded Obligations (as defined in the Intercreditor Agreement).
4.3 Additional Security and Guaranties4.3 Additional Security and Guaranties.3
Additional Security and Guaranties.3 Additional Security and Guaranties. Lender
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.
4.4 Collateral Documentation4.4 Collateral Documentation.4 Collateral
Documentation.4 Collateral Documentation. Borrower KPOP 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 Lender, and Borrower KPOP
shall pay all costs of filing any financing, continuation, or termination
statements, or other action taken by Lender relating to the Collateral,
including, without limitation, costs and expenses of any Lien search reasonably
required by Lender.
SECTION 5 CONDITIONS PRECEDENTSECTION 5 CONDITIONS
PRECEDENTSECTION 5 CONDITIONS PRECEDENTSECTION 5 CONDITIONS
PRECEDENT. Lender is not obligated to make any Term Loan unless Lender has
received all of the items described in Schedule 5, each in form and substance
acceptable to Lender and its counsel. Each condition precedent in this agreement
(including each in Schedule 5) is material to the transactions contemplated by
this agreement, and time is of the essence with respect to each condition
precedent.
SECTION 6 REPRESENTATIONS AND WARRANTIESSECTION 6
REPRESENTATIONS AND WARRANTIESSECTION 6 REPRESENTATIONS AND
WARRANTIESSECTION 6 REPRESENTATIONS AND WARRANTIES. Borrowers jointly and
severally represent and warrant to Lender as follows:
6.1 Purpose of Credit Facility6.1 Purpose of Credit Facility.1 Purpose of Credit
Facility.1 Purpose of Credit Facility. Borrowers will use proceeds of Borrowings
as reflected in the recitals to this agreement. Neither Borrower is engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying any "margin stock" within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System.
No part of the proceeds of any Borrowing will be used, directly or indirectly,
for a purpose that violates any Law, including, without limitation, the
provisions of Regulation U.
6.2 Existence, Good Standing, and Authority.2 Existence, Good Standing, and
Authority.2 Existence, Good Standing, and Authority.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 6.2. 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 6.2 and as otherwise disclosed in writing to
Lender 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 6.2, the concept of "good
standing" is inapplicable to each KPP Company that is a partnership.
6.3 Subsidiaries.3 Subsidiaries.3 Subsidiaries.3 Subsidiaries. Excluding
Insignificant Subsidiaries, KPC has no Subsidiaries except as disclosed on
Schedule 6.3 (and as otherwise disclosed in writing to Lender 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.
6.4 [INTENTIONALLY BLANK]6.4 [INTENTIONALLY BLANK].4
[INTENTIONALLY BLANK].4 [INTENTIONALLY BLANK]
6.5 Authorization and Contravention6.5 Authorization and Contravention.5
Authorization and Contravention.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 the Chase Credit Agreement, the Note
Agreements, any Security Documents, the Intercreditor Agreement, or any related
documents (and no event of default or incipient event of default otherwise
exists under any of those documents), (g) do not violate any other Material
Agreements to which it is a party, other than violations that are not a Material
Adverse Event, or (h) do not result in the creation or imposition of any Lien
(other than the Lender Liens) on any asset of any KPP Company.
6.6 Binding Effect.6 Binding Effect.6 Binding Effect.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.
6.7 Financial Statements.7 Financial Statements.7 Financial Statements.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.
6.8 Litigation.8 Litigation.8 Litigation.8 Litigation. Except as disclosed on
Schedule 6.8 and as otherwise disclosed in writing to Lender from time to time
after the date of this agreement (if the disclosures are approved by Lender), 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.
6.9 Taxes.9 Taxes.9 Taxes.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.
6.10 Environmental Matters.10 Environmental Matters.10 Environmental Matters.10
Environmental Matters. Except as disclosed on Schedule 6.10 and as otherwise
disclosed in writing to Lender from time to time after the date of this
agreement (if the disclosures are approved by Lender), and other than
conditions, circumstances, or violations that are not, individually or in the
aggregate, a Material Adverse Event, neither Borrower (a) knows of any
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.
6.11 Employee Plans.11 Employee Plans.11 Employee Plans.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
ss.302 of ERISA or ss.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 ss.406 of ERISA or ss.4975 of the Code), and (e) no "reportable event" (as
defined in ss.4043 of ERISA) has occurred, excluding events for which the notice
requirement is waived under applicable PBGC regulations.
6.12 Properties; Liens.12 Properties; Liens.12 Properties; Liens.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
8.5((b)(ii)(C), 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 8.10 or Section 8.11. 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).
6.13 Government Regulations.13 Government Regulations.13 Government
Regulations.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.
6.14 Affiliate Transactions.14 Affiliate Transactions.14 Affiliate
Transactions.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.
6.15 Debt Cross Defaults6.15 Debt Cross Defaults.15 Debt Cross Defaults.15 Debt
Cross Defaults. No agreement evidencing Debt of (a) any KPP Company contains a
cross-default provision concerning any Debt of KSI or KPC or (b) KSI or KPC
contains a cross-default provision concerning any Debt of any KPP Company.
6.16 Material Agreements6.16 Material Agreements.16 Material Agreements.16
Material Agreements. No KPP Company or Restricted Subsidiary is a party to any
Material Agreement, other than the Loan Papers, the Note Agreements, the Chase
Credit Agreement, and the Material Agreements described on Schedule 6.16. All of
those agreements and other 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.
6.17 Insurance.17 Insurance.17 Insurance.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.
6.18 Labor Matters.18 Labor Matters.18 Labor Matters.18 Labor Matters. No actual
or -- to either 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.
6.19 Solvency.19 Solvency.19 Solvency.19 Solvency. On the Closing Date, each KPP
Company is, and after giving effect to the Term Loans will be, Solvent.
6.20 Trade Names.20 Trade Names.20 Trade Names.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 Closing Date,
except as disclosed on Schedule 6.20.
6.21 Intellectual Property6.21 Intellectual Property.21 Intellectual Property.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 either
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.
6.22 Y2K Issue6.22 Y2K Issue.22 Y2K Issue.22 Y2K Issue. The KPP Companies have
(a) initiated a review and assessment of all areas within their respective
businesses and operations (including those affected by suppliers and vendors)
that could be adversely affected by the Y2K Issue, (b) developed a plan and time
line for addressing the Y2K Issue on a timely basis, and (c) to date implemented
in all material respects that plan in accordance with that timetable.
6.23 Full Disclosure.23 Full Disclosure.23 Full Disclosure.23 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 Lender. All
information previously furnished by any KPP Company and Restricted Subsidiary to
Lender in connection with the Loan Papers was, and all information hereafter
furnished by any KPP Company and Restricted Subsidiary to Lender will be, true
and accurate in all material respects or based on reasonable estimates on the
date the information is stated or certified.
SECTION 7 AFFIRMATIVE COVENANTSSECTION 7 AFFIRMATIVE
COVENANTSSECTION 7 AFFIRMATIVE COVENANTSSECTION 7 AFFIRMATIVE
COVENANTS. Until all of the Obligation is fully paid and performed -- unless
Borrowers receive a prior written consent to the contrary by Lender -- Borrowers
jointly and severally covenant and agree as follows:
7.1 Items to be Furnished.1 Items to be Furnished.1 Items to be
Furnished.1 Items to be Furnished. Borrowers shall cause the following to be
furnished to Lender:
(ai 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:
(i0 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;
(ii0 any management letter prepared by the accounting firm delivered in
connection with its audit;
(iii0 a certificate from the accounting firm to Lender 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
(iv0 a Compliance Certificate.
(bi Promptly after preparation, and no later than 95 days after the last day of
each fiscal year of Borrower KPOP, Financial Statements showing the consolidated
financial condition and results of operations of the KPOP Companies as of, and
for the year ended on, that last day, accompanied by (i) a Financial Statements
Certificate executed by the chief financial officer of Borrower KPOP and (ii)
any audit opinion delivered in connection with the Financial Statements.
(ci 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 KPOP, Financial Statements
showing the consolidated financial condition and results of operations of the
KPOP 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 KPOP.
(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 either 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 or any
event of default or incipient event of default under the Chase Credit Agreement,
the Note Agreements, or the Intercreditor Agreement, in each case, specifying
the nature thereof and what action such 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 upon receipt (or upon delivery, as the case may be), copies of all
notices of default, potential default, or events of default given by any KPP
Company to, or received by any KPP Company from, the agent or any bank under the
Chase Credit Agreement, Chase under the Chase Revolving Note, any Noteholder, or
the Collateral Trustee.
(h) 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.
(i) Upon request by Lender, 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.
(j) 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.
(k) Notice promptly after either of them discovers or determines that any
computer applications (including those of suppliers and vendors to any KPP
Company) that are material to the businesses or operations of any KPP Company
will not be compliant in timely resolving the Y2K Issue if that failure could
reasonably be expected to be a Material Adverse Event.
(l) As soon as is reasonably practical, upon reasonable request by Lender,
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.
7.2 Use of Proceeds.2 Use of Proceeds.2 Use of Proceeds.2 Use of Proceeds.
Borrowers shall use the proceeds of Borrowings only for the purposes represented
in this agreement.
7.3 Books and Records.3 Books and Records.3 Books and Records.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 Borrowers).
7.4 Inspections.4 Inspections.4 Inspections.4 Inspections. Upon reasonable
request, each KPP Company and Restricted Subsidiary shall allow Lender 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 7.4
shall be borne by Lender unless Lender acted under this Section 7.4 in order to
perform its duties under the Loan Papers or preserve or protect the Rights of
Lender under the Loan Papers. Lender and its Representatives agree to treat
confidential those matters disclosed by Borrowers as being confidential;
however, Lender and its Representatives may disclose confidential matters (a) to
Lender and each actual or prospective Participant or Purchaser, (b) to any
Tribunal having jurisdiction over it, and (c) that are public knowledge.
7.5 Taxes.5 Taxes.5 Taxes.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.
7.6 Payment of Obligations.6 Payment of Obligations.6 Payment of Obligations.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).
7.7 Expenses.7 Expenses.7 Expenses27.7 Expenses. Borrowers shall promptly pay
upon demand (a) all costs, fees, and expenses paid or incurred by Lender
incident to any Loan Paper (including, but not limited to, the reasonable fees
and expenses of Lender'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
Lender incurred by 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.
7.8 Maintenance of Existence, Assets, and Business.8 Maintenance of Existence,
Assets, and Business.8 Maintenance of Existence, Assets, and Business.8
Maintenance of Existence, Assets, and Business. Except as otherwise permitted by
Section 8.11, each KPP Company and Restricted Subsidiary shall (a) maintain its
corporate or partnership existence and good standing in its jurisdiction 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.
7.9 Insurance.9 Insurance.9 Insurance.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 7.9. At Lender'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 Lender is altered or canceled, then Borrowers shall
cause to be promptly delivered to Lender a replacement certificate (in form and
substance satisfactory to Lender).
7.10 Preservation and Protection of Rights.10 Preservation and Protection of
Rights.10 Preservation and Protection of Rights.10 Preservation and Protection
of Rights. Each KPP Company and Restricted Subsidiary shall perform the acts and
duly authorize, execute, acknowledge, deliver, file, and record any additional
writings as Lender may reasonably deem necessary or appropriate to perfect and
maintain the Lender Liens and preserve and protect the Rights of Lender under
any Loan Paper.
7.11 Environmental Laws.11 Environmental Laws.11 Environmental Laws.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 KPOP shall deliver reasonable evidence of
compliance with the foregoing covenant to Lender within 30 days after any
request from Determining Lenders.
7.12 Subsidiaries7.12 Subsidiaries.12 Subsidiaries.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.
7.13 Indemnification.13 Indemnification.13 Indemnification.13
Indemnification. EACH KPP COMPANY, JOINTLY AND SEVERALLY, INDEMNIFIES,
PROTECTS, AND HOLDS LENDER, AND ITS PARENTS, SUBSIDIARIES, AFFILIATES,
REPRESENTATIVE, 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 7.13 survive the satisfaction
and payment of the Obligation and termination of this agreement.
SECTION 8 NEGATIVE COVENANTSSECTION 8 NEGATIVE
COVENANTSSECTION 8 NEGATIVE COVENANTSSECTION 8 NEGATIVE
COVENANTS. Until all Obligation is fully paid and performed -- unless Borrowers
receive a prior written consent to the contrary by Lender -- Borrowers jointly
and severely covenant and agree as follows:
8.1 Taxes.1 Taxes.1 Taxes.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.
8.2 [INTENTIONALLY BLANK]8.2 [INTENTIONALLY BLANK].2
[INTENTIONALLY BLANK].2 [INTENTIONALLY BLANK].
8.3 Employee Plans.3 Employee Plans.3 Employee Plans.3 Employee Plans. Except
where a Material Adverse Event would not result, no event or circumstance
described in Section 6.11 may exist or occur.
8.4 Funded Debt8.4 Funded Debt.4 Funded Debt.4 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, the Notes under the Chase Credit
Agreement, Series Notes, and Series Guaranties;
(b) other Funded Debt of the KPP Companies outstanding on the "Series B Closing
Date" described in Schedule 5 to the Note Agreements as in effect on the date of
this agreement (including any amendments and modifications of that Funded Debt,
but excluding any amendment, modification, renewal, extension, or refunding of
that Funded Debt that has the effect of extending its final maturity or
increasing its principal amount); and
(c) 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 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 (c) is being made.
8.5 Liens8.5 Liens.5 Liens.5 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 Lender Liens or
other Liens under the Security Documents which are subject to the Intercreditor
Agreement, nor (ii) prevent:
(A) any Lien existing on the "Series B Closing Date" described on Schedule 5 to
the Note Agreements as in effect on the date of this agreement that secure
Funded Debt permitted under Section 8.4(b) and renewals, extensions, and
refundings of that Funded Debt permitted under Section 8.4(c) but not extensions
of those Liens to cover any additional assets; or
(B) 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
(C) any (i) Lien for Taxes not yet due and payable or the nonpayment of which is
permitted by Section 7.5, (ii) 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 (iii) 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
(D) 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 8.4 at the time the Debt is incurred; or
(E) 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
8.5(b)(ii)(C)(iii), 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
(F) any Lien securing Qualifying Debt; or
(G) any Lien on assets that are not Collateral and securing Debt permitted by
Section 8.4 so long as the total amount of Debt so secured never exceeds 10% of
KPP's consolidated partners' capital.
8.6 Affiliate Transactions8.6 Affiliate Transactions.6 Affiliate Transactions.6
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.
8.7 Compliance with Laws and Documents.7 Compliance with Laws and Documents.7
Compliance with Laws and Documents.7 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).
8.8 Loans, Advances, and Investments.8 Loans, Advances, and Investments.8 Loans,
Advances, and Investments.8 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 8.9 or 8.11 or (b)
Permitted Investments.
8.9 Distributions.9 Distributions.9 Distributions28.9 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, the Chase Credit Agreement, the
Chase Revolving Note, the Note Agreements, and its charter documents in effect
as of the date of this agreement -- and neither KPP nor Borrower KPOP may
declare, make, or pay any Distribution:
(a) if it would violate the KPP Partnership Agreement or Borrower KPOP
Partnership Agreement or a Default or Potential Default is continuing; or
(b) for (i) Borrower KPOP, 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.
For purposes of this Section 8.9 only:
Borrower Available Cash means, with respect to any calendar quarter (i) the sum
of (a) all cash receipts of Borrower KPOP 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 KPOP 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 KPOP), 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 KPOP'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 KPOP 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 KPOP.
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 KPOP 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 KPOP. 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 conditions, including down-time and maintenance) of the assets of KPP
or Borrower KPOP, 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 KPOP, (b) sales of interest
in KPP by KPP or Borrower KPOP, and (c) sales or other voluntary or involuntary
dispositions of any assets of KPP or Borrower KPOP, 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 KPOP) 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 KPOP following commencement of the dissolution and liquidation
of KPP or Borrower KPOP.
8.10 Asset Transfers.10 Asset Transfers.10 Asset Transfers.10 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 8.11;
(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 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 8.11;
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 8.4.
8.11 Dissolutions, Mergers, and Consolidations.11 Dissolutions, Mergers, and
Consolidations.11 Dissolutions, Mergers, and Consolidations28.11 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 (i) Borrower KPOP is the
surviving Person if it is involved, or (ii) otherwise, 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 Borrower KPOP (if it is involved) or otherwise a KPP
Company or a Restricted Subsidiary that is Solvent and maintains substantially
all of its assets in the United States of America, (iii) following the merger or
consolidation, an additional $1 of Funded Debt could be incurred under Section
8.4(c), and (iv) immediately before the merger or consolidation, Lender receives
a certificate of Responsible Officer of KPP certifying that the merger or
consolidation complies with all requirements of this Section 8.11.
8.12 Assignment.12 Assignment.12 Assignment.12 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 8.11, 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.
8.13 Fiscal Year and Accounting Methods.13 Fiscal Year and Accounting Methods.13
Fiscal Year and Accounting Methods.13 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).
8.14 New Businesses8.14 New Businesses.14 New Businesses.14 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.
8.15 Government Regulations.15 Government Regulations.15 Government
Regulations.15 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 9 FINANCIAL COVENANTSSECTION 9 FINANCIAL
COVENANTSSECTION 9 FINANCIAL COVENANTSSECTION 9 FINANCIAL
COVENANTS. Until all Obligation is fully paid and performed -- unless Borrowers
receive a prior written consent to the contrary by Lender -- Borrowers jointly
and severally covenants and agrees as follows:
9.1 Current Ratio9.1 Current Ratio.1 Current Ratio.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.
9.2 Tangible Net Worth9.2 Tangible Net Worth.2 Tangible Net Worth.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 KPOP 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.
9.3 Leverage Ratio.3 Leverage Ratio.3 Leverage Ratio.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.
9.4 Fixed Charges Coverage Ratio.4 Fixed Charges Coverage Ratio.4 Fixed Charges
Coverage Ratio.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 10 DEFAULTSECTION 10 DEFAULTSECTION 10 DEFAULTSECTION 10 DEFAULT. The
term "Default" means the occurrence of any one or more of the following events:
10.1 Obligation.1 Obligation.1 Obligation.1 Obligation. The failure or refusal
of (a) either Borrower to make any interest payment owed by it within three
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.
10.2 Covenants.2 Covenants.2 Covenants.2 Covenants. The failure or refusal of
either 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 Section 4.2, (b) in either Section 8 or Section 9
and it continues for 30 days, or (c) 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.
10.3 Debtor Relief.3 Debtor Relief.3 Debtor Relief.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 Lender
granted in the Loan Papers (unless, if the proceeding is involuntary, the
applicable petition is dismissed within 60 days after its filing).
10.4 Misrepresentation.4 Misrepresentation.4 Misrepresentation.4
Misrepresentation. Any material representation or warranty made by any
party (other than Lender) contained in any Loan Paper at any time proves to have
been materially incorrect when made.
10.5 Judgments and Attachments.5 Judgments and Attachments.5 Judgments and
Attachments.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
(or the Sterling equivalent) (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 (or the Sterling equivalent), 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.
10.6 Certain Debt10.6 Certain Debt.6 Certain Debt.6 Certain Debt. (a) A payment
Default occurs under the Chase Credit Agreement, and the applicable grace period
has expired; (b) any other Default occurs under the Chase Credit Agreement that
has not been cured or permanently waived before expiration of the applicable
grace period; (c) a payment Event of Default occurs under any Note Agreement,
and the applicable grace period under that Note Agreement has expired; (d) any
other Event of Default occurs under any Note Agreement that has not been cured
or permanently waived before expiration of the applicable grace period under
that Note Agreement; (e) a payment Event of Default occurs under the Chase
Revolving Note, and the applicable grace period under the Chase Revolving Note
has expired; (f) any other Event of Default occurs under the Chase Revolving
Note that has not been cured or permanently waived before expiration of the
applicable grace period under the Chase Revolving Note; or (g) the occurrence
and continuance of any Event of Default as defined in the Intercreditor
Agreement.
10.7 Default Under Other Agreements.7 Default Under Other Agreements.7 Default
Under Other Agreements.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.
10.8 Validity and Enforceability of Loan Papers.8 Validity and Enforceability of
Loan Papers.8 Validity and Enforceability of Loan Papers.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 Lender) to any Loan Paper,
if party thereto, or any party (other than Lender) denies that it has any
further liability or obligations under any Loan Paper to which it is a party.
10.9 Change of Control.9 Change of Control.9 Change of Control.9 Change of
Control. KPC fails to be the sole general partner of KPP and Borrower KPOP or
KPP fails to be the sole limited partner of Borrower KPOP.
10.10 KPC Merger or Consolidation.10 KPC Merger or Consolidation.10 KPC
Merger or Consolidation.10 KPC Merger or Consolidation. Whether it is the
survivor or not, KPC is merged into or consolidated with KSI.
SECTION 11 RIGHTS AND REMEDIESSECTION 11 RIGHTS AND
REMEDIESSECTION 11 RIGHTS AND REMEDIESSECTION 11 RIGHTS AND
REMEDIES.
11.1 Remedies Upon Default.1 Remedies Upon Default.1 Remedies Upon Default.1
Remedies Upon Default.
(a) If a Default exists under Section 10.3, the entire unpaid balance of the
Obligation automatically becomes due and payable without any action of any kind
whatsoever.
(b) If any Default exists, Lender may do any one or more of the following: (i)
if the maturity of the Obligation has not already been accelerated under Section
11.1(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) reduce any
claim to judgment; (iii) to the extent permitted by Law, 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
Lender to the extent of the full amount of the Obligation; and (iv) 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.
11.2 KPP Company Waivers. .2 KPP Company Waivers. .2 KPP Company Waivers. .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.
11.3 Performance by Lender.3 Performance by Lender.3 Performance by
Lender.3 Performance by Lender. If any covenant, duty, or agreement of any KPP
Company is not performed in accordance with the terms of the Loan Papers, Lender
may, while a Default exists, at its option, perform or attempt to perform that
covenant, duty, or agreement on behalf of that KPP Company (and any amount
expended by Lender in its performance or attempted performance is payable by the
KPP Companies, jointly and severally, to Lender on demand, becomes part of the
Obligation, and bears interest at the Default Rate from the date of Lender's
expenditure until paid). However, Lender 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. Lender shall
promptly notify Borrowers of any action taken under this Section 11.3.
11.4 Not in Control.4 Not in Control.4 Not in Control.4 Not in Control. None of
the covenants or other provisions contained in any Loan Paper shall, or shall be
deemed to, give Lender the Right to exercise control over the assets (including,
without limitation, real property), affairs, or management of any KPP Company;
the power of Lender is limited to the Right to exercise the remedies provided in
this Section 11.
11.5 Course of Dealing.5 Course of Dealing.5 Course of Dealing.5 Course of
Dealing. The acceptance by Lender of any partial payment on the Obligation shall
not be deemed to be a waiver of any Default then existing. No waiver by Lender
of any Default shall be deemed to be a waiver of any other then-existing or
subsequent Default. No delay or omission by Lender 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.
11.6 Cumulative Rights.6 Cumulative Rights.6 Cumulative Rights.6 Cumulative
Rights. All Rights available to Lender under the Loan Papers are cumulative of
and in addition to all other Rights granted to Lender at law or in equity,
whether or not the Obligation is due and payable and whether or not Lender have
instituted any suit for collection, foreclosure, or other action in connection
with the Loan Papers.
11.7 Application of Proceeds.7 Application of Proceeds.7 Application of
Proceeds.7 Application of Proceeds. Any and all proceeds ever received by Lender
from the exercise of any Rights pertaining to the Obligation shall be applied to
the Obligation according to Section 3.
11.8 Diminution in Value of Collateral.8 Diminution in Value of Collateral.8
Diminution in Value of Collateral.8 Diminution in Value of Collateral. Lender
has no 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).
11.9 Certain Proceedings11.9 Certain Proceedings.9 Certain Proceedings.9
Certain Proceedings. Borrowers shall promptly execute and deliver, or
cause the execution and delivery of, all applications, certificates,
instruments, registration statements, and all other documents and papers Lender
reasonably requests 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 Borrowers agree that Lender's remedies at
Law for failure of Borrowers to comply with the provisions of this paragraph
would be inadequate and that that failure would not be adequately compensable in
damages, Borrowers agree that the covenants of this paragraph may be
specifically enforced.
11.10 Judgment Currency11.10 Judgment Currency.10 Judgment
Currency.10 Judgment Currency. If, for the purpose of obtaining judgment in any
court, it is necessary to convert an amount due under any Loan Paper from a
currency (the "original currency") into another currency (the "other currency"),
then the rate of exchange used shall be that at which Lender (in accordance with
normal banking procedures) could purchase the original currency with the other
currency at its principal office in Atlanta, Georgia, two Business Days before
the day on which final judgment is given.
(a) Each Borrower's obligation for any amount due in the original currency from
it to Lender under any Loan Paper shall (notwithstanding any judgment in any
other currency) be discharged only if and to the extent that -- on the Business
Day following the day on which Lender receives any amount adjudged to be so due
in the other currency -- Lender is able (in accordance with normal banking
procedures) to purchase the same amount of the original currency with the other
currency as the amount that Lender could have purchased two Business Days before
the day on which the final judgment referred to above is given.
(b) If the amount of the original currency so purchased under clause (a) above
by Lender is less than the amount of the original currency that Lender could
have so purchased, then Borrowers jointly and severally shall (as a separate
obligation and notwithstanding any such judgment) remit the deficiency to
Lender.
(c) If the amount of the original currency so purchased under clause (a) above
exceeds the amount of the original currency that Lender could have so purchased,
then Lender shall remit that excess to the relevant Borrower.
SECTION 12 MISCELLANEOUSSECTION 12 MISCELLANEOUSSECTION 12
MISCELLANEOUSSECTION 12 MISCELLANEOUS.
12.1 Nonbusiness Days.1 Nonbusiness Days.1 Nonbusiness Days.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.
12.2 Communications.2 Communications.2 Communications.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:
o 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);
o 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
o if by other means, when actually delivered.
Until changed by notice, the address and telecopy number are stated for each
Borrower and Lender, beside their names on the signature page below.
12.3 Form and Number of Documents.3 Form and Number of Documents.3 Form
and Number of Documents.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 Lender and its counsel.
12.4 Exceptions to Covenants.4 Exceptions to Covenants.4 Exceptions to
Covenants.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.
12.5 Survival.5 Survival.5 Survival.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.
12.6 Governing Law.6 Governing Law.6 Governing Law.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.
12.7 Invalid Provisions.7 Invalid Provisions.7 Invalid Provisions.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. Lender, Borrowers, 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.
12.8 Venue; Service of Process; Jury Trial.8 Venue; Service of Process; Jury
Trial.8 Venue; Service of Process; Jury Trial.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, (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.
Each Borrower acknowledges that these waivers are a material inducement to
Lender's agreement to enter into a business relationship, that Lender has
already relied on these waivers in entering into this agreement, and that Lender
will continue to rely on each of these waivers in related future dealings. Each
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 12.8 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.
12.9 Amendments, Consents, Conflicts, and Waivers.9 Amendments, Consents,
Conflicts, and Waivers.9 Amendments, Consents, Conflicts, and Waivers.9
Amendments, Consents, Conflicts, and Waivers.
(a) This agreement may be amended only by an instrument in writing executed by
Borrowers and Lender 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 Lender and the Person(s) party to those other
Loan Papers.
(b) 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.
(c) No course of dealing or any failure or delay by Lender or any of its
Representatives with respect to exercising any Right of Lender under this
agreement operates as a waiver thereof. A waiver must be in writing and signed
by Lender to be effective, and a waiver will be effective only in the specific
instance and for the specific purpose for which it is given.
12.10 Multiple Counterparts.10 Multiple Counterparts.10 Multiple Counterparts.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.
12.11 Successors and Assigns; Syndication12.11 Successors and Assigns;
Syndication.11 Successors and Assigns; Syndication.11 Successors and Assigns;
Syndication. 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. Lender may transfer, pledge, assign, sell any
participation in, or otherwise encumber the Obligation. Should Lender ever elect
to syndicate any of the Term Loans among one or more other lenders, Borrowers
covenant and agree to perform those acts and duly authorize, execute,
acknowledge, deliver, file, and record an amendment to this agreement,
replacement notes, and such other additional documents and certificates as
Lender may request in order to accomplish that syndication with Lender as the
agent for itself and those other lenders.
12.12 Discharge Only Upon Payment in Full; Reinstatement in Certain
Circumstances.12 Discharge Only Upon Payment in Full; Reinstatement in Certain
Circumstances.12 Discharge Only Upon Payment in Full; Reinstatement in Certain
Circumstances.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 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.
12.13 Entirety.13 Entirety.13 Entirety.13 Entirety. THE LOAN PAPERS REPRESENT
THE FINAL AGREEMENT BETWEEN BORROWERS AND LENDER 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 PAGES FOLLOW.
EXECUTED as of the date first stated in this Credit Agreement.
Kaneb Pipe Line Operating Partnership, L.P.
c/o Kaneb Pipe Line Company
2435 North Central Expressway, Suite 700
Richardson, TX 75080
Attn: Edward D. Doherty, Chairman
Telephone: 972-699-4013
Telecopy: 972-699-1894
KANEB PIPE LINE OPERATING
PARTNERSHIP, L.P., as a Borrower
By KANEB PIPE LINE COMPANY,
General Partner
By
Edward D. Doherty,
Chairman
ST Services, Ltd.
Attn: ,
Telephone:
Telecopy:
ST SERVICES, LTD., as a Borrower
By
Name:
Title:
SunTrust Bank, Atlanta
25 Park Place
24th Floor, MC-120
Atlanta, GA 30303
Attn: John A. Fields, Jr., Vice President
Telephone: 404-724-3667
Telecopy: 404-827-6270
SUNTRUST BANK, ATLANTA, as
Lender
By
John A. Fields, Jr., Vice President
By
Name:
Title:
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