<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1999
COMMISSION FILE NO. 1-10403
TEPPCO PARTNERS, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0291058
(STATE OF INCORPORATION (I.R.S. EMPLOYER
OR ORGANIZATION) IDENTIFICATION NUMBER)
2929 ALLEN PARKWAY
P.O. BOX 2521
HOUSTON, TEXAS 77252-2521
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(713) 759-3636
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether each registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
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<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TEPPCO PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................. $ 29,903 $ 47,423
Short-term investments ..................................... 3,271 3,269
Accounts receivable, trade ................................. 89,473 113,541
Inventories ................................................ 22,011 20,434
Other ...................................................... 2,677 3,909
------------ ------------
Total current assets .................................... 147,335 188,576
------------ ------------
Property, plant and equipment, at cost (Net of accumulated
depreciation and amortization of $200,510 and $193,858) .... 678,597 671,611
Investments .................................................. 4,723 6,490
Intangible assets ............................................ 36,363 36,842
Other assets ................................................. 11,417 11,450
------------ ------------
Total assets ............................................ $ 878,435 $ 914,969
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued liabilities ................... $ 82,452 $ 117,933
Accounts payable, general partner .......................... 3,942 2,815
Accrued interest ........................................... 6,180 13,039
Other accrued taxes ........................................ 5,891 6,739
Other ...................................................... 5,974 7,699
------------ ------------
Total current liabilities ............................... 104,439 148,225
------------ ------------
Senior Notes ................................................. 389,730 389,722
Other long-term debt ......................................... 38,000 38,000
Other liabilities and deferred credits ....................... 3,139 3,407
Minority interest ............................................ 3,470 3,393
Redeemable Class B Units held by related party ............... 106,365 105,036
Partners' capital:
General partner's interest ................................. 388 (380)
Limited partners' interests ................................ 232,904 227,566
------------ ------------
Total partners' capital ................................. 233,292 227,186
------------ ------------
Total liabilities and partners' capital ................. $ 878,435 $ 914,969
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
2
<PAGE> 3
TEPPCO PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1999 1998
------------ ------------
<S> <C> <C>
Operating revenues:
Sale of crude oil and petroleum products ................................ $ 222,374 $ --
Transportation - Refined products ....................................... 25,596 22,462
Transportation - LPGs ................................................... 26,595 21,815
Transportation - Crude oil and NGLs ..................................... 2,566 --
Mont Belvieu operations ................................................. 2,897 2,670
Other - net ............................................................ 6,062 3,258
--------- ---------
Total operating revenues .............................................. 286,090 50,205
--------- ---------
Costs and expenses:
Purchases of crude oil and petroleum products ........................... 216,697 --
Operating, general and administrative ................................... 21,213 15,844
Operating fuel and power ................................................ 6,893 6,190
Depreciation and amortization ........................................... 8,139 6,080
Taxes - other than income taxes ......................................... 2,679 2,577
--------- ---------
Total costs and expenses .............................................. 255,621 30,691
--------- ---------
Operating income ...................................................... 30,469 19,514
Interest expense .......................................................... (7,542) (7,156)
Interest costs capitalized ................................................ 142 284
Other income - net ........................................................ 541 647
--------- ---------
Income before minority interest and extraordinary loss on debt
extinguishment ........................................................ 23,610 13,289
Minority interest ......................................................... (238) (134)
--------- ---------
Income before extraordinary loss on debt extinguishment ................. 23,372 13,155
Extraordinary loss on debt extinguishment, net of minority interest ....... -- (72,767)
--------- ---------
Net income (loss) ....................................................... $ 23,372 $ (59,612)
========= =========
Basic and diluted income (loss) per Limited Partner and Class B Unit:
Income before extraordinary loss on debt extinguishment ................. $ 0.64 $ 0.41
Extraordinary loss on debt extinguishment ............................... -- (2.28)
--------- ---------
Net income (loss) ....................................................... $ 0.64 $ (1.87)
========= =========
Weighted average Limited Partner and Class B Units outstanding ............ 32,917 29,000
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE> 4
TEPPCO PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) .................................................. $ 23,372 $ (59,612)
Adjustments to reconcile net income (loss) to cash provided by
operating activities:
Depreciation and amortization ................................... 8,139 6,080
Extraordinary loss on early extinguishment of debt,
net of minority interest ...................................... -- 72,767
Equity in loss of affiliate ..................................... 74 94
Decrease in accounts receivable, trade .......................... 24,068 6,563
Increase in inventories ......................................... (1,577) (1,080)
Decrease in other current assets ................................ 1,232 250
Decrease in accounts payable and accrued expenses ............... (43,786) (11,087)
Other ........................................................... (715) 71
--------- ---------
Net cash provided by operating activities ..................... 10,807 14,046
--------- ---------
Cash flows from investing activities:
Proceeds from cash investments ..................................... 3,000 --
Purchases of cash investments ...................................... (1,235) --
Purchase of fractionators and related intangible assets,
net of noncash portion ....................................... -- (2,000)
Purchase of crude oil system ....................................... (2,250) --
Capital expenditures ............................................... (11,851) (4,949)
--------- ---------
Net cash used in investing activities .......................... (12,336) (6,949)
--------- ---------
Cash flows from financing activities:
Principal payment, First Mortgage Notes ............................ -- (326,512)
Prepayment premium, First Mortgage Notes ........................... -- (70,093)
Issuance of Senior Notes ........................................... -- 389,694
Debt issuance costs, Senior Notes .................................. -- (3,641)
Distributions ...................................................... (15,991) (13,710)
--------- ---------
Net cash used in financing activities .......................... (15,991) (24,262)
--------- ---------
Net decrease in cash and cash equivalents ............................ (17,520) (17,165)
Cash and cash equivalents at beginning of period ..................... 47,423 43,961
--------- ---------
Cash and cash equivalents at end of period ........................... $ 29,903 $ 26,796
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS:
Interest paid during the period (net of capitalized interest) ........ $ 14,182 $ 12,525
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE> 5
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
TEPPCO Partners, L.P. (the "Partnership"), a Delaware limited
partnership, was formed in March 1990. The Partnership operates through TE
Products Pipeline Company, Limited Partnership (the "Products OLP") and TCTM,
L.P. (the "Crude Oil OLP"). Collectively the Products OLP and the Crude Oil OLP
are referred to as "the Operating Partnerships." The Partnership owns a 99%
interest as the sole limited partner interest in both the Products OLP and the
Crude Oil OLP. Texas Eastern Products Pipeline Company (the "Company" or
"General Partner"), an indirect wholly-owned subsidiary of Duke Energy
Corporation ("Duke Energy"), owns a 1% general partner interest in the
Partnership and 1% general partner interest in each Operating Partnership. The
Company, as general partner, performs all management and operating functions
required for the Partnership pursuant to the Agreements of Limited Partnership
of TEPPCO Partners, L.P. and TE Products Pipeline Company, Limited Partnership
and TCTM, L.P. (the "Partnership Agreements"). The general partner is reimbursed
by the Partnership for all reasonable direct and indirect expenses incurred in
managing the Partnership.
The accompanying unaudited consolidated financial statements reflect
all adjustments, which are, in the opinion of management, of a normal and
recurring nature and necessary for a fair statement of the financial position of
the Partnership as of March 31, 1999, and the results of operations and cash
flows for the periods presented. The results of operations for the three months
ended March 31, 1999, are not necessarily indicative of results of operations
for the full year 1999. The interim financial statements should be read in
conjunction with the Partnership's consolidated financial statements and notes
thereto presented in the TEPPCO Partners, L.P. Annual Report on Form 10-K for
the year ended December 31, 1998. Certain amounts from the prior year have been
reclassified to conform to current presentation.
The Partnership operates in two industry segments: refined products and
liquefied petroleum gases ("LPGs") transportation, and crude oil and natural gas
liquids ("NGLs") transportation and marketing. The Partnership's reportable
segments offer different products and services and are managed separately
because each requires different business strategies. The crude oil and NGLs
transportation segment was acquired as a unit, and the management at the time of
the acquisition was retained. The refined products and LPGs transportation
segment's interstate transportation operations, including rates charged to
customers, are subject to regulations prescribed by the Federal Energy
Regulatory Commission ("FERC"). Refined products, LPGs, crude oil and NGLs are
referred to herein, collectively, as "petroleum products" or "products."
Basic net income per Unit is computed by dividing net income, after
deduction of the general partner's interest, by the weighted average number of
Limited Partner and Class B Units outstanding (a total of 32,916,547 Units and
29,000,000 Units as of March 31, 1999 and 1998, respectively). The general
partner's percentage interest in net income is based on its percentage of cash
distributions from Available Cash for each period (see Note 7. Cash
Distributions). The general partner was allocated $2.4 million (10.18%) of the
net income for the three months ended March 31, 1999, and $5.3 million (8.87%)
of the net loss for the three months ended March 31, 1998.
Diluted net income per Unit is similar to the computation of basic net
income per Unit above, except that the denominator was increased to include the
dilutive effect of outstanding Unit options by application of the treasury stock
method. For the quarters ended March 31, 1999 and 1998, the denominator was
increased by 28,572 Units and 46,338 Units, respectively.
NOTE 2. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes
standards for and disclosures of derivative instruments and hedging activities.
This statement
5
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TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
is effective for fiscal years beginning after June 15, 1999. The Partnership
expects to adopt this standard effective January 1, 2000, and does not expect
the adoption of this statement to have a material impact on its financial
condition or results of operations.
NOTE 3. RELATED PARTY TRANSACTIONS
As of March 31, 1998, TEPPCO Colorado, LLC ("TEPPCO Colorado"), a
wholly owned subsidiary of the Products OLP, purchased two fractionation
facilities located in Weld County, Colorado, from Duke Energy Field Services,
Inc. ("DEFS"), a wholly-owned subsidiary of Duke Energy. TEPPCO Colorado and
DEFS entered into a twenty year Fractionation Agreement, whereby TEPPCO Colorado
will receive a variable fee for all fractionated volumes delivered to DEFS. The
purchase price of these transactions was $40 million. Intangible assets include
$38 million of value assigned to the Fractionation Agreement, which will be
amortized on a straight-line method over the term of the Fractionation
Agreement. The remaining purchase price of $2.0 million was allocated to the
fractionator facilities purchased. TEPPCO Colorado and DEFS also entered into a
Operations and Management Agreement, whereby DEFS will operate and maintain the
fractionation facilities. TEPPCO Colorado will pay DEFS a set volumetric rate
for all fractionated volumes delivered to DEFS. As the transactions occurred as
of March 31, 1998, no effect of these transactions was included in the
Partnership's consolidated statements of income for the quarter ended March 31,
1998.
Effective November 1, 1998, the Crude Oil OLP, through its wholly owned
subsidiary TEPPCO Crude Oil, LLC ("TCO"), acquired substantially all of the
assets of Duke Energy Transport and Trading Company ("DETTCO") from Duke Energy
for approximately $106 million. In consideration for such assets, Duke Energy
received 3,916,547 Class B Limited Partnership Units ("Class B Units"). The
Class B Units are substantially identical to the 29,000,000 Limited Partner
Units, but they are not listed on the New York Stock Exchange. The Class B Units
will be convertible into Limited Partner Units upon approval by the Limited
Partner Unitholders. The Company intends to seek approval for conversion,
however, if conversion is not approved before March 2000, the holder of the
Class B Units will have the right to sell them to the Partnership at 95.5% of
the market price of the Limited Partner Units at the time of sale. As a result
of such option, the Class B Units were not included in partners' capital at
March 31, 1999. Collectively, the Limited Partner Units and Class B Units are
referred to as "Units." The transaction was accounted for under the purchase
method of accounting. Accordingly, the results of the acquisition are included
in the consolidated statements of income for the period subsequent to November
1, 1998.
NOTE 4. INVESTMENTS
SHORT-TERM INVESTMENTS
The Partnership routinely invests cash in liquid short-term investments
as part of its cash management program. Investments with maturities at date of
purchase of 90 days or less are considered cash equivalents. At March 31, 1999,
short-term investments included $3.3 million of investment-grade corporate
notes, which mature within one year. Such investments at March 31, 1999 included
a $0.9 million investment in Duke Power Company corporate notes. All short-term
investments are classified as held-to-maturity securities and are stated at
amortized cost. The aggregate fair value of such securities approximates
amortized cost at March 31, 1999.
6
<PAGE> 7
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
LONG-TERM INVESTMENTS
At March 31, 1999, the Partnership had $4.7 million invested in
investment-grade corporate notes, which have varying maturities through 2004.
These securities are classified as held-to-maturity securities and are stated at
amortized cost. The aggregate fair value of such securities approximates
amortized cost at March 31, 1999.
NOTE 5. INVENTORIES
Inventories are carried at the lower of cost (based on weighted average
cost method) or market. The major components of inventories were as follows (in
thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
<S> <C> <C>
Gasolines ................. $ 3,901 $ 4,224
Propane ................... 881 1,503
Butanes ................... 1,573 1,654
MTBE ...................... 596 641
Crude oil ................. 7,837 5,517
Other products ............ 3,612 3,229
Materials and supplies .... 3,611 3,666
------- -------
Total ................ $22,011 $20,434
======= =======
</TABLE>
The costs of inventories were lower than market at March 31, 1999, and
December 31, 1998.
NOTE 6. LONG TERM DEBT
SENIOR NOTES
On January 27, 1998, the Products OLP completed the issuance of $180
million principal amount of 6.45% Senior Notes due 2008, and $210 million
principal amount of 7.51% Senior Notes due 2028 (collectively the "Senior
Notes"). The 6.45% Senior Notes due 2008 are not subject to redemption prior to
January 15, 2008. The 7.51% Senior Notes due 2028 may be redeemed at any time
after January 15, 2008, at the option of the Products OLP, in whole or in part,
at a premium. Net proceeds from the issuance of the Senior Notes totaled
approximately $386 million and was used to repay in full the $61.0 million
principal amount of the 9.60% Series A First Mortgage Notes, due 2000, and the
$265.5 million principal amount 10.20% Series B First Mortgage Notes, due 2010.
The premium for the early redemption of the First Mortgage Notes totaled $70.1
million. The Partnership recorded an extraordinary charge of $73.5 million
during the first quarter of 1998 (including $0.7 million allocated to minority
interest), which represents the redemption premium of $70.1 million and
unamortized debt issue costs related to the First Mortgage Notes of $3.4
million.
The Senior Notes do not have sinking fund requirements. Interest on the
Senior Notes is payable semiannually in arrears on January 15 and July 15 of
each year, commencing July 15, 1998. The Senior Notes are unsecured obligations
of the Products OLP and will rank on a parity with all other unsecured and
unsubordinated indebtedness of the Products OLP. The indenture governing the
Senior Notes contains covenants, including, but not limited to, covenants
limiting (i) the creation of liens securing indebtedness and (ii) sale and
leaseback transactions. However, the indenture does not limit the Partnership's
ability to incur additional indebtedness.
7
<PAGE> 8
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
OTHER LONG TERM DEBT
In connection with the purchase of the fractionation assets from DEFS
as of March 31, 1998, TEPPCO Colorado received a $38 million bank loan from
SunTrust Bank. Proceeds from the loan were received on April 21, 1998. TEPPCO
Colorado paid interest to DEFS at a per annum rate of 5.75% on the amount of the
total purchase price outstanding for the period from March 31, 1998 until April
21, 1998. The SunTrust loan bears interest at a rate of 6.53%, which is payable
quarterly beginning in July 1998. The principal balance of the loan is payable
in full on April 21, 2001. The Products OLP is guarantor on the loan.
WORKING CAPITAL FACILITIES
In connection with the purchase of the DETTCO assets by TCO, the Crude
Oil OLP entered into a $30 million Revolving Credit Agreement ("Revolver") with
Duke Capital Corporation ("Duke Capital"), a wholly owned subsidiary of Duke
Energy. The Revolver, dated November 30, 1998, has a six-month term and bears
interest at the one month LIBOR rate plus 0.50%. The Revolver also has a
commitment fee of $45,000 per annum.
The outstanding principal balance of the Revolver is payable in full at
the end of its term. The Revolver is to be used by the Crude Oil OLP and its
subsidiaries for working capital and general business needs.
At March 31, 1999, there was no outstanding balance under the Revolver.
In connection with the purchase of the DETTCO assets by TCO, Duke
Capital also agreed to guarantee the payment by TCO and its subsidiaries under
certain commercial contracts between TCO and its subsidiaries and third parties.
Duke Capital will provide up to $100 million of guarantee credit to TCO and its
subsidiaries for a period of three years from November 30, 1998. Pursuant to
this agreement, the Partnership has agreed to pay Duke Capital $100,000 per
year.
NOTE 7. CASH DISTRIBUTIONS
The Partnership makes quarterly cash distributions of all of its
Available Cash, generally defined as consolidated cash receipts less
consolidated cash disbursements and cash reserves established by the general
partner in its sole discretion.
On February 5, 1999, the Partnership paid a cash distribution of $0.45
per Limited Partner Unit and Class B Unit for the quarter ended December 31,
1998. The Class B Unit distribution was prorated for the 61 day period from
issuance on November 1, 1998. Additionally, on April 16, 1999, the Partnership
declared a cash distribution of $0.45 per Limited Partner Unit and Class B Unit
for the quarter ended March 31, 1999. The distribution will be paid on May 7,
1999, to Unitholders of record on April 30, 1999.
The Company receives incremental incentive distributions of 15%, 25%
and 50% of the amount by which quarterly distributions of Available Cash exceed
$0.275, $0.325 and $0.45 per Limited Partner Unit and Class B Unit,
respectively. During the three months ended March 31, 1999 and 1998, incentive
distributions paid to the Company totaled $1.5 million and $1.1 million,
respectively.
8
<PAGE> 9
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
NOTE 8. SEGMENT DATA
The Partnership operates in two industry segments: refined products and
LPGs transportation, which operates through the Products OLP; and crude oil and
NGLs transportation and marketing, which operates through the Crude Oil OLP.
Operations of the Products OLP consist of interstate transportation,
storage and terminaling of petroleum products; short-haul shuttle transportation
of LPGs at the Mont Belvieu, Texas complex; sale of product inventory;
fractionation of natural gas liquids and other ancillary services. The Products
OLP is one of the largest pipeline common carriers of refined petroleum products
and LPGs in the United States. The Partnership owns and operates an approximate
4,300-mile pipeline system extending from southeast Texas through the central
and midwestern United States to the northeastern United States.
The Crude Oil OLP gathers, stores, transports and markets crude oil,
principally in Oklahoma and Texas; operates two trunkline NGL pipelines in South
Texas; and distributes lube oil to industrial and commercial accounts. The Crude
Oil OLP's gathering, transportation and storage assets include approximately
2,200 miles of pipeline and 1.3 million barrels of storage. The crude oil and
NGLs transportation and marketing segment was added with the acquisition from
DETTCO effective November 1, 1998.
The below table includes interim financial information by business
segment as of and for the quarter ended March 31, 1999. Comparative data has not
been included as the Partnership operated as one business segment prior to
November 1, 1998.
<TABLE>
<CAPTION>
PRODUCTS CRUDE OIL
OLP OLP CONSOLIDATED
(in thousands): --------- --------- ------------
<S> <C> <C> <C>
Unaffiliated revenues ....................... $ 61,150 $ 224,940 $ 286,090
Operating expenses, including power ......... 26,189 221,293 247,482
Depreciation and amortization expense ....... 6,763 1,376 8,139
--------- --------- ---------
Operating income ...................... 28,198 2,271 30,469
Interest expense ............................ (7,536) (6) (7,542)
Other income, net ........................... 329 116 445
--------- --------- ---------
Net income ............................ 20,991 2,381 23,372
========= ========= =========
Identifiable assets ......................... $ 690,819 $ 187,616 $ 878,435
Accounts receivable, trade .................. 18,686 70,787 89,473
Accounts payable and accrued liabilities .... $ 5,702 $ 76,750 $ 82,452
</TABLE>
NOTE 9. COMMITMENTS AND CONTINGENCIES
The Partnership is involved in various claims and legal proceedings
incidental to its business. In the opinion of management, these claims and legal
proceedings will not have a material adverse effect on the Partnership's
consolidated financial position or results of operations.
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 the operations of the pipeline system are in material
compliance with applicable environmental regulations, risks of significant costs
and liabilities are inherent in pipeline operations, and there can be no
assurance that significant costs and liabilities will not be incurred. Moreover,
it is possible that other developments, such as increasingly strict
environmental laws and regulations and enforcement policies thereunder, and
claims for damages to property or persons resulting from the operations of the
pipeline system, could result in substantial costs and liabilities to the
Partnership. The Partnership does not anticipate that changes in environmental
laws and regulations will have a material adverse effect on its financial
position, operations or cash flows in the near term.
9
<PAGE> 10
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
The Partnership and the Indiana Department of Environmental Management
("IDEM") have entered into an Agreed Order that will ultimately result in a
remediation program for any on-site and off-site groundwater contamination
attributable to the Partnership's operations at the Seymour, Indiana, terminal.
A Feasibility Study, which includes the Partnership's proposed remediation
program, has been approved by IDEM. IDEM will issue a Record of Decision
formally approving the remediation program. After the Record of Decision has
been issued, the Partnership will enter into an Agreed Order for the continued
operation and maintenance of the program. The Partnership estimates that the
costs of the remediation program being proposed by the Partnership for the
Seymour terminal will not exceed the amount accrued therefore (approximately
$0.7 million at March 31, 1999). In the opinion of the Company, the completion
of the remediation program being proposed by the Partnership, if such program is
approved by IDEM, will not have a material adverse impact on the Partnership's
financial condition, results of operations or liquidity.
In 1997, the Company initiated a program to prepare the Partnership's
process controls and business computer systems for the "Year 2000" issue.
Process controls are the automated equipment including hardware and software
systems which run operational activities. Business computer systems are the
computer hardware and software used by the Partnership. The Partnership is
utilizing both internal and external resources to identify, test, remediate or
replace all critical known or discovered non-compliant computerized systems and
applications. The Company continues to evaluate appropriate courses of
corrective action, including replacement of certain systems whose associated
costs would be recorded as assets and amortized. The Partnership has incurred
approximately $1.8 million of costs related to the Year 2000 issue. The Company
estimates the remaining amounts required to address the Year 2000 issue will be
as much as approximately $4.5 million. A portion of such costs would have been
incurred as part of normal system and application upgrades. In certain cases,
the timing of expenditures has been accelerated due to the Year 2000 issue.
Although the Company believes this estimate to be reasonable, due to the
complexities of the Year 2000 issue, there can be no assurance that the actual
costs related to the Year 2000 issue will not be significantly greater.
The Partnership has adopted a three-phase Year 2000 program consisting
of: Phase I - Preliminary Assessment; Phase II - Detailed Assessment and
Remediation Planning; and Phase III - Remediation Activities and Testing. The
Products OLP has completed Phase I; Phase II is 94% complete; and Phase III is
63% complete. The Crude Oil OLP has completed 88% of Phase I; Phase II is 69%
complete; and Phase III is 20% complete. Remediation Activities and Testing of
all process controls and business computer systems are scheduled to be completed
before the end of the fourth quarter of 1999.
With respect to its third-party relationships, the Partnership has
contacted its primary vendors, suppliers and service providers to assess their
software and hardware products previously sold to the Partnership and other
aspects of their state of Year 2000 readiness. Information continues to be
updated regularly, thus the Partnership anticipates receiving additional
information in the near future that will assist in determining the extent to
which the Partnership may be vulnerable to those third parties' failure to
identify and remediate their Year 2000 issues. However, there can be no
assurance that the systems or products of other companies, on which the
Partnership's systems rely, will be timely converted, or converted in a manner
that is compatible with the Partnership's systems, or that any such failures by
other companies would not have a material adverse effect on the Partnership.
Despite the Partnership's determined efforts to address and remediate
its Year 2000 issue, there can be no assurance that all process controls and
business computer systems will continue without interruption through January 1,
2000 and beyond. The complexity of identifying and testing all embedded
microprocessors that are installed in hardware throughout the products pipeline
system and crude oil system used for process or flow control, transportation,
security, communication and other systems may result in unforeseen operational
system shutdowns. Although the amount of potential liability and lost revenue
cannot be estimated, failures that result in substantial
10
<PAGE> 11
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
disruptions of business activities could have a material adverse effect on the
Partnership. In order to mitigate potential disruptions, the Partnership will
prepare contingency plans for its critical systems, processes and external
relationships by the end of the fourth quarter of 1999.
In February 1999, the Partnership announced plans to construct three
new pipelines between the Partnership's terminal in Mont Belvieu, Texas and Port
Arthur, Texas. The project includes three 12-inch diameter common-carrier
pipelines and associated facilities. Each pipeline will be approximately 70
miles in length. Upon completion, the new pipelines will transport ethylene,
propylene and natural gasoline. The anticipated completion date is the fourth
quarter of 2000. The Partnership has entered into an agreement for turnkey
construction of the pipelines and related facilities and has separately entered
into agreements for guaranteed throughput commitments. The cost of this project
is expected to total approximately $74 million. Approximately $7.1 million of
spending was included in capital expenditures during the first quarter of 1999,
with a total of approximately $44 million expected to be incurred in 1999, and
the remainder in 2000. The Partnership expects to obtain external financing
during the second quarter of 1999 for this project.
Substantially all of the petroleum products transported and stored by
the Partnership are owned by the Partnership's customers. At March 31, 1999, the
Partnership had approximately 11.6 million barrels of products in its custody
owned by customers. The Partnership is obligated for the transportation, storage
and delivery of such products on behalf of its customers. The Partnership
maintains insurance adequate to cover product losses through circumstances
beyond its control.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The following information is provided to facilitate increased
understanding of the 1999 and 1998 interim consolidated financial statements and
accompanying notes presented in Item 1. Material period-to-period variances in
the consolidated statements of income are discussed under "Results of
Operations." The "Financial Condition and Liquidity" section analyzes cash flows
and financial position. Discussion included in "Other Matters" addresses key
trends, future plans and contingencies. Throughout these discussions, management
addresses items that are reasonably likely to materially affect future liquidity
or earnings.
Through its ownership of the Products OLP and the Crude Oil OLP, the
Partnership operates in two industry segments - refined products and LPGs
transportation; and crude oil and NGLs transportation and marketing. The
Partnership's reportable segments offer different products and services and are
managed separately because each requires different business strategies.
The Products OLP segment is involved in the transportation, storage and
terminaling of petroleum products and the fractionation of NGLs. Revenues are
derived from the transportation of refined products and LPGs, the storage and
short-haul shuttle transportation of LPGs at the Mont Belvieu, Texas, complex,
sale of product inventory and other ancillary services. Labor and electric power
costs comprise the two largest operating expense items of the Products OLP.
Operations are somewhat seasonal with higher revenues generally realized during
the first and fourth quarters of each year. Refined products volumes are
generally higher during the second and third quarters because of greater demand
for gasolines during the spring and summer driving seasons. LPGs volumes are
generally higher from November through March due to higher demand in the
Northeast for propane, a major fuel for residential heating.
The Crude Oil OLP segment is involved in the transportation and
marketing of crude oil and NGLs. Revenues are earned from the gathering,
storage, transportation and marketing of crude oil, NGLs and lube oils
principally in Oklahoma and Texas. Operations of this segment are included from
November 1, 1998, upon the acquisition from Duke Energy.
RESULTS OF OPERATIONS
Summarized below is financial data by business segment (in thousands):
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
-----------------------
1999 1998
-------- --------
<S> <C> <C>
Operating revenues:
Refined Products and LPGs Transportation ........... $ 61,150 $ 50,205
Crude Oil and NGLs Transportation and Marketing .... 224,940 --
-------- --------
Total operating revenues ........................ 286,090 50,205
-------- --------
Operating income:
Refined Products and LPGs Transportation ............ 28,198 19,514
Crude Oil and NGLs Transportation and Marketing ..... 2,271 --
-------- --------
Total operating income .......................... 30,469 19,514
-------- --------
Income before extraordinary item:
Refined Products and LPGs Transportation ........... 20,991 13,155
Crude Oil and NGLs Transportation and Marketing .... 2,381 --
-------- --------
Total income before extraordinary item ........... $ 23,372 $ 13,155
-------- --------
</TABLE>
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS - (CONTINUED)
For the quarter ended March 31, 1999, the Partnership reported net
income of $23.4 million, compared with income before an extraordinary loss of
$13.2 million for the first quarter of 1998. The extraordinary loss in 1998
resulted from a $72.8 million charge for early extinguishment of debt, net of
$0.7 million allocated to minority interest. The $10.2 million increase in
income before the loss on debt extinguishment resulted primarily from a $10.9
million increase in operating revenues of the refined products and LPGs
transportation segment and $8.2 million of margin contributed by the crude oil
and NGLs transportation and marketing segment. These increases were partially
offset by a $5.4 million increase in operating, general and administrative
expenses, a $0.7 million increase in operating fuel and power expense, and a
$2.1 million increase in depreciation expense. See discussion below of factors
affecting net income for the comparative periods by business segment.
REFINED PRODUCTS AND LPGS TRANSPORTATION SEGMENT
Volume and average tariff information for 1999 and 1998 is presented below:
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31, PERCENTAGE
----------------- INCREASE
1999 1998 (DECREASE)
------- ------- ---------
<S> <C> <C> <C>
VOLUMES DELIVERED
(in thousands of barrels)
Refined products ..................... 28,155 24,511 15%
LPGs ................................. 13,172 10,151 30%
Mont Belvieu operations .............. 6,885 5,944 16%
------- ------- -------
Total .............................. 48,212 40,606 19%
======= ======= =======
AVERAGE TARIFF PER BARREL
Refined products ...................... $ 0.91 $ 0.92 (1%)
LPGs .................................. 2.02 2.15 (6%)
Mont Belvieu operations ............... 0.16 0.16 --
Average system tariff per barrel ... $ 1.11 $ 1.11 --
======= ======= =======
</TABLE>
Refined products transportation revenues increased $3.1 million for the
quarter ended March 31, 1999, compared with the prior-year quarter, as a result
of favorable differentials caused by reduced refinery production during
maintenance turnarounds at Midwest area refineries and continued strong demand
due to economic growth. Additionally, jet fuel deliveries increased as a result
of new military supply agreements that became effective in the fourth quarter of
1998. These increases were partially offset by decreased feed stock and blend
stock deliveries in the Midwest as a result of the lower refinery production in
the region.
LPGs transportation revenues increased $4.8 million for the quarter
ended March 31, 1999, compared with the first quarter of 1998, due to a $5.3
million increase in propane revenue, partially offset by a $0.5 million decrease
in butane revenue. Increased propane revenue resulted primarily from increased
weather-related demand in the Midwest and Northeast, coupled with lower amounts
of competing local supply. Additionally, short-haul propane transportation
deliveries on the Texas Gulf Coast increased as a result of an extended
turnaround at a petrochemical facility served by the Partnership during the
first quarter of 1998. These short-haul propane deliveries resulted in the 6%
decrease in the LPGs transportation average tariff per barrel. Butane revenues
decreased during the first quarter of 1999, compared with the prior year first
quarter, as a result of lower gasoline blending demand and unfavorable economics
versus competing Canadian supply.
Other operating revenues increased $2.8 million during the quarter
ended March 31, 1999, as compared to the same period in 1998, due primarily to
$1.8 million of revenue recognized related to the fractionation assets
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS - (CONTINUED)
acquired effective March 31, 1998, higher propane imports received at the
Partnership's marine import facility at Providence, Rhode Island, and increased
refined products terminaling and storage revenues.
Costs and expenses increased $2.3 million for the quarter ended March
31, 1999, compared with the first quarter of 1998, due primarily to a $1.3
million increase in operating, general and administrative expenses, a $0.7
million increase in depreciation and amortization expense, and a $0.4 million
through-put related increase in operating fuel and power expense. The increase
in operating, general and administrative expenses was primarily due to a $0.5
million increase in expenses associated with Year 2000 activities, a $0.4
million increase in rental fees from higher volume through the connection from
Colonial Pipeline at Beaumont, Texas, increased pipeline maintenance activity
and $0.2 million of expense related to the fractionator facilities acquired on
March 31, 1998. These increases in operating, general and administrative
expenses were partially offset by lower insurance expenses during the first
quarter of 1999. Depreciation and amortization expense increased as a result of
amortization of the value assigned to the Fractionation Agreement beginning on
March 31, 1998, and capital additions placed in service.
Interest expense increased $0.4 million during the first quarter of
1999, compared with the first quarter of 1998, due to interest expense on the
$38.0 million term-loan used to finance the purchase of the fractionation assets
on March 31, 1998, partially offset by lower interest expense resulting from the
refinancing of the First Mortgage Notes with the Senior Notes, which occurred on
January 27, 1998.
Other income - net decreased during the first quarter of 1999, compared
with the prior year, as a result of lower interest income earned on cash
investments in 1999.
CRUDE OIL AND NGLS TRANSPORTATION AND MARKETING SEGMENT
Margin and volume information for the three months ended March 31, 1999
is presented below:
<TABLE>
<S> <C> <C>
Margins (dollars in thousands):
Crude oil transportation ......... $ 3,803 46%
Crude oil marketing .............. 2,491 30%
NGL transportation ............... 1,406 17%
LSI .............................. 543 7%
---------- ----------
Total margin ................ $ 8,243 100%
========== ==========
Barrels per day:
Crude oil transportation ......... 88,396
Crude oil marketing .............. 235,478
NGL transportation ............... 10,814
LSI volume (total gallons): ......... 1,950,234
Margin per barrel:
Crude oil transportation ......... $ 0.478
Crude oil marketing .............. $ 0.118
NGL transportation ............... $ 1.444
LSI margin (per gallon): ............ $ 0.279
</TABLE>
14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS - (CONTINUED)
The crude oil and NGLs transportation and marketing segment was added
to the Partnership's operations with the acquisition of the DETTCO assets
effective November 1, 1998. The acquisition was accounted for as a purchase for
accounting purposes. Net income contributed by the crude oil transportation and
marketing segment totaled $2.4 million for the quarter ended March 31, 1999.
Margin is a more meaningful measure of financial performance than
operating revenues and operating expenses due to the significant fluctuations in
revenues and expense caused by the level of marketing activity. Margin is
calculated as revenues generated from crude oil and lube oil sales and crude oil
and NGLs transportation less the cost of crude oil and lube oil purchases.
During the three months ended March 31, 1999, crude oil transportation and NGL
transportation contributed 46% and 17% of the margin, respectively, while crude
oil marketing operations accounted for 30% of the margin. Operations of LSI
contributed $0.5 million, or 7%, of the margin for the three month period ended
March 31, 1999.
Operating, general and administrative expenses, including operating
fuel and power, of the crude oil and NGLs transportation and marketing segment
totaled $4.4 million, or 54% of the margin. Depreciation and amortization
expenses and taxes - other than income totaled $1.5 million, or 19% of the
margin.
FINANCIAL CONDITION AND LIQUIDITY
Net cash from operations for the quarter ended March 31, 1999, totaled
$10.8 million, comprised of $31.5 million of income before charges for
depreciation and amortization, partially offset by $20.7 million used for
working capital changes. This compares with cash flows from operations of $14.0
million for the first quarter of 1998, which was comprised of $19.2 million of
income before charges for the extraordinary loss on early extinguishment of debt
and for depreciation and amortization, partially offset by $5.2 million used for
working capital changes. The increase in cash used for working capital changes
during the first quarter of 1999, as compared with the first quarter of 1998,
resulted primarily from timing of payments related to crude oil marketing
activity. Net cash from operations for the quarter ended March 31, 1999 included
interest payments related to the Senior Notes and the term loan of $14.3
million. Net cash from operations for the quarter ended March 31, 1998 included
interest payments related to the First Mortgage Notes of $12.8 million in
connection with repayment of the outstanding balance of the First Mortgage
Notes.
Cash flows used in investing activities during the first quarter of
1999 included $11.9 million of capital expenditures, $2.3 million for the
purchase of a 125-mile crude oil system in Southeast Texas, and $1.2 million of
additional cash investments. These decreases of cash were partially offset by
$3.0 million of proceeds from maturities of cash investments. Cash flows used in
investing activities during the first quarter of 1998 included $4.9 million of
capital expenditures and $2.0 million as the initial cash payment of the
purchase price of the fractionation assets and related intangible assets.
In February 1999, the Partnership announced plans to construct three
new pipelines between the Partnership's terminal in Mont Belvieu, Texas and Port
Arthur, Texas. The project includes three 12-inch diameter common-carrier
pipelines and associated facilities. Each pipeline will be approximately 70
miles in length. Upon completion, the new pipelines will transport ethylene,
propylene and natural gasoline. The anticipated completion date is the fourth
quarter of 2000. The Partnership has entered into an agreement for turnkey
construction of the pipelines and related facilities and has separately entered
into agreements for guaranteed throughput commitments. The cost of this project
is expected to total approximately $74 million. Approximately $7.1 million of
spending was included in capital expenditures during the first quarter of 1999,
with a total of approximately $44 million expected to be incurred in 1999, and
the remainder in 2000. The Partnership expects to obtain external financing
during the second quarter of 1999 for this project.
15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION AND LIQUIDITY - (CONTINUED)
Exclusive of the pipeline construction between Mont Belvieu and Port
Arthur, the Partnership estimates that capital expenditures for 1999 will total
approximately $37 million. Approximately $21 million is expected to be used for
the Products OLP and $16 million is expected to be used for the Crude Oil OLP.
Substantially all expenditures related to the Products OLP are expected to be
used for life-cycle replacements and to upgrade current facilities.
Approximately $10 million of planned expenditures of the Crude Oil OLP are
expected to be used in revenue-generating and cost-reduction projects, with the
remainder to be used to maintain existing operations. The Partnership revises
capital spending estimates periodically in response to changes in cash flows and
operations.
On January 27, 1998, the Products OLP completed the issuance of $180
million principal amount of 6.45% Senior Notes due 2008, and $210 million
principal amount of 7.51% Senior Notes due 2028 (collectively the "Senior
Notes"). The 6.45% Senior Notes due 2008 are not subject to redemption prior to
January 15, 2008. The 7.51% Senior Notes due 2028 may be redeemed at any time
after January 15, 2008, at the option of the Products OLP, in whole or in part,
at a premium. Net proceeds from the issuance of the Senior Notes totaled
approximately $386 million and was used to repay in full the $61.0 million
principal amount of the 9.60% Series A First Mortgage Notes, due 2000, and the
$265.5 million principal amount of the 10.20% Series B First Mortgage Notes, due
2010. The premium for the early redemption of the First Mortgage Notes totaled
$70.1 million. The repayment of the First Mortgage Notes and the issuance of the
Senior Notes reduced the level of cash required for debt service until 2008. The
Partnership recorded an extraordinary charge of $73.5 million during the first
quarter of 1998 (including $0.7 million allocated to minority interest), which
represents the redemption premium of $70.1 million and unamortized debt issue
costs related to the First Mortgage Notes of $3.4 million.
The Senior Notes do not have sinking fund requirements. Interest on the
Senior Notes is payable semiannually in arrears on January 15 and July 15 of
each year, commencing July 15, 1998. The Senior Notes are unsecured obligations
of the Products OLP and rank on a parity with all other unsecured and
unsubordinated indebtedness of the Products OLP. The indenture governing the
Senior Notes contains covenants, including, but not limited to, covenants
limiting (i) the creation of liens securing indebtedness and (ii) sale and
leaseback transactions. However, the indenture does not limit the Partnership's
ability to incur additional indebtedness.
In connection with the purchase of the fractionation assets from DEFS
as of March 31, 1998, TEPPCO Colorado received a $38 million bank loan from
SunTrust Bank. Proceeds from the loan were received on April 21, 1998, and
therefore were not included on the consolidated statement of cash flows as of
March 31, 1998. The loan bears interest at a rate of 6.53%, which is payable
quarterly beginning in July 1998. The principal balance of the loan is payable
in full on April 21, 2001. The Products OLP is guarantor on the loan. TEPPCO
Colorado paid interest to DEFS at a per annum rate of 5.75% on the amount of the
total purchase price outstanding for the period from March 31, 1998 until April
21, 1998.
The Partnership paid the fourth quarter 1998 cash distribution of $16.0
million ($0.45 per Limited Partner Unit and Class B Unit) on February 5, 1999.
The Class B Unit distribution was prorated for the 61 day period from issuance
on November 1, 1998. Additionally, on April 16, 1999, the Partnership declared a
cash distribution of $0.45 per Limited Partner Unit and Class B Unit for the
three months ended March 31, 1999. The distribution will be paid on May 7, 1999
to Unitholders of record on April 30, 1999.
OTHER MATTERS
The operations of the Partnership are subject to federal, state and
local laws and regulations relating to protection of the environment. Although
the Partnership believes the operations of the Pipeline System are in material
compliance with applicable environmental regulations, risks of significant costs
and liabilities are inherent in pipeline operations, and there can be no
assurance that significant costs and liabilities will not be incurred.
Moreover,it is possible that other developments, such as increasingly strict
environmental laws and regulations and
16
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OTHER MATTERS - (CONTINUED)
enforcement policies thereunder, and claims for damages to property or persons
resulting from the operations of the Pipeline System, could result in
substantial costs and liabilities to the Partnership. The Partnership does not
anticipate that changes in environmental laws and regulations will have a
material adverse effect on it financial position, operations or cash flows in
the near term.
The Partnership and the Indiana Department of Environmental Management
("IDEM") have entered into an Agreed Order that will ultimately result in a
remediation program for any on-site and off-site groundwater contamination
attributable to the Partnership's operations at the Seymour, Indiana, terminal.
A Feasibility Study, which includes the Partnership's proposed remediation
program, has been approved by IDEM. IDEM will issue a Record of Decision
formally approving the remediation program. After the Record of Decision has
been issued, the Partnership will enter into an Agreed Order for the continued
operation and maintenance of the program. The Partnership estimates that the
costs of the remediation program being proposed by the Partnership for the
Seymour terminal will not exceed the amount accrued therefore (approximately
$0.7 million at March 31, 1999). In the opinion of the Company, the completion
of the remediation program being proposed by the Partnership, if such program is
approved by IDEM, will not have a material adverse impact on the Partnership's
financial condition, results of operations or liquidity.
In 1997, the Company initiated a program to prepare the Partnership's
process controls and business computer systems for the "Year 2000" issue.
Process controls are the automated equipment including hardware and software
systems which run operational activities. Business computer systems are the
computer hardware and software used by the Partnership. The Partnership is
utilizing both internal and external resources to identify, test, remediate or
replace all critical known or discovered non-compliant computerized systems and
applications. The Company continues to evaluate appropriate courses of
corrective action, including replacement of certain systems whose associated
costs would be recorded as assets and amortized. The Partnership has incurred
approximately $1.8 million of costs related to the Year 2000 issue. The Company
estimates the remaining amounts required to address the Year 2000 issue will be
as much as approximately $4.5 million. A portion of such costs would have been
incurred as part of normal system and application upgrades. In certain cases,
the timing of expenditures has been accelerated due to the Year 2000 issue.
Although the Company believes this estimate to be reasonable, due to the
complexities of the Year 2000 issue, there can be no assurance that the actual
costs related to the Year 2000 issue will not be significantly greater.
The Partnership has adopted a three-phase Year 2000 program consisting
of: Phase I - Preliminary Assessment; Phase II - Detailed Assessment and
Remediation Planning; and Phase III - Remediation Activities and Testing. The
Products OLP has completed Phase I; Phase II is 94% complete; and Phase III is
63% complete. The Crude Oil OLP has completed 88% of Phase I; Phase II is 69%
complete; and Phase III is 20% complete. Remediation Activities and Testing of
all process controls and business computer systems are scheduled to be completed
before the end of the fourth quarter of 1999.
With respect to its third-party relationships, the Partnership has
contacted its primary vendors, suppliers and service providers to assess their
software and hardware products previously sold to the Partnership and other
aspects of their state of Year 2000 readiness. Information continues to be
updated regularly, thus the Partnership anticipates receiving additional
information in the near future that will assist in determining the extent to
which the Partnership may be vulnerable to those third parties' failure to
identify and remediate their Year 2000 issues. However, there can be no
assurance that the systems or products of other companies, on which the
Partnership's systems rely, will be timely converted, or converted in a manner
that is compatible with the Partnership's systems, or that any such failures by
other companies would not have a material adverse effect on the Partnership.
Despite the Partnership's determined efforts to address and remediate
its Year 2000 issue, there can be no assurance that all process controls and
business computer systems will continue without interruption through
17
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OTHER MATTERS - (CONTINUED)
January 1, 2000 and beyond. The complexity of identifying and testing all
embedded microprocessors that are installed in hardware throughout the products
pipeline system and crude oil system used for process or flow control,
transportation, security, communication and other systems may result in
unforeseen operational system shutdowns. Although the amount of potential
liability and lost revenue cannot be estimated, failures that result in
substantial disruptions of business activities could have a material adverse
effect on the Partnership. In order to mitigate potential disruptions, the
Partnership will prepare contingency plans for its critical systems, processes
and external relationships by the end of the fourth quarter of 1999.
The matters discussed herein include "forward-looking statements"
within the meaning of various provisions of the Securities Act of 1933 and the
Securities Exchange Act of 1934. All statements, other than statements of
historical facts, included in this document that address activities, events or
developments that the Partnership expects or anticipates will or may occur in
the future, including such things as estimated future capital expenditures
(including the amount and nature thereof), business strategy and measures to
implement strategy, competitive strengths, goals, expansion and growth of the
Partnership's business and operations, plans, references to future success,
references to intentions as to future matters and other such matters are
forward-looking statements. These statements are based on certain assumptions
and analyses made by the Partnership in light of its experience and its
perception of historical trends, current conditions and expected future
developments as well as other factors it believes are appropriate under the
circumstances. However, whether actual results and developments will conform
with the Partnership's expectations and predictions is subject to a number of
risks and uncertainties, including general economic, market or business
conditions, the opportunities (or lack thereof) that may be presented to and
pursued by the Partnership, competitive actions by other pipeline companies,
changes in laws or regulations, and other factors, many of which are beyond the
control of the Partnership. Consequently, all of the forward-looking statements
made in this document are qualified by these cautionary statements and there can
be no assurance that actual results or developments anticipated by the
Partnership will be realized or, even if substantially realized, that they will
have the expected consequences to or effect on the Partnership or its business
or operations. For additional discussion of such risks and uncertainties, see
TEPPCO Partners, L.P.'s 1998 Annual Report on Form 10-K.
18
<PAGE> 19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership may be exposed to market risk through changes in
commodity prices and interest rates as discussed below. The Partnership has no
foreign exchange risks.
The Partnership mitigates exposure to commodity price fluctuations by
maintaining a balanced position between crude oil purchases and sales. As a
hedging strategy to manage crude oil price fluctuations, the Partnership
occasionally enters into futures contracts on the New York Mercantile Exchange,
and makes limited use of other derivative instruments. It is the Partnership's
policy not to acquire crude oil, futures contracts or other derivative products
for the purpose of speculating on price changes. Market risks associated with
commodity derivatives were not material at March 31, 1999.
At March 31, 1999, the Partnership had outstanding $180 million
principal amount of 6.45% Senior Notes due 2008, and $210 million principal
amount of 7.51% Senior Notes due 2028 (collectively the "Senior Notes").
Additionally, the Partnership had a $38 million bank loan outstanding from
SunTrust Bank. The SunTrust loan bears interest at a fixed rate of 6.53% and is
payable in full in April 2001. At March 31, 1999, the estimated fair value of
the Senior Notes and the SunTrust loan was approximately $394.7 million and
$37.8 million, respectively.
On November 30, 1998, the Crude Oil OLP entered into a $30 million
Revolving Credit Agreement ("Revolver") with Duke Capital Corporation ("Duke
Capital"), a wholly owned subsidiary of Duke Energy. The Revolver has a
six-month term and bears interest at the one month LIBOR rate plus 0.50%. At
March 31, 1999, there was no outstanding balance under the Revolver.
19
<PAGE> 20
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
3.1 Certificate of Limited Partnership of the Partnership (Filed
as Exhibit 3.2 to the Registration Statement of TEPPCO
Partners, L.P. (Commission File No. 33-32203) and incorporated
herein by reference).
3.2 Certificate of Formation of TEPPCO Colorado, LLC (Filed as
Exhibit 3.2 to Form 10-Q of TEPPCO Partners, L.P. (Commission
File No. 1-10403) for the quarter ended March 31, 1998 and
incorporated herein by reference).
3.3 Second Amended and Restated Agreement of Limited Partnership
of TEPPCO Partners, L.P., dated November 30, 1998 (Filed as
Exhibit 3.3 to Form 10-K of TEPPCO Partners, L.P. (Commission
File No. 1-10403) for the year ended December 31, 1998 and
incorporated herein by reference).
3.4 Amended and Restated Agreement of Limited Partnership of TE
Products Pipeline Company, Limited Partnership, effective July
21, 1998 (Filed as Exhibit 3.2 to Form 8-K of TEPPCO Partners,
L.P. (Commission File No. 1-10403) dated July 21, 1998 and
incorporated herein by reference).
3.5 Agreement of Limited Partnership of TCTM, L.P., dated November
30, 1998 (Filed as Exhibit 3.3 to Form 10-K of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the year
ended December 31, 1998 and incorporated herein by reference).
4.1 Form of Certificate representing Limited Partner Units (Filed
as Exhibit 4.1 to the Registration Statement of TEPPCO
Partners, L.P. (Commission File No. 33-32203) and incorporated
herein by reference).
4.2 Form of Indenture between TE Products Pipeline Company,
Limited Partnership and The Bank of New York, as Trustee,
dated as of January 27, 1998 (Filed as Exhibit 4.3 to TE
Products Pipeline Company, Limited Partnership's Registration
Statement on Form S-3 (Commission File No. 333-38473) and
incorporated herein by reference).
4.3 Form of Certificate representing Class B Units (Filed as
Exhibit 3.3 to Form 10-K of TEPPCO Partners, L.P. (Commission
File No. 1-10403) for the year ended December 31, 1998 and
incorporated herein by reference).
10.1 Assignment and Assumption Agreement, dated March 24, 1988,
between Texas Eastern Transmission Corporation and the Company
(Filed as Exhibit 10.8 to the Registration Statement of TEPPCO
Partners, L.P. (Commission File No. 33-32203) and incorporated
herein by reference).
10.2 Texas Eastern Products Pipeline Company 1997 Employee
Incentive Compensation Plan executed on July 14, 1997 (Filed
as Exhibit 10 to Form 10-Q of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the quarter ended September
30, 1997 and incorporated herein by reference).
10.3 Agreement Regarding Environmental Indemnities and Certain
Assets (Filed as Exhibit 10.5 to Form 10-K of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the year ended December
31, 1990 and incorporated herein by reference).
10.4 Texas Eastern Products Pipeline Company Management Incentive
Compensation Plan executed on January 30, 1992 (Filed as
Exhibit 10 to Form 10-Q of TEPPCO Partners, L.P. (Commission
File No. 1-10403) for the quarter ended March 31, 1992 and
incorporated herein by reference).
</TABLE>
20
<PAGE> 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - (CONTINUED)
<TABLE>
<S> <C>
10.5 Texas Eastern Products Pipeline Company Long-Term Incentive
Compensation Plan executed on October 31, 1990 (Filed as
Exhibit 10.9 to Form 10-K of TEPPCO Partners, L.P. (Commission
File No. 1-10403) for the year ended December 31, 1990 and
incorporated herein by reference).
10.6 Form of Amendment to Texas Eastern Products Pipeline Company
Long-Term Incentive Compensation Plan (Filed as Exhibit 10.7
to the Partnership's Form 10-K (Commission File No. 1-10403)
for the year ended December 31, 1995 and incorporated herein
by reference).
10.7 Employees' Savings Plan of Panhandle Eastern Corporation and
Participating Affiliates (Effective January 1, 1991) (Filed as
Exhibit 10.10 to the Partnership's Form 10-K (Commission File
No. 1-10403) for the year ended December 31, 1990 and
incorporated herein by reference).
10.8 Retirement Income Plan of Panhandle Eastern Corporation and
Participating Affiliates (Effective January 1, 1991) (Filed as
Exhibit 10.11 to Form 10-K of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the year ended December 31,
1990 and incorporated herein by reference).
10.9 Panhandle Eastern Corporation Key Executive Retirement Benefit
Equalization Plan, adopted December 20, 1993; effective
January 1, 1994 (Filed as Exhibit 10.12 to Form 10-K of
Panhandle Eastern Corporation (Commission File No. 1-8157) for
the year ended December 31, 1993 and incorporated herein by
reference).
10.10 Employment Agreement with William L. Thacker, Jr. (Filed as
Exhibit 10 to Form 10-Q of TEPPCO Partners, L.P. (Commission
File No. 1-10403) for the quarter ended September 30, 1992 and
incorporated herein by reference).
10.11 Texas Eastern Products Pipeline Company 1994 Long Term
Incentive Plan executed on March 8, 1994 (Filed as Exhibit
10.1 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the quarter ended March 31, 1994 and
incorporated herein by reference).
10.12 Panhandle Eastern Corporation Key Executive Deferred
Compensation Plan established effective January 1, 1994 (Filed
as Exhibit 10.2 to Form 10-Q of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the quarter ended March 31,
1994 and incorporated herein by reference).
10.13 Asset Purchase Agreement between Duke Energy Field Services,
Inc. and TEPPCO Colorado, LLC, dated March 31, 1998 (Filed as
Exhibit 10.14 to Form 10-Q of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the quarter ended March 31,
1998 and incorporated herein by reference).
10.14 Credit Agreement between TEPPCO Colorado, LLC, SunTrust Bank,
Atlanta, and Certain Lenders, dated April 21, 1998 (Filed as
Exhibit 10.15 to Form 10-Q of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the quarter ended March 31,
1998 and incorporated herein by reference).
10.15 First Amendment to Credit Agreement between TEPPCO Colorado,
LLC, SunTrust Bank, Atlanta, and Certain Lenders, effective
June 29, 1998.
10.16 Contribution Agreement between Duke Energy Transport and
Trading Company and TEPPCO Partners, L.P., dated October 15,
1998 (Filed as Exhibit 3.3 to Form 10-K of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the year ended December
31, 1998 and incorporated herein by reference).
10.17 Guaranty Agreement by Duke Energy Natural Gas Corporation for
the benefit of TEPPCO Partners, L.P., dated November 30, 1998,
effective November 1, 1998 (Filed as Exhibit 3.3 to Form 10-K
of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
year ended December 31, 1998 and incorporated herein by
reference).
</TABLE>
21
<PAGE> 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - (CONTINUED)
<TABLE>
<S> <C>
10.18 Revolving Credit Agreement between TCTM, L.P. as Borrower and
Duke Capital Corporation as Lender, dated November 30, 1998
(Filed as Exhibit 3.3 to Form 10-K of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the year ended December 31,
1998 and incorporated herein by reference).
10.19 Letter Agreement regarding Payment Guarantees of Certain
Obligations of TCTM, L.P. between Duke Capital Corporation and
TCTM, L.P., dated November 30, 1998 (Filed as Exhibit 3.3 to
Form 10-K of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the year ended December 31, 1998 and incorporated
herein by reference).
10.20 Form of Employment Agreement between the Company and O. Horton
Cunningham, Ernest P. Hagan, Thomas R. Harper, David L.
Langley, Charles H. Leonard and James C. Ruth, dated December
1, 1998 (Filed as Exhibit 3.3 to Form 10-K of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the year ended December
31, 1998 and incorporated herein by reference).
*10.21 Agreement Between Owner and Contractor between TE Products
Pipeline Company, Limited Partnership and Eagleton Engineering
Company, dated February 4, 1999.
*10.22 Services and Transportation Agreement between TE Products
Pipeline Company, Limited Partnership and Fina Oil and
Chemical Company, BASF Corporation and BASF Fina Petrochemical
Limited Partnership, dated February 9, 1999.
*10.23 Call Option Agreement, dated February 9, 1999.
*10.24 Texas Eastern Products Pipeline Company Retention Incentive
Compensation Plan, effective January 1, 1999.
22.1 Subsidiaries of the Partnership (Filed as Exhibit 22.1 to the
Registration Statement of TEPPCO Partners, L.P. (Commission
File No. 33-32203) and incorporated herein by reference).
*27 Financial Data Schedule as of and for the three months ended
March 31, 1999.
- -----------------
</TABLE>
* Filed herewith.
(b) Reports on Form 8-K filed during the quarter ended March 31, 1999: None.
Items 1, 2, 3, 4 and 5 of Part II were not applicable and have been omitted.
22
<PAGE> 23
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrants have duly caused this report to be signed on its behalf by the
undersigned duly authorized officer and principal financial officer.
TEPPCO Partners, L.P.
(Registrant)
By: Texas Eastern Products Pipeline Company,
General Partner
/s/ CHARLES H. LEONARD
----------------------------------------------
Charles H. Leonard
Senior Vice President, Chief Financial Officer
and Treasurer
Date: May 6, 1999
23
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
3.1 Certificate of Limited Partnership of the Partnership (Filed
as Exhibit 3.2 to the Registration Statement of TEPPCO
Partners, L.P. (Commission File No. 33-32203) and incorporated
herein by reference).
3.2 Certificate of Formation of TEPPCO Colorado, LLC (Filed as
Exhibit 3.2 to Form 10-Q of TEPPCO Partners, L.P. (Commission
File No. 1-10403) for the quarter ended March 31, 1998 and
incorporated herein by reference).
3.3 Second Amended and Restated Agreement of Limited Partnership
of TEPPCO Partners, L.P., dated November 30, 1998 (Filed as
Exhibit 3.3 to Form 10-K of TEPPCO Partners, L.P. (Commission
File No. 1-10403) for the year ended December 31, 1998 and
incorporated herein by reference).
3.4 Amended and Restated Agreement of Limited Partnership of TE
Products Pipeline Company, Limited Partnership, effective July
21, 1998 (Filed as Exhibit 3.2 to Form 8-K of TEPPCO Partners,
L.P. (Commission File No. 1-10403) dated July 21, 1998 and
incorporated herein by reference).
3.5 Agreement of Limited Partnership of TCTM, L.P., dated November
30, 1998 (Filed as Exhibit 3.3 to Form 10-K of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the year
ended December 31, 1998 and incorporated herein by reference).
4.1 Form of Certificate representing Limited Partner Units (Filed
as Exhibit 4.1 to the Registration Statement of TEPPCO
Partners, L.P. (Commission File No. 33-32203) and incorporated
herein by reference).
4.2 Form of Indenture between TE Products Pipeline Company,
Limited Partnership and The Bank of New York, as Trustee,
dated as of January 27, 1998 (Filed as Exhibit 4.3 to TE
Products Pipeline Company, Limited Partnership's Registration
Statement on Form S-3 (Commission File No. 333-38473) and
incorporated herein by reference).
4.3 Form of Certificate representing Class B Units (Filed as
Exhibit 3.3 to Form 10-K of TEPPCO Partners, L.P. (Commission
File No. 1-10403) for the year ended December 31, 1998 and
incorporated herein by reference).
10.1 Assignment and Assumption Agreement, dated March 24, 1988,
between Texas Eastern Transmission Corporation and the Company
(Filed as Exhibit 10.8 to the Registration Statement of TEPPCO
Partners, L.P. (Commission File No. 33-32203) and incorporated
herein by reference).
10.2 Texas Eastern Products Pipeline Company 1997 Employee
Incentive Compensation Plan executed on July 14, 1997 (Filed
as Exhibit 10 to Form 10-Q of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the quarter ended September
30, 1997 and incorporated herein by reference).
10.3 Agreement Regarding Environmental Indemnities and Certain
Assets (Filed as Exhibit 10.5 to Form 10-K of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the year ended December
31, 1990 and incorporated herein by reference).
10.4 Texas Eastern Products Pipeline Company Management Incentive
Compensation Plan executed on January 30, 1992 (Filed as
Exhibit 10 to Form 10-Q of TEPPCO Partners, L.P. (Commission
File No. 1-10403) for the quarter ended March 31, 1992 and
incorporated herein by reference).
</TABLE>
<PAGE> 25
<TABLE>
<S> <C>
10.5 Texas Eastern Products Pipeline Company Long-Term Incentive
Compensation Plan executed on October 31, 1990 (Filed as
Exhibit 10.9 to Form 10-K of TEPPCO Partners, L.P. (Commission
File No. 1-10403) for the year ended December 31, 1990 and
incorporated herein by reference).
10.6 Form of Amendment to Texas Eastern Products Pipeline Company
Long-Term Incentive Compensation Plan (Filed as Exhibit 10.7
to the Partnership's Form 10-K (Commission File No. 1-10403)
for the year ended December 31, 1995 and incorporated herein
by reference).
10.7 Employees' Savings Plan of Panhandle Eastern Corporation and
Participating Affiliates (Effective January 1, 1991) (Filed as
Exhibit 10.10 to the Partnership's Form 10-K (Commission File
No. 1-10403) for the year ended December 31, 1990 and
incorporated herein by reference).
10.8 Retirement Income Plan of Panhandle Eastern Corporation and
Participating Affiliates (Effective January 1, 1991) (Filed as
Exhibit 10.11 to Form 10-K of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the year ended December 31,
1990 and incorporated herein by reference).
10.9 Panhandle Eastern Corporation Key Executive Retirement Benefit
Equalization Plan, adopted December 20, 1993; effective
January 1, 1994 (Filed as Exhibit 10.12 to Form 10-K of
Panhandle Eastern Corporation (Commission File No. 1-8157) for
the year ended December 31, 1993 and incorporated herein by
reference).
10.10 Employment Agreement with William L. Thacker, Jr. (Filed as
Exhibit 10 to Form 10-Q of TEPPCO Partners, L.P. (Commission
File No. 1-10403) for the quarter ended September 30, 1992 and
incorporated herein by reference).
10.11 Texas Eastern Products Pipeline Company 1994 Long Term
Incentive Plan executed on March 8, 1994 (Filed as Exhibit
10.1 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the quarter ended March 31, 1994 and
incorporated herein by reference).
10.12 Panhandle Eastern Corporation Key Executive Deferred
Compensation Plan established effective January 1, 1994 (Filed
as Exhibit 10.2 to Form 10-Q of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the quarter ended March 31,
1994 and incorporated herein by reference).
10.13 Asset Purchase Agreement between Duke Energy Field Services,
Inc. and TEPPCO Colorado, LLC, dated March 31, 1998 (Filed as
Exhibit 10.14 to Form 10-Q of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the quarter ended March 31,
1998 and incorporated herein by reference).
10.14 Credit Agreement between TEPPCO Colorado, LLC, SunTrust Bank,
Atlanta, and Certain Lenders, dated April 21, 1998 (Filed as
Exhibit 10.15 to Form 10-Q of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the quarter ended March 31,
1998 and incorporated herein by reference).
10.15 First Amendment to Credit Agreement between TEPPCO Colorado,
LLC, SunTrust Bank, Atlanta, and Certain Lenders, effective
June 29, 1998.
10.16 Contribution Agreement between Duke Energy Transport and
Trading Company and TEPPCO Partners, L.P., dated October 15,
1998 (Filed as Exhibit 3.3 to Form 10-K of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the year ended December
31, 1998 and incorporated herein by reference).
10.17 Guaranty Agreement by Duke Energy Natural Gas Corporation for
the benefit of TEPPCO Partners, L.P., dated November 30, 1998,
effective November 1, 1998 (Filed as Exhibit 3.3 to Form 10-K
of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
year ended December 31, 1998 and incorporated herein by
reference).
</TABLE>
<PAGE> 26
<TABLE>
<S> <C>
10.18 Revolving Credit Agreement between TCTM, L.P. as Borrower and
Duke Capital Corporation as Lender, dated November 30, 1998
(Filed as Exhibit 3.3 to Form 10-K of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the year ended December 31,
1998 and incorporated herein by reference).
10.19 Letter Agreement regarding Payment Guarantees of Certain
Obligations of TCTM, L.P. between Duke Capital Corporation and
TCTM, L.P., dated November 30, 1998 (Filed as Exhibit 3.3 to
Form 10-K of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the year ended December 31, 1998 and incorporated
herein by reference).
10.20 Form of Employment Agreement between the Company and O. Horton
Cunningham, Ernest P. Hagan, Thomas R. Harper, David L.
Langley, Charles H. Leonard and James C. Ruth, dated December
1, 1998 (Filed as Exhibit 3.3 to Form 10-K of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the year ended December
31, 1998 and incorporated herein by reference).
*10.21 Agreement Between Owner and Contractor between TE Products
Pipeline Company, Limited Partnership and Eagleton Engineering
Company, dated February 4, 1999.
*10.22 Services and Transportation Agreement between TE Products
Pipeline Company, Limited Partnership and Fina Oil and
Chemical Company, BASF Corporation and BASF Fina Petrochemical
Limited Partnership, dated February 9, 1999.
*10.23 Call Option Agreement, dated February 9, 1999.
*10.24 Texas Eastern Products Pipeline Company Retention Incentive
Compensation Plan, effective January 1, 1999.
22.1 Subsidiaries of the Partnership (Filed as Exhibit 22.1 to the
Registration Statement of TEPPCO Partners, L.P. (Commission
File No. 33-32203) and incorporated herein by reference).
*27 Financial Data Schedule as of and for the three months ended
March 31, 1999.
- -----------------
</TABLE>
* Filed herewith.
<PAGE> 1
EXHIBIT 10.21
AGREEMENT BETWEEN
OWNER AND CONTRACTOR
(STIPULATED SUM)
between
TE PRODUCTS PIPELINE COMPANY, LIMITED PARTNERSHIP
AND
EAGLETON ENGINEERING COMPANY
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
SECTION 1 DEFINED TERMS; INTERPRETATION..........................................................................1
1.1 DEFINITIONS................................................................................................1
1.2 REFERENCES, GENDER, NUMBER.................................................................................1
1.3 INTERPRETATION.............................................................................................2
SECTION 2 INDEPENDENT CONTRACTOR.................................................................................2
2.1 INDEPENDENT CONTRACTOR STATUS..............................................................................2
2.2 CONTRACTOR RESPONSIBLE FOR MEANS; METHODS AND PROCEDURES...................................................2
2.3 CONTRACTOR'S EMPLOYEES NOT OWNER'S EMPLOYEES...............................................................2
2.4 NO ENTITLEMENT TO OWNER'S EMPLOYEE BENEFITS................................................................3
SECTION 3 DESIGN, CONSTRUCTION AND PERFORMANCE REQUIREMENTS.......................................................3
3.1 DESIGN AND ENGINEERING SERVICES............................................................................3
3.2 DESCRIPTION OF AND OBLIGATION TO CONSTRUCT PROJECT.........................................................3
3.3 PERFORMANCE REQUIREMENTS...................................................................................4
3.4 COMPLETION REQUIREMENTS....................................................................................4
SECTION 4 CONTRACT DOCUMENTS AND INTERPRETIVE RULES...............................................................5
4.1 CONTRACT DOCUMENTS.........................................................................................5
4.2 DOCUMENTS AT PROJECT SITE..................................................................................5
4.3 INTERPRETIVE RULES AND RESOLUTION OF CONFLICTS AMONG CONTRACT DOCUMENTS....................................5
SECTION 5 ACQUISITION OF RIGHTS-OF-WAY............................................................................6
5.1 OBLIGATION TO ACQUIRE RIGHTS-OF-WAY........................................................................6
5.2 RIGHTS-OF-WAY TO BE ACQUIRED BY EASEMENT...................................................................7
5.3 RIGHTS-OF-WAY TO BE ACQUIRED BY PERMIT.....................................................................7
5.4 CONDEMNATION...............................................................................................7
5.5 DUE DILIGENCE..............................................................................................7
5.6 RIGHTS-OF-WAY COSTS AND EXPENSES...........................................................................8
5.7 RIGHTS-OF-WAY ON FINA AND OWNER PROPERTY...................................................................8
5.8 COMMON CARRIER.............................................................................................8
SECTION 6 THE WORK AND CHANGES IN THE WORK........................................................................8
6.1 THE WORK...................................................................................................8
6.2 TITLE TO THE WORK AND RISK OF LOSS.........................................................................9
6.3 STANDARDS FOR MATERIALS....................................................................................9
6.4 CHANGES IN THE WORK........................................................................................9
SECTION 7 CONTRACTOR'S GENERAL DUTIES, STATUS, REPRESENTATIONS AND WARRANTIES....................................10
7.1 CONTRACTOR'S GENERAL OBLIGATIONS..........................................................................10
7.2 PROJECT SCHEDULE..........................................................................................10
7.3 CHECKING MATERIALS........................................................................................11
7.4 PAYMENT OF CLAIMS.........................................................................................11
7.5 PAYMENT OF TAXES..........................................................................................12
7.6 CONTRACTOR'S CHIEF INSPECTOR..............................................................................12
7.7 PERMITS, FEES, NOTICES, TESTS AND INSPECTIONS.............................................................12
7.8 COMPLIANCE WITH LAWS......................................................................................12
7.9 SAFETY AND SECURITY.......................................................................................12
7.10 CLEANING UP..............................................................................................13
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
7.11 NON-CONFORMING WORK......................................................................................14
7.12 AS-BUILT SURVEYS AND RECORD DRAWINGS.....................................................................14
7.13 AS-BUILT DOCUMENTATION...................................................................................14
7.14 CERTAIN OBLIGATIONS OF CONTRACTOR FOLLOWING COMPLETION...................................................14
7.15 CERTAIN REPRESENTATIONS..................................................................................15
7.16 CONTRACTOR'S OBLIGATIONS.................................................................................15
SECTION 8 COMMENCEMENT AND COMPLETION............................................................................16
8.1 COMMENCEMENT OF WORK......................................................................................16
8.2 COMPLETION................................................................................................16
8.3 LIQUIDATED DAMAGES AND COMPLETION BONUS...................................................................16
8.4 FORCE MAJEURE.............................................................................................17
8.5 OWNER'S OBLIGATIONS.......................................................................................18
8.6 TIME OF THE ESSENCE.......................................................................................19
SECTION 9 CONTRACT SUM...........................................................................................19
9.1 CONTRACT SUM..............................................................................................19
9.2 UNIT PRICES...............................................................................................19
SECTION 10 SUBCONTRACTS AND OTHER AGREEMENTS.....................................................................19
10.1 OBLIGATION TO SUBCONTRACT................................................................................19
10.2 RIGHT TO SUBCONTRACT.....................................................................................19
10.3 SUBCONTRACTOR RELATIONS..................................................................................19
10.4 SUBCONTRACTOR AND SUPPLIERS WARRANTIES...................................................................20
SECTION 11 APPLICATIONS FOR PAYMENT..............................................................................20
11.1 APPLICATIONS FOR PAYMENT.................................................................................20
11.2 RETAINAGE................................................................................................21
11.3 OWNER'S RIGHT TO WITHHOLD APPROVAL.......................................................................21
SECTION 12 PAYMENTS TO CONTRACTOR................................................................................21
12.1 OWNER'S REVIEW AND OBLIGATION TO FUND....................................................................21
12.2 FINAL PAYMENT............................................................................................22
12.3 NO WAIVER OF DEFECTS.....................................................................................22
12.4 OWNER NOT REQUIRED TO SEE TO PROPER APPLICATION OF PAYMENTS..............................................22
12.5 OWNER'S LIMITED RIGHT TO PAY SUBCONTRACTORS DIRECTLY.....................................................22
SECTION 13 ACCOUNTING RECORDS....................................................................................22
SECTION 14 INSURANCE.............................................................................................23
14.1 CONTRACTOR'S INSURANCE...................................................................................23
14.2 TERM OF INSURANCE, CERTIFICATES AND ENDORSEMENTS.........................................................24
14.3 VENDOR'S/SUBCONTRACTOR'S INSURANCE.......................................................................24
14.4 VIOLATION OF POLICY CONDITIONS...........................................................................24
14.5 WAIVER OF CLAIMS.........................................................................................24
14.6 CORPORATE GUARANTEE......................................................................................25
SECTION 15 INDEMNITY.............................................................................................25
15.1 CONTRACTOR INDEMNITY.....................................................................................25
15.2 OWNER INDEMNITY..........................................................................................26
15.3 OTHER PROVISIONS; SURVIVAL...............................................................................26
SECTION 16 TERMINATION, STOPPAGE OF WORK, OWNER'S RIGHT TO CARRY OUT WORK........................................26
16.1 TERMINATION BY OWNER WITH CAUSE..........................................................................26
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
16.3 TERMINATION BY CONTRACTOR WITH CAUSE.....................................................................27
16.2 OWNER'S RIGHTS UPON TERMINATION OF AGREEMENT.............................................................28
16.4 STOPPAGE OF WORK.........................................................................................28
16.5 OWNER'S RIGHT TO CARRY OUT THE WORK......................................................................29
SECTION 17 OWNERSHIP OF DOCUMENTS AND PATENT INFRINGEMENT........................................................29
17.1 OWNERSHIP OF DOCUMENTS...................................................................................29
17.2 DELIVERY OF WORK PRODUCT.................................................................................30
17.3 PATENT INFRINGEMENT......................................................................................30
17.4 SPECIFIC ENFORCEMENT.....................................................................................30
SECTION 18 ADDITIONAL RIGHTS AND OBLIGATIONS.....................................................................30
18.1 RIGHT TO LET ADDITIONAL CONTRACTS........................................................................31
18.2 OWNER'S RIGHT TO ACCESS WORK.............................................................................31
18.3 WETLANDS.................................................................................................31
SECTION 19 MISCELLANEOUS PROVISIONS..............................................................................31
19.1 ENTIRE AGREEMENT.........................................................................................32
19.2 CONTROLLING LAW..........................................................................................32
19.3 NON-WAIVER...............................................................................................32
19.4 NON-INVALIDITY...........................................................................................32
19.5 NOTICES..................................................................................................32
19.6 UNDEFINED TERMS..........................................................................................32
19.7 ATTORNEYS FEES...........................................................................................32
19.8 ASSIGNMENT...............................................................................................32
19.9 CONTRACTOR AUTHORITY.....................................................................................33
19.10 OWNER AUTHORITY.........................................................................................33
19.11 EXHIBITS................................................................................................33
19.12 WAIVER OF JURY TRIAL....................................................................................33
APPENDIX A.......................................................................................................34
LIST OF EXHIBITS.................................................................................................38
</TABLE>
iii
<PAGE> 5
AGREEMENT BETWEEN OWNER AND CONTRACTOR
(STIPULATED SUM)
THIS AGREEMENT BETWEEN OWNER AND CONTRACTOR (STIPULATED SUM) (this
"Agreement") made and entered into on this 4th day of February 1999, by and
between TE Products Pipeline Company, Limited Partnership, a Delaware limited
partnership ("Owner"), and Eagleton Engineering Company, a Texas corporation
("Contractor");
WITNESSETH:
WHEREAS, Owner intends to engage a qualified engineer and contractor to
design and construct, on a turnkey all inclusive basis, (i) a 12-inch diameter
bidirectional pipeline system to transport propylene from Port Arthur, Texas to
Mont Belvieu, Texas, (ii) a 12 inch diameter bidirectional pipeline system to
transport ethylene between Port Arthur, Texas and Mont Belvieu, Texas, (iii) a
12 inch diameter bidirectional pipeline system to transport natural gasoline
between Port Arthur, Texas and Mont Belvieu, Texas, and (iv) a 12-inch diameter
unidirectional ethylene pipeline lateral with meter to Union Carbide's plant
near Port Arthur, Texas; and
WHEREAS, Contractor has represented to Owner that Contractor has both
the real estate, engineering and construction skills and expertise to acquire
all necessary rights-of-way and to design and construct such pipeline systems to
the performance standards set forth in this Agreement and otherwise in
accordance with the terms and requirements set forth in this Agreement; and
WHEREAS, based on the foregoing representations and the other
representations hereinafter set forth, Owner desires to engage Contractor, and
Contractor desires to accept Owner's engagement, to acquire all necessary
rights-of-way and to design and construct such pipeline systems to the
performance standards set forth in this Agreement and to perform all other
obligations set forth in this Agreement.
NOW THEREFORE, based on the foregoing premises and the covenants,
promises, representations and warranties set forth in this Agreement, Owner and
Contractor agree as follows:
SECTION I DEFINED TERMS; INTERPRETATION
1.1 Definitions. Unless the context otherwise requires, the respective terms
defined in Appendix A attached hereto and incorporated herein shall, when used
in this Agreement, have the respective meanings specified in Appendix A, with
each such definition of a term being equally applicable to the singular and the
plural forms of the term so defined.
1.2 References. Gender, Number. All references in this Agreement to a "Section,"
"subsection", "Appendix" or "Exhibit" shall be to a Section, subsection,
Appendix or Exhibit of this Agreement, unless the context requires otherwise.
Unless the context otherwise requires, the
1
<PAGE> 6
words "this Agreement," "hereof," "hereunder," "herein," "hereby," or words of
similar import shall refer to this Agreement as a whole and not to a particular
Section, subsection, Appendix, Exhibit, clause or other subdivision hereof.
Whenever the context requires, the words used herein shall include the
masculine, feminine and neuter gender, and the singular and the plural.
1.3 Interpretation. It is expressly agreed that this Agreement shall not be
construed against any Party, and no consideration shall be given or presumption
made, on the basis of who drafted this Agreement or any particular provision
hereof or who supplied the form of this Agreement. Each Party agrees that this
Agreement has been purposefully drawn and correctly reflects its understanding
of the transaction that this Agreement contemplates. In construing this
Agreement:
(a) Examples shall not be construed to limit, expressly or by
implication, the matter they illustrate;
(b) The word "included" and its derivatives means "includes, but is not
limited to" and corresponding derivative expressions;
(c) A defined term has its defined meaning throughout this Agreement,
regardless of whether it appears before or after the place where it is defined;
and
(d) The headings and titles herein are for convenience only and shall
have no significance in the interpretation hereof.
SECTION 2 INDEPENDENT CONTRACTOR
2.1 Independent Contractor Status. Owner hereby engages Contractor as an
independent contractor, and Contractor hereby accepts Owner's engagement as an
independent contractor, to perform all of the obligations of Contractor
specified in this Agreement.
2.2 Contractor Responsible for Means, Methods and Procedures. It is expressly
understood and agreed that in the performance of its obligations under this
Agreement, Contractor is and shall at all times be an independent contractor and
is and shall be solely responsible for the means, methods and procedures by
which to perform its obligations under this Agreement. Contractor, as an
independent contractor, shall be solely responsible for its employees and
equipment. Except as contemplated by Section 5, neither Contractor nor its
employees shall at any time represent to any third party that Contractor or any
of its employees is the agent, representative, employee or servant of Owner.
2.3 Contractor's Employees not Owner's Employees. Under no circumstances shall
Contractor's employees be considered employees of Owner, and Contractor shall
take all steps necessary to ensure that Contractor's employees are not employees
of Owner. Contractor acknowledges that Owner will not make any payments on
behalf of Contractor or Contractor's employees for the purposes of the Federal
Insurance Contribution Act, the Social Security Act or the Federal Unemployment
Tax Act. Contractor further acknowledges that Contractor is
2
<PAGE> 7
responsible for its employees and for all self employment taxes, federal income
taxes and any other taxes (as well as the filing of all returns relating
thereto) which are to be paid in respect of, or withheld from amounts payable to
Contractor's employees.
2.4 No Entitlement to Owner's Employee Benefits. Contractor agrees and
understands that Contractor and Contractor's employees shall not be considered
employees of Owner with respect to employee benefits paid by Owner to its
employees.
SECTION 3 DESIGN, CONSTRUCTION AND PERFORMANCE REQUIREMENTS
3.1 Design and Engineering Services. In addition to Contractor's construction
obligations under this Agreement and the Contract Documents, Contractor shall
provide all design and engineering services needed to fully define the Pipeline
Systems and to cause the Pipeline Systems, as designed and engineered, to comply
with the Completion Requirements and to operate in accordance with the
Performance Requirements. Such design and engineering services shall include but
not be limited to the services described in Exhibit 3.1 attached hereto.
All such services shall be performed in accordance with the Project Schedule.
3.2 Description of and Obligation to Construct Project. Subject to the terms and
conditions of this Agreement, Contractor hereby agrees to construct, fabricate,
install and erect, on a turnkey all inclusive basis, three pipeline systems (the
"Pipeline Systems") and certain ancillary facilities conforming to the
requirements of this Agreement and all other Contract Documents, as follows:
(i) A 12.75 inch outside diameter ANSI 900 bidirectional pipeline (the
"Propylene Pipeline") approximately 66 miles in length, terminating immediately
inside the southwest corner property line of the Port Arthur Plant and the
property line of the Mont Belvieu South Terminal, to be used to transport
propylene from Port Arthur, Texas to Mont Belvieu, Texas along the route
described in Exhibit 3.2(a), or deviations therefrom approved by Owner in
accordance with subsection 5.1. Such pipeline system will include meter
facilities at each end and shall be designed in accordance with the Piping Flow
Diagram found in Exhibit 3.2(b-1) and general isometric layouts found in
Exhibits 3.2(c-1) and 3.2(c-2); and
(ii) A 12.75 inch outside diameter ANSI 900 bidirectional pipeline (the
"Ethylene Pipeline") approximately 66 miles in length, terminating immediately
inside the southwest corner property line of the Port Arthur Plant and the
property line of the Mont Belvieu South Terminal, to be used to transport
ethylene between Port Arthur, Texas, and Mont Belvieu, Texas, along the route
described in Exhibit 3.2(a) or deviations therefrom approved by Owner in
accordance with subsection 5.1, and shall include a 12.75 inch outside diameter
pipeline lateral with meter that ties into Union Carbide's Port Arthur plant
facility. Such pipeline system will include meter facilities at each end and
shall be designed in accordance with the Piping Flow Diagram found in Exhibit
3.2(b-2) and general isometric layouts found in Exhibits 3.2(c-1) and 3.2(c-3);
and
(iii) A 12.75 inch outside diameter ANSI 900 bidirectional pipeline
(the "Natural Gasoline Pipeline") approximately 66 miles in length, terminating
immediately inside the
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southwest corner property line of the Port Arthur Plant and the property line of
the Mont Belvieu South Terminal, used to transport natural gasoline between Mont
Belvieu, Texas, and Port Arthur, Texas along the route described in Exhibit
3.2(a) or deviations therefrom approved by Owner in accordance with subsection
5.1. Such pipeline system will include meter facilities at each end and shall be
designed in accordance with the Piping Flow Diagram found in Exhibit 3.2(b-3)
and general isometric layout found in Exhibit 3.2(c-1) and Exhibit 3.2(c-4); and
(iv) All other components and installations required by the Contract
Documents or as necessary to cause the Pipeline Systems to be completed in
accordance with the Completion Requirements and to operate and perform in
accordance with the Performance Requirements.
The Propylene Pipeline, Ethylene Pipeline and Natural Gasoline Pipeline will
conform to and be designed, engineered, fabricated, constructed and installed in
accordance with the requirements of the Contract Documents, including the
requirements of Exhibit 3.2(d) respectively, and all Applicable Laws. The
Pipeline Systems together with all such other components, installations and
interests described in this subsection 3.2, as more fully described above and in
the Contract Documents, are herein sometimes referred to as the "Project".
3.3 Performance Requirements.
(a) The Propylene Pipeline, Ethylene Pipeline and Natural Gasoline
Pipeline will be designed, engineered and constructed to meet the performance
criteria set forth in Exhibits 3.2(b-1), 3.2(b-2), 3.2(b-3), 3.2(c-1), 3.2(c-2),
3.2 (c-3), 3.2(c-4) and 3.2(d).
(b) The Pipeline Systems, when completed, will be capable of operating
in accordance with all Applicable Laws and all performance and operational
requirements set forth in this Agreement.
(c) Contractor shall require each equipment vendor to design its
equipment in accordance with Applicable Laws and to warrant that such equipment,
when installed and operated in accordance with the equipment specifications,
will operate in accordance with Applicable Laws and all performance and
operational requirements set forth in this Agreement.
The requirements set forth in paragraphs (a), (b) and (c) preceding are herein
collectively referred to as the "Performance Requirements".
3.4 Completion Requirements.
(a) Upon completion of construction of the Pipeline Systems, Contractor
shall test the Pipeline Systems in accordance with and in satisfaction of the
acceptance testing procedures and requirements set forth in Exhibit 3.4(a). In
addition to the notice requirements set forth in paragraph (d) of subsection
7.7, Contractor shall give Owner not less than 4 days notice prior to such
tests. Contractor shall provide to Owner certified copies of the results of any
such test as soon as practicable after its completion.
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(b) Contractor shall complete the Project and perform the Work in a
good and workmanlike manner, and in accordance with the Contract Documents, all
Applicable Laws and normal industry standards applicable to the construction of
the Project or performance of the Work (including ANSI/ASME B31.4, Liquid
Transportation Systems for Hydrocarbons, Liquid Petroleum Gas, Anhydrous Ammonia
and Alcohols).
The requirements (including the passing of the tests set forth in Exhibit
3.4(a)) set forth in paragraphs (a) and (b) preceding are herein collectively
referred to as the "Completion Requirements". Any Work not completed in
accordance with the Completion Requirements or not capable of being operated in
accordance with the Performance Requirements will be considered defective and
Owner shall have the right to require such defective Work to be corrected in
accordance with subsection 7.11(a).
SECTION 4 CONTRACT DOCUMENTS AND INTERPRETIVE RULES
4.1 Contract Documents. The "Contract Documents" shall collectively mean and
consist of (i) this Agreement, including all Exhibits, (ii) the Drawings and
Specifications, (iii) the waivers executed and delivered by Contractor pursuant
to subsection 12.2, (iv) the Parent Guaranty and (v) all Change Orders. The
Contract Documents represent the entire and integrated agreement between the
Parties and supersede prior negotiations, representations or agreements, written
or oral.
4.2 Documents at Project Site. Contractor shall maintain at its office at the
Project Site, for Owner's benefit and review, one record copy of the Drawings
and Specifications, Change Orders and other modifications to the Contract
Documents, in good order, and marked currently to record changes and selections
made during construction. Promptly after execution of the Contract Documents,
Contractor shall prepare an initial set of drawings and specification for the
Project for Owner's review and comment. After receipt of Owner's comments,
Contractor shall promptly prepare the final Drawings and Specifications
incorporating such comments, to the extent such comments will not cause a
failure to meet the Completion Requirements and Performance Requirements. By
submission of the final Drawings and Specifications to the Owner, Contractor
represents and warrants to Owner that the Project can be constructed and
installed in accordance with the Drawings and Specifications to meet or exceed
the Completion Requirements and the Performance Requirements.
4.3 Interpretive Rules and Resolution of Conflicts Among Contract Documents.
(a) Unless otherwise stated in the Contract Documents, words which have
generally recognized technical or construction industry meanings are used in the
Contract Documents in accordance with such recognized meanings.
(b) Large-scaled drawings shall control over smaller-scaled drawings,
figured dimensions on the drawings shall control over scaled dimensions and
noted materials shall control over graphic representations. Notwithstanding the
foregoing provisions, where a conflict exists
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within or between parts of the Contract Documents, or between the Contract
Documents and Applicable Laws, or between Applicable Laws themselves, the more
stringent or higher quality requirements shall apply.
(c) Where "as shown," "as indicated," "as detailed," or words of
similar import are used, it shall be understood that reference to the Drawings
and Specifications is made unless otherwise stated.
(d) As used in the Contract Documents, "provide" shall be understood to
mean "provide complete in place," that is, to furnish, fabricate, deliver,
install, and erect, including all materials, services, and expenses necessary to
complete in place, ready for operation or use. The use of the term "as required"
means as prescribed by the Contract Documents. The use of the term "as
necessary" in the Contract Documents means all action essential to the
completion of the Work or applicable portion thereof. The use of the term "day"
in the Contract Documents means calendar day. The use of the term "holiday" in
the Contract Documents means any day recognized by national banks in Houston,
Texas as a holiday.
(e) In the interest of brevity, the Contract Documents frequently omit
modifying words such as "all" and "any" and articles such as "the" and "all,"
but the fact that a modifier or an article is absent from one statement and
appears in another is not intended to affect the interpretations of such
statement.
(f) Whenever a notice time period or approval time period appears in
the Contract Documents and such time period ends on a Saturday, Sunday or
holiday, such time period shall be extended to the next Business Day.
SECTION 5 ACQUISITION OF RIGHTS-OF-WAY
5.1 Obligation to Acquire Rights-of-Way.
(a) Contractor shall use its Best Efforts necessary to obtain valid and
enforceable easements and permits (separately and collectively referred to as
"Rights-of-Way") along the anticipated route of the Pipeline Systems described
in Exhibit 3.2(a) (such anticipated route, the "Projected Pipeline
Rights-of-Way"). Should Owner object to a pipeline route or right-of-way
intended to be used by Contractor, Owner will be responsible for any additional
costs in obtaining the alternative Rights-of-Way plus all increases in
associated costs for materials, construction and engineering services. Owner and
Contractor shall execute a Change Order with respect to such alternative
Rights-of-Way and additional or increased costs in accordance with subsection
6.4.
(b) Contractor shall perform a title search of 20 years or to the last
conveyance, whichever is greater, on each property through which Contractor will
obtain Rights-of-Way. Contractor in the performance of its obligations under
this Section 5 shall use experienced right-of-way agents that are licensed or
registered with the Texas Real Estate Commission.
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5.2 Rights-of-Way to be Acquired by Easement. All Rights-of-Way shall be
acquired by easement except as provided in subsections 5.3 and 5.4. Each such
easement shall be granted by the landowner to Owner upon the form of easement
attached hereto as Exhibit 5.2 or such modified form as is approved by Owner.
Contractor shall use its Best Efforts to secure free assignability of any such
easement.
5.3 Rights-of-Way to be Acquired by Permit. Contractor shall acquire permits
where necessary. Contractor shall obtain title data supporting each permit, if
privately owned property is involved. Owner shall have an opportunity to
participate in the meetings between Contractor and permitting agencies or
companies. Owner shall review and approve any application, agreement and permit
submitted to an agency or landowner regarding the acquisition of any
Rights-of-Way. Contractor shall consult with Owner regarding issues of concern
or objections raised by any governmental agency or landowner regarding the
issuance of a permit. Contractor and Owner shall collectively identify
alternatives and planning contingencies regarding any issues concerning the
permitting process. All permits or agreements shall, if reasonably possible, be
acquired as perpetual or paid up term. Contractor shall use its Best Efforts to
secure free assignability of any such permit.
5.4 Condemnation. In the event that Contractor, after exercising its Best
Efforts, is unable to acquire any Rights-of-Way from a landowner, Contractor
shall fully advise Owner of the situation and furnish to Owner the following
information:
(1) The terms and monetary consideration that landowner has last
advised Contractor would be acceptable;
(2) The terms and monetary consideration that Contractor made to
landowner as the last offer; and
(3) If Owner elects to condemn any property, a condemnation appraisal
for the proposed Rights-of-Way performed by a qualified third party appraiser.
Based on the information furnished by Contractor, Owner shall make the decision
whether to accept the landowner's terms and monetary consideration demands, or
to exercise Owner's right of eminent domain to condemn the landowner's property
for the easement. In the event Owner elects to proceed with such condemnation
action, Contractor shall subject to subsection 5.6 be responsible for all costs
and expenses, including but not limited to attorneys' and appraisers fees,
associated with the condemnation action and any award to the landowner as a
result thereof. Notwithstanding the foregoing sentence, Owner shall be
responsible for all costs and expenses in any condemnation action, including
attorneys' fees, associated with Owner establishing its right of eminent domain
as a common carrier under Vernon's Ann. Civ. St. art. 6132a-1 Sec. 1.09(c).
5.5 Due Diligence. Prior to the acquisition of any portion of the Pipeline
Rights-of-Way, Contractor shall perform such due diligence as is necessary to
determine that such portion of the Pipeline Rights-of-Way will not be
subordinate to any mortgage,
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deed of trust or other security agreement, or if such portion of the Pipeline
Rights-of-Way will be subordinate to a mortgage, deed of trust or other security
agreement, Contractor will make Best Efforts to obtain a subordination agreement
from the holder of such mortgage, deed of trust or other security agreement.
5.6 Rights-of-Way Costs and Expenses. Subject to the penultimate and last
sentences of subsection 5.1(a) and the last sentence of subsection 5.4,
Contractor shall be responsible for all Rights-of-Way Costs and Expenses up to
and including $16.6 million, which includes $471,000 as a lump sum amount for
post-construction activities, subject to reduction pursuant to the provisions of
subsection 5.7. All Rights-of-Way Costs and Expenses in excess of $16.6 million
shall be the responsibility of Owner. The method of payment of easement
consideration and damage consideration shall be subject to the mutual agreement
of Owner and Contractor.
5.7 Rights-of-Way on Fina and Owner Property. The monetary level of $16.6
million set forth in subsection 5.6 and the Contract Sum shall both be reduced
by an amount determined by multiplying $1,500 times the number of Rods that the
Pipeline System is located on property owned by Owner, Fina or any affiliate of
either and for which Contractor does not have to pay for any easements or
permits to cross such property other than de minimis amounts to Fina or its
affiliates.
5.8 Common Carrier. Owner shall promptly make all appropriate T-4 filings and
any other filings with the Commission with respect to its intention to operate
as a common carrier pipeline, and furnish Contractor with copies of same. In
addition, it shall be Owner's sole decision to exercise any eminent domain
powers to obtain Rights-of-Way. Where Owner does decide to initiate a
condemnation proceeding, Owner will effect the quick take procedures available
under Applicable Laws.
SECTION 6 THE WORK AND CHANGES IN THE WORK
6.1 The Work. Contractor shall provide and/or perform the "Work", which means
(i) all materials, systems, equipment and other installations becoming a part of
the Project pursuant to the Contract Documents (sometimes collectively referred
to as "Materials"), (ii) all other materials, supplies, apparatus, implements,
tools, equipment, sanitary facilities and other facilities not included in part
(i) preceding and necessary in the construction of the Project, (iii) all labor,
supervision, transportation, utilities, storage and other services (sometimes
collectively referred to as "Services") required in the construction of the
Project, (iv) all cutting and fitting required to complete the Work or make its
parts fit together properly, (v) all other acts and all other things reasonably
necessary to construct the Project in accordance with the Contract Documents,
including all work expressly specified therein, save and except only such items
of work as are specifically stated in the Contract Documents not to be
obligations of Contractor, (vi) all other obligations of Contractor under this
Agreement or any other Contract Documents, and (vii) any other work or services
described in this Agreement or any other Contract Documents as a part of the
Work.
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6.2 Title to the Work and Risk of Loss.
(a) Title to all Work shall pass to Owner simultaneously with payment
(other than the permitted 5% retainage) to Contractor for such Work, and
Contractor will take all necessary actions to ensure that such Work shall be
free and clear of all encumbrances, other than those created by Owner.
Notwithstanding the preceding sentence, if Contractor is not paid for Work due
to Owner's withholding payments as permitted under subsection 11.3, then title
to such Work shall be deemed to have passed to Owner simultaneously with passage
of title thereof to Contractor.
(b) All Work shall be kept free and clear of all liens and security
interests other than those created by Owner. No Materials covered by an
Application for Payment will be acquired by Contractor, a Subcontractor or any
other Person performing Work subject to an agreement under which an interest
therein or an encumbrance is retained by the seller or granted by Contractor,
such Subcontractor or such other Person.
(c) Notwithstanding the provisions of paragraph (a), Contractor shall
bear the risk of loss of all Materials until the Final Completion Date.
6.3 Standards for Materials. Contractor shall purchase, expedite and control all
Materials. Contractor warrants that all Materials shall be new and of high
quality, meet industry standards, be fit for the intended use and purpose to
meet all requirements of the Drawings and Specifications and Applicable Laws.
6.4 Changes in the Work. Owner may request changes in the Work by giving
Contractor a written request (a "Proposal Request") setting forth in detail the
nature of the change in the Work requested (the "Change Work"). Upon receipt of
a Proposal Request, Contractor shall promptly (but not later than 5 days after
receipt of the Proposal Request or such longer period of time reasonably agreed
to by Owner) return to Owner a written proposal (a "Change Order Proposal")
setting forth in detail, with a suitable breakdown by trades and work
classifications, a stipulated sum proposed as an adjustment to the Contract Sum
for the performance of the Change Work, with a proposed adjustment to the
Projected Final Completion Date resulting from such Proposal Request. In all
events (i) the stipulated sum set forth in a Change Order Proposal shall not
incorporate profit for Contractor in excess of 10 percent of the actual cost of
the materials for Contractor covered by the Change Order Proposal and overhead
and profit for Contractor in excess of 10 percent of the cost of such difference
attributable to Change Work performed by Subcontractors, (ii) all labor costs of
Contractor's forces included in the Change Order Proposal will be based on the
wage rate schedule attached hereto as Exhibit 6.4(a) and (iii) to the extent
applicable, all Material costs shall be based on prices paid by Contractor. Each
Change Order Proposal shall be accompanied by appropriate data acceptable to
Owner supporting such estimate, including but not limited to bids, cost
estimates, wage schedules and applicable Unit Prices. When the Change Work
involves both new work not originally required under the Contract Documents and
replacement or obviation of previously planned Work, Contractor shall break down
the stipulated sum contained in its Change Order Proposal to show both the
additional compensation
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bid for the new Work and the credit allowed for the replaced or obviated Work.
If Owner approves Contractor's Change Order Proposal, which approval must be
given within 5 days of Owner's receipt of such proposal, Owner will issue and
Contractor will execute and accept a written modification on the form attached
hereto as Exhibit 6.4(b) (a "Change Order") directing Contractor to perform Work
and the Contract Sum and Projected Final Completion Date shall be adjusted as
set forth in such Change Order. If Owner does not approve, Contractor shall be
paid for time required to prepare the proposal and will have no further
obligation with regard to the Change Work.
SECTION 7 CONTRACTOR'S GENERAL DUTIES, STATUS, REPRESENTATIONS AND WARRANTIES
7.1 Contractor's General Obligations. Contractor covenants with Owner to furnish
its best skill and judgment in its performance of the Work. Contractor covenants
with Owner to furnish efficient business administration and superintendence to
cause the Work to be performed in strict accordance with the Contract Documents,
to furnish at all times all Materials and Services as and when required or
needed in order to timely complete the Work as required hereunder, and to
perform the Work in a good and workmanlike manner. Contractor shall enforce
strict discipline and good order among Contractor's employees and others
carrying out the Work. Contractor shall not permit employment of any unfit
individual not skilled in the tasks assigned to them. Contractor shall be solely
responsible for and shall have control over construction means, methods,
techniques, sequences and procedures, and for coordinating all portions of the
Work. As general contractor for the Project, Contractor shall perform all
necessary acts to accomplish the following:
(a) The avoidance of conflicts among the various trades;
(b) The efficient organization of construction activities, including
location and size of activities, location and size of storage areas, staging
areas and field offices, traffic patterns, delivery schedules, hoisting, safety
and the like;
(c) Efficient scheduling of the Work to be performed by Subcontractors
to avoid inefficient or unsafe performance of the Work performed by
Subcontractors and to ensure that the progress of the Work conforms to the
Project Schedule; and
(d) Scheduling, coordinating and chairing a project meetings at least
once monthly, each of which project meetings shall be attended by Contractor's
project manager, the pipeline Subcontractor's project superintendent when
construction is in progress and others as deemed necessary, along with one or
more representatives of Owner.
7.2 Project Schedule.
(a) Contractor, within 5 days after execution of this Agreement, shall
prepare and submit for Owner's information and approval a schedule in the form
of a Gantt bar chart and a
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detailed CPM Network schedule (as same may be revised from time to time, the
"Project Schedule") for the Work. The Project Schedule shall incorporate the
Projected Final Completion Date. In addition, Contractor shall, at the request
of Owner, deliver the following information:
(i) Schedule of activities by major project element;
(ii) Activities listed by early start date for each major
project element;
(iii) A schedule of production of Drawings and Specifications
and other documents required for the award of Subcontracts and contracts of
sub-subcontractors (providing for appropriate periods for review, which periods
shall not exceed ten days where practicable);
(iv) Vendor's list approved by Owner.
(v) A listing of all long lead-time items and a schedule for
the acquisition; and delivery of such items; and
(vi) A detailed schedule of the periods during which each
Subcontractor's work will be performed.
(b) The Project Schedule shall take into consideration such matters as
design services, Owner activities, governmental approvals and the like.
Contractor and each Subcontractor under a major trade or procurement Subcontract
shall cooperate fully and provide detailed information as required in order to
achieve the most logical schedule for the Project that will be acceptable to
Owner and Contractor.
(c) Contractor, in cooperation with Owner, and Subcontractors under
major trade or procurement Subcontracts, will continuously monitor and shall
revise and update monthly the Project Schedule, provided that the Projected
Final Completion Date shall be adjusted only as expressly permitted in the
Contract Documents. The Project Schedule shall be further revised or expanded to
provide more detailed information concerning the time requirements for all
elements of the Project as such information is developed by Contractor and
approved by Owner.
(d) Contractor shall to the extent necessary, provide expediting
services to ensure that materials and equipment are delivered in accordance with
the Project Schedule.
(e) Contractor shall prepare semi-monthly Project progress reports in
accordance with Exhibit 7.2(e-1) and Exhibit 7.2(e-2) showing Project related
activities and Project status. Such Project progress reports shall reflect
activities and progress for the previous 14 day period.
7.3 Checking Materials. Contractor shall inventory, check, inspect and approve
all Materials received during the performance of the Works.
7.4 Payment of Claims. Contractor will pay promptly all amounts for Materials
and Services furnished in the performance of the Work and any and all other
valid claims arising out of the
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performance of the Work hereunder. Contractor will allow no lien or charge to
become fixed upon the Project or any portion thereof or the Pipeline
Rights-of-Way, unless such lien or charge shall be created by Owner.
7.5 Payment of Taxes. Contractor shall pay sales, consumer, use and similar
taxes incurred in the performance of the Work or portion thereof.
7.6 Contractor's Chief Inspector. Contractor shall employ a competent chief
inspector and necessary assistants who shall be in attendance at the Project
Site during the performance of the Work. Such chief inspector shall represent
Contractor, and written communications from Owner given to such chief inspector
shall be as binding as if given to Contractor. Owner and other entities
designated by Owner, shall have the right, but not the obligation, to have one
or more inspectors in attendance at any Project Site, provided such inspectors
shall not interfere with the performance of the Work.
7.7 Permits, Fees, Notices, Tests and Inspections.
(a) Contractor shall secure and pay for any construction or building
permits and other permits and governmental fees, licenses and inspections
necessary for proper execution and completion of the Work.
(b) Contractor shall give all notices required by Applicable Laws.
(c) Contractor shall be responsible for ascertaining that the Contract
Documents are in compliance with Applicable Laws.
(d) Contractor shall be responsible for arranging, scheduling and
making any and all tests required by Applicable Laws or the Contract Documents.
Contractor shall provide Owner with not less than 4 Business Days notice before
conducting any pipeline test in order to allow Owner to have one or more
representatives present during the conduct of such test.
(e) Contractor shall provide comprehensive visual and other inspection
of all aspects of line pipe manufacture.
7.8 Compliance with Laws. In addition to complying with and constructing the
Project in accordance with Applicable Laws, Contractor shall comply with each
and every federal, state, county, city, and municipal laws, codes, statutes,
rules, regulations and orders applicable to Contractor or its operations
conducted under the Contract Documents.
7.9 Safety and Security.
(a) Contractor covenants, warrants and represents that all Work
performed hereunder shall be conducted in accordance with safety standards and
procedures provided for under Applicable Laws and industry standards.
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(b) Without in any way limiting paragraph (a) preceding, Contractor
shall erect and maintain, as required by existing conditions and performance of
the Work, safeguards for safety and protection of persons and property on the
Pipeline Rights-of-Way, other portions of the Project Site, and property
adjacent to the Pipeline Rights-of-Way and other portions of the Project Site,
including posting danger signs and other hazard warnings, promulgating safety
regulations and notifying owners and users of any land within or adjacent to the
Pipeline Rights-of-Way of the existence of any dangerous conditions created by
the performance of the Work.
(c) When use or storage of explosives or other hazardous materials or
equipment or unusual methods are necessary for execution of the Work, Contractor
shall exercise utmost care and carry out such activities under the supervision
of properly qualified personnel.
(d) Contractor shall designate a responsible member of the Contractor's
organization whose duty shall be to use Best Efforts to prevent accidents in the
performance of the Work. This person may be Contractor's superintendent.
(e) Contractor shall be responsible for the security of the Work, the
Project Site and all Materials stored at the Project Site or at any other
location by Contractor with the consent of Owner. Contractor shall be
responsible for all direct losses and expenses incurred by reason of failure to
maintain reasonable security at the Project Site or at the location where
Materials are stored, and such expenses incurred shall not increase the Contract
Sum. Contractor shall comply with all reasonable security requirements of Owner.
(f) Contractor shall use Best Efforts to protect all completed and
partially completed Work located on the Project Site from loss and damage,
including theft or damage by weather and, if necessary, shall provide suitable
shelter therefor.
(g) Without limiting the generality of Contractor's safety obligations
under this subsection 7.9, Contractor shall take all reasonable safety
precautions and comply with all Applicable Laws to prevent damage, injury and
loss to person and property resulting from the excavation and filling of, and
performance of Work within, trenches during construction and installation of the
Project, including the design and construction of sound trench safety and earth
retention systems. Specific reference is made to (i) the Occupational Safety and
Health Standards-Excavation, 54 Fed. Reg. 45,894 (1989) (codified at 29 C.F.R.
Sections 1926.650-1926.652), and (ii) any and all special shoring requirements
of the State of Texas, though such references are not intended to be an
exhaustive listing of all Applicable Laws governing trench safety.
7.10 Cleaning Up. Contractor shall keep all areas within which it performs any
portion of the Work in a safe condition and free from accumulation of waste
material and shall satisfy any reasonable requests of Grantors of pipeline
rights-of-way concerning clean-up of rights-of-way. Without limiting the
foregoing, Contractor shall be responsible for performing such cleanup work
within and adjacent to the Pipeline Rights-of-Way as is necessary to comply with
the requirements of any instrument conveying or permitting a portion of the
Pipeline Rights-of-Way to Owner. Upon the completion of the Work, Contractor
shall remove from and about the Pipeline Rights-of-Way and all other areas
within which any portion of the Work is performed all waste materials,
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rubbish, Contractor's tools, construction equipment, machinery and surplus
Materials. If Contractor fails to perform any of its cleanup obligations, Owner
may perform same and charge the cost thereof to Contractor.
7.11 Non-Conforming Work.
(a) Contractor warrants and represents that it shall promptly correct
Work which does not conform to the requirement of the Contract Documents, the
Completion Requirements or the Performance Requirements and of which Contractor
receives written notice on or at any time before the first anniversary of the
Final Completion Date. Contractor shall bear all costs of correcting such
nonconforming and defective Work, including necessary disassembly,
transportation, reassembly, additional testing and inspection and other expenses
incurred as a result of the defective Work. The warranty contained herein shall
survive acceptance of the Work by Owner and final payment.
(b) If Contractor fails to correct non-conforming or defective Work
that Contractor is required to correct under subsection 7.11(a) within a
reasonable time, Owner may correct such non-conforming or defective Work at
Contractor's expense.
(c) If Owner prefers to accept non-conforming Work that Contractor is
required to correct under subsection 7.11(a), Owner may do so instead of
requiring its correction if Contractor agrees, in which case the Contract Sum
will be reduced as mutually agreed. Such adjustment shall be effected whether or
not final payment has been made, and if final payment has been made, Contractor
shall pay to Owner the amount of such adjustment within 30 days after demand
therefor.
7.12 As-Built Surveys and Record Drawings. Within 30 days after the Final
Completion Date, Contractor shall deliver to Owner (i) on the ground surveys
reflecting the actual location of the Pipeline Systems within the Pipeline
Rights-of-Way and (ii) the record set of the drawings showing the as-built
condition of the Pipeline Systems.
7.13 As-Built Documentation. Within 30 days after the Final Completion Date,
Contractor shall provide at least six sets of design and construction data books
which shall contain a description of the project scope, construction inspection
reports, welding procedures and qualifications reports, welder qualification
reports, hydrostatic test reports, electrical and instrument test reports,
radiographic examination reports, construction specifications, radiographic
examination specifications, pipe mill test reports and any other documents or
drawings which show compliance with applicable codes, standards, regulations,
and laws. Contractor shall also provide at least six sets of material and
equipment data books which shall contain (i) all technical specifications
prepared for acquisition of project related material, (ii) vendors' start-up,
operating, and maintenance procedures, (iii) schematics and (iv) recommended
spare parts lists.
7.14 Certain Obligations of Contractor Following Completion. Following the Final
Completion Date, Contractor shall:
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(a) assist Owner in instructing and training Owner's staff to operate
and maintain the equipment and systems which are a part of the Pipeline Systems
for a period not exceeding 30 days following the Final Completion Date or the
initial start-up of the Pipeline System, whichever is later;
(b) assist Owner in checking out all equipment and systems and starting
up equipment and systems for the operation of the Pipeline Systems for a period
not exceeding 30 days following the Final Completion Date or the initial
start-up of the Pipeline System, whichever is later;
(c) attend meetings and do whatever is necessary to ascertain the cause
of and help resolve initial problems of equipment or systems of an operational
nature for a period not exceeding 30 days following the Final Completion Date or
the initial start-up of the Pipeline System, whichever is later.
Owner will not continue to hold the retainage provided for in subsection 11.2
hereof solely because Contractor's obligations under paragraphs (a), (b) or (c)
next above have not yet been completed.
7.15 Certain Representations. Subject to the time limitation set forth in
subsection 7.11(a) Contractor hereby represents and warrants to Owner that
Contractor has satisfied itself (i) as to the nature, location, and character of
the general area in which the Projected Pipeline Rights-of-Way is located,
including, but not limited to, its climatic conditions, nature of soil
conditions, available labor supply and labor costs, available materials supply
and material costs, available utility services, and available equipment supply
and equipment costs, and (ii) as to the quantity and quality of all materials
and services and other matters necessary to complete the Work in the manner
required by the Contract Documents.
7.16 Contractor's Obligations. Owner may from time-to-time furnish Contractor
with certain documents prepared by Owner or on Owner's behalf until the first
anniversary date of the Final Completion Date. Contractor shall thoroughly
review such documentation. Any preliminary drawings, design guidelines,
schematics, equipment lists, budgets, accounting information, reports, surveys,
specifications and other documents contained in the documentation furnished by
Owner are furnished solely for Contractor's general information and convenience.
Contractor shall be responsible for the design and construction of a complete
Pipeline System, which shall perform in accordance with the requirements of this
Agreement. Any furnishing by Owner of design information which is utilized by
Contractor in its sole discretion, and the review or inspection by Owner or its
inspectors of the Drawings and Specifications or the Work shall not in any way
relieve Contractor of its responsibilities under this Agreement.
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SECTION 8 COMMENCEMENT AND COMPLETION
8.1 Commencement of Work. Contractor shall commence the Work upon execution of
this Agreement by both Parties.
8.2 Completion.
(a) Contractor shall cause the Final Completion Date to occur no later
than October 16, 2000 (as such date may be extended in accordance with (i) with
Change Orders pursuant to subsection 6.4, (ii) any delay pursuant to subsection
8.4 or (iii) Owner's failure to comply in a timely manner with its obligations
under subsection 18.3 with respect to the Wetlands development or offsets that
are remote from the Project Site, the "Projected Final Completion Date").
(b) The "Final Completion Date" means the date upon which all of the
following shall have occurred:
(i) The Pipeline Systems shall have been completed in accordance with
the Completion Requirements and Applicable Laws, and tested in accordance with
the procedure set forth in Exhibit 3.4 (and the Pipeline System shall have
passed such tests);
(ii) Following such testing, the Pipeline Systems shall have been
prepared so that they could, if Owner so chose, be immediately filled with
propylene, ethylene and natural gasoline, respectively;
(iii) The Pipeline Systems shall be capable of operating in accordance
with the Performance Requirements;
(iv) The meter stations shall have been installed and tested, and
shall be capable of being manually operated. The SCADA and SCADA interface
system does not have to be complete for the Final Completion Date to have
occurred; and
(v) Contractor shall have certified to Owner that (A) the conditions
set forth in the immediately preceding clauses (i), (ii), (iii), and (iv) have
been satisfied.
(c) At Owner's sole discretion, Owner may declare in writing that the
Final Completion Date has occurred, notwithstanding the fact that certain
immaterial items remain to be accomplished.
8.3 Liquidated Damages and Completion Bonus.
(a) If on the Projected Final Completion Date the Final Completion Date
shall not have occurred then Contractor shall pay Owner as Owner's sole remedy
for such delay as liquidated damages an amount determined based on the following
sliding scale:
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<TABLE>
<CAPTION>
Number of Calendar Days after the The Per Calendar Day
Projected Final Completion Liquidated
Date the Final Completion Date Occurs Damage Amount
------------------------------------- --------------------
<S> <C> <C>
0-21 $0.00
22-30 $50,000
31-60 $75,000
61-beyond $100,000
</TABLE>
The total sum of liquidated damages shall not exceed $4 million. Any such
liquidated damages shall be paid within 30 days after the Final Completion Date.
No additional liquidated damages shall accrue following any termination of this
Agreement by Owner under subsection 16.1(a).
(b) If the Final Completion Date occurs prior to the Projected Final
Completion Date, then Owner shall pay Contractor as an early completion bonus an
amount determined based on the following sliding scale:
<TABLE>
<CAPTION>
Number of Calendar Days prior to
the Projected Final Completion The Per Calendar Day Early
Date the Final Completion Date Occurs Completion Bonus Amount
------------------------------------- --------------------------
<S> <C> <C>
0-14 $0.00
15-21 $25,000
22-beyond $50,000
</TABLE>
The total sum of any such early completion bonus payment shall not exceed $1.5
million. Any such early completion bonus payment shall be paid within 30 days
after the Final Completion Date.
(c) Contractor acknowledges that Owner's business will be damaged if
the Final Completion Date does not occur by the Projected Final Completion Date,
and Contractor and Owner agree that the exact measurement of such damages is
difficult, if not impossible, to determine, and the amounts provided for in
subsection 8.3(a) as liquidated damages are reasonable estimates of the damages
to Owner's business caused by such delay.
(d) For illustrative purposes only, attached hereto as Exhibit 8.3(d)
are example calculations of liquidated damages and completion bonuses.
8.4 Delay.
(a) If the progress of the Work on the critical path of the most recent
updated version of the Project Schedule or the performance of any other
obligation hereunder is delayed at any
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time by (i) an act or negligence of Owner ("Owner Delay") or (ii) Force Majeure
as defined in Appendix A, in each case not reasonably anticipated by Contractor
and beyond Contractor's reasonable control, then the Projected Final Completion
Date shall be extended for the days of delay and Contractor shall not be liable
for the failure to perform any obligation hereunder that is affected by a Force
Majeure during the period of such Force Majeure; provided, however, that
Contractor shall not be entitled to any extension or relief from liability to
the extent that any such event could have been prevented or overcome by
Contractor through the exercise of such diligence and reasonable care as would
be exercised by a prudent person under similar circumstances. Contractor shall
as far as reasonably possible, remedy any delay due to Force Majeure with all
reasonable dispatch.
(b) In the event Contractor is delayed at any time in the progress of
the Work, extension of the Projected Final Completion Date as provided for
herein shall be Contractor's sole and exclusive remedy for such delay, unless
the same shall have been caused by an Owner Delay and then only if and to the
extent that such Owner Delay continues for 3 days after Owner's receipt of
written notice from Contractor stating with specificity the act constituting
Owner Delay. Owner's exercise of any of its rights or remedies provided for in
the Contract Documents or under Applicable Laws shall not be construed as an
Owner Delay. Contractor shall not be entitled to any damages or reimbursement
for any losses and, except as expressly otherwise provided above in this
paragraph (b), shall not be entitled to any compensation on account of any delay
or delays resulting from any cause other than an Owner Delay, whether such cause
is foreseen or unforeseen, reasonable or unreasonable.
(c) The Projected Final Completion Date and the Contract Sum take into
full consideration the effect of inclement weather normally to be expected
during the construction period for the Project and such effect shall be
accounted for in the Project Schedule on both cost and time for completing the
Work. The Project Schedule shall incorporate Contractor's expectation that it
will experience weather delay during construction of the Project.
Notwithstanding the definition of Force Majeure in Appendix A, an extension in
the Projected Final Completion Date for weather delays may be claimed only for
delays incurred during normal business hours (i.e., 7:00 a.m. to 5:00 p.m.) on
Monday through Sunday of a given week (but excluding any holiday) and only after
Contractor has previously been delayed by weather for at least 30 consecutive
days.
(d) Contractor shall notify Owner in writing of any delay that would
extend the Projected Final Completion Date as soon as reasonably possible after
the occurrence of the delay. Contractor shall provide in the notice an estimate
of the probable effect of such delay on the progress of the Work.
8.5 Owner's Obligations. Owner shall furnish Contractor with all information
which Owner is required to furnish to Contractor within the time limits
expressly required hereunder. Decisions and approvals required of Owner under
the Contract Documents shall be provided within a reasonable period of time, not
to exceed 7 days.
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8.6 Time of the Essence. Time is of the essence as to the Contract Documents and
completion of the Work, provided that Owner's sole remedy for any delay of the
Final Completion Date shall be as provided in subsection 8.3.
SECTION 9 CONTRACT SUM
9.1 Contract Sum. Owner shall pay to Contractor for the performance of the Work
the sum of $71,561,000 (said amount, as it may be increased or decreased in
strict accordance with the Contract Documents including but not limited to the
provisions of subsection 5.7 of this Agreement, is herein called the "Contract
Sum"). Contractor acknowledges and agrees that the Contract Sum includes (i) the
cost of all Materials, labor, fabrication, design, engineering, construction,
installation, services, Rights-of-Way acquisition costs (except as otherwise
provided in subsection 5.6) and other items necessary to complete the Project
and the Work in accordance with the Contract Documents, (ii) without in any way
limiting the clause immediately preceding, all amounts necessary for trench
excavation and safety protection and for special shoring requirements of the
State of Texas, as well as any other Applicable Laws, and (iii) the profit and
overhead of Contractor for construction of the Project and the performance of
the Work, provided that Contractor shall be permitted additional overhead and
profit for Change Work to the extent and only to the extent expressly permitted
under this Agreement.
9.2 Unit Prices. Owner hereby acknowledges and accepts, and Contractor hereby
guarantees, the "Unit Prices" set forth in Exhibit 9.2 attached hereto. If any
Unit Price increases or decreases above the permitted amount in Exhibit 9.2,
such increase or decrease shall not change the Contract Sum.
SECTION 10 SUBCONTRACTS AND OTHER AGREEMENTS
10.1 Obligation to Subcontract. Contractor shall subcontract with a pipeline
construction contractor to furnish superintendents, foremen, labor, equipment,
machinery, tools, materials and supplies necessary to perform construction of
the Pipeline Systems in a diligent and workmanlike manner, provided that Owner
shall have the right to approve such Subcontractor, but such approval shall not
be unreasonably withheld.
10.2 Right to Subcontract. Subject to subsection 10.1, Contractor may
subcontract any part of the Work and may enter into agreements with
Subcontractors to provide Services or Materials for use with or incorporation
into the Work (any such agreement herein referred to as a "Subcontract"). Owner
shall have the right to approve, which approval shall not be unreasonably
withheld, any Subcontractor prior to the execution of any Subcontract that
provides for payments under such Subcontract in excess of $500,000.
10.3 Subcontractor Relations. Contractor shall contract with each and every
Subcontractor solely in the name and on behalf of Contractor, and no provision
contained herein or in any other Contract Document nor approval by Owner of any
Subcontractor or Subcontract shall be
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construed as creating any contractual relationship between any Subcontractor and
Owner, release Contractor from any liability arising out of the performance of
any portion of the Work by such Subcontractor or be used as an argument by
Contractor that Owner is estopped from asserting or has waived its right to
assert that Contractor is fully responsible for any liability arising out of the
performance of the Work by such Subcontractor.
10.4 Subcontractor and Suppliers Warranties. All guarantees and warranties of
Materials and Services furnished to Contractor or Subcontractors by any
Subcontractor, sub-subcontractor, manufacturer or supplier shall be deemed to
run for the benefit of Owner. Contractor shall, on the Final Completion Date,
assign to Owner the benefits of all guarantees and warranties of all
Subcontractors, sub-subcontractor manufacturers and suppliers engaged for the
Project, but such assignment shall not relieve Contractor of its warranty
obligations to Owner under the Contract Documents or Applicable Laws.
Notwithstanding the foregoing assignment, Contractor shall, upon completion of
the Project deliver to Owner as part of the Data Books all guarantees and
warranties furnished for the Project, with duly executed instruments confirming
the assignment of the guarantees and warranties to Owner. The guarantees and
warranties together in the Data Books shall be properly indexed. Contractor
shall obtain from each Subcontractor, sub-subcontractor, manufacturer and
supplier guarantees and warranties upon standard terms and periods generally
offered by the Subcontractor, subsubcontractor, manufacturer or supplier. In
addition, Contractor shall request from each Subcontractor, sub-subcontractor
manufacturer and supplier any extended guarantee or warranty offers which the
Owner may evaluate and may wish to purchase at Owner's expense.
SECTION 11 APPLICATIONS FOR PAYMENT
11.1 Applications for Payment.
(a) No later than the first business day of the month in which one of
the payments described in Exhibit 11.1 (Schedule of Monthly Payments) becomes
due, Contractor shall deliver to Owner one original and two copies of a
completed invoice (an "Application for Payment') for such progress payment. The
schedule includes a column indicating February 1999 payment totaling $2,272,000,
which is comprised of Contractor's invoices to Owner and Owner's down payment
for Materials or equipment, if any, prior to the execution date of this
Agreement. Payment for any of these amounts that have not been paid upon
execution of this Agreement shall be paid on or before February 15, 1999.
(b) Each Application for Payment shall constitute a certificate by
Contractor that (i) the payment therein requested is justly due Contractor on
account of all Work for which the Application for Payment is being submitted,
(ii) the Work performed to the date of the Application for Payment has been
performed in accordance with the Contract Documents, (iii) the materials for
which the Application for Payment is being submitted have or will be installed
or incorporated in the Project or delivered to the Project Site or held off the
Project Site and complying with the provisions of this paragraph (b), (iv)
Contractor is not then in default under the Contract Documents or if Contractor
is in default, Contractor shall specify the default of
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<PAGE> 25
which it is aware, (v) there are no known mechanics' or materialmen's liens
outstanding at the date of the Application for Payment, (vi) all due and payable
bills with respect to the Work have been paid to date or are included in the
amount requested in the current Application for Payment, and (vii) except for
such bills not paid, there is no known basis for the filing of any mechanics' or
materialmen's liens on the Work.
11.2 Retainage. Notwithstanding any provision herein to the contrary, Contractor
agrees that 5 percent (5%) of amounts payable on account of Work performed or
supplied shall be retained by Owner until the final payment of the Contract Sum
is payable to Contractor under the provisions of Section 12. The contract
executed with the pipeline construction Subcontractor shall provide that the
Contractor shall retain 10 percent (10%) of each progress payment to be made to
the Subcontractor.
11.3 Owner's Right to Withhold Approval. Owner may withhold its approval of an
Application for Payment, in whole or in part, to the extent reasonably necessary
to protect Owner from loss on the following grounds:
(a) defective Work not remedied within a reasonable time following
written notice thereof;
(b) third party claims filed which Contractor has not bonded over;
(c) failure of Contractor to make payments to Subcontractors as required
by the applicable agreements or for labor, materials, equipment, taxes, permits
or any other item or matter for which Contractor is responsible under the
Contract Documents other than during any good faith dispute relating thereto;
(d) damage to Owner caused by Contractor and not remedied within a
reasonable time;
(e) failure to carry out the Work in accordance with the Contract
Documents after receiving seven days written notice of such failure; or
(f) satisfaction of any claims against Contractor arising under any
indemnities contained in the Contract Documents.
SECTION 12 PAYMENTS TO CONTRACTOR
12.1 Owner's Review and Obligation to Fund. Within 15 days after its receipt of
an Application for Payment and all documents required to accompany such
Application for Payment, Owner will pay Contractor so much of the Application
for Payment as Owner approves, it being understood that Owner shall have no
right to withhold approval except to the extent permitted under this Agreement
or other Contract Documents or as permitted under Applicable Laws. Owner
recognizes the importance of prompt payment within the 15 day period and agrees
to pay
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<PAGE> 26
Interest on that portion of an Application for Payment due and not paid by Owner
within the 15 day period except where such withholding is permitted hereunder.
Owner agrees to make its payments to Contractor by electronically transferring
each payment to Contractor's bank in Houston, Texas. The wiring instructions for
such account will be provided by Contractor.
12.2 Final Payment. Final payment, constituting the final, unpaid balance of the
Contract Sum, shall be due and payable on the date all of the following
conditions are satisfied: (i) 15 days shall have lapsed from the Final
Completion Date, (ii) Contractor has delivered to Owner in exchange for such
final payment, in the form of Exhibit 12.2(a) attached hereto, a waiver of all
constitutional, statutory and contractual liens it may have against the Project;
and (iii) Contractor has delivered to Owner waivers of mechanics' and
materialmen's liens in the form of Exhibit 12.2(b) attached hereto from all
Subcontractors who have performed Work in connection with the Project or, if
Contractor is unable to obtain all such waivers, a bond in form, substance and
amount satisfactory to Owner to cover, together with Contractor's
indemnification of Owner against, any and all claims made on account of such
liens.
12.3 No Waiver of Defects. No on-site observation or review by Owner, approval
given by Owner or payment made by Owner to Contractor under this Agreement, or
partial or entire acceptance or use of the Work or the Project by Owner or any
other Person shall constitute an acceptance by Owner of Work not in compliance
with the Contract Documents or a waiver by Owner of any claims against
Contractor for any defects or deficiencies in the Work.
12.4 Owner not Required to See to Proper Application of Payments. No provision
of this Agreement or the other Contract Documents shall be construed to require
Owner to see to the proper application of monies paid to Contractor hereunder.
12.5 Owner's Limited Right to Pay Subcontractors Directly. Owner may, at its
sole option and without any obligation to do so, at any time after Owner has
given Contractor 10 days written notice of Contractor's default under the
Contract Documents or under the applicable Subcontract or if a lien is filed by
any Subcontractor, sub-subcontractor, laborer or materialmen against all or any
portion of the Project or the Project Site and such lien is not released or
bonded around to the satisfaction of Owner within 30 days after same has been
filed, make payments directly to any Subcontractor and all such payments so made
shall be without liability to Owner and shall be deemed to be made directly to
Contractor on account of the Contract Sum. For purposes of this subsection 12.5,
Contractor shall be deemed to have obtained a satisfactory bond on a lien claim
if the Parent Guarantor advises Owner in writing within such 30 day period that
such lien claim is covered by, and such Parent Guarantor will defend Owner
against such claim pursuant to, the Parent Guaranty.
SECTION 13 ACCOUNTING RECORDS
Contractor shall inspect and verify all materials and devices entering into the
Work and shall keep such full and detailed accounts as may be necessary for
proper management under the Contract Documents and as shall be satisfactory to
Owner. Owner shall have the right to audit from time to
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time, and upon request shall be afforded access to, all of Contractor's records,
books, correspondence, instructions, drawings, receipts, vouchers, invoices for
all Materials and Services, memoranda and similar data relating to the Contract
Documents, and Contractor shall preserve all such records for the Project for a
period of 5 years, or for such longer period as may be required by Applicable
Laws, after the final payment hereunder.
SECTION 14 INSURANCE
14.1 Contractor's Insurance. At all times during the performance of the Work,
Contractor (as well as the Subcontractor engaged to install the Pipeline
Systems) will have in force with reliable insurance companies acceptable to
Owner and authorized to do business in the state or states in which Contractor
works, the following insurance:
(a) Worker's Compensation and Employee Liability Insurance including
Alternate Employers endorsement, other states' coverage as needed, Maritime
coverage endorsement if marine exposure exists and U.S. Longshore and
Harborworkers Act coverage if work is to be performed on or near navigable
waters. The workers compensation shall provide statutory limits and employers
liability shall provide not less than $1,000,000 per accident for bodily injury
or disease.
(b) Commercial General Liability and Umbrella Liability insurance
covering all of Contractor's operations pertaining to the Work with per
occurrence limits of not less than $6,000,000. The insurance shall be written on
an occurrence form and shall include coverage for explosion, collapse and
underground damage, contractual liability for Contractor's liability related to
the Project, separation of insured clauses and if there is an aggregate limit,
this limit will be on a per project basis. Owner shall be named as an additional
insured on these policies.
(c) Business Automobile Insurance covering any vehicle used on or
related to this Project with per accident limits of not less than $6,000,000.
The Business Automobile Insurance shall name Owner as an additional insured.
(d) Upon the request of Owner, Contractor will provide or cause
Subcontractor to provide "All risk" installation floater/builder's risk type
coverage including in transit with maximum deductible of $10,000 and limits
equal to the insurable value estimated for the Work (as defined in the Contract
Documents), endorsed to provide for replacement cost coverage. Such insurance
shall name Owner, as its interest appears, and any other contractors as their
interest appear. The builder's risk coverage shall be endorsed to provide for
coverage of all Materials (i) during transit to the Project Site, any other
location on which a portion of the Work is performed, each approved offsite
storage area, and each other location on which any portion of the Materials will
be stored, and (ii) during storage on the Project Site, an approved offsite
storage area and any other location on which any portion of the Materials will
be stored. Such insurance coverage shall name Owner and other contractors as an
additional insured.
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(e) Errors and Omissions Insurance for Engineering Design Services with
limits not less than $2,000,000 covering liabilities resulting from errors or
omissions in the design of the Pipeline Systems.
14.2 Term of Insurance, Certificates and Endorsements. All of Contractor's
insurance shall be kept in full force and effect from the date Contractor
receives its notice to continue until the Final Completion Date. All of
Contractor's insurance will contain endorsements that (i) such insurance may not
lapse or be canceled without the insurance company giving Owner at least 30 days
prior written notice of such cancellation or 10 days in the event of non-payment
of premium, (ii) Contractor will be solely responsible for payment of premiums,
(iii) waive rights of subrogation against Owner and (iv) Contractor's insurance
shall be primary in the event of overlapping coverage with insurance carried by
Owner. Before Contractor continues the Work, Contractor will deliver to Owner
certificates of insurance issued to Owner evidencing satisfactory coverage of
the types required by subsection 14.1 are in effect. Such certificates shall be
in a form acceptable to Owner and shall indicate that the endorsements required
above have been issued and are in full force and effect.
14.3 Vendor's/Subcontractor's Insurance. Contractor shall require each of its
Subcontractors (other than the Subcontractor engaged to install the Pipeline
Systems, who shall be required to maintain the same coverage as Contractor) and
each equipment vendor who will have any presence on the Project Site to maintain
the same insurance as Contractor or such insurance as is industry standard for
the type and scope of work being performed by the Subcontractor.
14.4 Violation of Policy Conditions. It shall be the responsibility of
Contractor not to violate or permit to be violated any conditions of the
insurance policies required under this Section 14, and it shall be Contractor's
duty and responsibility to impose upon each Subcontractor and have each
Subcontractor impose upon each sub-subcontractor the same responsibilities and
obligations imposed upon Contractor under the insurance provisions provided for
herein.
14.5 Waiver of Claims. CONTRACTOR HEREBY WAIVES RIGHTS IT MAY HAVE AGAINST OWNER
(INCLUDING, BUT NOT LIMITED TO, A DIRECT ACTION FOR DAMAGES) ON ACCOUNT OF ANY
LOSS OR DAMAGE OCCASIONED TO CONTRACTOR OR CONTRACTOR'S PROPERTY EXCEPT TO THE
EXTENT SUCH LOSS OR DAMAGE IS CAUSED BY THE FAULT, NEGLIGENCE OR OTHER TORTIOUS
CONDUCT, ACTS OR OMISSIONS OF OWNER OR OWNER'S DIRECTORS, EMPLOYEES, AGENTS OR
REPRESENTATIVES), ARISING FROM ANY RISK COVERED BY A STANDARD FORM ALL RISK FULL
REPLACEMENT COST PROPERTY INSURANCE POLICY. OWNER HEREBY WAIVES RIGHTS IT MAY
HAVE AGAINST CONTRACTOR (INCLUDING, BUT NOT LIMITED TO, A DIRECT ACTION FOR
DAMAGES) ON ACCOUNT OF ANY LOSS OR DAMAGE OCCASIONED TO OWNER OR OWNER'S
PROPERTY, ARISING FROM ANY RISK COVERED BY THE BUILDER'S RISK COVERAGE
MAINTAINED BY CONTRACTOR OR WHICH CONTRACTOR CAUSES SUBCONTRACTOR TO MAINTAIN
PURSUANT TO SUBSECTION 14.1.
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14.6 Corporate Guarantee. A Guaranty Agreement executed by Contractor's parent
corporation, Babcock International Group PLC (the "Parent Guarantor"), in the
form attached hereto as Exhibit 14.6 (the "Parent Guaranty"), together with the
certificate executed by the secretary or assistant secretary of the Parent
Guarantor evidencing the authorization of the execution and delivery of the
Parent Guaranty by the individual executing and delivering the same. Failure to
do so within 15 days of execution of this Agreement shall constitute a material
default hereunder by Contractor.
SECTION 15 INDEMNITY
15.1 CONTRACTOR INDEMNITY. CONTRACTOR WILL INDEMNIFY AND HOLD HARMLESS OWNER AND
OWNER'S OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, AND REPRESENTATIVES (EACH AN
"OWNER INDEMNIFIED PARTY") FROM, AND SHALL REIMBURSE EACH OWNER INDEMNIFIED
PARTY FOR AND WITH RESPECT TO, ANY AND ALL COSTS, EXPENSES (INCLUDING, WITHOUT
LIMITATION, REASONABLE ATTORNEYS FEES), CLAIMS, DEMANDS, ACTIONS, PROCEEDINGS,
JUDGMENTS, HEARINGS, DAMAGES, LOSSES AND LIABILITIES BROUGHT OR ASSERTED BY OR
PAYABLE TO ANY THIRD PARTY (INCLUDING CONTRACTOR, ANY SUBCONTRACTOR OR ANY
SUB-SUBCONTRACTOR, OR ANY OF ITS OR THEIR AGENTS, REPRESENTATIVES OR EMPLOYEES)
ON ACCOUNT OF PERSONAL INJURY, DEATH, PROPERTY DAMAGE OR ANY OTHER FORM OF
INJURY OR DAMAGE (EACH A "CLAIM" AND COLLECTIVELY THE "CLAIMS") TO THE EXTENT
ARISING OUT OF OR RELATING OR INCIDENT TO (A) ANY NEGLIGENCE OR INTENTIONAL
MISCONDUCT OF CONTRACTOR OR CONTRACTOR'S OFFICERS, DIRECTORS, OR EMPLOYEES, (B)
ANY BREACH OF THIS AGREEMENT BY CONTRACTOR, (C) THE PERFORMANCE OF THE WORK BY
CONTRACTOR OR ANY OF ITS SUBCONTRACTORS OR ANY SUB-SUBCONTRACTOR OR ANY OTHER
PERSON PERFORMING ANY PORTION OF THE WORK ON BEHALF OF OR FOR THE BENEFIT OF
CONTRACTOR, OR (D) ANY FIRE, EXPLOSION OR ACCIDENT OCCURRING DURING THE
PERFORMANCE OF THE WORK; EXCEPT TO THE EXTENT SUCH CLAIMS ARE ATTRIBUTABLE OR
CAUSED BY THE SOLE, JOINT, CONCURRENT, OR COMPARATIVE NEGLIGENCE, FAULT OR
STRICT LIABILITY OF AN OWNER INDEMNIFIED PARTY. IF A THIRD PARTY FILES A LAWSUIT
OR BRINGS ANY OTHER LEGAL ACTION ASSERTING A CLAIM AGAINST AN OWNER INDEMNIFIED
PARTY, THEN CONTRACTOR, UPON NOTICE FROM THE OWNER INDEMNIFIED PARTY, SHALL
RESIST AND DEFEND SUCH CLAIM THROUGH COUNSEL REASONABLY SATISFACTORY TO THE
OWNER INDEMNIFIED PARTY. CONTRACTOR DOES NOT INDEMNIFY OWNER FROM ANY
CONSEQUENTIAL, INCIDENTAL, INDIRECT OR PUNITIVE DAMAGES, SUCH AS LOSS OF USE OR
LOSS OF PROFIT. FURTHERMORE, CONTRACTOR SHALL NOT BE LIABLE FOR ANY THIRD PARTY
ECONOMIC OR FINANCIAL LOSSES. CONTRACTOR'S OBLIGATIONS UNDER THIS SUBSECTION
SHALL SURVIVE THE TERMINATION OF THIS AGREEMENT, AND SHALL NOT BE LIMITED IN ANY
WAY BY ANY LIMITS OF INSURANCE REQUIRED TO BE CARRIED BY CONTRACTOR HEREUNDER.
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15.2 OWNER INDEMNITY. OWNER WILL INDEMNIFY AND HOLD HARMLESS CONTRACTOR AND
CONTRACTOR'S OFFICERS, DIRECTORS, EMPLOYEES, AGENTS AND REPRESENTATIVES (EACH A
"CONTRACTOR INDEMNIFIED PARTY") FROM, AND SHALL REIMBURSE EACH CONTRACTOR
INDEMNIFIED PARTY FOR AND WITH RESPECT TO ANY CLAIMS TO THE EXTENT ARISING OUT
OF OR RELATING OR INCIDENT TO (A) ANY NEGLIGENCE OR INTENTIONAL MISCONDUCT OF
OWNER OR OWNER'S OFFICERS, DIRECTORS, OR EMPLOYEES, OR (B) ANY BREACH OF THIS
AGREEMENT BY OWNER; EXCEPT TO THE EXTENT ANY SUCH CLAIMS ARE ATTRIBUTABLE OR
CAUSED BY THE SOLE, JOINT, CONCURRENT, OR COMPARATIVE NEGLIGENCE, FAULT OR
STRICT LIABILITY OF A CONTRACTOR INDEMNIFIED PARTY. IF A THIRD PARTY FILES A
LAWSUIT OR BRINGS ANY OTHER LEGAL ACTION ASSERTING A CLAIM AGAINST A CONTRACTOR
INDEMNIFIED PARTY, THEN OWNER, UPON NOTICE FROM SUCH CONTRACTOR INDEMNIFIED
PARTY, SHALL RESIST AND DEFEND SUCH CLAIM THROUGH COUNSEL REASONABLY
SATISFACTORY TO SUCH CONTRACTOR INDEMNIFIED PARTY. OWNER DOES NOT INDEMNIFY
CONTRACTOR FROM ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT OR PUNITIVE DAMAGES,
SUCH AS LOSS OF USE OR LOSS OF PROFIT. FURTHERMORE, OWNER SHALL NOT BE LIABLE
FOR ANY THIRD PARTY ECONOMIC OR FINANCIAL LOSSES. OWNER'S OBLIGATIONS UNDER THIS
SUBSECTION SHALL SURVIVE THE TERMINATION OF THIS AGREEMENT.
15.3 Other Provisions; Survival. The indemnification obligations of Contractor
in this Section 15 are in addition to and shall not limit or be limited by any
other indemnity obligations contained herein. Notwithstanding any other
provision of this Agreement, the indemnity obligations contained in this
Agreement, including the indemnity obligations contained in this Section 15, are
intended to and shall survive the termination or expiration of this Agreement.
SECTION 16 TERMINATION, STOPPAGE OF WORK, OWNER'S RIGHT TO CARRY OUT WORK
16.1 Termination by Owner With Cause.
(a) Subject to subsection 8.4, Owner may terminate this Agreement after 5
days' prior written notice to Contractor, if Contractor:
(i) refuses or fails to supply enough properly skilled workers or
proper materials;
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(ii) fails to make payment to Subcontractors for materials or labor
in accordance with the respective agreements between Contractor and the
Subcontractors except during any good faith dispute relating to such agreements
or as a result of any failure by Owner to make any payment to Contractor under
this Agreement;
(iii) fails to comply with any Applicable Laws, which failure shall
have a material adverse effect on Owner's or Contractor's performance under this
Agreement;
(iv) makes a general assignment for the benefit of its creditors,
is unable to pay its debts as they become due, or becomes the subject of any
voluntary or involuntary bankruptcy, insolvency, arrangement, reorganization or
other debtor relief proceeding under any law, state or federal, now or hereafter
in existence which remains unstayed 60 days after filing;
(v) fails to cause the Final Completion Date to occur by the date
90 days following the Projected Final Completion Date;
(vi) otherwise is in default of any material provision of the
Contract Documents or otherwise fails to perform any of its material obligations
under the Contract Documents.
(b) If Owner terminates this Agreement pursuant to paragraph (a) of
this subsection 16.1, Contractor shall not be entitled to receive further
payments on the Contract Sum unless Contractor is entitled to payment under
paragraph (c) of this subsection 16.1.
(c) If Owner terminates this Agreement pursuant to this paragraph and
the Contract Sum:
(i) exceeds the sum of (x) the cost incurred by Owner to complete
the entire Project and Work, (y) all other reasonable costs, expenses and
damages suffered by Owner as a result of the default or breach by Contractor or
other reason supporting Owner's termination pursuant to paragraph (a) of this
Section, and (z) all amounts paid by Owner to Contractor under the Contract
Documents, then Contractor shall be paid the amount of such excess; or
(ii) is less than the total of the costs and amounts described in
clauses (x), (y) and (z) under subparagraph (i) preceding, then Contractor shall
pay to Owner the amount by which such costs and amounts exceed the Contract Sum.
16.2 Termination by Contractor with Cause. Contractor may terminate this
Agreement after 10 days' prior written notice to Owner, if Owner:
(a) fails to pay any amount referred to in subsection 16.2(c) within 5
days after the later of Owner's receipt of written demand for such payment or
the resolution of any dispute between the Parties relating to such amount;
(b) fails to comply with any Applicable Laws or any federal, state,
county, city, and municipal laws, codes, statutes, rules, regulations and orders
applicable to Owner or its operations conducted under the Contract Documents;
which failure shall have a material adverse effect on Owner's performance under
this Agreement;
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(c) makes a general assignment for the benefit of its creditors, is
unable to pay its debts as they become due, or becomes the subject of any
voluntary or involuntary bankruptcy, insolvency, arrangement, reorganization or
other debtor relief proceeding under any law, state or federal, now or hereafter
in existence, which remains unstayed 60 days after filing; or
(d) otherwise is in default of any material provision of the Contract
Documents or otherwise fails to perform any of its material obligations under
the Contract Documents.
Notwithstanding any such termination, Contractor shall be entitled to receive
all amounts owing to Contractor under the Contract Documents.
16.3 Owner's Rights upon Termination of Agreement.
(a) Upon a termination of this Agreement pursuant to subsection 16.1,
subsection 16.2 (provided Owner shall have paid Contractor all amounts owing to
Contractor under the Contract Documents), or by the agreement of the Parties,
Contractor shall:
(i) cease performance of the Work, but take immediate steps for a
period not to exceed 3 days to preserve and protect Work completed and in
progress and to protect materials, supplies, and equipment at the Project Site
or in transit; and
(ii) upon request of Owner, deliver and assign to Owner (but in no
event shall Owner be liable for any actions or defaults of Contractor occurring
prior to such delivery and assignment) any and all contracts, subcontracts,
purchase orders, bonds and options made by Contractor in performance of the
Work, and deliver to Owner true and correct originals of all Contract Documents
and all other materials relating to the Work which belong to Owner, together
with all papers and documents relating to governmental permits, orders placed,
bills and invoices, and lien releases obtained or issued in connection with the
Work.
(b) Upon a termination of this Agreement pursuant to subsection 16. 1,
Owner may, without prejudice to any other rights or remedies of Owner, (i) take
possession of the Project Site and all materials, equipment, tools, and
construction equipment and machinery on the Project Site owned by Contractor,
(ii) accept assignment of subcontracts from any of Contractor's subcontractors,
and (iii) finish the Work by whatever method shall reasonably be appropriate.
16.4 Stoppage of Work.
(a) Except as provided in paragraphs (b) and (c) below, in the event of
a dispute, controversy or question between Owner and Contractor with respect to
the interpretation of the Contract Documents, the performance of any portion of
the Work, the delivery of any Materials, the payment of disputed monies or
otherwise (the Parties acknowledging that undisputed monies will be paid when
due), Owner and Contractor agree that pending the resolution or settlement of
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<PAGE> 33
such dispute, controversy or question, Contractor shall not directly or
indirectly stop or delay the performance of the Work, including, without
limitation, the delivery of Materials to the Project Site.
(b) If Contractor fails to correct any Work which is not in accordance
with the requirements of the Contract Documents within a reasonable time after
written notice thereof or persistently fails to carry out the Work in accordance
with the Contract Documents, Owner, by written order signed personally or by an
agent specifically so empowered by Owner in writing, may order Contractor to
stop the Work, or any portion thereof until the cause for such order has been
eliminated. The right of Owner to stop the Work shall in no way create any
obligation upon Owner to exercise such right for the benefit of Contractor or
any other person or entity.
(c) If Owner fails to pay Contractor any portion of the Contract Sum as
and when required hereunder and such portion of the Contract Sum is not disputed
by Owner, Contractor shall have the right to stop the Work unless such amount is
paid to Contractor within 10 days after Owner's receipt of written demand for
the payment thereof.
16.5 Owner's Right to Carry Out the Work. If Owner would be entitled to suspend
Work under subsection 16.4(b), Owner may, without prejudice to other remedies
Owner may take (but shall not be obligated to take) such action as is reasonably
necessary to cause such Work to be carried out in accordance with the Contract
Documents. In such a case, an appropriate Change Order shall be issued deducting
from the Contract Sum the cost of carrying out such Work in accordance with the
Contract Documents, provided that if such costs exceed the unfunded Contract
Sum, then Contractor shall pay Owner an amount equal to the amount by which such
costs exceed the unfunded Contract Sum.
SECTION 17 OWNERSHIP OF DOCUMENTS AND PATENT INFRINGEMENT
17.1 Ownership of Documents. All information (whether or not contained in
written documents), drawings, specifications, plans, engineering calculations,
computer and word processing disks and data contained thereon, computations,
sketches, test data, surveys, models, photographs, discoveries, inventions,
improvements to Owner's existing systems, processes or methods and all other
work product prepared by Contractor or Contractor's consultants or vendors of
equipment for the Project or their respective employees as a direct result of
the performance of Contractor's obligations hereunder or conceived, discovered
or invented by Contractor or its consultants or their respective employees as a
result of or in connection with the design, development, construction,
fabrication, manufacture, assembly or erection of the Project (all such
information, drawings, specifications, reports or other documents herein
collectively referred to as the "Work Product") are prepared as "work made for
hire," as that phrase is defined in Section 10.1 of Title 17 of the United
States Code (Public Law 94-553), and all title, ownership, copyright and patent
privileges with respect to Work Product are, and shall at times be, in Owner and
such Persons as Owner may designate, provided Owner shall have paid to
Contractor all sums owed to Contractor under this Agreement. Without limiting
the foregoing, Contractor shall as a condition to final payment hereunder,
execute a written assignment which
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unconditionally assigns to Owner all Work Product. Contractor shall have no
right to use any Work Product on any project other than the Project, without
Owner's prior written consent, which may be given or withheld in Owner's sole
discretion. Contractor's previously copyrighted or patented discoveries,
improvements, or inventions shall not be deemed Work Product under this
paragraph. Contractor shall have no responsibility for any use to which the Work
Product is put other than that for with it is prepared under this Agreement.
17.2 Delivery of Work Product. Upon completion of the Project and acceptance by
Owner, Contractor shall deliver to Owner all written Work Product for the
Project, except that Contractor may retain one copy for archival purposes only.
Contractor shall execute and deliver to Owner any documents, reasonably
evidencing and acknowledging the ownership of the Work Product by Owner,
provided Owner shall have paid to Contractor all sums owed to Contractor under
this Agreement. Contractor shall organize all Rights-of-Way acquisition work in
files corresponding with the alignment drawings.
17.3 Patent Infringement.
(a) Contractor warrants that neither the Work Product nor any equipment
manufactured or fabricated by Contractor will constitute an infringement of any
perfected valid and enforceable United States patent or copyright. Contractor
shall be liable to and hereby agrees to defend, indemnify and hold harmless the
Owner Indemnified Parties against any of them for infringement of any copyright
or United States patent arising out of the use of any of the Work Product or
based on a claim that the equipment or part thereof manufactured or fabricated
by Contractor infringed any such patent or copyright. Owner shall promptly
notify Contractor of any claim asserted against an Owner Indemnified Party and
Owner shall cooperate in the defense of any such claim, but Contractor shall be
solely responsible for bearing the expense of defending any such claim and for
any judgment or award (including costs and attorneys fees) based on any such
claim. If any of the Work Product or such equipment is adjudged to violate a
patent or copyright, Contractor shall use its best efforts to obtain for Owner
the right to use such Work Product or equipment or modify the Work Product or
equipment to become non-infringing provided, however, any such modification
shall be acceptable to Owner.
(b) Contractor does not assume any liability for patent infringement due to
changes in Work Product or equipment made at the request of Owner or engineering
designs furnished by Owner.
17.4 Specific Enforcement. The rights of Owner under this Section 17 shall be
specifically enforceable.
SECTION 18 ADDITIONAL RIGHTS AND OBLIGATIONS
18.1 Right to Let Additional Contracts. Owner reserves the right to award
contracts to consultants and other contractors to perform other work at the
Project Site which Contractor is not under any obligation to perform, provided
that such other contractors and consultants shall
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not unreasonably interfere with the performance of the Work by Contractor.
Contractor agrees to cooperate with any such consultants and other contractors
to the extent possible without unreasonable disruption of the Work.
18.2 Owner's Right to Access Work. Contractor shall at all times provide Owner
and its authorized employees, agents and representatives complete opportunity
and facilities for observation of the Work and materials stored at the Project
Site or at locations off the Project Site or in the course of fabrication by
Contractor and Subcontractors. Contractor shall provide safe and proper
facilities for such access and observation. Contractor shall abide by such
reasonable observation procedures and requirements as may be established by
Owner. No observation performed or failed to be performed by Owner or other
parties permitted to make observations hereunder shall be a waiver of any of
Contractor's obligations hereunder or be construed as any acceptance of the Work
or any part thereof
18.3 Wetlands. Contractor shall ensure that the construction of the Project
complies with all Wetlands Laws (the "Wetlands Requirements"). Contractor shall
prepare all permit applications and secure approvals for conducting the Work in
Wetlands areas from all governmental authorities with jurisdiction over Wetlands
Requirements along the Projected Pipeline Rights-of-Way. Owner shall use Best
Efforts to assist Contractor in securing all required approvals for the Work in
Wetlands areas. Contractor shall be responsible for all required Wetlands damage
mitigation and remediation conducted at or along the pipeline construction route
and the Projected Pipeline Rights-of-Way. Owner shall be responsible for all
Wetlands development or offsets that are remote from the actual Project Site and
are required by a governmental authority. Owner shall promptly comply, in a
manner that does not delay the Work, with all of Owner's obligations hereunder
necessary to obtain approval to conduct the Work in Wetlands areas.
Contractor shall use Best Efforts to select construction techniques that
minimize or mitigate damage to Wetlands areas and that minimize the requirement
for off-site (away from the Projected Pipeline Rights-of-Way) Wetlands
development or offset.
18.4 Additional Work. Fina may undertake to employ other workers, award other
contracts, or utilize its own workers (collectively "Fina Workers") to perform
additional work anywhere in the vicinity of the Work near Fina's Port Arthur,
Texas, refinery and Plant. Contractor and Subcontractors shall fully cooperate
with such Fina Workers and coordinate Work hereunder with such additional work
of Fina Workers, as may be required. Fina may also designate from time to time
other architects, engineers, consultants and professionals to administer,
coordinate or otherwise participate in part or all of the Work at the Plant.
Contractor and Subcontractors will cooperate with these other professionals as
required by the Drawings and Specifications and to the extent necessary to
ensure safe start up of the Owner's metering facility at the Plant.
SECTION 19 MISCELLANEOUS PROVISIONS
19.1 Entire Agreement. The Contract Documents together with the letter agreement
executed by the parties dated the date hereof, constitute the entire agreement
between Owner and
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Contractor relating to the Work and supersede all prior agreements and
understandings relating to the subject matter thereof including Agreement No.
PDC-3430 and Work Authorization No. 1 to Agreement No. PDC-3430 entered into
between Eagleton Engineering Company and TE Products Pipeline Company, Limited
Partnership.
19.2 Controlling Law. The Contract Documents shall be governed by and construed
in accordance with the laws of the State of Texas.
19.3 Non-Waiver. No failure to exercise, and no delay in exercising any right,
power, or remedy under the Contract Documents by either Party shall impair any
right, power, or remedy which such Party may have, nor shall such failure or
delay be construed to be a waiver of any such rights, powers, or remedies, or an
acquiescence in any breach or default under the Contract Documents, nor shall
any waiver of any breach or default be deemed a waiver of any default or breach
subsequently occurring under the Contract Documents.
19.4 Non-Invalidity. In case any one or more of the provisions contained in the
Contract Documents should be invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions contained
in the Contract Documents shall not in any way be affected or impaired thereby.
19.5 Notices. All approvals, notices and demands required hereunder, and all
other communications relating to a breach or default under the Contract
Documents or a violation of any Applicable Laws, shall be in writing and shall
be personally delivered, sent by expedited delivery service, mailed by first
class or certified mail, return receipt requested, postage prepaid, or delivered
by prepaid telecopy, to the Party to be served at the address to which such
Party may from time to time notify the other Party in writing in accordance
herewith. All such approvals, notices, demands, and other communications shall
be effective when received.
19.6 Undefined Terms. In the event a term or phrase is not defined in this
Agreement, such term or phrase shall have the meaning generally given to it in
the construction industry.
19.7 Attorneys Fees. In the event any legal action or proceeding between Owner
and Contractor arises from or as a result of the Contract Documents, the losing
Party shall pay to the prevailing Party the latter's reasonable attorneys' fees
and expenses incurred in any such action or proceeding.
19.8 Assignment. Owner has entered into this Agreement with Contractor in
reliance upon the unique knowledge, experience and expertise of Contractor in
the construction of the Project and performance of the Work. Contractor shall
not transfer, assign or otherwise convey its interest in this Agreement without
the prior written consent of Owner, which consent may be withheld in Owner's
sole discretion, and, subject to Section 10, agrees that Owner shall not be
required to accept performance under this Agreement from any Person other than
Contractor, including, without limitation, any Trustee of Contractor appointed
under the Bankruptcy Reform Act of 1978, 11 U.S.C. Section 101 et. seq., as
amended, and any assignee of such Trustee.
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19.9 Contractor Authority. Contractor represents to Owner that (i) Contractor is
duly incorporated and legally existing under the laws of the State of Texas and
is duly qualified to do business in the State of Texas, (ii) Contractor has all
requisite power and all governmental certificates of authority, licenses,
permits, qualifications and other documentation to perform its obligations under
this Agreement, and (iii) the execution and delivery by Contractor of this
Agreement and the performance of its obligations hereunder have been authorized
by all necessary corporate action on its behalf.
19.10 Owner Authority. Owner represents to Contractor that (i) Owner is duly
formed and legally existing under the laws of the State of Delaware and is duly
qualified to do business in the State of Texas, (ii) Owner has all requisite
power and all governmental certificates of authority, licenses, permits,
qualifications and other documentation to perform its obligations under this
Agreement, and (iii) the execution and delivery by Owner of this Agreement and
the performance of its obligations hereunder have been authorized by all
necessary action on its behalf.
19.11 Exhibits. Each exhibit, appendix and schedule attached to this Agreement
or attached to any exhibit or appendix attached hereto is made a part hereof for
all purposes.
19.12 Waiver of Jury Trial. In any action brought in any court by either Party
concerning this Agreement, a right to a trial before a jury shall be waived.
IN WITNESS WHEREOF, Owner and Contractor have respectively executed
this Agreement in multiple counterparts, effective as of the day and year stated
on the first page hereof.
OWNER: CONTRACTOR:
TE PRODUCTS PIPELINE COMPANY, EAGLETON ENGINEERING COMPANY,
LIMITED PARTNERSHIP, a Texas corporation
a Delaware limited partnership
By: Texas Eastern Products Pipeline Company By: /s/ C. D. CAGLE
General Partner --------------------------------
Name: C. D. Cagle
------------------------------
By: /s/ O. HORTON CUNINGHAM Title: President
------------------------------------ -----------------------------
Name: O. Horton Cuningham
----------------------------------
Title: Vice President
---------------------------------
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APPENDIX A
TO
AGREEMENT BETWEEN OWNER AND CONTRACTOR
DEFINITIONS
"Applicable Laws" means all federal, state, county, city, and municipal laws,
codes, statutes, rules, regulations, permits and orders applicable to the design
and construction of the Pipeline Systems or the performance of the Work,
including without limitation (i) Railroad Commission of Texas Pipeline Safety
Rules, Part 195, "Transportation of Hazardous Liquids by Pipeline", (ii) the
Code of Federal Regulations, Title 49, Part 195, "Transportation of Hazardous
Liquids by Pipeline" and (iii) all other applicable federal, state, county, city
and municipal environmental, waste and hazardous material laws, codes, statutes,
rules, regulations and orders.
"Application for Payment" has the meaning given in subsection 11.1.
"Best Efforts" shall mean commercially reasonable good faith efforts under the
circumstances, without any requirements that any party be obligated (a) to pay
any penalty, premium or undue consideration to obtain any waiver, consent,
approval or election, (b) to modify its rights or obligations under any existing
agreement, lease or other contract, or (c) to violate any Applicable Laws.
"Business Day" shall mean any day on which federal commercial banks are open for
business for the purpose of sending and receiving wire transfers in Houston,
Texas.
"Change Order" has the meaning given in subsection 6.4.
"Change Order Proposal" has the meaning given in subsection 6.4.
"Change Work" has the meaning given in subsection 6.4.
"Claim" has the meaning given in subsection 15.1.
"Commission" means the Texas Railroad Commission or any successor Texas
governmental body or agency having regulatory oversight of a Common Carrier.
"Completion Requirements" has the meaning given in subsection 3.4.
"Contract Documents" has the meaning given in subsection 4. 1.
"Contract Sum" has the meaning given in subsection 9.1.
"Contractor" has the meaning given in the preamble.
"Contractor Indemnified Party" has the meaning in subsection 15.2.
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"Data Books" means the design and construction data books and the material and
equipment data books provided by Contractor to Owner pursuant to subsection
7.14.
"Drawings and Specifications" means the final drawings, diagrams, plans and
specifications for the construction and installation of the Project prepared by
Contractor in accordance with subsection 4.2.
"Ethylene Pipeline" has the meaning given in subsection 3.2.
"Fina" shall mean Fina Oil and Chemical Company.
"Final Completion Date" has the meaning given in subsection 8.2.
"Force Majeure" shall mean acts of God, (except as otherwise provided in
subsection 8.4(c) of the Agreement); strikes, lockouts, or other industrial
disturbances, which by the exercise of reasonable diligence could not have been
avoided; acts of public enemies; wars; blockades; insurrections; riots; fires;
floods; washouts; necessity for compliance with any court order, Applicable
Laws, regulation or ordinance promulgated by any governmental authority having
jurisdiction over the parties, or jurisdiction over any person supplying labor,
material, or any item or items necessary to the performance of the Work; civil
disturbances, explosions or any other cause of the kind or type herein recited
beyond the reasonable control of Contractor. Settlement of strikes, lockouts or
other industrial disturbances shall be entirely within the discretion of the
party having the difficulty.
"Interest" means (i) the prime rate as published in the Wall Street Journal plus
three percent or if such rate is unlawful the highest lawful rate permitted.
"Materials" has the meaning given in subsection 6. 1.
"Mont Belvieu South Terminal" means Owner's terminal facility located in Mont
Belvieu, Texas.
"Natural Gasoline Pipeline" has the meaning given in subsection 3.2.
"Owner" has the meaning given in the preamble.
"Owner Delay" has the meaning given in subsection 8.4.
"Owner Indemnified Party" has the meaning given in Section 15.
"Parent Guarantor" has the meaning given in subsection 14.6.
"Parent Guaranty" has the meaning given in subsection 14.6.
"Parties" means Owner and Contractor.
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"Party" means Owner or Contractor.
"Performance Requirements" has the meaning given in subsection 3.3.
"Person" means any individual, firm, partnership, corporation, company, joint
venture, trust, unincorporated organization or other entity, association or
organization, whether or not constituting a juridical entity under Applicable
Laws.
"Pipeline Rights-of-Way" means the Projected Pipeline Rights-of-Way as the same
may be modified in accordance with subsection 5. 1.
"Pipeline Systems" or "Pipeline Facilities" has the meaning given in subsection
3.2.
"Port Arthur Plant" means the refinery and related facilities owned by Fina Oil
and Chemical Company and BASF Corporation located in Port Arthur, Texas.
"Project" has the meaning given in subsection 3.2.
"Project Schedule" has the meaning given in subsection 7.2.
"Project Site" means all of the land in, on or under which any of the Pipeline
Systems are to be located, and all land adjacent thereto used in the performance
of the Work.
"Projected Final Completion Date" has the meaning given in subsection 8.2.
"Projected Pipeline Rights-of-Way" has the meaning given in subsection 5. 1(a).
"Proposal Request" has the meaning given in subsection 6.4.
"Propylene Pipeline" has the meaning given in subsection 3.2.
"Rights-of-Way" has the meaning given to it in subsection 5.1(a).
"Rights-of-Way Costs and Expense" shall mean all monetary consideration paid for
easements and permits, including but not limited to subordination agreements,
damages, and all condemnation awards, expenses and costs, including attorney's
fees and condemnation appraisals.
"Rod" shall mean 16.5 feet.
"Services" has the meaning given in subsection 6. 1.
"Subcontract" has the meaning given in subsection 10.2.
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"Subcontractor" means any subcontractor engaged by Contractor in accordance with
this Agreement.
"Unit Prices" has the meaning given in subsection 9.2.
"Wetlands" means any lands deemed wetlands under any Wetlands Laws.
"Wetlands Laws" means the Clean Water Act, the Rivers and Harbors Act, or the
Federal Manual for Identifying and Delineating Jurisdictional Wetlands
(Delineation Manual), all regulations issued in connection with such statutes
and manuals, and all amendments or replacements of the foregoing.
"Wetlands Requirements" has the meaning given in subsection 18.3.
"Work" has the meaning given in subsection 6. 1.
"Work Product" has the meaning given in subsection 17. 1.
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LIST OF EXHIBITS
<TABLE>
<S> <C> <C>
Exhibit 3.1 Design and Engineering Services
Exhibit 3.2(a) Pipeline Systems Route
Exhibit 3.2(b-1) Propylene Piping Flow Diagram
Exhibit 3.2(b-2) Ethylene Piping Flow Diagram
Exhibit 3.2(b-3) Natural Gasoline Piping Flow Diagram
Exhibit 3.2(c-1) General Isometric Layout
Exhibit 3.2(c-2) Propylene Isometric Layout
Exhibit 3.2(c-3) Ethylene Isometric Layout
Exhibit 3.2(c-4) Natural Gasoline Isometric Layout
Exhibit 3.2(d) Project Design Requirements
Exhibit 3.4(a) Testing Procedures and Requirements
Exhibit 5.2 Form of Easement
Exhibit 6.4(a) Wage Rate Schedule
Exhibit 6.4(b) Written Modification Form
Exhibit 7.2(e-1) Reporting Requirements
Exhibit 7.2(e-2) Measurement of Percentage Completion
Exhibit 8.3(d) Calculations of Liquidated Damages and Bonuses
Exhibit 9.2 Unit Prices
Exhibit 11.1 Schedule of Monthly Payments
Exhibit 12.2(a) Payment Form
Exhibit 12.2(b) Waiver Form
Exhibit 14.6 Parent Guaranty
</TABLE>
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<PAGE> 1
EXHIBIT 10.22
SERVICES AND TRANSPORTATION AGREEMENT
BETWEEN
TE PRODUCTS PIPELINE COMPANY, LIMITED PARTNERSHIP
AND
FINA OIL AND CHEMICAL COMPANY
BASF CORPORATION
BASF FINA PETROCHEMICALS LIMITED PARTNERSHIP
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 1 DEFINED TERMS AND INTERPRETATIONS........... 2
1.1 Defined Terms............................... 2
1.2 References.................................. 2
1.3 Interpretation.............................. 3
SECTION 2 PIPELINE FACILITIES......................... 4
2.1 Design, Engineering and Construction........ 4
2.2 Receipt and Delivery Facilities............. 4
2.3 Common Carrier Facilities................... 6
2.4 Authorizations and Rights-of-Way............ 6
2.5 Changes in Design, Engineering and
Construction.............................. 7
2.6 Commencement Date........................... 7
SECTION 3 OPERATION OF THE PIPELINE FACILITIES........ 8
3.1 Operation and Maintenance................... 8
3.2 Utilities................................... 8
3.3 Product Specifications...................... 9
3.4 Volume and Quality of Product............... 11
3.5 Title to Product............................ 13
3.6 Contracting Shippers' Indemnity............. 13
3.7 TEPPCO's Indemnity.......................... 13
3.8 Notice of Claim............................. 14
3.9 Line Fill................................... 14
SECTION 4 TRANSPORTATION CHARGES...................... 14
4.1 Transportation Charges...................... 14
4.2 Increases and Decreases to Transportation
Charges................................... 15
4.3 Improvements Required by Law................ 16
4.4 Implementation of Changes to
Transportation Charges.................... 17
4.5 Tariff...................................... 18
4.6 Changes to the Transportation Charges and
Deficiency Rates following the end of
the Initial Term.......................... 18
SECTION 5 GUARANTEED VOLUMES AND DEFICIENCY CHARGES... 19
5.1 Guaranteed Monthly Volume................... 19
5.2 Deficiency Payments......................... 19
5.3 Example Calculations........................ 21
SECTION 6 BILLING AND PAYMENT......................... 21
6.1 Invoice..................................... 21
6.2 Payments.................................... 22
6.3 Late Payments............................... 22
6.4 Remedies.................................... 23
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 7 MEASUREMENT AND INVENTORY ACCOUNTING........ 24
7.1 Measurement................................. 24
7.2 Testing of Measuring Equipment.............. 24
7.3 Records..................................... 24
7.4 Common Carrier Reports...................... 24
SECTION 8 FORCE MAJEURE AND ALLOCATIONS............... 25
8.1 TEPPCO Force Majeure........................ 25
8.2 Abatement of Guaranteed Monthly Volume...... 25
8.3 Contracting Shippers' Force Majeure.,,,,.... 27
8.4 Allocation.................................. 28
8.5 Disposal of Product......................... 28
SECTION 9 TERM........................................ 29
9.1 Term........................................ 29
9.2 Termination................................. 29
SECTION 10 LAWS........................................ 30
SECTION 11 DEFAULT..................................... 31
SECTION 12 TAXES....................................... 32
12.1 TEPPCO Taxes................................ 32
12.2 Contracting Shippers' Taxes................. 33
SECTION 13 DISPUTES.................................... 33
13.1 Dispute Negotiations........................ 33
13.2 Notice of Arbitration....................... 34
13.3 Payment of Expenses......................... 38
SECTION 14 GENERAL PROVISIONS.......................... 39
14.1 Further Assurances.......................... 39
14.2 Notices..................................... 39
14.3 Entire Agreement............................ 40
14.4 Assignment.................................. 41
14.5 Enforceability by the Parties............... 42
14.6 Amendments.................................. 42
14.7 Execution in Counterparts................... 42
14.8 Waiver...................................... 42
14.9 Unenforceability of Provisions.............. 42
14.10 Third Party Beneficiary..................... 43
14.11 Damages..................................... 43
14.12 Governing Law............................... 43
14.13 Venue....................................... 44
</TABLE>
<PAGE> 4
List of Appendix and Exhibits
Appendix A Definitions
Exhibit 2.1 Project Management for Design, Engineering
and Construction
Exhibit 2.2 Mont Belvieu Facilities
Exhibit 3.1 Operation and Maintenance
Exhibit 5.3 Example Calculations
<PAGE> 5
SERVICES AND TRANSPORTATION AGREEMENT
THIS SERVICES AND TRANSPORTATION AGREEMENT ("Agreement") is made and
entered into this 9th day of February, 1999, by and between TE PRODUCTS
PIPELINE COMPANY, LIMITED PARTNERSHIP, a Delaware limited partnership
("TEPPCO"); and BASF Fina Petrochemicals Limited Partnership ("LP"), a Texas
limited partnership; BASF Corporation, a Delaware corporation ("BASF"); and
Fina Oil and Chemical Company, a Delaware corporation ("Fina"); (Fina, BASF and
LP are individually and collectively sometimes referred to as "Contracting
Shippers");
WITNESSETH:
WHEREAS, Fina and BASF are constructing a petrochemical Plant adjacent
to Fina's refinery property located in or near Port Arthur, Texas;
WHEREAS, at such time as the Plant becomes operational Fina and BASF
will have transportation requirements for the shipments of Ethylene and
Propylene and LP will have transportation requirements for shipments of Natural
Gasoline, between the Plant and Mont Belvieu, Texas;
WHEREAS, TEPPCO, at Contracting Shippers request, is willing to
undertake the design, engineering, construction, operation and maintenance of
three (3) 12.75 inch outside diameter pipelines from Mont Belvieu, Texas to the
Plant for the purpose of transporting Ethylene, Propylene and Natural Gasoline
for Contracting Shippers subject to Contracting Shippers committing to ship
through such Pipeline Facilities a guaranteed volume of Products upon terms and
<PAGE> 6
conditions set forth in this Agreement and the Tariff covering such
transportation movements;
WHEREAS, the three pipelines will be operated by TEPPCO as common
carrier facilities and as a result will offer to provide transportation
services to Third Party shippers in addition to Contracting Shippers under
terms and conditions set forth in the Tariff.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, and of other good and valuable
consideration the receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound hereby, TEPPCO, Fina, BASF and LP hereby agree as
follows:
SECTION 1
DEFINED TERMS; INTERPRETATION
1.1 Defined Terms. The terms defined in Appendix A, attached hereto
and incorporated herein shall, when used in this Agreement, have their
respective meanings specified in Appendix A, with each such definition of a
term being equally applicable to the singular and the plural forms of the term
so defined.
1.2 References. All references in this Agreement to a "Section,"
"subsection" or "Exhibit" shall be to a Section, subsection or Exhibit of this
Agreement, unless the context requires otherwise. Unless the context otherwise
requires, the words "this Agreement," "hereof," "hereunder," "herein,"
"hereby," or words of similar import shall refer to this Agreement as a whole
2
<PAGE> 7
and not to a particular Section, subsection, Exhibit, clause or other
subdivision hereof. Whenever the context requires, the words used herein shall
include the masculine, feminine and neuter gender, and the singular and the
plural.
1.3 Interpretation. It is expressly agreed that this Agreement shall
not be construed against any Party, and no consideration shall be given or
presumption made, on the basis of who drafted this Agreement or any particular
provision hereof or who supplied the form of this Agreement. Each Party agrees
that this Agreement has been purposefully drawn and correctly reflects its
understanding of the transaction that this Agreement contemplates. In
construing this Agreement:
(a) An example shall not be construed to limit, expressly or
by implication, the matter it illustrates;
(b) The word "includes" and its derivatives means "includes,
but is not limited to" and corresponding derivative
expressions;
(c) A defined term has its defined meaning throughout this
Agreement, regardless of whether it appears before or after
the place where it is defined; and
(d) The headings and titles herein are for convenience only and
shall have no significance in the interpretation hereof.
3
<PAGE> 8
SECTION 2
PIPELINE FACILITIES
2.1 Design, Engineering and Construction. TEPPCO shall, at its
sole cost and expense, provide or cause to be provided, the Pipeline
Facilities. Moreover, TEPPCO shall, at its sole cost and expense, design,
engineer, construct and install or cause to be designed, engineered,
constructed and installed, in a safe and environmentally sound manner, the
Pipeline Facilities capable of receiving and transporting the Products. The
design, engineering, construction and installation of the Pipeline Facilities
shall be performed in accordance with the provisions of Exhibit 2.1.
2.2 Receipt and Delivery Facilities.
(a) TEPPCO shall incur non-reimbursable expenses at Mont
Belvieu of up to one million dollars for Mont Belvieu Work approved by
Contracting Shippers to tie Receipt and Delivery Facilities into the Mont
Belvieu Terminal. Exhibit 2.2 sets forth a diagram of TEPPCO's Mont Belvieu
Terminal facilities into which the Receipt and Delivery Facilities will be
tied. Any expenditures incurred by TEPPCO in excess of one million dollars for
such Mont Belvieu Work will be for Contracting Shippers' account; provided,
prior written approval is given by Contracting Shippers' to incur such excess
expenditures. Any such reimbursable expenditures shall not include any mark-up
for TEPPCO's profit, and shall be only those costs incurred by TEPPCO that are
associated with the Mont Belvieu Work. Reimbursement of such excess costs by
Contracting Shippers to TEPPCO shall be, at Contracting Shippers' sole
election, either
4
<PAGE> 9
through (i) a surcharge, as determined by TEPPCO, to the Transportation
Charges, or (ii) a direct cash payment from Contracting Shippers to TEPPCO. If
Contracting Shippers do not unanimously agree on the applicable method of
reimbursement then the methodology set forth in item (i) directly above shall
be deemed elected by all Contracting Shippers. Any surcharge determination by
TEPPCO shall be calculated by taking (a) the costs incurred by TEPPCO, as
described above, times (b) a factor of 0.14 with the product of (a) and (b)
being divided by the applicable, annualized Guaranteed Monthly Volume. The
applicable calculation of the surcharge for Natural Gasoline will be as set
forth in the previous sentence and the applicable calculation of the surcharge
for Ethylene and Propylene will be the value from the previous sentence
multiplied by 100. Requests by Contracting Shippers for Mont Belvieu Work shall
be made in accordance with Section 5.4 of Exhibit 2.1.
(b) Contracting Shippers shall each have the right, at their expense,
to examine the books and records of TEPPCO, during normal business hours, to
the extent necessary to verify the accuracy of any reimbursable expenses for
Mont Belvieu Work as described in Section 2.2(a). TEPPCO agrees to keep its
records and books of account in accordance with generally-accepted accounting
principals consistently applied. Contracting Shippers agree with TEPPCO that
Contracting Shippers' sole and exclusive remedy for any error or mistake made
by TEPPCO in computing such reimbursable expense shall be the recomputing of
such reimbursable expenses.
5
<PAGE> 10
2.3 Common Carrier Facilities. The Pipeline Facilities will be common
carrier facilities. TEPPCO's obligations and duties as a common carrier to
handle and transport volumes of Products received from Contracting Shippers as
well as its obligations and duties to all shippers which tender Products, shall
be determined pursuant to the Tariff filed by TEPPCO with the Commission;
provided, however, this understanding shall not be deemed to lessen or impair
any of the Parties' obligations hereunder.
2.4 Authorizations and Rights-of-Way. TEPPCO shall apply for and use
Best Efforts to secure from proper persons and authorities all rights-of-way
(whether from private parties or any governmental agency or authority),
licenses, permits, property rights of ingress and egress, certificates,
servitudes, judgments, orders, rulings and other such authorizations
(collectively "Authorizations") as may be required for the purpose of
providing, locating, constructing, operating and maintaining the Pipeline
Facilities. Contracting Shippers each agree to cooperate with TEPPCO with
respect to any reasonable requests for assistance in seeking such
Authorizations and the granting and giving to TEPPCO any easements, licenses
and rights for TEPPCO to construct, maintain and operate any portion of the
Pipeline Facilities on property owned by or under the control of (i) Fina, (ii)
LP, and (iii) any Affiliates of either, for a total consideration of one
hundred dollars ($100.00). In that regard, the basic terms of any easement
granted by Fina, LP or their Affiliates pursuant to this Agreement shall
include that grantor shall not have the right to relocate the pipeline and
6
<PAGE> 11
appurtenances except upon consent of grantee, that grantor shall provide
grantee a direct and reasonably convenient access to the easement area and
grantor represents that the easement is capable of being used for its intended
purpose. The foregoing terms shall be in addition to such other reasonable and
customary easement provisions.
2.5 Changes in Design, Engineering and Construction. The design,
engineering and construction of the Pipeline Facilities shall comply with all
Laws and the provisions of Exhibit 2.1. Contracting Shippers shall have the
right to request changes in the design, engineering and construction of the
Pipeline Facilities, provided such changes are given in accordance with the
provisions of Exhibit 2.1. Any increases or decreases in the total costs and
expenses to design, engineer and construct the Pipeline Facilities due to such
changes requested by Contracting Shippers shall, in accordance with Exhibit
2.1, be properly reflected in increases or decreases to the Initial
Transportation Charges, unless Contracting Shippers elect to make a lump sum
settlement with TEPPCO.
2.6 Commencement Date. The Commencement Date of this Agreement shall
be the later of (a) November 1, 2000, or (b) the first day of the Month
following the date TEPPCO notifies Contracting Shippers in writing that all
necessary testing of the Pipeline Facilities has been completed in accordance
with Exhibit 2.1, and the Pipeline Facilities are ready to commence service
with respect to the transportation of Products hereunder on a continuous basis.
As a matter of accommodation to Contracting Shippers and
7
<PAGE> 12
subject to the terms and conditions of this Agreement, TEPPCO will notify
Contracting Shippers of the estimated date that TEPPCO will be ready to
commence service approximately six (6) Months prior thereto. Thereafter, TEPPCO
will advise Contracting Shippers each Month of any changes as to such estimated
date. After the Initial Contract Year commences, the Parties agree to enter
into a written memorandum supplemental to this Agreement specifying the
Commencement Date.
SECTION 3
OPERATION OF THE PIPELINE FACILITIES
3.1 Operation and Maintenance. Subject to the terms and conditions of
this Agreement, beginning as of the Commencement Date and continuing throughout
the Initial Term and any subsequent Contract Years following the Initial Term,
TEPPCO, through its General Partner, shall, at its sole cost and expense,
operate and maintain the Pipeline Facilities in accordance with industry-
accepted practices and procedures in the operation of common carrier facilities
and in accordance with all applicable Laws and the provisions of Exhibit 3.1.
3.2 Utilities. TEPPCO shall furnish sufficient and adequately trained
personnel and material, including heat, light and power and other utilities and
services of any nature whatsoever used, consumed or needed to ensure TEPPCO's
safe and efficient receipt, transportation and delivery of Product as required
hereunder. Notwithstanding the immediately preceding sentence and
8
<PAGE> 13
to the extent permitted under applicable Laws, Contracting Shippers shall
provide certain utilities and services as described in Attachment 2.2(b) to
Exhibit 2.1 attached hereto, to TEPPCO at the Pipeline System's Port Arthur
delivery and receipt facility at a nominal cost to TEPPCO. Unless agreed
otherwise by the Parties, Contracting Shippers shall be responsible for
providing sufficient pressure to move the Products from the Plant to the Mont
Belvieu Terminal in accordance with the process flow diagrams set out in
Attachment 2.3 to Exhibit 2.1 attached hereto.
3.3 Product Specifications.
(a) Product tendered by Contracting Shippers for
transportation through the Pipeline Facilities shall meet the Product
specifications set forth in Attachment 2.2(b) to Exhibit 2.1 attached hereto.
Contracting Shippers' Product transported through the Pipeline Facilities may
be intermixed with product of Third Party shippers in the Pipeline Facilities,
which product of Third Party shippers shall also meet the specifications set
forth in Attachment 2.2(b) to Exhibit 2.1 attached hereto. Contracting
Shippers' Product shall be subject to changes in quality and other
characteristics as may result from such intermixing. Contracting Shippers and
any other shipper shall not be entitled to receive the identical Product
tendered by it to TEPPCO under the Tariff, although TEPPCO at its sole
discretion may be able, from time to time, to handle Contracting Shippers'
Products on a segregated basis. Delivery of Products by TEPPCO to Fina, BASF
and/or LP and other Third Party shippers shall be out of common stock in
TEPPCO's
9
<PAGE> 14
common carrier pipeline system and shall meet the Product specifications as set
forth in Attachment 2.2(b) to Exhibit 2.1. Contracting Shippers shall not be
responsible or liable for any Products delivered to TEPPCO by any Third Party
that fail to meet the specifications set out in Attachment 2.2(b) to Exhibit
2.1.
(b) TEPPCO will accept Product for transportation hereunder
that does not meet the specifications in Attachment 2.2(b) to Exhibit 2.1
provided that:
(i) Fina, BASF or LP, as the case may be, gives TEPPCO
acceptable timely notice of its desire to have
off-specification Product transported by TEPPCO
hereunder and full particulars of the specification
failures;
(ii) Such off-specification Product will not harm, in
TEPPCO's good faith judgment, the Pipeline
Facilities or any other facilities provided by
TEPPCO or Third Parties, or be deleterious to any
future shipments of on-specification Products;
(iii) Fina, BASF or LP, as the case may be, can
demonstrate to TEPPCO's satisfaction that they have
adequate facilities or have access to adequate
facilities at the Delivery Point to handle such
off-specification Product; and
(iv) The size of the proposed shipment of off-
specification Product meets TEPPCO's
10
<PAGE> 15
requirements for a segregated batch shipment.
The provisions of Section 3.4 below shall not be applicable to any shipments of
off-specification Product made in accordance with this Section 3.3(b).
Additionally, TEPPCO shall not have any liability of any nature to any Third
Party pertaining in any way to the quality, merchantability or fitness of
Fina's, BASF's or LP's respective off-specification Product, which TEPPCO
transports and FINA, BASF AND LP SHALL INDEMNIFY AND HOLD TEPPCO HARMLESS FOR
ANY CLAIM OR LOSS RESULTING THEREFROM.
3.4 Volume and Quality of Product. TEPPCO agrees to deliver, in
accordance with reasonable industry practices and Exhibit 3.1, Product in the
same volume and of the same quality as the Product delivered to it for
transportation and handling hereunder. TEPPCO shall take all action and
inspection and install equipment and facilities deemed necessary by TEPPCO to
reasonably insure such volume and quality obligations. In the event of any
physical loss of or damage to the Product while being transported hereunder by
TEPPCO, TEPPCO shall immediately or as soon as practicable upon discovery
notify Fina, BASF or LP, as the case may be, of the Product loss or damage, and
TEPPCO shall, at its option, either (a) make appropriate reimbursement for the
Product lost or damaged based on the following:
(i) Propylene - the most recent published United States polymer
grade propylene current spot price average posted in the
Chemical Marketing Associates, Inc. Monomers Report, prior to
the date of the loss or
11
<PAGE> 16
damage.
(ii) Ethylene - the most recent published United States
current spot price average for ethylene posted in
the Chemical Marketing Associates, Inc. Monomers
Report, prior to the date of the loss or damage.
(iii) Natural Gasoline - the current Mont Belvieu, Texas
spot average price for natural gasoline as
published in Platt's Oilgram Price Report on the
date the loss or damage occurs or the most recent
published Mont Belvieu, Texas spot average price
for natural gasoline prior to such date of the loss
or damage if there is no publication of Platt's
Oilgram Price Report on the date of the loss or
damage,
or (b) replace such Product in kind at the Delivery Point. The aforesaid
adjustment for the lost or damaged Product or the replacement of such lost or
damaged Product, as the case may be, shall be made by TEPPCO not more than ten
(10) calendar days following the date TEPPCO becomes aware that such loss or
damage occurred. Notwithstanding anything in this Agreement to the contrary,
the aforesaid adjustment for the loss of or damage to Product or the
replacement of such lost or damaged Product shall be Fina's, BASF's or LP's
sole and exclusive remedy for any Claim based on the physical loss of or damage
to Product while being transported by TEPPCO. Subject to the provisions of
Exhibit 3.1, any loss of Products due to measurement inaccuracies shall be the
12
<PAGE> 17
sole responsibility of Fina, BASF and LP, as the case may be, and TEPPCO shall
not have any liability for any loss of Products due to measurement
inaccuracies.
3.5 Title to Product. Fina, BASF and LP shall retain title to their
respective Products delivered by each to TEPPCO for transportation hereunder
throughout the transportation of such Product from the Origin Point to the
Delivery Point. Fina, BASF and LP shall be deemed to be in control and
possession of their respective Products prior to the time such Product is
delivered to TEPPCO at the Origin Point and after such Product is delivered to
Fina, BASF or LP, as the case may be, at the Delivery Point, and TEPPCO shall
be deemed to be in control and possession of the Product from the time the
Product is delivered to TEPPCO at the Origin Point until the Product is
delivered to Fina, BASF or LP, as the case maybe, at the Delivery Point.
3.6 Contracting Shippers' Indemnity. FINA, BASF AND LP SHALL EACH
INDEMNIFY, DEFEND AND HOLD HARMLESS TEPPCO, ITS GENERAL PARTNER AND THEIR
RESPECTIVE OFFICERS AND EMPLOYEES FROM AND AGAINST ANY AND ALL CLAIMS AND
LOSSES, INCLUDING ENVIRONMENTAL LIABILITIES ARISING OUT OF ACTS, OMISSIONS OR
EVENTS OCCURRING DURING FINA'S, BASF'S OR LP'S RESPECTIVE POSSESSION AND
CONTROL OF PRODUCT HEREUNDER AS SET FORTH IN SECTION 3.5. INDEMNIFICATION UNDER
THIS SECTION 3.6 SHALL NOT APPLY AS TO ANY CLAIM OR LOSS THAT ARISES OUT OF THE
SOLE NEGLIGENCE, GROSS NEGLIGENCE OR WILFUL MISCONDUCT OF TEPPCO.
3.7 TEPPCO's Indemnity. TEPPCO SHALL INDEMNIFY, DEFEND AND
13
<PAGE> 18
HOLD HARMLESS FINA, BASF AND LP, AND THEIR RESPECTIVE OFFICERS AND EMPLOYEES
FROM AND AGAINST ANY AND ALL CLAIMS AND LOSSES, INCLUDING ENVIRONMENTAL
LIABILITIES ARISING OUT OF ACTS, OMISSIONS OR EVENTS OCCURRING DURING TEPPCO'S
POSSESSION AND CONTROL OF THEIR RESPECTIVE PRODUCTS HEREUNDER AS SET FORTH IN
SECTION 3.5. INDEMNIFICATION UNDER THIS SECTION 3.7 SHALL NOT APPLY AS TO ANY
CLAIM OR LOSS THAT ARISES OUT OF THE SOLE NEGLIGENCE, GROSS NEGLIGENCE OR
WILFUL MISCONDUCT OF FINA, BASF OR LP, AS THE CASE MAY BE.
3.8 Notice of Claim. Each Party agrees to give the other prompt
written notice of any Claim brought against it that is subject to the
provisions of this Agreement.
3.9 Line Fill. Contracting Shippers shall provide the initial line
fill of Natural Gasoline, Ethylene and Propylene for the Pipeline Facilities,
as more specifically described in Exhibit 2.1.
SECTION 4
TRANSPORTATION CHARGES
4.1 Transportation Charges. As compensation for TEPPCO's
transportation of Product from the Origin Point to the Delivery Point, which
compensation shall be TEPPCO's sole compensation for the services described in
Exhibit 3.1, Contracting Shippers agree to pay TEPPCO the following
Transportation Charges:
(i) On all Barrels of Natural Gasoline delivered to Contracting
Shippers at a Delivery Point,
14
<PAGE> 19
Contracting Shippers shall pay a Transportation
Charge of $0.1190 (11.9(cent)) per Barrel;
(ii) On all quantities of Ethylene delivered to
Contracting Shippers at a Delivery Point,
Contracting Shippers shall pay a Transportation
Charge of $0.1189 (11.89(cent)) per 100 Pounds; and
(iii) On all quantities of Propylene delivered to
Contracting Shippers at a Delivery Point,
Contracting Shippers shall pay a Transportation
Charge of $0.1156 (11.56(cent)) per 100 Pounds.
It is understood and agreed by the Parties that prior to the
Commencement Date the above Transportation Charges may be increased or
decreased in amounts to represent any increases or decreases in the costs and
expenses of approved scope changes in the design, engineering and construction
of the Pipeline Facilities. The amounts of any such increases or decreases to
the Initial Transportation Charges shall be determined in accordance with the
provisions of Exhibit 2.1 and Section 2.2 of this Agreement.
4.2 Increases and Decreases to Transportation Charges. Subject to the
other provisions of this Agreement and in addition to any increases or
decreases determined in accordance with Section 2.2, Section 4.1 or Section
4.3, on or before thirty (30) days after the end of the Initial Contract Year
and each Contract Year thereafter, including any extensions of the Initial
Term, the Transportation Charges as described and determined in Section 4.1
shall be increased or decreased based on the following formula:
15
<PAGE> 20
1 + ((A-B)x0.08)=C
---
B
where:
A = The Consumer Price Index for the calendar month immediately
preceding the calendar month in which the Contract Year in
question begins.
B = The Consumer Price Index for the Month of October, 2000.
C = The annual adjustment factor to be applied to the Initial
Transportation Charges.
If during the term of this Agreement the publication of the Consumer Price
Index is discontinued or the methodology or data used to calculate such index
or indices is materially altered, a mutually agreeable index or indices, shall
be selected. If the Parties are unable to select such a substitute index or
indices, such shall be determined pursuant to Section 13.
4.3 Improvements Required by Law. In the event that at any time, and
from time to time, after the Effective Date TEPPCO is required by any Laws not
in effect on the Effective Date, to make improvements to all or a portion of
the Pipeline Facilities or to otherwise incur therefor additional expenses for
public safety, pollution control or any other similar or dissimilar reason,
TEPPCO shall notify Contracting Shippers, as soon as reasonably possible, of
the full particulars of the requirements of such Laws and TEPPCO's good faith
estimate of the cost for compliance with such Laws. Notwithstanding anything
herein to the contrary, TEPPCO, subject to the provisions of this Section 4.3,
may increase the Transportation Charges hereunder to recover all or any portion
of such costs and expenses, of which TEPPCO has previously notified
16
<PAGE> 21
Contracting Shippers, over the useful life of the Pipeline Facilities; provided
that TEPPCO makes a similar adjustment to any Third Party shipper's
transportation charges under the Tariff. TEPPCO shall notify Contracting
Shippers not less than ninety (90) days prior to the implementation of any
increase in the Transportation Charges under this Section 4.3, of the amount of
such increase, and the method of calculating such increase. Contracting
Shippers shall each have the right to dispute any such increase by notifying
TEPPCO, within thirty (30) days after receipt of TEPPCO's notice, of
Contracting Shippers' decision to dispute the amount of such increase and the
Parties shall meet and make a good faith effort to resolve the issue of the
appropriate amount of such increase, prior to TEPPCO implementing such
increase. If Contracting Shippers fail to timely notify TEPPCO of their
individual or collective decision respecting a notified increase, then it shall
be deemed for purposes of this Agreement that Contracting Shippers accept and
approve such increase.
4.4 Implementation of Changes to Transportation Charges. The timing of
the implementation of any adjustments allowed pursuant to Sections 4.2 and 4.3
shall be at the discretion of TEPPCO, but in no event shall such adjustments be
retroactive. Furthermore, TEPPCO at its discretion may implement an increase
for all or any portion of any increase allowed under Section 4.2 or TEPPCO may
elect not to implement any such increases at all. All decreases under Section
4.2 shall be implemented as soon as reasonably practicable under existing Laws.
17
<PAGE> 22
4.5 Tariff. Prior to the Commencement Date, TEPPCO shall file a Tariff
with the Commission and diligently pursue with Contracting Shippers' assistance
its timely commencement, covering the transportation of the Products and
reflecting pertinent charges, rates, terms and conditions of this Agreement.
Each of the Contracting Shippers shall have the right to review the Tariff,
including supplements and successive issues, prior to TEPPCO filing such with
the Commission.
4.6 Changes to the Transportation Charges and Deficiency Rates
following the end of the Initial Term.
(a) At the end of the Initial Term of this Agreement, TEPPCO shall
reduce the then-existing Transportation Charges and Deficiency
Rates for each Product to an amount determined based on the
following formula:
Where:
A = the Initial Transportation Charges for a
Product.
B = the Transportation Charges in effect for a
Product immediately prior to the end of the
Initial Term.
C = the revised Transportation Charge and
revised Deficiency Rate for a Product
effective following the last day of the
Initial Term.
(b) In the event that during the Initial Term the Transportation
Charges are increased pursuant to Section 4.3 then the Parties
shall mutually agree
18
<PAGE> 23
on an additional amount to be reflected in the revised
Transportation Charges determined pursuant to Section 4.6(a)
for such previous adjustment.
(c) Such revised Transportation Charges shall be subject to
increases and decreases in accordance with Sections 4.2 and
4.3 for so long as the Agreement remains in effect after the
Initial Term.
SECTION 5
GUARANTEED VOLUMES AND DEFICIENCY CHARGES
5.1 Guaranteed Monthly Volume. As an inducement to TEPPCO to design,
construct, operate and maintain the Pipeline Facilities, and perform necessary
real estate activities without which inducement TEPPCO would not construct and
operate the Pipeline Facilities, and perform the necessary real estate
activities, Contracting Shippers, subject to the provisions of Section 8,
guaranty, covenant, warrant and represent that during each Contract Year they
will in accordance with the provisions of this Agreement collectively ship or
cause to be shipped and TEPPCO, subject to its obligations as a common carrier
shall accept and transport from the Origin Points to the Delivery Points the
following Guaranteed Monthly Volumes of Products each Month:
<TABLE>
<CAPTION>
Products Guaranteed Monthly Volume
-------- -------------------------
<S> <C>
Natural Gasoline 2,433,334 Barrels
Ethylene 250,000,000 Pounds
Propylene 250,000,000 Pounds
</TABLE>
5.2 Deficiency Payments. (a) If the volume of a Product
19
<PAGE> 24
("Deficient Volume") shipped through the Pipeline Facilities during a Month
("Delivery Month") is less than the Guaranteed Monthly Volume for such Product
as set forth in Section 5.1, Contracting Shippers agree to pay TEPPCO within
thirty (30) days after the end of the Delivery Month a Deficiency Charge in an
amount equal to the difference between the specified Guaranteed Monthly Volume
and the Deficient Volume times the applicable Deficiency Rate set forth below:
<TABLE>
<CAPTION>
Product Deficiency Rate
------- ---------------
<S> <C>
Natural Gasoline $0.1190 per Barrel
Ethylene $0.1189 per 100 Pounds
Propylene $0.1156 per 100 Pounds
</TABLE>
(b) The Deficiency Rates set forth in Section 5.2(a) shall be
increased or decreased in the same amounts as any increases or decreases to the
Transportation Charges for costs and expense for (i) any changes in the design,
engineering or construction of the Pipeline Facilities as provided in Exhibit
2.1, (ii) any Mont Belvieu Work as provided in Section 2.2, and (iii) any
improvements required by Law as provided in Section 4.3.
(c) For purposes of Section 5.2(a) only, the term "shipped"
shall mean all Product actually transported through the Pipeline Facilities
during the Delivery Month, including such product that is shipped or
transported through the Pipeline Facilities for Third Party shippers during the
Delivery Month.
(d) If Contracting Shippers have a Makewhole Volume
Obligation for a Delivery Month, all Excess Product Volumes for the particular
Product (for which the Makewhole Volume Obligation
20
<PAGE> 25
applies) shall be subtracted from the Makewhole Volume Obligation
for such Delivery Month prior to calculating the Deficiency Charge for that
Delivery Month.
(e) If Contracting Shippers do not have a Makewhole Volume
Obligation for a Delivery Month or there is more Excess Product Volumes than
Contracting Shippers' Makewhole Volume Obligation for such Month, then any
unused Excess Product Volume for such Product shall be credited to Contracting
Shippers and shall be subtracted from any Makewhole Volume Obligation that may
occur in any future Month.
(f) Any Deficiency Charges paid by Contracting Shippers shall not
be subject to any form of reimbursement; provided that all or any portion of any
Deficiency Charges that are a result of an accounting error or other mistake
shall be subject to reimbursement.
5.3 Example Calculations. For illustrative purposes only, attached
hereto as Exhibit 5.3 are sample calculations of Deficiency Charges, Makewhole
Volumes and Excess Product Volumes.
SECTION 6
BILLING AND PAYMENT
6.1 Invoice. Unless the Parties agree otherwise, TEPPCO shall submit
invoices to Fina, BASF and LP separately on or about the tenth (10th) day of a
Month. Each such invoice shall list for the preceding Month by Product the
quantity of Product transported during such Month by such Party, the
Transportation Charges and any
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Excess Product Volume credits for such Month and any Deficiency Charges for
such Month. Any Deficiency Charges that cannot be directly attributed to Fina,
BASF or LP for such Month shall be shared equally among Fina, BASF and LP;
provided Fina, BASF and LP do not direct TEPPCO to allocate such Deficiency
Charges otherwise.
6.2 Payments. Fina, BASF and LP shall pay to TEPPCO their respective
invoices within thirty (30) days of the date of such invoices by wire transfer
pursuant to instructions furnished by TEPPCO to Fina, BASF and LP.
6.3 Late Payments. Any amounts not paid when due under Section 6.2
shall bear interest from the date due until paid, as applicable, at a rate
equal to four percent (4%) over the prime interest rate first published each
Month in The Wall Street Journal or if such rate is unlawful, the highest
lawful rate permitted. All obligations to make payments under this Agreement
are absolute and shall not be subject to any right of set-off or counterclaim
by reason of any Claim against the non-owing Party under this Agreement or
otherwise and the Parties hereby waive any such right of set-off or
counterclaim. Furthermore, a dispute as to whether a particular amount is due
shall not excuse non-payment. However, payment of any amount in dispute shall
not constitute a waiver of the paying Party's rights or an admission to the
paying Party's detriment with respect to such disputed amount. Notwithstanding
any provisions to the contrary in this Agreement, in no event shall this
Agreement require the payment or permit the collection or charging of interest
in excess of the maximum amounts legally
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permitted by the applicable usury law. If any such excess of interest is
contracted for, charged or received under or in connection with this Agreement
so that under any circumstances whatsoever the amount of interest contracted
for, charged or received under or in connection with this Agreement exceeds the
maximum amount of interest permitted by such applicable usury law, then (a) the
interest limitations herein shall govern and control; (b) no person or entity
now or hereafter liable for such indebtedness shall be obligated to pay the
amount of such interest to the extent that it is in excess of the maximum
amount of interest permitted by such applicable usury law; (c) such excess
which may have been collected shall, at TEPPCO's election, be either (i)
applied as a credit against any amounts owed under this Agreement or other
agreements, or (ii) refunded to Fina, BASF or LP; and (d) the effective rate of
interest shall be automatically reduced to the maximum lawful contract rate
allowed for this Agreement under such applicable usury law.
6.4 Remedies. In addition to the provisions of Section 11 of this
Agreement, if Fina, BASF or LP owes any amounts which are past due in excess of
thirty (30) days, TEPPCO may, in addition to any remedy available under any
applicable Law, require Fina, BASF or LP, as the case may be, to pay or furnish
guaranty of payment to TEPPCO prior to further acceptance of Product for
shipment or delivery hereunder.
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SECTION 7
MEASUREMENT AND INVENTORY ACCOUNTING
7.1 Measurement. Unless otherwise mutually agreed in writing, the
method for measurement and testing of Product shall be as set forth in Exhibit
3.1 and the Parties agree that such shall be the exclusive method of measuring
and testing Product delivered by Contracting Shippers to TEPPCO at the Origin
Points and by TEPPCO to Contracting Shippers at the Delivery Points.
7.2 Testing of Measuring Equipment. Fina, BASF, LP and TEPPCO shall
each have the right to have representatives present at all times of any
installing, reading, cleaning, changing, repairing, inspecting, calibration, or
adjusting done in connection with the other's measuring equipment or for
sampling or testing of Product. Fina, BASF, LP and TEPPCO shall each give the
others reasonable notice prior to the time of all tests so that the others may
conveniently have their representatives present.
7.3 Records. Measurement, sampling, testing and other records
associated with the delivery and transportation of Product hereunder shall
remain the property of their owner, but upon request shall be made available to
the non-owner for inspection, verification and audit at all reasonable times;
provided, however that no Party shall be required to retain any record for a
period longer than thirty-six (36) Months from the creation of the record.
7.4 Common Carrier Reports. TEPPCO shall furnish each of the
Contracting Shippers with reports of their respective receipts, deliveries,
inventory and sample analyses as are normally required
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in common carrier pipeline operations and such other reports respecting
operations as may be mutually agreed by the Parties.
SECTION 8
FORCE MAJEURE AND ALLOCATION
8.1 TEPPCO Force Majeure. If by any reason of an event of Force
Majeure TEPPCO is rendered unable, wholly or in part, to perform its
obligations under this Agreement on or after the Commencement Date and if
TEPPCO gives notice as soon as practical of such event in accordance with
Section 14.2 and provides full particulars of such event in writing or by
facsimile transmission after the occurrence of an event of Force Majeure,
nonperformance of TEPPCO shall be excused during the continuance of such event
and to the extent its performance is affected by such event, subject to the
provisions of Sections 8.2. TEPPCO shall use due diligence to remedy its
nonperformance with all reasonable dispatch, including the making of provision
for such alternate performance as may be economical and practical.
8.2 Abatement of Guaranteed Monthly Volume.
(a) In the event TEPPCO is prevented from performing its
obligations hereunder due to a Force Majeure Event on or after the Commencement
Date, the collective Guaranteed Monthly Volume obligation of Contracting
Shippers under Section 5.2 hereof shall abate in the same proportion as the
inability of TEPPCO to perform during the period of such Force Majeure;
provided, however, the Initial Term shall be extended for the same period of
time that the
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period of Force Majeure persists less the number of days equal to the result of
dividing the number of Barrels or Pounds of Product, as the case may be,
actually delivered by TEPPCO during said period, if any, by the applicable
Daily Minimum Volume (fractions to be rounded upward to the next whole number)
(the "Extension Term"). The Parties expressly agree that the Guaranteed Monthly
Volume obligation for each Product during the Extension Term shall be the sum
of the applicable Daily Minimum Volume for such Product for each day during the
Extension Term, if any. In the event Contracting Shippers should transport
collectively during any Month in which Force Majeure is claimed, the required
Guaranteed Monthly Volume of Product (subject to such Force Majeure) through
the Pipeline Facilities to the Delivery Point, then, in such event, there shall
be no Extension Term of this Agreement attributable to such Force Majeure
Event.
(b) By way of example, if TEPPCO on or after the Commencement
Date has a Force Majeure Event on the Natural Gasoline pipeline and Contracting
Shippers can only receive 20,000 barrels per day as a result of this event,
Contracting Shippers would receive a collective reduction in the Guaranteed
Monthly Volume for the applicable Month. In this example, it is assumed
TEPPCO's restriction on deliveries to Contracting Shippers lasts for six days.
The reduction to Contracting Shippers' collective Guaranteed Monthly Volume
would be 120,000 Barrels, which is computed by taking the Daily Minimum Volume
minus the actual daily deliveries during the period of Force Majeure multiplied
by the duration of
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the Force Majeure Event (i.e., [40,000-20,000] multiplied by 6). In conjunction
with the above, the Initial Term of the Agreement for Natural Gasoline would be
extended by three days, which is calculated by taking the volume credit
received by Contracting Shippers' divided by the Daily Minimum Volume (i.e.,
120,000/40,000). In the above example, if Contracting Shippers' actual
deliveries during the Month of the Force Majeure Event were greater than the
Guaranteed Monthly Volume, there would be no extension of the Initial Term.
8.3 Fina, BASF and LP Force Majeure. If by any reason of an event of
Force Majeure, Fina, BASF or LP is rendered unable, wholly on in part on or
after the Commencement Date, to perform its obligations under this Agreement
and if Fina, BASF or LP gives notice as soon as practical of such event in
accordance with Section 14.2 and provides full particulars of such event in
writing or by facsimile transmission after the occurrence of an event of Force
Majeure, nonperformance of Fina, BASF or LP, as the case may be, shall be
excused during the continuance of such event, except that Fina, BASF and LP
shall not be excused due to a Force Majeure Event or for reasons of Force
Majeure, of its obligations under Section 5 to make Deficiency Payments and
Fina, BASF and LP shall during such Force Majeure make timely payments of any
Deficiency Payments for their failure to ship or cause to be shipped the
applicable Guaranteed Monthly Volume of Products for reasons of Force Majeure
or otherwise. Fina, BASF and LP shall use due diligence to remedy their
respective nonperformance with all
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reasonable dispatch, including the making of provision for such alternate
performance as may be economical and practical.
8.4 Allocation. When shippers, including Fina, BASF and LP, tender
quantities of commodities to TEPPCO for shipment greater than can be
transported over the Pipeline Facilities for reasons other than a Force Majeure
Event, TEPPCO shall restrict or suspend receipts of commodities from all its
shippers (including receipts from Fina, BASF and LP of Product for
transportation hereunder) to the extent necessary, but only to the extent
necessary, to allocate its available transportation capacity among all its
shippers on an equitable pro rata basis based on historical levels of
shipments. In such event TEPPCO shall promptly notify Fina, BASF and LP by
telephone (to be confirmed in writing) of Fina's, BASF's and LP's allocated
capacity during such allocation period. If Fina's, BASF's and LP's allocated
capacity is less than their collective Daily Minimum Volume, then the
Guaranteed Monthly Volume obligation for the Product being allocated for the
Month during which such capacity allocation occurs shall be reduced by an
amount equal to the product of (i) the number of days during the Month the
Pipeline Facilities are on allocation, and (ii) the difference between the
applicable Daily Minimum Volume and Fina's, BASF's and LP's collective
allocated capacity for such Product.
8.5 Disposal of Product. In the event Fina, BASF or LP is unable to
have Product delivered to it hereunder at the Delivery Point, as a result of
Force Majeure or any other cause, TEPPCO agrees to reasonably cooperate with
Fina, BASF and Partnership with
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respect to Fina's, BASF's or LP's disposal of such Product in the Pipeline
Facilities; provided, however, if Fina, BASF or LP fail to make provisions for
such disposal, TEPPCO shall have the right but not the obligation, at Fina's,
BASF's and LP's sole cost and expense and for Fina's, BASF's and LP's account,
as the case may be, to dispose of any such Product at the best commercial price
then available under existing circumstances in order to free capacity in the
Pipeline Facilities.
SECTION 9
TERM
9.1 Term. This Agreement shall be in full force and effect as of the
Effective Date and shall continue in effect for an Initial Term of twenty (20)
Contract Years, subject to any extension pursuant to Section 8.2, and shall
continue thereafter from Contract Year to Contract Year unless and until
terminated by TEPPCO, or any of the Contracting Shippers upon not less than 180
days prior written notice to the other Parties specifying a termination date
either at the end of (i) such Initial Term, or (ii) any subsequent Contract
Year.
9.2 Termination. Notwithstanding Section 9.1, in the event Fina, BASF
or LP should ever purchase the Pipeline Facilities from TEPPCO, this Agreement
shall terminate upon such acquisition.
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SECTION 10
LAWS
This Agreement shall be subject to all Laws affecting either TEPPCO or
Contracting Shippers and should any of the Parties, by force of any such Laws
imposed at any time during the term of this Agreement, be rendered unable,
wholly or in part, to carry out its obligations under this Agreement, then this
Agreement shall nevertheless continue but shall be deemed modified to conform
with the requirements of such Laws. Notwithstanding the foregoing provisions of
this Section 10, this Agreement shall not be deemed to be so modified if such
Laws substantially and materially impairs any Party's rights and benefits as
herein provided, including but not limited to, services rendered hereunder or
TEPPCO receiving Transportation Charges and Deficiency Charges substantially in
accordance with the terms set forth herein, and, in such event, the Parties
shall negotiate in good faith to amend the terms of this Agreement so that such
Laws may be complied with and the Parties shall continue to receive the rights
and benefits herein provided. This Agreement is expressly made subject to the
Tariff and any inconsistencies between this Agreement and the Tariff shall be
resolved in favor of the Tariff; provided, however, TEPPCO shall not, without
Contracting Shippers prior written consent, seek to alter the character or
amount of TEPPCO's services or obligations herein provided or to reduce the
term of this Agreement. The Parties agree to assist each other (at the expense
of the requesting Party) in any proceeding before any Governmental
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Authority having jurisdiction over this Agreement or the Tariff, to ensure that
the provisions of this Agreement and the Tariff continue in effect.
SECTION 11
DEFAULT
In addition to any other provisions of this Agreement relative to
default, it is understood and agreed that if either Party hereto shall fail to
materially perform any of the covenants or obligations imposed upon it under
and by virtue of this Agreement and such covenants or obligations are of a
material nature, then in such event the other Party hereto may, at its option,
terminate this Agreement by proceeding as follows: The Party not in default
shall cause a written notice to be served on the Party in default stating
specifically the cause for terminating this Agreement declaring it to be the
intention of the Party giving notice to terminate the same; whereupon the Party
in default shall have thirty (30) days after the service of the aforesaid
termination notice in which to remedy or remove the cause or causes stated in
the notice for terminating the Agreement (the "Cure Period") and, if within
said Cure Period the Party in default does so remedy or remove said cause or
causes, then such termination notice shall be deemed withdrawn and this
Agreement shall continue in full force and effect. If the Party in default does
not so remedy or remove the cause or causes within said Cure Period, then, at
the option of the Party giving the termination notice, this Agreement shall
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become null and void from and after the expiration of said Cure Period. If a
default cannot be substantially cured within the Cure Period, but the Party in
default has commenced to remedy the cause of default within the Cure Period and
continues diligently pursuing such remedy after expiration of the Cure Period,
then the Party not in default may not terminate this Agreement until such time
as the Party in default stops diligently pursuing a remedy of the default. Any
termination of this Agreement pursuant to the provisions of this Section 11
shall be without prejudice to the right of either Party to collect any amounts
then due and owing to it under the provisions of this Agreement and shall be
without prejudice to the rights of such Party to receive any Product for which
it has paid the Transportation Charges hereunder but has not received the
Product prior to the time of termination, and without waiver of or prejudice to
any remedy (legal, equitable or otherwise) to which the Party not in default
may be entitled for violations, default or breach of this Agreement. For
purposes of this Section 11, the term "Party" shall mean TEPPCO on the one hand
and Contracting Shippers, collectively on the other hand.
SECTION 12
TAXES
12.1 TEPPCO Taxes. TEPPCO shall pay any and all applicable taxes
(including but not limited to ad valorem taxes, excise taxes, sales taxes and
value added taxes), fees, assessments and charges with respect to the Pipeline
Facilities used by TEPPCO to provide
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transportation services under this Agreement. Contracting Shippers shall
cooperate with TEPPCO in any protest or contest by TEPPCO of such taxes solely
at TEPPCO's expense.
12.2 Contracting Shippers' Taxes. Contracting Shippers shall each pay
any and all applicable taxes (including but not limited to ad valorem taxes,
excise taxes, sales taxes and value added taxes), fees, assessments and charges
with respect to the delivery, ownership, receipt, handling, use, and storage of
their respective Products in transit or the transfer of ownership of the
Products hereunder. TEPPCO shall cooperate with Fina, BASF and LP in any
protest or contest by any of them of such taxes solely at the requesting
Party's expense.
SECTION 13
DISPUTES
13.1 Dispute Negotiations. In the event of any controversy or dispute,
whether based in contract, tort or otherwise, arising out of or relating to
this Agreement or the scope, breach, termination or validity of this Agreement,
the Parties shall promptly seek to resolve any such dispute by negotiations
between senior executives of the Parties who have authority to settle such
dispute. When a Party believes there is a dispute under this Agreement, that
Party may give the other Party written notice of the dispute. Within thirty
(30) days after receipt of such notice, the receiving Party shall submit to the
other a written response. Both the notice and responses shall include (i) a
statement of such Party's position
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and a summary of the evidence and arguments supporting its position, and (ii)
the name, title, facsimile number, and telephone number of the executive who
will represent that Party. In the event the dispute involves a Claim arising
out of the actions of any Person or entity not a signatory to this Agreement,
the receiving Party shall have such additional time as necessary, not to exceed
an additional thirty (30) days, to investigate the dispute before submitting a
written response. The executives shall meet at a mutually acceptable time and
place within fifteen (15) days after the date of the response and thereafter as
often as they reasonably deem necessary to exchange relevant information and to
attempt to resolve the dispute. If one of the executives is an attorney or
intends to be accompanied at a meeting by an attorney, the other executives
shall be given at least five (5) working days' notice of such intention and may
also be accompanied by an attorney. All negotiations and communications
pursuant to this Section 13 shall be treated and maintained by the Parties as
confidential information and shall be treated as compromise and settlement
negotiations for the purposes of the Federal and State Rules of Evidence. The
term "Party" as used in this Section 13 shall mean TEPPCO on the one hand and
Contracting Shippers collectively on the other hand.
13.2 Arbitration. Any disputes arising under the provisions of (i)
Section 4.2 of this Agreement relative to selecting a substitute index in place
of any discontinued index, or (ii) Section 4.1 of Exhibit 2.1 of this Agreement
relative to
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determining Related Costs (as that term is defined in Exhibit 2.1) caused by
the rerouting of the Pipeline Facilities (collectively "Dispute") that are not
settled pursuant to the foregoing provisions may be submitted to binding
arbitration in accordance with the following provisions. No other dispute shall
be subject to arbitration hereunder, unless otherwise expressly agreed to by
the Parties.
(a) The Party desiring to initiate arbitration in
connection with any Dispute shall send, via
certified mail, written notice of demand of
arbitration to the other Party and the name of the
arbitrator appointed by the Party demanding
arbitration together with a statement of the matter
in controversy.
(b) Within fifteen (15) days after receipt of such
demand, the receiving Party shall name its
arbitrator. If the receiving Party fails or
refuses to name its arbitrator within such 15-day
period, the second arbitrator shall be appointed,
upon request of the Party demanding arbitration, by
the Chief U.S. District Court Judge for the
Southern District of Texas ("Judge") or such other
person designated by the Judge. The two
arbitrators so selected shall within fifteen (15)
days after their designation select a third
arbitrator; provided, however, that if the two
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arbitrators are not able to agree on a third
arbitrator within such 15-day period, either Party
may request the Judge or such other person
designated by the Judge to select the third
arbitrator as soon as possible. In the event the
Judge declines to appoint an arbitrator, appointment
shall be made, upon application of either Party,
pursuant to the Commercial Arbitration Rules of the
American Arbitration Association. If any arbitrator
refuses or fails to fulfill his or her duties
hereunder, such arbitrator shall be replaced by the
Party which selected such arbitrator (or if such
arbitrator was selected by another Person, through
the procedure which such arbitrator was selected)
pursuant to the foregoing provisions.
(c) Each arbitrator selected by the Parties shall be
qualified by education, experience and training to
pass on the particular question in Dispute. The
arbitrators selected by the Parties are not required
to be neutral, but the third arbitrator shall be
neutral, and must be a practicing attorney, a judge
or a retired judge.
(d) The Parties hereto hereby request and consent to the
three (3) arbitrators conducting a hearing in
Houston, Texas no later than sixty (60) days
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following their selection or thirty (30) days after
all prehearing discovery has been completed,
whichever is later, at which the Parties shall
present such evidence and witnesses as they may
choose, with or without legal counsel.
(e) Arbitration shall be conducted in accordance with
the Commercial Arbitration Rules and procedures of
the American Arbitration Association.
(f) The Federal Rules of Civil Procedure, as modified
or supplemented by the local rules of civil
procedure for the U.S. District Court for the
Southern District of Texas, shall apply in the
arbitration. The Parties shall make their
witnesses available in a timely manner for
discovery pursuant to such rules. If a Party fails
to comply with this discovery agreement within the
time established by the arbitrators, after
resolving any discovery disputes, the arbitrators
may take such failure to comply into consideration
in reaching their decision. All discovery disputes
shall be resolved by the arbitrators pursuant to
the procedures set forth in the Federal Rules of
Civil Procedure.
(g) Adherence to formal rules of evidence shall not be
required. The arbitrators shall consider any
evidence and testimony that they determine to be
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relevant.
(h) The Parties shall request that the arbitrators
render their decision within thirty (30) calendar
days following conclusion of the hearing.
(i) Any decision by a majority of the arbitration panel
shall be final, binding and non-appealable. Any such
decision may be filed in any court of competent
jurisdiction and may be enforced by any Party as a
final judgment in such court. There shall be no
grounds for appeal of any arbitration award
hereunder.
(j) The defense of statute of limitations and laches
shall be tolled from and after the date a Party
gives the other Party written notice of a Dispute as
provided in Section 13.1 above until such time as
the Dispute has been resolved pursuant to Section
13.1, or an arbitration award has been entered
pursuant to Section 13.3.
(k) Subject to subsection (j) directly above, in no
event may arbitration be demanded after the date
when institution of legal or equitable proceedings
based on a Claim, Dispute or other matter in
question would be barred by the applicable statute
of limitations.
13.3 Payment of Expenses. In the event arbitration or,
despite the Parties agreement to arbitrate, litigation arising out
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of this Agreement is initiated by either Party, the prevailing Party, after the
entry of a final nonappealable order, shall be entitled to recover from the
other Party, as a part of said order, all court costs, fees and expenses of
such arbitration (or litigation), including, without limitation, reasonable
attorneys' fees.
SECTION 14
GENERAL PROVISIONS
14.1 Further Assurances. At any time or from time to time at and after
the Effective Date, each of the Parties shall, at the request of the other,
execute and deliver or cause to be executed and delivered all the assignments,
consents, documents and instruments, and take or cause to be taken all the
other reasonable actions as may be necessary or desirable to more fully and
effectively carry out the intents and purposes of this Agreement.
14.2 Notices. All notices, invoices, requests, demands and other
communications required or permitted to be given under this Agreement shall be
deemed to have been duly given if in writing and delivered personally or sent
via first-class, postage prepaid, registered or certified mail (return receipt
requested), or by overnight delivery service or facsimile transmission
addressed as follows:
If to Fina:
Fina Oil and Chemical Company
6000 Legacy Drive
Plano, Texas 75024-3601
Attention: General Counsel
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If to BASF:
BASF Corporation
3000 Continental Drive - North
Mount Olive, New Jersey 07828-1234
Attention: Vice President - Special Projects
If to LP:
BASF Fina Petrochemicals, Limited Partnership
Hwy 366 @ Gate 99 off Hwy 87
Port Arthur, Texas 77642
Attention: Plant Manager
If to TEPPCO:
Texas Eastern Products Pipeline Company
2929 Allen Parkway, Suite 3200
Houston, Texas 77019
Attention: Vice President - Business Development
Telephone: (713) 759-3685
Facsimile: (713) 759-3957
Any notice given to Contracting Shippers shall be given to Fina, BASF and LP.
Any Party may change the address to which the communications are to be directed
to it by giving notice to the other in the manner provided in this Section
14.2. Notice by mail shall be deemed to have been given and received on the
third calendar day after posting. Notice by overnight delivery service,
facsimile transmission or personal delivery shall be deemed given on the date
of actual delivery.
14.3 Entire Agreement. This Agreement and the Attachments and Exhibits
hereto set forth the entire agreement and understanding of the Parties with
respect to the transactions contemplated hereby and supersede all prior
agreements, arrangements and understandings relating to the subject matter
hereof, including the Fina Oil and Chemical Company Consulting Services
Contract (Contract Number:
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6476-A) dated October 19, 1998 between Fina Oil and Chemical Company and TE
Products Pipeline Company, Limited Partnership. No representation, promise,
inducement or statement of intention with respect to the subject matter of this
Agreement has been made by any Party that is not embodied in this Agreement,
Attachments and Exhibits hereto, and none of the Parties shall be bound by or
liable for any alleged representation, promise, inducement or statement of
intention not so set forth.
14.4 Assignment. Neither Fina, BASF, LP nor TEPPCO may sell, transfer,
assign, pledge or hypothecate, in each case, by operation of law, change in
control or otherwise, its rights, interests or obligations under this Agreement
without the full consent of the other Parties; provided, however, either Fina,
BASF, LP or TEPPCO shall have the right, without the consent of any of the
other Parties, to assign all its rights and obligations under this Agreement to
an Affiliate or to a Third Party purchaser of all of the assets of a Party to
which this Agreement pertains provided that such Affiliate or Third Party has
sufficient assets and financial strength acceptable to the other Parties, which
acceptance shall not be unreasonably withheld; and further provided that
contemporaneously with the assignment of such interest, the Affiliate or Third
Party to whom such interest is being assigned shall deliver to the other
Parties to this Agreement a written agreement pursuant to which such Affiliate
or Third Party agrees (i) to be bound by all the terms and provisions of this
Agreement and any agreement referenced herein; and (ii) to perform and
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discharge the obligations and liabilities set forth in this Agreement and such
other agreements. TEPPCO may not sell or assign all or any portion of its
interest in the Pipeline Facilities to an Affiliate or a Third Party without
properly assigning this Agreement to such acquiring Affiliate or Third Party as
provided in this Section 14.4.
14.5 Enforceability by the Parties. This Agreement shall inure to the
benefit of, be binding upon, and be enforceable by the Parties hereto and their
respective successors and permitted assigns.
14.6 Amendments. This Agreement may be amended, superseded or
cancelled, and any of the terms hereof may be waived, only by a written
instrument specifically stating that it amends, supersedes or cancels this
Agreement or waives any of the terms herein, executed by all Parties or, in the
case of a waiver, by the Party waiving compliance. The failure of any Party at
any time to require performance of any provision herein shall in no manner
affect the right at a later time to enforce the same.
14.7 Execution in Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same instrument.
14.8 Waiver. No waiver by any Party of any condition, or of any breach
of any term, covenant, representation or warranty, shall be deemed or
constitute a waiver of any other condition, or breach of any other term,
covenant, representation or warranty, nor shall
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the waiver constitute a continuing waiver unless otherwise
expressly provided.
14.9 Unenforceability of Provisions. Any provision hereof that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
14.10 Third Party Beneficiary. Except to the extent a Third Party is
expressly given rights herein, any agreement contained, expressed or implied in
this Agreement shall be only for the benefit of the Parties hereto and their
respective legal representatives, successors and assigns, and such agreements
shall not inure to the benefit of the obligees of any indebtedness of any Party
hereto, it being the intention of the Parties hereto that no person or entity
shall be deemed a third party beneficiary of this Agreement, except to the
extent a Third Party is expressly given rights herein.
14.11 Damages. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED
HEREIN, WHETHER OR NOT OCCASIONED BY A DEFAULT OR OTHER BREACH OF THIS
AGREEMENT, NO PARTY SHALL BE LIABLE HEREUNDER TO THE OTHER PARTIES FOR SPECIAL,
EXEMPLARY OR PUNITIVE DAMAGES, LOSS OF PROFITS, OR CONSEQUENTIAL DAMAGES,
WHETHER IN CONTRACT, TORT, STRICT LIABILITY OR OTHERWISE.
14.12 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED
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AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE
GOVERNED BY, THE LAW OF THE STATE OF TEXAS, WITHOUT REGARD TO ANY
CONFLICT-OF-LAWS PROVISION THEREOF THAT WOULD OTHERWISE REQUIRE THE APPLICATION
OF THE LAW OF ANY OTHER JURISDICTION.
14.13 Venue. Any court proceedings arising out of or relating to this
Agreement or the transactions contemplated hereby, shall be brought and tried
in the federal or state courts situated in the City of Houston, Harris County,
Texas.
44
<PAGE> 49
IN WITNESS WHEREOF, the Parties have duly executed this Agreement as
of the date first set forth above.
Fina Oil and Chemical Company
By: /s/ MICHAEL J. COUCH
-------------------------------------
Name: Michael J. Couch
----------------------------------
Title: SENIOR VICE PRESIDENT
----------------------------------
BASF CORPORATION
By: /s/ CARL A. JENNINGS
-------------------------------------
Name: Carl A. Jennings
-----------------------------------
Title: EXECUTIVE VICE PRESIDENT
BASF FINA PETROCHEMICALS
LIMITED PARTNERSHIP BY ITS
GENERAL PARTNERS
FINA OIL AND CHEMICAL COMPANY
By: /s/ MICHAEL J. COUCH
----------------------------
Name: Michael J. Couch
--------------------------
Title: SENIOR VICE PRESIDENT
-------------------------
BASF CORPORATION
By: /s/ RUDOLF R. SCHNUR
----------------------------
Name: Rudolf R. Scnur
--------------------------
Title: VICE PRESIDENT
-------------------------
TE PRODUCTS PIPELINE COMPANY,
LIMITED PARTNERSHIP, BY TEXAS
EASTERN PRODUCTS PIPELINE COMPANY,
GENERAL PARTNER
By: /s/ DAVID LANGLEY
-------------------------------------
Name: David Langly
-----------------------------------
Title: VICE PRESIDENT
----------------------------------
45
<PAGE> 50
APPENDIX A
"Affiliate" shall mean, as to the Person specified, any Person (a)
controlling, controlled by or under common control with such specified Person,
(b) which beneficially owns or holds fifty percent (50%) or more of any class
of stock or other equity interest of such specified Person, or (c) fifty
percent (50%) or more or any class of whose stock or equity interest is
beneficially owned or held by such specified Person and its Affiliates. For
purposes of this definition "control," when used with respect to any specified
Person, means the power to direct the management and policies of the Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Agreement" shall mean this instrument and all appendices and exhibits
hereto as originally executed or as may from time to time be supplemented or
amended.
"Authorizations" shall have the meaning given in Section 2.4.
"Barrel" shall mean 42 United States standard gallons at 60 degrees
Fahrenheit.
"BASF" shall mean BASF Corporation, a Delaware corporation.
"Best Efforts" shall mean commercially reasonable good faith efforts
under the circumstances, without any requirements that any Party be obligated
(a) to pay any penalty, premium or undue consideration to obtain any waiver,
consent, approval or election, (b) to modify its rights or obligations under
any existing agreement, lease or other contract, or (c) to violate any
Applicable Law.
"Claim" shall mean any demand, demand letter, claim or notice of
noncompliance or violation (written or oral) or Proceeding.
"Commission" shall mean the Texas Railroad Commission or any
commission, agency or other Governmental Authority succeeding to the powers of
the Texas Railroad Commission as it pertains to this Agreement or the Tariff.
"Commencement Date" shall be the date established pursuant to
the provisions of Section 2.6.
"Consumer Price Index" shall mean the Consumer Price Index -
All Urban Consumers published by the Bureau of Labor Statistics.
The specific Index is for Houston-Galveston-Brazoria, SAO All
Items, Not Seasonally Adjusted.
<PAGE> 51
"Contract Year" shall mean the period of time beginning on the
Commencement Date or any anniversary thereof and ending 365 days (366 days in
the case any such yearly period has February 29th) later.
"Contracting Shippers" shall mean individually and jointly
Fina, BASF and LP.
"Daily Minimum Volume" shall be determined for each Product as
follows:
<TABLE>
<CAPTION>
Product Amounts
------- -------
<S> <C>
Natural Gasoline (Barrels) 80,000
Ethylene (Pounds) 8,219,178
Propylene (Pounds) 8,219,178
</TABLE>
"Deficiency Rate" shall have the meaning given in Section 5.2(a) and
Section 5.2(b).
"Delivery Month" shall have the meaning given in Section
5.2(a).
"Delivery Point" shall mean the Plant, the Mont Belvieu Terminal or
the Union Carbide Company's compressor station near Port Arthur, Texas, as the
case may be.
"Dispute" shall have the meaning given in Section 13.2.
"Effective Date" shall mean the date of execution of this
Agreement by the Parties.
"Environmental Condition" shall mean any environmental pollution,
contamination, degradation, damage or injury caused by, related to, arising
from, or in connection with the generation, handling, use, treatment, storage,
transportation, disposal, discharge, release or emission of any Hazardous
Materials, or violation of or remediation required under any Environmental
Laws.
"Environmental Laws" shall mean all laws, rules, regulations, statutes,
ordinances, decrees or orders of any Governmental Authority relating to (a) the
control of any pollutant or potential pollutant or protection of the air, water,
or land, (b) solid, gaseous or liquid waste generation, handling, treatment,
storage, disposal or transportation, including all Hazardous Materials, and (c)
exposure to hazardous, toxic or other substances alleged to be harmful and
includes without limitation, (1) the terms and conditions of any Environmental
Permits, and (2) judicial, administrative, or other regulatory decrees,
judgments, and orders of any Governmental Authority. "Environmental Laws" shall
include, but not be limited to, the Clean Air Act, 42 U.S.C. Section 7401 et
seq., the Clean Water Act, 33 U.S.C. Section 1251 et seq., the Resource
Conservation and Recovery Act ("RCRA"), 42 U.S.C. Section 6901 et seq., the
Superfund Amendments and Reauthorization Act, 42 U.S.C. Section 11001,
<PAGE> 52
et seq., the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq., the
Water Pollution Control Act, 33 U.S.C. Section 1251 et seq., the Safe Drinking
Water Act, 42 U.S.C. Section 300f et seq. and CERCLA. The term "Environmental
Laws" shall also include all state, local and municipal laws, rules,
regulations, statutes, ordinances and orders dealing with the same subject
matter or promulgated by any Governmental Authority thereunder or to carry out
the purposes of any federal, state, local and municipal laws.
"Environmental Liabilities" shall mean any and all liabilities,
responsibilities, claims, suits, losses, costs (including remedial, removal,
response, abatement, clean-up, investigative, or monitoring costs and any other
related costs and expenses), other causes of action, damages, settlements,
expenses, charges, assessments, liens, penalties, fines, prejudgment and
post-judgment interest, attorneys' fees and other legal fees (a) pursuant to
any agreement, order, notice, or responsibility, directive (including
directives embodied in Environmental Laws), injunction, judgment, or similar
documents (including settlements), arising out of or in connection with any
Environmental Laws, or (b) pursuant to any Claim by a Governmental Authority or
other Person for personal injury, property damage, damage to natural resources,
remediation, or payment or reimbursement of response costs incurred or expended
by the Governmental Authority or Person pursuant to common law or statute and
relating to an Environmental Condition.
"Environmental Permit" shall mean any permit, license, approval,
registration, identification number or other authorization covering the
ownership or operation of the Pipeline Facilities granted under or pursuant to
any applicable law, regulation or other requirement of the United States or of
any state, municipality or other subdivision thereof relating to the control of
any pollutant or protection of health or the environment, including, without
limitation, all applicable Environmental Laws.
"Excess Product Volume" shall mean the total volume of a particular
Product that Fina, BASF and LP and Third Parties transport through the Pipeline
Facilities from an origin point to a Delivery Point during a Month that is in
excess of that Month's Guaranteed Monthly Volume for such Product.
"Extension Term" shall have the meaning given it in Section
8.2.
"Fina" shall mean Fina Oil and Chemical Company, a Delaware
corporation.
"Force Majeure" or "Force Majeure Event" shall mean, without
limitation by this recital, acts of God; acts of a public enemy; fires;
explosions; wars; earthquakes; storms; floods; extreme cold or freezing;
extreme heat; washouts; necessity for compliance with any court order, law,
regulation or ordinance promulgated by any Governmental Authority having
jurisdiction; civil disturbances;
<PAGE> 53
strikes, lockouts or other industrial disturbances; the necessity for testing
(as required by Governmental Authority or as deemed necessary by the testing
Party for the safe operation thereof); inability of either Party to obtain
necessary material, supplies, permits, or labor to perform or comply with any
obligation or condition of this Agreement; inability to obtain rights-of-way;
and any other causes, whether of the kind herein recited or not, which are not
reasonably in the control of the Party claiming suspension. It is understood
and agreed that the settlement of strikes, lockouts or other industrial
disturbances shall be entirely within the discretion of the Party having the
difficulty and that the requirement that any Force Majeure shall be remedied
with all reasonable dispatch shall not require the settlement of strikes,
lockouts or other industrial disturbances by acceding to the demands of an
opposing party involved in such strikes, lockout or other industrial
disturbances, when such course is inadvisable in the discretion of the Party
having the difficulty.
"General Partner" shall mean Texas Eastern Products Pipeline
Company, a Delaware corporation.
"Governmental Authority" shall mean any entity of or pertaining to
government, including any federal, state, local or other governmental or
administrative authority, agency, court, tribunal, arbitrator, commission,
board or bureau.
"Guaranteed Monthly Volume" shall have the meaning and volume amounts
set forth in Section 5.1.
"Hazardous Materials" shall mean (a) toxic or hazardous materials or
substances; (b) solid wastes, including asbestos, polychlorinated biphenyls,
mercury, buried contaminants, chemicals, flammable or explosive materials; (c)
radioactive materials; (d) petroleum wastes and any spills or releases of any
petroleum wastes or petroleum products; and (e) any other chemical, pollutant,
contaminant, substance or waste that is regulated by any Governmental Authority
under any Environmental Law.
"Initial Contract Year" shall mean the first Contract Year and
commencing on the Commencement Date.
"Initial Term" shall have the meaning set forth in Section
9.1.
"Initial Transportation Charges" shall be the Transportation
Charges in effect on the Commencement Date.
<PAGE> 54
"Laws" shall mean any applicable federal, state, county, city, and
municipal law, ordinance, code, regulation, order, judgment, writ, injunction,
requirement, statute, rule, governmental authorization or any order of any
Governmental Authority.
"Losses" shall mean any and all damages, losses, liabilities,
payments, obligations, penalties, assessments, costs, disbursements or expenses
(including interest, awards, judgments, settlements, fines, costs of
remediation, diminutions in value, fees and expenses of attorneys, accountants
and other professional advisors and expert witnesses and costs of investigation
and preparation of any kind or nature whatsoever).
"LP" shall mean BASF Fina Petrochemicals Limited Partnership.
"Makewhole Volume" shall mean the volume difference in Barrels or
Pounds, as the case maybe, between the applicable Guaranteed Monthly Volume for
a Month and the volume of Product actually shipped by Fina, BASF, LP and Third
Parties during such month, provided such actual volume is less than the
Guaranteed Monthly Volume.
"Mont Belvieu Terminal" shall mean TEPPCO's Mont Belvieu South
terminal in Mont Belvieu, Texas.
"Mont Belvieu Work" shall mean the design, engineering, construction
and installation of facilities necessary to tie Receipt and Delivery Facilities
into TEPPCO's facilities at the Mont Belvieu Terminal.
"Month" shall mean the period beginning at 12:00 a.m.
(midnight) local Houston, Texas, time on the first day of a
calendar month and ending at 12:00 a.m. (midnight) local Houston,
Texas, time on he first day of the next calendar month.
"Origin Point" shall mean the Plant or the Mont Belvieu
Terminal, as the case may be.
"Party" shall mean Fina, BASF, LP or TEPPCO, except as provided
otherwise in Section 11 and Section 13 and "Parties" shall mean Fina, BASF, LP
and TEPPCO unless the context otherwise requires.
"Person" shall mean any individual, partnership, limited partnership
joint venture, association, limited liability company, stock company, trust,
unincorporated organization, or Governmental Authority.
"Pipeline Facilities" or "Pipeline Systems" shall mean three (3)
12.75-inch outside diameter pipelines and associated facilities and equipment
to be constructed by TEPPCO along the proposed route identified in Exhibit 2.1.
Each of the three pipelines would operate as a common carrier facility and
would be dedicated to one of the following Product services:
<PAGE> 55
(i) Transportation of Natural Gasoline between the Mont Belvieu
Terminal and the Plant.
(ii) Transportation of Ethylene between the Plant and the Mont
Belvieu Terminal.
(iii) Transportation of Propylene between the Plant and the Mont
Belvieu Terminal.
The Natural Gasoline pipeline, the Ethylene pipeline and Propylene pipeline
will be designed and constructed to be bi-directional. However, the Propylene
Pipeline will be operated after the Commencement Date to flow Propylene only
from the Plant to the Mont Belvieu Terminal. The pipeline dedicated to Ethylene
service includes a lateral pipeline for the transportation of Ethylene from the
Plant to Union Carbide Company's plant near Port Arthur, Texas. The Pipeline
Facilities are more fully described in Exhibit 2.1.
"Plant" shall mean LP's petrochemical plant located in or near Port
Arthur, Texas on property leased by the LP from Fina. The Pipeline Facilities
will terminate immediately inside the property lines of the leased property.
"Pounds" shall mean a unit of mass equal to 16 avoirdupois ounces or
0.45359237 kilogram.
"Proceeding" shall mean any action, suit, claim, investigation, review
or other judicial or administrative proceeding, at law or in equity, before or
by any Governmental Authority.
"Product" or "Products" shall mean "Natural Gasoline," "Ethylene" and
"Propylene" meeting the specifications attached hereto as Exhibit 3.3.
"Receipt and Delivery Facilities" shall mean those facilities owned by
Fina, BASF or a Third Party supplier or customer of Fina or BASF that are
necessary for either the receipt or delivery of Products.
"Tariff" shall mean the tariff filed by TEPPCO with the Commission as
described in Section 4.5 hereof, including all supplements to and successive
issues thereof.
"THE WALL STREET JOURNAL" shall mean the The Wall Street Journal
newspaper published by Dow Jones & Company, Inc.
"Third Party" shall mean any Person other than the Parties.
"Transportation Charges" shall have the meaning set forth in
Section 4.1.
<PAGE> 56
EXHIBIT 2.1
PROJECT MANAGEMENT FOR
DESIGN, ENGINEERING AND CONSTRUCTION
AND RIGHT OF WAY ACQUISITION
<PAGE> 57
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 1 DEFINITIONS................................ 1
SECTION 2 DESIGN, CONSTRUCTION AND PERFORMANCE
REQUIREMENTS............................... 1
2.1 Design and Engineering Services............ 1
2.2 Description and Construction of Project.... 1
2.3 Performance Standards...................... 3
2.4 Completion Standards....................... 4
SECTION 3 CONTRACT DOCUMENTS AND INTERPRETATIVE RULES 5
3.1 Contract Documents......................... 5
3.2 Documents at Project Site.................. 5
3.3 Interpretive Rules and Resolution of
Conflicts Among Contract Documents......... 6
SECTION 4 ACQUISITION OF RIGHT-OF-WAY................. 7
4.1 Acquisition of Right-of-Way................ 7
4.2 Sharing Costs and Expenses for
Right-of-Way............................... 9
SECTION 5 THE WORK AND CHANGES IN THE WORK........... 10
5.1 The Work................................... 10
5.2 Title and Risk of Loss..................... 11
5.3 Standards for Materials.................... 11
5.4 Changes in Work............................ 11
SECTION 6 TEPPCO'S GENERAL DUTIES, STATUS AND
REPRESENTATIVES............................ 14
6.1 TEPPCO's General Duties.................... 14
6.2 Progress Schedule.......................... 15
6.3 Payment of Taxes........................... 16
6.4 Chief Inspector............................ 16
6.5 Permits, Fees. Notices, Tests and
Inspections................................ 17
6.6 Compliance with Laws....................... 18
6.7 Safety and Security........................ 18
6.8 Cleaning Up................................ 19
6.9 Non-Conforming Work........................ 19
6.10 As-Built Surveys and Record Drawings....... 20
6.11 As-Built Documentation..................... 20
6.12 Certain Responsibilities................... 20
</TABLE>
<PAGE> 58
<TABLE>
<S> <C> <C>
SECTION 7 COMMENCEMENT AND COMPLETION................ 21
7.1 Commencement of Work....................... 21
7.2 Completion................................. 21
7.3 Liquidated Damages and Completion Bonus.... 22
7.4 Delay...................................... 24
7.5 Contracting Shippers' Obligations ......... 25
SECTION 8 CONTRACTS AND OTHER AGREEMENTS............. 26
8.1 Contractor................................. 26
8.2 Subcontractor.............................. 26
8.3 Relations.................................. 26
SECTION 9 NO STOPPAGE OR WORK AND TIME OF
THE ESSENCE................................ 26
9.1 No Stoppage of Work........................ 26
9.2 Time of the Essence........................ 27
SECTION 10 OWNERSHIP OF DOCUMENTS AND PATENT
INFRINGEMENT............................... 27
10.1 Ownership of Documents..................... 27
10.2 Patent Infringement........................ 27
SECTION 11 ADDITIONAL WORK AND RIGHT TO ACCESS
WORK....................................... 28
11.1 Additional Work............................ 28
11.2 Contracting Shipper's Right to
Access Work................................ 29
</TABLE>
LIST OF ATTACHMENTS
Attachment 2.1 - (Design, Engineering and Construction Services)
Attachment 2.2(a) - (Proposed Pipeline Route)
Attachment 2.2(b) - (Engineering Guides and Specifications)
Attachment 2.3 - (Process Flow Diagram and Isometric Layout)
Attachment 2.4 - (Testing, Cleaning and Drying Procedures)
Attachment 5.4 - (Change Order Proposal)
Attachment 6.2(a) - (Project Controls)
Attachment 6.2(e)(1) - (Reporting)
Attachment 6.2(e)(2) (Measurement of Percentage Completion)
Attachment 7.2 - (Process for filling Ethylene and Propylene Pipelines)
Attachment 7.3(e) - Sample Calculation
<PAGE> 59
EXHIBIT 2.1
PROJECT MANAGEMENT FOR
DESIGN, ENGINEERING, CONSTRUCTION AND
RIGHT OF WAY ACQUISITION
SECTION 1 DEFINITIONS
The terms defined in Attachment A-2.1 shall (i) have the respective
meaning specified therein with each such definition of a term being equally
applicable to singular and the plural form of the term so defined. Terms
initially capitalized but not defined in Attachment A-2.1 shall have the meaning
given to such term in the Agreement to which this Exhibit is attached.
SECTION 2 DESIGN, CONSTRUCTION AND PERFORMANCE REQUIREMENTS
2.1 Design and Engineering Services. TEPPCO shall provide or cause to
be provided all design and engineering services needed to fully define the
Pipeline Facilities and to cause the Pipeline Facilities, as designed and
engineered, to comply with the Completion Standards and to operate in accordance
with the Performance Standards. Such design and engineering services shall
include but not be limited to the services described in Attachment 2.1 attached
hereto. All such services shall be performed in accordance with the Project
Schedule.
2.2 Description and Construction of Project. TEPPCO shall construct,
fabricate and install or cause to be constructed, fabricated and installed three
pipeline systems (the "Pipeline Systems" or "Pipeline Facilities") and certain
ancillary facilities conforming to the specifications and standards contained in
this Exhibit 2.1 and all other Contract Documents, as follows:
<PAGE> 60
(i) A 12.75 inch outside diameter ANSI 900 bidirectional
pipeline (the "Propylene Pipeline") approximately 66
miles in length, terminating immediately inside the
southwest corner property line of the Plant and the
property line of the Mont Belvieu Terminal, to be
used to transport Propylene from Port Arthur, Texas
to Mont Belvieu, Texas along the route with the
terminus locations described in Attachment 2.2(a), or
deviations therefrom as required.
(ii) A 12.75 inch outside diameter ANSI 900 bidirectional
pipeline (the "Ethylene Pipeline") approximately 66
miles in length, terminating immediately inside the
southwest corner property line of the Plant and the
property line of the Mont Belvieu Terminal, to be
used to transport Ethylene between Port Arthur, Texas
and Mont Belvieu, Texas, along the route with
terminus locations described in Attachment 2.2(a), or
deviations therefrom as required. The Ethylene
Pipeline would include a lateral pipeline to Union
Carbide Company's compressor station near Port
Arthur, Texas of approximately 0.3 miles in length.
(iii) A 12.75 inch outside diameter ANSI 900 bidirectional
pipeline (the "Natural Gasoline Pipeline")
approximately 66 miles in length,
2
<PAGE> 61
terminating immediately inside the southwest corner
property line of the Plant and the property line of
the Mont Belvieu Terminal, to be used to transport
Natural Gasoline between Mont Belvieu, Texas and Port
Arthur, Texas along the route with terminus locations
described in Attachment 2.2(a), or deviations
therefrom as required.
(iv) All other components and installations described by
the Contract Documents or as necessary to cause the
Pipeline Systems to be completed in accordance with
the Completion Standards and to operate and perform
in accordance with the Performance Standards.
The Propylene Pipeline, Ethylene Pipeline and Natural Gasoline Pipeline will
conform to and be designed, engineered, fabricated, constructed and installed in
accordance with the specifications of the Contract Documents, including the
specifications contained in Attachment 2.2(b) respectively, and all Laws. The
Pipeline Systems together with all such other components, installations and
interests described in this subsection 2.2 and in the Contract Documents, are
herein sometimes referred to as the "Project."
2.3 Performance Standards
(a) The Propylene Pipeline, Ethylene Pipeline and Natural
Gasoline Pipeline will be designed, engineered and constructed to meet or exceed
the performance criteria set forth on Attachment 2.2(b) and Attachment 2.3.
(b) The Pipeline Systems, when completed, will be
3
<PAGE> 62
capable of operating in accordance with all Laws and all performance and
operational specifications set forth in this Exhibit 2.1.
The Standards set forth in paragraphs 2.3(a) and (b) are herein
collectively referred to as the "Performance Standards."
2.4 Completion Standards
(a) Upon completion of construction of the Pipeline Systems, the
Pipeline Systems shall be tested in accordance with and in satisfaction of the
testing procedures and requirements set forth in Attachment 2.4. TEPPCO shall
provide to Contracting Shippers certified copies of the results of any such
test as soon as practicable after its completion. Moreover, TEPPCO shall notify
Contracting Shippers at least three (3) days in advance of any testing pursuant
to this Section 2.4(a) and Contracting Shippers' shall each have the right to
have a representative present to witness any such test.
(b) The Project shall be completed and the Work performed in a
good and workmanlike manner, and in accordance with the Contract Documents, all
Laws and usual and customary industry standards applicable to the construction
of the Project or performance of the Work as set forth in Attachment 2.2(b).
The requirements (including the passing of the tests set forth in
Attachment 2.4) set forth in paragraphs 2.4(a) and (b) are herein collectively
referred to as the "Completion Standards."
4
<PAGE> 63
SECTION 3 CONTRACT DOCUMENTS AND INTERPRETATIVE RULES
3.1 Contract Documents. The term "Contract Documents" shall
collectively mean and consist of (i) the Agreement including this Exhibit and
all Attachments, (ii) the Drawings and Specifications, and (iii) all Change
Orders. The term "Drawings and Specifications" means the final drawings,
diagrams, plans and specifications for the construction and installation of the
Project prepared by Contractor, which may be modified from time-to-time in
accordance with the Contract Documents.
3.2 Documents at Project Site. TEPPCO shall maintain or cause to be
maintained at Contractor's offices, for review by each of the Contracting
Shippers, one record copy of the Drawings and Specifications, Change Orders and
other modifications to the Contract Documents, in good order, and marked
currently to record changes and selections made during construction. Promptly
after the execution of the Agreement, TEPPCO shall prepare or cause to be
prepared an initial set of drawings and specifications for the Project for
Contracting Shippers' collective review and comment. After receipt of
Contracting Shippers' collective comments, TEPPCO shall promptly prepare, or
caused to be prepared, the Drawings and Specifications incorporating such
comments as a appropriate. By submission of the final Drawings and
Specifications to the Parties, TEPPCO represents to each of the Contracting
Shippers that the Project can be constructed and installed in accordance with
the Drawings and Specifications to meet or exceed the Completion Standards and
the Performance Standards. Contracting Shippers
5
<PAGE> 64
shall furnish TEPPCO with certain documents prepared by them. TEPPCO and its
Contractor shall thoroughly review such documentation. Any preliminary drawings,
design guidelines, schematics, equipment lists, budgets, accounting information,
reports, surveys, specifications and other documents contained in the
documentation furnished by Contracting Shippers are furnished solely for
TEPPCO's general information and convenience. TEPPCO shall be responsible for
the design and construction of a complete Pipeline System, which shall deliver
Products in accordance with the requirements of the Agreement. Any furnishing by
Contracting Shippers of design information which is utilized by TEPPCO in its
sole discretion, and the review by Contracting Shippers of the Drawings and
Specifications shall not in any way relieve TEPPCO of its responsibilities under
the Agreement.
3.3 Interpretative Rules and Resolution of Conflicts Among Contract
Documents.
(a) Unless otherwise stated in the Contract Documents, words which
have generally recognized technical or construction industry meanings are used
in the Contract Documents in accordance with such recognized meanings.
(b) Large-scaled drawings shall control over smaller-scaled
drawings, figured dimensions on the drawings shall control over scaled
dimensions and noted materials shall control over graphic representations.
Notwithstanding the foregoing provisions, where a conflict exists within or
between parts of the Contract Documents and Laws, or between Laws themselves,
the more stringent
6
<PAGE> 65
or higher quality requirements shall apply.
(c) Where "as shown," "as indicated," "as detailed," or words
of similar import are used, it shall be understood that reference to the
Drawings and Specifications is made unless otherwise stated.
(d) As used in the Contract Documents, "provide" shall be
understood to mean "provide complete in place," that is, to furnish, fabricate,
deliver, and install, including all materials, services, and expenses necessary
to complete in place, ready for operation or use. The use of the term "as
required" means as prescribed by the Contract Documents. The use of the term "as
necessary" in the Contract Documents means all action essential to the
completion of the Work or applicable portion thereof. The use of the term "day"
in the Contract Documents shall mean calendar day.
(e) In the interest of brevity, the Contract Documents
frequently omit modifying words such as "all" and "any" and articles such as
"the" and "an," but the fact that a modifier or an article is absent from one
statement and appears in another is not intended to affect the interpretations
of such statement.
SECTION 4 ACQUISITION OF RIGHT-OF-WAY
4.1 Acquisition of Right-of-Way.
(a) Subject to the provisions of Section 2.4 of the Agreement,
TEPPCO shall take all steps necessary to obtain right-of-way ("Pipeline
Right-of-Way") along the anticipated route of the
7
<PAGE> 66
Pipeline Systems described in Attachment 2.2(a) (the "Projected Pipeline
Right-of-Way") and use its Best Efforts to secure assignment rights for the
Pipeline Right-of-Way where available. If TEPPCO (i) after using its Best
Efforts is unable to obtain a Pipeline Right-of-Way over any segment of the
Projected Pipeline Right-of-Way, or (ii) determines in good faith that it is not
cost beneficial to the overall Project under the circumstances to obtain a
Pipeline Right-of-Way, then TEPPCO shall determine, in its good faith judgment,
the most appropriate rerouting or reroutings for the overall Project taking into
account Related Costs and changes, if any, in the Projected Final Completion
Date due to such rerouting or reroutings from the Projected Pipeline
Right-of-Way. TEPPCO shall promptly advise Contracting Shippers of any such
proposed rerouting or reroutings and the Related Costs required by such
rerouting. In addition, TEPPCO shall advise Contracting Shippers of any adverse
impact on the Projected Final Completion Date due to such rerouting as compared
to proceeding with the acquisition of that portion of the Projected Pipeline
Right-of-Way that is being rerouted around. Thereafter, TEPPCO and Contracting
Shippers shall promptly meet to discuss in good faith all aspects of the
proposed rerouting deviations. If, at such meeting, the Parties are unable to
agree upon a rerouting option, TEPPCO shall nonetheless promptly proceed with
the proposed rerouting option it deems is in the best overall interest of the
Project under the circumstances, provided that such rerouting option will not,
in TEPPCO's good faith judgment, have an adverse impact on the
8
<PAGE> 67
Projected Final Completion Date as compared to proceeding with the acquisition
of that portion of the Projected Pipeline Right-of-Way that is being rerouted
around. If TEPPCO determines in its good faith judgment after consulting with
Contracting Shippers that such reroute will have an adverse impact on the
Projected Final Completion Date, TEPPCO will not proceed with the reroute
without the consent of Contracting Shippers, but will proceed with acquiring
that portion of the Projected Pipeline Right-of-Way that was proposed to be
rerouted around. Any dispute as to the Related Costs due to a rerouting of the
Pipeline Facilities shall be resolved in accordance with Section 13 of the
Agreement including binding arbitration if the Parties are unable to resolve the
dispute in accordance with Section 13.1 of the Agreement.
(b) All costs and expenses of any rerouting from the Projected
Pipeline Right-of-Way that is required due to difficulties or complications in
the design, engineering or construction of the Pipeline Facilities in the
Projected Pipeline Right-of-Way shall be the sole responsibility of TEPPCO.
4.2 Sharing Costs and Expenses for Right-of-Way.
(a) Except as provided in Section 4.2(b) below, TEPPCO shall
be responsible for all actual costs and expenses, including attorneys fees,
associated with securing the appropriate Authorizations, and all Related Costs
(collectively "Costs").
(b) If the total of all such Costs exceed $19 million,
Contracting Shippers shall be responsible for or otherwise reimburse TEPPCO for
all Costs in excess of $19 million.
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(c) TEPPCO shall provide, on a biweekly basis, a report
summarizing Pipeline Right-of-Way acquisition activities to the right-of-way
management personnel designated by Contracting Shippers. This biweekly report
will contain (i) a list of landowners and parcels in each of the five
geographically distinct budget areas, (ii) current status of landowner contacts
and settlements, (iii) an accounting of the percentage of the Pipeline
Right-of-Way acquired in each budget area, (iv) an accounting of the amount
spent on each tract and the percentage of the budget spent in each budget area,
(v) and an accounting of the percentage of the total budget spent. If the total
of all Costs (inclusive of reasonably estimated future Costs) exceeds $16.5
million, the report will also contain a status report on each remaining
unsettled landowner and the planned next steps to resolve any differences
between TEPPCO and the landowner as to TEPPCO's acquiring the Pipeline
Right-of-Way across that landowner or the affected parcels of property.
SECTION 5 THE WORK AND CHANGES IN THE WORK
5.1 The Work. The "Work" shall include, (i) all materials, systems,
equipment, and other installations becoming a part of the Project pursuant to
the Contract Documents (sometimes collectively referred to as "Materials"), (ii)
all other materials, supplies, apparatus, implements, tools, equipment, sanitary
facilities and other facilities not included in item (i) preceding and necessary
in the construction of the Project, (iii) all labor, supervision,
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transportation, utilities, storage and other services (sometimes collectively
referred to as "Services") required in the construction of the Project, (iv) all
cutting and fitting required to complete the Work or make its parts fit together
properly, (v) all other acts and all other things necessary to construct the
Project in accordance with the Contract Documents, including all work expressly
specified therein and such other work as may reasonably be inferred therefrom,
and (vi) any other work or services described in this Exhibit or any other
Contract Documents as a part of the Work.
5.2 Title and Risk of Loss
Title to all Work shall be in TEPPCO and TEPPCO shall bear the
risk of loss of all Materials.
5.3 Standards for Materials. All Materials shall be new and of high
quality, meet industry standards, be fit for the intended use and purpose and
meet all requirements of the Drawings and Specifications and Laws.
5.4 Changes in Work.
(a) Contracting Shippers may request changes in the Work by giving
TEPPCO a written request (a "Proposal Request") setting forth in detail the
nature of the change in the Work requested (the "Change Work"). TEPPCO may upon
its own motion prepare a "Proposal Request" for approval. Upon receipt of a
Proposal Request from any of the Contracting Shippers or upon preparation of
TEPPCO's own Proposal Request, TEPPCO shall as soon as reasonably practical
submit to each of the Contracting Shippers a written proposal
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("Change Order Proposal") on a form as shown in Exhibit 5.4 setting forth in
reasonable detail, (i) a description of the scope of work approved by TEPPCO
resulting from the proposed Change Work request, (ii) any change in the
Projected Final Completion Date required due to such requested change, and (iii)
a stipulated sum for the performance of the Change Work. The stipulated sum
contained in any Change Order Proposal shall be based on TEPPCO's estimated
actual costs including (i) all labor and other costs of Contractor and any
Subcontractors, and (ii) any Material costs plus any mark-ups agreed to by
TEPPCO, Contractor and Subcontractor, as the case may be. The stipulated sum
shall not include any amount for profit to TEPPCO. Each Change Order Proposal
shall be accompanied by appropriate data supporting such estimate, including but
not limited to bids, cost estimates and wage schedules. When the Change Work
involves both new Work not originally required under the Contract Documents and
replacement or obviation of previously planned Work, TEPPCO shall break down the
stipulated sum contained in its Change Order Proposal to show both the
additional compensation bid for the new Work and the credit allowed for the
replaced or obviated Work. If Contracting Shippers approve such Change Order
Proposal, TEPPCO will issue and Contracting Shippers will execute and accept a
written modification (a "Change Order") pursuant to which the Change Work
described in the Change Order Proposal will be performed. Such Change Order
shall set forth the agreed stipulated sum for such Change Work and any
adjustment required to be made in the Projected Final Completion Date, which
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date shall be so adjusted as set forth in the Change Order. If Contracting
Shippers do not approve a Change Order Proposal, TEPPCO shall be paid for any
Third Party costs required to prepare the proposal, unless TEPPCO initiated such
proposal, and TEPPCO will have no further obligation with regard to the
requested change. For purposes of this Section 5.4(a), Contracting Shippers must
approve a Change Order Proposal within four (4) days of its issuance to
Contracting Shippers by TEPPCO, otherwise such shall be deemed "not approved" by
Contracting Shippers.
(b) Not later than ninety (90) days prior to the Completion
Date TEPPCO shall advise each of the Contracting Shippers in writing of (i) the
aggregate amount of the stipulated sums for all the Change Orders ("Total
Stipulated Amount"), and (ii) a proposed adjustment to the Initial
Transportation Charges resulting from such Total Stipulated Amount, which
adjustment shall be calculated by taking such Total Stipulated Amount times a
factor of 0.14 with the product being divided by the applicable annualized
Guaranteed Monthly Volume. The applicable adjustment to the Initial
Transportation Charges for Natural Gasoline will be as set forth in the previous
sentence and the applicable calculation of the adjustment to the Initial
Transportation Charges for Ethylene and Propylene will be the value from the
previous sentence multiplied by 100. Each of the Contracting shippers, within
thirty (30) days after receiving such written notice shall advise TEPPCO of
their decision either (y) to pay in full the Total Stipulated Amount, which
payment shall be then due and owing, or (z) to make
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the adjustment in the Initial Transportation Charges as set forth in TEPPCO's
written notice. If Contracting Shippers do not collectively agree on the method
of reimbursing TEPPCO for the Total Stipulated Amount then the method described
in item (z) above shall be deemed selected by all the Contracting Shippers.
(c) Changes in the Work due to deviations in the Projected Pipeline
Right-of-Way shall be handled in accordance with the provisions of Section
4.1(a) and (b) of this Exhibit 2.1 and not pursuant to Section 5.4 of this
Exhibit 2.1.
SECTION 6 TEPPCO'S GENERAL DUTIES, STATUS AND REPRESENTATIONS
6.1 TEPPCO's General Duties. TEPPCO shall cooperate with Contracting
Shippers and Contracting Shippers's authorized agents in undertaking the
Project. TEPPCO will furnish efficient business administration and
superintendence to cause the Work to be performed in accordance with the
Contract Documents and in a good and workmanlike manner. TEPPCO shall be solely
responsible for and shall have control over construction means, methods,
techniques, sequences and procedures, and for coordinating all portions of the
Work. Each month TEPPCO shall conduct a project meeting, which shall be attended
by TEPPCO's project manager, the pipeline Contractor's project superintendent
when construction is in progress and others as deemed necessary, along with one
or more representatives of the Contracting Shippers and any other prospective
shipper. Contracting Shippers and any other prospective shipper, shall each have
the right to request a project
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meeting from time-to-time and TEPPCO shall make all reasonable efforts to
arrange for any such requested project meeting.
6.2 Project Controls and Reporting
(a) TEPPCO, within fifteen (15) days after execution of the
Agreement, shall prepare and submit for Contracting Shippers' information a
Project Schedule in the form of a Gantt bar chart, and a detailed CPM network
schedule, prepared in accordance with Attachment 6.2(a) attached hereto (as same
may be revised from time-to-time, the "Project Schedule"). The Project Schedule
shall incorporate the Projected Final Completion Date. In addition, TEPPCO
shall, at the request of any of the Contracting Shippers, deliver the following
information:
(i) Schedule of activities by major project element;
(ii) Activities listed by early start date for each
major project element;
(iii) A schedule of production of Drawings and
Specifications and other documents required for the award of contracts and
subcontracts;
(iv) A listing of all long lead-time items and a
schedule for the acquisition and delivery of such items; and
(v) A detailed schedule of the periods during which
Contractor's and each Subcontractor's work will be performed.
(b) The Project Schedule shall take into consideration such
matters as design services, Contracting Shippers' and other shippers'
activities, governmental approvals and the like.
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Contractor and each Subcontractor under a major trade subcontract shall
cooperate fully and provide detailed information as required in order to achieve
the most logical schedule for the Project.
(c) TEPPCO and Contractor and Subcontractors under major trade
subcontracts, will continuously monitor and shall revise and update monthly the
Project Schedule, provided that the Projected Final Completion Date shall be
adjusted only as expressly permitted in the Contract Documents. The Project
Schedule shall be further revised or expanded to provide more detailed
information concerning the time requirements for all elements of the Project as
such information is developed by TEPPCO.
(d) TEPPCO and Contractor shall to the extent necessary, provide
expediting services to ensure that equipment is delivered in accordance with
the Project Schedule.
(e) TEPPCO shall prepare or cause to be prepared a semi-monthly
project progress report in accordance with Attachment 6.2(e)(1) and Attachment
6.2(e)(2) that shall reflect activities and progress for the previous fourteen
(14) day period.
(f) The Projected Final Completion Date shall be October 16, 2000,
subject to any changes as expressly permitted in the Contract Documents.
6.3 Payment of Taxes. TEPPCO shall pay, or cause to be paid all taxes
incurred in the performance of the Work or portion thereof.
6.4 Chief Inspector.
(a) TEPPCO shall employ a competent chief inspector and
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any necessary assistants who shall be in attendance at the Project Site during
the performance of the Work. The term "Project Site" means all of the land in,
or under which any of the Pipeline Systems are to be located, and all land
adjacent thereto used in the performance of the Work.
(b) Contracting Shippers may collectively employ a qualified
inspector, at their sole cost and responsibility, to inspect any of the Work. In
addition to any reporting obligations to the Contracting Shippers, such
inspector may make only suggested recommendations regarding the Work to TEPPCO's
chief inspector but implementation or action on such recommendations shall be at
the chief inspector's sole discretion.
6.5 Permits, Fees, Notices, Tests and Inspections.
(a) TEPPCO or Contractor shall secure and pay for any
construction or building permits and other permits and governmental fees,
licenses and inspections necessary for proper execution and completion of Work.
(b) TEPPCO or Contractor shall give all notices required by
Laws.
(c) TEPPCO or Contractor shall be responsible for arranging,
scheduling and making any and all tests required by Laws or the Contract
Documents. TEPPCO shall provide Contracting Shippers and any other prospective
shipper with at least three (3) business days notice before conducting any final
pipeline test in order to allow Contracting Shippers and any other prospective
shipper to have one or more representatives present during the
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conduct of such test.
6.6 Compliance with Laws. TEPPCO shall require Contractor and
Contractor shall require each Subcontractor to comply with federal, state,
county, city, and municipal laws, codes, statutes, rules, regulations and orders
applicable to its operations, and applicable requirements of Fina, BASF and LP
when working on or in their property and/or facilities
6.7 Safety and Security.
(a) All Work shall be conducted in accordance with the United
States Department of Transportation's safety standards and procedures.
(b) When use or storage of explosives or other hazardous
materials or equipment or unusual methods are necessary for execution of the
Work, TEPPCO shall cause the Contractor to exercise utmost care and carry out
such activities under the supervision of properly qualified personnel.
(c) TEPPCO shall designate a responsible member of TEPPCO's
organization whose duty shall be to work with Contractor in the prevention of
accidents in the performance of the Work.
(d) TEPPCO shall be responsible for the security of the Work,
the Project Site and all Materials stored at the Project Site or at any other
location. TEPPCO shall be responsible for all losses and expenses incurred by
reason of failure to maintain reasonable security at the Project Site or at the
location where Materials are stored.
(e) TEPPCO shall cause Contractor to employ such
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practices as are necessary to protect all completed and partially completed Work
and all existing improvements located on the Project Site from loss and damage,
including theft or damage by weather and, if necessary, shall provide suitable
shelter therefor. Contractor shall correct at its own expense any damage or
disfigurement to work or property (whether or not located on the Project Site).
6.8 Cleaning Up. TEPPCO shall cause Contractor to keep all areas within
which it performs any portion of the Work in a safe condition and free from
accumulation of waste material and shall satisfy any reasonable requests of
grantors of Pipeline Right-of-Way concerning clean-up of the right-of-way.
Without limiting the foregoing, Contractor shall be responsible for performing
such cleanup work within and adjacent to the Pipeline Right-of-Way as is
necessary to comply with the requirements of any instrument conveying a portion
of the Pipeline Right-of-Way to TEPPCO. Upon the completion of the Work,
Contractor shall remove from and about the Pipeline Right-of-Way and all other
areas within which any portion of the Work is performed all waste materials,
rubbish, Contractor's tools, construction equipment, machinery and surplus
Materials. If Contractor fails to perform any of its cleanup obligations, TEPPCO
will perform same.
6.9 Non-Conforming Work.
TEPPCO represents that it shall correct or cause to be
corrected defective Work and Work which does not conform to the requirement of
the Contract Documents, the Completion Standards or
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the Performance Standards; provided, however, TEPPCO may accept any
non-material, non-conforming Work, if TEPPCO elects to do so.
6.10 As-Built Surveys and Record Drawings. TEPPCO shall maintain (i) on
the ground surveys reflecting the actual location of the Pipeline System within
the Pipeline Right-of-Way, and (ii) the record set of the drawings showing the
as-built condition of the Pipeline Systems. Such surveys and drawings shall be
updated on a timely basis to reflect changes that are made in the future.
6.11 As-Built Documentation. TEPPCO shall maintain a set of design and
construction data books which shall contain a description of the project scope,
construction inspection reports, welding procedures and qualifications reports,
welder qualification reports, hydrostatic test reports, electrical and
instrument test reports, radiographic examination reports,construction
specifications, radiographic examination specifications, and any other documents
or drawings which show compliance with applicable codes, standards, regulations,
and laws. TEPPCO shall also maintain a set of material and equipment data books
which shall contain (i) all technical specifications prepared for acquisition of
project related material, (ii) vendors' start-up, operating, and maintenance
procedures, (iii) schematics, and (iv) recommended spare parts lists.
6.12 Certain Responsibilities. TEPPCO represents that it has satisfied
itself as to the nature, location, and character of the general area in which
the Projected Pipeline Right-of-Way is located, including, but not limited to,
its climatic conditions.
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SECTION 7 COMMENCEMENT AND COMPLETION
7.1 Commencement of Work. TEPPCO shall commence the Work hereunder upon
execution of the Agreement by the Parties.
7.2 Completion
(a) The Parties anticipate that the Completion Date shall occur
no later than October 16, 2000.
(b) The "Completion Date" means the date upon which all of the
following shall have occurred:
(i) The Pipeline Systems shall have been completed in
accordance with the Completion Standards, and tested in accordance with the
procedure set forth in Attachment 2.4 (and the Pipeline Systems shall have
passed such tests);
(ii) Following such testing, the Pipeline Systems shall be
ready to be filled with Propylene, Ethylene and Natural Gasoline. Contracting
Shippers shall provide Product for the initial line fill for the Propylene
Pipeline, Ethylene Pipeline and Natural Gasoline Pipeline. Attached hereto as
Attachment 7.2 are the line fill procedures to be utilized by TEPPCO and
Contracting Shippers.
(iii) All governmental permits for the operation of the
Pipeline Systems shall have been issued and received.
(iv) The Pipeline Systems shall be capable of operating in
accordance with the Performance Standards; and
(v) Contractor shall have certified to TEPPCO that (A) the
conditions set forth in clauses (i), (ii), (iii) and (iv) have been satisfied
and (B) the Completion Date has occurred.
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(c) TEPPCO, in its reasonable judgment, may declare in writing
that the Completion Date has occurred and that all the items set forth in
Section 7.2(b) have been achieved, notwithstanding the fact that certain
immaterial items remain to be accomplished.
(d) TEPPCO shall be responsible for performing the Pipeline
Facilities commissioning, the filling of the Pipeline Systems and acceptance
tests to the extent possible for satisfying the capacity representations set
forth in Section 2.1(k) of Exhibit 3.1 to the Agreement.
7.3 Liquidated Damages and Completion Bonus.
(a) If on the Projected Final Completion Date the Completion
Date shall not have occurred then TEPPCO shall pay to Contracting Shippers,
collectively, as liquidated damages, and not as a penalty, an amount determined
based on the following sliding scale:
<TABLE>
<CAPTION>
Number of Days after the
Projected Final Completion The Per Day Liquidated
Date the Completion Date Occurs Damage Amount
------------------------------- ----------------------
<S> <C> <C>
0-21 $ 0.00
22-30 $ 50,000
31-60 $ 75,000
61-beyond $100,000
</TABLE>
The total sum of liquidated damages shall not exceed $4 million. Any such
liquidated damages shall be paid within thirty (30) days after the Completion
Date.
(b) If the Completion Date occurs prior to the Projected Final
Completion Date, then Contracting Shippers shall collectively
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pay to TEPPCO as an early completion bonus an amount determined based on the
following sliding scale:
<TABLE>
<CAPTION>
Number of Days prior to
the Projected Final Completion The Per Day Early
Date the Completion Date Occurs Completion Bonus Amount
<S> <C> <C>
0-14 $ 0.00
15-21 $ 25,000
22-beyond $ 50,000
</TABLE>
The total sum of any such early completion bonus payment shall not exceed $1.5
million. Any such early completion bonus payment shall be paid within thirty
(30) days after the Completion Date.
(c) TEPPCO acknowledges that Contracting Shippers' businesses
will be damaged if the Completion Date does not occur by the Projected Final
Completion Date, and TEPPCO and Contracting Shippers agree that the exact
measurement of such damages is difficult, if not impossible, to determine, and
the amounts provided for in subsection 7.3(a) as liquidated damages are
reasonable estimates of the aggregate of all damages to Contracting Shippers'
collective businesses caused by such delay.
(d) Notwithstanding anything in this Agreement to the
contrary, the payment of liquidated damages pursuant to this Section 7.3 shall
be Contracting Shippers' sole and exclusive remedy for any Claim based upon
TEPPCO's or its Contractor's failure to have the Pipeline Facilities ready for
operations by the Projected Final Completion Date, and TEPPCO shall not be
responsible or liable to Contracting Shippers' for any actual, compensatory,
consequential, loss of profits, punitive or any other damages resulting from
such failure.
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(e) For illustrative purposes only, attached hereto as Attachment
7.3(e) are sample calculations of liquidated damages and completion bonuses.
7.4 Delay.
(a) If the progress of the Work on the critical path of the most
recent updated version of the Project Schedule is delayed at any time by (i) an
act or the neglect of Contracting Shippers, (ii) by changes in the Work
pursuant to Section 5.4 of this Exhibit or Section 2.2 of the Agreement, (iii)
by Construction Force Majeure as defined in Exhibit A-2.1, (iv) any delay due
to the rerouting of the Pipeline System as determined in accordance with
Section 4.1 of this Exhibit 2.1, or (v) subject to Section 9 of this Exhibit,
delay due to a pending resolution of a dispute, in each case not reasonably
anticipated by TEPPCO and beyond TEPPCO's reasonable control, then the
Projected Final Completion Date shall be extended for the days of delay;
provided, however, that TEPPCO shall not be entitled to any extension to the
extent that any such event could have been prevented or overcome by TEPPCO or
its Contractor through the exercise of such diligence and reasonable care as
would be exercised by a prudent Person under similar circumstances. TEPPCO
shall as far as reasonably possible, remedy any delay due to Construction Force
Majeure with all reasonable dispatch. It is understood and agreed that the
definition of Force Majeure in Exhibit A to the Agreement shall not be used or
asserted with respect to a delay in the progress of the Work under this Section
7.4.
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(b) In the event Contractor is delayed at any time in the progress
of the Work on the critical path of the most recent updated version of the
Project Schedule, which delay is subject to force majeure under Contractor's
contract, then the Projected Final Completion Date shall be extended for the
same period of time; provided that such force majeure would be a Construction
Force Majeure event as defined in Exhibit A-2.1. TEPPCO shall use reasonable
efforts to provide in its contract with Contractor that if any delay due to
Construction Force Majeure should continue for sixty (60) days, TEPPCO shall
have the right to terminate its contract with Contractor.
(c) TEPPCO shall notify Contracting Shippers in writing of any
delay that would extend the Projected Final Completion Date as soon as
reasonably possible after the occurrence of the delay. TEPPCO shall provide in
the notice an estimate of the probable effect of such delay on the progress of
the Work.
(d) The amount of any extension in the Projected Final Completion
Date for whatever reason incurred, will be based only on actual delays
occurring on Monday through Sunday, excluding holidays.
7.5 Contracting Shippers' Obligations. Contracting Shippers shall each
furnish TEPPCO with all information which Contracting Shippers are required to
furnish to TEPPCO within the time limits expressly required hereunder. Decisions
and approvals required of Contracting Shippers under the Contract Documents
shall be provided within a reasonable time, not to exceed six (6) days.
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SECTION 8 CONTRACTS AND OTHER AGREEMENTS
8.1 Contractor. TEPPCO shall contract with a pipeline contractor
("Contractor") to furnish superintendents, foremen, labor, equipment, machinery,
tools, materials and supplies necessary to perform the design, engineering and
construction of the Pipeline Systems in a diligent and workmanlike manner,
provided that Contracting Shippers shall have the right to approve such
Contractor, but such approval shall not be unreasonably withheld.
8.2 Subcontractor. Contractor may subcontract any part of the Work and
may enter into agreements with Subcontractors ("Subcontractors") to provide
services or Materials for use with or incorporation into the Work. TEPPCO and
its Contractor shall include on its bid lists, but not be limited to, qualified
local subcontractors and suppliers for construction and materials for the
Pipeline Facilities where TEPPCO deems appropriate.
8.3 Relations. Contractor shall contract with each and every
Subcontractor solely in the name and on behalf of Contractor, and no provision
contained herein or in any other Contract Document nor approval by Contracting
Shippers of Contractor shall be construed as creating any contractual
relationship between any Contractor, Subcontractor and any of Contracting
Shippers.
SECTION 9 NO STOPPAGE OF WORK AND TIME OF THE ESSENCE
9.1 No Stoppage of Work. In the event of a dispute, controversy or
question between Contracting Shippers and TEPPCO with respect to the
interpretation of the Contract Documents, the
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performance of any portion of the Work or otherwise, Contracting Shippers and
TEPPCO agree that pending the resolution or settlement of such dispute,
controversy or question, TEPPCO shall not directly or indirectly stop or delay
the performance of the Work, unless to do otherwise would violate any Laws,
including Environmental Laws and Environmental Permits, or create an
Environmental Condition.
9.2 Time of the Essence. Time is of the essence as to the Contract
Documents and completion of the Work, provided Contracting Shippers' sole remedy
for any delay in the Final Completion Date shall be as provided in Section 7.3
of this Exhibit 2.1. SECTION 10 OWNERSHIP OF DOCUMENTS AND PATENT INFRINGEMENT
10.1 Ownership of Documents. Title, ownership, copyright and patent
privileges to all information (whether or not contained in written documents),
drawings, specifications, plans, engineering calculations, computer and word
processing disks and data contained thereon, computations, sketches, test data,
surveys, models, photographs, discoveries, inventions, processes or methods and
all other work product (collectively "Work Product") prepared by TEPPCO or
TEPPCO's consultants, Contractor, Subcontractors or vendors of equipment for the
Project or their respective employees as a result of or in connection with the
Project, shall at all times for purposes of this Agreement, be in TEPPCO.
10.2 Patent Infringement.
(a) Neither the Work Product nor any equipment manufactured or
fabricated by TEPPCO or for TEPPCO will infringe on any perfected patent or
copyright of any Third Party.
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(b) Contractor and TEPPCO do not assume any responsibility or
liability for patent infringement due to changes in equipment made at the
request of Contracting Shippers or engineering designs furnished by Contracting
Shippers.
SECTION 11 ADDITIONAL WORK AND RIGHT TO ACCESS WORK
11.1 Additional Work. Fina may undertake to employ other workers, award
other contracts, or utilize its own workers (collectively "Fina Workers") to
perform additional work anywhere in the vicinity of the Work near Fina's Port
Arthur, Texas, refinery or the Plant. TEPPCO, Contractor and Subcontractors
shall fully cooperate with such Fina Workers and coordinate Work hereunder with
such additional work of Fina Workers, as may be required. Fina also reserves the
right to designate from time to time other architects, engineers, consultants
and professionals to administer, coordinate or otherwise participate in part or
all of the Plant work. TEPPCO, Contractor and Subcontractors will cooperate with
these other professionals as required by the Drawings and Specifications and to
the extent necessary to ensure safe start up and operation of the TEPPCO
metering facility at the Plant.
11.2 Contracting Shippers' Right to Access Work. TEPPCO shall at all
times provide Contracting Shippers and their authorized employees, agents and
representatives complete opportunity and facilities for observation of the Work
and materials stored at the Project Site, or at locations off the Project Site,
or in the
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course of fabrication by Contractor and Subcontractors. TEPPCO shall provide
safe and proper facilities for such access and observation; provided, however,
such access and observation shall be at Contracting Shippers' and their
authorized employees', agents' and representatives' sole risk, cost and expense.
Contracting Shippers shall abide by such reasonable observation and safety
procedures and requirements as may be established by TEPPCO, and CONTRACTING
SHIPPERS SHALL INDEMNIFY TEPPCO FOR ANY CLAIMS OR LOSSES THAT CONTRACTING
SHIPPERS, THEIR EMPLOYEES, AGENTS AND REPRESENTATIVES SUFFER OR INCUR AS A
RESULT OF OR THAT IS ATTRIBUTABLE TO SUCH ACCESS OR OBSERVATION, EVEN IF SUCH
CLAIMS OR LOSSES ARE ATTRIBUTABLE TO THE NEGLIGENCE OF TEPPCO.
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ATTACHMENT A-2.1
DEFINITIONS TO EXHIBIT 2.1
"Change Order" shall have the meaning given in Section 5.4(a).
"Change Order Proposal" shall have the meaning given in Section
5.4(a).
"Change Work" shall have the meaning given in Section 5.4(a).
"Completion Date" shall have the meaning given in Section 7.2(a).
"Completion Standards" shall have the meaning given in Section 2.4.
"Contract Documents" shall have the meaning given in Section 3.1.
"Contractor" shall have the meaning given in Section 8.1.
"Construction Force Majeure" shall mean acts of God; strikes, lockouts, or other
industrial disturbances, which by the exercise of reasonable diligence could not
have been avoided; acts of public enemies; wars; blockades; insurrections;
riots; fires; floods; washouts; necessity for compliance with any court order,
Law, regulation or ordinance promulgated by any Governmental Authority having
jurisdiction of the Parties, or jurisdiction over any Person supplying labor,
material, or any item or items necessary to the performance of the Work; civil
disturbances, explosions or any other cause of the kind or type herein recited
beyond the reasonable control of TEPPCO. Settlement of strikes, lockouts or
other industrial disturbances shall be entirely within the discretion of the
party having the difficulty.
"Costs" shall have the meaning given in Section 4.2(a).
"Drawings and Specifications" shall have the meaning given in
Section 3.1.
"Ethylene Pipeline" shall have the meaning given in Section 2.2.
"Fina Workers" shall have the meaning given in Section 11.1.
<PAGE> 89
"Materials" shall have the meaning given in Section 5.1.
"Natural Gasoline Pipeline" shall have the meaning given in Section
2.2.
"Performance Standards" shall have the meaning given in Section
2.3.
"Pipeline Right-of-Way" shall have the meaning given in Section
4.1.
"Project" shall have the meaning given in Section 2.2.
"Proposal Request" shall have the meaning given in Section 5.4(a).
"Propylene Pipeline" shall have the meaning given in Section 2.2.
"Project Schedule" shall have the meaning given in Section 6.2(a).
"Project Site" shall have the meaning given in Section 6.4(a).
"Projected Final Completion Date" shall have the meaning given in Section
6.2(f).
"Projected Pipeline Right-of-Way" shall have the meaning given in
Section 4.1.
"Related Costs" shall mean as applied to the Pipeline Facilities all direct
costs and expenses for Authorizations, design, engineering, procurement,
materials and construction attributable to reroute or reroutes from the
Projected Pipeline Right-of-Way, excluding any reroutes pursuant to Section
4.1(b), less the amount of such costs and expenses originally planned but which
have not been expended.
"Services" shall have the meaning given in Section 5.1.
"Subcontractor" shall have the meaning given in Section 8.2.
"Total Stipulated Amount" shall have the meaning given in Section
5.4(b).
"Work" shall have the meaning given in Section 5.1.
<PAGE> 90
ATTACHMENT 7.3(E) TO EXHIBIT 2.1
SAMPLE CALCULATIONS
(a) Liquidated Damages Calculation Example
Assume that the Final Completion occurs at 3 PM on November 23, 2000.
Therefore, the Final Completion Date occurred 38 days after the Projected Final
Completion Date. The liquidated damages are calculated as follows:
<TABLE>
<S> <C> <C>
21 days x $0 = $ 0
9 days x $50,000 = $ 450,000
8 days x $75,000 = $ 600,000
--- ----------
38 days = $1,050,000 Liquidated Damages
</TABLE>
(b) Bonus Calculation Example
Assume that the Final Completion occurs at 3PM on September 5, 2000.
Therefore, the Final Completion Date occurred 41 days before the Projected Final
Completion Date. The bonus is calculated as follows:
<TABLE>
<S> <C> <C>
14 days x $0 = $ 0
7 days x $25,000 = $ 175,000
20 days x $50,000 = $ 1,000,000
41 days $ 1,175,000 Bonus
</TABLE>
<PAGE> 91
EXHIBIT 3.1
OPERATION AND MAINTENANCE
SECTION 1 DEFINITIONS
1.1 The terms defined in Attachment A-3.1 shall have the respective
meaning specified therein with each such definition of a term being equally
applicable to singular and the plural form of the term so defined. Terms
initially capitalized but not defined in Attachment A-3.1 shall have the meaning
given to such term in the Agreement to which this Exhibit is attached.
SECTION 2 SERVICES AND DUTIES
2.1 Services. TEPPCO shall provide all management, operation and
maintenance services necessary or advisable in order to safely, dependably and
efficiently manage, operate and maintain the Pipeline Facilities. TEPPCO shall
perform the following services ("Services") in a manner consistent with good
industry practices.
(a) Comply with all Laws, including the Environmental Laws,
foreign trade zone requirements and obtain and maintain all Permits and foreign
trade zone certifications, including Environmental Permits, required for the
maintenance and operation of the Pipeline Facilities.
(b) Maintain adequate and sufficient records and provide all data
and/or reports reasonably required in the operation of common carrier pipeline
facilities, and as required by Law.
(c) Maintain current revisions of all drawings and specifications,
technical documents, instruction books, equipment diagrams and other
information relating to the Pipeline Facilities.
<PAGE> 92
(d) Maintain appropriate levels of spare parts and materials
required for the maintenance and proper operation of the Pipeline Facilities.
(e) Take all actions as may be necessary or appropriate to
maintain the Pipeline Facilities in good operating condition and repair.
(f) In the event of Emergencies, perform all actions
reasonable and appropriate to protect the Pipeline Facilities and all related
facilities, equipment, supplies and personnel and notify Contracting Shippers
immediately as soon as practical of any such Emergencies.
(g) Establish and maintain an effective work force required
for the management, operation and maintenance of the Pipeline Facilities through
proper hiring, training, supervising and qualifying procedures, and administer
all matters pertaining to labor relations, working conditions, employee
benefits, safety and all related matters in connection with these duties in
accordance with Laws.
(h) Subject to Section 2.2, provide reasonable access to the
Pipeline Facilities and all records relating to the operation and maintenance of
the Pipeline Facilities to all agents, representatives and inspectors of
Contracting Shippers and other Third Party shippers.
(i) Keep and maintain the Pipeline Facilities free and clear
of, or discharge in the ordinary course of business, all liens and encumbrances
resulting from performance of Services by TEPPCO, its contractors and
subcontractors.
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<PAGE> 93
(j) Keep Contracting Shippers and other Third Party shippers
informed of the operating status of the Pipeline Facilities through reports as
may be reasonably requested and agreed upon from time to time. In addition to
the foregoing, TEPPCO will immediately notify Contracting Shippers by telephone
as soon as reasonably possible of any shutdown, bring down or scheduled or
unscheduled maintenance occurrence of the Pipeline Facilities which impacts, or
TEPPCO reasonably believes may impact, the operations of the Plant. To the
extent possible TEPPCO will schedule all shutdown maintenance to the Pipeline
Facilities to coincide with LP's Plant turnaround schedule. LP shall furnish
TEPPCO with such Plant turnaround schedule at least 180 days prior to any
planned shutdown of the Plant and LP shall advise TEPPCO of any changes or
modifications to such schedule. TEPPCO will take all reasonable actions,
consistent with sound, prudent business and operating practices, to minimize the
Pipeline Facilities total unavailable time.
(k) Take such actions as shall be necessary to maintain the
aggregate capacity of the Pipeline Facilities to as close as possible the
current estimated maximum capacities of:
(i) 80,000 Barrels per day for Natural Gasoline.
(ii) 8,219,178 Pounds per day for Ethylene.
(iii) 8,219,178 Pounds per day for Propylene.
(l) Perform such mechanical activities as may be required to
receive, store, transport, load and otherwise handle Products tendered for
transportation through the Pipeline Facilities.
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<PAGE> 94
(m) Maintain surveillance of the Pipeline Facilities, periodically
inspect the Pipeline Facilities for damage or other conditions which could
affect the safe, efficient and economical operation of the Pipeline Facilities,
as required by Laws, rights-of-way agreements, or good pipeline practice, and
perform or cause to be performed such repairs to the Pipeline Facilities as may
be required.
(n) Prepare and maintain manuals, monitoring programs, contingency
plans and training programs satisfying applicable Laws and other requirements
of Governmental Authorities.
(o) Prepare run tickets, daily status reports and other
appropriate accounting materials to document the custody transfer, receipt and
delivery of Products and sample and measure Products received and delivered as
may be necessary to verify quality and quantity;
(p) Prepare appropriate surveillance, operating and maintenance
reports to document the performance of the Pipeline Facilities.
2.2 Contracting Shippers' Access. This Section 2.2 shall be the sole
governing provision of this Exhibit 3.1 pertaining to Contracting Shippers',
their employees', agents' and other representatives' (collectively
"Representatives") access to the Pipeline Facilities following the Commencement
Date. Contracting Shippers and their Representatives following the Commencement
Date shall have access to the Pipeline Facilities when accompanied by a
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<PAGE> 95
representative of TEPPCO who has been so designated by TEPPCO, and upon at least
24 hours advance notice to TEPPCO, except in the event of an Emergency, in which
case, TEPPCO shall provide to Contracting Shippers and their Representatives
access to the Pipeline Facilities, as the case may be, at any time and as soon
as reasonably and safely possible in accordance with Section 2.3. Contracting
Shipper and their Representatives shall comply with all of TEPPCO's safety rules
and procedures during any such access. ANY SUCH ACCESS SHALL BE AT CONTRACTING
SHIPPERS' AND THEIR REPRESENTATIVES' SOLE RISK, COST AND EXPENSE AND CONTRACTING
SHIPPERS SHALL INDEMNIFY TEPPCO FOR ANY CLAIM OR LOSS THAT CONTRACTING SHIPPERS
OR THEIR REPRESENTATIVES MAY SUFFER OR INCUR AS A RESULT OF OR THAT IS
ATTRIBUTABLE TO SUCH ACCESS UNLESS SUCH CLAIM IS CAUSED BY THE SOLE NEGLIGENCE
OF TEPPCO. IT IS EXPRESSLY UNDERSTOOD AND AGREED THAT DURING AN EMERGENCY THE
FOREGOING INDEMNITY IN THIS SECTION 2.2 SHALL APPLY AND BE ENFORCEABLE AGAINST
CONTRACTING SHIPPERS EVEN IF SUCH CLAIM OR LOSS IS DUE TO THE NEGLIGENCE OF
TEPPCO OR ITS EMPLOYEES, AGENTS, CONTRACTORS AND REPRESENTATIVES.
2.3 Emergency Action by TEPPCO. Notwithstanding any provision in this
Agreement to the contrary, it is particularly provided that in the case of
explosion, fire, flood or any other sudden Emergency, or Third-Party
notification of an Emergency, TEPPCO shall take any and all actions deemed
necessary, in its sole judgment, to protect public safety and health, the
environment and property. In the event of any such Emergency condition, TEPPCO
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<PAGE> 96
will make every reasonable effort to ascertain the exact nature of the Emergency
and to immediately notify Contracting Shipper of TEPPCO's intended emergency
response actions prior to any shutdown of the Pipelines Facilities or any flow
reductions. TEPPCO will make every reasonable effort to accommodate the requests
of Contracting Shippers with regard to the planned Emergency response
("Requests"). However, the prior notification to Contracting Shippers of
TEPPCO's emergency response actions or the accommodation of Requests shall not
be a prerequisite to TEPPCO's taking such steps and initiating such actions as
are necessary to deal with the Emergency and to provide immediate safeguards to
public safety and health and the environment if, in TEPPCO's sole opinion, such
notification or the accommodation of Requests would be impractical. TEPPCO will
ensure the development of coordinated emergency response plans with Contracting
Shippers and any other Third Party shipper.
SECTION 3 EMPLOYEES, CONSULTANTS AND CONTRACTORS
3.1 Employees. TEPPCO shall hire, employ, and have supervision over
such persons as may be required to enable TEPPCO to perform the Services
required hereunder (including consultants, professionals, and any other service
or materials provider).
3.2 Affiliates. TEPPCO may utilize the services of any Affiliate in
performance of its obligations hereunder.
3.3 Performance Standards. TEPPCO shall perform the Services and carry
out its responsibilities, devoting appropriate time and
6
<PAGE> 97
talents to the operations of the Pipeline Facilities in a good and businesslike
manner and in accordance with good and prudent practices within the industry. In
connection therewith, all persons engaged by TEPPCO shall be duly trained,
qualified and experienced to perform their responsibilities. TEPPCO shall
require all contractors, and such contractors shall use reasonable efforts to
require all subcontractors, to carry adequate insurance. All materials and
workmanship used or provided in performing the Services shall be in accordance
with applicable governmental standards, regulations and Laws.
SECTION 4 OPERATING COSTS
4.1 Costs and Expenses. TEPPCO shall pay and be responsible for all
costs, expenses, expenditures and fees incurred in connection with the provision
of the Services or otherwise required for the management, operation and
maintenance of the Pipeline Facilities. Subject to the provisions of Section 7.3
and Section 8.5 of this Exhibit 3.1, any loss of Products due to measurement
inaccuracies shall be the sole responsibility of Contracting Shippers and Third
Party shippers, as the case may be, it being expressly understood and agreed
that TEPPCO shall not have any responsibility or liability under the Agreement
for any loss of Products due to measurement inaccuracies.
4.2 Insurance. TEPPCO shall carry such insurance as it may consider
necessary or appropriate and shall be responsible for all costs and expenses of
premiums payable for such insurance. Under
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<PAGE> 98
no circumstances shall TEPPCO be required to carry insurance for business
interruption or be liable to Contracting Shippers for Claims or Losses
attributable to business interruption or loss of profits.
SECTION 5 WARRANTY
5.1 Warranty and Disclaimers. TEPPCO warrants that the Services shall
be performed in accordance with the terms and conditions of the Agreement,
including all standards set forth in this Exhibit 3.1. Except as otherwise
provided in the Agreement, Contracting Shippers agree that there are no
warranties, either express or implied, made with respect to TEPPCO's performance
under this Agreement AND TEPPCO SPECIFICALLY DISCLAIMS ANY AND ALL IMPLIED
WARRANTIES THAT MAY RESULT FROM ANY RELATIONSHIP BETWEEN TEPPCO AND CONTRACTING
SHIPPERS OR FROM DRAWINGS OR MODELS OF THE WORK OR OTHERWISE, INCLUDING, BUT NOT
LIMITED TO, ANY AND ALL IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, DESIGN, PERFORMANCE, CONDITION, CERTIFICATION, MAINTENANCE
OR SPECIFICATION. It is understood and agreed that nothing in the Agreement or
any Exhibit thereto is intended to limit, abrogate or in any way modify TEPPCO's
obligations and duties as a common carrier pipeline under the Laws.
5.2 Remedies. In the event TEPPCO breaches any warranty described in
Section 5.1 above, TEPPCO shall re-perform any defective service, replace any
unfit or unqualified personnel and train new personnel, and repair or replace
any components of the
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<PAGE> 99
Pipeline Facilities damaged as a consequence of such breach. Any such
re-performance, training, repair or replacement by TEPPCO pursuant to this
Section 5.2 shall be at TEPPCO's sole cost and expense.
SECTION 6 EASEMENT AND TARIFF ADMINISTRATION
6.1 Easement Administration. As used in this Section "Easement
Administration" means the acquisition, maintenance, modification, release and
administration (including, but not limited to, the making of required payments)
of all contracts and grants (including, but not limited to, rights-of-way
agreements, easements, leases and Permits) concerning TEPPCO's rights to use or
occupy the real property of Third Parties. TEPPCO will perform all Easement
Administration necessary for the maintenance and operation of the Pipeline
Facilities and compliance with the terms and conditions of easements,
rights-of-way and Permits.
6.2 Tariff Administration. Subject to the provisions of Section 4.5 of
the Agreement relating to Contracting Shippers' right to review Tariff filings,
all Tariffs, changes in Tariffs, rates, and divisions of rates covering
movements through the Pipeline Facilities shall be handled solely by TEPPCO.
TEPPCO will keep all necessary records required by Commission order applicable
to any Tariff filings.
9
<PAGE> 100
SECTION 7 NATURAL GASOLINE AND PROPYLENE
7.1 Natural Gasoline and Propylene Measurement Procedures. The metering
facilities for Natural Gasoline and Propylene shall be owned, maintained and
operated by TEPPCO in accordance with the following:
(a) Natural Gasoline and Propylene to or from TEPPCO shall be
measured through facilities equipped with turbine flow meters or other type of
flow meters of standard make and design which will ensure accurate measurements.
The output of the meters will be transmitted to computing and recording
instruments to ensure accurate documentation of the measurements. The meters
shall be operated between the minimum and maximum flow rates per the
manufacturer's specifications for each meter.
(b) The Product pressure and temperature during the custody
transfer will be determined by continuous, on-line, industry accepted
transmitters. If transmitter should fail, manual temperatures or pressures will
be taken at the meters and input into the flow computer as a fixed value.
The Natural Gasoline density will be based on on-line real time
input into the flow computer. Should the on-line density instrument fail, the
density will be manually input into the flow computer as a fixed value. The
Propylene density will be based on 100% pure propylene with a density of .5228
as per API 11.3.3.2.
(c) The volume corrections factors used for Natural Gasoline
to net the volumes to standard conditions will be based on the latest API Manual
of Petroleum Measurement Standards, Chapter 11.1, Volume Correction Factors,
Table 6A and Chapter 11.2.2 Compressibility Factors for Hydrocarbons: 0-90 API
Gravity Range.
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<PAGE> 101
(d) The volume corrections factors used for Propylene to net
the volumes to standard conditions will be based on the latest API Manual of
Petroleum Measurement Standards, Chapter 11.3.3.2 Propylene Compressibility.
(e) Propylene mass flowrate in Pounds shall equal gross
flowrate times Meter Factor times Flowing Specific Gravity times weight of H20
at 60(degree)F and 14.696 psia.
Where: (1) Flowing Specific Gravity equals
(Calculated Flowing Density in Lbs/Ft3
times 0.0161846) divided by 0.999012.
(2) Calculated Flowing Density equals
density at flowing temperature and
pressure calculated using API
Chapter 11.3.3.2.
(3) Meter Factor equals a dimensionless
term obtained by dividing the gross
standard volume of liquid passed
through the meter (as measured by a
prover during proving) by the
corresponding meter indicated volume
at standard conditions.
(f) TEPPCO will notify Contracting Shippers of any instrument
or computer problem that is discovered which impacts a specific Product
shipment.
7.2 Proving and Calibration Procedures of Meters
(a) TEPPCO shall prove the custody transfer meters for Natural
Gasoline and Propylene a minimum of twice each Month in accordance with the API
Manual of Petroleum Measurement Standards, Chapter 4, Proving Systems. TEPPCO
will promptly notify Contracting Shippers if this proving requirement cannot be
met.
(b) A valid proving will consist of a minimum of five (5)
consecutive proof runs that repeat within 0.05% of each run.
(c) Pressure and temperature instrumentation and
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<PAGE> 102
densitometers used as computer input will be calibrated each calendar quarter in
accordance with API and ASTM standards and manufacturer's specifications and
requirements. Records of the calibrations and tests will be maintained by TEPPCO
and will be open for inspection by Contracting Shippers at any reasonable time.
(d) Following any calibration of temperature or pressure
instrumentation, any equipment found to be inaccurate shall, prior to its use,
be calibrated or replaced with equipment that accurately functions.
(e) TEPPCO shall supply Contracting Shippers upon request with
documentation of the results of any meter proving or instrument calibration test
performed, whether witnessed or not witnessed by Contracting Shippers
representatives. TEPPCO will immediately notify Contracting Shippers of any
variance of meter factors, temperatures, pressures or gravities which will
affect booked volumes.
7.3 Billing Adjustments
(a) TEPPCO will adjust previous meter volumes for Natural
Gasoline and Propylene if:
1. any temperature instrument is found to be
inaccurate by more than one (1) degree
Fahrenheit.
2. any pressure instrument is found to be
inaccurate by more than ten (10) PSIG.
3. any densitometer is found to be inaccurate
by more than two (2) API degrees.
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<PAGE> 103
4. the meter's factor changes by more than
0.25% from the previous meter factor.
(b) The following guidelines will be used to determine the
volume of Product subject to adjustment:
1. If the duration of the inaccuracy is known
or agreed upon, the volume booked shall be
corrected for the period of the inaccuracy.
2. If the duration of the inaccuracy is not
known or agreed upon, one half (1/2) of the
volume booked since the last calibration of
the equipment in error shall be corrected.
(c) If, for any reason, any instrument is out of service or in
disrepair such that Product delivery cannot be accurately determined, the
quantity delivered during the period of outage or malfunction shall be estimated
using the first feasible method shown below and agreed to by the Parties:
1. By using the volumes measured by Contracting
Shippers' metering station, provided
Contracting Shippers' measurement equipment
meets all requirements as set forth in this
Section 7.3 for TEPPCO's measurement.
2. By correcting the error if the percentage or
amount of the error is determined by
calibration, test, or mathematical
calculation. All calibrations must meet API
standards.
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<PAGE> 104
3. By estimating the quantity of delivery
through analysis of actual deliveries made
during preceding periods under conditions
when measuring equipment was registering
accurately.
(d) The reasoning behind any volumetric adjustments will be
properly documented and filed with other billing documentation.
SECTION 8 ETHYLENE MEASUREMENT
8.1 Unit of Measure. Unless otherwise stated, the unit of measurement
of Ethylene delivered or received shall be in mass (one thousand Pounds of
ethylene). Ethylene density is calculated using API Chapter 11.3.2.1, IST 1045,
or IUPAC Tables, as the Parties shall mutually agree.
8.2 Equipment. Except as specified otherwise herein, all measuring and
testing equipment, housing, devices, and materials shall be of standard
manufacture and type and shall, with all related equipment, appliances, and
buildings, be installed, maintained, and operated or furnished by TEPPCO at
TEPPCO's expense. Notwithstanding the foregoing, TEPPCO's orifice meter shall be
installed and operated in accordance with the specifications prescribed in API
MPMS 14.3 (ANSI/API 2530) entitled "Orifice Metering of Natural Gas" (formerly
Gas Measurement Committee Report Number 3 of the American Gas Association) and
any subsequent modifications to API MPMS 14.3, (ANSI/API 2530).
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<PAGE> 105
8.3 Check Meters. Contracting Shippers shall have the right at their
cost and expense to install and maintain check meters in series with TEPPCO's
meters. Such orifice meters shall be installed and operated in accordance with
the specifications prescribed in API MPMS 14.3 (ANSI/API 2530) entitled "Orifice
Metering of Natural Gas" (formerly Gas Measurement Committee Report Number 3 of
the American Gas Association) and any subsequent modifications to API MPMS 14.3,
(ANSI/API 2530).
8.4 Calibration. The measurement equipment is to be calibrated
quarterly by TEPPCO in the presence of representatives of the Contracting
Shippers, if Contracting Shippers choose to be represented, and the Parties
shall jointly observe any necessary adjustments that are made in the measuring
equipment. Each Party shall give to the other Party notice of the time of all
regular tests of measuring equipment and other tests called for herein
sufficiently in advance of the holding of such tests so that the other Parties
may conveniently have their representatives present. If any Party at any time
desires a special test of any measuring equipment, it will promptly notify the
other Parties, and the Parties will then cooperate to promptly secure a
calibration test and jointly observe any adjustments. If, upon any special test,
the measuring equipment is found to be no more than one percent (1%) erroneous
in the aggregate, the entire cost of such test shall be paid for by the Party
requesting the test and previous readings of such equipment shall be considered
correct in computing deliveries hereunder.
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<PAGE> 106
8.5 Billing Adjustment. If, upon any test, any measuring equipment is
found to be inaccurate by more than one percent (1%), such equipment shall be
adjusted to read accurately, and the previous readings shall be corrected for
such inaccuracy for any period which is definitely known and agreed upon. In
case the period is not definitely known and agreed upon, then the readings shall
be corrected for a period extending back one-half (1/2) of the time elapsed
since the last date of calibration, not to exceed a period of thirty (30) days.
If, for any reason, measuring equipment is inoperative so that the amount of
Ethylene delivered cannot be ascertained, then the volume of Ethylene delivered
during the period such measuring equipment is inoperative shall be estimated and
agreed upon by the Parties upon the basis of the best data available by using
the first of the following methods which is feasible:
(a) By using the registration of any check-measuring
equipment, if installed and accurately registering;
(b) By correcting the error, if the percentage of error is
ascertainable by calibration, test, or mathematical calculation; or
(c) By estimating the quantity of delivery through analysis of
actual deliveries made during preceding periods under conditions when measuring
equipment was registering accurately.
Claims of any Party concerning the quantity of Ethylene, Propylene or
Natural Gasoline delivered must be submitted in writing within 180 days from the
date of commencement of the claimed discrepancy.
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ATTACHMENT A-3.1
DEFINITIONS
"Calculated Flowing Density" shall have meaning given in
Section 7.1(e).
"Easement Administration" shall have the meaning given in
Section 6.1.
"Emergencies" shall mean the occurrence, condition, or reasonable
anticipation of an occurrence or condition, which might (1) threaten life,
property, or the environment; or (2) render any of the Pipeline Facilities
incapable of normal operation.
"Flowing Specific Gravity" shall have the meaning given in
Section 7.1(e).
"Meter Factor" shall have the meaning given in Section 7.1(e).
"Permit" shall mean any license, permit or authority granted
by any Governmental Authority.
"Requests" shall have the meaning given in Section 2.3.
"Representatives" shall have the meaning given in Section 2.2.
"Services" shall have the meaning given in Section 2.1.
<PAGE> 1
EXHIBIT 10.23
CALL OPTION AGREEMENT
THIS CALL OPTION AGREEMENT ("Agreement") granted as of February 9,
1999, by and between BASF Fina Petrochemicals Limited Partnership (LP), Fina
Oil and Chemical Company ("Fina"), BASF Corporation ("BASF") (collectively
"Fina/BASF"); and TE Products Pipeline Company, Limited Partnership ("TEPPCO");
WITNESSETH:
WHEREAS, Fina/BASF have entered into a Services and Transportation
Agreement ("Transportation Agreement") with TEPPCO dated as of the date of this
Agreement pursuant to which TEPPCO will design, engineer, construct, install,
and operate certain Pipeline Facilities through which Fina/BASF agrees to ship
or caused to be shipped certain guaranteed volumes of Products; and
WHEREAS, Fina/BASF has requested and TEPPCO is willing to grant
Fina/BASF a call option to acquire for cash the Pipeline Facilities pursuant to
the terms hereof;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein and intending to be legally bound
hereby, the parties hereto agree as follows:
1. Definitions. Terms capitalized but not defined in this Agreement
shall have the meaning given to such term in the Transportation Agreement
unless the context of such term as used herein requires otherwise.
2. Grant of Option.
(a) TEPPCO hereby grants to Fina/BASF an irrevocable
<PAGE> 2
call option (the "Option") to purchase and acquire from TEPPCO all the Pipeline
Facilities based on the buyout schedule attached hereto as Exhibit A and by
this reference made a part hereof. If Fina, BASF and/or LP have an Excess
Product Volume balance at the time of the Closing, then the buyout schedule in
Exhibit A shall be reduced by a total amount determined by multiplying such
Excess Product Volume by the applicable Transportation Charges under which such
Excess Product Volumes were transported by TEPPCO.
(b) This Agreement shall become operative and in full force and
effect as of the Commencement Date and unless sooner terminated as herein
provided, shall terminate forty (40) years from the Commencement Date ("Initial
40-Year Term"). Fina/BASF shall have the right to extend this Agreement from
year-to-year ("Renewal Term") following the Initial 40-Year Term and any
Renewal Term upon giving TEPPCO written notice not less than 180 days prior to
the end of the Initial 40-Year Term or any Renewal Term, as the case may be, of
Fina/BASF's desire to so extend this Agreement and the payment to TEPPCO of
$100.00 for such extension.
(c) In addition to the provisions of Section 5(i), the Option may
only be revoked and this Agreement terminated by TEPPCO if Fina/BASF or their
successors and assigns have not transported any Product under the Tariff for a
period of not less than six consecutive Months and the Transportation Agreement
has been terminated.
3. Exercise of Option.
(a) The Option may be exercised by Fina/BASF by written
2
<PAGE> 3
notice to TEPPCO, provided Fina/BASF shall not be in material default in the
performance of their obligations set forth in the Transportation Agreement.
Such notice must be given not later than 180 days prior to the commencement of
the Contract Year for which the purchase price is to be determined in
accordance with Exhibit A and Section 2(a) hereof and must be contemporaneously
given by or on behalf of all the parties constituting Fina/BASF hereunder. Such
notice shall specify a place and a date for the closing ("Closing") which date
shall not be earlier than the first day of the applicable Contract Year nor
later than the fifteenth day from the commencement of the applicable Contract
Year. The Closing will be postponed if required to comply with the required
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976
as amended ("HSR Act").
(b) Fina/BASF shall have the right to exercise the Option at any
time after the twentieth Contract Year by giving TEPPCO at least 180 days
written notice of its intention to exercise the Option. The notice shall
specify a place and a date for the Closing. The Closing will be postponed if
required to comply with the required waiting period under the Hart-Scott-Rodino
Act. The purchase price shall be $4 million, subject to the provisions of
Section 2(a) hereof.
4. Closing. In the event Fina/BASF exercises the Option, Fina/BASF
will make payment to TEPPCO on the date of the Closing of the purchase price
for the Pipeline Facilities as determined in accordance with Exhibit A and
Section 2(a) hereof, in immediately
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<PAGE> 4
available funds by wire transfer to a bank account of TEPPCO designated by
TEPPCO. TEPPCO will deliver to Fina/BASF all necessary documentation evidencing
the assignment and transfer of the Pipeline Facilities to Fina/BASF on an "AS
IS, WHERE IS" basis WITH ALL FAULTS. Except as provided in Paragraph 5,such
transfer documents shall expressly disclaim and negate ALL WARRANTIES, EXPRESS
OR IMPLIED OR STATUTORY, REGARDING THE PROPERTY TRANSFERRED INCLUDING WITHOUT
LIMITATION, (i) ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, FITNESS FOR
A PARTICULAR PURPOSE, DESIGN, PERFORMANCE, CONDITION, CERTIFICATE, MAINTENANCE,
OR SPECIFICATION, AND (ii) ANY INFORMATION, DATA, OR OTHER MATERIALS (WRITTEN
OR ORAL) FURNISHED BY OR ON BEHALF OF TEPPCO TO FINA/BASF, AND FINA/BASF WILL
HAVE SOLE RESPONSIBILITY FOR ANY ACTION TAKEN BY FINA/BASF, OR BY OTHERS
RELYING ON FINA/BASF'S ADVICE, BASED ON SUCH RECORDS.
5. Investigation of Pipeline Facilities.
(a) Access to Information. Immediately following the exercise of
the Option and until the Closing, (i) TEPPCO shall permit Fina/BASF and its
respective representatives ("Fina/BASF's Representatives") to examine TEPPCO's
records (other than litigation, financial and accounting records) with respect
to the Pipeline Facilities, including, but not limited to, all files, abstracts
of title, title opinions, title files, ownership maps, rights-of-way maps,
rights-of-way agreements, licenses, leases and documents of title, safety,
maintenance and operating manuals, facility response plans, system pressure
logs, cathodic protection
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<PAGE> 5
records, inspection records, records concerning the construction, repair and
maintenance of the Pipeline Facilities, records pertaining to environmental
issues, and all other property or operation records, all engineering and other
records, and all other contracts, agreements and documents relating to the
Pipeline Facilities, insofar as the same are in TEPPCO's or its Affiliates'
possession or control, or insofar as TEPPCO or its Affiliates have access to
the same, and to the extent in each case that TEPPCO may do so without
violating legal constraints or any legal obligation, (ii) TEPPCO shall permit
Fina/BASF's Representatives to interview TEPPCO's and its Affiliates' employees
as well as the employees of Contractor and any Subcontractor, provided such
Contractor and Subcontractor allow such interview, with respect to the Pipeline
Facilities, and (iii) TEPPCO shall cooperate with Fina/BASF's Representatives
in connection with their interviews and examination of such records and other
items. TEPPCO agrees to use Best Efforts to fully disclose to Fina/BASF all
knowledge in its possession regarding all material matters affecting the
Pipeline Facilities which a reasonably prudent purchaser of the Pipeline
Facilities would want to know.
(b) Access to Property. Immediately following the exercise of the
Option until the Closing, and subject to any required consent of any Third
Party, TEPPCO shall grant Fina/BASF and Fina/BASF's Representatives access to
the lands on which the Facilities are located and the right to observe all
operations thereon, to visually inspect and examine the Pipeline Facilities
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<PAGE> 6
and to conduct environmental audits, inspections and other non-invasive
investigations thereon as reasonably necessary for Fina/BASF to evaluate the
physical and environmental condition of the Pipeline Facilities (collectively,
"Investigations"). Fina/BASF shall conduct the Investigations in accordance
with all applicable Laws and in accordance with the standards commonly employed
by professionals conducting investigations of such type with respect to
properties similar to the Pipeline Facilities and in accordance with all
applicable and reasonable requirements of TEPPCO.
(c) Environmental Investigation. Immediately following the
exercise of the Option until Closing, Fina/BASF and Fina/BASF's Representatives
may conduct Investigations of the Pipeline Facilities with respect to
environmental matters and the lands on which they are located, and in the event
that the consent of any landowner is required prior to conducting any such
Investigation, then TEPPCO shall assist Fina/BASF in obtaining any such
consents. However, Fina/BASF shall not conduct any invasive Investigations
including without limitation, core sampling of the surrounding soils or testing
of ground water in the area surrounding the Pipeline Facilities without
TEPPCO's prior written consent. TEPPCO shall have the right to have a
representative of TEPPCO present during any environmental Investigation and
TEPPCO shall have the right to approve all testing protocols.
(d) Notice. Fina/BASF shall provide to TEPPCO a minimum of
seventy-two (72) hours notice prior to entering the Facilities
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<PAGE> 7
or any other property of TEPPCO to conduct any examination or Investigation
under this Section 5. The notice shall specify, as applicable, the locations
where the examination or Investigation is to be conducted, the activities
proposed to be conducted, any personnel of TEPPCO whom Fina/BASF wishes to
interview, and the estimated length of time necessary to accomplish the
examination or Investigation. The notice shall also specify an official
representative of Fina/BASF whom TEPPCO may contact to discuss the access
sought and the examinations or Investigations proposed to be conducted. Upon
receipt of such notice, TEPPCO shall allow Fina/BASF and Fina/BASF's
Representatives to enter the Pipeline Facilities or such other property of
TEPPCO during normal business hours to conduct such examinations and
Investigations, as long as Fina/BASF's activities shall not unreasonably
interfere with TEPPCO's operations or business and the other requirements of
this Section 5 are observed.
(e) Restoration of Property. Upon completion of its examinations
and Investigations, if any, Fina/BASF shall promptly restore all of TEPPCO's
property to its original condition immediately prior to such examinations and
Investigations to the extent practical and remove all equipment and materials
brought onto TEPPCO's property by Fina/BASF or Fina/BASF's Representatives.
(f) Protection of Persons. Fina/BASF shall be responsible for the
conduct and protection of all Persons involved in such examinations and
Investigations and studies. Fina/BASF will undertake all measures reasonably
necessary or appropriate to
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<PAGE> 8
protect such Persons and any other Persons on TEPPCO's property during any such
examinations and Investigations. TEPPCO shall not have any right to control and
shall not exercise any responsibility with respect to such examinations and
Investigations.
(g) Confidentiality. Fina/BASF shall use its best efforts to
maintain the confidentiality of all information and documentation obtained
pursuant to this Section 5 and shall restrict the dissemination and circulation
of all information and documentation regarding the environmental and physical
condition of TEPPCO's property to the smallest number of people reasonably
practicable for Fina/BASF and Fina/BASF's Representatives to complete their
evaluation of the environmental and physical condition of the Pipeline
Facilities. If Fina/BASF for any reason does not acquire the Pipeline
Facilities, Fina/BASF will use its Best Efforts to cause all notes, samples,
reports, analyses, correspondence, and all other documents relating to the
environmental and physical condition of the Pipeline Facilities to be destroyed
and, if requested by TEPPCO following such termination, shall furnish TEPPCO,
within thirty (30) days following the date of Fina/BASF's receipt of such
request, a written certificate to the effect that to the best of Fina/BASF's
information, knowledge and belief based on Best Efforts inquiry all such items
have been destroyed.
(h) INDEMNIFICATION. FINA/BASF SHALL INDEMNIFY, DEFEND AND HOLD
HARMLESS TEPPCO AND ITS AFFILIATES FROM AND AGAINST ANY AND ALL LIABILITIES
RESULTING FROM CLAIMS AND LOSSES FOR PERSONAL
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<PAGE> 9
INJURY OR DEATH OR PROPERTY DAMAGE ARISING OUT OF THE CONDUCT OF FINA/BASF'S
EXAMINATIONS AND INVESTIGATIONS PURSUANT TO THIS SECTION 5.
(i) Right to Withdraw. At any time prior to Closing, if Fina/BASF
determines in its sole judgment, based on its Investigations that it does not
desire to acquire the Pipeline Facilities, Fina/BASF upon written notice to
TEPPCO may withdraw its exercise of the Option, and the Closing shall be
cancelled. Upon Fina/BASF's withdrawal of the exercise of the Option, this
Agreement shall terminate and neither Party shall have any liability to the
other for any matters due to the cancellation of the Closing or the termination
of this Agreement, except for (1) any restoration pursuant to the provisions of
paragraph 5(e), (2) the confidentiality obligations of Fina/BASF under Section
5(g), and (3) any indemnification obligations pursuant to the provisions of
Section 5(h).
6. Representations and Warranties of TEPPCO. TEPPCO hereby represents
and warrants to Fina/BASF as follows (such representations and warranties being
deemed repeated at the Closing):
(a) Due Power, Authorizations, etc. TEPPCO has the requisite
power and authority to enter into and perform this Agreement. This Agreement
has been duly authorized by all necessary action on the part of TEPPCO and has
been duly executed by a duly authorized officer of Texas Eastern Products
Pipeline Company, the general partner of TEPPCO.
9
<PAGE> 10
(b) Conflicting Instruments. Neither the execution and delivery
of this Agreement nor the consummation of the transactions contemplated hereby
will violate or result in any violation of or be in conflict with or constitute
a default under any term of the Limited Partnership Agreement of TEPPCO or of
any judgment, decree, order, statute, rule or governmental regulation
applicable to TEPPCO.
(c) Property. TEPPCO shall deliver, transfer, assign and convey
the Pipeline Facilities free and clear of liens and encumbrances that would
have a material adverse effect on the operation of the Pipeline Facilities, and
TEPPCO shall remove any liens and encumbrances that can be fully discharged by
the payment of money.
(d) Easements. TEPPCO represents and warrants that all easements,
rights-of-way, permits and licenses will be in full force and effect with
respect to TEPPCO's ownership and operation of the Pipeline Facilities.
7. Documents to be Delivered at Closing
At or prior to the Closing, TEPPCO shall deliver to Fina/BASF the
following documents in original form or if original form is not available, the
next best evidence of same that are in TEPPCO's possession and which pertain to
the Pipeline Facilities:
(a) Leases, easements, rights-of-way, rights-of-entry and access,
environmental permits and other permits, licenses and governmental agency
reports submitted by TEPPCO, franchises and other pertinent documents;
10
<PAGE> 11
(b) Fully executed assignments of all rights-of-way agreements
and easement agreements which cover the Pipeline Facilities; and, subject to
the provisions set forth below, consents to the assignments where necessary to
permit TEPPCO to assign such rights-of-way and easement agreements to
Fina/BASF. TEPPCO shall be responsible for all administrative costs in
obtaining such consents to assignment. Such administrative costs shall include,
but not be limited to, filing fees, travel, expenses, labor cost of employees
or contractors to contact grantors of the easements to be assigned and
attorneys' fees in preparation of conveyance instruments. Fina/BASF shall be
responsible for any consideration to be paid to any grantor of an easement for
that grantor's consent to the assignment of such easement to Fina/BASF. In that
regard, TEPPCO shall not agree to such a consideration payment with any grantor
without Fina/BASF's approval, which approval or disapproval shall be promptly
made by Fina/BASF after TEPPCO makes a request for a decision. In the event
TEPPCO is unable to get a consent to an assignment, Fina/BASF shall be
responsible for any condemnation or other action necessary to acquire such
rights-of-way;
(c) Surveys, plans, maps, drawings, certificates, inspection and
maintenance records and specifications of the Pipeline Facilities;
(d) Technical and service manuals relating to the operation and
maintenance of the Pipeline Facilities;
(e) Fully executed rights-of-way agreements granting
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<PAGE> 12
Fina/BASF easements across TEPPCO's fee simple property on which the Pipeline
Facilities are situated. The basic terms of such rights-of-way agreements shall
include that grantor shall not have the right to relocate the pipeline and
appurtenances except upon consent of grantee, that grantor shall provide
grantee a direct and reasonably convenient access to the easement area and
grantor represents that the easement is capable of being used for its intended
purpose and that there are not paramount interests to which the easement is
subject that interfere with grantee's use for the intended purpose. The
foregoing terms shall be in addition to such other reasonable and customary
easement provisions granted to third parties for pipeline operations on fee
simple property owned by TEPPCO; and
(f) All additional documents or instruments that TEPPCO's counsel
and Fina/BASF's counsel may mutually determine are reasonably necessary for the
proper consummation of the transaction contemplated by this Agreement.
8. TEPPCO Covenants. So long as the Option remains in effect, TEPPCO
covenants and agrees that:
(a) TEPPCO shall operate the Pipeline Facilities only in a usual,
regular and ordinary manner; and
(b) TEPPCO will not take any action or enter into any agreement
which would have the effect of frustrating or adversely affecting Fina/BASF's
rights under this Agreement to acquire the Pipeline Facilities. From the time
of the exercise of the Option until Closing, TEPPCO shall not undertake any
actions as would
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<PAGE> 13
adversely change or alter its rights relative to the Pipeline Facilities.
TEPPCO's representations as to the Pipeline Facilities will be based upon
TEPPCO having made a diligent inquiry and investigation into the matters with
respect to which the representations are given.
9. Fina/BASF Covenant. In the event that Fina/BASF exercises the
Option and acquires the Pipeline Facilities, Fina/BASF represents and covenants
that it will continue to operate the Pipeline Facilities after any such
acquisition and that the Pipeline Facilities will be operated as common carrier
pipeline facilities in all respects.
10. Environmental Indemnities.
(a) FINA/BASF INDEMNITY. AT CLOSING FINA/BASF SHALL ASSUME,
INDEMNIFY AND HOLD TEPPCO HARMLESS AGAINST ALL ENVIRONMENTAL LIABILITIES
RELATED TO THE PIPELINE FACILITIES THAT ARE ATTRIBUTABLE TO A FACT OR EVENT
WHICH OCCURS ON OR AFTER CLOSING.
(b) TEPPCO INDEMNITY. AT CLOSING TEPPCO SHALL RETAIN, INDEMNIFY
AND HOLD FINA/BASF HARMLESS AGAINST ALL ENVIRONMENTAL LIABILITIES RELATED TO
THE PIPELINE FACILITIES THAT ARE BASED ON A FACT OR EVENT WHICH OCCURRED PRIOR
TO CLOSING.
(c) Change in Laws. Notwithstanding anything herein to the
contrary, any indemnification by TEPPCO under this Agreement for any Losses to
Fina/BASF for Environmental Liabilities shall be deemed to specifically
exclude, and neither TEPPCO nor its Affiliates shall be liable for any Losses
to Fina/BASF for
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<PAGE> 14
Environmental Liabilities resulting from a change in any Laws including
Environmental Laws on or after the Closing.
(d) Remediation. To the extent that remediation is required under
TEPPCO's Indemnity obligations pursuant to Section 10(b), TEPPCO shall be
responsible for and perform or cause to be performed all such remediation
activities. TEPPCO, in its sole judgment, shall determine the proper protocol
and plans for any such remediation and clean up work and shall be responsible
for conducting such work in accordance with applicable Environmental Laws.
(e) (1) TEPPCO's indemnity obligation under Section 10(b) shall
survive Closing for a period of five (5) years, provided that such
indemnification obligation shall continue as to any matter which Fina/BASF has
properly asserted a Claim under Section 10(f) during such five (5) year period.
(2) Fina/BASF's indemnity obligations under Section 10(a)
shall survive Closing without limitation.
(3) In the event Fina/BASF sells or otherwise transfers the
Pipeline System to a Third Party both Fina/BASF's indemnity obligations and
TEPPCO's indemnity obligations under Sections 10(a) and 10(b) of this
Agreement, respectively, shall thereupon terminate.
(f) All claims for indemnification by a party under this Section
10 (the party claiming indemnification and the party against whom such claims
are asserted being hereinafter called the "Indemnified Party" and the
"Indemnifying Party," respectively)
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<PAGE> 15
shall be asserted and resolved as follows:
(1) In the event that any Claim for which an Indemnifying Party
would be liable to an Indemnified Party hereunder is asserted against or sought
to be collected from such Indemnified Party by a third party, such Indemnified
Party shall, within 45 calendar days of the receipt thereof, give notice (the
"Claim Notice") to the Indemnifying Party of such Claim, specifying the nature
of and specific basis for such Claim and the amount or the estimated amount
thereof to the extent then feasible, which estimate shall not be binding upon
the Indemnifying Party in its effort to collect the final amount of such Claim.
The failure to so notify the Indemnifying Party of any such Claims shall
relieve the Indemnifying Party from liability that it may have to the
Indemnified Party under the indemnification provisions contained in this
Section 10, but only to the extent of the loss directly attributable to such
failure to notify, and shall not relieve the Indemnifying Party from any
liability that it may have to the Indemnified Party otherwise than under this
Section 10.
(2) The Indemnifying Party shall be given the opportunity, at its
cost and expense, to contest and defend by all appropriate legal proceedings
any Claim with respect to which it is called upon to indemnify the Indemnified
Party under the provisions of this Agreement; provided, however, that notice of
the intention so to contest and defend shall be delivered by the Indemnifying
Party to the Indemnified Party within thirty (30) days following receipt of the
notice provided for in Section 10(f)(1) above. If
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<PAGE> 16
the Indemnifying Party does not give notice to the Indemnified Party of its
election to contest and defend any such Claim within such period then the
Indemnifying Party shall be bound by the result obtained with respect thereto
by the Indemnified Party and shall be responsible for all costs incurred in
connection therewith. The Claim which the Indemnifying Party elects to contest
and defend may be conducted in the name and on behalf of the Indemnifying Party
or the Indemnified Party as may be appropriate. Such Claim shall be conducted
by counsel employed by the Indemnifying Party who shall be reasonably
satisfactory to the Indemnified Party, and the Indemnified Party shall have the
right to participate in such Claim and to be represented by counsel of its own
choosing at its cost and expense. If the Indemnified Party joins in any such
Claim, the Indemnifying Party shall have full authority to determine all action
to be taken with respect thereto; provided that if the Indemnifying Party
reserves its rights with respect to its indemnification obligations under this
Agreement as to such Claim, then the Indemnified Party shall have the full
authority to determine all action to be taken with respect thereto. At any time
after the commencement of defense of any Claim, the Indemnifying Party may
request the Indemnified Party to agree in writing to the abandonment of such
contest or to the payment or compromise by the Indemnifying Party of the
asserted Claim, provided the Indemnifying Party agrees in writing to be solely
liable for all losses relating to such Claim; whereupon such action shall be
taken unless the Indemnified Party determines that the
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<PAGE> 17
contest should be continued and notifies the Indemnifying Party in writing
within fifteen (15) days of such request from the Indemnifying Party. In the
event that the Indemnified Party determines that the contest should be
continued, the amount for which the Indemnifying Party would otherwise be
liable hereunder shall not exceed the amount which the Indemnifying Party had
agreed to pay in payment or consideration of such Claim, provided the other
Person to the contested Claim had agreed in writing to accept such amount in
payment or compromise of the Claim as of the time the Indemnifying Party made
its request therefor to the Indemnified Party, and further provided that, under
such proposed compromise, the Indemnified Party would be fully and completely
released from any further liability or obligation with respect to the matters
which are the subject of such contested Claim.
(3) If requested by the Indemnifying Party, the Indemnified Party
agrees, at the Indemnifying Party's expense, to cooperate with the Indemnifying
Party and its counsel in contesting any Claim that the Indemnifying Party
elects to contest, or, if appropriate and related to the Claim in question, in
making any counterclaim against the Person asserting the Claim, or any
cross-complaint against any Person other than an Affiliate of the Indemnified
Party.
(4) If any Indemnified Party should have a Claim against the
Indemnifying Party hereunder that does not involve a Claim being asserted
against or sought to be collected from it by a Person not a party to this
Agreement, the Indemnified Party shall
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<PAGE> 18
send a Claim Notice with respect to such Claim to the Indemnifying Party. If
the Indemnifying Party disputes such Claim, such dispute shall be resolved by
agreement or otherwise.
(5) The Indemnified Party agrees to afford the Indemnifying Party
and its counsel the opportunity, at the Indemnifying Party's expense, to be
present at, and to participate in, conferences with all Persons asserting any
action against the Indemnified Party and conferences with representatives of or
counsel for such Persons.
11. Miscellaneous.
(a) Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
(b) Further Assurances. From time to time after the Closing date,
at Fina/BASF's reasonable request and at Fina/BASF's sole expense, TEPPCO will
execute and deliver all such other instruments of conveyance, assignment,
transfer and delivery and take all such other actions as Fina/BASF may
reasonably request in order to more fully effectuate this Agreement, and to
place Fina/BASF in possession and control of the Pipeline Facilities and any
properties and rights thereof, or assist in the collection or reduction to
possession of any and all such assets, properties or rights or to enable
Fina/BASF to exercise and enjoy all rights and
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<PAGE> 19
benefits of TEPPCO with respect thereto. In connection with any such
conveyance, assignment, transfer or delivery, Fina/BASF shall reimburse TEPPCO
for any costs and expenses TEPPCO incurs as a result of any such assistance to
Fina/BASF pursuant to this paragraph 11(b), except for any administrative costs
incurred by TEPPCO pursuant to Section 7(b).
(c) EXCEPT AS PROVIDED IN SECTION 11(H), TEPPCO AND FINA/BASF
AGREE THAT ONLY ACTUAL DAMAGES AND LOSSES SHALL BE RECOVERABLE UNDER THIS
AGREEMENT. TEPPCO AND FINA/BASF HEREBY WAIVE ANY RIGHT TO RECOVER SPECIAL,
PUNITIVE, CONSEQUENTIAL, INCIDENTAL OR EXEMPLARY DAMAGES.
(d) Expenses. Except as otherwise provided herein, each Party
hereto shall pay its own expenses incurred in connection with this Agreement.
(e) Assignment. Neither Fina, BASF, LP nor TEPPCO may sell,
transfer, assign, pledge or hypothecate, in each case, by operation of law,
change in control or otherwise, its rights, interests or obligations under this
Agreement without the full consent of the other Parties; provided, however,
Fina, BASF, LP and TEPPCO shall have the right, without the consent of any of
the other Parties, to assign all its rights and obligations under this
Agreement to an Affiliate or to a Third Party purchaser of all the assets of a
Party to which this Agreement pertains provided that such Affiliate or Third
Party has sufficient assets and financial strength acceptable to the other
Parties, which acceptance shall not be unreasonably withheld; and further
provided that
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<PAGE> 20
contemporaneously with the assignment of such interest, the Affiliate or Third
Party to whom such interest is being assigned shall deliver to the other
Parties to this Agreement a written agreement pursuant to which such Affiliate
or Third Party agrees (i) to be bound by all the terms and provisions of this
Agreement and any agreement referenced herein; and (ii) to perform and
discharge the obligations and liabilities set forth in this Agreement and such
other agreements. In the event TEPPCO should assign its rights and obligations
under the Transportation Agreement to a Third Party, TEPPCO shall likewise
assign its rights and obligations under this Agreement to such Third Party.
(f) Amendments. This Agreement may not be modified, amended,
altered or supplemented except upon the execution and delivery of a written
agreement executed by the Parties hereto. However, any Party may waive any
condition to the obligations of such Party hereunder.
(g) Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by personal delivery or by mail
(registered or certified mail, postage prepaid, return receipt requested) to
the respective Parties as follows:
If to Fina/BASF:
Fina Oil and Chemical Company
6000 Legacy Drive
Plano, Texas 75024-3601
Attention: General Counsel
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<PAGE> 21
BASF Corporation
3000 Continental Drive - North
Mount Olive, New Jersey 07828-1234
Attention: Vice President - Special Projects
BASF Fina Petrochemicals, Limited Partnership
Hwy 366 @ Gate 99 off Hwy 87
Port Arthur, Texas 77642
Attention: Plant Manager
If to TEPPCO:
Texas Eastern Products Pipeline Company
2929 Allen Parkway, Suite 3200
Houston, Texas 77019
Attention: Vice President - Business Development
Telephone: (713) 759-3685
Facsimile: (713) 759-3957
or to such other address as any Party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
only be effective upon receipt.
(h) Remedies. TEPPCO agrees that if for any reason Fina/BASF
shall have exercised its rights under the Option and TEPPCO shall have failed
to sell and transfer the Pipeline Facilities to Fina/BASF in accordance
therewith or to perform its other obligations under the Option, then Fina/BASF
shall be entitled to specific performance and injunctive and other equitable
relief.
(i) Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Texas without
giving effect to the principles of conflict of laws thereof. (j) Counterparts.
This Agreement may be executed in several counterparts, each of which shall be
an original, but all
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<PAGE> 22
of which together shall constitute one and the same agreement.
(k) Effect of Headings. The paragraph headings herein are for
convenience only and shall not affect the construction thereof.
(l) Third Party Beneficiaries. Except to the extent a Third Party
is expressly given rights herein, any agreement contained, expressed or implied
in this Agreement shall be only for the benefit of the Parties hereto and their
respective legal representatives, successors and assigns, and such agreements
shall not inure to the benefit of the obligees of any indebtedness of any Party
hereto, it being the intention of the Parties hereto that no person or entity
shall be deemed a Third Party beneficiary of this Agreement, except to the
extent a Third Party is expressly given rights herein.
(m) TEPPCO's Notification Obligation. In the event TEPPCO should
sell the Pipeline Facilities to a Third Party, TEPPCO shall prior to such sale
notify such Third Party of the provisions of this Agreement and upon the
consummation of such sale assign its rights and obligations under this
Agreement to such Third Party. TEPPCO agrees to indemnify and hold Fina/BASF
harmless from and against any Claims or Losses Fina/BASF incurs as a result of
TEPPCO not complying with the provisions of this Section 11(m).
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<PAGE> 23
IN WITNESS WHEREOF, Fina/BASF and TEPPCO have executed the
Agreement as of the date first written above.
Fina Oil and Chemical Company
By: /s/ MICHAEL J. COUCH
---------------------------------------
Name: Michael J. Couch
-------------------------------------
Title: SENIOR VICE PRESIDENT
------------------------------------
BASF CORPORATION
By: /s/ CARL A. JENNINGS
---------------------------------------
Name: Carl A. Jennings
-------------------------------------
Title: EXECUTIVE VICE PRESIDENT
------------------------------------
BASF FINA PETROCHEMICALS
LIMITED PARTNERSHIP BY ITS
GENERAL PARTNERS
FINA OIL AND CHEMICAL COMPANY
By: /s/ MICHAEL J. COUCH
------------------------------
Name: Michael J. Couch
----------------------------
Title: SENIOR VICE PRESIDENT
---------------------------
BASF CORPORATION
By: /s/ RUDOLF R. SCHNUR
------------------------------
Name: Rudolf R. Schnur
----------------------------
Title: VICE PRESIDENT
---------------------------
TE PRODUCTS PIPELINE COMPANY,
LIMITED PARTNERSHIP, BY TEXAS
EASTERN PRODUCTS PIPELINE COMPANY,
GENERAL PARTNER
By: /s/ DAVID LANGLEY
---------------------------------------
Name: David Langley
-------------------------------------
Title: VICE PRESIDENT
------------------------------------
23
<PAGE> 1
EXHIBIT 10.24
TEXAS EASTERN PRODUCTS PIPELINE COMPANY
RETENTION INCENTIVE COMPENSATION PLAN
I. PURPOSE OF THE PLAN
The Texas Eastern Products Pipeline Company Retention Incentive
Compensation Plan (the "Plan") is intended to provide a method whereby employees
who are responsible for the management, growth and protection of TEPPCO and/or
the Partnerships, and who are making and are expected to continue making
substantial contributions to the successful growth of TEPPCO and the
Partnerships, may be stimulated by personal involvement in the profits of TEPPCO
Partners, L.P. to continue to serve TEPPCO and the Partnerships, thereby
advancing the interests of TEPPCO and the Partnerships.
II. EFFECTIVE DATE OF PLAN
The Plan shall be and is hereby adopted effective as of January 1, 1999.
III. DEFINITIONS
Unless the meaning is clearly different when used in context, these
terms shall have the following meanings:
A. "Administrative Guidelines" shall mean the interpretive
guidelines approved by the Committee providing the foundation
for administration of the Plan.
B. "Award Agreement" shall mean an agreement entered into between
TEPPCO and a Participant setting forth the terms and conditions
applicable to the award granted to the Participant.
C. "Board" shall mean the Board of Directors of Texas Eastern
Products Pipeline Company.
D. "Committee" shall mean the Compensation Committee of the Board.
No Committee member shall be eligible to participate in the Plan
during the term for which he or she was appointed to the
Committee.
E. "Eligible Employee" shall mean a person who is a regular,
full-time salaried employee of TEPPCO who performs services on a
full-time basis for TEPPCO and/or the Partnerships or their
subsidiaries in an executive, administrative or professional
capacity.
F. "Limited Partnership Unit" shall mean a single limited
partnership unit interest in TEPPCO Partners, L.P.
<PAGE> 2
G. "Market Value" shall mean the closing price of a Limited
Partnership Unit as of the applicable valuation date on The New
York Stock Exchange, Inc. Composite Transactions Quotations (or,
in the event such quotations are no longer published, on the
principal national securities exchange on which the Limited
Partnership Units are sold) or, if there shall have been no sale
on such date, on the last preceding date on which a sale or
sales were effected on one or more of the exchanges included in
The New York Stock Exchange, Inc. Composite Transactions
Quotations (or on such principal national exchange).
H. "Participant" or "Participants" shall mean an Eligible
Employee(s) to whom an award of Phantom Units has been granted
hereunder.
I. "Partnerships" shall mean TEPPCO Partners, L.P., TE Products
Pipeline Company, Limited Partnership and/or TCTM, L.P. and
their subsidiaries.
J. "Phantom Unit Account" or "Account" shall mean the account
established for each Participant pursuant to Paragraph C of
Article VI.
K. "Phantom Units" shall mean the conditional promise by TEPPCO to
make a payment to the Participant in cash, determined by
reference to the Limited Partnership Units and in accordance
with the provisions of this Plan and Administrative Guidelines.
Crediting of Phantom Units to a Participant's Account may be
contingent on certain performance targets established by the
Committee.
L. "Plan" shall mean the Texas Eastern Products Pipeline Company
Retention Incentive Compensation Plan.
M. "TEPPCO" shall mean Texas Eastern Products Pipeline Company
and/or any other company that adopts the Plan for the benefit of
its employees with the authorization and approval of the Board.
Any such adoption shall be subject to any terms and conditions
prescribed by the Board.
IV. ADMINISTRATION AND INTERPRETATION OF THE PLAN
A. The Plan shall be administered by the Committee or its designee.
The Committee shall have sole and absolute discretion to
construe and interpret the Plan and any instrument or agreement
related thereto, including, without limitation, the power to
construe and interpret doubtful or contested terms herein and
therein, and, subject to the provisions herein set forth, to
prescribe, amend and rescind rules and regulations and make all
other determinations necessary or desirable for the
administration of the Plan.
B. The decision of the Committee relating to any question
concerning or involving the interpretation or administration of
the Plan and any instrument or agreement
2
<PAGE> 3
relating thereto shall be final and conclusive, and nothing in
the Plan and any instrument or agreement shall be deemed to give
any officer or employee, or his or her legal representatives,
any right to participate in the Plan, except to such extent, if
any, as the Committee may have determined or approved pursuant
to the provisions of the Plan.
C. The Committee shall have sole and absolute discretion to
determine the amount of an award to an Eligible Employee
pursuant to the Plan and any instrument or agreement relating
thereto in the event the Committee determines such award is
merited and to determine whether any portion or all of the award
is payable under the Plan.
D. This Plan shall be governed by, construed and enforced in
accordance with the internal laws of the State of Texas and,
where applicable, the laws of the United States.
V. ELIGIBLE EMPLOYEES
A. Phantom Units may be awarded under the Plan only to Eligible
Employees. Members of the Committee, and any member of the Board
who is not an employee of TEPPCO, are ineligible to receive
Phantom Units under the Plan.
B. Each Eligible Employee who receives an award of Phantom Units
shall be a Participant.
C. Notwithstanding anything to the contrary in the Award Agreement
and any Phantom Unit Award Certificate, and except as otherwise
provided in this Plan, an individual will cease to be a
Participant and forfeit all benefits under the Plan once he or
she terminates his or her employment with TEPPCO, and ceases to
be an Eligible Employee.
VI. PHANTOM UNITS
A. Awards shall be granted to Eligible Employees in Phantom Units.
All awards made pursuant to this Plan are in consideration of
services performed or to be performed for TEPPCO and/or the
Partnerships. Crediting of Phantom Units to a Participant's
Account may be contingent on certain performance targets
established by the Committee.
B. Phantom Unit awards shall be awarded to Eligible Employees under
such terms and conditions as the Committee shall prescribe;
provided, however, such Phantom Units so awarded shall be valued
at the Market Value of a Limited Partnership Unit as of the
grant date.
3
<PAGE> 4
C. The Committee shall establish and maintain for each Participant
a Phantom Unit Account which will be used to determine the
amount of Phantom Units that a Participant shall be credited
under Article VII as of any particular date.
D. Each award under this Plan may be evidenced by an Award
Agreement setting forth the terms and conditions, as determined
by the Committee, applicable to the award. Award Agreements
shall include the following terms:
1. Non-Assignability. A provision that no award shall be
assignable or transferable.
2. Termination of Employment. Provisions governing the
disposition of an award in the event of the termination
of a Participant's employment.
3. Withholding. A provision requiring the withholding of
all taxes as required by law.
4. Miscellaneous. Such other terms and conditions,
including, without limitation, the criteria for
determining vesting of awards, the amount or value of
awards, termination of awards for cause, as are
necessary and appropriate to effect the purposes of the
Plan.
F. If there shall be any change in the number or kind of Limited
Partnership Unit interests, and if the Board shall, in its sole
discretion, determine that such change equitably requires an
adjustment in the number of the Phantom Units then awarded to
the Participants and/or credited to Participant's Phantom Unit
Accounts under the Plan, then such adjustment shall be made by
the Board and shall be effective and binding for all purposes
under the Plan. In making any such substitution or adjustment
pursuant to this paragraph, fractional interests may be ignored.
VII. CREDIT AND REDEMPTION OF PHANTOM UNITS AND LIMITATIONS
A. Phantom Units awarded to a Participant shall be credited to a
Participant's Phantom Unit Account and redeemed in accordance
with such terms and conditions as the Committee shall prescribe.
B. Any unredeemed Phantom Units credited to the Phantom Unit
Account of a Participant who retires from TEPPCO and who at the
time of his or her retirement was an Eligible Employee, shall be
redeemed as of the effective date of such retirement. Phantom
Units that have been awarded, but not credited, to a
Participant's Account shall be deemed forfeited as of the date
of the Participant's retirement.
4
<PAGE> 5
C. Except as provided in Paragraphs A and B of this Article VII, if
a Participant ceases to be an Eligible Employee upon his or her
termination of employment with TEPPCO for any reason, any
unredeemed Phantom Units credited to the Phantom Unit Account of
the Participant shall be redeemed as of such date. Distribution
of cash for Phantom Units redeemed upon the death of an employee
shall be made to the Participant's surviving spouse, or if no
surviving spouse exists, to his or her estate or legal
representative. Phantom Units that have been awarded, but not
credited, to a Participant's Account shall be deemed forfeited
as of the date of the Participant's termination of employment.
D. Notwithstanding anything to the contrary herein, the Committee,
in its discretion, may accelerate the crediting of Phantom Units
to a Participant's Phantom Unit Account and/or the redemption of
Phantom Units of any Participant in the event of circumstances
of unusual hardship to such Participant. The Committee's
decision as to acceleration of Phantom Units under this
paragraph shall be conclusive.
E. The cash value of each Phantom Unit will be based on the Market
Value of a Limited Partnership Unit as of the date of
redemption. The Committee shall establish the necessary
procedures for redemption of Phantom Units. Cash payments under
this Plan shall be made no later than 15 business days following
the proper redemption date of the Phantom Units.
VIII. QUARTERLY DISTRIBUTIONS
A. As of each quarterly distribution date, TEPPCO shall pay to each
Participant an amount equal to the product of:
1. the total number of Phantom Units awarded (whether or
not then credited to the Participant's Phantom Unit
Account) to a Participant less the total number of
Phantom Units redeemed before the distribution record
date, multiplied by
2. the distribution paid with respect to a Limited
Partnership Unit for such quarter.
IX. PROHIBITION AGAINST ASSIGNMENT OR ENCUMBRANCE
No right, title, interest or benefit hereunder shall ever be liable for
or charged with any of the torts or obligations of a Participant or any person
claiming under a Participant, or be subject to seizure by any creditor of a
Participant or any person claiming under a Participant. No Participant nor any
person claiming under a Participant shall have the power to sell, pledge,
anticipate or dispose of any right, title, interest or benefit hereunder in any
manner until the same shall have been actually distributed free and clear of the
terms of the Plan.
5
<PAGE> 6
X. NATURE OF THE PLAN
The obligations to distribute cash under the Plan shall be a general,
unsecured obligation of TEPPCO payable solely from the general assets of TEPPCO,
and no Participant shall have any interest in any assets of TEPPCO by virtue of
this Plan. Nothing in this Article X shall be construed to prevent TEPPCO from
implementing or setting aside funds in a grantor trust subject to the claims of
TEPPCO's creditors. The establishment of the Plan, the awarding of Phantom
Units, the crediting of Phantom Units to a Participant's Phantom Unit Account or
the setting aside of any funds shall not be deemed to create a trust. Legal and
equitable title to any funds set aside for the purposes of the Plan, other than
any grantor trust, shall remain in TEPPCO and shall remain subject to the
general creditors of TEPPCO, present and future.
XI. EMPLOYMENT RELATIONSHIP
Nothing in the adoption of this Plan nor the awarding of Phantom Units
shall confer on any Participant the right to continued employment by TEPPCO or
affect in any way the right of TEPPCO to terminate a Participant's employment at
any time. Any question as to whether and when there has been a termination of a
Participant's employment and the cause of such termination, shall be determined
by the Committee, and its determination shall be final.
XII. AMENDMENT AND TERMINATION OF PLAN
The Board, in it sole discretion, may terminate the Plan at any time
with respect to any Phantom Units which have not been awarded to a Participant.
The Board shall have the right to alter or amend the Plan or any part thereof
from time to time, except that the Board shall not make any alteration or
amendment which would impair the rights of a Participant with respect to the
credit of or redemption of Phantom Units theretofore awarded to him. If not
sooner terminated under the provisions of this Article XII, the Plan shall
terminate when all Phantom Units have been redeemed.
XIII. SUCCESSORS
The provisions of the Plan shall be binding upon TEPPCO and its
successors and upon the Participants and their legal representatives.
XIV. MISCELLANEOUS
Wherever applicable, the masculine pronoun as used herein shall be
deemed to mean the feminine, the feminine pronoun the masculine, the singular
the plural and the plural the singular.
6
<PAGE> 7
IN WITNESS WHEREOF, TEPPCO has executed this Plan in its corporate name
and its corporate seal to be hereunto affixed the 5th day of May, 1999.
TEXAS EASTERN PRODUCTS PIPELINE COMPANY
ATTEST:
/s/ James C. Ruth By: /s/ William L. Thacker
- ---------------------------------- ------------------------------------
7
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106,365
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