SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
F O R M 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
KINDER MORGAN ENERGY PARTNERS, L.P.
KINDER MORGAN OPERATING L.P. "A"
KINDER MORGAN OPERATING L.P. "B"
KINDER MORGAN OPERATING L.P. "C"
KINDER MORGAN OPERATING L.P. "D"
KINDER MORGAN NATURAL GAS LIQUIDS CORPORATION
KINDER MORGAN CO2, LLC
KINDER MORGAN BULK TERMINALS, INC.
(Exact name of registrants as specified in their charters)
DELAWARE 1-11234 76-0380342
DELAWARE 333-66931-01 76-0380015
DELAWARE 333-66931-02 76-0414819
DELAWARE 333-66931-03 76-0547319
DELAWARE 333-66931-04 76-0561780
DELAWARE 333-66931-05 76-0256928
DELAWARE 333-66931-06 76-0563308
LOUISIANA 333-66931-07 72-1073113
(State or other jurisdiction (Commission File (I.R.S. Employer
of incorporation or Number) Identification No.)
organization)
1301 McKinney Street, Ste. 3400, Houston, Texas 77010
(Address of principal executive offices)(zip code)
Registrant's telephone number, including area code: 713-844-9500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
Common Units of Kinder Morgan New York Stock Exchange
Energy Partners, L.P.
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
Aggregate market value of the Common Units held by non-affiliates of the
Registrant, based on closing prices in the daily composite list for transactions
on the New York Stock Exchange on March 9, 1999 was approximately
$1,661,652,855. This figure assumes that only the general partner of the
Registrant and officers and directors of the general partner of the Registrant
were affiliates. As of March 9, 1999, the Registrant had 48,815,690 Common Units
outstanding.
1
<PAGE>
KINDER MORGAN ENERGY PARTNERS, L.P.
TABLE OF CONTENTS
Page No.
P A R T I
Items 1 and 2. Business and Properties 3
Item 3. Legal Proceedings 37
Item 4. Submission of Matters to a Vote of Security Holders 37
P A R T II
Item 5. Market for the Registrant's Units and Related Security
Holder Matters 38
Item 6. Selected Financial Data 39
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation 40
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk 48
Item 8. Financial Statements and Supplementary Data 48
Item 9. Changes in and Disagreements on Accounting and
Financial Disclosure 48
P A R T III
Item 10. Directors and Executive Officers of the Registrant 49
Item 11. Executive Compensation 50
Item 12. Security Ownership of Certain Beneficial Owners and
Management 53
Item 13. Certain Relationships and Related Transactions 54
P A R T IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 55
Financial Statements F-1
Signatures S-1
2
<PAGE>
P A R T I
Items 1. and 2. Business and Properties
Kinder Morgan Energy Partners, L.P. ("Partnership"), a Delaware limited
partnership, is a publicly traded Master Limited Partnership ("MLP") formed in
August 1992. The Partnership manages a diversified portfolio of midstream energy
assets, including six refined products/liquids pipeline systems containing over
5,000 miles of trunk pipeline and over 20 truck loading terminals. The
Partnership also operates 24 bulk terminal facilities that transload
approximately 50 million tons of coal, petroleum coke and other bulk and liquids
products annually. In addition, the Partnership owns 24% of Plantation Pipe Line
Company, 20% of Shell CO2 Company and a 25% interest in a Y-grade fractionation
facility.
The address of the Partnership's principal executive offices is 1301 McKinney
Street, Suite 3400, Houston, Texas 77010 and its telephone number at this
address is (713) 844-9500.
The Partnership's operations are grouped into three reportable business
segments. These segments and their major assets are as follows:
o Pacific Operations, a 3,300 mile refined products pipeline system operating
in Arizona, California, Nevada, New Mexico, Oregon and Texas, consisting
of:
o the South Line, which has two pipeline segments: the West Line, which
transports petroleum products from the Los Angeles Basin to Phoenix
and Tucson, Arizona, including intermediate points, and the East Line,
which transports petroleum products from El Paso, Texas to Tucson and
Phoenix;
o the San Diego Line, extending from Los Angeles to the Partnership's
terminals in Orange and San Diego, California;
o the North Line, which has six pipeline segments originating in
Richmond, Concord and Bakersfield, California serving the
Partnership's terminals located in Brisbane, Bradshaw, Chico, Fresno
and San Jose, California and Sparks, Nevada; and
o the Oregon Line, extending from its Portland, Oregon origin southward
to the Partnership's terminal in Eugene, Oregon.
o Mid-Continent Operations, consisting of joint venture projects and
products pipelines including:
o the North System, a 1,600 mile pipeline which transports natural gas
liquids and petroleum products between south central Kansas and the
Chicago area and various intermediate points, including eight
terminals;
o a 24% interest in Plantation Pipe Line Company, which owns and
operates a 3,100 mile petroleum products pipeline system throughout
the southeastern United States;
o a 20% limited partner interest in Shell CO2 Company, which transports,
markets, produces and explores for CO2 for use in enhanced oil
recovery throughout the continental United States;
o the Cypress Pipeline, which transports natural gas liquids from Mont
Belvieu, Texas to a major petrochemical producer in Lake Charles,
Louisiana;
o a 25% interest in a 200,000 barrels per day Y-grade
fractionation facility located near Mont Belvieu, Texas;
o a 50% interest in the Heartland Pipeline Company, which
ships petroleum products in the Midwest; and
o the Painter Gas Processing Plant, a natural gas processing plant,
fractionator and natural gas liquids terminal with truck and rail
loading facilities.
o Bulk Terminals, 24 owned or operated bulk terminal facilities, including:
o five coal terminals located in Cora, Illinois; Paducah,
Kentucky; Newport News, Virginia; Mount Vernon, Indiana;
and Los Angeles, California;
o eight petroleum coke terminals located on the lower
Mississippi River and the United States West Coast; and
o eleven other bulk terminals handling alumina, cement, soda ash,
fertilizer and other dry bulk materials.
3
<PAGE>
Business Strategy
Management's objective is to operate as a low-cost, growth-oriented, publicly
traded MLP by:
o reducing operating expenses;
o better utilizing and expanding its asset base; and
o making selective, strategic acquisitions that will increase
unitholder distributions.
The general partner's incentive distributions provide it with a strong
incentive to increase unitholder distributions through successful management and
business growth. With the addition of the Pacific Operations, the Partnership
has become the largest pipeline MLP and the second largest products pipeline
system in the United States in terms of volumes delivered. Generally, the
Partnership transports and/or handles products for a fee and is not engaged in
the purchase and resale of commodity products. As a result, the Partnership does
not face significant risks relating to shifts in commodity prices.
Pacific Operations. The Partnership plans to expand its presence in the
rapidly growing refined products market in the Western United States through
incremental expansions of the Pacific Operations and acquisitions that increase
unitholder distributions. During 1998 and in February 1999, the Partnership
announced three major expansions on the Pacific Operations' pipelines. These
expansions will total approximately $50 million and significantly increase
throughput capacity.
Mid-Continent Operations. Because the North System serves a relatively mature
market, the Partnership intends to focus on increasing throughput by remaining a
reliable, cost-effective provider of transportation services and by continuing
to increase the range of products transported and services offered. The
Partnership believes favorable demographics in the southeastern United States
will serve as a platform for increased use and expansion of Plantation's
pipeline system. Within the Permian Basin, the strategy of Shell CO2 Company is
to offer customers "one-stop shopping" for CO2 supply, transportation and
technical support service. Outside the Permian Basin, Shell CO2 Company intends
to compete aggressively for new supply and transportation projects. The
Partnership believes these projects will arise as other U.S. oil producing
basins mature and make the transition from primary production to enhanced
recovery methods.
Bulk Terminals. The Partnership plans to grow its bulk
terminals business by:
o expanding the use of its existing facilities, particularly
those facilities which handle low-sulfur western coal;
o designing, constructing and operating new facilities for
current and prospective customers; and
o making selective acquisitions where the Partnership believes it can
leverage its operational expertise and customer relationships.
Recent Developments
During 1998, the Partnership completed five major transactions that resulted
in Partnership assets increasing almost seven times and net income increasing
over five times above 1997 levels. In addition, distributions per unit increased
from $0.315 for the first quarter of 1997 to $0.65 for the fourth quarter of
1998. The Partnership is now the largest publicly traded pipeline master limited
partnership in the United States and the second largest products pipeline system
in terms of volumes delivered.
The following is a brief listing of the transactions completed during 1998.
Additional information regarding these transactions and the acquired assets is
contained in the rest of this report.
o On March 5, 1998, the Partnership contributed its 157 mile Central Basin
CO2 Pipeline and approximately $25.0 million
in cash for 20% of Shell CO2 Company.
o On March 6, 1998, the Partnership acquired substantially all of the assets
of Santa Fe Pacific Pipeline Partners, L.P. Those assets currently
comprise the Pacific Operations. The Partnership paid approximately $1.4
billion for the Pacific Operations.
4
<PAGE>
o Effective July 1, 1998, the Partnership acquired Hall-Buck
Marine, Inc. for approximately $100 million. Hall-Buck
Marine operated 20 bulk terminals. The Partnership has
changed the name of Hall-Buck Marine to Kinder Morgan Bulk
Terminals, Inc.
o On September 15, 1998, the Partnership acquired 24% of Plantation Pipe
Line Company for $110 million.
o On December 18, 1998, the Partnership acquired the Pier IX Terminal,
located in Newport News, Virginia, and the Shipyard River Terminal,
located in Charleston, South Carolina for $35 million.
Pacific Operations
The Partnership's Pacific Operations include interstate common carrier
pipelines regulated by the Federal Energy Regulatory Commission ("FERC"),
intrastate pipeline systems regulated by the California Public Utilities
Commission ("CPUC") in California, and non-regulated terminal operations.
The Pacific Operations are split into a South Region and a North Region.
Combined, the two regions consist of five segments that serve six western states
with approximately 3,300 miles of refined petroleum products pipeline and
related terminal facilities.
Refined petroleum products and related uses are:
Product Use
- ---------------------------------------------------------------
Gasoline Transportation
Jet fuel Commercial and military air transportation
Diesel fuel Transportation (auto, rail, marine),
farm, industrial and commercial
- ---------------------------------------------------------------
The Pacific Operations pipelines transport approximately one million barrels
per day of refined petroleum products. The three main product types transported
are gasoline (63%), diesel fuel (20%) and jet fuel (17%). The Pacific Operations
also include 13 truck-loading terminals and provide pipeline service to
approximately 44 customer-owned terminals, three commercial airports and 12
military bases.
These pipeline assets provide refined petroleum products to some of the
fastest growing populations in the United States. Significant population gains
have occurred in southern California as well as Las Vegas, Nevada and the
Tucson-Phoenix, Arizona region. Pipeline transportation of gasoline and jet fuel
has a direct correlation with demographic patterns. The Partnership believes
that the positive demographic changes associated with the markets served by the
Pacific Operations will continue in the future.
South Region. The South Region consists of three pipeline segments, the West
Line, the East Line and the San Diego Line.
The West Line consists of approximately 555 miles of primary pipeline and
currently transports products for approximately 50 shippers from seven
refineries and three pipeline terminals in the Los Angeles Basin to Phoenix and
Tucson, Arizona and various intermediate commercial and military delivery
points. Also, a significant portion of West Line volumes are transported to
Colton, California for local distribution and for delivery to Calnev Pipeline,
an unaffiliated common carrier of refined petroleum products to Las Vegas,
Nevada and intermediate points. The West Line serves Partnership terminals
located in Colton and Imperial, California as well as in Phoenix and Tucson.
The East Line is comprised of two parallel lines originating in El Paso,
Texas and continuing approximately 300 miles west to the Tucson terminal and one
line continuing northwest approximately 130 miles from Tucson to Phoenix,
Arizona. All products received by the East Line at El Paso come from a refinery
in El Paso or are delivered through connections with non-affiliated pipelines
from refineries in Odessa and Dumas, Texas and Artesia, New Mexico. The East
Line serves Partnership terminals located in Tucson and Phoenix, Arizona.
In May 1998, the Partnership announced an expansion of its Southern
California products pipeline system. The expansion will involve construction of
13 miles of 16-inch diameter pipeline from Carson, California to Norwalk,
California. The new pipeline will connect to an existing 16-inch diameter
pipeline from Norwalk to Colton and provide additional capacity between Carson
and Colton. The existing pipeline between Carson and Colton is currently
operating at maximum capacity. The additional pipe will increase the capacity of
the system from 340,000
5
<PAGE>
barrels per day to 520,000 barrels per day, an increase of over 50%. The project
will cost approximately $25-$30 million and should be in service by the middle
of 1999.
The San Diego Line is a 135-mile pipeline serving major population areas in
Orange County (immediately south of Los Angeles) and San Diego. The same
refineries and terminals that supply the West Line also supply the San Diego
Line. This line extends south to serve Partnership terminals in the cities of
Orange and San Diego. On February 25, 1999, the Partnership announced an
expansion of the San Diego Line. The expansion project will cost approximately
$18 million and consists of the construction of 23 miles of 16 inch diameter
pipe, and other appurtenant facilities. The new facilities will increase
capacity on the San Diego Line by approximately 25% and will increase the
Pacific Operation's capability to transport gasoline, diesel and jet fuel to
customers in the rapidly growing Orange County and San Diego, California
markets. Permitting for the project is underway with approval expected in the
fall of 1999.
North Region. The North Region consists of two pipeline segments, the North
Line and the Oregon Line.
The North Line consists of approximately 1,075 miles of pipeline in six
segments originating in Richmond, Concord and Bakersfield, California. This line
serves the Partnership's terminals located in Brisbane, Bradshaw, Chico, Fresno
and San Jose, California, and Sparks, Nevada. The products delivered through the
North Line come from refineries in the San Francisco Bay and Bakersfield areas.
The North Line receives a small percentage of product transported from various
pipeline and marine terminals that deliver products from foreign and domestic
ports. A refinery located in Bakersfield supplies substantially all of the
products shipped through the Bakersfield-Fresno segment of the North Line. In
October 1998, the Partnership announced an expansion of the Northern California
products pipeline system serving the Sacramento and Chico, California, and Reno,
Nevada market areas. The expansion will include the installation of incremental
horsepower at certain pumping facilities and reconfiguration of manifold piping
and related facilities. This segment of the pipeline is currently operating at
its maximum capacity and the incremental facilities will increase the capacity
and throughput on the system by 20%. The project will cost approximately $5
million and is projected to be in service by September 1999.
The Oregon Line is a 114-mile pipeline serving approximately ten shippers.
The Oregon Line receives products from marine terminals in Portland, Oregon and
from Olympic Pipeline. Olympic Pipeline is a non-affiliated carrier that
transports products from the Puget Sound, Washington area to Portland. From its
origination point in Portland, the Oregon Line extends south and serves the
Partnership's terminal located in Eugene, Oregon.
Truck Loading Terminals. The Pacific Operations include 13 truck-loading
terminals with an aggregate usable tankage capacity of approximately 8.2 million
barrels. Terminals are located at destination points on each of the lines as
well as at certain intermediate points along each line. The simultaneous truck
loading capacity of each terminal ranges from 2 to 12 trucks. The Partnership
provides the following services at these terminals:
o short-term product storage;
o truck loading;
o vapor recovery;
o deposit control additive injection;
o dye injection;
o oxygenate blending; and
o quality control.
The capacity of terminaling facilities varies throughout the pipeline systems
and the Partnership does not own terminal facilities at all pipeline delivery
locations. At certain locations, the Partnership makes product deliveries to
facilities owned by shippers or independent terminal operators. The Partnership
provides truck loading and other terminal services as an additional service, and
charges a separate fee (in addition to pipeline tariffs).
Markets. Currently the Pacific Operations serve in excess of
100 shippers in the refined products market, with the largest
customers consisting of:
o major petroleum companies;
o independent refineries;
6
<PAGE>
o the United States military; and
o independent marketers and distributors of products.
A substantial portion of product volume transported is gasoline. Demand for
gasoline depends on such factors as prevailing economic conditions and
demographic changes in the markets served. The Partnership expects the majority
of the Pacific Operations' markets to maintain growth rates that exceed the
national average for the foreseeable future.
Currently, the California gasoline market is approximately 900,000 barrels
per day. The Arizona gasoline market is served primarily by the Partnership at a
market demand of 135,000 barrels per day. Nevada's gasoline market is currently
in excess of 50,000 barrels per day and Oregon's is approximately 98,000 barrels
per day. The distillate (diesel and jet fuel) market is approximately 377,000
barrels per day, 78,000 barrels per day, 72,000 barrels per day and 62,000
barrels per day in California, Arizona, Nevada and Oregon, respectively. Of all
these volumes in these respective states, the Partnership transports over 1
million barrels of petroleum products per day.
The volume of products transported is directly affected by the level of
end-user demand for such products in the geographic regions served. Certain
product volumes can experience seasonal variations and overall volumes may be
slightly lower during the first and fourth quarters of each year.
Supply. The majority of refined products supplied to the Pacific Operations
come from the major refining centers around Los Angeles, San Francisco and Puget
Sound, as well as waterborne terminals. The waterborne terminals have three
central locations on the Pacific Coast:
o terminals operated by GATX, Mobil and others on the Washington/Oregon
coast;
o the Shore Terminal on the Northern California Coast; and
o terminals operated by GATX, Equilon and ATSC on the Southern
California Coast.
Competition. The most significant competitors of the Pacific Operations
pipeline system are proprietary pipelines owned and operated by major oil
companies in the area where the pipeline system delivers products as well as
refineries within the Partnership's market areas with related trucking
arrangements. The Partnership believes that high capital costs, tariff
regulation and environmental permitting considerations make it unlikely that a
competing pipeline system comparable in size and scope will be built in the
foreseeable future. However, the possibility of pipelines being constructed to
serve specific markets is a continuing competitive factor. Trucks may
competitively deliver products in certain markets. Increased utilization of
trucking by major oil companies has caused minor but notable reductions in
product volumes delivered to certain shorter-haul destinations, primarily Orange
and Colton, California. Management cannot predict with certainty whether this
trend towards increased short-haul trucking will continue in the future.
Longhorn Partners Pipeline is a proposed joint venture project that would
begin transporting refined products from refineries on the Gulf Coast to El Paso
and other destinations in Texas. Increased product supply in the El Paso area
could result in some shift of volumes transported into Arizona from the West
Line to the East Line. While increased movements into the Arizona market from El
Paso would displace higher tariff volumes supplied from Los Angeles on the West
Line, such shift of supply sourcing has not had, and is not expected to have, a
material effect on operating results.
Mid-Continent Operations
The Mid-Continent Operations include:
o the North System;
o 24% of Plantation Pipe Line Company;
o 20% of Shell CO2 Company;
o the Cypress Pipeline;
o 25% of a natural gas liquids fractionator;
o 50% of Heartland Pipeline Company; and
o a gas processing plant.
7
<PAGE>
North System
The North System is an approximate 1,600-mile interstate common carrier of
natural gas liquids ("NGLs") and refined petroleum products.
NGLs are typically extracted from natural gas in liquid form under low
temperature and high pressure conditions. NGL products and related uses are:
Product Use
- ---------------------------------------------------------------
Propane Residential heating and agricultural
uses, petrochemical feedstock
Isobutanes Further processing
Natural gasoline Further processing or gasoline blending
into gasoline motor fuel
Ethane Feedstock for petrochemical plants
Normal butane Feedstock for petrochemical plants
- ---------------------------------------------------------------
The pipeline system extends from south central Kansas to the Chicago area.
South central Kansas is a major hub for producing, gathering, storing,
fractionating and transporting NGLs. The North System's primary pipeline is
composed of approximately 1,400 miles of 8" and 10" pipelines and includes:
o two parallel pipelines (except for a 50-mile segment in Nebraska)
originating at Bushton, Kansas and continuing to a major storage and
terminal area in Des Moines, Iowa;
o a third pipeline, which extends from Bushton to the Kansas
City, Missouri area; and
o a fourth pipeline that transports product to the Chicago area from Des
Moines.
Through interconnections with other major liquids pipelines, the pipeline
system connects Mid-Continent producing areas to markets in the Midwest and
eastern United States. The North System operated at approximately 53%, 62% and
66% of capacity during 1998, 1997, and 1996, respectively. The Partnership also
has defined sole carrier rights to utilize capacity on an extensive pipeline
system owned by The Williams Company that interconnects with the North System.
The Partnership negotiated an amendment to this capacity lease agreement in
March 1998, which extended the lease term to February 2013 (with a five-year
renewal option), reduced the minimum guaranteed payment and increased the
capacity under this agreement.
The following table sets forth volumes (MBbls) of NGLs transported on the
North System for delivery to the various markets for the periods indicated:
Year Ended December 31,
-------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Petrochemicals 1,040 1,200 684 1,125 2,861
Refineries and line 10,489 10,600 9,536 9,765 10,478
reversal
Fuels 6,150 7,976 10,500 7,763 10,039
Other (1) 5,532 7,399 8,126 7,114 6,551
------- ------ ------- ------- ------
Total 23,211 27,175 28,846 25,767 29,929
(1) NGL gathering systems and Chicago originations other than long-haul volumes
of refinery butanes.
The North System has approximately 7.3 million barrels of storage capacity,
which includes caverns, steel tanks, pipeline line-fill and leased storage
capacity. This storage capacity provides operating efficiencies and flexibility
in meeting seasonal demand of shippers as well as propane storage for the truck
loading terminals.
Truck Loading Terminals. The North System has seven propane truck loading
terminals and one multi-product complex at Morris, Illinois, in the Chicago
area. The Morris terminal complex can load propane, normal butane, isobutane and
natural gasoline.
Markets. The North System currently serves approximately 50 shippers in the
upper Midwest market, including both users and wholesale marketers of NGLs.
These shippers include all four major refineries in the Chicago area. Wholesale
marketers of NGLs primarily make direct large volume sales to major end-users,
such as propane marketers,
8
<PAGE>
refineries, petrochemical plants, and industrial concerns. Market demand for
NGLs varies in respect to the different end uses to which NGL products may be
applied. Demand for transportation services is influenced not only by demand for
NGLs but also by the available supply of NGLs.
Supply. NGLs extracted or fractionated at the Bushton gas processing plant
operated by KN Processing, Inc. have historically accounted for a significant
portion (approximately 40-50%) of the NGLs transported through the North System.
Other sources of NGLs transported in the North System include major independent
oil companies, marketers, end-users and natural gas processors that use
interconnecting pipelines to transport hydrocarbons.
Competition. The North System competes with other liquids pipelines and to a
lesser extent rail carriers. In most cases, established pipelines are generally
the lowest cost alternative for the transportation of NGLs and refined petroleum
products. Therefore, pipelines owned and operated by others represent the
Partnership's primary competition. In the Chicago area, the North System
competes with other NGL pipelines that deliver into the area and with rail car
deliveries primarily from Canada. Other Midwest pipelines and area refineries
compete with the North System for propane terminal deliveries. The North System
also competes indirectly with pipelines that deliver product to markets that the
North System does not serve, such as the Gulf Coast market area.
Shell CO2 Company
On March 5, 1998, the Partnership and affiliates of Shell Oil Company
("Shell") agreed to combine their CO2 activities and assets into a partnership
(Shell CO2 Company) to be operated by Shell. The Partnership acquired, through a
newly created limited liability company, a 20% interest in Shell CO2 Company in
exchange for contributing the Central Basin Pipeline and approximately $25
million in cash. Shell contributed the following assets in exchange for an 80%
interest in Shell CO2 Company:
o an approximate 45% interest in the McElmo Dome CO2 reserves;
o an 11% interest in the Bravo Dome CO2 reserves;
o an indirect 50% interest in the Cortez pipeline;
o a 13% interest in the Bravo pipeline; and
o certain other related assets.
The combination of Partnership and Shell assets facilitates the marketing of
CO2 by bringing a complete package of CO2 supply, transportation and technical
expertise to the customer. CO2 is used in enhanced oil recovery projects as a
flooding medium for recovering crude oil from mature oil fields. By creating an
area of mutual interest in the continental U.S., the Partnership will have the
opportunity to participate with Shell in certain new CO2 projects in the region.
Altura, Shell's joint venture with Amoco, is a major user of CO2 in its West
Texas fields.
Under the terms of the Shell CO2 Company partnership agreement, the
Partnership will receive a priority distribution of $14.5 million per year
during 1998 through 2001. To the extent the amount paid to the Partnership over
this period is in excess of the Partnership's percentage share (currently 20%)
of Shell CO2 Company's distributable cash flow for such period (discounted at
10%), Shell will receive a priority distribution in equal amounts of such
overpayment during 2002 and 2003.
McElmo and Bravo Domes. Shell CO2 Company operates, and owns 45% of, the
McElmo Dome, which contains more than 10 trillion cubic feet ("TCF") of nearly
pure CO2. Delivery capacity exceeds one billion cubic feet per day ("Bcf/d") to
the Permian Basin and 60 million cubic feet per day ("MMcf/d") to Utah, and
additional expansions are under consideration.
The Bravo Dome, of which Shell CO2 Company owns 11%, holds reserves of
approximately eight TCF and covers an area of more than 1,400 square miles. The
Bravo Dome produces more than 400 MMcf/d; such production coming from more than
350 wells in the Tubb Sandstone at 2,300 feet.
CO2 Pipelines. Shell CO2 Company owns a 50% interest in the 502-mile, 30-inch
Cortez Pipeline operated by a Shell affiliate. This pipeline carries CO2 from
the McElmo Dome source reservoir to the Denver City, Texas hub. The Cortez line
currently transports in excess of 800 MMcf/d, including approximately 90% of the
CO2 transported on the Central Basin Pipeline (see below).
9
<PAGE>
In addition, Shell CO2 Company owns 13% of the 20-inch Bravo pipeline which
runs 218 miles to the Denver City hub and has a capacity of more than 350
MMcf/d. Major delivery points along the line include the Slaughter Field in
Cochran and Hockley counties, Texas, and the Wasson field in Yoakum County,
Texas. Tariffs on the Cortez and Bravo pipelines are not regulated.
Placed in service in 1985, the Central Basin Pipeline consists of
approximately 143 miles of 16" to 20" main pipeline and 157 miles of 4" to 12"
lateral supply lines located in the Permian Basin between Denver City, Texas and
McCamey, Texas with a throughput capacity of 600 MMcf/d. At its origination
point in Denver City, the Central Basin Pipeline interconnects with all three
major CO2 supply pipelines from Colorado and New Mexico, namely the Cortez,
Bravo and Sheep Mountain pipelines (operated by Shell, Amoco, and ARCO,
respectively). The mainline terminates near McCamey where it interconnects with
the Canyon Reef Carriers, Inc. pipeline.
Competition. Shell CO2 Company's primary competitors for the sale of CO2
include suppliers that have an ownership interest in McElmo Dome, Bravo Dome and
Sheep Mountain Dome CO2 reserves. Shell CO2 Company's ownership interests in the
Cortez and Bravo pipelines are in direct competition with Sheep Mountain
pipeline, as well as competing with one another, for transportation of CO2 to
the Denver City, Texas market area. There is no assurance that new CO2 source
fields will not be discovered which could compete with Shell CO2 Company or that
new methodologies for enhanced oil recovery could replace CO2 flooding.
Cypress Pipeline
The Cypress Pipeline is an interstate common carrier pipeline system
originating at storage facilities in Mont Belvieu, Texas and extending 104 miles
east to the Lake Charles, Louisiana area. Mont Belvieu, located approximately 20
miles east of Houston, is the largest hub for NGL gathering, transportation,
fractionation and storage in the United States.
Markets. The pipeline was built to service a major petrochemical producer in
the Lake Charles, Louisiana area under a 20-year ship-or-pay agreement that
expires in 2011. The contract requires a minimum volume of 30,000 barrels per
day and in 1997, the producer agreed to ship a minimum of an additional 13,700
barrels per day for five years. Also in 1997, the Partnership expanded the
Cypress Pipeline's capacity by 25,000 barrels per day to 57,000 barrels per day.
Management continues to pursue projects that could increase throughput on the
Cypress Pipeline.
Supply. The Cypress Pipeline originates in Mont Belvieu where it is able to
receive ethane and ethane/propane mix from local storage facilities. Mont
Belvieu has facilities to fractionate NGLs received from several pipelines into
ethane and other components. Additionally, pipeline systems that transport
specification NGLs from major producing areas in Texas, New Mexico, Louisiana,
Oklahoma, and the Mid-Continent Region supply ethane and ethane/propane mix to
Mont Belvieu.
Plantation Pipe Line Company
The Partnership owns 24% of Plantation Pipe Line Company, which owns and
operates a 3,100 mile pipeline system throughout the southeastern Unites States.
Plantation serves as a common carrier of refined petroleum products to various
metropolitan areas, including Atlanta, Georgia; Charlotte, North Carolina; and
the Washington, D.C. area. The Partnership believes favorable demographics in
the southeastern United States will serve as a platform for increased
utilization and expansion of Plantation's pipeline system.
Markets. Plantation ships products for approximately 50 shipper companies to
terminals throughout the southeastern United States. Plantation's principal
customers are Gulf Coast refining and marketing companies, fuel wholesalers and
the United States Department of Defense. In addition, Plantation services the
Atlanta, Georgia; Charlotte, North Carolina; and Washington, D.C. airports
(National and Dulles), at which it delivers jet fuel to major airlines.
Supply. Products shipped on Plantation originate at various Gulf Coast
refineries from which major integrated oil companies and independent refineries
and wholesalers ship refined petroleum products. The Plantation Pipe Line can
transport over 600,000 barrels of refined petroleum products per day.
10
<PAGE>
Competition. Plantation competes primarily with the Colonial Pipeline, which
also runs from Gulf Coast refineries throughout the southeastern United States,
extending into the northeastern states.
Heartland Pipeline Company
The Heartland pipeline was completed in the fall of 1990 and is owned by
Heartland Pipeline Company ("Heartland"). The Partnership and Conoco each own
50% of Heartland. The Partnership operates the pipeline and Conoco operates
Heartland's Des Moines terminal and serves as the managing partner.
Markets. Heartland provides transportation of refined petroleum products from
refineries in the Kansas and Oklahoma area to a Conoco terminal in Lincoln,
Nebraska and Heartland's Des Moines terminal. The demand for, and supply of,
refined petroleum products in the geographic regions served directly affect the
volume of refined petroleum products transported by Heartland.
Supply. Refined petroleum products transported by Heartland on the North
System are supplied primarily from the National Cooperative Refinery Association
crude oil refinery in McPherson, Kansas and the Conoco crude oil refinery in
Ponca City, Oklahoma.
Competition. Heartland competes with other refined product
carriers in the geographic market served. Heartland's principal
competitor is Williams Pipeline Company.
Mont Belvieu Fractionator
The Partnership owns a 25% interest in the Mont Belvieu Fractionator, located
approximately 20 miles east of Houston in Mont Belvieu, Texas. The fractionator
is a full-service fractionating facility that produces a range of specification
products, including ethane, propane, normal butane, isobutane and natural
gasoline from a raw stream of natural gas liquids (Y-grade). Enterprise Products
Company operates the facility, which was built in 1980. In December 1996, the
total capacity of the fractionator was expanded by approximately 45,000 barrels
per day to approximately 200,000 barrels per day. The Mont Belvieu Fractionator
operated at approximately 97%, 98% and 100% of capacity, respectively, during
1998, 1997, and 1996.
Markets. The fractionator is located in proximity to major end-users of its
specification products, ensuring consistent access to the largest domestic
market for NGL products. In addition, the Mont Belvieu hub has access to
deep-water port loading facilities via the Port of Houston, allowing access to
import and export markets.
Supply. The Mont Belvieu Fractionator is fed by six major Y-grade pipelines,
through several pipeline interconnects and unloading facilities. The Mont
Belvieu Fractionator also can access supply from a variety of other sources.
Supply can either be brought directly into the facility or directed into
underground salt dome storage.
Competition. The Mont Belvieu Fractionator competes for volumes of Y-grade
with three other fractionators located in the Mont Belvieu hub and surrounding
areas. Competitive factors for customers include primarily the level of
fractionation fees charged and the relative amount of available capacity.
Painter Gas Processing Plant
The Painter Plant is located near Evanston, Wyoming and consists of:
o a natural gas processing plant;
o a nitrogen rejection unit;
o a fractionator;
o an NGL terminal; and
o interconnecting pipelines with truck and rail loading facilities.
The fractionation facility has a capacity of approximately 6,000 barrels per
day, depending on the feedstock composition. The Painter Plant is leased to
Amoco Oil Company, which operates the Painter Plant fractionator and the
associated Millis terminal and storage facilities for its own account. Amoco
also owns and operates the nearby Amoco Painter Complex gas plant.
11
<PAGE>
Bulk Terminals
The Bulk Terminals segment consists of 24 bulk terminals, which handle
approximately 50 million tons of dry and liquid bulk products annually. The Bulk
Terminals segment includes:
o Coal Terminals (5);
o Petroleum Coke Terminals (8); and
o Other Bulk Terminals (11).
Coal Terminals
The Cora Terminal is a high-speed, rail-to-barge coal transfer and storage
facility. Built in 1980, the terminal is located on approximately 480 acres of
land along the upper Mississippi River near Cora, Illinois, about 80 miles south
of St. Louis. The terminal has a throughput capacity of about 15 million tons
per year that can be expanded to 20 million tons with certain capital additions.
The terminal currently is equipped to store up to 1.0 million tons of coal. This
provides customers the flexibility to coordinate their supplies of coal with the
demand at power plants. Storage capacity at the Cora Terminal can be doubled
with additional capital investment.
On September 4, 1997, the Partnership acquired at a cost of approximately $20
million the assets of BRT Transfer Terminal, Inc. and other assets which now
comprise the Grand Rivers Terminal. The Grand Rivers Terminal is operated on
land under easements with an initial expiration of July 2014. Grand Rivers is a
coal transloading and storage facility located on the Tennessee River just above
the Kentucky Dam. The terminal has current annual throughput capacity of
approximately 12-15 million tons with a storage capacity of approximately 2
million tons. With capital improvements, the terminal could handle 25 million
tons annually.
On December 18, 1998, the Partnership acquired the Pier IX Terminal, located
in Newport News, Virginia. The terminal originally opened on 1983 and has the
capacity to transload approximately 12 million tons of coal annually. It can
store 1.3 million tons of coal on its 30-acre storage site and can blend
multiple coals to meet an individual customer's requirements. In addition, the
Pier IX Terminal operates a cement facility, which has the capacity to transload
over 400,000 tons of cement annually.
In addition, the Partnership operates the LAXT Coal Terminal in Los Angeles,
California and a smaller coal terminal in Mt.
Vernon, Indiana.
Markets. Coal continues to dominate as the fuel for electric generation,
accounting for more than 55% of U.S. generation feedstock. Forecasts of overall
coal usage and power plant usage for the next 20 years show an increase of about
1.5% per year. Current domestic supplies are predicted to last for several
hundred years. Most of the Partnership's coal terminals' volume is destined for
use in coal-fired electric generation.
Environmental legislation is currently driving changes in specification of
coal used for electric generation to low-sulfur products. The Partnership
believes that obligations to comply with the Clean Air Act Amendments of 1990
will drive shippers to increase the use of low-sulfur coal from the western
United States. Approximately 80% of the coal loaded through the Cora and Grand
Rivers terminals is low sulfur coal originating from mines located in the
western United States, including the Hanna and Powder River basins in Wyoming,
western Colorado and Utah. In 1998, four major customers accounted for
approximately 90% of all the coal loaded through the Cora and Grand Rivers
Terminals.
Both Pier IX and LAXT export coal to foreign markets. Substantial portions of
the coal transloaded at these facilities are covered by long term contracts. In
addition, Pier IX serves power plants on the eastern seaboard of the United
States and imports cement pursuant to a long term contract.
Supply. Historically, the Cora and Grand Rivers Terminals have moved coal
that originated in the mines of southern Illinois and western Kentucky. Many
shippers, however, particularly in the East, are now using western coal loaded
at the terminals or a mixture of western coal and other coals as a means of
meeting environmental restrictions. The Partnership believes that Illinois and
Kentucky coal producers and shippers will continue to be
12
<PAGE>
important customers, but anticipates that growth in volume through the terminals
will be primarily due to western low sulfur coal originating in Wyoming,
Colorado and Utah.
The Cora Terminal sits on the mainline of the Union Pacific Railroad and is
strategically well positioned to receive coal shipments from the West. Grand
Rivers provides easy access to the Ohio-Mississippi River network, the
Tennessee-Tombigbee System and major trucking routes on the interstate highway
system. The Paducah & Louisville Railroad, a short line railroad, also serves
the terminal with connections to seven Class I rail lines including the Union
Pacific, CSX, Illinois Central and Burlington Northern. The Pier IX Terminal is
served by the CSX Railroad, which transports coal from Appalachian and other
coal basins. Cement imported at the Pier IX Terminal primarily originates in
Europe. LAXT is served by the Union Pacific.
Red Lightning Energy Services. In 1997, the Partnership began marketing
energy related products and coal terminal services through its Red Lightning
energy services unit ("Red Lightning"). Products marketed include coal and
propane. The unit provides marketing of coal terminal services for both the Cora
Terminal and the Grand Rivers Terminal.
Petroleum Coke Terminals
With the acquisition of Kinder Morgan Bulk Terminals, Inc. on July 1, 1998,
the Partnership owns or operates 8 petroleum coke terminals in the United
States. Petroleum coke is a by-product of the refining process and has
characteristics similar to coal. Petroleum coke supply in the United States has
increased in the last several years due to the increased use of coking units by
domestic refineries. Petroleum coke is used in domestic utility and industrial
steam generation facilities and is exported to foreign markets. Most of the
Partnership's customers are large integrated oil companies who choose to
outsource the storage and loading of petroleum coke for a fee.
Other Bulk Terminals
With the acquisition of Kinder Morgan Bulk Terminals, Inc. on July 1, 1998,
and the Shipyard River Terminal on December 18, 1998, the Partnership owns or
operates an additional 11 bulk terminals located primarily on the Mississippi
River and the West Coast. The other bulk terminals serve customers in the
alumina, cement, soda ash, ilminite, fertilizer, ore and other industries
seeking specialists who can build, own and operate bulk terminals.
Competition
Cora and Grand Rivers Terminals. The Cora Terminal and Grand Rivers Terminal
compete with several coal terminals located in the general geographic area,
however, no significant new coal terminals have been constructed near the Cora
Terminal or the Grand Rivers Terminal in the last ten years. There are
significant barriers to entry for the construction of new coal terminals,
including the requirement for significant capital expenditures and restrictive
environmental permitting requirements. The Partnership believes the Cora
Terminal and the Grand Rivers Terminal can compete successfully with other
terminals because of their favorable location, independent ownership, available
capacity, modern equipment and large storage area.
Pier IX Terminal. The Pier IX Terminal competes primarily with two modern
coal terminals located in the same Virginian port complex as the Pier IX
Terminal.
Other Terminals. The Partnership's other bulk terminals compete with numerous
independent terminal operators and with other terminals owned by oil companies
and other industrials opting not to outsource terminal services and with
numerous independent bulk terminal operators. However, many of the other bulk
terminals were constructed pursuant to long term contracts for specific
customers. As a result, the Partnership believes other terminal operators would
face a significant disadvantage in competing for the business.
13
<PAGE>
Major Customers of the Partnership
Although the Partnership's 1998 revenues were derived from a wide customer
base, the following customers accounted for more than 10% of the Partnership's
1998 consolidated revenues:
o Equilon Enterprises(1) 13.2%
o Tosco Group 12.3%
o Chevron 11.0%
o ARCO 10.9%
(1) Equilon is the name of the joint venture, formed in January 1998, that
combined major elements of Texaco's and Shell's mid-western and western U.S.
refining and marketing businesses and nationwide trading, transportation and
lubricants businesses.
Amoco Corporation, including their subsidiaries, accounted for more than
11.9% of the Partnership's 1997 consolidated revenues. In 1996, revenues from
Mobil Corporation and Amoco Corporation, including their subsidiaries, accounted
for approximately 12.4% and 10.4%, respectively, of total revenues. Due to the
Partnership's acquisition of the Pacific Operations in March 1998, their
percentage of consolidated revenues has decreased significantly. For a more
complete discussion of customers, see Note 14 of the Notes to the Consolidated
Financial Statements.
Employees
The Partnership does not have any employees. The general partner and/or the
subsidiary entities of the Partnership employ all persons necessary for the
operation of the Partnership's business. The Partnership reimburses the general
partner for the services of its employees. As of March 6, 1999, the general
partner and the subsidiary entities had approximately 1,200 employees.
Approximately 150 hourly personnel at certain terminals are represented by four
labor unions. No other employees of the general partner are members of a union
or have a collective bargaining agreement. The general partner considers its
relations with its employees to be good.
Regulation
Interstate Common Carrier Regulation
Some of the Partnership's pipelines are interstate common carrier pipelines,
subject to regulation by the FERC under the Interstate Commerce Act ("ICA"). The
ICA requires the Partnership to maintain tariffs on file with the FERC, which
tariffs set forth the rates the Partnership charges for providing transportation
services on the interstate common carrier pipelines as well as the rules and
regulations governing these services. Petroleum pipelines are able to change
their rates within prescribed ceiling levels that are tied to an inflation
index. Shippers may protest rate increases made within the ceiling levels, but
such protests must show that the portion of the rate increase resulting from
application of the index is substantially in excess of the pipeline's increase
in costs. A pipeline must, as a general rule, utilize the indexing methodology
to change its rates. The FERC, however, uses cost-of-service ratemaking,
market-based rates and settlement as alternatives to the indexing approach in
certain specified circumstances. In 1998, 1997, and 1996, application of the
indexing methodology did not significantly affect the Partnership's rates.
The ICA requires, among other things, that such rates be "just and
reasonable" and nondiscriminatory. The ICA permits interested persons to
challenge proposed new or changed rates and authorizes the FERC to suspend the
effectiveness of such rates for a period of up to seven months and to
investigate such rates. If, upon completion of an investigation, the FERC finds
that the new or changed rate is unlawful, it is authorized to require the
carrier to refund the revenues in excess of the prior tariff collected during
the pendency of the investigation. The FERC may also investigate, upon complaint
or on its own motion, rates that are already in effect and may order a carrier
to change its rates prospectively. Upon an appropriate showing, a shipper may
obtain reparations for damages sustained during the two years prior to the
filing of a complaint.
On October 24, 1992, Congress passed the Energy Policy Act of 1992 ("Energy
Policy Act"). The Energy Policy Act deemed petroleum pipeline rates that were in
effect for the 365-day period ending on the date of
14
<PAGE>
enactment or that were in effect on the 365th day preceding enactment and had
not been subject to complaint, protest or investigation during the 365-day
period to be just and reasonable under the ICA (i.e., "grandfathered"). The
Energy Policy Act also limited the circumstances under which a complaint can be
made against such grandfathered rates. The rates the Partnership charges for
transportation service on its North System and Cypress Pipeline were not
suspended or subject to protest or complaint during the relevant 365-day period
established by the Energy Policy Act. For this reason, the Partnership believes
these rates should be grandfathered under the Energy Policy Act. Certain rates
on the Pacific Operations' pipeline system were subject to protest during the
365-day period established by the Energy Policy Act. Accordingly, certain of the
Pacific Operations' rates have been, and continue to be, subject to complaints
with the FERC, as is more fully described in Item 3.
Legal Proceedings.
State and Local Regulation
The Partnership's activities are subject to various state and local laws and
regulations, as well as orders of regulatory bodies pursuant thereto, governing
a wide variety of matters, including:
o marketing;
o production;
o pricing;
o pollution;
o protection of the environment; and
o safety.
Safety Regulation
The Partnership's pipelines are subject to regulation by the United States
Department of Transportation ("D.O.T.") with respect to their design,
installation, testing, construction, operation, replacement and management. In
addition, the Partnership must permit access to and copying of records, and make
certain reports and provide information as required by the Secretary of
Transportation. Comparable regulation exists in some states in which the
Partnership conducts pipeline operations. In addition, the Partnership's truck
and bulk terminal loading facilities are subject to D.O.T. regulations dealing
with the transportation of hazardous materials for motor vehicles and rail cars.
The Partnership believes that it is in substantial compliance with D.O.T. and
comparable state regulations.
The Partnership is also subject to the requirements of the Federal
Occupational Safety and Health Act ("OSHA") and comparable state statutes. The
Partnership believes that it is in substantial compliance with OSHA
requirements, including general industry standards, recordkeeping requirements,
and monitoring of occupational exposure to hazardous substances.
In general, the Partnership expects to increase expenditures in the future to
comply with higher industry and regulatory safety standards. Such expenditures
cannot be accurately estimated at this time, although the Partnership does not
expect that such expenditures will have a material adverse impact on the
Partnership, except to the extent additional hydrostatic testing requirements
are imposed.
Environmental Matters
The operations of the Partnership are subject to federal, state and local
laws and regulations relating to protection of the environment. The Partnership
believes that its operations and facilities are in general compliance with
applicable environmental regulations. The Partnership has an ongoing
environmental compliance program. However, risks of accidental leaks or spills
are associated with the transportation of NGLs and refined petroleum products,
the handling and storage of bulk materials, the fractionation of NGLs and other
activities conducted by the Partnership. There can be no assurance that
significant costs and liabilities will not be incurred, including those relating
to claims for damages to property and persons resulting from operation of the
Partnership's businesses. Moreover, it is possible that other developments, such
as increasingly strict environmental laws and regulations and enforcement
policies thereunder, could result in increased costs and liabilities to the
Partnership.
Environmental laws and regulations have changed substantially and rapidly
over the last 25 years, and the Partnership anticipates that there will be
continuing changes. The clear trend in environmental regulation is to place more
restrictions and limitations on activities that may impact the environment
and/or endangered species, such as emissions of pollutants, generation and
disposal of wastes and use and handling of chemical substances.
15
<PAGE>
Increasingly strict environmental restrictions and limitations have resulted in
increased operating costs for the Partnership and other similar businesses
throughout the United States. It is possible that the costs of compliance with
environmental laws and regulations will continue to increase. The Partnership
will attempt to anticipate future regulatory requirements that might be imposed
and to plan accordingly in order to remain in compliance with changing
environmental laws and regulations and to minimize the costs of such compliance.
Solid Waste. The Partnership owns several properties that have been used for
many years for the transportation and storage of refined petroleum products and
NGLs and the handling and storage of coal and other bulk materials. Solid waste
disposal practices within the petroleum industry have improved over the years
with the passage and implementation of various environmental laws and
regulations. A possibility exists that hydrocarbons and other solid wastes may
have been disposed of in, on or under various properties owned by the
Partnership during the operating history of these facilities. In such cases,
hydrocarbons and other solid wastes could migrate from their original disposal
areas and have an adverse effect on soils and groundwater. The Partnership does
not believe that there presently exists significant surface or subsurface
contamination of its assets by hydrocarbons or other solid wastes not already
identified and addressed. The Partnership has developed and maintains a reserve
of funds to account for the costs of cleanup at these sites.
The Partnership will generate both hazardous and nonhazardous solid wastes
that are subject to the requirements of the federal Resource Conservation and
Recovery Act ("RCRA") and comparable state statutes. From time to time, the
United States Environmental Protection Agency ("EPA") considers the adoption of
stricter disposal standards for nonhazardous waste. Furthermore, it is possible
that some wastes that are currently classified as nonhazardous, which could
include wastes currently generated during pipeline or bulk terminal operations,
may in the future be designated as "hazardous wastes." Hazardous wastes are
subject to more rigorous and costly disposal requirements. Such changes in the
regulations may result in additional capital expenditures or operating expenses
by the Partnership.
Superfund. The Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), also known as the "Superfund" law, imposes liability,
without regard to fault or the legality of the original conduct, on certain
classes of "potentially responsible persons" for releases of "hazardous
substances" into the environment. These persons include the owner or operator of
a site and companies that disposed or arranged for the disposal of the hazardous
substances found at the site. CERCLA also authorizes the EPA and, in some cases,
third parties to take actions in response to threats to the public health or the
environment and to seek to recover from the responsible classes of persons the
costs they incur. Although "petroleum" is excluded from CERCLA's definition of a
"hazardous substance," in the course of its ordinary operations the Partnership
will generate wastes that may fall within the definition of a "hazardous
substances". By operation of law, if the Partnership is determined to be a
potentially responsible person, the Partnership may be responsible under CERCLA
for all or part of the costs required to clean up sites at which such wastes
have been disposed.
EPA Gasoline Volatility Restrictions. In order to control air pollution in
the United States, the EPA has adopted regulations that require the vapor
pressure of motor gasoline sold in the United States to be reduced from May
through mid-September of each year. These regulations mandated vapor pressure
reductions beginning in 1989, with more stringent restrictions beginning in
1992. States may impose additional volatility restrictions. The regulations have
had a substantial effect on the market price and demand for normal butane, and
to some extent isobutane, in the United States. Gasoline manufacturers use
butanes in the production of motor gasolines. Since normal butane is highly
volatile, it is now less desirable for use in blended gasolines sold during the
summer months. Although the EPA regulations have reduced demand and may have
resulted in a significant decrease in prices for normal butane, low normal
butane prices have not impacted the Partnership's pipeline business in the same
way they would impact a business with commodity price risk. The EPA regulations
have presented the opportunity for additional transportation services on the
North System. In the summer of 1991, the North System began long-haul
transportation of refinery grade normal butane produced in the Chicago area to
the Bushton, Kansas area for storage and subsequent transportation north from
Bushton during the winter gasoline blending season. These additional
transportation volumes produced at Chicago area refineries resulted from the
more restrictive EPA vapor pressure limits on motor gasoline.
Clean Air Act. The operations of the Partnership are subject to the Clean Air
Act and comparable state statutes. The Partnership believes that the operations
of its pipelines, the Mont Belvieu Fractionator and the bulk terminals are in
substantial compliance with such statutes.
16
<PAGE>
Numerous amendments to the Clean Air Act were adopted in 1990. These
amendments contain lengthy, complex provisions that may result in the imposition
over the next several years of certain pollution control requirements with
respect to air emissions from the operations of the pipelines, the bulk
terminals and the Mont Belvieu Fractionator. The EPA is developing, over a
period of many years, regulations to implement those requirements. Depending on
the nature of those regulations, and upon requirements that may be imposed by
state and local regulatory authorities, the Partnership may be required to incur
certain capital expenditures over the next several years for air pollution
control equipment in connection with maintaining or obtaining operating permits
and approvals and addressing other air emission-related issues.
Due to the broad scope and complexity of the issues involved and the
resultant complexity and controversial nature of the regulations, full
development and implementation of many of the regulations have been delayed.
Until such time as the new Clean Air Act requirements are implemented, the
Partnership is unable to estimate the effect on earnings or operations or the
amount and timing of such required capital expenditures. At this time, however,
the Partnership does not believe it will be materially adversely affected by any
such requirements.
Risk Factors
Pending FERC and CPUC Proceedings Seek Substantial Refunds and
Reductions in Tariff Rates.
Some shippers have filed complaints with the Federal Energy Regulatory
Commission and the California Public Utilities Commission that seek substantial
refunds and reductions in the Pacific Operations' tariff rates. An adverse
decision could negatively impact revenues, results of operations, financial
condition, liquidity, and funds available for distribution to unitholders.
Additional challenges to tariff rates could be filed with the FERC or CPUC in
the future.
The complaints filed before the Federal Energy Regulatory Commission allege
that some pipeline tariff rates of the Pacific Operations are not entitled to
"grandfathered" status under the Energy Policy Act of 1992 because "changed
circumstances" may have occurred under the Act. An initial decision by the FERC
Administrative Law Judge was issued on September 25, 1997. The initial decision
determined that the Pacific Operations' East Line rates were not grandfathered
under the Energy Policy Act. The initial decision also included rulings that
were generally adverse to the Pacific Operations regarding certain cost of
service issues. On January 13, 1999, the FERC issued an opinion that affirmed,
in major respects, the initial decision, but also modified certain parts of the
decision that were adverse to the Partnership. The Partnership believes the
effect of the opinion will be less than the approximate $8 million that has been
annually accrued as a reserve. Certain of the complainants have appealed the
FERC's decision to the United States Court of Appeals for the District of
Columbia circuit.
The complaints filed before the California Public Utilities Commission
generally challenge the rates charged for intrastate transportation of refined
petroleum through the Pacific Operations' pipeline system in California. On June
18, 1998, a CPUC Administrative Law Judge issued a ruling in the Partnership's
favor and dismissed the complaints. The Administrative Law Judge's decision was
affirmed by the CPUC on August 6, 1998. The shippers have filed an appeal with
the California Supreme Court.
For additional information about these proceedings, see Item. 3
Legal Proceedings
Rapid Growth May Cause Difficulties Integrating New Operations
Part of the Partnership's business strategy includes acquiring additional
businesses that will allow it to increase distributions to unitholders. During
the period from December 31, 1996 to December 31, 1998, the Partnership made
several acquisitions that increased its asset base seven times, and its net
income for the year ended December 31, 1998 was over eight times higher than the
net income for the year ended December 31, 1996. The Partnership believes that
it can profitably combine the operations of acquired businesses with its
existing operations. However, unexpected costs or challenges may arise whenever
businesses with different operations and management are combined. Successful
business combinations require management and other personnel to devote
significant amounts of time to integrating the acquired business with existing
operations. These efforts may temporarily distract management's attention from
day-to-day business, the development or acquisition of new properties and other
business opportunities. In addition, the management of the acquired business
will often not join the
17
<PAGE>
Partnership's management team. The change in management may make it more
difficult to integrate an acquired business with existing operations.
Potential Change of Control if Kinder Morgan, Inc. Defaults on
Debt
Kinder Morgan, Inc. owns all of the outstanding capital stock of the general
partner. KMI has pledged this stock to secure some of its debt. Presently, KMI's
only source of income to pay such debt is dividends that KMI receives from the
general partner. If KMI defaults on its debt, the lenders could acquire control
of the general partner.
Possible Increased Costs for Pipeline Easements
The Partnership generally does not own the land on which its pipelines are
constructed. Instead, the Partnership obtains the right to construct and operate
the pipelines on other people's land for a period of time. If the Partnership
were to lose these rights, its business could be negatively affected.
Southern Pacific Transportation Company has allowed the Partnership to
construct and operate a significant portion of its Pacific Operations' pipeline
under their railroad tracks. Southern Pacific Transportation Company and its
predecessors were given the right to construct their railroad tracks under
federal statutes enacted in 1871 and 1875. The 1871 statute was thought to be an
outright grant of ownership that would continue until the land ceased to be used
for railroad purposes. Two United States Circuit Courts, however, ruled in 1979
and 1980 that railroad rights-of-way granted under laws similar to the 1871
statute provide only the right to use the surface of the land for railroad
purposes without any right to the underground portion. If a court were to rule
that the 1871 statute does not permit the use of the underground portion for the
operation of a pipeline, the Partnership may be required to obtain permission
from the land owners in order to continue to maintain the pipelines. Although no
assurance can be given, the Partnership believes it could obtain such permission
over time at a cost that would not have a material negative effect on its
financial position or results of operations.
The Partnership has been advised by counsel that it has the power of eminent
domain for the liquids pipelines in the states in which it operates (except for
Illinois) assuming that it meets certain requirements, which differ from state
to state. The Partnership believes that it meets these requirements, however, it
also believes that Shell CO2 Company does not have the power of eminent domain
for its CO2 pipelines. The Partnership's inability to exercise the power of
eminent domain could have a material negative effect on its business if it were
to lose the right to use or occupy the property on which its pipelines are
located.
Distributions From Shell CO2 Company May be Limited
Under certain unlikely scenarios, the Partnership possibly would not receive
any distributions from Shell CO2 Company during 2002 and 2003. During 1999-2001,
the Partnership will receive a fixed, quarterly distribution from Shell CO2
Company of approximately $3.6 million ($14.5 million per year). In 2002 and
2003, Shell CO2 Company will increase or decrease such cash distributions so
that the Partnership's percentage of the total cash distribution during
1998-2003 equals its ownership percentage of Shell CO2 Company during that time
(initially 20%). These calculations will be done on a present value basis using
a discount rate of 10%. After 2003, the Partnership will participate in
distributions according to its partnership percentage.
Environmental Regulation Significantly Affects Partnership Business
The business operations of the Partnership are subject to federal, state and
local laws and regulations relating to environmental practices. If an accidental
leak or spill of liquid petroleum products occurs in a pipeline or at a storage
facility, the Partnership may have to pay a significant amount to clean up the
leak or spill. The resulting costs and liabilities could negatively affect the
level of cash available for distributions to unitholders. Although the
Partnership cannot predict the impact of Environmental Protection Agency
standards or future environmental measures, such costs could increase
significantly if environmental laws and regulations become stricter. Since the
costs of environmental regulation are already significant, additional regulation
could negatively affect the level of cash available for distributions to
unitholders. See "-Regulation".
18
<PAGE>
Competition
Competition could ultimately lead to lower levels of profits and lower cash
distributions to unitholders. Propane competes with electricity, fuel, oil and
natural gas in the residential and commercial heating market. In the engine fuel
market, propane competes with gasoline and diesel fuel. Butanes and natural
gasoline used in motor gasoline blending and isobutane used in premium fuel
production compete with alternative products. Natural gas liquids used as feed
stocks for refineries and petrochemical plants compete with alternative feed
stocks. The availability and prices of alternative energy sources and feed
stocks significantly affect demand for natural gas liquids.
Pipelines are generally the lowest cost method for intermediate and long-haul
overland product movement. Accordingly, the most significant competitors for our
pipelines are:
o proprietary pipelines owned and operated by major oil
companies in the areas where our pipelines deliver products;
o refineries within the market areas served by our pipelines;
and
o trucks.
Additional pipelines may be constructed in the future to serve specific
markets now served by the Partnership's pipelines. Trucks competitively deliver
products in certain markets. Recently, major oil companies have increasingly
used trucking, resulting in minor but notable reductions in product volumes
delivered to certain shorter-haul destinations, primarily Orange and Colton,
California served by the South and West lines of the Pacific Operations.
The Partnership cannot predict with certainty whether this trend towards
increased short-haul trucking will continue in the future. Demand for
terminaling services varies widely throughout the pipeline system. Certain major
petroleum companies and independent terminal operators directly compete with the
Partnership at several terminal locations. At those locations, pricing, service
capabilities and available tank capacity control market share.
The Partnership's ability to compete also depends upon general market
conditions, which may change. The Partnership conducts its operations without
the benefit of exclusive franchises from government entities. The Partnership
provides common carrier transportation services through its pipelines at posted
tariffs and almost always without long-term contracts for transportation service
with customers. Demand for transportation services for refined petroleum
products is primarily a function of:
o total and per capita fuel consumption;
o prevailing economic and demographic conditions;
o alternate modes of transportation;
o alternate product sources; and
o price.
Risks Associated with Leverage
Debt Instruments May Limit Financial Flexibility. The instruments governing
the Partnership's debt contain restrictive covenants that may prevent it from
engaging in certain beneficial transactions. Such provisions may also limit or
prohibit distributions to unitholders under certain circumstances. The
agreements governing the Partnership's debt generally require it to comply with
various affirmative and negative covenants including the maintenance of certain
financial ratios and restrictions on:
o incurring additional debt;
o entering into mergers, consolidations and sales of assets;
o making investments; and
o granting liens.
19
<PAGE>
Additionally, the agreements governing the Partnership's debt generally
prohibit the Partnership from:
o making cash distributions to unitholders more often than
quarterly;
o distributing amounts in excess of 100% of available cash for
the immediately preceding calendar quarter; and
o making any distribution to unitholders if an event of default exists or
would exist when such distribution is made.
The instruments governing any additional debt incurred to refinance the debt
may also contain similar restrictions.
Restrictions on the Ability to Prepay SFPP's Debt May Limit Financial
Flexibility. SFPP is subject to certain restrictions with respect to its debt
that may limit the Partnership's flexibility in structuring or refinancing
existing or future debt. These restrictions include the following:
o The Partnership may not prepay SFPP's First Mortgage Notes
before December 15, 1999;
o After December 15, 1999 and before December 15, 2002, the Partnership may
prepay the SFPP First Mortgage Notes with a make-whole prepayment premium;
o The Partnership agreed as part of the acquisition of the Pacific
Operations to not take certain actions with respect to $190 million of the
SFPP First Mortgage Notes that would cause adverse tax consequences for
the prior general partner of SFPP.
Unitholders May Have Negative Tax Consequences if a Default on Debt or Sale
of Assets Occurs. If the Partnership defaults on any of its debt, the lenders
will have the right to sue for non-payment. Such an action could cause an
investment loss and cause negative tax consequences for unitholders through the
realization of taxable income by unitholders without a corresponding cash
distribution. Likewise, if the Partnership were to dispose of assets and realize
a taxable gain while there is substantial debt outstanding and proceeds of the
sale were applied to the debt, unitholders could have increased taxable income
without a corresponding cash distribution.
Debt Securities are Subordinated to SFPP Debt. Since SFPP, L.P. will not
guarantee any debt securities issued by the Partnership, such debt securities
will be effectively subordinated to all debt of SFPP. If SFPP defaults on its
debt, the holders of any of the Partnership's senior debt securities would not
receive any money from SFPP until SFPP repaid its debt in full.
Limitations in Our Partnership Agreement and State Partnership Law
Limited Voting Rights and Control of Management. Unitholders have only
limited voting rights on matters affecting the Partnership. The general partner
manages Partnership activities. Unitholders have no right to elect the general
partner on an annual or other ongoing basis. If the general partner withdraws,
however, the holders of a majority of the outstanding units (excluding units
owned by the departing general partner and its affiliates) may elect its
successor.
The limited partners may remove the general partner only if:
o the holders of 66 2/3% of the units vote to remove the
general partner. Units owned by the general partner and its
affiliates are not counted;
o the same percentage of units approves a successor general
partner;
o the Partnership continues to be taxed as a partnership for
federal income tax purposes; and
o the limited partners maintain their limited liability.
Persons Owning 20% or More of the Units Cannot Vote. Any units held by a
person that owns 20% or more of the units cannot be voted. This limitation does
not apply to the general partner and its affiliates. This provision may:
20
<PAGE>
o discourage a person or group from attempting to remove the
general partner or otherwise change management; and
o reduce the price at which the units will trade under certain
circumstances. For example, a third party will probably not attempt to
remove the general partner and take over our management by making a tender
offer for the units at a price above their trading market price without
removing the general partner and substituting an affiliate.
The General Partner's Liability to the Partnership and Unitholders May Be
Limited. The partnership agreement contains language limiting the liability of
the general partner to the Partnership or the unitholders. For example, the
partnership agreement provides that:
o the general partner does not breach any duty to the Partnership or the
unitholders by borrowing funds or approving any borrowing. The general
partner is protected even if the purpose or effect of the borrowing is to
increase incentive distributions to the general partner;
o the general partner does not breach any duty to the Partnership or the
unitholders by taking any actions consistent with the standards of
reasonable discretion outlined in the definitions of available cash and
cash from operations contained in the partnership agreement; and
o the general partner does not breach any standard of care or duty by
resolving conflicts of interest unless the general partner acts in bad
faith.
The Partnership Agreement Modifies the Fiduciary Duties of the General
Partner Under Delaware Law. Such modifications of state law standards of
fiduciary duty may significantly limit the ability of unitholders to
successfully challenge the actions of the general partner as being a breach of
what would otherwise have been a fiduciary duty. These standards include the
highest duties of good faith, fairness and loyalty to the limited partners. Such
a duty of loyalty would generally prohibit a general partner of a Delaware
limited partnership from taking any action or engaging in any transaction for
which it has a conflict of interest. Under the partnership agreement, the
general partner may exercise its broad discretion and authority in the
management of the Partnership and the conduct of its operations as long as the
general partner's actions are in the best interest of the Partnership.
Unitholders May Have Liability To Repay Distributions. Unitholders will not
be liable for assessments in addition to their initial capital investment in the
units. Under certain circumstances, however, unitholders may have to repay the
Partnership amounts wrongfully returned or distributed to them. Under Delaware
law, the Partnership may not make a distribution to unitholders if the
distribution causes all liabilities of the Partnership to exceed the fair value
of the Partnership's assets. Liabilities to partners on account of their
partnership interests and non-recourse liabilities are not counted for purposes
of determining whether a distribution is permitted. Delaware law provides that a
limited partner who receives such a distribution and knew at the time of the
distribution that the distribution violated Delaware law will be liable to the
limited partnership for the distribution amount for three years from the
distribution date. Under Delaware law, an assignee that becomes a substituted
limited partner of a limited partnership is liable for the obligations of the
assignor to make contributions to the Partnership. However, such an assignee is
not obligated for liabilities unknown to him at the time he or she became a
limited partner if the liabilities could not be determined from the partnership
agreement.
Unitholders May be Liable if the Partnership does Not Comply With State
Partnership Law. The Partnership conducts its business in a number of states. In
some of those states, the limitations on the liability of limited partners for
the obligations of a limited partnership have not been clearly established. The
unitholders might be held liable for the Partnership's obligations as if they
were a general partner if:
o a court or government agency determined that the Partnership was
conducting business in the state but had not complied with the state's
partnership statute; or
o unitholders' rights to act together to remove or replace the general
partner or take other actions under the partnership agreement constitute
"control" of the Partnership's business.
The General Partner May Buy Out Minority Unitholders if it Owns 80% of the
Units. If at any time the general partner and its affiliates own 80% or more of
the issued and outstanding units, the general partner will have the right to
purchase all of the remaining units. Because of this right, a unitholder may
have to sell his interest against his will or for a less than desirable price.
The general partner may only purchase all of the units. The purchase price for
such a purchase will be the greater of: o
21
<PAGE>
o the most recent 20-day average trading price; or
o the highest purchase price paid by the general partner or
its affiliates to acquire units during the prior 90 days.
The general partner can assign this right to its affiliates or to the
Partnership.
The Partnership May Sell Additional Limited Partner Interests, Diluting
Existing Interests of Unitholders. The partnership agreement allows the general
partner to cause the Partnership to issue additional units and other equity
securities. When the Partnership issues additional equity securities, the
existing unitholders' proportionate partnership interest will decrease. Such an
issuance could negatively affect the amount of cash distributed to unitholders
and the market price of units. Issuance of additional units will also diminish
the relative voting strength of the previously outstanding units. There is no
limit on the total number of units the Partnership may issue.
General Partner Can Protect Itself Against Dilution. Whenever the Partnership
issues equity securities to any person other than the general partner and its
affiliates, the general partner has the right to purchase additional limited
partnership interests on the same terms. This allows the general partner to
maintain its partnership interest in the Partnership. No other unitholder has a
similar right. Therefore, only the general partner may protect itself against
dilution caused by issuance of additional equity securities.
Potential Conflicts of Interest Related to the Operation of the
Partnership
Certain conflicts of interest could arise among the general partner, KMI
and the Partnership. Such conflicts may include, among others, the following
situations:
o the Partnership does not have any employees and relies
solely on employees of the general partner and its
affiliates, including KMI;
o under the partnership agreement, the Partnership reimburses
the general partner for the costs of managing and operating
the Partnership;
o the amount of cash expenditures, borrowings and reserves in
any quarter may affect available cash to pay quarterly
distributions to unitholders;
o the general partner tries to avoid being personally liable for Partnership
obligations. The general partner is permitted to protect its assets in
this manner by the partnership agreement. Under the partnership agreement,
the general partner does not breach its fiduciary duty even if the
Partnership could have obtained more favorable terms without limitations
on the general partner's liability;
o under the partnership agreement, the general partner may pay its
affiliates for any services rendered on terms fair and reasonable to the
Partnership. The general partner may also enter into additional contracts
with any of its affiliates on behalf of the Partnership. Agreements or
contracts between the Partnership and the general partner (and its
affiliates) are not the result of arms length negotiations;
o the general partner does not breach the partnership agreement by
exercising its call rights to purchase limited partnership interests or by
assigning its call rights to one of its affiliates or to the Partnership.
Tax Treatment of Publicly Traded Partnerships Under the
Internal Revenue Code
The Internal Revenue Code of 1986, as amended (the "Code"), imposes certain
limitations on the current deductibility of losses attributable to investments
in publicly traded partnerships and treats certain publicly traded partnerships
as corporations for federal income tax purposes. The following discussion
briefly describes certain aspects of the Code that apply to individuals who are
citizens or residents of the United States without commenting on all of the
federal income tax matters affecting the Partnership or the Unitholders, and is
qualified in its entirety by reference to the Code. Unitholders are urged to
consult their own tax advisor about the federal, state, local and foreign tax
consequences to them of an investment in the Partnership.
Tax Characterization of the Partnership. The availability of the federal
income tax benefits of an investment in the Partnership to a holder of units
depends, in large part, on the classification of the Partnership as a
partnership for federal income tax purposes. The Code generally treats a
publicly traded partnership formed after 1987 as a
22
<PAGE>
corporation unless, for each taxable year of its existence, 90% or more of its
gross income consists of qualifying income.
If the Partnership were to fail to meet the 90% "qualified income" test (the
"Natural Resources Exception") for any year prior to or subsequent to the
acquisition of the Pacific Operations, the Partnership would be treated as a
corporation unless it met the inadvertent failure exception. Qualifying income
includes interest, dividends, real property rents, gains from the sale or
disposition of real property, income and gains derived from the exploration,
development, mining or production, processing, refining, transportation
(including pipelines transporting gas, oil or products thereof), or the
marketing of any mineral or natural resource (including fertilizer, geothermal
energy and timber), and gain from the sale or disposition of capital assets that
produced such income. The general partner believes that more than 90% of the
Partnership's gross income is, and has been, qualifying income, because the
Partnership is engaged primarily in the transportation of NGLs and refined
petroleum products through pipelines and the handling and storage of coal.
If the Partnership were classified as an association taxable as a corporation
for federal income tax purposes, the Partnership would be required to pay tax on
its income at corporate rates, distributions would generally be taxed to the
holders of units as corporate distributions, and no income, gain, loss,
deduction or credit would flow through to the holders of units. Because tax
would be imposed upon the Partnership as an entity, the cash available for
distribution to the holders of units would be substantially reduced. Treatment
of the Partnership as an association taxable as a corporation or otherwise as a
taxable entity would result in a material reduction in the anticipated cash flow
and after-tax return to the holders of units.
There can be no assurance that the law will not be changed so as to cause the
Partnership to be treated as an association taxable as a corporation for federal
income tax purposes or otherwise to be subject to entity-level taxation. The
partnership agreement provides that, if a law is enacted that subjects the
Partnership to taxation as a corporation or otherwise subjects the Partnership
to entity-level taxation for federal income tax purposes, certain provisions of
the partnership agreement relating to the general partner's incentive
distributions will be subject to change, including a decrease in the amount of
the Target Distribution levels to reflect the impact of entity level taxation on
the Partnership.
Passive Activity Loss Limitations. Under the passive loss limitations, losses
generated by the Partnership, if any, will only be available to offset future
income generated by the Partnership and cannot be used to offset income which an
individual estate, trust or personal service corporation realizes from other
activities, including passive activities or investments. Income, which may not
be offset by passive activity "losses", includes not only salary and active
business income, but also portfolio income such as interest, dividends or
royalties or gain from the sale of property that produces portfolio income.
Credits from passive activities are also limited to the tax attributable to any
income from passive activities. The passive activity loss rules are applied
after other applicable limitations on deductions, such as the at-risk rules and
the basis limitation. Certain closely held corporations are subject to slightly
different rules, which can also limit their ability to offset passive losses
against certain types of income. A unitholder's proportionate share of unused
losses may be deducted when the holder of units disposes of all of such holder's
units in a fully taxable transaction with an unrelated party. Net passive income
from the Partnership may be offset by a unitholder's unused Partnership losses
carried over from prior years, but not by losses from other passive activities,
including losses from other publicly traded partnerships. In addition, a
unitholder's proportionate share of the Partnership's portfolio income,
including portfolio income arising from the investment of the Partnership's
working capital, is not treated as income from a passive activity and may not be
offset by such unitholder's share of net losses of the Partnership.
Section 754 Election. Each of the Partnership and its operating partnerships
has made, will make, as necessary, and maintain the election provided for by
Section 754 of the Code, which will generally permit a holder of units to
calculate cost recovery and depreciation deductions by reference to the portion
of the unitholder's purchase price attributable to each asset of the
Partnership. A constructive termination of the Partnership could result in
penalties and a loss of basis adjustments under Section 754, if the Partnership
were unable to determine that a termination had occurred and, therefore, did not
make a Section 754 election for the new Partnership.
No Amortization of Book-Up Attributable to Intangibles. The acquisition of
the Pacific Operations resulted in a restatement of the capital accounts of both
the former Santa Fe common unitholders and the Partnership's pre-acquisition
unitholders to fair market value ("Book-Up"). An allocation of such increased
capital account value
23
<PAGE>
among the Partnership's assets was based on the values indicated by an
independent appraisal obtained by the general partner. The independent appraisal
indicated that all of such value was attributable to tangible assets. However,
if such valuations are challenged by the IRS and such challenge is successful, a
portion of this Book-Up would be allocated to intangible assets that would not
be amortizable either for tax or capital account purposes, and therefore, would
not support a curative allocation of income. This could result in a
disproportionate allocation of taxable income to either a pre-acquisition
unitholder or a former Santa Fe common unitholder.
Deductibility of Interest Expense. The Code generally provides that
investment interest expense is deductible only to the extent of a non-corporate
taxpayer's net investment income. In general, net investment income for purposes
of this limitation includes gross income from property held for investment
(except for net capital gains for which the taxpayer has elected to be taxed at
a maximum rate of 28 percent) and portfolio income (determined pursuant to the
passive loss rules) reduced by certain expense (other than interest) which are
directly connected with the production of such income. Property subject to the
passive loss rules is not treated as property held for investment. However, the
IRS has issued a Notice which provides that net income from a publicly traded
partnership (not otherwise treated as a corporation) may be included in net
investment income for the purposes of the limitation on the deductibility of
investment interest. A unitholder's investment income attributable to its
interest in the Partnership will include both its allocable share of the
Partnership's portfolio income and trade or business income. A unitholder's
investment interest expense will include its allocable share of the
Partnership's interest expense attributable to portfolio investments.
Tax Liability Exceeding Cash Distributions or Proceeds from Dispositions of
Units. A holder of units will be required to pay federal income tax and, in
certain cases, state and local income taxes on such holder's allocable share of
the Partnership's income, whether or not such holder receives cash distributions
from the Partnership. No assurance is given that holders of units will receive
cash distributions equal to their allocable share of taxable income from the
Partnership. Further, a holder of units may incur tax liability in excess of the
amount of cash received.
Tax Shelter Registration; Potential IRS Audit. The Partnership is registered
with the IRS as a "tax shelter." No assurance can be given that the IRS will not
audit the Partnership or that tax adjustments will not be made. The rights of a
unitholder owning less than a 1% profits interest in the Partnership to
participate in the income tax audit process have been substantially reduced.
Further, any adjustments in the Partnership's returns will lead to adjustments
in the returns of holders of units and may lead to audits of unitholders'
returns and adjustments of items unrelated to the Partnership's. Each holder of
units would bear the cost of any expenses incurred in connection with an
examination of the personal tax return of such holder.
Unrelated Business Taxable Income. Certain entities otherwise exempt from
federal income taxes (such as individual retirement accounts, pension plans and
charitable organizations) are nevertheless subject to federal income tax on net
unrelated business taxable income and each such entity must file a tax return
for each year in which it has more than $1,000 of gross income from unrelated
business activities. The general partner believes that substantially all of the
Partnership's gross income will be treated as derived from an unrelated trade or
business and taxable to such entities. The tax-exempt entity's share of the
Partnership's deductions directly connected with carrying on such unrelated
trade or business are allowed in computing the entity's taxable unrelated
business income. Accordingly, investment in the Partnership by tax-exempt
entities such as individual retirement accounts, pension plans and charitable
trusts may not be advisable.
State and Local Tax Treatment. Each holder of units may be subject to income,
estate or inheritance taxes in states and localities in which the Partnership
owns property or does business, as well as in such holder's own state or
locality. As of December 31, 1998, the Partnership conducted business in 17
states: Arizona, California, Illinois, Indiana, Iowa, Kansas, Kentucky,
Louisiana, Missouri, Nebraska, Nevada, New Mexico, Oregon, South Carolina,
Texas, Virginia and Wyoming. A unitholder will likely be required to file state
income tax returns and to pay applicable state income taxes in many of these
states and may be subject to penalties for failure to comply with such
requirements. Some of the states have proposed that the Partnership withhold a
percentage of income attributable to Partnership operations within the state for
unitholders who are non-residents of the state. In the event that amounts are
required to be withheld (which may be greater or less than a particular
unitholder's income tax liability to the state), such withholding would
generally not relieve the non-resident unitholder from the obligation to file a
state income tax return.
24
<PAGE>
Description of the Partnership Agreement
The following paragraphs are a summary of certain provisions of the
partnership agreement. A copy of the partnership agreement is filed as an
exhibit to this report. Unless otherwise specifically described, references
herein to the term "partnership agreement" constitute references to the
partnership agreements of the Partnership and its operating partnerships
collectively. The following discussion is qualified in its entirety by reference
to the partnership agreements for the Partnership and its operating
partnerships. With regard to allocations of taxable income and taxable loss, See
"Tax Treatment of Publicly Traded Partnerships Under the Internal Revenue Code."
Organization and Duration
The Partnership and each of the operating partnerships are Delaware limited
partnerships. Unless liquidated or dissolved at an earlier time, under the terms
of the partnership agreement, the Partnership and each of the operating
partnerships will dissolve on December 31, 2082.
Purpose
The purpose of the Partnership under the partnership agreement is to serve as
the limited partner in the operating partnerships and to conduct any other
business that may be lawfully conducted by a Delaware limited partnership.
Power of Attorney
Each limited partner, and each person who acquires a unit from a prior holder
and executes and delivers a transfer application with respect to such unit,
grants to the general partner and, if a liquidator has been appointed, the
liquidator, a power of attorney to, among other things, (i) execute and file
certain documents required in connection with the qualification, continuance or
dissolution of the Partnership or the amendment of the partnership agreement in
accordance with the terms of the partnership agreement and (ii) make consents
and waivers contained in the partnership agreement.
Restrictions on Authority of the General Partner
The authority of the general partner is limited in certain respects under the
partnership agreement. The general partner is prohibited, without the prior
approval of holders of record of a majority of the outstanding units from, among
other things, selling or exchanging all or substantially all of the
Partnership's assets in a single transaction or a series of related transactions
(including by way of merger, consolidation or other combination) or approving on
behalf of the Partnership the sale, exchange or other disposition of all or
substantially all of the assets of the Partnership, provided that the
Partnership may mortgage, pledge, hypothecate or grant a security interest in
all or substantially all of the Partnership's assets without such approval. The
Partnership may sell all or substantially all of its assets pursuant to a
foreclosure or other realization upon the foregoing encumbrances without such
approval. Except as provided in the partnership agreement and generally
described under "--Amendment of Partnership Agreement and Other Agreements," any
amendment to a provision of the partnership agreement generally will require the
approval of the holders of at least 66 2/3% of the units. The general partner's
ability to sell or otherwise dispose of the Partnership's assets is restricted
by the terms of the Partnership's credit facility.
In general, the general partner may not take any action, or refuse to take
any reasonable action, without the consent of the holders of at least a majority
of the outstanding units of the Partnership, (other than units owned by the
general partner and its affiliates), the effect of which would be to cause the
Partnership to be treated as an association taxable as a corporation or
otherwise taxed as an entity for federal income tax purposes.
Withdrawal or Removal of the General Partner
The general partner has agreed not to voluntarily withdraw as general partner
of the Partnership prior to January 1, 2003 (with limited exceptions described
below) without the approval of at least a majority of the outstanding units
(excluding for purposes of such determination units held by the general partner
and its affiliates) and furnishing an opinion of counsel that such withdrawal
will not cause the Partnership to be treated as an association taxable as a
corporation or otherwise taxed as an entity for federal income tax purposes or
result in the loss of the limited
25
<PAGE>
liability of any limited partner. On or after January 1, 2003, the general
partner may withdraw as general partner by giving 90 days' written notice
(without first obtaining approval from the holders of units), and such
withdrawal will not constitute a breach of the partnership agreement. If an
opinion of counsel cannot be obtained to the effect that (following the
selection of a successor) the general partner's withdrawal would not result in
the loss of limited liability of the holders of units or cause the Partnership
to be treated as an association taxable as a corporation or otherwise taxed as
an entity for federal income tax purposes, the Partnership will be dissolved
after such withdrawal. Notwithstanding the foregoing, the general partner may
withdraw without approval of the holders of units upon 90 days' notice to the
limited partners if more than 50% of the outstanding units (other than those
held by the withdrawing general partner and its affiliates) are held or
controlled by one person and its affiliates. In addition, the partnership
agreement does not restrict Kinder Morgan, Inc.'s ability to sell directly or
indirectly, all or any portion of the capital stock of the general partner to a
third party without the approval of the holders of units.
The general partner may not be removed unless such removal is approved by the
vote of the holders of not less than 66 2/3% of the outstanding units (excluding
units held by the general partner and its affiliates) provided that certain
other conditions are satisfied. Any such removal is subject to the approval of
the successor general partner by the same vote and receipt of an opinion of
counsel that such removal and the approval of a successor will not result in the
loss of limited liability of any limited partner or cause the Partnership to be
treated as an association taxable as a corporation or otherwise taxed as an
entity for federal income tax purposes.
In the event of withdrawal of the general partner where such withdrawal
violates the partnership agreement or removal of the general partner by the
limited partners under circumstances where cause exists, a successor general
partner will have the option to acquire the general partner interest of the
departing general partner (the "Departing Partner") in the Partnership for a
cash payment equal to the fair market value of such interest. Under all other
circumstances where the general partner withdraws or is removed by the limited
partners, the Departing Partner will have the option to require the successor
general partner to acquire such general partner interest of the Departing
Partner for such amount. In each case such fair market value will be determined
by agreement between the Departing Partner and the successor general partner, or
if no agreement is reached, by an independent investment banking firm or other
independent expert selected by the Departing Partner and the successor general
partner (or if no expert can be agreed upon, by the expert chosen by agreement
of the expert selected by each of them). In addition, the Partnership would also
be required to reimburse the Departing Partner for all amounts due the Departing
Partner, including without limitation all employee related liabilities,
including severance liabilities, incurred in connection with the termination of
the employees employed by the Departing Partner for the benefit of the
Partnership.
If the above-described option is not exercised by either the Departing
Partner or the successor general partner, as applicable, the Departing Partner's
general partner interest in the Partnership will be converted into units equal
to the fair market value of such interest as determined by an investment banking
firm or other independent expert selected in the manner described in the
preceding paragraph.
The general partner may transfer all, but not less than all, of its general
partner interest in the Partnership without the approval of the limited partners
to one of its affiliates or upon its merger or consolidation into another entity
or the transfer of all or substantially all of its assets to another entity,
provided in either case that such entity assumes the rights and duties of the
general partner, agrees to be bound by the provisions of the partnership
agreement and furnishes an opinion of counsel that such transfer would not
result in the loss of the limited liability of any limited partner or cause the
Partnership to be treated as an association taxable as a corporation or
otherwise cause the Partnership to be subject to entity level taxation for
federal income tax purposes. In the case of any other transfer of the general
partner interest in the Partnership, in addition to the foregoing requirements,
the approval of at least a majority of the units is required, excluding for such
purposes those interests held by the general partner and its affiliates.
Upon the withdrawal or removal of the general partner, the Partnership will
be dissolved, wound up and liquidated, unless such withdrawal or removal takes
place following the approval of a successor general partner or unless within 180
days after such withdrawal or removal a majority of the holders of units agree
in writing to continue the business of the Partnership and to the appointment of
a successor general partner. See "-Termination and Dissolution."
26
<PAGE>
Anti-takeover and Restricted Voting Right Provisions
The partnership agreement contains certain provisions that are intended to
discourage a person or group from attempting to remove the general partner or
otherwise change the management of the Partnership. If any person or group other
than the general partner and its affiliates acquires beneficial ownership of 20%
or more of the units, such person or group loses any and all voting rights with
respect to all of the units beneficially owned or held by such person.
Transfer of Units; Status as Limited Partner or Assignee
Until a unit has been transferred on the books of the Partnership, the
Partnership and the transfer agent, notwithstanding any notice to the contrary,
may treat the record holder thereof as the absolute owner for all purposes,
except as otherwise required by law or stock exchange regulation. Any transfers
of a unit will not be recorded by the transfer agent or recognized by the
Partnership unless the transferee executes and delivers a Transfer Application
(set forth on the reverse side of the certificate representing units). By
executing and delivering the Transfer Application, the transferee of units:
o becomes the record holder of such units and shall constitute an assignee
until admitted to the Partnership as a substitute limited partner;
o automatically requests admission as a substituted limited
partner in the Partnership;
o agrees to be bound by the terms and conditions of and is
deemed to have executed the partnership agreement;
o represents that such transferee has capacity, power and
authority to enter into the partnership agreement;
o grants powers of attorney to the general partner and any
liquidator of the Partnership as specified in the
partnership agreement; and
o makes the consents and waivers contained in the partnership
agreement.
An assignee, pending its admission as a substituted limited partner in the
Partnership, is entitled to an interest in the Partnership equivalent to that of
a limited partner with respect to the right to share in allocations and
distributions from the Partnership, including liquidating distributions. The
general partner will vote, and exercise other powers attributable to, units
owned by an assignee that has not become a substituted limited partner at the
written direction of such Assignee. See "-Meetings; Voting."
An assignee will become a substituted limited partner of the Partnership in
respect of the transferred units upon the consent of the general partner and the
recordation of the name of the assignee on the books and records of the
Partnership. Such consent may be withheld in the sole discretion of the general
partner. Units are securities and are transferable according to the laws
governing transfers of securities. In addition to other rights acquired upon
transfer, the transferor gives the transferee the right to request admission as
a substituted limited partner in the Partnership in respect of the transferred
units. A purchaser or transferee of a unit who does not execute and deliver a
Transfer Application obtains only:
o the right to transfer the units to a purchaser or other
transferee; and
o the right to transfer the right to seek admission as a substituted limited
partner in the Partnership with respect to the transferred units.
Thus, a purchaser or transferee of units who does not execute and deliver a
Transfer Application will not receive cash distributions unless the units are
held in a nominee or street name account and the nominee or broker has executed
and delivered a Transfer Application with respect to such units and may not
receive certain federal income tax information or reports furnished to record
holders of units. The transferor of units will have a duty to provide such
transferee with all information that may be necessary to obtain registration of
the transfer of the units, but the transferee agrees, by acceptance of the
certificate representing units, that the transferor will not have a duty to see
to the execution of the Transfer Application by the transferee and will have no
liability or responsibility if such transferee neglects or chooses not to
execute and forward the Transfer Application.
Holders of units may hold their units in nominee accounts, provided that the
broker (or other nominee) executes and delivers a Transfer Application. The
Partnership will be entitled to treat the nominee holder of a unit as the
27
<PAGE>
absolute owner thereof, and the beneficial owner's rights will be limited solely
to those that it has against the nominee holder as a result of or by reason of
any understanding or agreement between such beneficial owner and nominee holder.
Non-citizen Assignees; Redemption
If the Partnership is or becomes subject to federal, state or local laws or
regulations that, in the reasonable determination of the general partner,
provides for the cancellation or forfeiture of any property in which the
Partnership has an interest because of the nationality, citizenship or other
related status of any limited partner or assignee, the Partnership may redeem
the units held by such limited partner or assignee at their Average Fair Market
Price. In order to avoid any such cancellation or forfeiture, the general
partner may require each record holder or assignee to furnish information about
the holder's nationality, citizenship, residency or related status. If the
record holder fails to furnish such information within 30 days after a request
for such information, or if the general partner determines on the basis of the
information furnished by such holder in response to the request that the
cancellation or forfeiture of any property in which the Partnership has an
interest may occur, the general partner may be substituted as the limited
partner for such record holder, who will then be treated as a non-citizen
assignee ("Non-citizen Assignee"), and the general partner will have the right
to redeem the units held by such record holder as described above. The
partnership agreement sets forth the rights of such record holder or assignee
upon redemption. Pending such redemption or in lieu thereof, the general partner
may change the status of any such limited partner or assignee to that of a
Non-citizen Assignee. Further, a Non-citizen Assignee (unlike an assignee who is
not a substitute limited partner) does not have the right to direct the vote
regarding such Non-citizen Assignee's units and may not receive distributions in
kind upon liquidation of the Partnership. See "-Transfer of Units; Status as
Limited Partner or Assignee."
As used in this Report:
o "Average Fair Market Price" of a limited partner interest as of any date
means the average of the daily End of Day Price (as hereinafter defined)
for the 20 consecutive Unit Transaction Days (as hereinafter defined)
immediately prior to such date;
o "End of Day Price" for any day means the last sale price on
such day, regular way, or in case no such sale takes place
on such day, the average of the closing bid and asked prices
on such day, regular way, in either case as reported in the
principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the
principal national securities exchange on which the limited
partner interests of such class are listed or admitted to
trading or, if the limited partner interests of such class
are not listed or admitted to trading on any national
securities exchange, the last quoted sale price on such day,
or, if not so quoted, the average of the high bid and low
asked prices on such day in the over-the-counter market, as
reported by the NASDAQ or such other system then in use, or
if on any such day the limited partner interests of such
class are not quoted by any such organization, the average
of the closing bid and asked prices on such day as furnished
by a professional market maker making a market in the
limited partner interests of such class selected by the
board of directors of the general partner, or if on any such
day no market maker is making a market in such limited
partner interests, the fair value of such limited partner
interests on such day as determined reasonably and in good
faith by the board of directors of the general partner; and
o "Unit Transaction Day" means a day on which the principal national
securities exchange on which such limited partner interests are listed or
admitted to trading is open for the transaction of business or, if the
limited partner interests of such class are not listed or admitted to
trading on any national securities exchange, a day on which banking
institutions in New York City generally are open.
Issuance of Additional Securities
The Partnership's Issuance of Securities. The partnership agreement does not
restrict the ability of the general partner to issue additional limited or
general partner interests and authorizes the general partner to cause the
Partnership to issue additional securities of the Partnership for such
consideration and on such terms and conditions as shall be established by the
general partner in its sole discretion without the approval of any limited
partners. In accordance with Delaware law and the provisions of the partnership
agreement, the general partner may issue additional partnership interests,
which, in its sole discretion, may have special voting rights to which the units
are not entitled.
28
<PAGE>
Limited Pre-emptive Right of General Partner. The general partner has the
right, which it may from time to time assign in whole or in part to any of its
affiliates, to purchase units or other equity securities of the Partnership from
the Partnership whenever, and on the same terms that, the Partnership issues
such securities to persons other than the general partner and its affiliates, to
the extent necessary to maintain the percentage interest of the general partner
and its affiliates in the Partnership to that which existed immediately prior to
each such issuance.
Limited Call Right
If at any time 80% or more of the units are held by the general partner and
its affiliates, the general partner will have the right, which it may assign and
transfer to any of its affiliates or to the Partnership, to purchase all of the
remaining units as of a record date to be selected by the general partner, on at
least 10 but not more than 60 days' notice. The purchase price in the event of
such purchase shall be the greater of:
o the Average Fair Market Price of limited partner interests of such class
as of the date five days prior to the mailing of written notice of its
election to purchase limited partner interests of such class; and
o the highest cash price paid by the general partner or any of its
affiliates for any units purchased within the 90 days preceding the date
the general partner mails notice of its election to purchase such units.
Amendment of Partnership Agreement and Other Agreements
Amendments to the partnership agreement may be proposed only by or with the
consent of the general partner. In order to adopt a proposed amendment, the
general partner is required to seek written approval of the holders of the
number of units required to approve such amendment or call a meeting of the
limited partners to consider and vote upon the proposed amendment, except as
described below. Proposed amendments (other than those described below) must be
approved by holders of at least 66 2/3% of the outstanding units, except that no
amendment may be made which would:
o enlarge the obligations of any limited partner, without its
consent;
o enlarge the obligations of the general partner, without its
consent, which may be given or withheld in its sole
discretion;
o restrict in any way any action by or rights of the general
partner as set forth in the partnership agreement;
o modify the amounts distributable, reimbursable or otherwise
payable by the Partnership to the general partner;
o change the term of the Partnership; or
o give any person the right to dissolve the Partnership other than the
general partner's right to dissolve the Partnership with the approval of a
majority of the outstanding units or change such right of the general
partner in any way.
The general partner may make amendments to the partnership agreement without
the approval of any limited partner or assignee of the Partnership to reflect:
o a change in the name of the Partnership, the location of the principal
place of business of the Partnership, the registered agent or the
registered office of the Partnership;
o admission, substitution, withdrawal or removal of partners
in accordance with the partnership agreement;
o a change that, in the sole discretion of the general
partner, is reasonable and necessary or appropriate to
qualify or continue the qualification of the Partnership as
a partnership in which the limited partners have limited
liability or that is necessary or advisable in the opinion
of the general partner to ensure that the Partnership will
not be treated as an association taxable as a corporation or
otherwise subject to taxation as an entity for federal
income tax purposes;
o an amendment that is necessary, in the opinion of counsel to
the Partnership, to prevent the Partnership or the general
partner or their respective directors or officers from in
any manner being subjected to the provisions of the
Investment Company Act of 1940, as amended, the Investment
Advisors Act of 1940, as amended, or "plan asset"
regulations adopted under the Employee Retirement Income
Security Act of 1974, as amended, whether or not
substantially similar to plan asset regulations currently
applied or proposed by the United States Department of Labor;
29
<PAGE>
o an amendment that in the sole discretion of the general partner is
necessary or desirable in connection with the authorization of additional
limited or general partner interests;
o any amendment expressly permitted in the partnership
agreement to be made by the general partner acting alone;
o an amendment effected, necessitated or contemplated by a merger agreement
that has been approved pursuant to the terms of the partnership agreement;
and
o any other amendments substantially similar to the foregoing.
In addition, the general partner may make amendments to the partnership
agreement without such consent if such amendments:
o do not adversely affect the limited partners in any material
respect;
o are necessary or desirable to satisfy any requirements, conditions or
guidelines contained in any opinion, directive, ruling or regulation of
any federal or state agency or judicial authority or contained in any
federal or state statute;
o are necessary or desirable to facilitate the trading of the units or to
comply with any rule, regulation, guideline or requirement of any
securities exchange on which the units are or will be listed for trading,
compliance with any of which the general partner deems to be in the best
interests of the Partnership and the holders of units; or
o are required to effect the intent of, or as contemplated by,
the partnership agreement.
The general partner will not be required to obtain an opinion of counsel as
to the tax consequences or the possible effect on limited liability of
amendments described in the two immediately preceding paragraphs. No other
amendments to the partnership agreement will become effective without the
approval of at least 95% of the units unless the Partnership obtains an opinion
of counsel to the effect that such amendment:
o will not cause the Partnership to be treated as an association taxable as
a corporation or otherwise cause the Partnership to be subject to entity
level taxation for federal income tax purposes; and
o will not affect the limited liability of any limited partner in the
Partnership or the limited partner of the operating partnerships.
Any amendment that materially and adversely affects the rights or preferences
of any type or class of limited partner interests in relation to other types or
classes of limited partner interests or the general partner interests will
require the approval of at least 66 2/3% of the type or class of limited partner
interests so affected.
Management
The general partner will manage and operate the activities of the
Partnership, and the general partner's activities will be limited to such
management and operation. Holders of units will not direct or participate in the
management or operations of the Partnership or any of the operating
partnerships. See "--Limited Liability." The general partner will owe a
fiduciary duty to the holders of units. Notwithstanding any limitation on
obligations or duties, the general partner will be liable, as the general
partner of the Partnership, for all the debts of the Partnership (to the extent
not paid by the Partnership), except to the extent that indebtedness incurred by
the Partnership is made specifically non-recourse to the general partner.
The Partnership does not currently have any directors, officers or employees.
As is commonly the case with publicly traded limited partnerships, the
Partnership does not currently contemplate that it will directly employ any of
the persons responsible for managing or operating the Partnership's business or
for providing it with services, but will instead reimburse the general partner
or its affiliates for the services of such persons. See "-Reimbursement of
Expenses."
Reimbursement of Expenses. The general partner will receive no management fee
or similar compensation in conjunction with its management of the Partnership
(other than cash distributions). See "--Cash Distribution Policy." However, the
general partner is entitled pursuant to the partnership agreement to
reimbursement on a monthly basis, or such other basis as the general partner may
determine in its sole discretion, for all direct and indirect expenses it incurs
or payments it makes on behalf of the Partnership and all other necessary or
appropriate
30
<PAGE>
expenses allocable to the Partnership or otherwise reasonably incurred by the
general partner in connection with operating the Partnership's business. The
partnership agreement provides that the general partner shall determine the fees
and expenses that are allocable to the Partnership in any reasonable manner
determined by the general partner in its sole discretion. The reimbursement for
such costs and expenses will be in addition to any reimbursement to the general
partner and its affiliates as a result of the indemnification provisions of the
partnership agreement. See "-Indemnification."
Indemnification. The partnership agreement provides that the Partnership will
indemnify the general partner, any Departing Partner and any person who is or
was an officer or director of the general partner or any Departing Partner, to
the fullest extent permitted by law, and may indemnify, to the extent deemed
advisable by the general partner, to the fullest extent permitted by law, any
person who is or was an affiliate of the general partner or any Departing
Partner, any person who is or was an officer, director, employee, partner, agent
or trustee of the general partner, any Departing Partner or any such affiliate,
or any person who is or was serving at the request of the general partner or any
affiliate of the general partner or any Departing Partner as an officer,
director, employee, partner, agent, or trustee of another person ("Indemnities")
from and against any and all losses, claims, damages, liabilities (joint or
several), expenses (including, without limitation, legal fees and expenses),
judgments, fines, penalties, interest, settlement and other amounts arising from
any and all claims, demands, actions, suits or proceedings, whether civil,
criminal, administrative or investigative, in which any Indemnitee may be
involved, or is threatened to be involved, as a party or otherwise, by reason of
its status as:
o the general partner, a Departing Partner or affiliate of
either;
o an officer, director, employee, partner, agent or trustee of
the general partner, any Departing Partner or affiliate of
either; or
o a person serving at the request of the Partnership in
another entity in a similar capacity.
In each case the Indemnitee must have acted in good faith and in a manner
which the Indemnitee believed to be in or not opposed to the best interests of
the Partnership and, with respect to any criminal proceeding, had no reasonable
cause to believe its conduct was unlawful. Any indemnification under the
partnership agreement will only be paid out of the assets of the Partnership,
and the general partner will not be personally liable for, or have any
obligation to contribute or loan funds or assets to the Partnership to enable it
to effectuate, such indemnification. The Partnership is authorized to purchase
(or to reimburse the general partner or its affiliates for the cost of)
insurance, purchased on behalf of the general partner and such other persons as
the general partner determines, against liabilities asserted against and
expenses incurred by such persons in connection with the Partnership's
activities, whether or not the Partnership would have the power to indemnify
such person against such liabilities under the provisions described above.
Conflicts and Audit Committee. One or more directors who are neither officers
nor employees of the general partner or any of its affiliates will serve as a
committee of the board of directors of the general partner (the "Conflicts and
Audit Committee") and will, at the request of the general partner, review
specific matters as to which the general partner believes there may be a
conflict of interest in order to determine if the resolution of such conflict
proposed by the general partner is fair and reasonable to the Partnership. The
Conflicts and Audit Committee will only review matters at the request of the
general partner, which has sole discretion to determine which matters to submit
to such Committee. Any matters approved by the Conflicts and Audit Committee
will be conclusively deemed to be fair and reasonable to the Partnership,
approved by all partners of the Partnership and not a breach by the general
partner of the partnership agreement or any duties it may owe to the
Partnership. Additionally, it is possible that such procedure in itself may
constitute a conflict of interest.
Meetings; Voting
Holders of units or assignees who are record holders of units on the record
date set pursuant to the partnership agreement will be entitled to notice of,
and to vote at, meetings of limited partners of the Partnership and to act with
respect to matters as to which approvals may be solicited. With respect to
voting rights attributable to units that are owned by assignees who have not yet
been admitted as limited partners, the general partner will be deemed to be the
limited partner with respect thereto and will, in exercising the voting rights
in respect of such units on any matter, vote such units at the written direction
of such record holder. If a proxy is not returned on behalf of the unit record
holder, such units will not be voted (except that, in the case of units held by
the general partner on behalf of Non-
31
<PAGE>
citizen Assignees, the general partner will distribute the votes in respect of
such units in the same ratios as the votes of limited partners in respect of
other units are cast). When a proxy is returned properly executed, the units
represented thereby will be voted in accordance with the indicated instructions.
If no instructions have been specified on the properly executed and returned
proxy, the units represented thereby will be voted "FOR" the approval of the
matters to be presented. Units held by the general partner on behalf of
Non-citizen Assignees shall be voted by the general partner in the same ratios
as the votes of the limited partners with respect to the matter presented to the
holders of units.
Any action that is required or permitted to be taken by the limited partners
may be taken either at a meeting of the limited partners or without a meeting if
consents in writing setting forth the action so taken are signed by holders of
such number of limited partner interests as would be necessary to authorize or
take such action at a meeting of the limited partners. Meetings of the limited
partners of the Partnership may be called by the general partner or by limited
partners owning at least 20% of the outstanding units of the class for which a
meeting is proposed. Limited partners may vote either in person or by proxy at
meetings. Two-thirds (or a majority, if that is the vote required to take action
at the meeting in question) of the outstanding limited partner interests of the
class for which a meeting is to be held (excluding, if such are excluded from
such vote, limited partner interests held by the general partner and its
affiliates) represented in person or by proxy will constitute a quorum at a
meeting of limited partners of the Partnership. Except for any proposal for
removal of the general partner or certain amendments to the partnership
agreement described above, substantially all matters submitted for a vote are
determined by the affirmative vote, in person or by proxy, of holders of a
majority of the outstanding limited partner interests.
Each record holder of a unit has a vote according to such record holder's
percentage interest in the Partnership, although the general partner could issue
additional limited partner interests having special voting rights. See
"--Issuance of Additional Securities." However, units owned beneficially by any
person or group (other than the general partner and its affiliates) that own
beneficially 20% or more of all units may not be voted on any matter and will
not be considered to be outstanding when sending notices of a meeting of limited
partners, calculating required votes, determining the presence of a quorum or
for other similar partnership purposes. The partnership agreement provides that
the broker (or other nominee) will vote units held in nominee or street name
accounts pursuant to the instruction of the beneficial owner, unless the
arrangement between the beneficial owner and such holder's nominee provides
otherwise.
Any notice, demand, request, report or proxy materials required or permitted
to be given or made to record holders of units (whether or not such record
holder has been admitted as a limited partner) under the terms of the
partnership agreement will be delivered to the record holder by the Partnership
or by the transfer agent at the request of the Partnership.
Limited Liability
Except as described below, units are fully paid, and holders of units will
not be required to make additional contributions to the Partnership.
Assuming that a limited partner does not participate in the control of the
business of the Partnership, within the meaning of the Delaware limited
partnership act, and that such partner otherwise acts in conformity with the
provisions of the partnership agreement, such partner's liability under Delaware
law will be limited, subject to certain possible exceptions, generally to the
amount of capital such partner is obligated to contribute to the Partnership in
respect of such holder's units plus such holder's share of any undistributed
profits and assets of the Partnership. However, if it were determined that the
right or exercise of the right by the limited partners as a group to remove or
replace the general partner, to approve certain amendments to the partnership
agreement or to take other action pursuant to the partnership agreement
constituted "participation in the control" of the Partnership's business for the
purposes of the Delaware limited partnership act, then the limited partners
could be held personally liable for the Partnership's obligations under the laws
of the State of Delaware to the same extent as the general partner. Under
Delaware law, a limited partnership may not make a distribution to a partner to
the extent that at the time of the distribution, after giving effect to the
distribution, all liabilities of the partnership, other than liabilities to
partners on account of their partnership interests and nonrecourse liabilities,
exceed the fair value of the assets of the limited partnership. For the purpose
of determining the fair value of the assets of a limited partnership, Delaware
law provides that the fair value of property subject to nonrecourse liability
shall be included in the assets of the limited partnership only to the extent
that the fair value of that property exceeds that nonrecourse liability.
Delaware
32
<PAGE>
law provides that a limited partner who receives such a distribution and knew at
the time of the distribution that the distribution was in violation of Delaware
law shall be liable to the limited partnership for the amount of the
distribution for three years from the date of the distribution. Under Delaware
law, an assignee who becomes a substituted limited partner of a limited
partnership is liable for the obligations of the assignor to make contributions
to the Partnership, except the assignee is not obligated for liabilities unknown
to such assignee at the time the assignee became a limited partner and which
could not be ascertained from the partnership agreement.
The Partnership is organized under the laws of Delaware and currently
conducts business in a number of states. Maintenance of limited liability will
require compliance with legal requirements in all of the jurisdictions in which
the Partnership conducts business, including qualifying the operating
partnerships to do business therein. Limitations on the liability of limited
partners for the obligations of a limited partnership have not been clearly
established in many jurisdictions. If it were determined that the Partnership
was, by virtue of its limited partner interest in the operating partnerships or
otherwise, conducting business in any state without compliance with the
applicable limited partnership statute, or that the right or exercise of the
right by the limited partners as a group to remove or replace the general
partner, to approve certain amendments to the partnership agreement, or to take
other action pursuant to the partnership agreement constituted "participation in
the control" of the Partnership's business for the purposes of the statues of
any relevant jurisdiction, then the limited partners could be held personally
liable for the Partnership's obligations under the law of such jurisdiction to
the same extent as the general partner. The Partnership will operate in such
manner as the general partner deems reasonable and necessary or appropriate to
preserve the limited liability of holders of units.
Books and Reports
The general partner is required to keep appropriate books of the business at
the principal offices of the Partnership. The books will be maintained for both
tax and financial reporting purposes on an accrual basis. The fiscal year of the
Partnership is the calendar year.
As soon as practicable, but in no event later than 120 days after the close
of each fiscal year, the general partner will furnish each record holder of a
unit (as of a record date selected by the general partner) with an annual report
containing audited financial statements of the Partnership for the past fiscal
year, prepared in accordance with generally accepted accounting principles. As
soon as practicable, but in no event later than 90 days after the close of each
calendar quarter (except the fourth quarter), the general partner will furnish
each record holder of units upon request a report containing unaudited financial
statements of the Partnership and such other information as may be required by
law.
The general partner will use all reasonable efforts to furnish each record
holder of a unit information reasonably required for tax reporting purposes
within 90 days after the close of each taxable year. Such information is
expected to be furnished in a summary form so that certain complex calculations
normally required of partners can be avoided. The general partner's ability to
furnish such summary information to holders of units will depend on the
cooperation of such holders of units in supplying certain information to the
general partner. Every holder of a unit (without regard to whether such holder
supplies such information to the general partner) will receive information to
assist in determining such holder's federal and state tax liability and filing
such holder's federal and state income tax returns.
Right to Inspect Partnership Books and Records
The partnership agreement provides that a limited partner can, for a purpose
reasonably related to such limited partner's interest as a limited partner, upon
reasonable demand and at such partner's own expense, have furnished to him:
o a current list of the name and last known address of each
partner;
o a copy of the Partnership's tax returns;
o information as to the amount of cash, and a description and
statement of the agreed value of any other property or services
contributed or to be contributed by each partner and the date on which
each became a partner;
o copies of the partnership agreement, the certificate of limited
partnership of the Partnership, amendments thereto and powers of attorney
pursuant to which the same have been executed;
33
<PAGE>
o information regarding the status of the Partnership's business
and financial condition; and
o such other information regarding the affairs of the
Partnership as is just and reasonable.
The general partner may, and intends to, keep confidential from the limited
partners trade secrets or other information the disclosure of which the general
partner believes in good faith is not in the best interests of the Partnership
or which the Partnership is required by law or by agreements with third parties
to keep confidential.
Termination and Dissolution
The Partnership will continue until December 31, 2082, unless
sooner terminated pursuant to the partnership agreement. The
Partnership will be dissolved upon:
1. the election of the general partner to dissolve the
Partnership, if approved by a majority of the units;
2. the sale of all or substantially all of the assets and
properties of the Partnership and its operating partnerships;
3. the bankruptcy or dissolution of the general partner; or
4. the withdrawal or removal of the general partner or any
other event that results in its ceasing to be the general partner (other
than by reason of a transfer in accordance with the partnership agreement
or withdrawal or removal following approval of a successor).
However, the Partnership will not be dissolved upon an event described in
clause 4 if within 90 days after such event the partners agree in writing to
continue the business of the Partnership and to the appointment, effective as of
the date of such event, of a successor general partner. Upon a dissolution
pursuant to clause 3 or 4, at least a majority of the units may also elect,
within certain time limitations, to reconstitute the Partnership and continue
its business on the same terms and conditions set forth in the partnership
agreement by forming a new limited partnership on terms identical to those set
forth in the partnership agreement and having as a general partner an entity
approved by at least a majority of the units, subject to receipt by the
Partnership of an opinion of counsel that the exercise of such right will not
result in the loss of the limited liability of holders of units or cause the
Partnership or the reconstituted limited partnership to be treated as an
association taxable as a corporation or otherwise subject to taxation as an
entity for federal income tax purposes.
Registration Rights
Pursuant to the terms of the partnership agreement and subject to certain
limitations described therein, the Partnership has agreed to register for resale
under the Securities Act of 1933 and applicable state securities laws any units
(or other securities of the Partnership) proposed to be sold by the general
partner (or its affiliates) if an exemption from such registration requirements
is not otherwise available for such proposed transaction. The Partnership is
obligated to pay all expenses incidental to such registration, excluding
underwriting discounts and commissions.
Cash Distribution Policy
A principal objective of the Partnership is to generate cash from the
Partnership operations and to distribute Available Cash to its partners in the
manner described herein. "Available Cash" generally means, with respect to any
calendar quarter, all cash received by the Partnership from all sources, less
all of its cash disbursements and net additions to reserves. For purposes of
cash distributions to holders of units, the term Available Cash excludes the
amount paid in respect of the 0.5% special limited partner interest in SFPP
owned by the former general partner of SFPP, which amount will equal 0.5% of the
total cash distributions made each quarter by SFPP to its partners.
The general partner's decisions regarding amounts to be placed in or released
from reserves may have a direct impact on the amount of Available Cash. This is
because increases and decreases in reserves are taken into account in computing
Available Cash. The general partner may, in its reasonable discretion (subject
to certain limits), determine the amounts to be placed in or released from
reserves each quarter.
Cash distributions will be characterized as either distributions of Cash from
Operations or Cash from Interim Capital Transactions. This distinction affects
the amounts distributed to holders of units relative to the general
34
<PAGE>
partner. See "--Quarterly Distributions of Available Cash-Distributions of Cash
from Operations" and "-Quarterly Distributions of Available Cash-Distributions
of Cash from Interim Capital Transactions."
"Cash from Operations" generally refers to the cash balance of the
Partnership on the date the Partnership commenced operations, plus all cash
generated by the operations of the Partnership's business, after deducting
related cash expenditures, reserves, debt service and certain other items.
"Cash from Interim Capital Transactions" will generally be generated only by
borrowings, sales of debt and equity securities and sales or other dispositions
of assets for cash (other than inventory, accounts receivable and other current
assets and assets disposed of in the ordinary course of business).
To avoid the difficulty of trying to determine whether Available Cash
distributed by the Partnership is Cash from Operations or Cash from Interim
Capital Transactions, all Available Cash distributed by the Partnership from any
source will be treated as Cash from Operations until the sum of all Available
Cash distributed as Cash from Operations equals the cumulative amount of Cash
from Operations actually generated from the date the Partnership commenced
operations through the end of the calendar quarter prior to such distribution.
Any excess Available Cash (irrespective of its source) will be deemed to be Cash
from Interim Capital Transactions and distributed accordingly.
If Cash from Interim Capital Transactions is distributed in respect of each
unit in an aggregate amount per unit equal to $11.00 per unit (the initial
public offering price of the units adjusted to give effect to the 2-for-1 split
of units effective October 1, 1997) (the "Initial Unit Price"), the distinction
between Cash from Operations and Cash from Interim Capital Transactions will
cease, and both types of Available Cash will be treated as Cash from Operations.
The general partner does not anticipate that there will be significant amounts
of Cash from Interim Capital Transactions distributed.
The discussion below indicates the percentages of cash distributions required
to be made to the general partner and the holders of units. In the following
general discussion of how Available Cash is distributed, references to Available
Cash, unless otherwise stated, mean Available Cash that constitutes Cash from
Operations.
Quarterly Distributions of Available Cash. The Partnership will make
distributions to its partners with respect to each calendar quarter prior to
liquidation in an amount equal to 100% of its Available Cash for such quarter.
Distributions of Cash from Operations. Distributions by the Partnership of
Available Cash constituting Cash from Operations with respect to any quarter
will be made in the following manner:
first, 98% to the holders of units pro rata and 2% to the general partner
until the holders of units have received a total of $0.3025 per unit for
such quarter in respect of each unit (the "First Target Distribution");
and
second, 85% of any such Available Cash then remaining to the holders of units
pro rata and 15% to the general partner until the holders of units have
received a total of $0.3575 per unit for such quarter in respect of each
unit (the "Second Target Distribution");
third, 75% of any such Available Cash then remaining to all holders of units
pro rata and 25% to the general partner until the holders of units have
received a total of $0.4675 per unit for such quarter in respect of each
unit (the "Third Target Distribution"); and
fourth, 50% of any such Available Cash then remaining to all holders of units
pro rata and 50% to the general partner.
In addition, if the First, Second and Third Target Distribution levels are
reduced to zero, as described below under "--Quarterly Distributions of
Available Cash-Adjustment of Target Distribution Levels," all remaining
Available Cash will be distributed as Cash from Operations, 50% to the holders
of units pro rata and 50% to the general partner. These provisions are
inapplicable upon the dissolution and liquidation of the Partnership.
Distributions of Cash from Interim Capital Transactions.
Distributions on any date by the Partnership of Available Cash
that constitutes Cash from Interim Capital Transactions will be
distributed 98% to all holders of
35
<PAGE>
units pro rata and 2% to the general partner until the Partnership shall have
distributed in respect of each unit Available Cash constituting Cash from
Interim Capital Transactions in an aggregate amount per unit equal to the
Initial
Unit Price.
As Cash from Interim Capital Transaction is distributed, it is treated as if
it were a repayment of the initial public offering price. To reflect such
repayment, the First, Second and Third Target Distribution levels will be
adjusted downward by multiplying each amount by a fraction, the numerator of
which is the Unrecovered Initial Unit Price immediately after giving effect to
such repayment and the denominator of which is the Unrecovered Initial Unit
Price, immediately prior to giving effect to such repayment. "Unrecovered
Initial Unit Price" includes the amount by which the Initial Unit Price exceeds
the aggregate distribution of Cash from Interim Capital Transactions per unit.
When "Payback of Initial Unit Price" is achieved, i.e., when the Unrecovered
Initial Unit Price is zero, then in effect the First, Second and Third Target
Distribution levels each will have been reduced to zero. Thereafter all
distributions of Available Cash from all sources will be treated as if they were
Cash from Operations and Available Cash will be distributed 50% to all holders
of units pro rata and 50% to the general partner.
Adjustment of Target Distribution Levels. The First, Second and Third Target
Distribution levels will be proportionately adjusted upward or downward, as
appropriate, in the event of any combination or subdivision of units (whether
effected by a distribution payable in units or otherwise) but not by reason of
the issuance of additional units for cash or property. For example, in
connection with the Partnership's two-for-one split of the units on October 1,
1997, the First, Second and Third Target Distribution levels were each reduced
to 50% of its initial level. See "--Quarterly Distributions of Available
Cash-Distributions of Cash from Operations."
In addition, if a distribution is made of Available Cash constituting Cash
from Interim Capital Transactions, the First, Second and Third Target
Distribution levels will be adjusted downward proportionately, by multiplying
each such amount, as the same may have been previously adjusted, by a fraction,
the numerator of which is the Unrecovered Initial Unit Price immediately after
giving effect to such distribution and the denominator of which is the
Unrecovered Initial Unit Price immediately prior to such distribution. For
example, assuming the Unrecovered Initial Unit Price is $11.00 per unit and if
Cash from Interim Capital Transactions of $5.50 per unit is distributed to
holders of units (assuming no prior adjustments), then the amount of the First,
Second and Third Target Distribution levels would each be reduced to 50% of its
initial level. If and when the Unrecovered Initial Unit Price is zero, the
First, Second and Third Target Distribution levels each will have been reduced
to zero, and the general partner's share of distributions of Available Cash will
increase, in general, to 50% of all distributions of Available Cash.
The First, Second and Third Target Distribution levels may also be adjusted
if legislation is enacted which causes the Partnership to become taxable as a
corporation or otherwise subjects the Partnership to taxation as an entity for
federal income tax purposes. In such event, the First, Second, and Third Target
Distribution levels for each quarter thereafter would be reduced to an amount
equal to the product of:
o each of the First, Second and Third Target Distribution
levels multiplied by;
o one minus the sum of:
o the maximum marginal federal income tax rate to which the
Partnership is subject as an entity; plus
o any increase that results from such legislation in the effective
overall state and local income tax rate to which the Partnership is
subject as an entity for the taxable year in which such quarter occurs
(after taking into account the benefit of any deduction allowable for
federal income tax purposes with respect to the payment of state and
local income taxes).
For example, assuming the Partnership was not previously subject to state and
local income tax, if the Partnership were to become taxable as an entity for
federal income tax purposes and the Partnership became subject to a maximum
marginal federal, and effective state and local, income tax rate of 38%, then
each of the Target Distribution levels, would be reduced to 62% of the amount
thereof immediately prior to such adjustment.
36
<PAGE>
Liquidation and Distribution of Proceeds
Upon dissolution of the Partnership, unless the Partnership is reconstituted
and continued as a new limited partnership, the person authorized to wind up the
affairs of the Partnership (the "Liquidator") will, acting with all of the
powers of the general partner that such Liquidator deems necessary or desirable
in its good faith judgment in connection therewith, liquidate the Partnership's
assets and apply the proceeds of the liquidation as follows:
o first towards the payment of all creditors of the
Partnership and the creation of a reserve for contingent
liabilities; and
o then to all partners in accordance with the positive balances in their
respective capital accounts.
Under certain circumstances and subject to certain limitations, the
Liquidator may defer liquidation or distribution of the Partnership's assets for
a reasonable period of time and/or distribute assets to partners in kind if it
determines that a sale would be impractical or would cause undue loss to the
partners.
Generally, any gain will be allocated between the holders of units and the
general partner in a manner that approximates their sharing ratios in the
various Target Distribution levels. Holders of units and the general partner
will share in the remainder of the Partnership's assets in proportion to their
respective capital account balances in the Partnership.
Any loss or unrealized loss will be allocated to the general partner and the
holders of units: first, in proportion to the positive balances in such
partners' capital accounts until all such balances are reduced to zero; and
thereafter, to the general partner.
Transfer Agent and Registrar
Duties. First Chicago Trust Company of New York is the registrar and transfer
agent for the units and receives a fee from the Partnership for serving in such
capacities. The Partnership will pay fees charged by the transfer agent for
transfers of units except:
o fees similar to those customarily paid by holders of securities for surety
bond premiums to replace lost or stolen certificates;
o taxes or other governmental charges;
o special charges for services requested by a holder of a
unit; and
o other similar fees or charges.
The Partnership will not charge holders for disbursements of cash distributions.
The Partnership will indemnify the transfer agent, its agents and each of their
respective shareholders, directors, officers and employees against all claims
and losses that may arise out of acts performed or omitted in respect of its
activities as such, except for any liability due to any negligence, gross
negligence, bad faith or intentional misconduct of the indemnified person or
entity.
Resignation or Removal. The Transfer Agent may at any time resign, by notice
to the Partnership, or be removed by the Partnership, such resignation or
removal to become effective upon the appointment by the general partner of a
successor transfer agent and registrar and its acceptance of such appointment.
If no successor has been appointed and accepted such appointment within 30 days
after notice of such resignation or removal, the general partner is authorized
to act as the transfer agent and registrar until a successor is appointed.
Item 3. Legal Proceedings
See Note 15 of the Notes to the Consolidated Financial Statements of the
Partnership included elsewhere in this report.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the
fourth quarter of 1998.
37
<PAGE>
P A R T II
Item 5. Market for the Registrant's Units and Related Security Holder Matters
The following table sets forth, for the periods indicated, the high and low
sale prices per unit, as reported on the New York Stock Exchange, the principal
market in which the units are traded, and the amount of cash distributions
declared per unit. All information has been adjusted to give effect to the
two-for-one split of units effective October 1, 1997.
Price Range Cash
----------- ----
High Low Distributions
---- --- -------------
1997
----
First Quarter $21.3750 $13.6875 $0.3150
Second Quarter 24.0625 19.2500 0.5000
Third Quarter 36.8750 23.9375 0.5000
Fourth Quarter 41.2500 32.0000 0.5625
1998
----
First Quarter $37.8750 $30.1250 $0.5625
Second Quarter 38.1250 35.0000 0.6300
Third Quarter 37.3750 28.5625 0.6300
Fourth Quarter 36.9375 29.5625 0.6500
The Partnership pays quarterly distributions at a current rate of $.65 per
quarter. The Partnership currently expects that it will continue to pay
comparable cash distributions in the future.
As of February 20, 1999, there were approximately 35,000 beneficial owners of
the Partnership's units.
38
<PAGE>
Item 6. Selected Financial Data (unaudited)
The following table sets forth, for the periods and at the
dates indicated, selected historical financial and operating data
for the Partnership.
<TABLE>
<CAPTION>
Year Ended December 31,
1998(6) 1997 1996 1995 1994
------------- ------------- ------------ ------------ ------------
(In thousands, except per unit and operating data)
Income and Cash Flow Data:
<S> <C> <C> <C> <C> <C>
Revenues $ 322,617 $ 73,932 $ 71,250 $ 64,304 $ 54,904
Cost of product sold 5,860 7,154 7,874 8,020 940
Operating expense 77,162 17,982 22,347 15,928 13,644
Fuel and power 22,385 5,636 4,916 3,934 5,481
Depreciation and amortization 37,321 10,067 9,908 9,548 8,539
General and administrative 39,984 8,862 9,132 8,739 8,196
------------- ------------- ------------ ------------ ------------
Operating income 139,905 24,231 17,073 18,135 18,104
Earnings from equity investments 25,732 5,724 5,675 5,755 5,867
Interest (expense) (40,856) (12,605) (12,634) (12,455) (11,989)
Interest income and other, net (5,992) (353) 3,129 1,311 509
Income tax (provision) benefit (1,572) 740 (1,343) (1,432) (1,389)
------------- ------------- ------------ ------------ ------------
Net income before extraordinary charge 117,217 17,737 11,900 11,314 11,102
Extraordinary charge (13,611) - - - -
============= ============= ============ ============ ============
Net income $ 103,606 $ 17,737 $ 11,900 $ 11,314 $ 11,102
============= ============= ============ ============ ============
Net income per unit before
extraordinary charge(1) $ 2.09 $ 1.02 $ 0.90 $ 0.85 $ 0.93
============= ============= ============ ============ ============
Net income per unit $ 1.75 $ 1.02 $ 0.90 $ 0.85 $ 0.93
============= ============= ============ ============ ============
Per unit cash distribution paid $ 2.39 $ 1.63 $ 1.26 $ 1.26 $ 1.26
============= ============= ============ ============ ============
Additions to property, plant and equipm$nt(2) 73,188 $ 6,884 $ 8,575 $ 7,826 $ 5,195
Balance Sheet Data (at end of period):
Net property, plant and equipment $ 1,763,386 $ 244,967 $ 235,994 $ 236,854 $ 238,850
Total assets $ 2,152,272 $ 312,906 $ 303,603 $ 303,664 $ 299,271
Long-term debt $ 611,571 $ 146,824 $ 160,211 $ 156,938 $ 150,219
Partners' capital $ 1,360,663 $ 150,224 $ 118,344 $ 123,116 $ 128,474
Operating Data (unaudited):
Pacific Operations volumes
(MBbls)(3) 325,954 - - - -
Mid-Continent Operations volumes
(MBbls)(4) 44,783 46,309 46,601 41,613 46,078
Bulk Terminals transport volumes
(Mtons)(5) 24,016 9,087 6,090 6,486 4,539
</TABLE>
(1) Represents net income before extraordinary charge per unit adjusted for
the two-for-one split of units on October 1, 1997. Net income before
extraordinary charge per unit was computed by dividing the interest of
the holders of units in net income before extraordinary charge by the
weighted average number of units outstanding during the period.
(2) Additions to property, plant and equipment for 1994 and 1997 exclude the
$12,825, and $11,688 of assets acquired in the June 1994 Painter Gas
Processing Plant and September 1997 Grand Rivers Terminal acquisitions,
respectively.
(3) The Partnership acquired the Pacific Operations on March 6, 1998.
(4) Represents total volumes for the North System and the Cypress Pipeline
only.
(5) Represents the volumes of the Cora Terminal, excluding ship or pay
volumes of 252 Mtons for 1996, the Grand Rivers Terminal from September
1997 and Kinder Morgan Bulk Terminals from July 1, 1998.
(6) Includes results of operations for:
* Pacific Operations from March 6, 1998;
* Kinder Morgan Bulk Terminals from July 1, 1998; and
* Plantation Pipe Line Company from September 15, 1998.
39
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations of the Partnership
Year Ended December 31, 1998 Compared With Year Ended December
31, 1997
Key acquisitions and strong performance across all business segments during
1998 allowed the Partnership to realize a 105% increase in net income per unit
before extraordinary items. The Partnership reported net earnings before
extraordinary charge of $117.2 million ($2.09 per unit) for 1998 and $17.7
million ($1.02 per unit) for 1997. Included in the 1998 results was an
extraordinary charge of $13.6 million associated with debt refinancing
transactions, including both a prepayment premium and the write-off of
unamortized debt issue costs. After the extraordinary charge, net income for the
full year 1998 was $103.6 million ($1.75 per unit). The acquisition of the
Pacific Operations (formerly Santa Fe Pacific Pipeline Partners, L.P.) in March
1998 was the primary contributing factor for the increase in total Partnership
revenue to $322.6 million in 1998 from $73.9 million in 1997. Operating income
for 1998 was $139.9 million versus $24.2 million in 1997.
For 1998, the Pacific Operations reported segment earnings of $140.1 million
and total operating revenues of $221.4 million. The amounts reflect strong
demand for gasoline, jet fuel and diesel fuel in the Partnership's West Coast
markets. Segment earnings included other expense charges of $6.4 million, mainly
the result of accrued expenses relating to the FERC Rate Case reserve.
The Mid-Continent Operations earned $37.2 million in segment earnings for
1998 compared to $27.5 million in 1997. Mid-Continent Operations consist of the
North System, the Cypress Pipeline, the Painter gas processing plant, and the
Partnership's equity investments in Shell CO2 Company, Plantation Pipe Line
Company and the Mont Belvieu Fractionator. The 35% increase in earnings was
primarily driven by high returns from the Partnership's investment in Shell CO2
Company. Segment revenues were $38.3 million for 1998 and $55.8 million for
1997. The revenue decrease was primarily related to the Central Basin Pipeline,
which was contributed to Shell CO2 Company in March 1998 and subsequently
accounted for as an investment in partnership. Cost of products sold decreased
to $0.2 million in 1998 compared to $4.6 million in 1997 due to lower
purchase/sale contracts reported by the North System and to the transfer of the
Central Basin Pipeline. Operating and maintenance expenses, combined with fuel
and power expenses, were $14.1 million in 1998. This amount compares to $17.1
million for 1997. The decrease was attributable to the assignment of the Mobil
gas processing agreement at the Bushton Plant in April 1997, the transfer of the
Central Basin Pipeline and a slight decrease (3%) in barrels transported. The
transfer of the Central Basin Pipeline also accounted for a decrease in
depreciation expense and other tax expenses in 1998. Depreciation and
amortization expenses, combined with taxes, other than income taxes, were $10.3
million in 1998 and $11.7 million in 1997. Earnings from equity investments grew
to $24.9 million in 1998 compared to $5.7 million in 1997. The increase was
chiefly the result of the Partnership's interests in Plantation Pipe Line
Company and Shell CO2 Company, both of which are accounted for under the equity
method. Other income items increased $0.6 million in 1998 compared to 1997. This
was attributable to a $0.6 million contested product loss at the Mont Belvieu
Fractionator in 1997. Income tax expense for the segment increased $1.7 million
in 1998 over the previous year. The 1998 income tax provision includes the
Partnership's share of tax expense relating to its investment in Plantation Pipe
Line Company.
The Bulk Terminals segment reported earnings of $19.2 million in 1998 versus
$10.7 million in 1997. Revenues from Bulk Terminal activity were $62.9 million
for 1998 and $18.2 million for 1997. The increase in operating results was
directly affected by the Partnership's acquisition of Kinder Morgan Bulk
Terminals, Inc. (formerly Hall-Buck Marine, Inc.) in July 1998 and the inclusion
of a full year of operations from the Grand Rivers coal terminal, acquired in
September 1997. The increase in total segment revenue was also driven by a 93%
increase in revenues earned by the Red Lightning energy services unit, which
began operations in April 1997. Cost of products sold for the year 1998 was $5.7
million compared to $2.6 million in 1997. The increase was due to a higher
number of coal purchase contracts as part of the coal marketing activity.
Operations and maintenance expenses, combined with fuel and power expenses,
totaled $31.3 million in 1998 and $3.6 million in 1997. The increase was the
result of 1998 business acquisitions and higher coal volumes transferred at the
Partnership's Cora coal terminal. Depreciation and amortization expense was $3.9
million in 1998 and $1.1 million in 1997. Taxes, other than income taxes, were
$1.6 million in 1998 and $0.3 million in 1997. The increase in both depreciation
and taxes was primarily due to the addition of Kinder Morgan Bulk Terminals.
40
<PAGE>
Total Partnership general and administrative expenses totaled $40.0 million
in 1998 compared to $8.9 million in 1997. The increase was attributable to
higher administrative expenses associated with new acquisitions, primarily the
Pacific Operations, made by the Partnership in 1998. The Partnership continues
to focus on productivity and expense controls.
Total Partnership interest expense, net of interest income, was $38.6 million
in 1998 compared to $12.1 million in 1997. The increase was primarily due to
debt assumed by the Partnership as part of the acquisition of the Pacific
Operations as well as expenses related to the financing of the Partnership's
1998 investments.
Minority interest expense increased to $1.0 million in 1998 versus $0.2
million in 1997. The increase was the result of earnings attributable to SFPP
(Pacific Operations) as well as to higher overall Partnership income.
Year Ended December 31, 1997 Compared With Year Ended December
31, 1996
Net income of the Partnership increased 49% to $17.7 million in 1997 from
$11.9 million in 1996. The results for 1996 included a non-recurring gain of
$2.5 million, attributable to the cash buyout received from Chevron, USA
("Chevron") for early termination of a gas processing contract at the Painter
Plant. See Note 7 of the Notes to the Consolidated Financial Statements of the
Partnership. Revenues of the Partnership increased 4% to $73.9 million in 1997
compared to $71.3 million in 1996.
A significant portion of the overall earnings increase was attributable to
the Bulk Terminals segment. The segment reported net earnings of $10.7 million
for 1997, $6.3 million (142%) higher than the previous year. Earnings from the
coal terminals increased 81%, primarily the result of increases in both coal
tons transferred and average transfer rates at the Cora Terminal, as well as the
addition of the Grand Rivers Terminal in September 1997. Operating results from
Red Lightning, the energy services business unit, also contributed positive
earnings. Segment revenues totaled $18.2 million, up $10.1 million from 1996.
The large increase reflects the addition of the Red Lightning energy services
unit starting in April 1997, the addition of the Grand Rivers Terminal, and a
35% increase in revenues earned by the Cora Terminal. The increase in revenues
from the Cora Terminal resulted from a 17% increase in volumes transferred,
accompanied by a 6% increase in average transfer rates. Cost of products sold
increased to $2.6 million in 1997 from $0.2 million in 1996. This was due to the
coal purchase contracts entered into by the Red Lightning business unit.
Operating and maintenance expenses, together with fuel and power expenses, were
$3.6 million in 1997 and $2.0 million in 1996. Excluding the effect of the Grand
Rivers Terminal, these operating costs increased 31% in 1997, mainly due to the
increase in coal tons transferred by the Cora Terminal.
In 1997, the Mid-Continent Operations reported $27.5 million in segment
earnings from total revenues of $55.8 million. This compares to 1996 segment
earnings of $28.7 million from revenues of $63.2 million. The decline in segment
earnings was primarily the result of the $2.5 million non-recurring gain
recognized in 1996 (referred to above). The decrease in segment revenue was
mainly the result of the termination of gas processing at the Painter Plant in
August 1996 and the assignment of the Mobil gas processing agreement at the
Bushton Plant (the "Mobil Agreement") to KN Processing, Inc. in April 1997.
Revenues from the liquids pipelines remained relatively flat in 1997 as compared
to 1996. Pipeline revenues were $53.5 million in 1997 versus $54.0 million in
1996. Revenues from the Cypress Pipeline increased 11% due to a 14% increase in
throughput volumes. The North System's revenues decreased 3% due to a 5%
decrease in barrels transported. Cost of products sold was $4.6 million in 1997
versus $7.7 million in 1996. The decrease was due to fewer purchase/sale
contracts on the liquids pipelines as well as the termination of purchase/sale
contracts at the Painter Plant. Operating and maintenance expenses, combined
with fuel and power expenses, were $17.1 million for 1997 and $21.8 million for
1996. A significant decrease in segment operating expenses resulted from the
assignment of the Mobil Agreement and the leasing of the Painter Facility to
Amoco Oil Company in February 1997. Additionally, the decrease in volumes
transferred by the North System in 1997 resulted in a 4% decrease in its
operating and fuel costs. Taxes, other than income taxes, decreased $0.7 million
(20%) in 1997 due to adjustments to the liquids pipelines' ad valorem tax
valuations and higher 1996 ad valorem tax provisions. Other non-operating income
and expense decreased $3.3 million in 1997 versus 1996. The decrease reflects
the $2.5 million buyout payment received from Chevron in 1996 and a $0.6 million
contested product loss at the Mont Belvieu Fractionator recorded in the fourth
quarter of 1997. A decrease in the cumulative difference between book and tax
depreciation and the effect of a partial liquidating distribution of Kinder
Morgan Natural Gas Liquids Corporation, the corporate entity holding the
Partnership's interest in the Fractionator, resulted in a $2.1 million reduction
in income tax expense for 1997 compared to 1996.
41
<PAGE>
Total Partnership general and administrative expenses totaled $8.9 million in
1997 compared to $9.1 million in 1996. The 2% decrease in administrative
expenses was the result of cost savings realized by new management.
Total Partnership interest expense, net of interest income, for 1997 ($12.1
million) was relatively unchanged from the amount reported in 1996 ($11.9
million).
Outlook
The Partnership intends to actively pursue a strategy to increase the
Partnership's operating income. The Partnership will use a three-pronged
strategy to accomplish this goal.
o Cost Reductions. The Partnership has substantially reduced
its operating expenses since the general partner was
acquired from Enron in February 1997 and will continue to
seek further reductions where appropriate. Since the
acquisition of the Pacific Operations, the Partnership has
also reduced costs by more than $20 million per year through
the elimination of redundant general and administrative and
other expenses.
o Internal Growth. The Partnership intends to expand the operations of its
current facilities. The Partnership has taken a number of steps that
management believes will increase revenues from existing operations,
including the following:
o the Pacific Operations committed over $40 million to expand
its pipeline and storage facilities;
o the Cypress Pipeline expanded its capacity by 25,000 barrels
per day in November 1997;
o the Cora Terminal and the Grand Rivers Terminal handled an aggregate of
approximately 13.5 million tons of coal during 1998 compared to 9.1
million tons in 1997. The increase was a result of sales agreements and
other new business; and
o earnings and cash flow, as historically related to the operations of
the Central Basin Pipeline, increased in 1998 as a result of the
partnership formed with Shell.
o Strategic Acquisitions. During 1998, the Partnership made
the following acquisitions:
o Shell CO2 joint venture (20%) March 5, 1998
o Pacific Operations March 6, 1998
o Kinder Morgan Bulk Terminals July 1, 1998
o Plantation Pipe Line Company (24%) September 15, 1998
o Pier IX and Shipyard River Terminals December 18, 1998
The Partnership intends to seek opportunities to make additional strategic
acquisitions to expand existing businesses or to enter into related businesses.
The Partnership periodically considers potential acquisition opportunities as
such opportunities are identified by the Partnership. No assurance can be given
that the Partnership will be able to consummate any such acquisitions.
Management anticipates that the Partnership will finance acquisitions
temporarily by borrowings under the Credit Facility and permanently by a
combination of debt and equity funding from the issuance of new debt securities
and units.
On January 13, 1999, the Partnership announced an increase in its quarterly
distribution to $0.65 per unit, effective with the distribution for the fourth
quarter of 1998. The distribution for the third quarter of 1998 was $0.63 per
unit. Management intends to maintain the distribution at an annual level of at
least $2.60 per unit assuming no adverse change in the Partnership's operations,
economic conditions and other factors.
Liquidity and Capital Resources
The Partnership's primary cash requirements, in addition to normal operating
expenses, are debt service, sustaining capital expenditures, discretionary
capital expenditures, and quarterly distributions to partners. In addition to
utilizing cash generated from operations, the Partnership could meet its cash
requirements through borrowings under its credit facilities, issuing long-term
notes or issuing additional units. The Partnership expects to fund future cash
distributions and sustaining capital expenditures with existing cash and cash
flows from operating activities.
42
<PAGE>
Expansion capital expenditures are expected to be funded through additional
Partnership borrowings or issuance of additional units. Interest payments are
expected to be paid from cash flows from operating activities and debt principal
payments will be met by additional borrowings as they become due or by issuance
of additional units.
Cash Provided by Operating Activities
Net cash provided by operating activities was $134.0 million for 1998. This
amount was $102.0 million higher than the $32.0 million of cash provided by
operating activities in 1997. The increase in cash flow from operations was
primarily the result of higher net earnings and higher non-cash depreciation and
amortization charges. Higher earnings, chiefly due to the acquisition of the
Pacific Operations, accounted for $85.9 million of the increase. Higher
depreciation and amortization expenses, directly attributable to the Pacific
Operations and the acquisition of Kinder Morgan Bulk Terminals accounted for
$27.3 million of the increase. The higher overall change in cash provided by
operating activities was partially offset by lower cash inflows relative to net
changes in operating assets and liabilities. Cash flows from the net change in
working capital components decreased $15.8 million in 1998 versus 1997. The
decrease was chiefly due to a $9.1 million employee severance payment made in
December 1998 related to the Santa Fe acquisition. In addition, under a
settlement agreement of previous litigation matters between SFPP and El Paso
Refinery L.P. and its general partner, SFPP was obligated to pay a final payment
of $8 million. The liability was paid in the second quarter of 1998.
Cash Used in Investing Activities
Net cash used in investing activities was $281.7 million in 1998 compared to
$30.3 million in 1997. The increase in funds utilized in investing activities
was attributable to asset acquisitions and increases in capital expenditures
driven primarily by continued investment in the Partnership's Pacific
Operations. Excluding the effect of cash used for asset acquisitions, additions
to property, plant and equipment were $38.4 million in 1998 and $6.9 million in
1997. These additions of property, plant and equipment include both expansion
and maintenance projects.
Additionally, there were substantially higher contributions to equity
investments made during 1998 versus 1997. The period-to-period increase in
contributions was $132.7 million, reflecting the Partnership's cash investments
in Shell CO2 Company and Plantation Pipe Line Company of $25.0 million and
$110.0 million, respectively.
Cash Provided by / (Used in) Financing Activities
Net cash provided by financing activities amounted to $169.9 million in 1998.
This compares to $6.3 million used in financing activities in 1997. The overall
increase of $176.2 million nearly matches the $178.6 million increase in net
proceeds received from the issuance of units. The Partnership received $212.3
million in proceeds from the June 1998 issuance of approximately 6.1 million
units.
Other financing activities included $12.3 million received as a result of
general partner contributions made to maintain its minority interest in the
operating partnerships and $16.8 million used to refinance long-term debt.
Overall debt financing activities provided $84.8 million in cash during 1998
versus cash utilization of $15.1 million during 1997.
Distributions to all partners increased to $122.4 million in 1998 compared to
$24.3 million in 1997. Higher distributions were the result of an increase in
the number of units, an increase in paid distributions per unit and an increase
in incentive distributions to the general partner as a result of increased
distributions to unitholders. The Partnership paid distributions of $2.385 per
unit in 1998 compared to $1.63 per unit in 1997. The Partnership believes that
the increase in paid distributions resulted from favorable operating results in
1998. The Partnership also believes that future operating results will continue
to support similar levels of quarterly cash distributions, however, no assurance
can be given that future distributions will continue at such levels.
The Partnership's debt instruments generally require the Partnership to
maintain a reserve for future debt service obligations. The purpose of the
reserve is to lessen differences in the amount of Available Cash from quarter to
quarter due to the timing of required principal and interest payments (which may
only be required on a semi-annual or annual basis) and to provide a source of
funds to make such payments. The Partnership's debt instruments
43
<PAGE>
generally require the Partnership to set aside each quarter a portion of the
principal and interest payments due in the next six to 12 months.
Partnership Distributions
The partnership agreement requires the Partnership to distribute 100% of
"Available Cash" (as defined in the partnership agreement) to the Partners
within 45 days following the end of each calendar quarter in accordance with
their respective percentage interests. Available Cash consists generally of all
cash receipts of the Partnership and its operating partnerships, less cash
disbursements and net additions to reserves and amounts payable to the former
Santa Fe general partner in respect of its 0.5% interest in SFPP.
Available Cash of the Partnership generally is distributed 98% to the limited
partners (including the approximate 2% limited partner interest of the general
partner) and 2% to the general partner. This general requirement is modified to
provide for incentive distributions to be paid to the general partner in the
event that quarterly distributions to unitholders exceed certain specified
targets.
In general, Available Cash for each quarter is distributed, first, 98% to the
limited partners and 2% to the general partner until the limited partners have
received a total of $0.3025 per unit for such quarter, second, 85% to the
limited partners and 15% to the general partner until the limited partners have
received a total of $0.3575 per unit for such quarter, third, 75% to the limited
partners and 25% to the general partner until the limited partners have received
a total of $0.4675 per unit for such quarter, and fourth, thereafter 50% to the
limited partners and 50% to the general partner. Incentive distributions are
generally defined as all cash distributions paid to the general partner that are
in excess of 2% of the aggregate amount of cash being distributed. The general
partner's incentive distributions declared by the Partnership for 1998 were
$32,737,571, while the incentive distributions paid during 1998 were
$23,920,773.
Credit Facilities
The Partnership has a $325 million revolving credit facility (the "Credit
Facility") with a syndicate of financial institutions. First Union National Bank
is the administrative agent under the agreement. The Partnership and OLP-B are
co-borrowers under the Credit Facility. Commencing in May 2000, the amount
available under the Credit Facility reduces on a quarterly basis, with the final
installment due in February 2005.
The Partnership's operating partnerships and each other Restricted Subsidiary
(as defined in the Credit Facility) of the Partnership (other than SFPP) have
guaranteed the Partnership's obligations under the Credit Facility. The
Partnership has guaranteed the obligations of OLP-B under the Credit Facility.
The Credit Facility is unsecured, however, it requires the Partnership, in
certain limited circumstances, to provide cash collateral to the lenders to
secure letters of credit.
Interest on advances is generally payable quarterly. Interest on loans under
the Credit Facility accrues at the Partnership's option at a floating rate equal
to either:
o First Union National Bank's base rate (but not less than the Federal Funds
Rate plus 0.5% per annum); or
o LIBOR, plus a margin that will vary from 0.75% to 1.25% per annum depending
upon the ratio of the Partnership's Debt to Cash Flow.
The Credit Facility includes restrictive covenants that are customary for
this type of facility, including without limitation:
o requirements to maintain certain financial ratios;
o restrictions on the incurrence of additional indebtedness;
o restrictions on entering into mergers, consolidations and
sales of assets;
o restrictions on making investments;
o restrictions on granting liens;
o prohibitions on making cash distributions to holders of
units more frequently than quarterly;
44
<PAGE>
o prohibitions on making cash distributions in excess of 100% of
Available Cash for the immediately preceding calendar
quarter; and
o prohibitions on making any distribution to holders of units if an event
of default exists or would exist upon making such distribution.
As of December 31, 1998, the Partnership had outstanding borrowings under the
Credit Facility of $230 million, including the following:
o approximately $142 million borrowed to refinance its First Mortgage Notes,
including a make whole prepayment premium, and the bank credit facilities
of two of its operating partnerships (the "Refinanced Indebtedness");
o approximately $25 million borrowed to fund its cash
investment in Shell CO2 Company;
o approximately $100 million borrowed to fund part of the
acquisition of the Pacific Operations, including post-closing
adjustments;
o $100 million borrowed to fund part of the purchase price of
its interest in Plantation Pipe Line Company;
o $35 million borrowed to refinance debt of Kinder Morgan Bulk
Terminals, Inc. that was outstanding at the time of the
acquisition and to fund general corporate purposes; and
o $35 million borrowed to finance the acquisition of the Pier IX Terminal
and the Shipyard River Terminal.
The Partnership used approximately $210 million of proceeds from a public
offering of units in June 1998 to pay down outstanding balances under the Credit
Facility.
The Partnership's First Mortgage Notes were incurred in connection with the
original formation of the Partnership. The Partnership borrowed the remainder of
the Refinanced Indebtedness for working capital and general partnership
purposes. The Partnership's First Mortgage Notes bore interest at a fixed rate
of 8.79% per annum. The remaining Refinanced Indebtedness bore interest at
varying rates (a weighted average rate of approximately 7.65% per annum as of
December 31, 1997). The Partnership's First Mortgage Notes were payable in 10
equal annual installments of $11 million commencing in June 1998. The remaining
Refinanced Indebtedness was scheduled to mature in 1999.
As of December 31, 1998, SFPP's long term debt aggregated $355 million and
consisted of $244.0 million of First Mortgage Notes (the "SF Notes") and $111.0
million borrowed under SFPP's $175 million bank credit facility. The SF Notes
are payable in annual installments through December 15, 2004. The credit
facility matures in August 2000. The Partnership intends to refinance some or
all of the remaining SF Notes as they become payable. The credit facility
permits SFPP to refinance the $64 million of SF Notes due on or before December
15, 1999 (plus a $31.5 million prepayment allowed on such date). The SFPP credit
facility also provides for a working capital facility of up to $25 million.
Senior Notes
On January 29, 1999, the Partnership issued $250 million of 6.30% Senior
Notes due 2009. Interest on the senior notes is payable semi-annually on
February 1 and August 1 of each year beginning on August 1, 1999. The indenture
governing the senior notes contains restrictions on the ability of the
Partnership to enter into sale and leaseback transactions, grant liens on its
assets and merge or consolidate with other entities. Each subsidiary that
guarantees any senior debt of the Partnership must also guarantee the senior
notes. Currently, the senior notes are guaranteed by all of the Partnership's
operating partnerships (other than SFPP) and by Kinder Morgan Bulk Terminals,
Inc., Kinder Morgan Natural Gas Liquids Corporation and Kinder Morgan CO2, LLC.
The Partnership may redeem the senior notes at any time, upon not less than
30 and not more than 60 days notice, at a price equal to 100% of the principal
amount of the senior notes plus accrued interest to the redemption date (subject
to the right of holders of record on the relevant record date to receive
interest due on an interest payment date that is on or prior to the redemption
date) plus a Make-Whole Premium, if any (the "Redemption Price"). The Redemption
Price will never be less than 100% of the principal amount of the senior notes
plus accrued interest to the redemption date.
45
<PAGE>
The amount of the Make-Whole Premium will be equal to the excess, if any, of:
(1) the sum of the present values, calculated as of the redemption date, of:
(a) each interest payment that, but for such redemption, would have been
payable on the senior notes being redeemed on each interest payment
date occurring after the redemption date (excluding any accrued
interest for the period prior to the redemption date); and
(b) the principal amount that would have been payable at the final
maturity of the senior notes if they had not been redeemed;
over
(2) the principal amount of the senior notes being redeemed.
The present value of interest and principal payments referred to in clause
(1) above will be calculated by discounting the amount of each payment of
interest or principal from the date that the payment would have been payable,
but for the redemption, to the redemption date at a discount rate equal to the
Treasury Yield (as defined below) plus 25 basis points.
For purposes of determining the Make-Whole Premium, "Treasury Yield" means a
rate of interest per annum equal to the weekly average yield to maturity of
United States Treasury Notes that have a constant maturity that corresponds to
the remaining term to maturity of the senior notes, calculated to the nearest
1/12th of a year.
Capital Requirements for Recent Transactions
Shell CO2 Company. On March 5, 1998, the Partnership transferred the Central
Basin Pipeline and $25 million in cash to Shell CO2 Company in exchange for a
20% limited partner interest in Shell CO2 Company. The Partnership financed its
cash investment in Shell CO2 Company through the Credit Facility.
Santa Fe Pacific Pipeline Partners, L.P. On March 6, 1998, the Partnership
acquired substantially all of the assets of Santa Fe for approximately $1.4
billion in aggregate consideration consisting of approximately 26.6 million
units, $84.4 million in cash and the assumption of certain liabilities. The
Partnership financed the $84.4 million cash portion of the purchase price and a
portion of the transaction expenses through the Credit Facility.
Kinder Morgan Bulk Terminals, Inc. The Partnership, effective July 1, 1998,
acquired Kinder Morgan Bulk Terminals, Inc. for approximately $100 million,
consisting of approximately 2.1 million units and the assumption of
approximately $23 million of indebtedness. The Partnership subsequently paid off
the indebtedness with funds borrowed under the Credit Facility.
Plantation Pipe Line Company. On September 15, 1998, the Partnership acquired
24% of Plantation Pipe Line Company for $110 million. The Partnership borrowed
$100 million under the Credit Facility, and paid $10 million from its cash
accounts.
Pier IX Terminal and Shipyard River Terminal. On December 18, 1998, the
Partnership acquired the Pier IX Terminal, located in Newport News, Virginia,
and the Shipyard River Terminal, located in Charleston, South Carolina, for $35
million, which the Partnership borrowed under the Credit Facility.
Year 2000
The Partnership is currently implementing a five phase program to achieve
Year 2000 compliance. The Partnership is evaluating both information technology
systems ("IT") and non-IT systems such as those that include embedded
technology.
The Partnership has completed the system inventory phase. In the system
inventory phase, all hardware and software was inventoried and a database of
systems that need further assessment was created.
46
<PAGE>
The Partnership has begun the assessment phase. In the assessment phase,
specific Year 2000 issues and solutions are identified. The Partnership
anticipates completing the assessment phase by the end of the first quarter of
1999.
The Partnership has begun the system testing phase. In the system testing
phase, real world tests on critical systems are run to insure that they will
operate properly after the Year 2000. The Partnership anticipates completing the
system testing phase by the end of the second quarter of 1999.
The Partnership has begun the remediation phase. In the remediation phase,
problems that arise in the Partnership's assessment and system testing phases
are fixed. The Partnership anticipates completing the remediation phase by the
end of the third quarter of 1999.
The Partnership has begun the contingency planning phase. The Partnership
currently has plans in place for non-Year 2000 related contingencies and will
modify these plans to address any specific contingencies related to the Year
2000 problem. Initial drill of contingency operations will be held in the first
quarter of 1999. Refinement of contingency plans and employee training will
continue throughout the year and be completed in the fourth quarter of 1999.
The Partnership does not believe it has material exposure to third parties'
failures to remediate the Year 2000 problem. The Partnership has not sought and
does not intend to seek information from material suppliers, customers, or
service providers to determine the exact extent to which the Partnership would
be effected by third parties' failures to remediate the Year 2000 problem.
While the Partnership has budgeted funds to address the Year 2000 problem,
the Partnership does not believe that any material expenditures will be required
to address the Year 2000 problem as it relates to existing systems. However,
uncertainty exists concerning the potential costs and effects associated with
any Year 2000 compliance. Therefore, the Partnership cannot give any assurances
that unexpected Year 2000 compliance problems of either the Partnership or its
vendors, customers and service providers would not materially and adversely
affect the Partnership's business, financial condition or operating results.
Information Regarding Forward Looking Statements
This filing includes forward looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. These forward looking statements are identified as any statement that
does not relate strictly to historical or current facts. They use words such as
"anticipate," "continue," "estimate," "expect," "may," "will," or other similar
words. These statements discuss future expectations or contain projections.
Specific factors which could cause actual results to differ from those in the
forward looking statements, include:
o price trends and overall demand for natural gas liquids, refined petroleum
products, carbon dioxide, coal and other bulk materials in the United
States. Economic activity, weather, alternative energy sources,
conservation and technological advances may affect price trends and
demand;
o if the Federal Energy Regulatory commission or the
California Public Utilities Commission changes the
Partnership's tariff rates;
o the Partnership's ability to integrate any acquired
operations into its existing operations;
o if railroads experience difficulties or delays in delivering
products to the bulk terminals;
o the Partnership's ability to successfully identify and close
strategic acquisitions and make cost saving changes in
operations;
o shut-downs or cutbacks at major refineries, petrochemical plants,
utilities, military bases or other businesses that use the Partnership's
services;
o the condition of the capital markets and equity markets in
the United States; and
47
<PAGE>
o the political and economic stability of the oil producing
nations of the world.
See Items 1 and 2 "Business and Properties - Risk Factors" for a more
detailed description of these and other factors that may affect the forward
looking statements. When considering forward looking statements, one should keep
in mind the risk factors described in "Risk Factors" above. The risk factors
could cause the Partnership's actual results to differ materially from those
contained in any forward looking statement. The Partnership disclaims any
obligation to update the above list or to announce publicly the result of any
revisions to any of the forward looking statements to reflect future events or
developments.
In addition, the Partnership's classification as a partnership for federal
income tax purposes means that the Partnership does not generally pay federal
income taxes on its net income. It does, however, pay taxes on the net income of
subsidiaries that are corporations. The Partnership is relying on a legal
opinion from its counsel, and not a ruling from the Internal Revenue Service, as
to its proper classification for federal income tax purposes. See Items 1 and 2
"Business and Properties - Tax Treatment of Publicly Traded Partnerships Under
the Internal Revenue Code."
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
None.
Item 8. Financial Statements and Supplementary Data
The information required hereunder is included in this report as set forth in
the "Index to Financial Statements" on page F-1.
Item 9. Changes in and Disagreements on Accounting and Financial
Disclosure
None.
48
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors and Executive Officers of the General Partner
As is commonly the case with publicly-traded limited partnerships, the
Partnership does not employ any of the persons responsible for managing or
operating the Partnership, but instead reimburses the general partner for its
services. Set forth below is certain information concerning the directors and
executive officers of the general partner. All directors of the general partner
are elected annually by, and may be removed by, Kinder Morgan, Inc. as the sole
shareholder of the general partner. All officers serve at the discretion of the
board of directors of the general partner.
Name Age Position with the General Partner
---- --- ---------------------------------
Richard D. Kinder 54 Director, Chairman and CEO
William V. Morgan 55 Director, Vice Chairman and President
Alan L. Atterbury 56 Director
Edward O. Gaylord 67 Director
William V. Allison 51 President, Pipeline Operations
David G. Dehaemers, Jr. 38 Vice President, Treasurer and
Chief Financial Officer
Michael C. Morgan 30 Vice President, Corporate Development
and Investments
Thomas B. Stanley 48 President, Bulk Terminals
Dixon B. Betz 50 Chief Executive Officer, River
Consulting, Inc., subsidiary
Richard D. Kinder was elected Director, Chairman and Chief Executive
Officer of the general partner in February 1997. From 1992 to 1994, Mr. Kinder
served as Chairman of the general partner. From October 1990 until December
1996, Mr. Kinder was President of Enron Corp. Mr. Kinder was employed by Enron
and its affiliates and predecessors for over 16 years.
William V. Morgan was elected Director of the general partner in June 1994,
Vice Chairman of the general partner in February 1997 and President of the
general partner in November 1998. Mr. Morgan has been the President of Morgan
Associates, Inc., an investment and pipeline management company, since February
1987, and Cortez Holdings Corporation, a related pipeline investment company,
since October 1992. He has held legal and management positions in the energy
industry since 1975, including the presidencies of three major interstate
natural gas companies which are now a part of Enron: Florida Gas Transmission
Company, Transwestern Pipeline Company and Northern Natural Gas Company. Prior
to joining Florida Gas in 1975, Mr. Morgan was engaged in the private practice
of law in Washington, D.C.
Alan L. Atterbury was elected Director of the general partner in February
1997. Mr. Atterbury has been the Chief Executive Officer and President of
Midland Loan Services, Inc., since its formation in April 1998. Mr. Atterbury
co-founded Midland Loan Services, L.P. (the predecessor of Midland Loan
Services, Inc.) and has served as Chief Executive Officer and President from the
partnership's inception in 1992. Mr. Atterbury has also served as the President,
Chief Executive Officer and a Director of Midland Data Systems, Inc., the
general partner of Midland Loan Services, L.P. from its inception in 1990. Mr.
Atterbury has also been the President of Midland Properties, Inc., a property
management and real estate development company, since 1980.
Edward O. Gaylord was elected Director of the general partner in February
1997. Mr. Gaylord is the Chairman of the Board of Directors of Jacintoport
Terminal Company, a liquid bulk storage terminal on the Houston, Texas ship
channel. Mr. Gaylord also serves as Chairman of the Board for EOTT Energy
Corporation, an oil trading and transportation company also located in Houston,
Texas. Mr. Gaylord is also a Director of Seneca Foods Corporation and Imperial
Sugar Company.
William V. Allison was elected President, Pipeline Operations of the general
partner in February 1999. He served as Vice President and General Counsel of the
general partner from April 1998 to February 1999. From 1977 to April 1998, Mr.
Allison was employed at Enron Corp. where he held various executive positions,
including President of Enron Liquid Services Corporation, Florida Gas
Transmission Company and Houston Pipeline Company and Vice President and
Associate General Counsel of Enron Corp. Prior to joining Enron Corp., he was an
attorney at the FERC.
49
<PAGE>
David G. Dehaemers, Jr. was elected Treasurer of the general partner in
February 1997 and Vice President and Chief Financial Officer of the general
partner in July 1997. He served as Secretary of the general partner from
February 1997 to August 1997. From October 1992 to January 1997, he was Chief
Financial Officer of Morgan Associates, Inc., an energy investment and pipeline
management company. Mr. Dehaemers was previously employed by the national CPA
firms of Ernst & Whinney and Arthur Young. He is a CPA, and received his
undergraduate Accounting degree from Creighton University in Omaha, Nebraska.
Mr. Dehaemers received his law degree from the University of Missouri-Kansas
City and is a member of the Missouri Bar.
Michael C. Morgan was elected Vice President, Corporate Development and
Investments of the general partner in February 1997. From August 1995 until
February 1997, Mr. Morgan was an associate with McKinsey & Company, an
international management consulting firm. In 1995, Mr. Morgan received a Masters
in Business Administration from the Harvard Business School. From March 1991 to
June 1993, Mr. Morgan held various positions at PSI Energy, Inc., an electric
utility, including Assistant to the Chairman. Mr. Morgan received a Bachelor of
Arts in Economics and a Masters of Arts in Sociology from Stanford University in
1990. Mr. Morgan is the son of William V. Morgan.
Thomas B. Stanley was elected President, Bulk Terminals of the general
partner in August 1998. From 1993 to July 1998, he was President of Hall-Buck
Marine, Inc. (now known as Kinder Morgan Bulk Terminals, Inc.), for which he has
worked since 1980. Mr. Stanley is a CPA with ten years' experience in public
accounting, banking, and insurance accounting prior to joining Hall-Buck. He
received his bachelor's degree from Louisiana State University in 1972.
Dixon B. Betz founded River Consulting, Inc., a subsidiary of Kinder Morgan
Bulk Terminals, Inc., in 1981 and has since served as its Chief Executive
Officer. Mr. Betz received a Bachelor of Science degree in Mathematics from
Louisiana State University in 1971.
Item 11. Executive Compensation
The Partnership has no executive officers, but is obligated to reimburse the
general partner for compensation paid to the general partner's executive
officers in connection with their operation of the Partnership's business. The
following table summarizes all compensation paid to the general partner's chief
executive officer and to each of the general partner's four other most highly
compensated executive officers for services rendered to the Partnership during
1998 and 1997.
50
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
---------------------------------------------------
All Other
Name and Principal Position Year Salary Bonus(1) Compensation(2)
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard D. Kinder 1998 $200,004 $ - $13,584
Director, Chairman and CEO 1997 175,664 - 12,757
William V. Morgan 1998 200,004 - 64,562
Director, Vice Chairman and President 1997 175,685 - 12,757
William V. Allison(3) 1998 99,998 200,000 11,366
President, Pipeline Operations 1997 22,917 - -
David G. Dehaemers, Jr. 1998 141,247 200,000 34,393
Vice President, Treasurer and CFO 1997 101,910 130,000 7,598
Michael C. Morgan 1998 141,247 200,000 50,421
Vice President 1997 101,910 130,000 7,539
</TABLE>
(1) Amounts earned in year shown and paid the following year.
(2) Represents the general partner's contributions to the Savings
Investment Plan (a 401(k) plan), the imputed value of general
partner-paid group term life insurance exceeding $50,000, and
compensation attributable to taxable moving expenses allowed.
(3) Prior to the acquisition of the general partner by Kinder Morgan,
Inc., Mr. Allison served as President of the general partner from
January 1, 1997 until February 14, 1997.
Retirement Savings Plan. Effective July 1, 1997, the general partner
established the Kinder Morgan Retirement Savings Plan, a defined contribution
401(k) plan, that permits all full-time employees of the general partner to
contribute 1% to 15% of base compensation, on a pre-tax or after-tax basis, into
participant accounts. In addition to a mandatory contribution equal to 4% of
base compensation per year for each plan participant, the general partner may
make discretionary contributions in years when specific performance objectives
are met. Any discretionary contributions are made during the first quarter
following the performance year. On March 1, 1999, an additional 2% discretionary
contribution was made to individual accounts based on 1998 financial targets to
unitholders. All contributions, together with earnings thereon, are immediately
vested and not subject to forfeiture. Participants may direct the investment of
their contributions into a variety of investments. Plan assets are held and
distributed pursuant to a trust agreement. Because levels of future
compensation, participant contributions and investment yields cannot be reliably
predicted over the span of time contemplated by a plan of this nature, it is
impractical to estimate the annual benefits payable at retirement to the
individuals listed in the Summary Compensation Table above.
Executive Compensation Plan. Pursuant to the Partnership's Executive
Compensation Plan (the "Plan"), executive officers of the general partner are
eligible for awards equal to a percentage of the "Incentive Compensation Value",
which is defined as cash distributions to the general partner during the four
calendar quarters preceding the date of redemption times eight (less a
participant adjustment factor, if any). Under the Plan, no eligible employee may
receive a grant in excess of 2% and total awards under the Plan may not exceed
10%. In general, participants may redeem vested awards in whole or in part from
time to time by written notice. The Partnership may, at its option, pay the
participant in units (provided, however, the unitholders approve the plan prior
to issuing such units) or in cash. The Partnership may not issue more than
200,000 units in the aggregate under the Plan. Units will not be issued to a
participant unless such units have been listed for trading on the principal
securities exchange on which the units are then listed. The Plan terminates
January 1, 2007 and any unredeemed awards will be automatically redeemed. The
board of directors of the general partner may, however, terminate the Plan
before such date, and upon such early termination, the Partnership will redeem
all unpaid grants of compensation at an amount equal to the highest Incentive
Compensation Value, using as the determination date any day within the previous
twelve months, multiplied by 1.5. The Plan was established in July 1997 and on
July 1, 1997, the board of directors of the general partner granted awards
totaling 2% of the Incentive Compensation Value to each of Thomas King, David
Dehaemers and Michael Morgan. Originally, 50% of such awards were to vest on
each of January 1, 2000 and January 1, 2002. No awards were granted during 1998.
51
<PAGE>
All of Mr. King's awards were forfeited when he resigned as President of the
general partner on December 1, 1998. On January 4, 1999 (subsequent to year
end), the awards granted to Mr. Dehaemers and Mr. Morgan were amended to provide
for the immediate vesting and pay-out of 50% of their awards, or 1% of the
Incentive Compensation Value. The board of directors of the general partner
believes that accelerating the vesting and pay-out of the awards was in the best
interest of the Partnership because it capped the total payment the participants
were entitled to receive with respect to 50% of their awards.
Unit Option Plan. Pursuant to the Partnership's unit Option Plan (the "Option
Plan") key personnel of the Partnership and its affiliates are eligible to
receive grants of options to acquire units. The total number of units available
under the plan is 250,000. None of the options granted under the Option Plan may
be "Incentive Stock Options" under Section 422 of the Internal Revenue Code. If
an option expires without being exercised, the number of units covered by such
option will be available for a future award. The exercise price for an option
may not be less than the fair market value of a unit on the date of grant.
Either the board of directors of the general partner or a committee of the board
of directors will administer the Option Plan. The Plan terminates on March 5,
2008.
No individual employee may be granted options for more than 10,000 units in
any year. The board of directors or the committee will determine the duration
and vesting of the options to employees at the time of grant. At December 31,
1998, options for 194,500 units were granted to 89 employees of the general
partner. Forty percent of such options will vest on the first anniversary of the
date of grant and twenty percent on each anniversary, thereafter. The options
expire seven years from the date of grant.
The Option Plan also granted to each non-employee director of the Partnership
as of April 1, 1998, an option to acquire 5,000 units at an exercise price equal
to the fair market value of the units on such date. In addition, each new
non-employee director will receive options to acquire 5,000 units on the first
day of the month following his or her election. Forty percent of such options
will vest on the first anniversary of the date of grant and twenty percent on
each anniversary, thereafter. The non-employee director options will expire
seven years from the date of grant.
The following tables set forth certain information at December 31, 1998 and
for the fiscal year then ended with respect to unit options granted to and
exercised by the individuals named in the Summary Compensation Table above. Mr.
Allison is the only person named in the Summary Compensation Table that has been
granted options. No options have been granted at an option price below fair
market value on the date of grant.
<TABLE>
<CAPTION>
Number of % of Total Potential realizable Value
Units Options at Assumed Annual Rates
Underlying Granted to Exercise of Unit Price Appreciation
Options Employees Price Expiration for Option Term (1)
Name Granted in 1998 Per Unit Date 5% 10%
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
William V. Allison 10,000 5.14 $33.125 08/26/2005 $134,852 $314,263
</TABLE>
52
<PAGE>
Aggregated Option Exercises in 1998,
and 1998 Year-End Option Values
<TABLE>
<CAPTION>
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options
Units Acquired Value 1998 Year-End at 1998 Year-End(1)
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexcercisable
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
William V. Allison - - - 10,000 $ - $31,250
(1) Calculated on the basis of the fair market value of the underlying units at year-end, minus the exercise price.
</TABLE>
Directors fees. During 1998, each member of the board of directors of the
general partner who was not also an employee of the general partner was paid an
annual retainer of $16,000 in lieu of all attendance fees.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of March 9, 1999,
regarding the beneficial ownership of (i) the units and (ii) the common stock of
Kinder Morgan, Inc., the parent company of the general partner, by all directors
of the general partner, each of the named executive officers, all directors and
executive officers as a group and all persons known by the general partner to
own beneficially more than 5% of the units.
<TABLE>
<CAPTION>
Amount and Nature of Beneficial Ownership
KMI Voting Stock KMI Non Voting Stock
Units (1) (Class "A" Stock) (Class "B" Stock)
---------------------------- ---------------------------- -----------------------------
Number Percent Number Percent Number Percent
of Units (2) of Class of Shares (3) of Class of Shares (3) of Class
------------- ------------ ------------ ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Richard D. Kinder (4) 117,950 * 5,801 72.09% 444.8 17.50%
William V. Morgan (5) 2,000 * 2,246 27.91% 111.2 4.38%
Alan L. Atterbury (6) 28,000 * - - - -
Edward O. Gaylord (7) 6,000 * - - - -
William V. Allison - - - - - -
David G. Dehaemers - - - - - -
Michael C. Morgan - - - - - -
Directors and Executive 311,730 * 8,047 100.00% 556 21.88%
Officers as a group (9 persons)(8)
</TABLE>
*Less than 1%
(1) All units involve sole voting power and sole investment power.
(2) As of March 9, 1999, the Partnership had 48,815,690 units issued and
outstanding.
(3) As of March 9, 1999, Kinder Morgan, Inc. ("KMI") had a total of 8,047 shares
of issued and outstanding voting stock and a total of 2,541 shares of issued
and outstanding non voting stock.
(4) Excludes 862,000 units owned by Kinder Morgan G.P., Inc. KMI owns 100% of
the outstanding capital stock of Kinder Morgan G.P., Inc. Mr. Kinder owns
approximately 72% of the voting common stock of KMI. By virtue of his
ownership of KMI, Mr. Kinder may be deemed to indirectly own the units owned
by Kinder Morgan G.P., Inc. Mr. Kinder disclaims beneficial ownership of
such units. Furthermore, includes 2,950 units owned by Mr. Kinder's spouse.
Mr. Kinder disclaims beneficial ownership of such units.
(5) The KMI voting and non-voting shares are held by Morgan Associates, Inc., a
Kansas corporation, wholly owned by Mr. Morgan.
(6) Includes options to purchase 2,000 units exercisable within 60 days of March
9, 1999. Includes 14,000 units owned through Westover Investment L.P., as to
which units Mr. Atterbury disclaims beneficial ownership.
(7) Includes options to purchase 2,000 units exercisable within 60 days of March
9, 1999.
(8) Includes options to purchase 4,000 units exercisable within 60 days of March
9, 1999.
KMI has pledged all of the stock of the general partner to secure its bank
credit facilities.
53
<PAGE>
Item 13. Certain Relationships and Related Transactions
General and Administrative Expenses
The general partner provides the Partnership with general and administrative
services and is entitled to reimbursement of all direct and indirect costs
related to the business activities of the Partnership. The general partner
incurred $38.0 million in general and administrative expenses in 1998 and $6.9
million in general and administrative expenses in 1997.
Partnership Distributions
See Item 7 for information regarding Partnership Distributions.
Other
The general partner makes all decisions relating to the management of the
Partnership. KMI owns all the common stock of the general partner. Certain
conflicts of interest could arise as a result of the relationships among the
general partner, KMI and the Partnership. The directors and officers of KMI have
fiduciary duties to manage KMI, including selection and management of its
investments in its subsidiaries and affiliates, in a manner beneficial to the
shareholders of KMI. In general, the general partner has a fiduciary duty to
manage the Partnership in a manner beneficial to the unitholders. The
partnership agreements contain provisions that allow the general partner to take
into account the interests of parties in addition to the Partnership in
resolving conflicts of interest, thereby limiting its fiduciary duty to the
unitholders, as well as provisions that may restrict the remedies available to
unitholders for actions taken that might, without such limitations, constitute
breaches of fiduciary duty. The duty of the directors and officers of KMI to the
shareholders of KMI may, therefore, come into conflict with the duties of the
general partner to the unitholders. The Conflicts and Audit Committee of the
board of directors of the general partner will, at the request of the general
partner, review (and is one of the means for resolving) conflicts of interest
that may arise between KMI or its subsidiaries, on the one hand, and the
Partnership, on the other hand.
54
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) and (2) Financial Statements and Financial Statement Schedules
See "Index to Financial Statements" set forth on page F-1.
(a)(3) Exhibits
*2.1 Purchase Agreement dated October 18, 1997 between Kinder Morgan
Energy Partners, L.P., Kinder Morgan G.P., Inc., Santa Fe Pacific
Pipeline Partners, L.P., Santa Fe Pacific Pipelines, Inc. and SFP
Pipeline Holdings, Inc. (Exhibit 2 to the Partnership's Registration
Statement on Form S-4 (File No. 333-44519) filed February 4, 1998
(the "1998 S-4"))
*2.2 Master Agreement dated as of January 1, 1998 among Shell Western E&P
Inc., Shell Western Pipelines Inc., Shell Cortez Pipeline Company,
Shell CO2 LLC, Shell CO2 General LLC, Shell Land & Energy Company,
Kinder Morgan Operating L.P. "A" and Kinder Morgan CO2 LLC (Exhibit
2.2 to the Partnership's Current Report on Form 8-K dated March 5,
19989 (the "March 5, 1998 Form 8-K"))
*2.3 First Amended and Restated Agreement of Limited Partnership dated as
of March 5, 1998, by and between Shell CO2 General LLC, Kinder Morgan
CO2, LLC and Shell CO2 LLC (Exhibit 2.3 to the March 5, 1998 Form
8-K)
2.4 Amendment to the Limited Partnership Agreement of Shell
CO2 Company, Ltd. dated as of September 30, 1998
*2.5 Assumption and Indemnification Agreement dated as of January 1, 1998
among Shell CO2 General LLC, Shell CO2 General LLC, Shell Western E&P
Inc., Shell Western Pipelines Inc., Shell Cortez Pipeline Company,
Shell Land & Energy Company, Kinder Morgan CO2 LLC, Kinder Morgan
Operating L.P. "A" and Shell CO2 Company, Ltd. (Exhibit 2.4 to the
March 5 1998 Form 8-K)
*2.6 Guaranty and Indemnification Agreement dated as of January 1, 1998
between Shell Western E&P Inc. and Kinder Morgan Energy Partners,
L.P. (Exhibit 2.5 to the March 5, 1998 Form 8-K)
*3.1 Second Amendment to Amended and Restated Agreement of
Limited Partnership dated as of February 14, 1997
(Exhibit 3.1 to Amendment No. 1 to the 1998 S-4)
*4.1 Specimen Certificate representing Common Units (Exhibit
4.1 to 1998 S-4)
*4.2 Indenture dated as of January 29, 1999 among the Partnership, the
guarantors listed on the signature page thereto and U.S. Trust
Company of Texas, N.A., as trustee, relating to Senior Debt
Securities (filed as Exhibit 4.1 to the Partnership's Form 8-K dated
January 29, 1999 (the "January 29, 1999 Form 8-K))
*4.3 First Supplemental Indenture dated as of January 29, 1999 among the
Partnership, the subsidiary guarantors listed on the signature page
thereto and U.S. Trust Company of Texas, N.A., as trustee, relating
to $250,000,000 of 6.30% Senior Notes due February 1, 2009 (filed as
Exhibit 4.2 to the January 29, 1999 Form 8-K)
4.4 Amended and Restated Credit Agreement dated as of December 1, 1998
among the Partnership, Kinder Morgan Operating L.P. "B", the
subsidiary guarantors listed on the signature page thereto, the
lenders party thereto and First Union National Bank, as agent
4.5 First Amendment, dated December 21, 1998 to Amended and Restated
Credit Agreement among the Partnership, Kinder Morgan Operating L.P.
"B", the subsidiary guarantors listed on the signature page thereto,
the lenders party thereto and First Union National Bank, as agent
*4.6 First Mortgage Note Agreement dated December 8, 1998
among Southern Pacific Pipe Lines Partnership, L.P.
(now known as SFPP, L.P.) and the Purchasers listed on
Schedule A (a conformed composite of 54 separate
agreements, identical except for signatures) (Exhibit
4.2 to Form 10-K for Santa Fe Pacific Pipeline
Partners, L.P. for 1988 ("Santa Fe 1988 Form 10-K"))
*4.7 Consent and Amendment dated as of December 19, 1997 between the
noteholders and SFPP, L.P. (a conformed composite of the separate
agreements with each noteholder, identical except for signatures)
(Exhibit 4.14.1 to the Partnership's Form 10-K for 1997 ("1997 Form
10-K"))
55
<PAGE>
*4.8 Deed of Trust, Security Agreement and Fixture Filing, dated December
8, 1988, between SFPP, L.P., its general partner, Chicago Title
Insurance Company and Security Pacific National Bank (Exhibit 4.3 to
Santa Fe 1988
Form 10-K)
*4.9 Trust Agreement dated December 19, 1988, between SFPP, L.P., its
general partner and Security Pacific National Bank (Exhibit 4.4 to
Santa Fe 1988 Form 10-K)
*4.10 Amended and Restated Credit Agreement dated as of August 11, 1997
among SFPP, L.P., Bank of America National Trust and Savings
Association, as agent, Texas Commerce Bank National Association, as
syndication agent, Bank of Montreal, as documentation agent,
BancAmerica Securities, Inc., as arranger, and the lenders that are
signatories thereto. As the maximum allowable borrowings under this
facility do not exceed 10% of the Registrant's total assets, this
instrument is not filed as an exhibit to this Report, however, the
Registrant hereby agrees to furnish a copy of such instrument to the
Securities and Exchange Commission upon request.
*10.1 Kinder Morgan Energy Partners, L.P. Common Unit Option
Plan (Exhibit 10.6 to 1997 Form 10-K)
10.2 Amended and Restated Credit Agreement dated as of June 18,
1998 among Kinder Morgan, Inc. and First Union National Bank
10.3 First Amendment to Credit Agreement dated as of August 26,
1998 among Kinder Morgan, Inc. and First Union National Bank
10.4 Second Amendment to Credit Agreement dated as of September
8, 1998 among Kinder Morgan, Inc. and First Union
National Bank
21 List of subsidiaries
23.1 Consent letter from PricewaterhouseCoopers LLP
23.2 Consent letter from Arthur Andersen LLP
27.1 Financial Data Schedule for Kinder Morgan Energy Partners, L.P.
27.2 Financial Data Schedule for Kinder Morgan Operating L.P. "A"
27.3 Financial Data Schedule for Kinder Morgan Operating L.P. "B"
27.4 Financial Data Schedule for Kinder Morgan Operating L.P. "C"
27.5 Financial Data Schedule for Kinder Morgan Operating L.P. "D"
27.6 Financial Data Schedule for Kinder Morgan Natural Gas Liquids
Corporation
27.7 Financial Data Schedule for Kinder Morgan CO2, LLC
27.8 Financial Data Schedule for Kinder Morgan Bulk Terminals, Inc.
- ---------------------
* Asterisk indicates exhibits incorporated by reference as indicated; all other
exhibits are filed herewith.
(b) Reports on Form 8-K
Report dated November 6, 1998, on Form 8-K, as amended December 23, 1998. A
current listing of Risk Factors was disclosed pursuant to Item 5 of that form.
The pro forma combined income statement of the Partnership for the nine month
period ended September 30, 1998 giving effect to the acquisition of Santa Fe
Pacific Pipeline Partners, L.P. and the formation of Shell CO2 Company, assuming
the acquisition had been consummated January 1, 1997, was disclosed in Item 7.
56
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
Report of Independent Accountants F-2
Report of Independent Public Accountants F-3
Consolidated Statements of Income for the years ended F-4
December 31, 1998, 1997, and 1996
Consolidated Balance Sheets for the years ended December 31, 1998 F-5
and 1997
Consolidated Statements of Cash Flows for the years ended F-6
December 31, 1998, 1997, and 1996
Consolidated Statements of Partners' Capital for the years F-7
ended December 31, 1998, 1997, and 1996
Notes to Consolidated Financial Statements F-8
Certain supplementary financial statement schedules have been omitted because
the information required to be set forth therein is either not applicable or is
shown in the financial statements or notes thereto.
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Kinder Morgan Energy Partners, L.P.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of cash flows, and of partners' capital
present fairly, in all material respects, the financial position of Kinder
Morgan Energy Partners, L.P. (a Delaware Limited Partnership) and subsidiaries
(the Partnership) at December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Partnership's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ Pricewaterhouse Coopers LLP
___________________________________
PricewaterhouseCoopers LLP
Houston, Texas
March 10, 1999
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Kinder Morgan Energy Partners, L.P.
(Formerly Enron Liquids Pipeline, L.P.)
We have audited the accompanying consolidated balance sheet of Kinder Morgan
Energy Partners, L.P. (a Delaware limited partnership) and subsidiaries as of
December 31, 1996, and the related consolidated statements of income, cash flows
and partners' capital for the year ended December 31, 1996. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Kinder Morgan Energy Partners,
L.P. as of December 31, 1996, and the results of its operations and its cash
flows for the year ended December 31, 1996, in conformity with generally
accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
_____________________________________
ARTHUR ANDERSEN LLP
Houston, Texas
February 21, 1997
F-3
<PAGE>
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Unit Amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1998 1997 1996
------------- -------------- -------------
<S> <C> <C> <C>
Revenues $ 322,617 $ 73,932 $ 71,250
Costs and Expenses
Cost of products sold 5,860 7,154 7,874
Operations and maintenance
Related party - - 6,558
Other 65,022 15,039 12,322
Fuel and power 22,385 5,636 4,916
Depreciation and amortization 37,321 10,067 9,908
General and administrative 39,984 8,862 9,132
Taxes, other than income taxes 12,140 2,943 3,467
------------- -------------- -------------
182,712 49,701 54,177
------------- -------------- -------------
Operating Income 139,905 24,231 17,073
Other Income (Expense)
Earnings from equity investments 25,732 5,724 5,675
Interest, net (38,600) (12,078) (11,939)
Other, net (7,263) (701) 2,555
Minority Interest (985) (179) (121)
------------- -------------- -------------
Income Before Income Taxes and Extraordinary charge 118,789 16,997 13,243
Income Tax Benefit (Expense) (1,572) 740 (1,343)
------------- -------------- -------------
Income Before Extraordinary charge 117,217 17,737 11,900
Extraordinary charge on early extinguishment of debt (13,611) - -
------------- -------------- -------------
Net Income $ 103,606 $ 17,737 $ 11,900
============= ============== =============
Calculation of Limited Partners' Interest in Net Income:
Income Before Extraordinary Charge $ 117,217 $ 17,737 $ 11,900
Less: General Partner's interest in Net Income (33,447) (4,074) (218)
------------- -------------- -------------
Limited Partners' Net Income before extraordinary charge 83,770 13,663 11,682
Less: Extraordinary charge on early extinguishment of debt (13,611) - -
============= ============== =============
Limited Partners' Net Income $ 70,159 $ 13,663 $ 11,682
============= ============== =============
Net Income per Unit before extraordinary charge $ 2.09 $ 1.02 $ 0.90
============= ============== =============
Net Income per Unit for extraordinary charge $ 0.34 $ - $ -
============= ============== =============
Net Income per Unit $ 1.75 $ 1.02 $ 0.90
============= ============== =============
Number of Units used in Computation 40,120 13,411 13,020
============= ============== =============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-4
<PAGE>
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31,
------------------------------
-------------- --------------
1998 1997
-------------- --------------
ASSETS
Current Assets
Cash and cash equivalents $ 31,735 $ 9,612
Accounts and notes receivable 44,125 8,569
Inventories
Products 2,901 1,901
Materials and supplies 2,640 1,710
-------------- --------------
81,401 21,792
-------------- --------------
Property, Plant and Equipment, at cost 1,836,719 290,620
Less accumulated depreciation 73,333 45,653
-------------- --------------
1,763,386 244,967
-------------- --------------
Equity Investments 238,608 31,711
-------------- --------------
Intangibles 58,536 8,291
Deferred charges and other assets 10,341 6,145
============== ==============
TOTAL ASSETS $ 2,152,272 $ 312,906
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities
Accounts payable
Trade $ 11,690 $ 4,423
Related parties 13,952 507
Accrued liabilities 18,230 3,585
Accrued benefits 9,415 -
Accrued taxes 4,195 2,861
-------------- --------------
57,482 11,376
-------------- --------------
Long-Term Liabilities and Deferred Credits
Long-term debt 611,571 146,824
Other 104,789 2,997
-------------- --------------
716,360 149,821
-------------- --------------
Commitments and Contingencies
Minority Interest 17,767 1,485
-------------- --------------
Partners' Capital
Common Units 1,348,591 146,840
General Partner 12,072 3,384
-------------- --------------
1,360,663 150,224
-------------- --------------
============== ==============
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 2,152,272 $ 312,906
============== ==============
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1998 1997 1996
---------------- ------------- -------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Reconciliation of net income to net cash provided by operating activities
Net income $ 103,606 $ 17,737 $ 11,900
Extraordinary charge on early extinguishment of debt 13,611 - -
Depreciation and amortization 37,321 10,067 9,908
Earnings from equity investments (25,732) (5,724) (5,675)
Distributions from equity investments 19,670 9,588 6,791
Changes in components of working capital
Accounts receivable 1,203 3,791 (2,264)
Inventories (734) (902) 198
Accounts payable 197 (5,102) 2,096
Accrued liabilities (14,115) 2,774 (1,997)
Accrued taxes (1,266) 557 149
El Paso Settlement (8,000) - -
Other, net 8,220 (834) 1,670
---------------- ------------- -------------
Net Cash Provided by Operating Activities 133,981 31,952 22,776
---------------- ------------- -------------
Cash Flows From Investing Activities
Acquisitions of assets (107,144) (20,038) -
Additions to property, plant and equipment for
expansion and maintenance projects (38,407) (6,884) (8,575)
Sale of property, plant and equipment 64 162 -
Contributions to equity investments (136,234) (3,532) (546)
---------------- ------------- -------------
Net Cash Used in Investing Activities (281,721) (30,292) (9,121)
---------------- ------------- -------------
Cash Flows From Financing Activities
Issuance of debt 492,612 43,400 5,000
Payment of debt (407,797) (58,496) (1,718)
Cost of refinancing long-term debt (16,768) - -
Proceeds from issuance of common units 212,303 33,678 -
Contributions from General Partner's Minority Interest 12,349 - -
Distributions to partners
Common Units (93,352) (21,768) (16,404)
General Partner (27,450) (2,280) (268)
Minority Interest (1,614) (245) (168)
Other, net (420) (636) -
---------------- ------------- -------------
Net Cash Provided by (Used in) Financing Activities 169,863 (6,347) (13,558)
---------------- ------------- -------------
Increase (Decrease) in Cash and Cash Equivalents 22,123 (4,687) 97
Cash and Cash Equivalents, Beginning of Period 9,612 14,299 14,202
================ ============= =============
Cash and Cash Equivalents, End of Period $ 31,735 $ 9,612 $ 14,299
================ ============= =============
Noncash Investing and Financing Activities
Contribution of net assets to partnership investments $ 60,387 $ - $ -
Assets acquired by the issuance of Common Units $ 1,003,202 $ - $ -
Assets acquired by the assumption of liabilities $ 569,822 $ - $ -
Supplemental disclosures of cash flow information
Cash paid during the year for
Interest (net of capitalized interest) $ 47,616 $ 12,611 $ 12,487
Income Taxes $ 1,354 $ 463 $ 397
The accompanying notes are an integral part of these
consolidated financial statements.
</TABLE>
F-6
<PAGE>
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(In Thousands)
<TABLE>
<CAPTION>
Deferred Total
Common Participation General Partners'
Units Units Partner Capital
-------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Partners' capital at December 31, 1995 $ 105,100 $ 16,787 $ 1,229 $ 123,116
Net income 10,136 1,546 218 11,900
Distributions (14,236) (2,168) (268) (16,672)
-------------- --------------- -------------- ---------------
Partners' capital at December 31, 1996 101,000 16,165 1,179 118,344
Net income 13,440 223 4,074 17,737
Transfer of deferred
participation units 16,388 (16,388) - -
Net proceeds from issuance
of common units 33,678 - - 33,678
Capital contributions - - 345 345
Distributions (17,666) - (2,214) (19,880)
-------------- --------------- -------------- ---------------
Partners' capital at December 31, 1997 146,840 - 3,384 150,224
Net income 70,159 - 33,447 103,606
Net proceeds from issuance
of common units 1,212,421 - - 1,212,421
Capital contributions 10,234 - 2,678 12,912
Distributions (91,063) - (27,437) (118,500)
-------------- --------------- -------------- ---------------
Partners' capital at December 31, 1998 $ 1,348,591 $ - $ 12,072 $ 1,360,663
============== =============== ============== ===============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
<PAGE>
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
Sale of the stock of the General Partner
Kinder Morgan Energy Partners, L.P. (the "Partnership",
formerly Enron Liquids Pipeline, L.P.), a Delaware limited
partnership was formed in August 1992. Effective February 14,
1997, Kinder Morgan, Inc. ("KMI") acquired all of the issued and
outstanding stock of Enron Liquids Pipeline Company, the general
partner, from Enron Liquids Holding Corp. ("ELHC"). At the time
of the acquisition, the general partner and the Partnership's
subsidiaries were renamed as follows: Kinder Morgan G.P., Inc.
(the "general partner", formerly Enron Liquids Pipeline Company);
Kinder Morgan Operating L.P. "A" ("OLP-A", formerly Enron Liquids
Operating Limited Partnership); Kinder Morgan Operating L.P. "B"
("OLP-B", formerly Enron Transportation Services, L.P.); and
Kinder Morgan Natural Gas Liquids Corporation ("KMNGL", formerly
Enron Natural Gas Liquids Corporation).
General
The Partnership is a publicly traded Master Limited Partnership that
manages a diversified portfolio of midstream energy assets. It operates through
four operating limited partnerships, OLP-A, OLP-B, Kinder Morgan Operating L.P.
"C" ("OLP-C") and Kinder Morgan Operating L.P. "D" ("OLP-D") (collectively, the
"Operating Partnerships"). Kinder Morgan Bulk Terminals, Inc. (formerly
Hall-Buck Marine, Inc.) and its consolidated subsidiaries are owned and
controlled by OLP-C. OLP-D owns 99.5% of and controls SFPP, L.P.
Kinder Morgan G.P., Inc. is a wholly owned subsidiary of KMI and serves as the
sole general partner of the Partnership and the Operating Partnerships. The
Partnership and the Operating Partnerships are governed by Amended and Restated
Agreements of Limited Partnership and certain other agreements (collectively,
the "partnership agreements").
Prior to 1998, the Partnership reported three business segments: Liquids
Pipelines; Coal Transfer, Storage and Services; and Gas Processing and
Fractionation. Due to the acquisitions made in 1998, the Partnership now
competes in the following three reportable business segments: Pacific
Operations; Mid-Continent Operations; and Bulk Terminals. For the periods prior
to 1998, the previous Liquids Pipelines and Gas Processing and Fractionation
segments have been combined to present the current Mid-Continent Operations
segment.
The "Pacific Operations" include four common carrier refined petroleum
products pipelines covering approximately 3,300 miles and transporting
approximately one million barrels per day of refined petroleum products such as
gasoline, diesel and jet fuel. The Pacific Operations also include 13 truck
loading terminals. These operations serve approximately 44 customer-owned
terminals, three commercial airports and 12 military bases in six western
states.
The "Mid-Continent Operations" include two interstate common carrier natural
gas liquids ("NGL" or "NGLs") pipelines ("North System" and "Cypress Pipeline"),
a 20% equity interest in Shell CO2 Company, a 24% equity interest in Plantation
Pipe Line Company, a gas processing plant ("Painter Plant") and a 25% indirect
interest in an NGL fractionator in Mont Belvieu, Texas. The North System
includes a 1,600 mile common carrier pipeline that transports, stores and
delivers a full range of NGLs and refined products from South Central Kansas to
markets in the Midwest and has interconnects, using third-party pipelines in the
Midwest, to the eastern United States. Additionally, the North System has eight
truck loading terminals, which primarily deliver propane throughout the upper
Midwest. The Cypress Pipeline is a 100 mile pipeline that transports ethane from
Mont Belvieu, Texas, to the Lake Charles, Louisiana area. Shell CO2 Company
produces, markets and delivers CO2 for enhanced oil recovery throughout the
continental United States. Plantation Pipe Line Company owns and operates a
3,100 mile common carrier refined petroleum products pipeline serving the
southeastern United States. Amoco Oil Company operates the Painter Plant assets
under an operating lease agreement.
The "Bulk Terminals" segment consists of 24 bulk terminals that handle
approximately 50 million tons of coal, petroleum coke and other products
annually. The Partnership itself, or through Kinder Morgan Bulk Terminals, Inc.,
owns or operates these 24 bulk terminals located primarily on the Mississippi
River and the West Coast. The segment also includes two modern high speed
rail-to-barge coal transfer facilities ("Cora Terminal" and "Grand Rivers
Terminal"). The Cora Terminal transfers coal from rail to barge on the banks of
the Mississippi River near Cora, Illinois. The Grand Rivers Terminal is a coal
transfer, storage, and blending facility located on the Tennessee
F-8
<PAGE>
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
River near Paducah, Kentucky. Other activities included in Bulk Terminals
include the "Red Lightning" energy services unit, which performs specialized
coal services for both the Cora Terminal and the Grand Rivers Terminal. River
Consulting, Inc., a major engineering and construction management company
specializing in designing and construction services for dry bulk material
handling terminals is also included in the Bulk Terminals segment. On December
18, 1998 the Partnership acquired the Pier IX Terminal, located in Newport News,
Virginia, and the Shipyard River Terminal, located in Charleston, South
Carolina.
Two-for-one Common Unit Split
On September 2, 1997, the Partnership's general partner approved a two-for-one
unit split of the Partnership's outstanding units representing limited partner
interests in the Partnership. The unit split entitled common unitholders to one
additional unit for each unit held. The issuance and mailing of split units
occurred on October 1, 1997 to unitholders of record on September 15, 1997. All
references to the number of units and per unit amounts in the consolidated
financial statements and related notes have been restated to reflect the effect
of the split for all periods presented.
2. Summary of Significant Accounting Policies
Principles of Consolidation and Use of Estimates
The consolidated financial statements include the assets, liabilities, and
results of operations of the Partnership and its majority-owned subsidiaries.
All significant intercompany items have been eliminated in consolidation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash Equivalents
Cash equivalents are defined as all highly liquid short-term investments with
original maturities of three months or less.
Inventories
Inventories of products consist of natural gas liquids, refined petroleum
products and coal. These assets are valued at the lower of cost
(weighted-average cost method) or market. Materials and supplies are stated at
the lower of cost or market.
Property, Plant and Equipment
Property, plant and equipment is stated at its acquisition cost. Expenditures
for maintenance and repairs are charged to operations in the period incurred.
The cost of property, plant and equipment sold or retired and the related
depreciation are removed from the accounts in the period of sale or disposition.
The provision for depreciation is computed using the straight-line method based
on estimated economic lives. Generally, composite depreciation rates are applied
to functional groups of property having similar economic characteristics and
range from 2.0% to 12.5%, excluding certain short-lived assets such as vehicles.
The original cost of property retired is charged to accumulated depreciation and
amortization, net of salvage and cost of removal. No retirement gain or loss is
included in income except in the case of extraordinary retirements or sales.
Equity Method of Accounting
Investments in significant 20-50% owned affiliates are accounted for by the
equity method of accounting, whereby the investment is carried at cost of
acquisition, plus the Partnership's equity in undistributed earnings or losses
since acquisition.
F-9
<PAGE>
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Excess of Cost Over Fair Value
The excess of the Partnership's cost over its underlying net assets is being
amortized using the straight-line method over the estimated remaining life of
the assets over a period not to exceed 40 years. Such amortization is reflected
primarily as amortization expense. The unamortized excess was approximately
$162.3 million and $8.3 million as of December 31, 1998 and 1997, respectively,
and such amounts are included within intangibles and equity investments on the
accompanying balance sheet.
The Partnership periodically evaluates the propriety of the carrying amount of
the excess of cost over fair value of net assets of businesses acquired, as well
as the amortization period, to determine whether current events or circumstances
warrant adjustments to the carrying value and/or revised estimates of useful
lives. At this time, the Partnership believes no such impairment has occurred
and no reduction in estimated useful lives is warranted.
Revenue Recognition
Revenues for the pipeline operations are generally recognized based on
delivery of actual volume transported. Bulk terminal transfer service revenues
are recognized based on volumes loaded. Recognition of gas processing revenues
is based on volumes processed or fractionated. Revenues from energy related
product sales of the Red Lightning energy services unit are based on delivered
quantities of product.
Environmental Matters
Environmental expenditures that relate to current operations are expensed or
capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations, and which do not contribute to current or future
revenue generation, are expensed. Liabilities are recorded when environmental
assessments and/or remedial efforts are probable, and the costs can be
reasonably estimated. Generally, the timing of these accruals coincides with the
completion of a feasibility study or the Partnership's commitment to a formal
plan of action.
Minority Interest
Minority interest consists of the approximate 1% general partner interest in
the Operating Partnerships, the 0.5% special limited partner interest in SFPP,
L.P. and the 50% interest in Globalplex Partners, a Louisiana joint venture
owned 50% and controlled by Kinder Morgan Bulk Terminals, Inc.
Income Taxes
The Partnership is not a taxable entity for Federal income tax purposes. As
such, no Federal income tax will be paid by the Partnership. Each partner will
be required to report on its tax return its allocable share of the taxable
income or loss of the Partnership. Taxable income or loss may vary substantially
from the net income or net loss reported in the consolidated statement of income
primarily because of accelerated tax depreciation.
The tax attributes of the Partnership's net assets flow directly to each
individual partner. Individual partners will have different investment bases
depending upon the timing and prices of acquisition of partnership units.
Further, each partner's tax accounting, which is partially dependent upon the
partner's individual tax position, may differ from the accounting followed in
the financial statements. Accordingly, there could be significant differences
between each individual partner's tax basis and the partner's proportionate
share of the net assets reported in the financial statements. FAS 109 requires
disclosure by a publicly held partnership of the aggregate difference in the
basis of its net assets for financial and tax reporting purposes. However, the
Partnership does not have access to information about each individual partner's
tax attributes in the Partnership, and the aggregate tax bases cannot be readily
determined. In any event, management does not believe that, in the Partnership's
circumstances, the aggregate difference would be meaningful information.
Net Income Per Unit
Net Income per Unit was computed by dividing limited partner's interest in net
income by the weighted average number of units outstanding during the period.
F-10
<PAGE>
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Acquisitions and Joint Ventures
With respect to the following acquisitions and joint ventures, the results of
operations are included in the consolidated financial statements from the
effective date of acquisition.
Santa Fe
Kinder Morgan Operating L.P. "D" ("OLP-D"), a Delaware limited partnership,
acquired on March 6, 1998, 99.5% of SFPP, L.P. ("SFPP"), the operating
partnership of Santa Fe Pacific Pipeline Partners, L.P. ("Santa Fe"). The
transaction was accounted for under the purchase method of accounting and was
valued at more than $1.4 billion inclusive of liabilities assumed. The
Partnership acquired the interest of Santa Fe's common unit holders in SFPP in
exchange for approximately 26.6 million units (1.39 units of the Partnership for
each Santa Fe common unit). The Partnership paid $84.4 million to Santa Fe
Pacific Pipelines, Inc. (the "former SF General Partner") in exchange for the
general partner interest in Santa Fe. The $84.4 million was borrowed under the
Credit Facility (see Note 8). Also on March 6, 1998, SFPP redeemed from the
former SF General Partner a 0.5% interest in SFPP for $5.8 million. The
redemption was paid from SFPP's cash reserves. After the redemption, the former
SF General Partner continues to own a .5% special limited partner interest in
SFPP.
Assets acquired in this transaction comprise the Partnership's Pacific
Operations, which include over 3,300 miles of pipeline and thirteen owned and
operated terminals.
Shell CO2 Company
On March 5, 1998, the Partnership and affiliates of Shell Oil Company
("Shell") agreed to combine their CO2 activities and assets into a partnership,
Shell CO2 Company, Ltd. ("Shell CO2 Company"), to be operated by a Shell
affiliate. The Partnership acquired, through a newly created limited liability
company, a 20% interest in Shell CO2 Company in exchange for contributing the
Central Basin Pipeline and approximately $25 million in cash. The $25 million
was borrowed under the Credit Facility (see Note 8). The Partnership accounts
for its partnership interest in Shell CO2 Company under the equity method. The
investment is included as part of the Mid-Continent Operations.
Under the terms of the Shell CO2 Company partnership agreement, the
Partnership will receive a priority distribution of $14.5 million per year
during 1998 through 2001. To the extent the amount paid to the Partnership over
this period is in excess of the Partnership's percentage share (currently 20%)
of Shell CO2 Company's distributable cash flow for such period (discounted at
10%), Shell will receive a priority distribution in equal amounts of such
overpayment during 2002 and 2003.
Hall-Buck Marine, Inc.
Effective July 1, 1998, the Partnership acquired Hall-Buck Marine, Inc.
("Hall-Buck") for approximately $100 million. The transaction was accounted for
under the purchase method of accounting. Hall-Buck, headquartered in Sorrento,
Louisiana, is one of the nation's largest independent operators of dry bulk
terminals, operating twenty terminals on the Mississippi River, the Ohio River,
and the Pacific Coast. In addition, Hall-Buck owns all of the common stock of
River Consulting Incorporated, a nationally recognized leader in the design and
construction of bulk material facilities and port related structures.
The $100 million of consideration consisted of approximately 2.1 million
units and assumed indebtedness of $23 million. After the acquisition, the
Partnership changed the name of Hall-Buck Marine, Inc. to Kinder Morgan Bulk
Terminals, Inc. and accounts for its activity as part of the Bulk Terminals
business segment.
Pro Forma Information
The following summarized unaudited Pro Forma Consolidated Income Statement
information for the twelve months ended December 31, 1998 and 1997, assumes the
Partnership's acquisition of SFPP, Hall-Buck and its interest in Shell CO2
Company had occurred as of January 1, 1997. The unaudited Pro Forma financial
results have been prepared for comparative purposes only and may not be
indicative of the results that would have occurred if the Partnership had
acquired the assets of SFPP, Hall-Buck and its interest in Shell CO2 Company on
the dates indicted or which will be attained in the future.
F-11
<PAGE>
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net Income for each of the Pro Forma periods does not include the annualized
effects of all the cost saving measures the company has achieved since its
acquisition of SFPP. Amounts presented below are in thousands, except for per
Common Unit amounts:
Pro Forma
Twelve Months Ended
December 31,
Income Statement 1998 1997
-------------------
Revenues $395,963 $371,033
Operating Income 155,057 135,816
Net Income before extraordinary charge 126,122 87,997
Net Income 112,511 87,997
Net Income per unit before extraordinary
charge $1.89 $1.78
Net Income per unit $1.60 $1.78
Other Acquisitions
Cardlock Fuels System, Inc.
On August 26, 1998, the Partnership signed a series of definitive agreements
to form a joint venture with Cardlock Fuels System, Inc ("CFS"), an affiliate of
Southern Counties Oil Co., for the purpose of constructing unattended, automated
fueling stations adjacent to the Partnership's terminal facilities within its
Pacific Operations. The Partnership will provide the terminal sites, and CFS
will contribute its unattended, automated fueling station expertise including
marketing and electronic transaction processing services. At December 31, 1998,
the joint venture had selected and signed lease agreements for activity at the
Pacific Operations' Bradshaw and Reno terminals. The joint venture has a target
of up to ten sites within the next three years.
Plantation Pipe Line Company
On September 15, 1998, the Partnership acquired a 24% interest in Plantation
Pipe Line Company for $110 million. Plantation Pipe Line Company owns and
operates a 3,100 mile pipeline system throughout the southeastern United States
which serves as a common carrier of refined petroleum products to various
metropolitan areas, including Atlanta, Georgia; Charlotte, North Carolina; and
the Washington, D.C. area. The Partnership will account for its investment in
Plantation Pipe Line Company under the equity method of accounting and includes
its activity as part of the Mid-Continent Operations.
Pier IX and Shipyard River Terminals
On December 18, 1998, the Partnership acquired the Pier IX Terminal, located
in Newport News, Virginia, and the Shipyard River Terminal, located in
Charleston, South Carolina for $35 million. The Pier IX Terminal has the
capacity to transload approximately 12 million tons of coal annually. It can
store 1.3 million tons of coal on its 30 acre storage site and can blend
multiple coals to meet an individual customer's requirements. In addition, the
Pier IX Terminal operates a cement facility, which has the capacity to transload
over 400,000 tons of cement annually.
The Shipyard River Terminal is a 52 acre import-export dry and liquid bulk
product handling facility which can transload coal, asphalt, fertilizer and
other aggregates. Annual throughput capacity at Shipyard River Terminal is 2.5
million tons, with ground storage capacity of 250,000 tons.
The Partnership includes the activities of both terminals as part of the Bulk
Terminals business segment.
4. Income Taxes
Certain operations of the Partnership are conducted through wholly-owned
corporate subsidiaries, which are taxable. Income/(Loss) before income tax
expense attributable to corporate operations was $(1.3) million, $2.5 million
and $3.6 million for the years ended December 31, 1998, 1997, and 1996,
respectively. For the periods ended December 31, 1998, 1997, and 1996,
respectively, the provision for income taxes consists of deferred income tax of
$0.0 million, $(1.1) million, and $0.9 million, respectively, and current income
tax of $1.6 million, $0.3
F-12
<PAGE>
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
million and $0.4 million, respectively. The 1998 income tax provision includes
$1.7 million related to the Partnership's share of Plantation Pipe Line
Company's income taxes. The net deferred tax liability of $0.5 million and $2.1
million at December 31, 1998 and 1997, respectively, consists of deferred tax
liabilities of $1.3 million and $4.6 million, respectively, and deferred tax
assets of $0.8 million and $2.5 million, respectively.
Reconciling items between income tax expense computed at the statutory rate
and actual income tax expense primarily include for the year ended: December 31,
1998, intercompany income and expense items eliminated in the consolidation of
the Partnership, amortization of certain intangibles, a change in estimate of
prior years' provision, former Hall-Buck Marine, Inc. employees' exercise of
stock options prior to acquisition by the Partnership and inclusion of the
Partnership's share of income tax expense from Plantation Pipe Line Company;
December 31, 1997, the effect of a change in estimate of prior years' provision,
a partial liquidating distribution and state income taxes; and December 31,
1996, state income taxes.
5. Property, Plant and Equipment
Property, plant and equipment consists of the following (in thousands):
December 31,
--------------------
1998 1997
--------- --------
Pacific Operations $1,533,741 $ -
Mid-Continent Operations 187,235 249,092
Bulk Terminals 115,743 41,528
--------- --------
Total $1,836,719 $ 290,620
========= ========
6. Equity Investments
The Partnership's significant equity investments consist of Plantation Pipe
Line Company (24%), Shell CO2 Company (20%), Mont Belvieu Associates (50%),
Colton Transmix Processing Facility (50%) and Heartland Pipeline Company (50%).
Total equity investments consisted of the following (in thousands):
1998 1997
---- ----
Plantation Pipe Line Company $109,401 $ -
Shell CO2 Company 86,688
Mont Belvieu Associates 27,568 27,157
Colton Transmix Processing Facility 5,187 -
Heartland Pipeline Company 4,348 4,554
All Others 5,416 -
-------- -------
Total $238,608 $31,711
======== =======
The Partnership's earnings from equity investments is as follows (in
thousands):
1998 1997 1996
---- ---- ----
Plantation Pipe Line Company $4,421 $ - $ -
Shell CO2 Company 14,500 - -
Mont Belvieu Associates 4,577 5,009 4,968
Colton Transmix Processing Facility 803 - -
Heartland Pipeline Company 1,394 715 707
All Others 37 - -
------- ------ ------
Total $25,732 $5,724 $5,675
======= ====== ======
F-13
<PAGE>
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summarized combined unaudited financial information for the Partnership's
significant equity investments is reported below (in thousands):
Income Statement 1998 1997 1996
---- ---- ----
Revenues $236,534 $38,299 $31,534
Earnings before income taxes 110,050 12,259 11,971
Net income 87,918 12,259 11,971
1998 1997
---- ----
Current assets $117,582 $7,353
Non-current Assets 398,073 53,842
Current liabilities 50,669 4,885
Non-current liabilities 159,318 11,790
Partners'/Owners' equity 305,668 44,520
7. Gas Processing and Fractionation Transactions
Chevron Contract Buyout
In 1996, the Partnership was notified by Chevron, the only gas processing
customer of the Painter Plant, that it was terminating the gas processing
agreement effective as of August 1, 1996. The gas processing agreement with
Chevron allowed for early termination by Chevron, subject to an approximate $2.9
million one time termination payment. On June 14, 1996, a force majeure event
occurred and the Painter Plant gas processing facilities were shut down. Chevron
subsequently disputed its obligation to pay the early termination payment. The
Partnership negotiated with Chevron to settle all claims between the two parties
under the gas processing agreement for $2.5 million.
Gas Processing and Terminal Lease to Amoco
On February 14, 1997, the Partnership executed an operating lease agreement
with Amoco Oil Company ("Amoco") for Amoco's use of the Painter Plant
fractionator and the Partnership's Millis Terminal and Storage Facility
("Millis") with the nearby Amoco Painter Complex Gas Plant. The lease generated
$1.0 million of cash flow in 1998 and 1997.
8. Long-Term Debt
OLP-B
As of December 31, 1998, OLP-B has outstanding $23.7 million principal amount
of tax exempt bonds due 2024 issued by the Jackson-Union Counties Regional Port
District. Such bonds bear interest at a weekly floating market rate. During
1998, the weighted-average interest rate on these bonds was approximately 3.5%
per annum. OLP-B has entered into an interest rate swap, which fixes the
interest rate at approximately 3.65% per annum during the period from February
13, 1996 to December 31, 1999.
SFPP
SFPP's long-term debt primarily consists of its Series F first mortgage notes
and a bank credit facility. At December 31, 1998, the outstanding balances under
the Series F notes and bank credit facility were $244.0 million, and $111.0
million, respectively. The annual interest rate on the Series F notes is 10.70%,
the maturity is December 2004, and interest is payable semiannually in June and
December. The Series F notes are payable in annual installments of $31.5 million
in 1999, $32.5 million in 2000, $39.5 million in 2001, $42.5 million in 2002,
and $37.0 million in 2003. The first mortgage notes may also be prepaid
beginning in 1999 in full or in part at a price equal to par plus, in certain
circumstances, a premium. The first mortgage notes are secured by mortgages on
substantially all of the properties of SFPP (the "Mortgaged Property"). The
notes contain certain covenants limiting the amount of additional debt or equity
that may be issued and limiting the amount of cash distributions, investments,
and
F-14
<PAGE>
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
property dispositions. The bank credit facility provides for borrowings of up to
$175 million due in August 2000 and interest, at a short-term Eurodollar rate,
payable quarterly. This bank credit facility is used primarily for financing the
first mortgage notes when due. Borrowings ($111.0 million at December 31, 1998)
under this facility are also secured by the Mortgaged Property and are generally
subject to the same terms and conditions as the first mortgage notes. At
December 31, 1998, the interest rate on the credit facility debt was 5.465%.
Credit Facilities and Senior Notes
In February 1998, the Partnership refinanced OLP-A's first mortgage notes and
existing bank credit facilities with a $325 million secured revolving credit
facility ("Credit Facility") expiring in February 2005. On December 1, 1998, the
Credit Facility was amended to release the collateral and the Credit Facility
became unsecured. The Credit Facility had an outstanding balance of $230 million
at December 31, 1998. The Credit Facility provides for principal payments equal
to the amount by which the outstanding balance is in excess of the amount
available, which reduces quarterly commencing in May 2000. The Credit Facility
also provides, at the Partnership's option, a floating interest rate equal to
either the administrative agent's base rate (but not less than the Federal Funds
Rate plus 0.5% per year) or LIBOR plus a margin ranging from .75% to 1.25% per
year based on the Partnership's ratio of Funded Indebtedness to Cash Flow, as
defined in the Credit Facility. The Credit Facility contains certain restrictive
covenants including, but not limited to, the incurrence of additional
indebtedness, the making of investments, and making cash distributions other
than quarterly distributions from available cash as provided by the partnership
agreement. The Partnership has used the proceeds from the Credit Facility to
refinance the existing first mortgage notes of OLP-A, including a prepayment
premium, to fund the cash investments in Shell CO2 Company and Plantation Pipe
Line Company, to refinance the debt associated with the Hall-Buck acquisition,
to fund the acquisition of the general partner interest in Santa Fe (Note 3),
and to fund the acquisition of the Pier IX Terminal and the Shipyard River
Terminal. The prepayment premium and the write-off of the associated unamortized
debt issue costs are reflected as an extraordinary charge in the accompanying
consolidated statement of income.
On November 6, 1998, the Partnership filed with the SEC a shelf registration
statement with respect to the sale from time to time of up to $600 million in
debt and/or equity securities. On January 29, 1999, the Partnership closed a
public offering of $250 million in principal amount of 6.30% Senior Notes due
February 1, 2009 ("Notes") at a price to the public of 99.67% per Note. In the
offering, the Partnership received proceeds, net of underwriting discounts and
commissions, of approximately $248 million. The proceeds were used to pay the
outstanding balance on the Credit Facility and for working capital and other
proper partnership purposes. The Notes will be guaranteed on a full,
unconditional, and joint and several basis by all of the Partnership's
consolidating subsidiaries (excluding SFPP and the subsidiaries of Kinder Morgan
Bulk Terminals, Inc.) so long as any other debt obligations of the Partnership
are guaranteed by such subsidiaries. SFPP, which was acquired March 6, 1998,
will not be guaranteeing the public debt securities. Kinder Morgan Energy
Partners, L.P., the parent company, has operations from only investments in its
subsidiaries. The following discloses the consolidating financial information
for the Partnership:
F-15
<PAGE>
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
(In Thousands)
<TABLE>
<CAPTION>
Kinder Morgan Combined Combined
Energy Guarantor Nonguarantor Eliminations and
Partners, LP Subs. Subs. Adjustments Consolidated
--------------- -------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Revenues $ - $ 101,187 $ 221,430 $ - $ 322,617
Costs and Expenses
Cost of products sold - 5,860 - - 5,860
Operations and maintenance - 39,318 25,704 - 65,022
Fuel and power - 6,069 16,316 - 22,385
Depreciation and amortization - 12,144 25,177 - 37,321
General and administrative - 11,047 28,937 - 39,984
Taxes, other than income taxes - 3,592 8,548 - 12,140
--------------- -------------- -------------- --------------- --------------
- 78,030 104,682 - 182,712
--------------- -------------- -------------- --------------- --------------
Operating Income - 23,157 116,748 - 139,905
Other Income (Expense)
Earnings from equity investments 103,563 109,355 803 (187,989) 25,732
Interest, net 47 (12,365) (26,282) - (38,600)
Other, net - (845) (6,418) - (7,263)
Minority Interest - 496 - (1,481) (985)
--------------- -------------- -------------- --------------- --------------
Income Before Taxes and
Extraordinary charge 103,610 119,798 84,851 (189,470) 118,789
Income Tax Benefit (Expense) - (1,572) - - (1,572)
--------------- -------------- -------------- --------------- --------------
Income Before Extraordinary charge 103,610 118,226 84,851 (189,470) 117,217
Extraordinary charge on early
extinguishment of debt (4) (13,607) - - (13,611)
=============== ============== ============== =============== ==============
Net Income $ 103,606 $ 104,619 $ 84,851 $ (189,470)$ 103,606
=============== ============== ============== =============== ==============
</TABLE>
F-16
<PAGE>
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING BALANCE SHEET
AT DECEMBER 31, 1998
(In Thousands)
<TABLE>
<CAPTION>
Kinder Morgan Combined Combined
Energy Guarantor Nonguarantor Eliminations and
Partners, LP Subs. Subs. Adjustments Consolidated
------------- -------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 93 $ 16,980 $ 14,662 $ - $ 31,735
Accounts and notes receivable 8,160 27,521 38,089 (29,645) 44,125
Inventories
Products - 2,486 415 - 2,901
Materials and supplies - 1,850 790 - 2,640
------------- -------------- --------------- ------------- ---------------
8,253 48,837 53,956 (29,645) 81,401
------------- -------------- --------------- ------------- ---------------
Prop., Plant and Equip, at cost - 302,978 1,533,741 - 1,836,719
Less accumulated deprec. - 46,145 27,188 - 73,333
------------- -------------- --------------- ------------- ---------------
- 256,833 1,506,553 - 1,763,386
------------- -------------- --------------- ------------- ---------------
Equity Investments 1,356,643 1,293,478 10,534 (2,422,047) 238,608
------------- -------------- --------------- ------------- ---------------
Intangibles - 58,536 - - 58,536
Deferred charges and other assets 233,066 5,548 1,958 (230,231) 10,341
============= ============== =============== ============= ===============
TOTAL ASSETS $ 1,597,962 $ 1,663,232 $ 1,573,001 $ (2,681,923)$ 2,152,272
============= ============== =============== ============= ===============
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities
Accounts payable
Trade $ - $ 5,737 $ 5,953 $ - $ 11,690
Related parties 7,046 20,950 15,601 (29,645) 13,952
Accrued liabilities 253 3,266 14,711 - 18,230
Accrued benefits - 2,172 7,243 - 9,415
Accrued taxes - 772 3,423 - 4,195
------------- -------------- --------------- ------------- ---------------
7,299 32,897 46,931 (29,645) 57,482
------------- -------------- --------------- ------------- ---------------
Long-Term Liabilities and Def. Credits
Long-term debt 230,000 256,293 355,509 (230,231) 611,571
Other - 4,921 99,868 - 104,789
------------- -------------- --------------- ------------- ---------------
230,000 261,214 455,377 (230,231) 716,360
------------- -------------- --------------- ------------- ---------------
Minority Interest - (1,365) - 19,132 17,767
------------- -------------- --------------- ------------- ---------------
Partners' Capital
Limited Partner Interests - 1,356,643 - (1,356,643) -
General Partner Interests - - 1,065,404 (1,065,404) -
Special LP Interests - - 5,289 (5,289) -
Common Units 1,348,591 - - - 1,348,591
Kinder Morgan General Partner 12,072 13,843 - (13,843) 12,072
------------- -------------- --------------- ------------- ---------------
1,360,663 1,370,486 1,070,693 (2,441,179) 1,360,663
------------- -------------- --------------- ------------- ---------------
============= ============== =============== ============= ===============
TOTAL LIABILITIES AND CAPITAL $ 1,597,962 $ 1,663,232 $ 1,573,001 $ (2,681,923)$ 2,152,272
============= ============== =============== ============= ===============
</TABLE>
F-17
<PAGE>
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
(In Thousands)
<TABLE>
<CAPTION>
Kinder Morgan Combined Combined
Energy Guarantor Nonguarantor Eliminations and
Partners, LP Subs. Subs. Adjustments Consolidated
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities
Reconciliation of net income to net cash provided by operating activities
Net income $ 103,606 $ 104,619 $ 84,851 $ (189,470) $ 103,606
Extraordinary charge on early
extinguishment of debt 4 13,607 - - 13,611
Depreciation and amortization - 12,144 25,177 - 37,321
Earnings from equity investments (103,563) (109,355) (803) 187,989 (25,732)
Distributions from equity investments 118,500 100,308 - (199,138) 19,670
Changes in components of working capital
Accounts receivable (193,033) 171,386 (9,682) 32,532 1,203
Inventories - (794) 60 - (734)
Accounts payable 6,679 12,267 13,783 (32,532) 197
Accrued liabilities 253 1,853 (16,221) - (14,115)
Accrued taxes - (2,105) 839 - (1,266)
El Paso Settlement - - (8,000) - (8,000)
Other, net 322 9,240 (2,823) 1,481 8,220
Net Cash Provided by (Used in)
------------- ------------- ------------- ------------- -------------
Operating Activities (67,232) 313,170 87,181 (199,138) 133,981
------------- ------------- ------------- ------------- -------------
Cash Flows From Investing Activities
Acquisitions of assets (225) (128,418) 21,499 - (107,144)
Adds to prop, plant and equip. for
expansion and maintenance projects - (16,001) (22,406) - (38,407)
Sale of property, plant and equipment - 44 20 - 64
Contributions to equity investments - (145,743) (491) 10,000 (136,234)
Net Cash Provided by (Used in)
------------- ------------- ------------- ------------- -------------
Investing Activities (225) (290,118) (1,378) 10,000 (281,721)
------------- ------------- ------------- ------------- -------------
Cash Flows From Financing Activities
Issuance of debt 452,000 263,038 32,612 (255,038) 492,612
Payment of debt (222,000) (157,863) (32,710) 4,776 (407,797)
Cost of refinancing long-term debt (3,160) (13,608) - - (16,768)
Proceeds from issuance of common units 212,303 - - - 212,303
Contributions from GP interests - 12,349 10,000 (10,000) 12,349
Distributions to partners -
Limited Partner Interests - (118,500) - 118,500 -
General Partner Interests - - (80,638) 80,638 -
Special LP Interests - - (405) 405 -
Common Units (93,352) - - - (93,352)
Kinder Morgan General Partner (27,450) (1,209) - 1,209 (27,450)
Minority Interest - - - (1,614) (1,614)
Other, net (250,841) 159 - 250,262 (420)
Net Cash Provided by (Used in)
------------- ------------- ------------- ------------- -------------
Financing Activities 67,500 (15,634) (71,141) 189,138 169,863
------------- ------------- ------------- ------------- -------------
Incr/(Decr) in Cash and Cash Equivs. 43 7,418 14,662 - 22,123
Cash and Cash Equivs., Beg. of Period 50 9,562 - - 9,612
============= ============= ============= ============= =============
Cash and Cash Equivs., End of Period $ 93 $ 16,980 $ 14,662 $ - $ 31,735
============= ============= ============= ============= =============
</TABLE>
F-18
<PAGE>
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value of Financial Instruments
The estimated fair value of the long-term debt based upon prevailing interest
rates available to the Partnership at December 31, 1998 and 1997 is disclosed
below.
Fair value as used in SFAS No. 107 -- "Disclosures About Fair Value of
Financial Instruments" represents the amount at which the instrument could be
exchanged in a current transaction between willing parties.
December 31, 1998 December 31, 1997
----------------------- ----------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
--------- ---------- --------- ----------
(in thousands)
Long-term debt $ 611,571 $ 645,873 $ 146,824 $ 158,343
9. Pensions and Other Postretirement Benefits
In 1998, the Partnership adopted Statement of Financial Accounting
Standards No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits", which revises and standardizes the reporting
requirements for postretirement benefits. However, SFAS No. 132 does not change
the measurement and recognition of those benefits.
In connection with the acquisition of SFPP and Hall-Buck, the Partnership
acquired certain liabilities for pension and postretirement benefits. The
Partnership has a noncontributory defined benefit pension plan covering the
former employees of Hall-Buck. The benefits under this plan were based primarily
upon years of service and final average pensionable earnings. The Partnership
also provides medical and life insurance benefits to current employees, their
covered dependents and beneficiaries of SFPP and Kinder Morgan Bulk Terminals,
Inc. The Partnership also provides the same benefits to former salaried
employees of SFPP.
The SFPP postretirement benefit plan is frozen as no additional participants
may join the Plan. The Partnership will continue to fund the cost associated
with those employees currently in the Plan for medical benefits and life
insurance coverage during retirement.
Net periodic benefit costs for these plans include the following components
(in thousands):
Other
Postretirement
Pension Benefits Benefits
1998 1998
---------------- --------------
Net periodic benefit cost
Service cost $ 98 $ 636
Interest cost 76 983
Expected return on plan assets (70) -
Amortization of prior service cost - (493)
Actuarial loss (gain) - (208)
-------------- -------------
Net periodic benefit cost $ 104 $ 918
============== =============
Additional amounts recognized for 1998
Curtailment (gain) loss $ (425) $ -
F-19
<PAGE>
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information concerning benefit obligations, plan assets, funded status and
recorded values for these plans follows (in thousands):
Other
Postretirement
Pension Benefits Benefits
1998 1998
--------------- --------------
Change in benefit obligation
Benefit obligation at January 1, 1998 $ - $ -
Service cost 98 636
Interest cost 76 983
Plan participants' contributions - 117
Actuarial loss - 529
Acqusitions 2,201 13,039
Curtailment (gain) (425) -
Benefits paid from plan assets (88) (570)
--------------- --------------
Benefit obligation at December 31, 1998 $ 1,862 $ 14,734
=============== ==============
Change in Plan Assets
Fair value of plan assets at January 1,
1998 $ - $ -
Actual return on plan assets 136 -
Acqusitions 1,628 -
Employer contributions 157 453
Plan participants' contributions - 117
Benefits paid from plan assets (88) (570)
--------------- --------------
Fair value of plan assets at December 31,
1998 $ 1,833 $ -
=============== ==============
Funded status $ (29) $ (14,734)
Unrecognized net transition obligation 3 -
Unrecognized net actuarial (gain) (187) (1,831)
Unrecognized prior service (benefit) - (2,270)
--------------- --------------
(Accrued) benefit cost $ (213) $ (18,835)
=============== ==============
Weighted-Average assumptions at December 31, 1998
Discount rate 7.0% 7.0%
Expected return on plan assets 8.5% -
Rate of compensation increase 4.0% 4.0%
The unrecognized prior service credit will be amortized straight-line over the
remaining expected service to retirement (5.6 years). For 1998, the assumed
health care cost trend rate for medical costs was 9% and is assumed to decrease
gradually to 5% by 2005 and remain constant thereafter.
F-20
<PAGE>
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A one-percentage change in assumed health care cost trend rates would have the
following effects (in thousands):
Other
Postretirement
Benefits
1998
--------------
Effect on total of service and interest cost components
1-Percentage point increase $ 103
1-Percentage point decrease $ (93)
Effect on postretirement benefit obligation
1-Percentage point increase $ 1,655
1-Percentage point decrease $ (1,490)
Multiemployer Plans and Other Benefits. With the acquisition of Hall-Buck, the
Partnership participates in multi-employer pension plans for the benefit of its
employees who are union members. Partnership contributions to these plans were
$0.6 million from the period of acquisition through December 31, 1998. These
plans are not administered by the Partnership and contributions are determined
in accordance with the provisions of negotiated labor contracts. Other benefits
include a self-insured health and welfare insurance plan and an employee health
plan where employees may contribute for their dependents' health care costs.
Amounts charged to expense for these plans were $0.5 million from the period of
acquisition through December 31, 1998.
The Partnership terminated the Employee Stock ownership Plan (the "ESOP") held
by Hall-Buck for the benefit of its employees on August 13, 1998. All
participants became fully vested retroactive to July 1, 1998, the effective date
of the acquisition. The assets remaining in the plan will be distributed during
1999.
The Partnership assumed River Consulting, Inc.'s (a consolidating affiliate of
Hall-Buck Marine, Inc.), savings plan under Section 401(k) of the Internal
Revenue Code. This savings plan allowed eligible employees to contribute up to
10 percent of their compensation on a pre-tax basis, with the Partnership
matching 2.5 percent of the first 5 percent of the employees' wage. Matching
contributions are vested at the time of eligibility, which is one year after
employment. Effective January 1, 1999, this savings plan was merged into the
retirement savings plan of the general partner.
10. Partners' Capital
At December 31, 1998, Partners' capital consisted of 47,959,690 units held by
third parties and 862,000 units held by the general partner. Together, these
48,821,690 units represent the limited partners' interest and an effective 98%
interest in the Partnership, excluding the general partner's incentive
distribution. At December 31, 1997 and 1996 there were 14,111,200 and 13,020,000
units outstanding, respectively. The general partner interest represents an
effective 2% interest in the Partnership, excluding the general partner's
incentive distribution. On February 14, 1997, the 1,720,000 deferred
participation units held by the general partner were converted to common units
and 858,000 of these units were sold to a third party. Since the deferred
participation units owned by the general partner are now common units, they are
no longer separately disclosed. In addition to the units issued for the
acquisition of SFPP and Hall-Buck (see Note 3), the Partnership issued 6,070,578
units in June 1998 related to a primary public offering.
For purposes of maintaining partner capital accounts, the partnership
agreement specifies that items of income and loss shall be allocated among the
partners in accordance with their respective percentage interests. Normal
allocations according to percentage interests are done only, however, after
giving effect to any priority income allocations in an amount equal to incentive
distributions allocated 100% to the general partner.
Incentive distributions allocated to the general partner are determined by the
amount quarterly distributions to unitholders exceed certain specified target
levels. For the years ended December 31, 1998 and 1997, the Partnership
distributed $2.4725 and $1.8775, respectively, per unit. The distributions for
1998 and 1997 required incentive distributions to the general partner in the
amount of $32,737,571 and $3,935,852, respectively. The increased incentive
distribution paid for 1998 over 1997 reflects the increase in amount distributed
per unit as well as the issuance of additional units in 1998.
F-21
<PAGE>
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On January 13, 1999, the Partnership declared a cash distribution for the
quarterly period ended December 31, 1998, of $0.65 per unit. The distribution
was paid on February 12, 1999, to unitholders of record as of January 29, 1999,
and required an incentive distribution to the general partner of $10,717,464.
Since this distribution was declared after the end of the quarter, no amount is
shown in the December 31, 1998 balance sheet as a Distribution Payable.
11. Concentrations of Credit Risk
Four customers of the Partnership each accounted for over 10% of consolidated
revenues for 1998. In 1997, only one customer accounted for more than 10% of
consolidated revenues. See Note 14 for more information on major customers.
Additionally, a portion of the Partnership's revenues is derived from
transportation services to oil and gas refining and marketing companies in the
Midwest. Although this concentration could affect the Partnership's overall
exposure to credit risk inasmuch as these customers could be affected by similar
economic or other conditions, management believes that the Partnership is
exposed to minimal credit risk. The Partnership generally does not require
collateral for its receivables.
12. Related Party Transactions
Revenues and Expenses
Revenues for the year ended December 31, 1996 include transportation charges
and product sales to an Enron subsidiary, Enron Gas Liquids, Inc., of $7.7
million. Another Enron subsidiary, Enron Gas Processing Company ("EGP"),
provided services in connection with a gas processing agreement with Mobil as
well as storage and other services to the Partnership and charged $6.6 million
for the year ended December 31, 1996. Management believes that these charges
were reasonable. As a result of KMI's acquisition of all of the common stock of
the general partner, Enron and its affiliates are no longer affiliates of the
Partnership.
The Partnership leases approximately 17 MBbls/d of North System capacity to
Heartland Pipeline Company ("Heartland") under a lease agreement, which will
expire in 2010. Revenues earned from Heartland for the lease rights were
approximately $0.9 million for each of the years ended December 31, 1998, 1997
and 1996.
General and Administrative Expenses
Prior to the sale of the general partner, Enron and its affiliates were
reimbursed for certain corporate staff and support services rendered to the
general partner in managing and operating the Partnership. Such reimbursement
was made pursuant to the terms of the Omnibus Agreement executed among Enron,
the Partnership and the general partner at the time of formation of the
Partnership. For the year ended December 31, 1996, the amounts reimbursed to
Enron were $5.8 million.
After the sale of the general partner, the general partner provides the
Partnership with general and administrative services and is entitled to
reimbursement of all direct and indirect costs related to the business
activities of the Partnership. The general partner incurred $38.0 million in
general and administrative expenses in 1998 and $6.9 million in general and
administrative expenses in 1997.
Partnership Distributions
Kinder Morgan G.P., Inc. (the "general partner") serves as the sole general
partner of the four operating partnerships as well as the sole general partner
of the Partnership. Pursuant to the partnership agreements, the general partner
interests represent a 1% ownership interest in the Partnership, and a direct
1.0101% ownership interest in the operating partnerships. Together then, the
general partner owns an effective 2% interest in the operating partnerships,
excluding incentive distributions; the 1.0101% direct general partner ownership
interest (accounted for as minority interest in the consolidated financial
statements of the Partnership) and the 0.9899% ownership interest indirectly
owned via its 1% ownership interest in the Partnership.
F-22
<PAGE>
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 1998, the general partner owned 862,000 units, representing
approximately 1.8% of the outstanding units. The partnership agreements
governing the operation of the Partnership and the operating partnerships
require the partnerships to distribute 100% of the "Available Cash" (as defined
in the partnership agreements) to the partners within 45 days following the end
of each calendar quarter in accordance with their respective percentage
interests. Available Cash consists generally of all cash receipts of the
partnerships, less all of their cash disbursements, net additions to reserves,
and amounts payable to the former Santa Fe General Partner in respect of its
0.5% interest in SFPP, L.P.
In general, Available Cash for each quarter is distributed, first, 98% to the
limited partners and 2% to the general partner until the limited partners have
received a total of $0.3025 per unit for such quarter, second, 85% to the
limited partners and 15% to the general partner until the limited partners have
received a total of $0.3575 per unit for such quarter, third, 75% to the limited
partners and 25% to the general partner until the limited partners have received
a total of $0.4675 per unit for such quarter, and fourth, thereafter 50% to the
limited partners and 50% to the general partner. Incentive distributions are
generally defined as all cash distributions paid or payable to the general
partner that are in excess of 2% of the aggregate amount of cash being
distributed. The general partner's declared incentive distributions for the
years ended December 31, 1998, 1997, and 1996 were $32,737,571, $3,935,852 and
$100,571, respectively.
13. Leases and Commitments
The Partnership has entered into certain operating leases. Including probable
elections to exercise renewal options, the leases have remaining terms ranging
from one to forty-five years. Future commitments related to these leases at
December 31, 1998 are as follows (in thousands):
1999 $ 4,886
2000 3,951
2001 3,781
2002 4,209
2003 4,052
Thereafter 31,924
--------
Total minimum payments $ 52,803
========
Total minimum payments have not been reduced for future minimum sublease
rentals aggregating approximately $3.2 million. Total lease expenses, including
related variable charges, incurred for the years ended December 31, 1998, 1997,
and 1996 were $3.7 million, $1.3 million and $1.5 million, respectively.
The primary shipper on the Cypress Pipeline has the right until 2011 to
purchase up to a 50% joint venture interest in the pipeline at a price based on,
among other things, the construction cost of the Cypress Pipeline, plus
adjustments for expansions. If the customer exercises its rights under the
option, management anticipates that no loss will accrue to the Partnership.
Under a joint tariff agreement, the Partnership's North System is obligated to
pay minimum tariff revenues of approximately $2.0 million per contract year to
an unaffiliated pipeline company subject to certain adjustments. This agreement
expires March 1, 2013, but provides for a five-year extension at the option of
the Partnership.
During 1998, the Partnership established a unit option plan, which provides
that key personnel are eligible to receive grants of options to acquire units.
The number of units available under the option plan is 250,000. The option plan
terminates in March 2008. As of December 31, 1998, 194,500 options were granted
to certain personnel with a term of seven years at exercise prices equal to the
market price of the units at the grant date ($34.56 weighted average price). In
addition, 10,000 options were granted to non-employee directors of the
Partnership. The options granted generally vest forty percent in the first year
and twenty percent each year thereafter.
The Partnership applies Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for unit options granted under the
Partnership's option plan. Pro forma information regarding
changes in net income and per unit data if the accounting
prescribed by Statement
F-23
<PAGE>
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of Financial Accounting Standards No.123 "Accounting for Stock Based
Compensation," had been applied is not material. No compensation expense has
been recorded since the options were granted at exercise prices equal to the
market prices at the date of grant.
During 1997, the Partnership established an Executive Compensation Plan for
certain executive officers of the general partner. The Partnership may, at its
option and with the approval of the unitholders, pay the participants in units
instead of cash. Eligible awards are equal to a formula based upon the cash
distributions paid to the general partner during the four calendar quarters
preceding the date of redemption multiplied by eight (the "Calculated Amount").
Calculated amounts are accrued as compensation expense and adjusted quarterly.
Under the plan, no eligible employee may receive a grant in excess of 2% and
total awards under the Plan may not exceed 10% of the Calculated Amount. The
plan terminates January 1, 2007, and any unredeemed awards will be automatically
redeemed.
At December 31, 1998, certain executive officers of the general partner had
outstanding awards totaling 2% of the Calculated Amount eligible to be granted
under the Plan. On January 4, 1999 (subsequent to year end) 50% of the awards
granted to these executive officers were vested and paid out. Each participant
continues to have a grant of 1% under the plan.
14. Reportable Segments
The Partnership has adopted SFAS No. 131 -- "Disclosures About Segments of an
Enterprise and Related Information". The Partnership competes in three
reportable business segments: Pacific Operations, Mid-Continent Operations and
Bulk Terminals (see Note 1). The accounting policies of the segments are the
same as those described in the summary of significant accounting policies (see
Note 2). The Partnership evaluates performance based on each segments' earnings,
which excludes general and administrative expenses, third-party debt costs,
unallocable non-affiliated interest income and expense, and minority interest.
The Partnership's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
segment involves different products and marketing strategies.
Financial information by segment follows (in thousands):
1998 1997 1996
------------- --------------- -------------
Revenues
Pacific Operations $ 221,430 $ - $ -
Mid-Continent Operations 38,271 55,777 63,191
Bulk Terminals 62,916 18,155 8,059
============= =============== =============
Total Segments $ 322,617 $ 73,932 $ 71,250
============= =============== =============
Operating Income
Pacific Operations $ 145,685 $ - $ -
Mid-Continent Operations 13,632 22,389 21,804
Bulk Terminals 20,572 10,709 4,401
============= =============== =============
Total Segments $ 179,889 $ 33,098 $ 26,205
============= =============== =============
Earnings from equity investments
Pacific Operations $ 803 $ - $ -
Mid-Continent Operations 24,892 5,724 5,675
Bulk Terminals 37 - -
============= =============== =============
Total Segments $ 25,732 $ 5,724 $ 5,675
============= =============== =============
F-24
<PAGE>
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1998 1997 1996
------------- --------------- -------------
Other, net
Pacific Operations $ (6,418) $ - $ -
Mid-Continent Operations (80) (707) 2,605
Bulk Terminals (765) (1) 21
============= =============== =============
Total Segments $ (7,263) $ (708) $ 2,626
============= =============== =============
Income tax benefit (expense)
Pacific Operations $ - $ - $ -
Mid-Continent Operations (972) 740 (1,343)
Bulk Terminals (600) - -
============= =============== =============
Total Segments $ (1,572) $ 740 $ (1,343)
============= =============== =============
Segment earnings
Pacific Operations $ 140,070 $ - $ -
Mid-Continent Operations 37,156 27,482 28,741
Bulk Terminals 19,244 10,708 4,422
============= =============== =============
Total Segments (1) $ 196,470 $ 38,190 $ 33,163
============= =============== =============
Assets at December 31
Pacific Operations $ 1,549,523 $ - $ -
Mid-Continent Operations 381,881 254,084 255,679
Bulk Terminals 186,298 54,710 33,625
============= =============== =============
Total Segments (2) $ 2,117,702 $ 308,794 $ 289,304
============= =============== =============
Depreciation and amortization
Pacific Operations $ 25,177 $ - $ -
Mid-Continent Operations 8,274 9,009 8,542
Bulk Terminals 3,870 1,058 1,366
============= =============== =============
Total Segments $ 37,321 $ 10,067 $ 9,908
============= =============== =============
Capital expenditures
Pacific Operations $ 23,925 $ - $ -
Mid-Continent Operations 4,531 4,310 7,969
Bulk Terminals 9,951 2,574 606
============= =============== =============
Total Segments $ 38,407 $ 6,884 $ 8,575
============= =============== =============
(1) The following reconciles segment earnings to net income.
1998 1997 1996
------------- --------------- -------------
Segment earnings $ 196,470 $ 38,190 $ 33,163
Interest and corporate
administrative expenses (a) (92,864) (20,453) (21,263)
============= =============== =============
Net Income $ 103,606 $ 17,737 $ 11,900
============= =============== =============
(a) Includes interest and debt expense, general and administrative expenses,
minority interest expense and other insignificant items.
(2) The following reconciles segment assets to consolidated assets.
1998 1997 1996
------------ --------------- -------------
Segment assets $ 2,117,702 $ 308,794 $ 289,304
Corporate assets (a) 34,570 4,112 14,299
============ =============== =============
Total assets $ 2,152,272 $ 312,906 $ 303,603
============ =============== =============
(a) Includes cash, cash equivalents and certain unallocable deferred charges.
F-25
<PAGE>
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Although the Partnership's 1998 revenues were derived from a wide customer
base, revenues from one customer of the Partnership's Pacific Operations and
Bulk Terminals segments represented approximately $42.5 million (13.2%) of the
Partnership's consolidated revenues. Three other customers of the Pacific
Operations accounted for more than 10% of total revenues. These customers had
revenues of approximately $39.7 million (12.3%), $35.29 million (11.0%) and
$35.28 million (10.9%), respectively, of total revenues. For the year ended
December 31, 1997, revenues from one customer of the Mid-Continent Operations
segment represented approximately $8.8 million (11.9%) of total revenues. For
the year ended December 31, 1996, revenues from two customers of the
Mid-Continent Operations segment represented approximately $8.9 million (12.4%)
and $7.4 million (10.4%), respectively, of total revenues.
15. Litigation and Other Contingencies
The tariffs charged for interstate common carrier pipeline transportation for
the Partnership's pipelines are subject to rate regulation by the Federal Energy
Regulatory Commission ("FERC") under the Interstate Commerce Act ("ICA"). The
ICA requires, among other things, that petroleum products (including NGLs)
pipeline rates be just and reasonable and non-discriminatory. Pursuant to FERC
Order No. 561, effective January 1, 1995, petroleum pipelines are able to change
their rates within prescribed ceiling levels that are tied to an inflation
index. FERC Order No. 561-A, affirming and clarifying Order No. 561, expands the
circumstances under which petroleum pipelines may employ cost-of-service
ratemaking in lieu of the indexing methodology, effective January 1, 1995. For
each of the years ended December 31, 1998, 1997, and 1996, the application of
the indexing methodology did not significantly affect the Partnership's rates.
Tariffs charged by SFPP are subject to certain proceedings involving shippers'
protests regarding the interstate rates, as well as practices and the
jurisdictional nature of certain facilities and services on the Pacific
Operations' pipeline systems.
FERC Proceedings
In September 1992, El Paso Refinery, L.P. ("El Paso") filed a
protest/complaint with the FERC challenging SFPP's East Line rates from El Paso,
Texas to Tucson and Phoenix, Arizona, challenging SFPP's proration policy and
seeking to block the reversal of the direction of flow of SFPP's six inch
pipeline between Phoenix and Tucson. At various dates following El Paso's
September 1992 filing, other shippers on SFPP's South System, including Chevron
U.S.A. Products Company ("Chevron"), Navajo, ARCO Products Company ("ARCO"),
Texaco Refining and Marketing Inc. ("Texaco"), Refinery Holding Company, L.P. (a
partnership formed by El Paso's long-term secured creditors that purchased El
Paso's refinery in May 1993), Mobil Oil Corporation and Tosco Corporation, filed
separate complaints, and/or motions to intervene in the FERC proceeding,
challenging SFPP's rates on its East and West Lines. Certain of these parties
also claimed that a gathering enhancement charge at SFPP's Watson origin pump
station in Carson, California was charged in violation of the Interstate
Commerce Act. In subsequent procedural rulings, the FERC consolidated these
challenges (Docket Nos. OR92-8-000, et al.) and ruled that they must proceed as
a complaint proceeding, with the burden of proof being placed on the complaining
parties. Such parties must show that SFPP's rates and practices at issue violate
the requirements of the Interstate Commerce Act.
Hearings in the FERC proceeding commenced on April 9, 1996 and concluded on
July 19, 1996. The parties completed the filing of their post-hearing briefs on
December 9, 1996. An initial decision by the FERC Administrative Law Judge was
issued on September 25, 1997 (the "Initial Decision").
The Initial Decision upheld SFPP's position that "changed circumstances" were
not shown to exist on the West Line, thereby retaining the just and reasonable
status of all West Line rates that were "grandfathered" under the Energy Policy
Act of 1992 ("EPACT"). Accordingly, such rates are not subject to challenge,
either for the past or prospectively, in that proceeding. The Administrative Law
Judge's decision specifically excepted from that ruling SFPP's Tariff No. 18 for
movement of jet fuel from Los Angeles to Tucson, which was initiated subsequent
to the enactment of EPACT.
The Initial Decision also included rulings that were generally adverse to SFPP
on such cost of service issues as the capital structure to be used in computing
SFPP's 1985 starting rate base under FERC Opinion 154-B, the level of income tax
allowance, and the recoverability of civil and regulatory litigation expense and
certain pipeline reconditioning costs. The Administrative Law Judge also ruled
that a gathering enhancement service at SFPP's Watson origin pump station in
Carson, California was subject to FERC jurisdiction and ordered that a tariff
for that
F-26
<PAGE>
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
service and supporting cost of service documentation be filed no later than 60
days after a final FERC order on this matter.
As of December 31, 1998, the matters at issue were pending before the FERC
commissioners for a final decision. On January 13, 1999, the FERC issued its
Opinion No. 435, which affirmed in part and modified in part the Initial
Decision. In Opinion No. 435, the FERC ruled that all but one of the West Line
rates are "grandfathered" as just and reasonable and that "changed
circumstances" had not been shown to satisfy the complainants' threshold burden
necessary to challenge those rates. The FERC further held that the one
"non-grandfathered" West Line tariff did not require rate reduction.
Accordingly, all complaints against the West Line rates were dismissed without
any requirement that SFPP reduce, or pay any reparations for, any West Line
rate.
With respect to the East Line rates, Opinion No. 435 reversed in part and
affirmed in part the Initial Decision's ruling regarding the methodology of
calculating the rate base for the East Line. Among other things, Opinion No. 435
modified the Initial Decision concerning the date in reference to which the
starting rate base would be calculated and the income tax allowance and
allowable cost of equity used to calculate the rate base. In addition, Opinion
No. 435 ruled that no reparations would be owed to any complainant for any
period prior to the date on which that complainant's complaint was filed, thus
reducing the potential reparations period for most complainants by two years. On
January 19, 1999, ARCO Products Company filed a petition with the United States
Court of Appeals for the District of Columbia circuit for review of Opinion No.
435. SFPP has not yet determined if it will seek rehearing or appellate review
of Opinion No. 435. The Partnership believes Opinion No. 435 substantially
reduces the negative impact of the Initial Decision.
In December 1995, Texaco filed an additional FERC complaint, which involves
the question of whether a tariff filing was required for movements on certain of
SFPP's lines upstream of its Watson, California station origin point (the
"Sepulveda Lines") and, if so, whether those rates may be set in that proceeding
and what those rates should be. Texaco's initial complaint was followed by
several other West Line shippers filing similar complaints and/or motions to
intervene, all of which have been consolidated into Docket Nos. OR96-2-000 et
al. Hearings before an Administrative Law Judge were held in December 1996 and
the parties completed the filing of final post-hearing briefs on January 31,
1997.
On March 28, 1997, the Administrative Law Judge issued an initial decision
holding that the movements on SFPP's Sepulveda Lines are not subject to FERC
jurisdiction. On August 5, 1997, the FERC reversed that decision and found the
Sepulveda Lines to be subject to the jurisdiction of the FERC. SFPP was ordered
to make a tariff filing within 60 days to establish an initial rate for these
facilities. The FERC reserved decision on reparations until it ruled on the
newly-filed rates. On October 6, 1997, SFPP filed a tariff establishing the
initial interstate rate for movements on the Sepulveda Lines from Sepulveda
Junction to Watson Station at the preexisting rate of five cents per barrel,
along with supporting cost of service documentation. Subsequently, several
shippers filed protests and motions to intervene at the FERC challenging that
rate. On October 27, 1997, SFPP made a responsive filing at the FERC, requesting
that these protests be held in abeyance until the FERC ruled on SFPP's request
for rehearing of the August 5, 1997 order, and also indicating that SFPP
intended to defend the new tariff both on the basis of its cost of service and
as a market-based rate. On November 5, 1997, the FERC issued an order accepting
the new rate effective November 6, 1997, subject to refund, and referred the
proceeding to a settlement judge. On December 10, 1997, following a settlement
conference held at the direction of the FERC, the settlement judge recommended
that the settlement procedures be terminated. On December 24, 1997, FERC denied
SFPP's request for rehearing of the August 5, 1997 decision. On December 31,
1997, SFPP filed an application for market power determination, which, if
granted, will enable it to charge market-based rates for this service. SFPP's
application has been set for hearing before a FERC Administrative Law Judge.
On October 22, 1997, ARCO Products Company, Mobil Oil Corporation and Texaco
Refining and Marketing, Inc. filed another complaint at the FERC (Docket No.
OR98-1-000) challenging the justness and reasonableness of all of SFPP's
interstate rates. The complaint again challenges SFPP's East and West Line rates
and raises many of the same issues, including a renewed challenge to the
grandfathered status of West Line rates, that have been at issue in Docket Nos.
OR92-8-000, et al. The complaint includes an assertion that the acquisition of
SFPP and the cost savings anticipated to result from the acquisition constitute
"changed circumstances" that provide a basis for terminating the "grandfathered"
status of SFPP's otherwise protected rates. The complaint also seeks to
establish that SFPP's grandfathered interstate rates from the San Francisco Bay
area to Reno, Nevada and from Portland to Eugene, Oregon are also subject to
"changed circumstances" and, therefore, can be challenged as unjust and
F-27
<PAGE>
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
unreasonable. On November 26, 1997, Ultramar Diamond Shamrock Corporation filed
a similar complaint at the FERC (Docket No. OR98-2-000). Both reparations and
prospective rate deductions are sought for movements on all of the lines.
SFPP filed answers to both complaints with the FERC on November 21, 1997 and
December 22, 1997, respectively, and intends to vigorously defend all of the
challenged rates. On January 20, 1998, the FERC issued an order accepting the
complaints and consolidating both complaints into one proceeding, but holding
them in abeyance pending a Commission decision on review of the Initial Decision
in Docket Nos. OR92-8-000 et al. In a companion order to Opinion No. 435, the
FERC directed the complainants to amend their complaints, as may be appropriate,
consistent with the terms and conditions of its orders, including Opinion No.
435.
Applicable rules and regulations in this field are vague, relevant factual
issues are complex and there is little precedent available regarding the factors
to be considered or the method of analysis to be employed in making a
determination of "changed circumstances", which is the showing necessary to make
"grandfathered" rates subject to challenge. The Partnership believes, after
consultation with FERC counsel, that the acquisition of SFPP, standing alone,
should not be found to constitute "changed circumstances", however, the
realization of the cost savings anticipated to arise from the acquisition may
increase the risk of a finding of "changed circumstances".
If "changed circumstances" are found, SFPP rates previously "grandfathered"
under EPACT may lose their "grandfathered" status and, if such rates are found
to be unjust and unreasonable, shippers may be entitled to a prospective rate
reduction together with reparations for periods from the date of the complaint
to the date of the implementation of the new rates.
The Partnership is not able to predict with certainty whether settlement
agreements will be completed with some or all of the complainants, the final
terms of any such settlement agreements that may be consummated, or the final
outcome of the FERC proceedings should they be carried through to their
conclusion, and it is possible that current or future proceedings could be
resolved in a manner adverse to the Partnership.
California Public Utilities Commission Proceeding
A complaint was filed with the California Public Utilities Commission on April
7, 1997 by ARCO Products Company, Mobil Oil Corporation and Texaco Refining and
Marketing Inc. against SFPP, L.P. The complaint challenges rates charged by SFPP
for intrastate transportation of refined petroleum products through its pipeline
system in the State of California and requests prospective rate adjustments. On
October 1, 1997, the complainants filed testimony seeking prospective rate
reductions aggregating approximately $15 million per year. On November 26, 1997,
SFPP filed responsive testimony defending the justness and reasonableness of its
rates. The rebuttal testimony was filed on December 12, 1997 and hearings before
the Administrative Law Judge were completed on January 15, 1998. Briefing and
oral arguments were made in March 1998, and on June 18, 1998, a California
Public Utilities Commission ("CPUC") Administrative Law Judge issued a ruling in
the Partnership's favor and dismissed the complaints. On August 6, 1998, the
CPUC affirmed the Judge's decision. The shippers have appealed the CPUC's
decision to the California Supreme Court. The Partnership believes it has
adequate reserves recorded for any adverse decision related to this matter.
SPTC Easements
SFPP and Southern Pacific Transportation Company ("SPTC") are engaged in a
judicial reference proceeding to determine the extent, if any, to which the rent
payable by SFPP for the use of pipeline easements on rights-of-way held by SPTC
should be adjusted pursuant to existing contractual arrangements (Southern
Pacific Transportation Company vs. Santa Fe Pacific Corporation, SFP Properties,
Inc., Santa Fe Pacific Pipelines, Inc., SFPP, L.P., et al., Superior Court of
the State of California for the County of San Francisco, filed August 31, 1994).
This matter was tried in the latter part of 1996 and the court issued its
Statement of Tentative Decision in January 1997. The Statement of Tentative
Decision indicated that the court intended to establish a new base annual rental
for the subject rights-of-way at a level, subject to inflation adjustments, that
is adequately provided for by the amounts accrued by SFPP through December 31,
1998.
On May 7, 1997, the judge issued a Statement of Decision and Judgment that
reaffirmed the conclusions set forth in his January 1997 Statement of Tentative
Decision. This Statement of Decision and Judgment was filed on June
F-28
<PAGE>
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30, 1997 with the Superior Court for the County of San Francisco, under which
court's jurisdiction it is subject to appeal by SPTC. On May 30, 1997, SPTC
filed a motion for a new trial and the motion was denied on June 26, 1997. SPTC
and SFPP filed motions of appeal in July and August 1997, respectively. The case
is currently pending before the Court of Appeals for the First Appellate
District of the State of California. The Partnership believes it has adequate
reserves recorded for any adverse decision related to this matter.
Environmental Matters
The Partnership is subject to environmental cleanup and enforcement actions
from time to time. In particular, the federal Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA" or "Superfund" law) generally
imposes joint and several liability for cleanup and enforcement costs, without
regard to fault or the legality of the original conduct, on current or
predecessor owners and operators of a site. The operations of the Partnership
are also subject to Federal, state and local laws and regulations relating to
protection of the environment. Although the Partnership believes its operations
are in general compliance with applicable environmental regulations, risks of
additional costs and liabilities are inherent in pipeline and terminal
operations, and there can be no assurance significant costs and liabilities will
not be incurred by the Partnership. Moreover, it is possible that other
developments, such as increasingly stringent environmental laws, regulations and
enforcement policies thereunder, and claims for damages to property or persons
resulting from the operations of the Partnership, could result in substantial
costs and liabilities to the Partnership.
Since August 1991, SFPP, along with several other respondents, has been
involved in one cleanup ordered by the United States Environmental Protection
Agency ("EPA") related to ground water contamination in the vicinity of SFPP's
storage facilities and truck loading terminal at Sparks, Nevada. The EPA
approved the respondents' remediation plan in September 1992 and the remediation
system began operation in 1995. In addition, SFPP is presently involved in 18
ground water hydrocarbon remediation efforts under administrative orders issued
by the California Regional Water Quality Control Board and two other state
agencies. The Partnership has recorded a reserve for environmental claims in the
amount of $26.1 million at December 31, 1998.
Morris Storage Facility
The general partner is a defendant in two proceedings (one by the State of
Illinois and one by the Department of Transportation) relating to alleged
environmental violations for events relating to a fire that occurred at the
Morris storage field in September, 1994. Although no assurance can be given, the
Partnership believes that the ultimate resolution of these matters will not have
a material adverse effect on its financial position or results of operations.
Other
The Partnership, in the ordinary course of business, is a defendant in various
lawsuits relating to the Partnership's assets. Although no assurance can be
given, the Partnership believes, based on its experience to date, that the
ultimate resolution of such items will not have a material adverse impact on the
Partnership's financial position or results of operations.
F-29
<PAGE>
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. Quarterly Financial Data (unaudited)
Operating Operating Net Income
Revenues Income Net Income per Unit
(In thousands, except per unit amounts)
---------------------------------------------------------------------------
1998
First Quarter (1) $36,741 $15,091 $353 $(0.12)
Second Quarter 82,044 39,371 30,313 0.50
Third Quarter 101,900 41,623 35,116 0.52
Fourth Quarter 101,932 43,820 37,824 0.55
1997
First Quarter $19,132 $5,927 $3,428 $0.26
Second Quarter 16,036 4,800 2,866 0.15
Third Quarter 17,385 5,315 3,754 0.20
Fourth Quarter 21,379 8,189 7,689 0.41
(1) Note: 1998 First Quarter includes an extraordinary charge of $13,611 due to
an early extinguishment of debt. Net Income before extraordinary charge was
$13,964 and Net Income per Unit before extraordinary charge was $0.52.
F-30
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrants have duly caused this report to be signed
on their behalf by the undersigned, thereunto duly authorized on the 15th day
of March 1999.
KINDER MORGAN ENERGY PARTNERS, L.P.
(A Delaware Limited Partnership)
By: KINDER MORGAN G.P., INC.
as General Partner
By: /s/ William V. Morgan
____________________________________________
William V. Morgan,
Vice Chairman and President
KINDER MORGAN OPERATING L.P. "A"
(A Delaware Limited Partnership)
By: KINDER MORGAN G.P., INC.
as General Partner
By: /s/ William V. Morgan
_____________________________________________
William V. Morgan,
Vice Chairman and President
KINDER MORGAN OPERATING L.P. "B"
(A Delaware Limited Partnership)
By: KINDER MORGAN G.P., INC.
as General Partner
By: /s/ William V. Morgan
_____________________________________________
William V. Morgan,
Vice Chairman and President
KINDER MORGAN OPERATING L.P. "C"
(A Delaware Limited Partnership)
By: KINDER MORGAN G.P., INC.
as General Partner
By: /s/ William V. Morgan
_____________________________________________
William V. Morgan,
Vice Chairman and President
KINDER MORGAN OPERATING L.P. "D"
(A Delaware Limited Partnership)
By: KINDER MORGAN G.P., INC.
as General Partner
By: /s/ William V. Morgan
_____________________________________________
William V. Morgan,
Vice Chairman and President
S-1
<PAGE>
KINDER MORGAN NATURAL GAS LIQUIDS CORPORATION
(A Delaware Corporation)
By: /s/ William V. Morgan
_____________________________________________
William V. Morgan,
President
KINDER MORGAN CO2, LLC
(A Delaware Limited Liability Company)
By: KINDER MORGAN OPERATING L.P. "A"
As sole Member
By: KINDER MORGAN G.P., INC.
as General Partner
By: /s/ William V. Morgan
______________________________________________
William V. Morgan,
Vice Chairman and President
KINDER MORGAN BULK TERMINALS, INC.
(A Louisiana Corporation)
By: /s/ William V. Morgan
______________________________________________
William V. Morgan,
Vice Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
KINDER MORGAN G.P., INC.
(General Partner to Kinder Morgan Operating L.P. "A," General
Partner to Kinder Morgan Operating L.P. "B," General Partner to
Kinder Morgan Operating L.P. "C," General Partner to Kinder
Morgan Operating L.P. "D," and Kinder Morgan Operating L.P. "A"as
the sole Member of Kinder Morgan CO2, LLC.)
Name Title Date
---- ----- ----
/s/ Richard D. Kinder
_________________ Chairman of the Board and Chief March 15, 1999
Richard D. Kinder Executive Officer of Kinder Morgan G.P.,
Inc.
/s/ William V. Morgan
_________________ Director, Vice Chairman and President March 15, 1999
William V. Morgan of Kinder Morgan G.P., Inc.
/s/ Alan L. Atterbury
_________________ Director of Kinder Morgan G.P., Inc. March 15, 1999
Alan L. Atterbury
/s/ Edward O. Gaylord
_________________ Director of Kinder Morgan G.P., Inc. March 15, 1999
Edward O. Gaylord
/s/ David G. Dehaemers, Jr.
_________________ Vice President, Chief Financial Officer March 15, 1999
David G. Dehaemers, Jr. of Kinder Morgan G.P., Inc. (principal
financial officer and principal
accounting officer)
S-2
<PAGE>
KINDER MORGAN NATURAL GAS LIQUIDS CORPORATION
Name Title Date
---- ----- ----
/s/ Richard D. Kinder
_________________ Director and Chief Executive Officer of March 15, 1999
Richard D. Kinder Kinder Morgan Natural Gas Liquids
Corporation
/s/ William V. Morgan
_________________ Director and President of March 15, 1999
William V. Morgan Kinder Morgan Natural Gas Liquids
Corporation
/s/ David G. Dehaemers, Jr.
_________________ Chief Financial Officer of Kinder March 15, 1999
David G. Dehaemers, Jr. Morgan Natural Gas Liquids Corporation
(principal financial officer and
principal accounting officer)
KINDER MORGAN BULK TERMINALS, INC.
Name Title Date
---- ----- ----
/s/ Richard D. Kinder
__________________ Director and Chairman of March 15, 1999
Richard D. Kinder Kinder Morgan Bulk Terminals, Inc.
/s/ William V. Morgan
__________________ Director and Vice Chairman of March 15, 1999
William V. Morgan Kinder Morgan Bulk Terminals, Inc.
/s/ Thomas B. Stanley
__________________ President of Kinder Morgan Bulk March 15, 1999
Thomas B. Stanley Terminals, Inc. (chief executive
officer)
/s/ David G. Dehaemers, Jr.
__________________ Treasurer of Kinder Morgan Bulk
David G. Dehaemers, Jr. Terminals, Inc. (principal financial March 15, 1999
officer and principal accounting
officer)
AMENDMENT TO THE LIMITED PARTNERSHIP AGREEMENT
OF
SHELL CO2 COMPANY, LTD.
This Amendment to the Amended and Restated Limited Partnership Agreement of
Shell CO2 Company LTD, is hereby made and entered into this 30th day of
September, 1998.
WITNESSETH:
WHEREAS, by instrument dated March 5, 1998, Shell CO2 General LLC, as
General Partner, and Shell CO2 LLC and Kinder Morgan CO2 LLC, as Limited
Partners, joined together to form Shell CO2 Company, LTD., as a limited
partnership under the Revised Uniform Limited Partnership Act as enacted in the
State of Texas.
WHEREAS, the undersigned General Partner and Limited Partners have
consented to all the terms and provisions of said Amended and Restated Limited
Partnership Agreement of Shell CO2 Company, LTD., and have agreed to be bound
thereby.
NOW, THEREFORE, pursuant to Article VII of the Limited Partnership
Agreement of Shell CO2 Company, LTD., and in accordance with Section 8.1
thereof, said Amended and Restated Limited Partnership Agreement is hereby
amended as follows:
The Partners agree to use and record the historical financial book values
(as determined by applying generally accepted accounting principles) of assets
contributed to Shell CO2 Company, LTD. for financial accounting and financial
statement purposes in accordance with Generally Accepted Accounting Principles.
The historical book values will be utilized for financial accounting purposes
notwithstanding any other statement in the First Amended and Restated Agreement
of Limited Partnership of Shell CO2 Company, LTD. This amendment does not amend
and or alter the agreed upon initial Gross Asset Value or fair market value of
initial Capital Contributions used to determine the Partners' capital accounts
for federal income tax purposes in Shell CO2 Company, LTD.
/s/ M.G. Brookshier
------------------------------------------
Shell CO2 LLC
/s/ R.T. Bradley
------------------------------------------
Shell CO2 General LLC
/s/ David G. Dehaemers, Jr.
------------------------------------------
Kinder Morgan CO2 LLC
Execution Copy
================================================================================
AMENDED AND RESTATED
CREDIT AGREEMENT
dated as of
December 1, 1998
AMONG
KINDER MORGAN ENERGY PARTNERS, L.P.,
as the Company
KINDER MORGAN OPERATING L.P. "B",
as the Subsidiary Borrower
THE SUBSIDIARY GUARANTORS,
THE LENDERS PARTY HERETO,
and
FIRST UNION NATIONAL BANK,
as the Arranger, the Syndication Agent, the Administrative Agent,
the Issuing Bank and the Swingline Lender
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
PRELIMINARY STATEMENTS.........................................................1
ARTICLE I. Definitions.....................................................3
Section 1.01 Defined Terms..............................................3
Section 1.02 Classification of Loans and Borrowings....................28
Section 1.03 Accounting Terms; Changes in GAAP.........................28
Section 1.04 Interpretation............................................28
ARTICLE II. The Credits....................................................29
Section 2.01 Commitments...............................................29
Section 2.02 Loans and Borrowings......................................30
Section 2.03 Requests for Revolving Borrowings.........................30
Section 2.04 Swingline Loans...........................................31
Section 2.05 Telephonic Notices........................................32
Section 2.06 Letters of Credit.........................................32
Section 2.07 Funding of Borrowings.....................................37
Section 2.08 Interest Elections........................................38
Section 2.09 Termination and Reduction of Commitments..................39
Section 2.10 Repayment of Loans; Evidence of Debt......................40
Section 2.11 Prepayment of Loans.......................................41
Section 2.12 Fees......................................................42
Section 2.13 Interest..................................................43
Section 2.14 Alternate Rate of Interest................................44
Section 2.15 Increased Costs...........................................44
Section 2.16 Break Funding Payments....................................45
Section 2.17 Taxes.....................................................46
Section 2.18 Payments Generally; Pro Rata Treatment; Sharing
of Set-offs...............................................47
Section 2.19 Mitigation Obligations; Replacement of Lenders............48
Section 2.20 Extensions of Maturity Date and Reduction Dates;
Removal of Lenders........................................49
ARTICLE III. Conditions Precedent...........................................51
Section 3.01 Conditions Precedent to the Initial Credit Event..........51
Section 3.02 Conditions Precedent to All Credit Events.................53
Section 3.03 Conditions Precedent to the Initial Credit Event
Made on or After any Increase in Availability.............53
Section 3.04 Conditions Precedent to Conversions.......................53
Section 3.05 Delivery of Documents.....................................54
-i-
<PAGE>
ARTICLE IV. Representations and Warranties.................................54
Section 4.01 Organization and Qualification............................54
Section 4.02 Authorization, Validity, Etc..............................54
Section 4.03 Governmental Consents, Etc................................55
Section 4.04 Conflicting or Adverse Agreements or Restrictions.........55
Section 4.05 Properties................................................55
Section 4.06 Litigation and Environmental Matters......................56
Section 4.07 Financial Statements......................................56
Section 4.08 Disclosure................................................56
Section 4.09 Investment Company Act....................................57
Section 4.10 Public Utility Holding Company Act........................57
Section 4.11 ERISA.....................................................57
Section 4.12 Tax Returns and Payments..................................57
Section 4.13 Compliance with Laws and Agreements.......................58
Section 4.14 Purpose of Loans..........................................58
Section 4.15 No Intent to Hinder, Delay or Defraud.....................58
Section 4.16 Year 2000.................................................58
ARTICLE V. Affirmative Covenants..........................................59
Section 5.01 Financial Statements and Other Information................59
Section 5.02 Litigation................................................61
Section 5.03 Existence, Conduct of Business............................61
Section 5.04 Payment of Obligations....................................62
Section 5.05 Maintenance of Properties; Insurance......................62
Section 5.06 Books and Records; Inspection Rights......................62
Section 5.07 Compliance with Laws......................................62
Section 5.08 Use of Proceeds and Letters of Credit.....................62
Section 5.09 Further Assurances........................................62
Section 5.10 Performance of Obligations................................63
Section 5.11 Lines of Business.........................................63
Section 5.12 Intercompany Notes........................................63
ARTICLE VI. Negative Covenants.............................................63
Section 6.01 Indebtedness..............................................63
Section 6.02 Liens.....................................................64
Section 6.03 Fundamental Changes.......................................65
Section 6.04 Investments, Loans, Advances, Guarantees and
Acquisitions; Hedging Agreements..........................66
Section 6.05 Restricted Payments.......................................67
Section 6.06 Transactions with Affiliates..............................67
Section 6.07 Restrictive Agreements....................................68
Section 6.08 Sale of Assets............................................68
Section 6.09 Financial Covenants.......................................68
Section 6.10 Amendments to Certain Agreements..........................69
-ii-
<PAGE>
ARTICLE VII. Events of Default..............................................69
Section 7.01 Events of Default and Remedies............................69
Section 7.02 Other Remedies............................................71
Section 7.03 Application of Moneys During Continuation of
Event of Default..........................................72
ARTICLE VIII. The Administrative Agent.......................................72
Section 8.01 Appointment, Powers and Immunities........................72
Section 8.02 Reliance by Administrative Agent..........................73
Section 8.03 Defaults; Events of Default...............................73
Section 8.04 Rights as a Lender........................................73
Section 8.05 Indemnification...........................................74
Section 8.06 Non-Reliance on Agents and other Lenders..................74
Section 8.07 Action by Administrative Agent............................75
Section 8.08 Resignation or Removal of Administrative Agent............75
Section 8.09 Duties of Syndication Agent...............................76
ARTICLE IX. Company Guaranty...............................................76
Section 9.01 Company Guaranty..........................................76
Section 9.02 Continuing Guaranty.......................................76
Section 9.03 Effect of Debtor Relief Laws..............................79
Section 9.04 Waiver....................................................80
Section 9.05 Full Force and Effect.....................................80
ARTICLE X. Subsidiary Guarantors Guaranty..............................,..80
Section 10.01 Subsidiary Guarantors Guaranty............................80
Section 10.02 Continuing Guaranty.......................................81
Section 10.03 Effect of Debtor Relief Laws..............................84
Section 10.04 General Limitation on Borrower Guaranteed Obligations.....84
Section 10.05 Rights of Contribution....................................84
Section 10.06 Subrogation...............................................85
Section 10.07 Subordination.............................................85
Section 10.08 Waiver....................................................86
Section 10.09 Full Force and Effect.....................................86
ARTICLE XI. Miscellaneous..................................................87
Section 11.01 Notices, Etc..............................................87
Section 11.02 Waivers; Amendments.......................................88
Section 11.03 Payment of Expenses, Indemnities, etc.....................89
Section 11.04 Successors and Assigns....................................92
Section 11.05 Assignments and Participations............................92
Section 11.06 Survival; Reinstatement...................................94
Section 11.07 Counterparts; Integration; Effectiveness..................95
Section 11.08 Severability..............................................95
Section 11.09 Right of Setoff...........................................95
-iii-
<PAGE>
Section 11.10 Governing Law; Jurisdiction; Consent to Service
of Process................................................95
Section 11.11 Waiver of Jury Trial......................................97
Section 11.12 Confidentiality...........................................97
Section 11.13 Interest Rate Limitation..................................97
Section 11.14 Retiring Banks; Release...................................98
Section 11.15 Exculpation Provisions....................................98
SCHEDULES:
- ----------
Schedule 1.01A Existing Indebtedness
Schedule 4.01 Existing Subsidiaries
Schedule 4.06 Disclosed Matters
Schedule 6.02 Existing Liens
Schedule 6.07 Existing Restrictions
EXHIBITS:
- ---------
Exhibit 1.01A -- Form of Administrative Questionnaire
Exhibit 1.01B -- Form of Assignment and Acceptance
Exhibit 1.01C -- Existing Letter of Credit
Exhibit 2.03 -- Form of Borrowing Request
Exhibit 2.06 -- Form of Letter of Credit Request
Exhibit 2.07 -- Form of Notice of Account Designation
Exhibit 2.08 -- Form of Interest Election Request
Exhibit 2.10 -- Form of (Revolving/Swingline) Note
Exhibit 2.11 -- Form of Notice of Prepayment
Exhibit 5.01 -- Form of Compliance Certificate
Exhibit 6.04 -- Form of Subsidiary Guarantor Counterpart
-iv-
<PAGE>
AMENDED AND RESTATED
CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT, dated as of December 1,
1998 (this "Agreement") is among:
(a) Kinder Morgan Energy Partners, L.P., a Delaware limited
partnership (the "Company");
(b) Kinder Morgan Operating L.P. "B", a Delaware limited
partnership (the "Subsidiary Borrower");
(c) Kinder Morgan Operating L.P. "A", a Delaware limited partnership
("OLP `A'"); Kinder Morgan Operating L.P. "C", a Delaware limited partnership
("OLP `C'"); Kinder Morgan Operating L.P. "D", a Delaware limited partnership
("OLP `D'"); Kinder Morgan Natural Gas Liquids Corporation, a Delaware
corporation ("KMNGL"); Kinder Morgan CO2 LLC, a Delaware limited liability
company ("KMCO2"); and Kinder Morgan Bulk Terminals, Inc., a Louisiana
corporation ("KMBT", and together with OLP "A", OLP "C", OLP "D", KMNGL, KMCO2,
the Subsidiary Borrower in its capacity as a guarantor pursuant to Article X and
each other Person that becomes a Subsidiary Guarantor pursuant to Section 6.04,
collectively, the "Subsidiary Guarantors");
(d) the banks and other financial institutions listed on the
signature pages hereof under the caption "Retiring Lenders" (the "Retiring
Lenders" and together with the Continuing Lenders (defined below) collectively,
the "Existing Lenders");
(e) the banks and other financial institutions listed on the
signature pages hereof under the caption "Lenders" (the "Continuing Lenders" and
together with each other Person that becomes a Lender pursuant to Section 11.05,
collectively, the "Lenders"); and
(f) First Union National Bank, a national banking association,
individually as a Lender, as Arranger, syndication agent for the other Lenders
(in such capacity, the "Syndication Agent") and as administrative agent for the
Lenders (in such latter capacity together with any other Person that becomes
Administrative Agent pursuant to Section 8.08, the "Administrative Agent").
PRELIMINARY STATEMENTS
(A) The Company, the Subsidiary Borrower, the Subsidiary Guarantors
(other than KMBT), the Existing Lenders, The Fuji Bank, Limited, New York
Branch, (successor to The Fuji Bank, Limited (Houston Agency) ("Fuji"), Goldman
Sachs Credit Partners L.P., as the syndication agent, and the Administrative
Agent are parties to a credit agreement dated as of February 17, 1998 (the
"Existing Credit Agreement"), which is secured by the Collateral defined
therein.
<PAGE>
(B) Fuji has assigned 100% of its Commitment and the Obligations
owing to it to First Union National Bank, and by its execution of this
Agreement, on the Effective Date Den Norske Bank ASA and The Fuji Bank, Limited
(Houston Agency) is assigning 100% of its Commitment and the Obligations owing
to it to First Union National Bank, and Bank One, Texas, NA, is assigning 100%
of its Commitment and the Obligations owing to it to The First National Bank of
Chicago.
(C) Pursuant to the Existing Credit Agreement (a) the Company
borrowed from the Existing Lenders and advanced to OLP "A" funds sufficient to
enable it to (i) repay in full the principal of and accrued interest and
make-whole premium on $110,000,000 of its 8.79% First Mortgage Notes due June
30, 2007 and issued pursuant to a Note Agreement dated as of July 30, 1992 (the
"OLP `A' First Mortgage Notes"), and (ii) repay in full the principal of and
accrued interest on all loans and other amounts outstanding under that certain
Loan Agreement dated effective May 24, 1995 by and between OLP "A" and Bank One,
Texas, NA, as amended to February 17, 1998 (the "OLP `A' Loan Agreement" and
together with the OLP "A" First Mortgage Notes collectively, the "OLP `A'
Refinancing"); (b) (i) the Company borrowed from the Existing Lenders and
advanced to the Subsidiary Borrower funds sufficient to enable it to repay in
full the principal of and accrued interest on all loans and other amounts
outstanding under that certain Credit Agreement dated as of February 14, 1997
among the Subsidiary Borrower, the lenders party thereto and First Union
National Bank, as agent for such lenders, as amended February 17, 1998 (the
"Subsidiary Borrower Credit Agreement"), and (ii) the account party's
reimbursement obligations in respect of that certain irrevocable letter of
credit No. S113181 issued by First Union National Bank for the benefit of Bank
One, Texas, NA, as trustee, for the account of the Subsidiary Borrower in the
face amount of $24,128,548 and in the form of Exhibit 1.01C hereto (the
"Existing Letter of Credit") became an obligation of the Subsidiary Borrower,
and was deemed to have been issued, under the Existing Agreement; (c) the
Company borrowed from the Existing Lenders and advanced to OLP "A" the sum of
$25,000,000 to enable it to contribute such amount together with its carbon
dioxide pipeline system located in West Texas (the "Central Basin Pipeline") to
Shell CO2 Company, Ltd., a Texas limited partnership ("Shell CO2"), in exchange
for a 20% limited partner interest in that partnership (the "Shell JV
Investment"); (d) the Company borrowed from the Existing Lenders and advanced to
OLP "D" the sum of approximately $90,000,000 to (i) enable OLP "D" to purchase
the entire general partner interest in Santa Fe Pacific Pipeline Partners, L.P.,
a Delaware limited partnership ("SFMLP"), (ii) complete the purchase from SFMLP
of its limited partner interest in SFPP, and (iii) complete the transactions
contemplated in Section 1.3(a) and (b) of the Purchase Agreement, including the
contribution to OLP "D" of 100% of the Company's partnership interest in SFPP,
L.P., a Delaware limited partnership ("SFPP") (which currently consists of a
99.5% general partner interest in SFPP) (collectively, the "Santa Fe
Acquisition"); and (e) the Company obtained working capital to be used for its
other partnership purposes.
(D) The parties hereto wish to amend and restate the Existing Credit
Agreement in its entirety, inter alia, to (1) release the Liens on the
Collateral created by the Security Documents (as defined in the Existing Credit
Agreement) and (2) add KMBT as a Subsidiary Guarantor.
-2-
<PAGE>
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I.
Definitions
-----------
SECTION 1.01 Defined Terms. As used in this Agreement, the
following terms have the meanings specified below:
"ABR", when used in reference to any Loan or Borrowing, refers to whether
such Loan, or the Loans comprising such Borrowing, are bearing interest at a
rate determined by reference to the Alternate Base Rate.
"Administrative Agent" has the meaning specified in the introduction to
this Agreement.
"Administrative Questionnaire" means an Administrative Questionnaire in
the form of Exhibit 1.01A.
"Affiliate" of any Person shall mean (i) any Person directly or indirectly
controlled by, controlling or under common control with such first Person, (ii)
any director or officer of such first Person or of any Person referred to in
clause (i) above and (iii) if any Person in clause (i) above is an individual,
any member of the immediate family (including parents, siblings, spouse and
children) of such individual and any trust whose principal beneficiary is such
individual or one or more members of such immediate family and any Person who is
controlled by any such member or trust. For purposes of this definition, any
Person which owns directly or indirectly 25% or more of the securities having
ordinary voting power for the election of directors or other governing body of a
corporation or 25% or more of the partnership or other ownership interests of
any other Person (other than as a limited partner of such other Person) will be
deemed to "control" (including, with its correlative meanings, "controlled by"
and "under common control with") such corporation or other Person.
"Agreement" has the meaning specified in the introduction to this
Agreement.
"Alternate Base Rate" means, for any day, a rate per annum equal to the
greater of (a) the Federal Funds Effective Rate in effect on such day plus 1/2
of 1% and (b) the Prime Rate in effect for such day. Any change in the Alternate
Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate
shall be effective from and including the effective date of such change in the
Prime Rate or the Federal Funds Effective Rate, respectively.
"Anniversary Date" means each of February 1, 1999 and February 1, 2000.
"Applicable Margin" means, for any day, with respect to any Eurodollar
Revolving Loan, or with respect to the commitment fees payable hereunder, as the
case may be, the Applicable Margin per annum set forth below under the caption
"Eurodollar Spread" or "Commitment Fee Rate", as the case may be:
-3-
<PAGE>
(a) during the period from the Execution Date to the Financial
Statement Delivery Date for the fiscal quarter of the Company ending December
31, 1998, the Applicable Margin shall be as follows:
Eurodollar Spread Commitment Fee Rate
----------------- -------------------
.75% .25%
(b) if the Applicable Margin is to be determined with respect to the
financial statements delivered pursuant to Section 5.01(a) or Section 5.01(b) on
any Financial Statement Delivery Date for any fiscal quarter of the Company
ending on or after December 31, 1998, the Applicable Margin shall be as follows:
(i) if at the end of such fiscal quarter, the Indebtedness to Cash
Flow Ratio is less than 2.0 to 1.0:
Eurodollar Spread Commitment Fee Rate
----------------- -------------------
.75% .25%
(ii) if at the end of such fiscal quarter, the Indebtedness to Cash
Flow Ratio is equal to or greater than 2.0 to 1.0 but less than 2.5 to
1.0:
Eurodollar Spread Commitment Fee Rate
----------------- -------------------
.875% .25%
(iii)if at the end of such fiscal quarter, the Indebtedness to Cash
Flow Ratio is equal to or greater than 2.5 to 1.0 but less than 3.0 to
1.0:
Eurodollar Spread Commitment Fee Rate
----------------- -------------------
1.0% .25%
(iv) if at the end of such fiscal quarter, the Indebtedness to Cash
Flow Ratio is equal to or greater than 3.0 to 1.0 but less than 3.5 to
1.0:
Eurodollar Spread Commitment Fee Rate
----------------- -------------------
1.125% .375%
-4-
<PAGE>
(v) if at the end of such fiscal quarter, the Indebtedness to Cash
Flow Ratio is equal to or greater than 3.5 to 1.0:
Eurodollar Spread Commitment Fee Rate
----------------- -------------------
1.25% .375%
Notwithstanding the foregoing, if on or after the Financial Statement
Delivery Date for the fiscal quarter of the Company ending on December 31, 1998
any of the financial statements required pursuant to Section 5.01(a) or Section
5.01(b), as the case may be, shall not have been timely delivered, the
Applicable Margin shall be determined pursuant to clause(b)(v) above until the
date that is five Business Days after the date such statements are delivered.
Each change in the Applicable Margin shall become effective five
Business Days after the Administrative Agent receives notification of the
financial information forming the basis of such change.
"Applicable Percentage" means, with respect to any Lender, the percentage
of the Total Commitment represented by such Lender's Commitment. If the Total
Commitment has terminated or expired, the Applicable Percentages shall be
determined based upon the Total Commitment most recently in effect, giving
effect to any assignments.
"Application" has the meaning specified in Section 2.06(c).
"Assignment and Acceptance" means an assignment and acceptance entered
into by a Lender and an assignee (with the consent of any party whose consent is
required by Section 11.05), and accepted by the Administrative Agent, in the
form of Exhibit 1.01B or any other form approved by the Administrative Agent.
"Available Cash" means, with respect to any fiscal quarter of the Company
(a "Test Quarter"), an amount equal to the algebraic sum of (a) the aggregate of
all cash distributions actually made to and received by the Company from the
Restricted Subsidiaries in respect of their Capital Stock during such fiscal
quarter minus (b) the aggregate amount of all cash disbursements, including
disbursements for operating expenses, payments of principal of and interest on
Indebtedness and taxes (net of amounts received or to be received by the Company
from the Restricted Subsidiaries as reimbursement for such amounts), and capital
expenditures (net of any borrowings to fund such capital expenditures permitted
pursuant to this Agreement), actually paid by the Company during such Test
Quarter, plus, in the case of a decrease, or minus, in the case of an increase
(c) the amount by which, as at the end of such Test Quarter, cash reserves
necessary in the reasonable discretion of the Company's management for the
proper conduct of the business of the Company and the Restricted Subsidiaries
subsequent to such Test Quarter, decreased or increased from the amount of such
reserves as at the end of the immediately preceding fiscal quarter; provided,
that "Available Cash" for any Test Quarter shall always exclude, without
duplication (i) a reserve equal to at least 50% of the aggregate amount of all
semiannual or less frequent (or 100% of all more frequent) interest payments on
-5-
<PAGE>
Indebtedness of the Company and/or the Restricted Subsidiaries other than SFPP
payable in the fiscal quarter next succeeding such Test Quarter (assuming for
this purpose in respect of Indebtedness with a variable interest rate that the
same bears interest at the highest rate per annum applicable to such
Indebtedness during the Test Quarter), (ii) a reserve with respect to
Indebtedness of the Company and/or the Restricted Subsidiaries other than SFPP
requiring annual amortization of principal, equal to the product of (A) an
amount equal to 25% of the installment of such principal maturing next after the
end of such Test Quarter multiplied by (B) the number of full fiscal quarters
which will, as of the end of such Test Quarter, have elapsed since the date of
the next preceding such payment (but not more than 75% of the amount of such
installment), and (iii) if such Test Quarter immediately precedes a fiscal
quarter in which a principal payment is due in respect of Indebtedness of the
Company and/or the Restricted Subsidiaries other than SFPP requiring semiannual
or more frequent amortization of principal, a reserve equal to 50% (if
amortization is semiannual) or 100% (if amortization is more frequent) of the
installment of such principal maturing next after the end of such Test Quarter.
"Availability" means, at all times on and after the Effective Date,
$325,000,000.
"Availability Period" means the period from and including the Effective
Date, to but excluding the earlier of the Maturity Date and the date of
termination of the Commitments.
"Bankruptcy Code" has the meaning specified in Section 9.01(a).
"Board" means the Board of Governors of the Federal Reserve System of the
United States of America.
"Board of Directors" means, with respect to any Person, the Board of
Directors of such Person or any committee of the Board of Directors of such
Person duly authorized to act on behalf of the Board of Directors of such
Person.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Administrative Agent.
"Bonds" means the Port Facility Refunding Revenue Bonds (Enron
Transportation Services, L.P. Project) Series 1994 in the aggregate principal
amount of $23,700,000, as issued by the Jackson-Union Counties Regional Port
District.
"Borrower Guaranteed Obligations" has the meaning specified in Section
10.01.
"Borrowers" means, collectively, the Company and the Subsidiary Borrower
and "Borrower" means either one of them.
"Borrowing" means (a) Revolving Loans of the same Type, made, converted or
continued on the same date and, in the case of Eurodollar Loans, as to which a
single Interest Period is in effect, or (b) a Swingline Loan.
-6-
<PAGE>
"Borrowing Date" means the Business Day upon which any Letter of Credit is
to be issued or any Loan is to be made available to the Company.
"Borrowing Request" has the meaning specified in Section 2.03.
"Business Day" means any day that is not a Saturday, Sunday or other day
on which commercial banks in Houston, Texas, New York, New York, or Charlotte,
North Carolina are authorized or required by law to remain closed; provided
that, when used in connection with a Eurodollar Loan, the term "Business Day"
shall also exclude any day on which banks are not open for dealings in dollar
deposits in the London interbank market.
"Capital Lease Obligations" of any Person means the obligations of such
Person to pay rent or other amounts under any lease of (or other arrangement
conveying the right to use) real or personal property, or a combination thereof,
which obligations are required to be classified and accounted for as capital
leases on a balance sheet of such Person under GAAP, and the amount of such
obligations shall be the capitalized amount thereof determined in accordance
with GAAP.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, rights to purchase, warrants, options, participations or other
equivalents (however designated) of such Person's equity, including all common
stock and preferred stock, any limited or general partnership interest and any
limited liability company membership.
"Central Basin Pipeline" has the meaning specified in the Preliminary
Statements.
"Change in Control" means either (a) the failure of Richard D. Kinder or
William Morgan or both such Persons to control, directly or indirectly, 51% of
the Voting Stock and 51% of the economic interest in the General Partner,
whether through the ability to exercise voting power by control or otherwise, or
(b) the General Partner shall cease to be the sole general partner of the
Company.
"Change in Law" means (a) the adoption of any law, rule or regulation
after the date of this Agreement, (b) any change in any law, rule or regulation
or in the interpretation or application thereof by any Governmental Authority
after the date of this Agreement or (c) compliance by any Lender or the Issuing
Bank (or, for purposes of Section 2.15(b), by any lending office of such Lender
or by such Lender's or the Issuing Bank's holding company, if any) with any
request, guideline or directive (whether or not having the force of law) of any
Governmental Authority made or issued after the date of this Agreement.
"Change of Control Event" means the execution of any definitive agreement
which, when fully performed by the parties thereto, would result in a Change of
Control.
"Charges" has the meaning specified in Section 11.13.
-7-
<PAGE>
"Class", when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans
or Swingline Loans.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Commitment" means, with respect to each Lender, the commitment of such
Lender to make Revolving Loans and to acquire participations in Letters of
Credit and Swingline Loans hereunder, expressed as an amount representing the
maximum aggregate amount of such Lender's Revolving Credit Exposure hereunder,
as such commitment may be (a) reduced from time to time pursuant to Section 2.09
and (b) reduced or increased from time to time pursuant to assignments by or to
such Lender pursuant to Section 11.05. The initial amount of each Lender's
Commitment is set forth on its signature page hereto, or in the Assignment and
Acceptance pursuant to which such Lender shall have assumed its Commitment, as
applicable.
"Communications" has the meaning specified in Section 11.01.
"Company" has the meaning specified in the introduction to this
Agreement.
"Company Cash Flow" means (without duplication), for any period, the sum
of
(a) OLP "A" EBITDA for such period, plus
(b) the EBITDA of the Subsidiary Borrower for such period, plus
(c) the EBITDA of OLP "C" for such period, plus
(d) (i) if, at the end of such period, either SFPP is not a
Subsidiary Guarantor or the SFPP First Mortgage Notes are outstanding or
the SFPP Revolving Credit Facility has not been repaid in full and
terminated, the sum of
(A) cash distributions actually received by the Company from OLP
"D" for such period in respect of its Capital Stock, plus
(B) for any portion of such period prior to the acquisition of
SFPP, distributions actually paid in cash by SFPP,
but not in excess of an amount equal to the EBITDA of SFPP for such period
less the sum for such period of (x) all scheduled payments of principal in
respect of Indebtedness of SFPP not refinanced, including the principal
component of any such payments in respect of Capital Lease Obligations,
plus (y) Interest Expense of SFPP, plus (z) without duplication, the
amount of all Maintenance Capital Expenditures), plus
(C) if "Company Cash Flow" is being determined for purposes of
the Indebtedness to Cash Flow Ratio (but not otherwise), an amount
equal to 200 percent of SFPP Intracompany Refinancing Interest
Expense for such period actually paid in cash, or
-8-
<PAGE>
(ii) if, at the end of such period, SFPP is a Subsidiary Guarantor
and no SFPP First Mortgage Notes are outstanding and the SFPP Revolving
Credit Facility has been repaid in full and terminated, the EBITDA of
SFPP, plus
(e) the EBITDA of any other Wholly-Owned Restricted Subsidiary that
is a Subsidiary Guarantor, plus
(f) cash distributions actually received by the Company from any
other Restricted Subsidiary (other than a Wholly-Owned Restricted
Subsidiary);
provided, however, if during any period the Company acquires any Person or all
or substantially all of the assets of any Person except for purposes of Sections
6.09(b) and (c) only, the EBITDA attributable to such assets or an amount equal
to the percentage ownership of the Company in such Person times the EBITDA of
such Person, for such period determined on a pro forma basis (which
determination, in each case, shall be subject to approval of the Required
Lenders, not to be unreasonably withheld) may be included as Company Cash Flow
for such period, if on the date of such acquisition no Indebtedness (other than
Indebtedness permitted pursuant to Section 6.01) is incurred by reason of and
giving effect to such acquisition and such Person or the entity acquiring such
assets, as the case may be, is a Restricted Subsidiary.
"Company Guaranty" means the guaranty of the Company contained in
Article IX.
"Company Interest Expense" means, for any period
(a) if at the end of such period SFPP shall not be a Subsidiary
Guarantor, or if at the end thereof either the SFPP First Mortgage Notes
are outstanding or the SFPP Revolving Credit Facility has not been repaid
in full and terminated, the excess of
(i) all Interest Expense of the Company and its Restricted
Subsidiaries actually paid during such period (excluding, without
duplication (i) Interest Expense so paid by any of the Company or its
Restricted Subsidiaries to any such Restricted Subsidiary or to the
Company ("Intracompany Interest Expense") and (ii) Interest Expense
in respect of Indebtedness of SFPP) over
(ii) interest income actually received during such period by the
Company and its Restricted Subsidiaries (excluding all interest
income actually received by the Company or any of its Restricted
Subsidiaries during such period from any such Restricted Subsidiary
or from the Company ("Intracompany Interest Income")), and
(b) if at the end of such period SFPP shall be a Subsidiary Guarantor
and no SFPP First Mortgage Notes are outstanding and the SFPP Revolving
Credit Facility has been repaid in full and terminated, the excess of
-9-
<PAGE>
(i) all Interest Expense of the Company and its Restricted
Subsidiaries actually paid during such period (excluding Intracompany
Interest Expense) over
(ii) interest income actually received during such period by the
Company or any of its Restricted Subsidiaries (excluding Intracompany
Interest Income).
"Consenting Lenders" has the meaning specified in Section 2.20.
"Continuing Lenders" has the meaning specified in the introduction to
this Agreement.
"Credit Event" means the making of any Loan or the issuance or the
extension of any Letter of Credit.
"Default" means any event or condition which upon notice, lapse of time or
both would, unless cured or waived, become an Event of Default.
"Disclosed Matters" means the actions, suits and proceedings and the
environmental matters disclosed in Schedule 4.06.
"Disqualified Stock" means any Capital Stock issued by the Company that,
by its terms (or by the terms of any security into which it is convertible or
for which it is exercisable, redeemable or exchangeable), or upon the happening
of an event or with the passage of time, matures, or is mandatorily redeemable,
pursuant to a sinking fund obligation or otherwise, or is redeemable at the
option of the holder thereof, in whole or in part, in each case on, or prior to,
the Maturity Date, or which is exchangeable or convertible into debt securities
of the Company or any Restricted Subsidiary, except to the extent that such
exchange or conversion rights cannot be exercised prior to the Maturity Date.
"Distribution Date" has the meaning specified in Section 7.03.
"Dollars" or "$" refers to lawful money of the United States of America.
"EBITDA" means (without duplication), with respect to any Person for any
period, the Net Income of such Person for such period determined in accordance
with GAAP, increased (to the extent deducted in determining such earnings for
such period) by the sum of (a) all income taxes (including state franchise taxes
based upon income) of such Person paid or accrued according to GAAP for such
period; (b) Interest Expense of such Person for such period; and (c)
depreciation and amortization of such Person for such period determined in
accordance with GAAP.
"Effective Date" means the date occurring on or before December 31, 1998
on which the conditions specified in Section 3.01 are satisfied (or waived in
accordance with Section 11.02).
"Eligible Assignee" means (a) any Lender; (b) any Affiliate of any Lender;
(c) a commercial bank organized or licensed under the laws of the United States,
or a state thereof,
-10-
<PAGE>
and having total assets in excess of $1,000,000,000; (d) a commercial bank
organized under the laws of any other country which is a member of the OECD, or
a political subdivision of any such country, and having total assets in excess
of $1,000,000,000, provided that such bank is acting through a branch or agency
located in the country in which it is organized or another country which is also
a member of the OECD; (e) a finance company, insurance company or other
financial institution or fund (whether a corporation, partnership, trust or
other entity) that is engaged in making, purchasing or otherwise investing in
commercial loans in the ordinary course of its business and having a combined
capital and surplus or total assets of at least $100,000,000; and (f) any other
entity approved by the Administrative Agent and the Company.
"Environmental Laws" means all laws, rules, regulations, codes,
ordinances, orders, decrees, judgments, injunctions, notices or binding
agreements issued, promulgated or entered into by any Governmental Authority,
relating in any way to the environment, preservation or reclamation of natural
resources, the management, release or threatened release of any Hazardous
Material or to health and safety matters.
"Environmental Liability" means any liability, contingent or otherwise
(including any liability for damages, costs of environmental remediation, fines,
penalties or indemnities), of the Company or any Subsidiary directly or
indirectly resulting from or based upon (a) violation of any Environmental Law,
(b) the generation, use, handling, transportation, storage, treatment or
disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials,
(d) the release of any Hazardous Materials into the environment, or (e) any
contract, agreement or other consensual arrangement pursuant to which liability
is assumed or imposed with respect to any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that, together with the Company, is treated as a single employer
under Section 414(b) or (c) of the Code or, solely for purposes of Section 302
of ERISA and Section 412 of the Code, is treated as a single employer under
Section 414 of the Code.
"ERISA Event" means (a) any "reportable event", as defined in Section 4043
of ERISA or the regulations issued thereunder with respect to a Plan (other than
an event for which the 30-day notice period is waived); (b) the existence with
respect to any Plan of an "accumulated funding deficiency" (as defined in
Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the
filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an
application for a waiver of the minimum funding standard with respect to any
Plan; (d) the incurrence by the Company or any of its ERISA Affiliates of any
liability under Title IV of ERISA with respect to the termination of any Plan;
(e) the receipt by the Company or any ERISA Affiliate from the PBGC or a plan
administrator of any notice relating to an intention to terminate any Plan or
Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the
Company or any ERISA Affiliate of any liability with respect to the withdrawal
or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by
the Company or
-11-
<PAGE>
any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from
the Company or any ERISA Affiliate of any notice, concerning the imposition of
Withdrawal Liability or a determination that a Multiemployer Plan is, or is
expected to be, insolvent or in reorganization, within the meaning of Title IV
of ERISA.
"Eurodollar", when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are bearing interest
at a rate determined by reference to the LIBOR Rate.
"Event of Default" has the meaning specified in Section 7.01.
"Excess Funding Obligor" has the meaning specified in Section 10.05.
"Excess Payment" has the meaning specified in Section 10.05.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Taxes" means, with respect to the Administrative Agent, any
Lender, the Issuing Bank or any other recipient of any payment to be made by or
on account of any Obligation, (a) income or franchise taxes imposed on (or
measured by) its net income by the United States of America, or by the
jurisdiction under the laws of which such recipient is organized or in which its
principal office is located or, in the case of any Lender, in which its
applicable lending office is located, (b) any branch profits taxes imposed by
the United States of America or any similar tax imposed by any other
jurisdiction in which either Borrower is located and (c) in the case of a
Foreign Lender (other than an assignee pursuant to a request by the Company
under Section 2.19(b)), any withholding tax that is imposed on amounts payable
to such Foreign Lender at the time such Foreign Lender becomes a party to this
Agreement or is attributable to such Foreign Lender's failure or inability to
comply with Section 2.17(e), except to the extent that such Foreign Lender's
assignor (if any) was entitled, at the time of assignment, to receive additional
amounts from a Borrower with respect to such withholding tax pursuant to Section
2.17(a).
"Execution Date" means the earliest date upon which all of the following
shall have occurred: counterparts of this Agreement shall have been executed by
the Loan Parties and each Lender listed on the signature pages hereof and the
Administrative Agent shall have received counterparts hereof which taken
together, bear the signature of the Loan Parties and each Lender and the
Administrative Agent.
"Existing Credit Agreement" has the meaning specified in the Preliminary
Statements.
"Existing Lenders" has the meaning specified in the introduction to this
Agreement.
"Existing Letter of Credit" has the meaning specified in the Preliminary
Statements.
"Existing Maturity Date" has the meaning specified in Section 2.20.
"Existing Reduction Date" has the meaning specified in Section 2.20.
-12-
<PAGE>
"Federal Funds Effective Rate" means, for any day, the weighted average
(rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day that is a Business Day, the average (rounded upwards, if
necessary, to the next 1/100 of 1%) of the quotations for such day for such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it.
"Fee Letter" has the meaning specified in Section 2.12(c).
"Financial Statement Delivery Date" means the date on which the quarterly
or annual financial statements of the Company are to be delivered pursuant to
Section 5.01(a) or Section 5.01(b), as the case may be.
"Fixed Charges" means, at the end of any fiscal quarter of the Company,
the sum of (a) all payments of principal in respect of Indebtedness of the
Company and the Restricted Subsidiaries (other than SFPP) (including the
principal component of any payments in respect of Capital Lease Obligations)
payable during the next four consecutive fiscal quarters after eliminating all
offsetting debits and credits between the Company and such Restricted
Subsidiaries and all other items required to be eliminated in the course of the
preparation of consolidated financial statements of the Company and the
Restricted Subsidiaries in accordance with GAAP and (b) Company Interest Expense
for the four consecutive fiscal quarters then ended.
"Foreign Lender" means any Lender that is organized under the laws of a
jurisdiction other than that in which either Borrower is located. For purposes
of this definition, the United States of America, each state thereof and the
District of Columbia shall be deemed to constitute a single jurisdiction.
"Fuji" has the meaning specified in the Preliminary Statements.
"GAAP" means generally accepted accounting principles in the United States
of America from time to time, including as set forth in the opinions, statements
and pronouncements of the Accounting Principles Board of the American Institute
of Certified Public Accountants and the Financing
Accounting Standards Board.
"General Partner" means Kinder Morgan G.P., Inc., a Delaware corporation.
"Governmental Authority" means the government of the United States of
America, any other nation or any political subdivision thereof, whether state or
local, and any agency, authority, instrumentality, regulatory body, court,
central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to
government.
-13-
<PAGE>
"Guarantee" of or by any Person (the "guarantor") means any obligation,
contingent or otherwise, of the guarantor guaranteeing or having the economic
effect of guaranteeing any Indebtedness or other obligation of any other Person
(the "primary obligor") in any manner, whether directly or indirectly, and
including any obligation of the guarantor, direct or indirect, (a) to purchase
or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation or to purchase (or to advance or supply funds
for the purchase of) any security for the payment thereof, (b) to purchase or
lease property, securities or services for the purpose of assuring the owner of
such Indebtedness or other obligation of the payment thereof, (c) to maintain
working capital, equity capital or any other financial statement condition or
liquidity of the primary obligor so as to enable the primary obligor to pay such
Indebtedness or other obligation or (d) as an account party in respect of any
letter of credit or letter of guaranty issued to support such Indebtedness or
obligation; provided, that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business.
"Hazardous Materials" means all explosive or radioactive substances or
wastes and all hazardous or toxic substances, wastes or other pollutants,
including petroleum or petroleum distillates, asbestos or asbestos containing
materials, polychlorinated biphenyls, radon gas, infectious or medical wastes
and all other substances or wastes of any nature regulated pursuant to any
Environmental Law.
"Hedging Agreement" means any interest rate protection agreement, foreign
currency exchange agreement, commodity price protection agreement or other
interest or currency exchange rate or commodity price hedging arrangement.
"Indebtedness" of any Person means, without duplication, (a) all
obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person
under conditional sale or other title retention agreements relating to property
acquired by such Person, (d) all obligations of such Person in respect of the
deferred purchase price of property or services or any other similar obligation
upon which interest charges are customarily paid (excluding trade accounts
payable incurred in the ordinary course of business), (e) all Indebtedness of
others secured by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any Lien on property owned or
acquired by such Person, whether or not the Indebtedness secured thereby has
been assumed, (f) all Guarantees by such Person of Indebtedness of others
(provided that in the event that any Indebtedness of the Company or any
Restricted Subsidiary shall be the subject of a Guarantee by one or more
Restricted Subsidiaries or by the Company, as the case may be, the aggregate
amount of the outstanding Indebtedness of the Company and its Restricted
Subsidiaries in respect thereof shall be determined by reference to the primary
Indebtedness so guaranteed, and without duplication by reason of the existence
of any such Guarantee), (g) all Capital Lease Obligations of such Person, (h)
all obligations, contingent or otherwise, of such Person as an account party in
respect of letters of credit and letters of guaranty and (i) all obligations,
contingent or otherwise, of such Person in respect of bankers' acceptances. The
Indebtedness of any Person shall include the Indebtedness of any other Person
(including any partnership in which such Person is a general partner) to the
extent such Person is liable therefor as a result of
-14-
<PAGE>
such Person's ownership interest in or other relationship with such entity,
except to the extent the terms of such Indebtedness provide that such Person is
not liable therefor.
"Indebtedness to Cash Flow Ratio" means, at any date, the ratio of the
then outstanding Indebtedness of the Company to Company Cash Flow for the four
full fiscal quarters then most recently ended.
"Indemnified Taxes" means Taxes other than Excluded Taxes.
"Information Memorandum" means the Confidential Information Memorandum
dated January 1998 (Kinder Morgan Energy Partners L.P. $300,000,000 Senior
Secured Credit Facility).
"Initial Reduction Date" has the meaning specified in Section 2.09(a).
"Intercompany Notes" has the meaning specified in Section 5.12.
"Interest Election Request" has the meaning specified in Section 2.08.
"Interest Expense" means (without duplication), for any Person for any
period, the aggregate amount of interest, whether expensed or capitalized, paid,
accrued or scheduled to be paid during such period in respect of the
Indebtedness of such Person including (a) the interest portion of any deferred
payment obligation; (b) the portion of any rental obligation in respect of
Capital Lease Obligations allocable to interest expenses; and (c) any non-cash
interest payments or accruals, all determined in accordance with GAAP.
"Interest Payment Date" means (a) with respect to any ABR Loan (including
a Swingline Loan), the last Business Day of each January, April, July and
October and (b) with respect to any Eurodollar Loan, the last Business Day of
the Interest Period applicable to the Borrowing of which such Loan is a part
and, in the case of a Eurodollar Borrowing with an Interest Period of more than
three months' duration, each day prior to the last day of such Interest Period
that occurs at intervals of three months' duration after the first day of such
Interest Period.
"Interest Period" means with respect to any Eurodollar Borrowing, the
period commencing on the date of such Borrowing and ending on the numerically
corresponding day in the calendar month that is one, two, three or six months
thereafter, as the Company may elect; provided, that (a) if any Interest Period
would end on a day other than a Business Day, such Interest Period shall be
extended to the next succeeding Business Day unless such next succeeding
Business Day would fall in the next calendar month, in which case such Interest
Period shall end on the next preceding Business Day and (b) any Interest Period
that commences on the last Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the last calendar month of
such Interest Period) shall end on the last Business Day of the last calendar
month of such Interest Period. For purposes hereof, the date of a Borrowing
initially shall be the date on which such Borrowing is made and, in the case of
a
-15-
<PAGE>
Revolving Borrowing, thereafter shall be the effective date of the most recent
conversion or continuation of such Borrowing.
"Intracompany Interest Expense" has the meaning specified in the
definition of "Company Interest Expense" in this Section 1.01.
"Intracompany Interest Income" has the meaning specified in the definition
of "Company Interest Expense" in this Section 1.01.
"Issuing Bank" means First Union National Bank, in its capacity as the
issuer of Letters of Credit hereunder, and its successors in such capacity as
provided in Section 2.06(j).
"KMBT" has the meaning specified in the introduction to this Agreement.
"KMNGL" has the meaning specified in the introduction to this
Agreement.
"KMCO2" has the meaning specified in the introduction to this Agreement.
"LC Disbursement" means a payment made by the Issuing Bank pursuant to a
Letter of Credit.
"LC Exposure" means, at any time, the sum of (a) the aggregate undrawn
amount of all outstanding Letters of Credit at such time plus (b) the aggregate
amount of all LC Disbursements that have not yet been reimbursed by or on behalf
of the applicable Borrower at such time. The LC Exposure of any Lender at any
time shall be its Applicable Percentage of the total LC Exposure at such time.
"Lender" has the meaning specified in the introduction to this Agreement.
"Lenders" has the meaning specified in the introduction to this Agreement.
Unless the context otherwise requires, the term "Lenders" includes the Swingline
Lender.
"Letter of Credit" means the Existing Letter of Credit or any letter of
credit issued pursuant to this Agreement.
"Letter of Credit Request" has the meaning specified in Section 2.06.
"LIBOR" shall mean the rate of interest determined on the basis of the
rate for deposits in dollars in an amount substantially equal to the amount of
the applicable Loan for a period equal to the applicable Interest Period
commencing on the first day of such Interest Period appearing on Dow Jones
Market Service (formerly Telerate) Page 3750 as of 11:00 a.m. (London time) two
Business Days prior to the first day of the applicable Interest Period. In the
event that such rate does not appear on Telerate Page 3750, "LIBOR" shall be
determined by the Administrative Agent to be the rate per annum at which
deposits in dollars are offered by leading reference banks in the London
interbank market to First Union at approximately 11:00 a.m. (London time)
-16-
<PAGE>
two Business Days prior to the first day of the applicable Interest Period for a
period equal to such Interest Period and in an amount substantially equal to the
amount of the applicable Loan.
"LIBOR Rate" shall mean, with respect to any LIBOR Loan for any Interest
Period for such Loan, a rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of 1%) determined by the Administrative Agent to be equal to the
quotient of (i) LIBOR for such Loan for such Interest Period divided by (ii) 1
minus the Reserve Requirement for such Loan for such Interest Period.
"Lien" means, with respect to any asset, (a) any mortgage, deed of trust,
lien, pledge, hypothecation, encumbrance, charge or security interest in, on or
of such asset and (b) the interest of a vendor or a lessor under any conditional
sale agreement, capital lease or title retention agreement (or any financing
lease having substantially the same economic effect as any of the foregoing)
relating to such asset.
"Loan Documents" mean, collectively, this Agreement (including the Company
Guaranty and the Subsidiary Guarantors Guaranty), the Notes, if any, the
Intercompany Notes, the Applications, the Fee Letter and all other instruments
and documents from time to time executed and delivered by any Loan Party in
connection herewith and therewith; provided, however, for purposes of Article IX
and Article X, Loan Documents shall not include the Intercompany Notes.
"Loan Party" means the Company, the Subsidiary Borrower or any Subsidiary
Guarantor and "Loan Parties" means the Company, the Subsidiary Borrower and the
Subsidiary Guarantors.
"Loans" means advances made by the Lenders to the Company pursuant to
this Agreement.
"Maintenance Capital Expenditures" means cash capital expenditures made to
maintain, up to the level thereof that existed on the Execution Date, the
throughput, deliverable capacity, terminaling capacity, or fractionation
capacity (assuming normal operating conditions, including down-time and
maintenance) of the assets of the Company and the Restricted Subsidiaries, taken
as a whole, as such assets existed on the Execution Date and shall, therefore,
not include cash capital expenditures made in respect of capital additions and
improvements. Where cash capital expenditures are made in part to effectuate the
capacity maintenance level referred to in the immediately preceding sentence and
in part for other purposes, the General Partner's good faith allocation thereof
between the part used to maintain such capacity level and the part used for
other purposes shall be conclusive.
"Make-Whole Premium" means the make-whole premium paid by OLP "A" on its
8.79% First Mortgage Notes due June 30, 2007.
"Material Adverse Effect" means, relative to any occurrence of whatever
nature (including any adverse determination in any litigation, arbitration or
governmental investigation or proceeding) and after taking into account actual
insurance coverage and effective
-17-
<PAGE>
indemnification with respect to such occurrence, (a) a material adverse effect
on the financial condition, business or operations of the Company and the
Restricted Subsidiaries taken as a whole, (b) the impairment of (i) the ability
of the Loan Parties to collectively perform the payment or other material
obligations hereunder or under the other Loan Documents or (ii) the ability of
the Administrative Agent or the Lenders to realize the material benefits
intended to be provided by the Loan Parties under the Loan Documents or (c) the
subjection of any of the Administrative Agent, the Issuing Bank or any Lender to
any civil or criminal liability.
"Maturity Date" means the earlier of (a) February 1, 2005, as such date
may be extended pursuant to Section 2.20, and (b) the acceleration of the
Obligations pursuant to Section 7.01.
"Maximum Rate" has the meaning specified in Section 11.13.
"Mont Belvieu" means Mont Belvieu Associates, a Texas general partnership
of which each of KMNGL and Enterprise Products Co. owns a 50% general partner
interest and in which KMNGL has assigned 99% of its profits interest to OLP "A".
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a multiemployer plan as defined in Section
4001(a)(3) of ERISA.
"Net Income" means for any Person for any period, the net income or (net
loss) of such Person for such period (taken as a cumulative whole), as
determined in accordance with GAAP, provided that there shall be excluded,
without duplication, from such net income (to the extent otherwise included
therein):
(a) net extraordinary gains and losses (other than, in the case of
losses, losses resulting from charges against net income to establish or
increase reserves for potential environmental liabilities and reserves for
exposure of such Person under rate cases);
(b) net gains or losses in respect of dispositions of assets other
than in the ordinary course of business; and
(c) any gains or losses attributable to write-ups or write-downs of
assets; and
(d) proceeds of any key man insurance, or any insurance on property,
plant or equipment.
"New Subsidiary" has the meaning specified in Section 6.04.
"Nominee" has the meaning specified in Section 2.20.
"Non-Consenting Lenders" has the meaning specified in Section 2.20.
"Note" has the meaning specified in Section 2.10.
-18-
<PAGE>
"Notice of Account Designation" has the meaning specified in Section
2.07.
"Notice of Default" has the meaning specified in Section 7.01.
"Notice of Extension" has the meaning specified in Section 2.20.
"Notice of Prepayment" has the meaning specified in Section 2.11.
"Obligations" means collectively:
(a) the payment of all indebtedness and liabilities by, and
performance of all other obligations of, the Company in respect of the Loans;
(b) all obligations of the Company and the Subsidiary Borrower under,
with respect to, and relating to the Letters of Credit whether contingent or
matured;
(c) all obligations of the Company or any Restricted Subsidiary
(other than SFPP) owing to any Lender under any Hedging Agreement;
(d) the payment of all other indebtedness and liabilities by and
performance of all other obligations of, the Company and the Subsidiary Borrower
to the Administrative Agent, the Issuing Bank and the Lenders under, with
respect to, and arising in connection with, the Loan Documents, and the payment
of all indebtedness and liabilities of the Company and the Subsidiary Borrower
to the Administrative Agent, the Issuing Bank and the Lenders for fees, costs,
indemnification and expenses (including reasonable attorneys' fees and expenses)
under the Loan Documents;
(e) the reimbursement of all sums advanced and costs and expenses
incurred by the Administrative Agent under any Loan Document (whether directly
or indirectly) in connection with the Obligations or any part thereof or any
renewal, extension or change of or substitution for the Obligations or, any part
thereof, whether such advances, costs and expenses were made or incurred at the
request of any Loan Party or the Administrative Agent; and
(f) all renewals, extensions, amendments and changes of, or
substitutions or replacements for, all or any part of the items described under
clauses (a) through (e) above.
"OECD" means the Organization for Economic Cooperation and Development
(or any successor).
"OLP `A'" has the meaning specified in the introduction to this
Agreement.
"OLP `A' EBITDA" means (without duplication), for any period, the sum of
(a) the EBITDA of OLP " A" for such period (not including, however, the EBITDA
of any Person in which OLP "A" owned Capital Stock at any time during such
period), plus (b) the aggregate of all distributions actually received by OLP
"A" in respect of such period from any Person in which OLP "A" owned Capital
Stock during all or any portion of such period; provided
-19-
<PAGE>
however, that (y) the EBITDA of OLP "A" will be calculated for such period
without regard to the Make-Whole Premium and (z) notwithstanding anything to the
contrary contained in this definition, the EBITDA of OLP "A" for each of the
four quarters most recently ended preceding March 5, 1998 shall be computed on a
pro forma basis which assumes that the EBITDA from ownership and operation of
the Central Basin Pipeline for each such quarter was $3,625,000 (i.e., an amount
equal to the quarterly priority distribution to be received by KMCO2 during the
first 16 quarters ending after March 5, 1998).
"OLP `A' First Mortgage Notes" has the meaning specified in the
Preliminary Statements.
"OLP `A' Loan Agreement" has the meaning specified in the Preliminary
Statements.
"OLP `A' Refinancing" has the meaning specified in the Preliminary
Statements.
"OLP `B' Refinancing" has the meaning specified in the Preliminary
Statements.
"OLP `C'" has the meaning specified in the introduction to this
Agreement.
"OLP `D'" has the meaning specified in the introduction to this
Agreement.
"Other Taxes" means any and all present or future stamp or documentary
taxes or any other excise or property taxes, charges or similar levies arising
from any payment made hereunder or from the execution, delivery or enforcement
of, or otherwise with respect to, this Agreement.
"Participant" has the meaning specified in Section 11.05(e).
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA and any successor entity performing similar functions.
"Permitted Encumbrances" means:
(a) Liens imposed by law for taxes that are not yet due or are being
contested in compliance with Section 5.04;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's
and other like Liens imposed by law, arising in the ordinary course of business
and securing obligations that are not overdue by more than 30 days or are being
contested in compliance with Section 5.04;
(c) pledges and deposits made in the ordinary course of business in
compliance with workers' compensation, unemployment insurance and other social
security laws or regulations;
-20-
<PAGE>
(d) deposits to secure the performance of bids, trade contracts,
leases, statutory obligations, surety and appeal bonds, performance bonds and
other obligations of a like nature, in each case in the ordinary course of
business;
(e) easements, zoning restrictions, rights-of-way and similar
encumbrances on real property imposed by law or arising in the ordinary course
of business that do not secure any monetary obligations and do not materially
detract from the value of the affected property or interfere with the ordinary
conduct of business of the Company or any Subsidiary;
(f) judgment and attachment Liens not giving rise to an Event of
Default or Liens created by or existing from any litigation or legal proceeding
that are currently being contested in good faith by appropriate proceedings,
promptly instituted and diligently conducted, and for which adequate reserves
have been made to the extent required by GAAP;
(g) any interest or title of a lessor in property subject to any
Capitalized Lease Obligation or operating lease which, in each case, is
permitted under this Agreement; and
(h) Liens in favor of collecting or payor banks having a right of
setoff, revocation, refund or chargeback with respect to money or instruments of
the Company or any Restricted Subsidiary on deposit with or in possession of
such bank;
provided that the term "Permitted Encumbrances" shall not include any Lien
securing Indebtedness.
"Permitted Investments" means:
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States of
America (or by any agency thereof to the extent such obligations are backed by
the full faith and credit of the United States of America), in each case
maturing within one year from the date of acquisition thereof;
(b) investments in commercial paper issued by a Person that is not
the Company or an Affiliate of the Company maturing within 270 days from the
date of acquisition thereof and having, at such date of acquisition, an
investment grade rating from S&P or from Moody's;
(c) investments in certificates of deposit, banker's acceptances and
time deposits maturing within 180 days from the date of acquisition thereof
issued or guaranteed by or placed with, and money market deposit accounts issued
or offered by, any domestic office of any commercial bank organized under the
laws of the United States of America or any state thereof which has a combined
capital and surplus and undivided profits of not less than $500,000,000;
(d) fully collateralized repurchase agreements with a term of not
more than 30 days for securities described in clause (a) above and entered into
with a financial institution satisfying the criteria described in clause (c)
above; and
-21-
<PAGE>
(e) investments in demand deposit accounts with any Lender or with a
financial institution satisfying the criteria described in clause (c) above.
"Person" means any natural person, corporation, limited liability company,
trust, joint venture, association, company, partnership, Governmental Authority
or other entity.
"Plan" means any employee pension benefit plan (other than a Multiemployer
Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code
or Section 302 of ERISA, and in respect of which the Company or any ERISA
Affiliate is (or, if such plan were terminated, would under Section 4069 of
ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA.
"Pledged Bonds" has the meaning specified in Section 2.06.
"Prime Rate" shall mean the rate of interest from time to time announced
publicly by the Administrative Agent at the Principal Office as its prime
commercial lending rate. Such rate is set by the Administrative Agent as a
general reference rate of interest, taking into account such factors as the
Administrative Agent may deem appropriate, it being understood that many of the
Administrative Agent's commercial or other loans are priced in relation to such
rate, that it is not necessarily the lowest or best rate actually charged to any
customer and that the Administrative Agent may make various commercial or other
loans at rates of interest having no relationship to such rate.
"Principal Office" shall mean the principal office of the Administrative
Agent, presently located at 301 South College Street, TW-10, Charlotte, North
Carolina 28288-0608 or such other location as designated by the Administrative
Agent from time to time.
"Pro Rata Share" has the meaning specified in Section 10.05.
"Purchase Agreement" shall mean the Purchase Agreement dated as of the
18th day of October, 1997, by and among the Company, the General Partner, SFMLP,
Santa Fe Pacific Pipelines, Inc., a Delaware corporation, and SFP Pipelines,
Inc., a Delaware corporation, and SFP Pipeline Holdings, Inc., a Delaware
corporation, as amended.
"Qualified Stock" means any Capital Stock issued by the Company that is
not Disqualified Stock.
"Reduction Date" has the meaning specified in Section 2.09(a).
"Refinancing Indebtedness" means any Indebtedness of the Company or any
Restricted Subsidiary issued in exchange for, or the net proceeds of which are
applied entirely to substantially concurrently repay, refinance, refund or
replace, Indebtedness of the Company or any Restricted Subsidiary (a) existing
on the Execution Date and listed on Schedule 1.01A or (b) which would exist on
the Execution Date (assuming that all unfunded commitments to advance any such
Indebtedness are fully funded) (the "Refinanced Indebtedness"), to the extent
such Refinancing Indebtedness:
-22-
<PAGE>
(a) is issued in a principal amount (or if such Indebtedness is
issued at an original issue discount, is issued at an original issue price) not
exceeding the outstanding principal amount (or, if such Refinanced Indebtedness
was issued at an original issue discount, not exceeding the outstanding accrued
principal amount) of such Refinanced Indebtedness; and
(b) if the Refinanced Indebtedness is Indebtedness of the Company and
ranks by contract, by its terms or otherwise junior in right of payment to the
Obligations, (A) is unsecured and does not have a final scheduled maturity and
is not subject to any principal payments, including payments upon mandatory or
optional redemption, prior to the dates of analogous payments under the
Refinanced Indebtedness, and (B) has subordination provisions effective to
subordinate such Indebtedness to the Obligations at least to the extent that
such Refinanced Indebtedness is subordinated to the Obligations; and
(c) if the Refinanced Indebtedness is Indebtedness of the Company
which is pari passu in right of payment with the Obligations, (A) is either pari
passu or is subordinated in right of payment to the Obligations, (B) does not
have a final scheduled maturity and is not subject to any principal payments,
including payments upon mandatory or optional redemption, prior to the final
scheduled maturity date of the Refinanced Indebtedness, and (C) if pari passu is
not secured by a Lien on any property or assets of the Company or any Restricted
Subsidiary in addition to Liens securing the Refinanced Indebtedness or if
subordinated, is unsecured.
"Register" has the meaning specified in Section 11.05.
"Regulation A" means Regulation A of the Board, as the same is from time
to time in effect, and all official rulings and interpretations thereunder or
thereof.
"Regulation D" means Regulation D of the Board, as the same is from time
to time in effect, and all official rulings and interpretations thereunder or
thereof.
"Regulation T" means Regulation T of the Board, as the same is from time
to time in effect, and all official rulings and interpretations thereunder or
thereof.
"Regulation U" means Regulation U of the Board, as the same is from time
to time in effect, and all official rulings and interpretations thereunder or
thereof.
"Regulation X" means Regulation X of the Board, as the same is from time
to time in effect, and all official rulings and interpretations thereunder or
thereof.
"Related Parties" means, with respect to any specified Person, such
Person's Affiliates and the respective directors, officers, employees, agents
and advisors of such Person and such Person's Affiliates.
"Relevant Anniversary Date" has the meaning specified in Section 2.20.
-23-
<PAGE>
"Required Lenders" means, at any time, Lenders having Revolving Credit
Exposures and unused Commitments representing 66_% of the sum of the total
Revolving Credit Exposures and unused Commitments at such time.
"Requirement of Law" shall mean any law, statute, code, ordinance, order,
determination, rule, regulation, judgment, decree, injunction, franchise,
permit, certificate, license, authorization or other directive or requirement
(whether or not having the force of law), including Environmental Laws, energy
regulations and occupational, safety and health standards or controls, of any
Governmental Authority.
"Reserve Requirement" means, for any day as applied to a Eurodollar Loan,
the aggregate (without duplication) of the rates (expressed as a decimal
fraction) of reserve requirements in effect on such day (including basic,
supplemental, marginal and emergency reserves under any regulations of the Board
or other Governmental Authority having jurisdiction with respect thereto)
dealing with reserve requirements prescribed for eurocurrency funding (currently
referred to as "Eurocurrency Liabilities" in Regulation D) maintained by a
member bank of the Federal Reserve System. Eurodollar Loans shall be deemed to
constitute Eurocurrency Liabilities and to be subject to such reserve
requirements without benefit of or credit for proration, exceptions or offsets
which may be available from time to time to any Lender under Regulation D.
"Responsible Officer" of any Loan Party means the Chairman, Vice Chairman,
President, Chief Financial Officer or Chief Accounting Officer of (a) as to any
Loan Party that is a limited partnership, the General Partner of such Person,
(b) as to any Loan Party that is a limited liability company, the managing
member of such Person, and (c) as to any Loan Party that is a corporation, such
Person.
"Restricted Payment" means any distribution (whether in cash, securities
or other property) with respect to any partnership interest in the Company, or
any payment (whether in cash, securities or other property), including any
deposit, on account of the purchase, redemption, retirement, acquisition,
cancellation or termination of any such partnership interest or any option or
other right to acquire any such partnership interest; provided, however, that
distributions with respect to the partnership interests in the Company that do
not exceed, with respect to any fiscal quarter of the Company, the amount of
Available Cash for such quarter shall not constitute Restricted Payments so long
as in each case, both before and after the making of such distribution, no Event
of Default or Default shall have occurred and be continuing; and provided,
further, that any partnership interest split, partnership interest reverse
split, dividend of Company partnership interests or similar transaction will not
constitute a Restricted Payment.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary. The Board of Directors of the general partner of the
Company, by a Board Resolution, may designate any Unrestricted Subsidiary to be
a Restricted Subsidiary; provided, that (a) before and after giving effect
thereto no Default or Event of Default shall have occurred and be continuing,
(b) the Company and the Restricted Subsidiaries shall be in compliance, on a pro
forma basis, after giving effect to such designation, with the covenants
contained in Article VI, recomputed as at the last day of the most recently
ended fiscal quarter of
-24-
<PAGE>
the Company and the Restricted Subsidiaries as if such designation had occurred
on the first day of each relevant period for testing such compliance and (c) the
Company shall have delivered to the Administrative Agent and the Lenders a
certificate of a Responsible Officer to such effect, together with all relevant
financial information and calculations demonstrating such compliance. For
purposes of this definition and of Article VI, a newly designated or acquired
Restricted Subsidiary shall be deemed to have incurred or made on the date of
its designation or acquisition, as the case may be, all such Indebtedness, Liens
and investments then outstanding as would be reflected on its balance sheet,
prepared in accordance with GAAP, as at such date.
"Retiring Lenders" has the meaning specified in the introduction to this
Agreement.
"Revolving Borrowing" means a Borrowing comprised of Revolving Loans.
"Revolving Credit Exposure" means, with respect to any Lender at any time,
the sum of the outstanding principal amount of such Lender's Revolving Loans and
its LC Exposure and Swingline Exposure at such time.
"Revolving Loan" means a Loan made pursuant to Section 2.03.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc.
"Santa Fe Acquisition" has the meaning specified in the Preliminary
Statements.
"SFMLP" has the meaning specified in the Preliminary Statements.
"SFPP" has the meaning specified in the Preliminary Statements.
"SFPP First Mortgage Notes" means those certain First Mortgage Notes
issued by SFPP (under its prior name Southern Pacific Pipe Lines Partnership,
L.P.) pursuant to a Note Agreement dated December 8, 1988 between SFPP and the
purchasers named therein, which on the Execution Date are outstanding in the
aggregate principal amount of $279,500,000.
"SFPP Intracompany Refinancing Indebtedness" means SFPP Refinancing
Indebtedness owing to the Company in respect of loan proceeds borrowed
substantially concurrently by the Company from a third party lender and reloaned
by it to the Company.
"SFPP Intracompany Refinancing Interest Expense" means, for any period,
Interest Expense of SFPP for such period in respect of SFPP Intracompany
Refinancing Indebtedness.
"SFPP Refinancing Indebtedness" means Indebtedness of SFPP issued in
exchange for, or the net proceeds of which are applied substantially
concurrently to repay, refinance, refund or replace, the SFPP First Mortgage
Notes or the SFPP Revolving Credit Facility, or both, which Indebtedness would,
if the SFPP First Mortgage Notes or the SFPP Revolving Credit Facility, as the
case may be, constituted "Refinanced Indebtedness" (as said term is defined in
the definition of "Refinancing Indebtedness" in this Section 1.01), constitute
Refinancing Indebtedness in respect thereof.
-25-
<PAGE>
"SFPP Revolving Credit Facility" means that certain Amended and Restated
Credit Agreement dated as of August 11, 1997 among SFPP, the lenders party
thereto, Bank of America National Trust and Savings Association, as agent, Chase
Bank of Texas, National Association (formerly Texas Commerce Bank National
Association), as syndication agent, Bank of Montreal, as documentation agent and
BancAmerica Securities, Inc., as arranger, providing for revolving loans to be
made to SFPP in an aggregate principal amount not exceeding $175,000,000 at any
time outstanding.
"Shell" means Shell Western E & P Inc., Shell Cortez Pipeline Company,
Shell Land & Energy Company and their Affiliates.
"Shell CO2" has the meaning specified in the Preliminary Statements.
"Shell JV Investment" has the meaning specified in the Preliminary
Statements.
"Subsidiary" means, with respect to any Person (the "parent") at any date,
any corporation, limited liability company, partnership, association or other
entity the accounts of which would be consolidated with those of the parent in
the parent's consolidated financial statements if such financial statements were
prepared in accordance with GAAP as of such date, as well as any other
corporation, limited liability company, partnership, association or other entity
(a) of which securities or other ownership interests representing more than 50%
of the equity or more than 50% of the ordinary voting power or, in the case of a
partnership, more than 50% of the general partnership interests are, as of such
date, owned, controlled or held, or (b) that is, as of such date, otherwise
controlled, by the parent or one or more subsidiaries of the parent or by the
parent and one or more subsidiaries of the parent. Unless the context otherwise
clearly requires, references in this Agreement to a "Subsidiary" or the
"Subsidiaries" refer to a Subsidiary or the Subsidiaries of the Company.
"Subsidiary Borrower" has the meaning specified in the introduction to
this Agreement.
"Subsidiary Borrower Credit Agreement" has the meaning specified in the
Preliminary Statements.
"Subsidiary Borrower Guaranteed Obligations" has the meaning specified
in Section 9.01.
"Subsidiary Guarantor Counterpart" has the meaning specified in
Section 6.04.
"Subsidiary Guarantors" has the meaning specified in the introduction to
this Agreement.
"Subsidiary Guarantors Guaranty" means the guaranty contained in
Article X.
"Swingline Exposure" means, at any time, the aggregate principal amount of
all Swingline Loans outstanding at such time. The Swingline Exposure of any
Lender at any time shall be its Applicable Percentage of the total Swingline
Exposure at such time.
-26-
<PAGE>
"Swingline Lender" means First Union National Bank, in its capacity as
lender of Swingline Loans hereunder.
"Swingline Loan" means a Loan made pursuant to Section 2.04.
"Syndication Agent" has the meaning specified in the introduction to
this Agreement.
"Taxes" means any and all present or future taxes, levies, imposts,
duties, deductions, charges or withholdings imposed by any Governmental
Authority.
"Total Commitment" means the sum of the Commitments of the Lenders,
which on the Execution Date is $325,000,000.
"Transactions" means the execution, delivery and performance by the Loan
Parties of this Agreement and the other Loan Documents, the borrowing of Loans,
the use of the proceeds thereof and the Existing Letter of Credit and the
issuance of the other Letters of Credit hereunder.
"Trustee" means Bank One, Texas, NA, as the beneficiary of the Existing
Letter of Credit and any successor beneficiary.
"Type", when used in reference to any Loan or Borrowing, refers to whether
the rate of interest on such Loan, or on the Loans comprising such Borrowing, is
determined by reference to the LIBOR Rate or the Alternate Base Rate.
"United States" and "U.S."each means United States of America.
"Unrestricted Subsidiary" means (a) any Subsidiary of an Unrestricted
Subsidiary or (b) any Subsidiary of the Company or of a Restricted Subsidiary
that is designated as an Unrestricted Subsidiary by a Board Resolution of the
general partner of the Company in accordance with the requirements of the
following sentence with the consent of the Required Lenders (which consent shall
not be unreasonably withheld). The Company may hereafter designate any
Subsidiary of the Company or of a Restricted Subsidiary (other than the
Subsidiary Borrower, a Subsidiary Guarantor or SFPP) to be an Unrestricted
Subsidiary by a Board Resolution of the general partner of the Company, as
evidenced by written notice thereof delivered to the Administrative Agent, if at
the time of and after giving effect to such designation, (i) no Default or Event
of Default shall have occurred and be continuing, (ii) such Subsidiary does not
own or hold any Capital Stock of, or any Lien on any property of, the Company or
any Restricted Subsidiary and (iii) such Subsidiary does not own or hold any
Indebtedness of the Company or any Restricted Subsidiary that would not be
permitted pursuant to Section 6.01 as if incurred on the date of such
designation. As of the date hereof, the Company has no Unrestricted
Subsidiaries.
"Voting Stock" means, with respect to any Person, securities of any class
or classes of Capital Stock in such Person entitling holders thereof (whether at
all times or only so long as no senior class of stock has voting power by reason
of any contingency) to vote in the election of
-27-
<PAGE>
members of the Board of Directors or other governing body of such Person or its
managing member or its general partner (or its managing general partner if there
is more than one general partner).
"Wholly-Owned Restricted Subsidiary" means a Restricted Subsidiary of
which all issued and outstanding Capital Stock (excluding (a) in the case of a
corporation, directors' qualifying shares, (b) in the case of a limited
partnership, a 1.5% general partner interest and (c) in the case of a limited
liability company, a 1.5% member interest) is directly or indirectly owned by
the Company.
"Withdrawal Liability" means liability to a Multiemployer Plan as a result
of a complete or partial withdrawal from such Multiemployer Plan, as such terms
are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02 Classification of Loans and Borrowings. For purposes of
this Agreement, Loans may be classified and referred to by Class (e.g., a
"Revolving Loan") or by Type (e.g., a "Eurodollar Loan") or by Class and Type
(e.g., a "Eurodollar Revolving Loan"). Borrowings also may be classified and
referred to by Class (e.g., a "Revolving Borrowing") or by Type (e.g., a
"Eurodollar Borrowing") or by Class and Type (e.g., a "Eurodollar Revolving
Borrowing").
SECTION 1.03 Accounting Terms; Changes in GAAP. All accounting and
financial terms used herein and not otherwise defined herein and the compliance
with each covenant contained herein which relates to financial matters shall be
determined in accordance with GAAP applied by the Company on a consistent basis,
except to the extent that a deviation therefrom is expressly stated. Should
there be a change in GAAP from that in effect on the Execution Date, such that
the defined terms set forth in Section 1.01 or the covenants set forth in
Article VI would then be calculated in a different manner or with different
components or would render the same not meaningful criteria for evaluating the
matters contemplated to be evidenced by such covenants, (a) the Company and the
Required Lenders agree, within the 60-day period following any such change, to
negotiate in good faith and enter into an amendment to this Agreement in order
to conform the defined terms set forth in Section 1.01 or the covenants set
forth in Article VI, or both, in such respects as shall reasonably be deemed
necessary by the Required Lenders so that the criteria for evaluating the
matters contemplated to be evidenced by such covenants are substantially the
same criteria as were effective prior to any such change in GAAP, and (b) the
Company shall be deemed to be in compliance with such covenants during the
60-day period following any such change, or until the earlier date of execution
of such amendment, if and to the extent that the Company would have been in
compliance therewith under GAAP as in effect immediately prior to such change.
SECTION 1.04 Interpretation. (a) In this Agreement, unless a
clear contrary intention appears:
-28-
<PAGE>
(i) the singular number includes the plural number and vice versa;
(ii) reference to any gender includes each other gender;
(iii) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision;
(iv) reference to any Person includes such Person's successors and
assigns but, if applicable, only if such successors and assigns are
permitted by this Agreement, and reference to a Person in a particular
capacity excludes such Person in any other capacity or individually;
provided that nothing in this clause (iv) is intended to authorize any
assignment not otherwise permitted by this Agreement;
(v) except as expressly provided to the contrary herein, reference
to any agreement, document or instrument (including this Agreement) means
such agreement, document or instrument as amended, supplemented or modified
and in effect from time to time in accordance with the terms thereof and,
if applicable, the terms hereof, and reference to any Note or other note
includes any note issued pursuant hereto in extension or renewal thereof
and in substitution or replacement therefor;
(vi) unless the context indicates otherwise, reference to any Article,
Section, Schedule or Exhibit means such Article or Section hereof or such
Schedule or Exhibit hereto;
(vii) the word "including" (and with correlative meaning "include")
means including, without limiting the generality of any description
preceding such term;
(viii) with respect to the determination of any period of time, except
as expressly provided to the contrary, the word "from" means "from and
including" and the word "to" means "to but excluding";
(ix) reference to any law, rule or regulation means such as amended,
modified, codified or reenacted, in whole or in part, and in effect from
time to time; and
(x) the words "asset" and "property" shall be construed to have the
same meaning and effect and refer to any and all tangible and intangible
assets and properties.
ARTICLE II.
The Credits
-----------
SECTION 2.01 Commitments. Subject to the terms and conditions set
forth herein, each Lender agrees to make Revolving Loans to the Company from
time to time during the Availability Period in an aggregate principal amount
that will not result in (a) such Lender's Revolving Credit Exposure exceeding
such Lender's Commitment or (b) the sum of the
-29-
<PAGE>
total Revolving Credit Exposures exceeding the Availability. Within the
foregoing limits and subject to the terms and conditions set forth herein, the
Company may borrow, prepay and reborrow Revolving Loans.
SECTION 2.02 Loans and Borrowings. (a) Each Revolving Loan shall be
made as part of a Borrowing consisting of Revolving Loans made by the Lenders
ratably in accordance with their respective Commitments. The failure of any
Lender to make any Loan required to be made by it shall not relieve any other
Lender of its obligations hereunder.
(b) Subject to Section 2.14, each Revolving Borrowing shall be
comprised entirely of ABR Loans or Eurodollar Loans as the Company may request
in accordance herewith. Each Swingline Loan shall be an ABR Loan. Each Lender at
its option may make any Eurodollar Loan by causing any domestic or foreign
branch or Affiliate of such Lender to make such Loan; provided that any exercise
of such option shall not affect the obligation of the Company to repay such Loan
in accordance with the terms of this Agreement.
(c) At the commencement of each Interest Period for any Eurodollar
Revolving Borrowing, such Borrowing shall be in an aggregate amount that is an
integral multiple of $1,000,000 and not less than $3,000,000. At the time that
each ABR Revolving Borrowing is made, such Borrowing shall be in an aggregate
amount that is an integral multiple of $500,000 and not less than $1,000,000;
provided that an ABR Revolving Borrowing may be in an aggregate amount that is
equal to the entire unused balance of the Total Commitment or that is required
to finance the reimbursement of an LC Disbursement as contemplated by Section
2.06(f). Each Swingline Loan shall be in an amount that is an integral multiple
of $100,000 and not less than $500,000. Borrowings of more than one Type and
Class may be outstanding at the same time; provided that there shall not at any
time be more than a total of six Eurodollar Revolving Borrowings outstanding.
(d) Notwithstanding any other provision of this Agreement, the
Company shall not be entitled to request, or to elect to convert or continue,
any Borrowing if the Interest Period requested with respect thereto would end
after the Maturity Date.
SECTION 2.03 Requests for Revolving Borrowings. To request a
Revolving Borrowing, the Company shall notify the Administrative Agent of such
request by telephone (a) in the case of a Eurodollar Borrowing, not later than
10:00 a.m., Charlotte, North Carolina time, three Business Days before the date
of the proposed Borrowing (provided, however, no such request may be given prior
to the third Business Day after the Effective Date) and (b) in the case of an
ABR Borrowing, not later than 10:00 a.m., Charlotte, North Carolina time, on the
date of the proposed Borrowing. Each such telephonic Borrowing Request shall be
irrevocable and shall be confirmed promptly by hand delivery or telecopy to the
Administrative Agent of a written Borrowing Request in a form of Exhibit 2.03 (a
"Borrowing Request") and signed by the Company. Each such telephonic and written
Borrowing Request shall specify the following information in compliance with
Section 2.02:
-30-
<PAGE>
(i) the aggregate amount of the requested Borrowing;
(ii) the date of such Borrowing, which shall be a Business Day;
(iii)whether such Borrowing is to be an ABR Borrowing or a
Eurodollar Borrowing;
(iv) in the case of a Eurodollar Borrowing, the initial Interest
Period to be applicable thereto, which shall be a period contemplated by
the definition of the term "Interest Period"; and
(v) the location and number of the Company's account to which funds
are to be disbursed, which shall comply with the requirements of Section
2.07.
If no election as to the Type of Revolving Borrowing is specified, then the
requested Revolving Borrowing shall be an ABR Borrowing. If no Interest Period
is specified with respect to any requested Eurodollar Revolving Borrowing, then
the Company shall be deemed to have selected an Interest Period of one month's
duration. Promptly following receipt of a Borrowing Request in accordance with
this Section 2.03, the Administrative Agent shall advise each Lender of the
details thereof and of the amount of such Lender's Loan to be made as part of
the requested Borrowing.
SECTION 2.04 Swingline Loans. (a Subject to the terms and conditions
set forth herein, the Swingline Lender agrees to make Swingline Loans to the
Company from time to time during the Availability Period, in an aggregate
principal amount at any time outstanding that will not result in (i) the
aggregate principal amount of outstanding Swingline Loans exceeding $5,000,000
or (ii) the sum of the total Revolving Credit Exposures exceeding the lesser of
the Total Commitment and the Availability; provided that the Swingline Lender
shall not be required to make a Swingline Loan to refinance an outstanding
Swingline Loan. Within the foregoing limits and subject to the terms and
conditions set forth herein, the Company may borrow, prepay and reborrow
Swingline Loans.
(b) To request a Swingline Loan, the Company shall notify the
Administrative Agent of such request by telephone (confirmed by telecopy), not
later than 12:00 noon, Charlotte, North Carolina time, on the day of a proposed
Swingline Loan. Each such notice shall be irrevocable and shall specify the
requested date (which shall be a Business Day) and amount of the requested
Swingline Loan. The Administrative Agent (if not the Swingline Lender) will
promptly advise the Swingline Lender of any such notice received from the
Company. So long as the Swingline Lender and the Administrative Agent are First
Union National Bank, the Swingline Lender shall make each Swingline Loan
available to the Company by means of a credit to the deposit account of the
Company with the Swingline Lender identified in the most recent Notice of
Account Designation by 3:00 p.m., Charlotte, North Carolina time, on the
requested date of such Swingline Loan.
(c) The Swingline Lender may by written notice given to the
Administrative Agent not later than 12:00 noon, Charlotte, North Carolina time,
on any Business Day require the Lenders to acquire participations on such
Business Day in all or a portion of the Swingline Loans
-31-
<PAGE>
outstanding. Such notice shall specify the aggregate amount of Swingline Loans
in which Lenders will participate. Promptly upon receipt of such notice, the
Administrative Agent will give notice thereof to each Lender, specifying in such
notice such Lender's Applicable Percentage of such Swingline Loan or Loans. Each
Lender hereby absolutely and unconditionally agrees, upon receipt of notice as
provided above, to pay to the Administrative Agent, for the account of the
Swingline Lender, such Lender's Applicable Percentage of such Swingline Loan or
Loans. Each Lender acknowledges and agrees that its obligation to acquire
participations in Swingline Loans pursuant to this paragraph is absolute and
unconditional and shall not be affected by any circumstance whatsoever,
including the occurrence and continuance of a Default or Event of Default or
reduction or termination of the Total Commitment, and that each such payment
shall be made without any offset, abatement, withholding or reduction
whatsoever. Each Lender shall comply with its obligation under this paragraph by
wire transfer of immediately available funds, in the same manner as provided in
Section 2.07 with respect to Loans made by such Lender (and Section 2.07 shall
apply, mutatis mutandis, to the payment obligations of the Lenders), and the
Administrative Agent shall promptly pay to the Swingline Lender the amounts so
received by it from the Lenders. The Administrative Agent shall notify the
Company of any participations in any Swingline Loan acquired pursuant to this
paragraph, and thereafter payments in respect of such Swingline Loan shall be
made to the Administrative Agent and not to the Swingline Lender. Any amounts
received by the Swingline Lender from the Company (or other party on behalf of
the Company) in respect of a Swingline Loan after receipt by the Swingline
Lender of the proceeds of a sale of participations therein shall be promptly
remitted to the Administrative Agent; any such amounts received by the
Administrative Agent shall be promptly remitted by the Administrative Agent to
the Lenders that shall have made their payments pursuant to this paragraph and
to the Swingline Lender, as their interests may appear. The purchase of
participations in a Swingline Loan pursuant to this paragraph shall not relieve
the Company or any other Loan Party of any default in the payment thereof.
SECTION 2.05 Telephonic Notices. Without in any way limiting the
obligation of the Company or any other Loan Party to confirm in writing any
telephonic notice it is entitled to give under this Agreement or any other Loan
Document, the Administrative Agent may act without liability upon the basis of a
telephonic notice believed in good faith by the Administrative Agent to be from
the Company or such Loan Party prior to receipt of written confirmation. In each
such case, each Loan Party hereby waives the right to dispute the Administrative
Agent's record of the terms of such telephonic notice.
SECTION 2.06 Letters of Credit. (a) Existing Letter of Credit. The
parties hereto acknowledge that on and after the Effective Date the Existing
Letter of Credit shall be a Letter of Credit issued by the Issuing Bank for the
account of the Subsidiary Borrower pursuant to this Agreement. The Subsidiary
Borrower hereby pledges, assigns, transfers and delivers to the Issuing Bank all
its right, title and interest to all Bonds purchased with funds drawn under the
Existing Letter of Credit (the "Pledged Bonds"), and hereby grants to the
Issuing Bank a first lien on, and security interest in, its rights, title and
interest in and to the Pledged Bonds, the interest thereon and all proceeds
thereof or substitutions therefor, as collateral security for the prompt and
complete payment when due of the amounts payable in respect of the Existing
Letter of Credit. During such time as any Bonds are Pledged Bonds, the Issuing
Bank shall be entitled to exercise all of the rights of a holder of Bonds with
respect to voting, consenting and directing
-32-
<PAGE>
the Trustee as if the Issuing Bank were the owner of such Bonds, and the
Subsidiary Borrower hereby grants and assigns to the Issuing Bank all such
rights.
(b) General. Subject to the terms and conditions set forth herein,
the Company may request the issuance of Letters of Credit for its own account or
for its own account and that of any Restricted Subsidiary, in a form reasonably
acceptable to the Administrative Agent and the Issuing Bank, at any time and
from time to time during the Availability Period. In the event of any
inconsistency between the terms and conditions of this Agreement and the terms
and conditions of any Application (as defined in Section 2.06(c)) or other
agreement submitted by the Company to, or entered into by the Company with, the
Issuing Bank relating to any Letter of Credit, the terms and conditions of this
Agreement shall control.
(c) Notice of Issuance, Amendment, Renewal, Extension; Certain
Conditions. To request the issuance of a Letter of Credit (or the amendment,
renewal or extension of an outstanding Letter of Credit), the Company shall hand
deliver or telecopy (or transmit by electronic communication, if arrangements
for doing so have been approved by the Issuing Bank) to the Issuing Bank and the
Administrative Agent (not less than five Business Days in advance of the
requested date of issuance, amendment, renewal or extension) a notice (a "Letter
of Credit Request") requesting the issuance of a Letter of Credit, or
identifying the Letter of Credit to be amended, renewed or extended, the date of
issuance, amendment, renewal or extension, the date on which such Letter of
Credit is to expire (which shall comply with this Section 2.06(c)), the amount
of such Letter of Credit, the name and address of the beneficiary thereof and
such other information as shall be necessary to prepare, amend, renew or extend
such Letter of Credit. If requested by the Issuing Bank, the Company also shall
submit a letter of credit application on the Issuing Bank's standard form (an
"Application") in connection with any request for a Letter of Credit. A Letter
of Credit shall be issued, amended, renewed or extended only if (and upon
issuance, amendment, renewal or extension of each Letter of Credit the Company
shall be deemed to represent and warrant that), after giving effect to such
issuance, amendment, renewal or extension (i) the LC Exposure shall not exceed
$75,000,000 and (ii) the sum of the total Revolving Credit Exposures shall not
exceed the lesser of the Total Commitment and the Availability.
(d) Expiration Date. Each Letter of Credit (other than the Existing
Letter of Credit) shall expire at or prior to the close of business on the
earlier of (i) the date one year after the date of the issuance of such Letter
of Credit (or, in the case of any renewal or extension thereof, one year after
such renewal or extension) and (ii) the date that is five Business Days prior to
the Maturity Date.
(e) Participations. On the Effective Date with respect to the
Existing Letter of Credit and by the issuance of each other Letter of Credit (or
an amendment to a Letter of Credit increasing the amount thereof) and without
any further action on the part of the Issuing Bank or the Lenders, the Issuing
Bank hereby grants to each Lender, and each Lender hereby acquires from the
Issuing Bank, a participation in such Letter of Credit equal to such Lender's
Applicable Percentage of the aggregate amount available to be drawn under such
Letter of Credit. In consideration and in furtherance of the foregoing, each
Lender hereby absolutely and unconditionally agrees to pay to the Administrative
Agent, for the account of the Issuing Bank,
-33-
<PAGE>
such Lender's Applicable Percentage of each LC Disbursement made by the Issuing
Bank and not reimbursed by the Company on the date due as provided in Section
2.06(f), or of any reimbursement payment required to be refunded to the Company
for any reason. Each Lender acknowledges and agrees that its obligation to
acquire participations pursuant to this paragraph in respect of Letters of
Credit is absolute and unconditional and shall not be affected by any
circumstance whatsoever, including any amendment, renewal or extension of any
Letter of Credit or the occurrence and continuance of a Default or an Event of
Default or reduction or termination of the Commitments, and that each such
payment shall be made without any offset, abatement, withholding or reduction
whatsoever.
(i) Reimbursement. If the Issuing Bank shall make any LC Disbursement
in respect of a Letter of Credit, the Borrower for whose account such Letter of
Credit was issued shall reimburse such LC Disbursement by paying to the
Administrative Agent an amount equal to such LC Disbursement not later than
12:00 noon, Charlotte, North Carolina time, on the date that such LC
Disbursement is made, if such Borrower shall have received notice of such LC
Disbursement prior to 10:00 a.m., Charlotte, North Carolina time, on such date,
or, if such notice has not been received by such Borrower prior to such time on
such date, then not later than 12:00 noon, Charlotte, North Carolina time, on
(i) the Business Day that such Borrower receives such notice, if such notice is
received prior to 10:00 a.m., Charlotte, North Carolina time, on the day of
receipt, or (ii) the Business Day immediately following the day that such
Borrower receives such notice, if such notice is not received prior to such time
on the day of receipt; provided that if such Borrower fails to make such payment
when due, then, upon demand by the Issuing Bank sent to the Administrative Agent
and each Lender before 10:00 a.m., Charlotte, North Carolina time, each Lender
shall pursuant to Section 2.07 on the same day make available to the
Administrative Agent for delivery to the Issuing Bank, immediately available
funds in an amount equal to such Lender's Applicable Percentage of the amount of
such payment by the Issuing Bank, and the funding of such amount shall be
treated as the funding of an ABR Loan by such Lender to such Borrower.
Notwithstanding anything herein or in any other Loan Document to the contrary,
the funding obligations of the Lenders set forth in this Section 2.06(f) shall
be binding regardless of whether or not a Default or an Event of Default shall
exist or the other conditions precedent in Article III are satisfied at such
time. If and to the extent any Lender fails to effect any payment due from it
under this Section 2.06(f) to the Administrative Agent, then interest shall
accrue on the obligation of such Lender to make such payment from the date such
payment became due to the date such obligation is paid in full at a rate per
annum equal to the Federal Funds Effective Rate. The failure of any Lender to
pay its Applicable Percentage of any payment under any Letter of Credit shall
not relieve any other Lender of its obligation hereunder to pay to the
Administrative Agent its Applicable Percentage of any payment under any Letter
of Credit on the date required, as specified above, but no Lender shall be
responsible for the failure of any other Lender to pay to the Administrative
Agent such other Lender's Applicable Percentage of any such payment.
(g) Obligations Absolute. The Company's obligation to reimburse (or
in the case of the Existing Letter of Credit, the Subsidiary Borrower's
obligation to reimburse) LC Disbursements as provided in Section 2.06(f) shall,
to the extent permitted by law, be absolute, unconditional and irrevocable, and
shall be performed strictly in accordance with the terms of this Agreement under
any and all circumstances whatsoever and irrespective of:
-34-
<PAGE>
(i) any lack of validity or enforceability of any Letter of Credit,
this Agreement or any other Loan Document, or any term or provision herein
or therein;
(ii) any amendment or waiver of or any consent to departure from all
or any of the provisions of any Letter of Credit, this Agreement or any
other Loan Document;
(iii) the existence of any claim, setoff, defense or other right that
either Borrower, any other Loan Party or other Affiliate thereof or any
other Person may at any time have against the beneficiary under any Letter
of Credit, the Issuing Bank, the Administrative Agent or any Lender or any
other Person, whether in connection with this Agreement or any other
related or unrelated agreement or transaction;
(iv) any draft or other document presented under a Letter of Credit
proving to be forged, fraudulent or invalid in any respect or any statement
therein being untrue or inaccurate in any respect;
(v) payment by the Issuing Bank under a Letter of Credit against
presentation of a draft or other document that does not comply with the
terms of such Letter of Credit; and
(vi) any other act or omission to act or delay of any kind of the
Issuing Bank, the Lenders, the Administrative Agent or any other Person or
any other event or circumstance whatsoever, whether or not similar to any
of the foregoing, that might, but for the provisions of this Section 2.06,
constitute a legal or equitable discharge of any Loan Party's obligations
hereunder.
Neither the Administrative Agent, the Lenders nor the Issuing Bank, nor any of
their Related Parties, shall have any liability or responsibility by reason of
or in connection with the issuance or transfer of any Letter of Credit or any
payment or failure to make any payment thereunder, including any of the
circumstances specified in clauses (i) through (vi) above, as well as any error,
omission, interruption, loss or delay in transmission or delivery of any draft,
notice or other communication under or relating to any Letter of Credit
(including any document required to make a drawing thereunder), any error in
interpretation of technical terms or any consequence arising from causes beyond
the control of the Issuing Bank; provided that the foregoing shall not be
construed to excuse the Issuing Bank from liability to the Borrower for whose
account such Letter of Credit was issued to the extent of any direct damages (as
opposed to consequential damages, claims in respect of which are hereby waived
by each Borrower to the extent permitted by applicable law) suffered by such
Borrower that are caused by the Issuing Bank's failure to exercise the agreed
standard of care (as set forth below) in determining whether drafts and other
documents presented under a Letter of Credit comply with the terms thereof. The
parties hereto expressly agree that the Issuing Bank shall have exercised the
agreed standard of care in the absence of gross negligence, willful misconduct
or unlawful conduct on the part of the Issuing Bank. Without limiting the
generality of the foregoing, it is understood that the Issuing Bank may accept
documents that appear on their face to be in substantial compliance with the
terms of a Letter of Credit, without responsibility for further investigation,
regardless of any notice or information to the contrary, and may make payment
upon presentation of documents that appear on their face to be in substantial
compliance with the terms of such Letter of Credit; provided
-35-
<PAGE>
that the Issuing Bank shall have the right, in its sole discretion, to decline
to accept such documents and to make such payment if such documents are not in
strict compliance with the terms of such Letter of Credit.
(h) Disbursement Procedures. The Issuing Bank shall, promptly
following its receipt thereof, examine all documents purporting to represent a
demand for payment under a Letter of Credit. The Issuing Bank shall promptly
notify the Administrative Agent and the Borrower for whose account such Letter
of Credit was issued by telephone (confirmed by telecopy) of such demand for
payment and whether the Issuing Bank has made or will make an LC Disbursement
thereunder; provided that any failure to give or delay in giving such notice
shall not relieve either Borrower of its obligation to reimburse the Issuing
Bank and the Lenders with respect to any such LC Disbursement.
(i) Interim Interest. If the Issuing Bank shall make any LC
Disbursement, then, unless the Company (or, in the case of the Existing Letter
of Credit, the Subsidiary Borrower) shall reimburse such LC Disbursement in full
on the date specified in Section 2.06(f), the unpaid amount thereof shall bear
interest, for each day from the date such LC Disbursement is made to the date
that the Company (or, in the case of the Existing Letter of Credit, the
Subsidiary Borrower) reimburses such LC Disbursement (or all Lenders make the
payments to the Administrative Agent contemplated by Section 2.06(f) and treated
pursuant to said Section as constituting the funding of ABR Loans), at the rate
per annum then applicable to ABR Revolving Loans.
(j) Replacement of the Issuing Bank. The Issuing Bank may be replaced
at any time by written agreement among the Borrowers, the Administrative Agent,
the replaced Issuing Bank and the successor Issuing Bank. The Administrative
Agent shall notify the Lenders of any such replacement of the Issuing Bank. At
the time any such replacement shall become effective, the Borrowers shall pay
all unpaid fees accrued for the account of the replaced Issuing Bank pursuant to
Section 2.12(b). From and after the effective date of any such replacement, (i)
the successor Issuing Bank shall have all the rights and obligations of the
Issuing Bank under this Agreement with respect to Letters of Credit to be issued
thereafter and (ii) references herein to the term "Issuing Bank" shall be deemed
to refer to such successor or to any previous Issuing Bank, or to such successor
and all previous Issuing Banks, as the context shall require. After the
replacement of an Issuing Bank hereunder, the replaced Issuing Bank shall remain
a party hereto and shall continue to have all the rights and obligations of an
Issuing Bank under this Agreement with respect to Letters of Credit issued by it
prior to such replacement, but shall not be required to issue additional Letters
of Credit.
(k) Cash Collateralization. If (i) any Event of Default shall occur
and be continuing, on the Business Day that the Company receives notice from the
Administrative Agent or the Required Lenders (or, if the maturity of the Loans
has been accelerated, Lenders with LC Exposure representing greater than 66_% of
the total LC Exposure) demanding the deposit of cash collateral pursuant to this
paragraph or (ii) a Change in Control shall occur, the Company shall deposit in
an account with the Administrative Agent, in the name of the Administrative
Agent and for the benefit of the Lenders, an amount in cash equal to the LC
Exposure as of such date plus any accrued and unpaid interest thereon; provided
that the
-36-
<PAGE>
obligation to deposit such cash collateral shall become effective immediately,
and such deposit shall become immediately due and payable, without demand or
notice of any kind, upon the occurrence of any Event of Default with respect to
any Loan Party described in clause (g) or (h) of Section 7.01. Such deposit
shall be held by the Administrative Agent as collateral for the payment and
performance of the obligations of the Loan Parties under this Agreement and the
other Loan Documents. The Administrative Agent shall have exclusive dominion and
control, including the exclusive right of withdrawal, over such account. Other
than any interest earned on the investment of such deposits, which investments
shall be made at the option and sole discretion of the Administrative Agent and
at the Company's risk and expense, such deposits shall not bear interest.
Interest or profits, if any, on such investments shall accumulate in such
account. Moneys in such account shall be applied by the Administrative Agent to
reimburse the Issuing Bank for LC Disbursements for which it has not been
reimbursed and, to the extent not so applied, shall be held for the satisfaction
of the reimbursement obligations of the Borrowers for the LC Exposure at such
time or, if the maturity of the Loans has been accelerated (but subject to the
consent of Lenders with LC Exposure representing greater than 66_% of the total
LC Exposure), be applied to satisfy other obligations of the Loan Parties under
this Agreement and the other Loan Documents. If the Company is required to
provide an amount of cash collateral hereunder as a result of the occurrence of
an Event of Default, such amount (to the extent not applied as aforesaid) shall
be returned to the Company within three Business Days after all Events of
Default have been cured or waived.
SECTION 2.07 Funding of Borrowings. (a) Each Lender shall make each
Loan to be made by it hereunder on the proposed date thereof by wire transfer of
immediately available funds by 2:00 p.m., Charlotte, North Carolina time, to the
account of the Administrative Agent most recently designated by it for such
purpose by notice to the Lenders; provided that Swingline Loans shall be made as
provided in Section 2.04. Not later than 2:00 p.m. (Charlotte time) on the
proposed borrowing date, each Lender will make available to the Administrative
Agent, for the account of the Borrower, at the office of the Administrative
Agent in funds immediately available to the Administrative Agent, such Lender's
Commitment Percentage of the Loans to be made on such borrowing date. The
Company hereby irrevocably authorizes the Administrative Agent to disburse the
proceeds of each borrowing requested pursuant to this Section 2.07 in
immediately available funds by crediting or wiring such proceeds to the deposit
account of the Company identified in the most recent Notice of Account
Designation substantially in the form of Exhibit 2.07 hereto (a "Notice of
Account Designation") delivered by the Company to the Administrative Agent or
may be otherwise agreed upon by the Borrower and the Administrative Agent from
time to time; provided that ABR Revolving Loans made to finance the
reimbursement of an LC Disbursement as provided in Sections 2.06(e) and (f)
shall be remitted by the Administrative Agent to the Issuing Bank.
(b) Unless the Administrative Agent shall have received notice from a
Lender prior to the proposed date of any Borrowing (or prior to 12:00 noon,
Charlotte, North Carolina time, on such date in the case of an ABR Borrowing)
that such Lender will not make available to the Administrative Agent such
Lender's share of such Borrowing, the Administrative Agent may assume that such
Lender has made such share available on such date in accordance with Section
2.07(a) and may, in reliance upon such assumption, make available to the Company
a corresponding amount. In such event, if a Lender has not in fact made its
share of the applicable
-37-
<PAGE>
Borrowing available to the Administrative Agent, then the applicable Lender and
the Company severally agree to pay to the Administrative Agent forthwith on
demand such corresponding amount with interest thereon, for each day from the
date such amount is made available to the Company to the date of payment to the
Administrative Agent, at (i) in the case of such Lender, the Federal Funds
Effective Rate or (ii) in the case of the Company, the interest rate applicable
to ABR Loans. If such Lender pays such amount to the Administrative Agent, then
such amount shall constitute such Lender's Loan included in such Borrowing.
SECTION 2.08 Interest Elections. (a) Each Revolving Borrowing
initially shall be of the Type specified in the applicable Borrowing Request
and, in the case of a Eurodollar Revolving Borrowing, shall have an initial
Interest Period as specified in such Borrowing Request. Thereafter, the Company
may elect to convert such Borrowing to a different Type or to continue such
Borrowing and, in the case of a Eurodollar Revolving Borrowing, may elect
Interest Periods therefor, all as provided in this Section 2.08. The Company may
elect different options with respect to different portions of the affected
Borrowing, in which case each such portion shall be allocated ratably among the
Lenders holding the Loans comprising such Borrowing, and the Loans comprising
each such portion shall be considered a separate Borrowing. This Section 2.08
shall not apply to Swingline Borrowings, which may not be converted or
continued.
(b) To make an election pursuant to this Section 2.08, the Company
shall notify the Administrative Agent of such election by telephone by the time
that a Borrowing Request would be required under Section 2.03 if the Company
were requesting a Revolving Borrowing of the Type resulting from such election
to be made on the effective date of such election. Each such telephonic Interest
Election Request shall be irrevocable and shall be confirmed promptly by hand
delivery or telecopy to the Administrative Agent of a written Interest Election
Request in the form of Exhibit 2.08 (an "Interest Election Request").
(c) Each telephonic and written Interest Election Request shall
specify the following information in compliance with Section 2.02:
(i) the Borrowing to which such Interest Election Request applies and,
if different options are being elected with respect to different portions
thereof, the portions thereof to be allocated to each resulting Borrowing
(in which case the information to be specified pursuant to clauses (iii)
and (iv) below shall be specified for each resulting Borrowing);
(ii) the effective date of the election made pursuant to such Interest
Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR Borrowing or a
Eurodollar Borrowing; and
(iv) if the resulting Borrowing is a Eurodollar Borrowing, the
Interest Period to be applicable thereto after giving effect to such
election, which shall be a period contemplated by the definition of the
term "Interest Period".
-38-
<PAGE>
If any such Interest Election Request requests a Eurodollar Borrowing but does
not specify an Interest Period, then the Company shall be deemed to have
selected an Interest Period of one month's duration.
(d) Promptly following receipt of an Interest Election Request, the
Administrative Agent shall advise each Lender of the details thereof and of such
Lender's portion of each resulting Borrowing.
(e) If the Company fails to deliver a timely Interest Election
Request with respect to a Eurodollar Revolving Borrowing prior to the end of the
Interest Period applicable thereto, then, unless such Borrowing is repaid as
provided herein, at the end of such Interest Period such Borrowing shall be
converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if
and so long as an Event of Default is continuing (i) no outstanding Revolving
Borrowing may be converted to or continued as a Eurodollar Borrowing and (ii)
unless repaid, each Eurodollar Revolving Borrowing shall be converted to an ABR
Borrowing at the end of the Interest Period applicable thereto.
SECTION 2.09 Termination and Reduction of Commitments. (a) Unless
previously terminated, on May 1, 2000 (as such date may be extended pursuant to
Section 2.20, the "Initial Reduction Date") and on each of the other dates (the
Initial Reduction Date and each such other date, as such other date may be
extended pursuant to Section 2.20, being a "Reduction Date") specified below,
the Total Commitment shall reduce by an amount equal to the Total Commitment in
effect on the Initial Reduction Date multiplied by the percentage set forth
opposite such dates below:
Dates Percentage
----- ----------
May 1 and August 1, 2000 4.00%
November 1, 2000 and February 1, 2001 4.25%
May 1 and August 1, 2001 4.50%
November 1, 2001 and February 1, 2002 4.75%
May 1 and August 1, 2002 5.00%
November 1, 2002 and February 1, 2003 5.00%
May 1 and August 1, 2003 5.25%
November 1, 2003 and February 1, 2004 5.50%
May 1 and August 1, 2004 5.75%
November 1, 2004 and February 1, 2005 6.00%
Notwithstanding the foregoing, unless previously terminated, the Total
Commitment shall terminate on the Maturity Date.
(b) The Company may at any time terminate, or from time to time
reduce, the Total Commitment, in whole or in part; provided that (i) each
partial reduction of the Total Commitment shall be in an amount that is an
integral multiple of $1,000,000 and not less than $5,000,000 and (ii) the
Company shall not terminate or reduce the Commitments if, after giving effect to
any concurrent prepayment of the Loans in accordance with Section 2.11, the sum
of the
-39-
<PAGE>
Revolving Credit Exposures would exceed the lesser of the Total Commitment and
the Availability. Each reduction of the Total Commitment pursuant to this
Section 2.09(b) made after the Initial Reduction Date shall reduce the amount
that must be reduced on each subsequent Reduction Date in the order in which
each such reduction is to occur.
(c) The Company shall notify the Administrative Agent of any election
to terminate or reduce the Total Commitment under Section 2.09(b) at least three
Business Days prior to the effective date of such termination or reduction,
specifying such election and the effective date thereof. Promptly following
receipt of any notice, the Administrative Agent shall advise the Lenders of the
contents thereof. Each notice delivered by the Company pursuant to this Section
2.09 shall be irrevocable; provided that a notice of termination of the Total
Commitment delivered by the Company may state that such notice is conditioned
upon the effectiveness of other credit facilities, in which case such notice may
be revoked by the Company (by notice to the Administrative Agent on or prior to
the specified effective date) if such condition is not satisfied. Any
termination or reduction of the Total Commitment shall be permanent. Each
reduction of the Total Commitment shall be made ratably among the Lenders in
accordance with their respective Commitments.
SECTION 2.10 Repayment of Loans; Evidence of Debt. (a) The Company
hereby unconditionally promises to pay (i) to the Administrative Agent for the
account of each Lender the then unpaid principal amount of each Revolving Loan
on the Maturity Date and (ii) to the Swingline Lender the then unpaid principal
amount of each Swingline Loan on demand thereof or by the Swingline Lender. In
addition, if after giving effect to the reduction of the Total Commitment on
each Reduction Date, the Revolving Credit Exposure exceeds the lesser of the
Total Commitment and the Availability, the Company shall pay to the
Administrative Agent for the account of each Lender an aggregate principal
amount of Revolving Loans sufficient to cause the Revolving Credit Exposure not
to exceed the lesser of the Total Commitment and the Availability; provided,
however, if the repayment of the outstanding Revolving Loans does not cause the
Revolving Credit Exposure to be equal to or less than the lesser of the Total
Commitment and the Availability, the Company shall deposit in an account with
the Administrative Agent in the name of the Administrative Agent and for the
benefit of the Lender, an amount in cash equal to the excess of the Revolving
Credit Exposure over the Total Commitment, which cash deposit shall be held by
the Administrative Agent for the payment of the obligations of the Loan Parties
under this Agreement and the other Loan Documents. The Administrative Agent
shall have exclusive dominion and control, including the exclusive right of
withdrawal, over such account other than any interest earned on the investment
of such deposit, which investments shall be made at the option and sole
discretion of the Administrative Agent and at the Company's risk and expense.
Interest or profits, if any, on such investments shall accumulate in such
account. Moneys in such account shall be applied by the Administrative Agent to
reimburse the Issuing Bank for LC Disbursements for which it has not been
reimbursed and, to the extent not so applied, shall be held for the satisfaction
of the reimbursement obligations of the Borrowers for the LC Exposure at such
time, or if the maturity of the Loans has been accelerated (but subject to the
consent of the Lenders with LC Exposure representing greater than 66_% of the
total LC Exposure), be applied to satisfy other obligations of the Loan Parties
under this Agreement and the other Loan Documents. At any time when the
Revolving Credit Exposure does not exceed the lesser of the Total Commitment and
the Availability and so
-40-
<PAGE>
long as no Default or Event of Default shall then exist, upon the request of the
Company the amount of such deposit (to the extent not applied as aforesaid)
shall be returned to the Company within three Business Days after receipt of
such request.
(b) On the date that a Change in Control occurs, the Company shall
repay the outstanding principal amount of the Loans and all other amounts
outstanding hereunder and under the other Loan Documents and shall comply with
the provisions of Section 2.06(k); provided, however, if the Change in Control
is a result of the death or disability of Richard D. Kinder or William V. Morgan
or both, the Company shall make such repayment and comply with the provisions of
Section 2.06(k) on the date that is 180 days after such Change in Control
occurs, unless such date is not a Business Day in which event such repayment and
compliance shall be due on the next Business Day occurring after such date.
(c) Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing the indebtedness of the Company to such Lender
resulting from each Loan made by such Lender, including the amounts of principal
and interest payable and paid to such Lender from time to time hereunder.
(d) The Administrative Agent shall maintain accounts in which it
shall record (i) the amount of each Loan made hereunder, the Class and Type
thereof and the Interest Period applicable thereto, (ii) the amount of any
principal or interest due and payable or to become due and payable from the
Company to each Lender hereunder and (iii) the amount of any sum received by the
Administrative Agent hereunder for the account of the Lenders and each Lender's
share thereof.
(e) The entries made in the accounts maintained pursuant to Section
2.10(c) or (d) shall be prima facie evidence of the existence and amounts of the
obligations recorded therein; provided that the failure of any Lender or the
Administrative Agent to maintain such accounts or any error or conflict therein
shall not in any manner affect the obligation of the Company to repay the Loans
in accordance with the terms of this Agreement.
(f) Any Lender may request that Loans made by it be evidenced by a
promissory note. In such event, the Company shall prepare, execute and deliver
to such Lender a promissory note payable to the order of such Lender and in the
form attached as Exhibit 2.10 (each a "Note"). Thereafter, the Loans evidenced
by such promissory note and interest thereon shall at all times (including after
assignment pursuant to Section 11.05) be represented by one or more promissory
notes in such form payable to the order of the payee named therein.
SECTION 2.11 Prepayment of Loans. (a) The Company shall have the
right at any time and from time to time to prepay any Borrowing in whole or in
part, subject to prior notice in accordance with Section 2.11(b).
(b) The Company shall notify the Administrative Agent (and, in the
case of prepayment of a Swingline Loan, the Swingline Lender) by telephone
(confirmed by telecopy in the form of Exhibit 2.11 (a "Notice of Prepayment"))
of any prepayment hereunder (i) in the case of prepayment of a Eurodollar
Revolving Borrowing, not later than 11:00 a.m., Charlotte, North Carolina time,
three Business Days before the date of prepayment, (ii) in the case of
prepayment
-41-
<PAGE>
of an ABR Revolving Borrowing, not later than 11:00 a.m., Charlotte, North
Carolina time, on the date of prepayment or (iii) in the case of prepayment of a
Swingline Loan, not later than 11:00 a.m., Charlotte, North Carolina time, on
the date of prepayment. Each such notice shall be irrevocable and shall specify
the prepayment date, Type and the principal amount of each Borrowing or portion
thereof to be prepaid; provided that, if a notice of prepayment is given in
connection with a conditional notice of termination of the Commitments as
contemplated by Section 2.09, then such notice of prepayment may be revoked if
such notice of termination is revoked in accordance with Section 2.09. Each
partial prepayment shall be in an aggregate amount not less than, and shall be
an integral multiple of, the amounts shown below with respect to the applicable
Type of Loan or Borrowing:
Type of Integral Minimum
Loan/Borrowing Multiple of Aggregate Amount
-------------- ----------- ----------------
Eurodollar Revolving $ 1,000,000 $ 3,000,000
Borrowing
ABR Revolving Borrowing 500,000 1,000,000
Swingline Loan 100,000 500,000
Promptly following receipt of any such notice relating to a Revolving Borrowing,
the Administrative Agent shall advise the Lenders of the contents thereof. If
the Company fails to designate the Type of Borrowings to be prepaid, partial
prepayments shall be applied first to the outstanding ABR Borrowings until all
such outstanding principal of ABR Borrowings are repaid in full, and then to the
outstanding principal amount of Eurodollar Borrowings. Each partial prepayment
of any Revolving Borrowing shall be in an amount that would be permitted in the
case of an advance of a Revolving Borrowing of the same Type as provided in
Section 2.02. Each prepayment of a Revolving Borrowing shall be applied ratably
to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied
by accrued interest to the extent required by Section 2.13.
SECTION 2.12 Fees. (a) The Company agrees to pay to the
Administrative Agent for the account of each Lender a commitment fee, which
shall accrue at the Applicable Margin on the daily amount of the unused
Commitment of such Lender during the period from and including the date of this
Agreement to but excluding the date on which such Commitment terminates. Accrued
commitment fees shall be payable in arrears on the last Business Day of January,
April, July and October of each year and on the date on which the Commitments
terminate, commencing on the first such date to occur after the date hereof. All
commitment fees shall be computed on the basis of a year of 360 days and shall
be payable for the actual number of days elapsed (including the first day but
excluding the last day).
(b) The Company agrees to pay (i) to the Administrative Agent for the
account of each Lender a participation fee with respect to its participations in
Letters of Credit, which shall accrue at a rate per annum equal to the
Applicable Margin applicable to interest on Eurodollar Revolving Loans on the
average daily amount of such Lender's LC Exposure (excluding any portion thereof
attributable to unreimbursed LC Disbursements) during the period from and
including the Effective Date to but excluding the later of the date on which
such
-42-
<PAGE>
Lender's Commitment terminates and the date on which such Lender ceases to have
any LC Exposure, and (ii) to the Issuing Bank a fronting fee, which shall accrue
at the rate of .125% per annum on the average daily amount of the LC Exposure
(excluding any portion thereof attributable to unreimbursed LC Disbursements)
during the period from and including the Effective Date to but excluding the
later of the date of termination of the Commitments and the date on which there
ceases to be any LC Exposure, as well as the Issuing Bank's standard fees with
respect to the issuance, amendment, renewal or extension of any Letter of Credit
or processing of drawings thereunder. Accrued participation fees shall be
payable in arrears on the last Business Day of January, April, July and October
of each year, commencing on the first such date to occur after the Effective
Date; provided that all such fees shall be payable on the date on which the
Commitments terminate and any such fees accruing after the date on which the
Commitments terminate shall be payable on demand. Any other fees payable to the
Issuing Bank pursuant to this paragraph shall be payable within 10 days after
demand. All participation fees and fronting fees shall be computed on the basis
of a year of 360 days and shall be payable for the actual number of days elapsed
(including the first day but excluding the last day).
(c) The Company agrees to pay to the Administrative Agent, for its
own account, fees payable in the amounts and at the times specified in that
letter agreement dated November 30, 1998 among the Company, the Administrative
Agent and First Union Capital Markets (as from time to time amended, the "Fee
Letter").
(d) All fees payable hereunder shall be paid on the dates due, in
immediately available funds, to the Administrative Agent (or to the Issuing
Bank, in the case of fees payable to it) for distribution, in the case of
commitment fees and participation fees, to the Lenders. Except as required by
law, fees paid shall not be refundable under any circumstances.
SECTION 2.13 Interest. (a) The Loans comprising each ABR Borrowing
(including each Swingline Loan) shall bear interest at a rate per annum equal to
the Alternate Base Rate.
(b) The Loans comprising each Eurodollar Borrowing shall bear
interest at a rate per annum equal to LIBOR Rate for the Interest Period in
effect for such Borrowing plus the Applicable Margin.
(c) Notwithstanding the foregoing, if any principal of or interest on
any Loan or any fee or other amount payable by the Company hereunder is not paid
when due, whether at stated maturity, upon acceleration or otherwise, such
overdue amount shall bear interest, after as well as before judgment, at a rate
per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the
rate otherwise applicable to such Loan as provided above or (ii) in the case of
any other amount, 2% plus the Alternate Base Rate.
(d) Accrued interest on each Loan shall be payable in arrears on each
Interest Payment Date for such Loan; provided that (i) interest accrued pursuant
to Section 2.13(c) shall be payable on demand, (ii) in the event of any
repayment or prepayment of any Loan (other than a prepayment of an ABR Revolving
Loan prior to the end of the Availability Period), accrued interest on the
principal amount repaid or prepaid shall be payable on the date of such
repayment or prepayment, (iii) in the event of any conversion of any Eurodollar
Revolving Loan prior to the
-43-
<PAGE>
end of the current Interest Period therefor, accrued interest on such Loan shall
be payable on the effective date of such conversion and (iv) all accrued
interest shall be payable upon termination of the Total Commitment.
(e) All interest hereunder shall be computed on the basis of a year
of 360 days, except that interest computed by reference to the Alternate Base
Rate at times when the Alternate Base Rate is based on the Prime Rate shall be
computed on the basis of a year of 365 days (or 366 days in a leap year), and in
each case shall be payable for the actual number of days elapsed (including the
first day but excluding the last day). The applicable Alternate Base Rate or
LIBOR Rate shall be determined by the Administrative Agent, and such
determination shall be conclusive absent manifest error.
SECTION 2.14 Alternate Rate of Interest. If prior to the
commencement of any Interest Period for a Eurodollar Borrowing:
(a) the Administrative Agent determines (which determination shall be
conclusive absent manifest error) that adequate and reasonable means do not
exist for ascertaining the LIBOR Rate for such Interest Period; or
(b) the Administrative Agent is advised by the Required Lenders that
the LIBOR Rate for such Interest Period will not adequately and fairly reflect
the cost to such Lenders of making or maintaining their Loans included in such
Borrowing for such Interest Period;
then the Administrative Agent shall give notice thereof to the Company and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the Company and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Revolving Borrowing to, or
continuation of any Revolving Borrowing as, a Eurodollar Borrowing shall be
ineffective and (ii) if any Borrowing Request requests a Eurodollar Revolving
Borrowing, such Borrowing shall be made as an ABR Borrowing.
SECTION 2.15 Increased Costs. (a) If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit or
similar requirement against assets of, deposits with or for the account
of, or credit extended by, any Lender (except any such reserve requirement
reflected in the LIBOR Rate) or the Issuing Bank; or
(ii) impose on any Lender or the Issuing Bank or the London interbank
market any other condition affecting this Agreement or Eurodollar Loans
made by such Lender or any Letter of Credit or participation therein;
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar Loan (or of maintaining its
obligation to make any such Loan) or to increase the cost to such Lender or the
Issuing Bank of participating in, issuing or maintaining any Letter of Credit or
to reduce the amount of any sum received or receivable by such Lender or
-44-
<PAGE>
the Issuing Bank hereunder (whether of principal, interest or otherwise), then
the Company will pay to such Lender or the Issuing Bank, as the case may be,
such additional amount or amounts as will compensate such Lender or the Issuing
Bank, as the case may be, for such additional costs incurred or reduction
suffered.
(b) If any Lender or the Issuing Bank determines that any Change in
Law regarding capital requirements has or would have the effect of reducing the
rate of return on such Lender's or the Issuing Bank's capital or on the capital
of such Lender's or the Issuing Bank's holding company, if any, as a consequence
of this Agreement or the Loans made by, or participations in Letters of Credit
held by, such Lender, or the Letters of Credit issued by the Issuing Bank, to a
level below that which such Lender or the Issuing Bank or such Lender's or the
Issuing Bank's holding company could have achieved but for such Change in Law
(taking into consideration such Lender's or the Issuing Bank's policies and the
policies of such Lender's or the Issuing Bank's holding company with respect to
capital adequacy), then from time to time the Company will pay to such Lender or
the Issuing Bank, as the case may be, such additional amount or amounts as will
compensate such Lender or the Issuing Bank or such Lender's or the Issuing
Bank's holding company for any such reduction suffered.
(c) A certificate of a Lender or the Issuing Bank setting forth the
amount or amounts necessary to compensate such Lender or the Issuing Bank or its
holding company, as the case may be, as specified in paragraph (a) or (b) of
this Section 2.15 shall be delivered to the Company and shall be conclusive
absent manifest error. The Company shall pay such Lender or the Issuing Bank, as
the case may be, the amount shown as due on any such certificate within 10 days
after receipt thereof.
(d) Failure or delay on the part of any Lender or the Issuing Bank to
demand compensation pursuant to this Section 2.15 shall not constitute a waiver
of such Lender's or the Issuing Bank's right to demand such compensation;
provided that the Company shall not be required to compensate a Lender or the
Issuing Bank pursuant to this Section 2.15 for any increased costs or reductions
incurred more than six months prior to the date that such Lender or the Issuing
Bank, as the case may be, notifies the Company of the Change in Law giving rise
to such increased costs or reductions and of such Lender's or the Issuing Bank's
intention to claim compensation therefor; provided further that, if the Change
in Law giving rise to such increased costs or reductions is retroactive, then
the six-month period referred to above shall be extended to include the period
of retroactive effect thereof.
SECTION 2.16 Break Funding Payments. In the event of (a) the payment
of any principal of any Eurodollar Loan other than on the last day of an
Interest Period applicable thereto (including as a result of an Event of
Default), (b) the conversion of any Eurodollar Loan other than on the last day
of the Interest Period applicable thereto, (c) the failure to borrow, convert,
continue or prepay any Eurodollar Loan, or the failure to convert an ABR Loan to
a Eurodollar Loan, on the date specified in any notice delivered pursuant hereto
(regardless of whether such notice is permitted to be revocable under Section
2.09 and is revoked in accordance herewith) or (d) the assignment of any
Eurodollar Loan other than on the last day of the Interest Period applicable
thereto as a result of a request by the Company pursuant to Section 2.19, then,
in any such event, the Company shall compensate each Lender for the loss,
-45-
<PAGE>
cost and expense attributable to such event. In the case of a Eurodollar Loan,
the loss to any Lender attributable to any such event shall be deemed to include
an amount determined by such Lender to be equal to the excess, if any, of (i)
the amount of interest that such Lender would pay for a deposit equal to the
principal amount of such Loan for the period from the date of such payment,
conversion, failure or assignment to the last day of the then current Interest
Period for such Loan (or, in the case of a failure to borrow, convert or
continue, the duration of the Interest Period that would have resulted from such
borrowing, conversion or continuation) if the interest rate payable on such
deposit were equal to the LIBOR Rate for such Interest Period, over (ii) the
amount of interest that such Lender would earn on such principal amount for such
period if such Lender were to invest such principal amount for such period at
the interest rate that would be bid by such Lender (or an affiliate of such
Lender) for dollar deposits from other banks in the Eurodollar market at the
commencement of such period. A certificate of any Lender setting forth any
amount or amounts that such Lender is entitled to receive pursuant to this
Section 2.16 shall be delivered to the Company and shall be conclusive absent
manifest error. The Company shall pay such Lender the amount shown as due on any
such certificate within 10 days after receipt thereof.
SECTION 2.17 Taxes. (a) Any and all payments by or an account of any
obligation of either Borrower hereunder shall be made free and clear of and
without deduction for any Indemnified Taxes or Other Taxes; provided that if
either Borrower shall be required to deduct any Indemnified Taxes or Other Taxes
from such payments, then (i) the sum payable shall be increased as necessary so
that after making all required deductions (including deductions applicable to
additional sums payable under this Section 2.17) the Administrative Agent,
Lender or Issuing Bank (as the case may be) receives an amount equal to the sum
it would have received had no such deductions been made, (ii) such Borrower
shall make such deductions and (iii) such Borrower shall pay the full amount
deducted to the relevant Governmental Authority in accordance with applicable
law.
(b) In addition, such Borrower shall pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable law.
(c) The Company shall indemnify the Administrative Agent, each Lender
and the Issuing Bank, within 10 days after written demand therefor, for the full
amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or
Other Taxes imposed or asserted on or attributable to amounts payable under this
Section 2.17(c)) paid by the Administrative Agent, such Lender or the Issuing
Bank, as the case may be, and any penalties, interest and reasonable expenses
arising therefrom or with respect thereto, whether or not such Indemnified Taxes
or Other Taxes were correctly or legally imposed or asserted by the relevant
Governmental Authority. A certificate as to the amount of such payment or
liability delivered to the Company by a Lender or the Issuing Bank, or by the
Administrative Agent on its own behalf or on behalf of a Lender or the Issuing
Bank, shall be conclusive absent manifest error.
(d) As soon as practicable after any payment of Indemnified Taxes or
Other Taxes by the Company to a Governmental Authority, the Company shall
deliver to the Administrative Agent the original or a certified copy of a
receipt issued by such Governmental
-46-
<PAGE>
Authority evidencing such payment, a copy of the return reporting such payment
or other evidence of such payment reasonably satisfactory to the Administrative
Agent.
(e) Any Foreign Lender that is entitled to an exemption from or
reduction of withholding tax under the law of the jurisdiction in which the
Borrowers are located, or any treaty to which such jurisdiction is a party, with
respect to payments under this Agreement shall deliver to the Company (with a
copy to the Administrative Agent), at the time or times prescribed by applicable
law or reasonably requested by the Company, such properly completed and executed
documentation prescribed by applicable law as will permit such payments to be
made without withholding or at a reduced rate.
SECTION 2.18 Payments Generally; Pro Rata Treatment; Sharing of
Set-offs . (a) The Company shall make or, in the case of the Existing Letter of
Credit, the Subsidiary Borrower shall make, each payment required to be made by
such Borrower hereunder (whether of principal, interest, fees or reimbursement
of LC Disbursements, or under Section 2.15, 2.16 or 2.17, or otherwise) prior to
12:00 noon, Charlotte, North Carolina time, on the date when due, in immediately
available funds, without set-off or counterclaim. Any amounts received after
such time on any date may, in the discretion of the Administrative Agent, be
deemed to have been received on the next succeeding Business Day for purposes of
calculating interest thereon. All such payments shall be made to the
Administrative Agent at its Principal Office, except payments to be made
directly to the Issuing Bank or Swingline Lender as expressly provided herein
and except that payments pursuant to Sections 2.15, 2.16, 2.17 and 11.03 shall
be made directly to the Persons entitled thereto. The Administrative Agent shall
distribute any such payments received by it for the account of any other Person
to the appropriate recipient promptly following receipt thereof. If any payment
hereunder shall be due on a day that is not a Business Day, the date for payment
shall be extended to the next succeeding Business Day, and, in the case of any
payment accruing interest, interest thereon shall be payable for the period of
such extension. All payments hereunder shall be made in dollars.
(b) If at any time insufficient funds are received by and available
to the Administrative Agent to pay fully all amounts of principal, unreimbursed
LC Disbursements, interest and fees then due hereunder, such funds shall be
applied (i) first, to pay interest and fees then due hereunder, ratably among
the parties entitled thereto in accordance with the amounts of interest and fees
then due to such parties, and (ii) second, to pay principal and unreimbursed LC
Disbursements then due hereunder, ratably among the parties entitled thereto in
accordance with the amounts of principal and unreimbursed LC Disbursements then
due to such parties.
(c) If any Lender shall, by exercising any right of set-off or
counterclaim or otherwise, obtain payment in respect of any principal of or
interest on any of its Revolving Loans or participations in LC Disbursements or
Swingline Loans resulting in such Lender receiving payment of a greater
proportion of the aggregate amount of its Revolving Loans and participations in
LC Disbursements and Swingline Loans and accrued interest thereon than the
proportion received by any other Lender, then the Lender receiving such greater
proportion shall purchase (for cash at face value) participations in the
Revolving Loans and participations in LC Disbursements and Swingline Loans of
other Lenders to the extent necessary so that the benefit of all such payments
shall be shared by the Lenders ratably in accordance with the aggregate
-47-
<PAGE>
amount of principal of and accrued interest on their respective Revolving Loans
and participations in LC Disbursements and Swingline Loans; provided that (i) if
any such participations are purchased and all or any portion of the payment
giving rise thereto is recovered, such participations shall be rescinded and the
purchase price restored to the extent of such recovery, without interest, and
(ii) the provisions of this paragraph shall not be construed to apply to any
payment made by any Loan Party pursuant to and in accordance with the express
terms of this Agreement or any payment obtained by a Lender as consideration for
the assignment of or sale of a participation in any of its Loans or
participations in LC Disbursements to any assignee or participant, other than to
a Loan Party or any subsidiary or Affiliate thereof (as to which the provisions
of this paragraph shall apply). Each Loan Party consents to the foregoing and
agrees, to the extent it may effectively do so under applicable law, that any
Lender acquiring a participation pursuant to the foregoing arrangements may
exercise against such Loan Party rights of set-off and counterclaim with respect
to such participation as fully as if such Lender were a direct creditor of the
Company in the amount of such participation.
(d) Unless the Administrative Agent shall have received notice from
the Company prior to the date on which any payment is due to the Administrative
Agent for the account of the Lenders or the Issuing Bank hereunder that the
Company will not make (or in the case of the Existing Letter of Credit, the
Subsidiary Borrower will not make) such payment, the Administrative Agent may
assume that the applicable Borrower has made such payment on such date in
accordance herewith and may, in reliance upon such assumption, distribute to the
Lenders or the Issuing Bank, as the case may be, the amount due. In such event,
if the applicable Borrower has not in fact made such payment, then each of the
Lenders or the Issuing Bank, as the case may be, severally agrees to repay to
the Administrative Agent forthwith on demand the amount so distributed to such
Lender or Issuing Bank with interest thereon, for each day from and including
the date such amount is distributed to it to but excluding the date of payment
to the Administrative Agent, at the Federal Funds Effective Rate.
(e) If any Lender shall fail to make any payment required to be made
by it pursuant to Section 2.04(c), 2.06(e), 2.07(b) or 2.18(d), then the
Administrative Agent may, in its discretion (notwithstanding any contrary
provision hereof), apply any amounts thereafter received by the Administrative
Agent for the account of such Lender to satisfy such Lender's obligations under
such Sections until all such unsatisfied obligations are fully paid.
SECTION 2.19 Mitigation Obligations; Replacement of Lenders. (a) If
any Lender requests compensation under Section 2.15, or if either Borrower is
required to pay any additional amount to any Lender or any Governmental
Authority for the account of any Lender pursuant to Section 2.17, then such
Lender shall use reasonable efforts to designate a different lending office for
funding or booking its Loans hereunder or to assign its rights and obligations
hereunder to another of its offices, branches or affiliates, if, in the judgment
of such Lender, such designation or assignment (i) would eliminate or reduce
amounts payable pursuant to Section 2.15 or 2.17, as the case may be, in the
future and (ii) would not subject such Lender to any unreimbursed cost or
expense and would not otherwise be disadvantageous to such Lender. The Company
hereby agrees to pay all reasonable costs and expenses incurred by any Lender in
connection with any such designation or assignment.
-48-
<PAGE>
(b) If any Lender requests compensation under Section 2.15, or if
either Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.17,
or if any Lender defaults in its obligation to fund Loans hereunder, then the
Company may, at its sole expense and effort, upon notice to such Lender and the
Administrative Agent, require such Lender to assign and delegate, without
recourse (in accordance with and subject to the restrictions contained in
Section 11.05), all its interests, rights and obligations under this Agreement
to an assignee that shall assume such obligations (which assignee may be another
Lender, if a Lender accepts such assignment); provided that (i) the Company
shall have received the prior written consent of the Administrative Agent (and,
if a Commitment is being assigned, the Issuing Bank and Swingline Lender), which
consent shall not unreasonably be withheld, (ii) such Lender shall have received
payment of an amount equal to the outstanding principal of its Loans and
participations in LC Disbursements and Swingline Loans, accrued interest
thereon, accrued fees and all other amounts payable to it hereunder, from the
assignee (to the extent of such outstanding principal and accrued interest and
fees) or the Company (in the case of all other amounts) and (iii) in the case of
any such assignment resulting from a claim for compensation under Section 2.15
or payments required to be made pursuant to Section 2.17, such assignment will
result in a reduction in such compensation or payments. A Lender shall not be
required to make any such assignment and delegation if, prior thereto, as a
result of a waiver by such Lender or otherwise, the circumstances entitling the
Company to require such assignment and delegation cease to apply.
SECTION 2.20 Extensions of Maturity Date and Reduction Dates; Removal
of Lenders. (a) The Company may, by written notice to the Administrative Agent
(a "Notice of Extension") given not less than 60 nor more than 90 days prior to
each Anniversary Date, advise the Lenders that it requests an extension of the
then effective Maturity Date (the "Existing Maturity Date") and each then
effective Reduction Date (an "Existing Reduction Date") by 12 calendar months,
effective on the relevant Anniversary Date (the "Relevant Anniversary Date").
The Administrative Agent will promptly, and in any event within five Business
Days of the receipt of such Notice of Extension, notify the Lenders of the
contents of each such Notice of Extension.
(b) Each Notice of Extension shall (i) be irrevocable and (ii)
constitute a representation by the Loan Parties that (A) neither any Event of
Default nor any Default has occurred and is continuing and (B) the
representations and warranties contained in Article IV are correct on and as of
the Relevant Anniversary Date, as though made on and as of such date.
(c) In the event a Notice of Extension is given to the Administrative
Agent as provided in Section 2.20(a) and the Administrative Agent notifies a
Lender of the contents thereof, such Lender shall on or before the 30th day next
preceding the then Relevant Anniversary Date advise the Administrative Agent in
writing whether or not such Lender consents to the extension requested thereby
and if any Lender fails so to advise the Administrative Agent, such Lender shall
be deemed to have not consented to such extension. If Lenders holding 80% or
more of the Total Commitment so consent (the "Consenting Lenders") to such
extension and any and all Lenders who have not consented (the "Non-Consenting
Lenders") are replaced, the Maturity Date and each Reduction Date for the Notes
held by, and the Commitments of, the Consenting Lenders and the Nominees (as
defined below) shall be
-49-
<PAGE>
automatically extended 12 calendar months past the Existing Maturity Date and
each corresponding Existing Reduction Date, effective on the Relevant
Anniversary Date. The Administrative Agent shall promptly notify the Borrowers
and all of the Lenders of each written notice of consent given pursuant to this
Section 2.20(c).
(d) In the event the Consenting Lenders hold less than 100% of the
Total Commitment, the Consenting Lenders, or any of them, shall have the right
(but not the obligation) to assume all or any portion of the Non-Consenting
Lenders' Commitments by giving written notice to the Company and the
Administrative Agent of their election to do so on or before the 20th day next
preceding the Relevant Anniversary Date, which notice shall be irrevocable and
shall constitute an undertaking to (i) assume, as of the close of business on
the Relevant Anniversary Date, all or such portion of the Commitments of the
Non-Consenting Lenders, as the case may be, as may be specified in such written
notice, and (ii) purchase (without recourse) from the Non-Consenting Lenders, at
the close of business on the Relevant Anniversary Date, the Revolving Credit
Exposure outstanding on the Relevant Anniversary Date that corresponds to the
portion of the Commitments to be so assumed at a price equal to the sum of (x)
the unpaid principal amount of all Loans so purchased, plus (y) the aggregate
amount, if any, previously funded by the transferor or any participations so
purchased, plus (z) all accrued and unpaid interest thereon. Such Commitments
and Revolving Credit Exposure, or portion thereof, to be assumed and purchased
by Consenting Lenders shall be allocated among those Consenting Lenders who have
so elected to assume the same pro rata in accordance with the respective
Commitments of such Consenting Lenders as of the Relevant Anniversary Date
(provided, however, in no event shall a Consenting Lender be required to assume
and purchase an amount or portion of the Commitments and Revolving Credit
Exposure of the Non-Consenting Lenders in excess of the amount which such
Consenting Lender agreed to assume and purchase pursuant to the immediately
preceding sentence) or on such other basis as such Consenting Lender shall
agree. The Administrative Agent shall promptly notify the Company and the other
Consenting Lenders in the event it receives any notice from a Consenting Lender
pursuant to this Section 2.20(d).
(e) In the event that the Consenting Lenders shall not elect as
provided in Section 2.20(d) to assume and purchase all of the Non-Consenting
Lenders' Commitments and Revolving Credit Exposure, the Company may designate,
by written notice to the Administrative Agent and the Consenting Lenders given
on or before the tenth day next preceding the Relevant Anniversary Date, one or
more Eligible Assignees not a party to this Agreement (individually, a "Nominee"
and collectively, the "Nominees") to assume all or any portion of the
Non-Consenting Lenders' Commitments not to be assumed by the Consenting Lenders
and to purchase (without recourse) from the Non-Consenting Lenders all Revolving
Credit Exposure outstanding at the close of business on the Relevant Anniversary
Date that corresponds to the portion of the Commitments so to be assumed at the
price specified in Section 2.20(d). Each assumption and purchase under this
Section 2.20(e) shall be effective as of the close of business on the Relevant
Anniversary Date when each of the following conditions has been satisfied in a
manner satisfactory to the Administrative Agent:
(i) each Nominee and the Non-Consenting Lenders have executed an
Assignment and Acceptance pursuant to which such Nominee shall (A) assume
in writing
-50-
<PAGE>
its share of the obligations of the Non-Consenting Lenders hereunder,
including its share of the Commitments of the Non-Consenting Lenders and
(B) agree to be bound as a Lender by the terms of this Agreement; and
(ii) each Nominee shall have completed and delivered to the
Administrative Agent an Administrative Questionnaire.
(f) In the event that the Consenting Lenders shall not elect as
provided in Section 2.20(d) to assume all of the Non-Consenting Lenders'
Commitments and the Company shall not have effectively designated one or more
Nominees to assume the Commitments of and purchase the Revolving Credit Exposure
of the Non-Consenting Lenders as contemplated by Section 2.20(e), there shall be
no extension of the Existing Maturity Date nor any Existing Reduction Date.
ARTICLE III.
Conditions Precedent
--------------------
SECTION 3.01 Conditions Precedent to the Initial Credit Event. The
obligation of each Lender to make its initial Loan or the Issuing Bank to issue
the initial Letter of Credit under the Existing Credit Agreement as amended and
restated hereby is subject to the following conditions:
(a) The Administrative Agent shall have received the following, each
dated the initial Borrowing Date, except for the Loan Documents described in
clauses (i) through (v) below which shall be dated the Execution Date:
(i) this Agreement executed by each party hereto;
(ii) if requested by any Lender, a Note executed by the Company and
payable to the order of such Lender;
(iii)a certificate of an officer and of the secretary or an assistant
secretary of each Loan Party or its general partner or managing member, as
applicable, certifying, inter alia, (A) true and complete copies of each
of the certificate or articles of incorporation, partnership agreement or
articles of organization, as the case may be, as amended and in effect, of
such Loan Party and of its general partner or managing member, if any, the
bylaws, as amended and in effect, of such Loan Party and the resolutions
adopted by the Board of Directors of such Loan Party or its general
partner or managing member (1) authorizing the execution, delivery and
performance by such Loan Party of this Agreement and the other Loan
Documents to which it is or will be a party and, in the case of the
Company, the Borrowings to be made and the Letters of Credit to be issued
hereunder, (2) approving the forms of the Loan Documents to which it is a
party and which will be delivered at or prior to the initial Borrowing
Date and (3) authorizing officers of such Loan Party or its general
partner or managing member to execute and deliver the Loan Documents to
which such Loan Party is or will be a party
-51-
<PAGE>
and any related documents, including any agreement contemplated by this
Agreement, (B) the incumbency and specimen signatures of the officers of
such Loan Party or its general partner or managing member executing any
documents on its behalf and (C) (1) that the representations and
warranties made by such Loan Party in each Loan Document to which such
Loan Party is a party and which will be delivered at or prior to the
initial Borrowing Date are true and correct in all material respects, (2)
the absence of any proceedings for the dissolution or liquidation of such
Person and (3) the absence of the occurrence and continuance of any
Default or Event of Default;
(iv) letters from CT Corporation System, Inc. in form and substance
satisfactory to the Administrative Agent evidencing the obligation of CT
Corporation System, Inc. to accept service of process in the State of New
York on behalf of each Loan Party that is not authorized to do business as
a foreign corporation in the State of New York;
(v) a favorable, signed opinion addressed to the Administrative Agent
and the Lenders from each of (A) Morrison & Hecker L.L.P., counsel to the
Loan Parties, given upon the express instruction of the Loan Parties, and
(B) Correro Fishman Haygood Phelps Walmsley & Casteix, special Louisiana
counsel to KMBT, given upon the express instruction of KMBT and the
Company; and
(vi) certificates of appropriate public officials as to the existence,
good standing and qualification to do business as a foreign corporation,
partnership or limited liability company, as applicable, of each Loan Party
in each jurisdiction in which the ownership of its properties or the
conduct of its business requires such qualification and where the failure
so to qualify would, individually or collectively, have a Material Adverse
Effect.
(b) The Administrative Agent shall be reasonably satisfied that all
required consents and approvals of any applicable Governmental Authority and any
other Person in connection with the transactions contemplated by this Section
3.01 shall have been obtained and remain in effect (except where the failure to
obtain such approvals would not have a Material Adverse Effect), and all
applicable waiting periods shall have expired (or been waived) without any
action being taken by any Governmental Authority.
(c) All agreements relating to, and the organizational structure of,
the Loan Parties, and all organic documents of the Loan Parties, shall be
reasonably satisfactory to the Administrative Agent and the Syndication Agent.
(d) The Company shall have paid to First Union Capital Markets and
First Union National Bank all fees and expenses pursuant to the Fee Letter
agreed upon by such parties to be paid on or prior to the Execution Date.
(e) The Company shall have paid to Andrews & Kurth L.L.P. pursuant to
Section 11.03 all reasonable fees and disbursements invoiced to the Company on
or prior to the Execution Date.
-52-
<PAGE>
SECTION 3.02 Conditions Precedent to All Credit Events. Except with
respect to Revolving Credit Loans made by the Lenders pursuant to Section
2.06(f), the obligation of the Lenders to make any Loan or to issue or extend
any Letter of Credit under the Existing Credit Agreement as amended and restated
hereby (including any Loan made or Letter of Credit issued on the initial
Borrowing Date) is subject to the further conditions precedent that on the date
of such Credit Event:
(a) The conditions precedent set forth in Section 3.01 shall have
theretofore been satisfied;
(b) The representations and warranties set forth in Article IV and in
the other Loan Documents shall be true and correct in all material respects as
of, and as if such representations and warranties were made on, the date of the
proposed Loan or Letter of Credit, as the case may be (unless such
representation and warranty expressly relates to an earlier date), and the Loan
Parties shall be deemed to have certified to the Administrative Agent and the
Lenders that such representations and warranties are true and correct in all
material respects by the Company's delivery of a Borrowing Request;
(c) The Company shall have complied with the provisions of Section
2.03 or Section 2.04, as the case may be;
(d) No Default or Event of Default shall have occurred and be
continuing or would result from such Credit Event; and
(e) The Administrative Agent and the Lenders shall have received such
other approvals, opinions or documents as the Agent or the Required Lenders may
reasonably request.
The acceptance of the benefits of each Credit Event shall constitute a
representation and warranty by the Loan Parties to each of the Lenders that all
of the conditions specified in this Section 3.02 above exist as of that time.
SECTION 3.03 Conditions Precedent to the Initial Credit Event Made on
or After any Increase in Availability. The obligation of the Lenders to make the
initial Loan or the Issuing Bank to issue the initial Letter of Credit upon or
after any increase in Availability is subject to the further conditions that the
Administrative Agent shall have received a certificate of a Responsible Officer
of the Company certifying (a) the amount of such increase in Availability and a
description of the event resulting in such increase and (b) that the
representations and warranties contained in Article IV (unless any such
representation and warranty expressly relates to an earlier date) are true and
correct in all material respects as of, and as if such representations and
warranties were made on, the date of such initial Loan or such initial Letter of
Credit, as the case may be, after giving effect on a pro forma basis to the
event resulting in such increase and the use on such date of the proceeds of
such Loan or of such Letter of Credit.
SECTION 3.04 Conditions Precedent to Conversions. The obligation of
the Lenders to convert or continue any existing Borrowing as or into a
Eurodollar Borrowing is subject to the condition precedent that on the date of
such conversion or continuation no Default or Event of Default shall have
occurred and be continuing or would result from the making of
-53-
<PAGE>
such conversion. The acceptance of the benefits of each such conversion or
continuation shall constitute a representation and warranty by the Loan Parties
to each of the Lenders that no Default or Event of Default shall have occurred
and be continuing or would result from the making of such conversion or
continuation.
SECTION 3.05 Delivery of Documents. All of the Loan Documents,
certificates, legal opinions and other documents and papers referred to in this
Article III, unless otherwise specified, shall be delivered to the
Administrative Agent for the account of each of the Lenders and, except for any
Notes, in sufficient counterparts or copies for each of the Lenders and shall be
satisfactory in form and substance to the Lenders.
ARTICLE IV.
Representations and Warranties
------------------------------
In order to induce the Lenders to enter into this Agreement and to
make the Loans provided for herein and to induce the Issuing Bank to issue
Letters of Credit and the other Lenders to participate therein and in the
Existing Letter of Credit, each Loan Party makes for itself, and the Company
makes for itself and the other Loan Parties, on or as of the Effective Date and
the occurrence of each Credit Event, the following representations and
warranties to the Administrative Agent and the Lenders:
SECTION 4.01 Organization and Qualification. The Company and each of
the Restricted Subsidiaries (a) is a corporation, partnership or limited
liability company duly organized or formed, validly existing and in good
standing under the laws of the state of its incorporation, organization or
formation, (b) has all requisite corporate, partnership, limited liability
company or other power to own its property and to carry on its business as now
conducted and (c) is duly qualified to do business and is in good standing in
every jurisdiction in which the failure to be so qualified would, individually
or together with all such other failures of the Company and the Restricted
Subsidiaries, have a Material Adverse Effect. As of the Execution Date, the
Persons and other entities named in Schedule 4.01 are all of the Subsidiaries of
the Company, and such Schedule 4.01 (x) accurately reflects (i) the direct owner
of the Capital Stock of each such Subsidiary and (ii) the percentage of the
issued and outstanding Capital Stock of each such Subsidiary owned by any Loan
Party, (y) accurately identifies such Subsidiaries and (z) accurately sets forth
the jurisdictions of their respective incorporation, organization or formation,
as the case may be, and jurisdictions in which they are qualified as foreign
corporations, foreign partnerships, foreign limited liability companies or other
foreign entities to do business.
SECTION 4.02 Authorization, Validity, Etc. Each Loan Party has all
requisite corporate, partnership, limited liability company or other power and
authority to execute, deliver and perform its obligations hereunder and under
the other Loan Documents to which it is a party and, in the case of the Company,
to make the Borrowings and in the case of each Borrower to obtain the issuance
of Letters of Credit hereunder, and all such action has been duly authorized by
all necessary corporate, partnership, limited liability company or other
proceedings on its part. This Agreement and the other Loan Documents have been
duly and validly executed and delivered by or on behalf of each Loan Party party
thereto and constitute
-54-
<PAGE>
valid and legally binding agreements of such Loan Party enforceable against such
Loan Party in accordance with the respective terms thereof, except (a) as may be
limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer, fraudulent conveyance or other similar laws relating to or affecting
the enforcement of creditors' rights generally, and by general principles of
equity (including principles of good faith, reasonableness, materiality and fair
dealing) which may, among other things, limit the right to obtain equitable
remedies (regardless of whether considered in a proceeding in equity or at law)
and (b) as to the enforceability of provisions for indemnification for violation
of applicable securities laws, limitations thereon arising as a matter of law or
public policy.
SECTION 4.03 Governmental Consents, Etc. No authorization, consent,
approval, license or exemption of or registration, declaration or filing with
any Governmental Authority, is necessary for the valid execution, delivery or
performance by any Loan Party of any Loan Document to which it is a party,
except those that have been obtained and such matters relating to performance as
would ordinarily be done in the ordinary course of business after the Execution
Date.
SECTION 4.04 Conflicting or Adverse Agreements or Restrictions.
Neither the Company nor any of the Restricted Subsidiaries is a party to any
contract or agreement or subject to any restriction that would reasonably be
expected to have a Material Adverse Effect. Neither the execution, delivery and
performance by any Loan Party of the Loan Documents to which it is a party, nor
compliance with the terms and provisions thereof, nor the extensions of credit
contemplated by the Loan Documents, (a) will breach or violate any applicable
Requirement of Law, (b) will result in any breach or violation of, any of the
terms, covenants, conditions or provisions of, or constitute a default under, or
result in the creation or imposition of (or the obligation to create or impose)
any Lien upon any of its property or assets (other than Liens created or
contemplated by this Agreement) pursuant to the terms of any indenture,
mortgage, deed of trust, agreement or other instrument to which it or any of its
Subsidiaries is party or by which any property or asset of it or any of its
Subsidiaries is bound or to which it is subject, except for breaches, violations
and defaults under clauses (a) and (b) that neither individually nor in the
aggregate for all Loan Parties could reasonably be expected to result in a
Material Adverse Effect or (c) will violate any provision of the organic
documents of any Loan Party.
SECTION 4.05 Properties. (a) Each of the Company and the Subsidiaries
has good title to, or valid leasehold or other interests in, all its real and
personal property material to its business, except for minor defects in title
that do not materially interfere with its ability to conduct its business as
currently conducted or to utilize such properties for their intended purposes.
(b) Each of the Company and the Restricted Subsidiaries owns, or is
licensed to use, all trademarks, trade names, copyrights, patents and other
intellectual property material to its business, and the use thereof by the
Company and the Restricted Subsidiaries does not infringe upon the rights of any
other Person, except for any such infringements that, neither individually nor
in the aggregate for the Company and such Subsidiaries, could reasonably be
expected to result in a Material Adverse Effect.
-55-
<PAGE>
SECTION 4.06 Litigation and Environmental Matters. (a) There are no
actions, suits or proceedings by or before any arbitrator or Governmental
Authority pending against or, to the knowledge of the Company, threatened
against or affecting the Company or any of its Subsidiaries (i) as to which
there is a reasonable possibility of an adverse determination and that, if
adversely determined, could reasonably be expected, individually or in the
aggregate for the Company and such Subsidiaries, to result in a Material Adverse
Effect (other than the Disclosed Matters) or (ii) that involve this Agreement or
the Transactions.
(b) Except for the Disclosed Matters and except with respect to any
other matters that, individually or in the aggregate for the Company and the
Subsidiaries, could not reasonably be expected to result in a Material Adverse
Effect, neither the Company nor any of the Subsidiaries (i) has failed to comply
with any Environmental Law or to obtain, maintain or comply with any permit,
license or other approval required under any Environmental Law, (ii) has become
subject to any Environmental Liability, (iii) has received notice of any claim
with respect to any Environmental Liability or (iv) knows of any basis for any
Environmental Liability.
(c) Since the Execution Date, there has been no change in the status
of the Disclosed Matters that, individually or in the aggregate, has resulted
in, or materially increased the likelihood of, a Material Adverse Effect.
SECTION 4.07 Financial Statements. (a) The consolidated and
consolidating balance sheets of the Company and its consolidated Subsidiaries as
at December 31, 1997 and the related consolidated and consolidating statements
of income, partners', shareholders' or members' equity and cash flow of the
Company and its consolidated Subsidiaries for the fiscal year ended on said
date, with (in the case of such consolidated financial statements) the opinion
thereon of Price Waterhouse L.L.P. (currently known as PricewaterhouseCoopers
LLP) heretofore furnished to the Lenders and the unaudited consolidated and
consolidating balance sheets of the Company and its consolidated Subsidiaries as
at September 30, 1998 and their related consolidated and consolidating
statements of income, partners', shareholders' or members' equity and cash flow
of the Company and its consolidated Subsidiaries for the six-month period ended
on such date heretofore furnished to the Lenders, are complete and correct and
fairly present the consolidated financial condition of the Company and its
consolidated Subsidiaries as at said dates and the results of their operations
for the fiscal year and the six-month period ended on said dates, all in
accordance with GAAP, as applied on a consistent basis (subject, in the case of
the interim financial statements, to the absence of footnotes and to normal
year-end and audit adjustments).
(b) Since December 31, 1997, there has been no material adverse
change in the business, assets, operations or condition, financial or otherwise,
of the Company and the Restricted Subsidiaries, taken as a whole.
SECTION 4.08 Disclosure. The Company has disclosed to the Lenders all
agreements, instruments and corporate or other restrictions to which it or any
of the Restricted Subsidiaries is subject, and all other matters known to it,
that, individually or in the aggregate for the Company and such Subsidiaries,
could reasonably be expected to result in a Material
-56-
<PAGE>
Adverse Effect. None of the reports, financial statements, certificates or other
information furnished by or on behalf of the Company to the Administrative Agent
or any Lender in connection with the syndication or negotiation of this
Agreement or delivered hereunder (as modified or supplemented by other
information so furnished) contains any material misstatement of fact or omits to
state any material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; provided that
(i) with respect to projected financial information, the Company represents only
that such information was prepared in good faith based upon assumptions believed
to be reasonable at the time and (ii) with respect to information respecting the
Santa Fe Acquisition and the Shell JV Investment, such information was provided
to the Company by SFMLP and Shell respectively and therefore the Company only
represents that to its knowledge such information is correct and complete.
SECTION 4.09 Investment Company Act. Neither the Company nor any of
its Subsidiaries is, or is regulated as, an "investment company," as such term
is defined in the Investment Company Act of 1940, as amended.
SECTION 4.10 Public Utility Holding Company Act. Neither the Company
nor any of its Subsidiaries is a non-exempt "holding company,"or subject to
regulation as such, or an "affiliate" of a "holding company" or a "subsidiary
company" of a "holding company,"within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
SECTION 4.11 ERISA. No ERISA Event has occurred or is reasonably
expected to occur that, when taken together with all other such ERISA Events for
which liability is reasonably expected to occur, could reasonably be expected to
result in a Material Adverse Effect. The present value of all accumulated
benefit obligations under each Plan (based on the assumptions used for purposes
of Statement of Financial Accounting Standards No. 87) did not, as of the date
of the most recent financial statements reflecting such amounts, exceed by more
than $5,000,000 the fair market value of the assets of such Plan, and the
present value of all accumulated benefit obligations of all underfunded Plans
(based on the assumptions used for purposes of Statement of Financial Accounting
Standards No. 87) did not, as of the date of the most recent financial
statements reflecting such amounts, exceed by more than $5,000,000 the fair
market value of the assets of all such underfunded Plans.
SECTION 4.12 Tax Returns and Payments. (a) The Company and its
Subsidiaries have caused to be filed all federal income tax returns and other
material tax returns, statements and reports (or obtained extensions with
respect thereto) which are required to be filed and have paid or deposited or
made adequate provision in accordance with GAAP for the payment of all taxes
(including estimated taxes shown on such returns, statements and reports) which
are shown to be due pursuant to such returns, except where the failure to pay
such taxes (individually or in the aggregate for the Company and the Restricted
Subsidiaries) would not have a Material Adverse Effect. No material income tax
liability of the Company or the Restricted Subsidiaries has been asserted by the
Internal Revenue Service of the United States or any other Governmental
Authority for any taxes in excess of those already paid, except for taxes which
are being contested in good faith by appropriate proceedings and for which
adequate reserves in accordance with GAAP have been created on the books of the
Company and the Restricted Subsidiaries.
-57-
<PAGE>
(b) The federal income tax liabilities, if any, of the Company and
its Subsidiaries (and of all Persons who are partners of the Company) have been
finally determined by the Internal Revenue Service and satisfied for all taxable
years through the fiscal year ending in 1994.
SECTION 4.13 Compliance with Laws and Agreements. Each of the Company
and the Restricted Subsidiaries is in compliance with all laws, regulations and
orders of any Governmental Authority applicable to it or its property and all
indentures, agreements and other instruments binding upon it or its property,
except where the failure to do so, individually or in the aggregate for the
Company and the Restricted Subsidiaries, could not reasonably be expected to
result in a Material Adverse Effect. No Default or Event of Default has occurred
and is continuing.
SECTION 4.14 Purpose of Loans. (a) All proceeds of the Loans will be
used for the purposes set forth in Section 5.08. All Letters of Credit (other
than the Existing Letter of Credit) have been or will be issued in connection
with the working capital requirements of the Company or a Restricted Subsidiary.
(b) None of the proceeds of the loans under any portion of the OLP
"A" Refinancing, the Subsidiary Borrower Credit Agreement, the Existing Letter
of Credit, the Existing Credit Agreement or this Agreement were or will be used
directly or indirectly for the purpose of buying or carrying any "margin stock"
within the meaning of Regulation U (herein called "margin stock") or for the
purpose of reducing or retiring any indebtedness (including the indebtedness
repaid with the proceeds of the loans made under the agreements constituting the
OLP "A" Refinancing or the Subsidiary Borrower Credit Agreement) which was
originally incurred to buy or carry a margin stock, or for any other purpose
which might constitute this transaction a "purpose" credit within the meaning of
Regulation T, U or X. Neither any Loan Party nor any agent acting on its behalf
has taken or will take any action which might cause this Agreement or any other
Loan Document to violate Regulation T, Regulation U, Regulation X, or any other
regulation of the Board or to violate the Securities Exchange Act of 1934.
Margin stock does not constitute more than 25% of the assets of the Company or
any Loan Party and the Company does not intend or foresee that it will ever do
so.
SECTION 4.15 No Intent to Hinder, Delay or Defraud. Each Subsidiary
Guarantor has entered into this Agreement, including the Subsidiary Guarantors
Guaranty and the other Loan Documents, with no intent to hinder, delay or
defraud any Person to whom such Subsidiary Guarantor was or becomes, on or after
the Execution Date, indebted, within the meaning of Section 548 of the
Bankruptcy Code or any similar provision of state law.
SECTION 4.16 Year 2000. The Company will use reasonable best efforts
to ensure that any reprogramming required to permit the proper functioning, in
and following the year 2000, of (a) the computer systems of the Company and the
Restricted Subsidiaries and (b) equipment of the Company and the Restricted
Subsidiaries containing embedded microchips and the testing of all such systems
and equipment, as reprogrammed, will be completed by December 31, 1999. The cost
to the Company and the Restricted Subsidiaries of such reprogramming and,
-58-
<PAGE>
to the knowledge of the Company, of the reasonably foreseeable consequences of
year 2000 to the Company and the Restricted Subsidiaries, taken as a whole
(including, without limitation, reprogramming errors) will not result in an
Event of Default or a Material Adverse Effect.
ARTICLE V.
Affirmative Covenants
---------------------
Until the Commitments have expired or been terminated and the
principal of and interest on each Loan and all fees payable hereunder shall have
been paid in full and all Letters of Credit shall have expired or terminated and
all LC Disbursements shall have been reimbursed, the Company covenants and
agrees with the Lenders that:
SECTION 5.01 Financial Statements and Other Information. The Company
will furnish to the Administrative Agent, in each case with sufficient copies
for each Lender:
(a) As soon as available and in any event within 120 days after the
end of each fiscal year of the Company: (i) the audited consolidated statements
of income, partners' equity, changes in financial position and cash flow of the
Company for such fiscal year, and the related consolidated balance sheet of the
Company as at the end of such fiscal year, setting forth in each case in
comparative form the figures for (or in the case of the balance sheet, as of the
end of) the previous fiscal year, accompanied by the related opinion of
independent public accountants of recognized national standing acceptable to the
Administrative Agent, which opinion shall (x) state that said financial
statements of the Company fairly present the consolidated financial condition
and results of operations of the Company as at the end of, and for, such fiscal
year and that such financial statements have been prepared in accordance with
GAAP except for such changes in such principles with which the independent
public accountants shall have concurred, and (y) not contain a "going concern"
or other adverse qualification or exception unacceptable to the Required
Lenders; and (ii) a certificate of such accountants stating that, in making the
examination necessary for their opinion, they obtained no knowledge, except as
specifically stated, of any Event of Default or Default, and stating whether any
change in GAAP or in the application thereof has occurred since the date of the
audited financial statements referred to in Section 4.07(b) and, if any such
change has occurred, specifying the effect of such change on the financial
statements accompanying such certificate.
(b)(i) As soon as available and in any event within 60 days after the
end of each of the first three fiscal quarterly periods of each fiscal year of
the Company, unaudited consolidated statements of income, partners' equity,
changes in financial position and cash flow of the Company for such period and
for the period from the beginning of the respective fiscal year to the end of
such period, and the related unaudited consolidated balance sheet as at the end
of such period, setting forth in each case in comparative form the figures for
(or in the case of balance sheets, as of the end of) the corresponding periods
in the previous fiscal year, accompanied by the certificate of a Responsible
Officer of the Company, which certificate shall state that said financial
statements fairly present the consolidated financial condition and results
-59-
<PAGE>
of operations of the Company in accordance with GAAP, as at the end of, and for,
such period (subject to the absence of footnotes and changes resulting from
normal year-end audit adjustments).
(ii) As soon as available and in any event within 60 days after the
end of each of the first three fiscal quarterly periods of each fiscal year, and
within 120 days after the end of each fiscal year of OLP "A", the Subsidiary
Borrower, OLP "C", OLP "D" and each other Restricted Subsidiary the Capital
Stock of which is owned directly by the Company, unaudited consolidated
statements of income, partners', shareholders' or members' equity, as the case
may be, changes in financial position and cash flow of such Person and its
Subsidiaries for such period and for the period from the beginning of the
respective fiscal year to the end of such period, and the related unaudited
consolidated balance sheet as at the end of such period, setting forth in each
case in comparative form the figures for (or in the case of balance sheets, as
of the end of) the corresponding periods in the previous fiscal year,
accompanied by the certificate of a Responsible Officer of such Person, which
certificate shall state that said financial statements fairly present the
consolidated and consolidating financial condition and results of operations of
such Person in accordance with GAAP, as at the end of, and for, such period
(subject to the absence of footnotes and changes resulting from normal year-end
audit adjustments).
(c) Promptly upon receipt thereof, and in the form received, all
audited and unaudited financial statements (whether quarterly or annual)
received by any Loan Party from any Person (other than an individual) whose
income is accounted for through any of the Persons referenced in Section
5.01(b)(ii) and whose EBITDA or distributions, as the case may be, exceed 15% of
the Company Cash Flow.
(d) Prompt written notice of the following:
(i) the occurrence of any Default or Event of Default or Change of
Control Event;
(ii) the occurrence of any ERISA Event that, alone or together with
any other ERISA Events that have occurred, could reasonably be expected to
result in liability of the Company and the Restricted Subsidiaries in an
aggregate amount exceeding $5,000,000; and
(iii)any other development that results in, or could reasonably be
expected to result in, a Material Adverse Effect.
Each notice delivered under this Section 5.01 shall be accompanied by a
statement of a Responsible Officer setting forth the details of the event or
development requiring such notice and any action taken or proposed to be taken
with respect thereto.
(e) Promptly upon receipt thereof, a copy of each other report or
letter submitted to the Company by independent accountants in connection with
any annual, interim or special audit made by them of the books of the Company,
and a copy of any response by the
-60-
<PAGE>
Company, or the Board of Directors of the general partner of the Company, to
such letter or report.
(f) Promptly upon its becoming available, each financial statement,
report, notice or proxy statement sent by the Company to stockholders generally
and each regular or periodic report and any registration statement or prospectus
filed by the Company with any securities exchange or the Securities and Exchange
Commission or any successor agency.
(g) Promptly after the furnishing thereof, copies of any statement,
report or notice furnished to any Person pursuant to the terms of any indenture,
loan or credit or other similar agreement, other than this Agreement and not
otherwise required to be furnished to the Administrative Agent pursuant to any
other provision of this Section 5.01.
(h) From time to time such other information regarding the business,
affairs or financial condition of the Company or any Restricted Subsidiary
(including any Plan or Multiemployer Plan and any reports or other information
required to be filed under ERISA) as the Required Lenders or the Administrative
Agent may reasonably request.
The Company will furnish to the Administrative Agent, at the time it furnishes
each set of financial statements pursuant to paragraph (a) or (b) above, a
certificate substantially in the form of Exhibit 5.01 executed by a Responsible
Officer of the Company (i) certifying as to the matters set forth therein and
stating that no Event of Default or Default has occurred and is continuing (or,
if any Event of Default or Default has occurred and is continuing, describing
the same in reasonable detail), (ii) setting forth in reasonable detail the
computations necessary to determine whether the Company is in compliance with
Sections 6.09(a), (b) and (c) and the computations necessary to determine the
ratio referred to in the definition of "Applicable Margin" as of the end of the
respective fiscal quarter or fiscal year, and (iii) a statement, with respect to
each Intercompany Note, of (A) the actual outstanding principal amount thereof,
and the amount of any accrued and unpaid interest thereon, as at the end of the
respective quarter or fiscal year, as the case may be, and (B) the highest and
lowest principal amount thereof at any time outstanding during such quarter or
fiscal year and the periods during such quarter or fiscal year during which the
principal of such Intercompany Note was outstanding in each such amount.
SECTION 5.02 Litigation. The Company shall promptly give to the
Administrative Agent notice of all legal or arbitral proceedings, and of all
proceedings before any Governmental Authority affecting the Company or any
Restricted Subsidiary, except proceedings which, if adversely determined, would
not have a Material Adverse Effect. The Company will, and will cause each of the
Restricted Subsidiaries to, promptly notify the Administrative Agent of any
claim, judgment, Lien or other encumbrance affecting any property or assets of
the Company or any such Subsidiary if the value of the claim, judgment, Lien, or
other encumbrance affecting such property or assets shall exceed $5,000,000.
SECTION 5.03 Existence, Conduct of Business. The Company will, and
will cause each of the Restricted Subsidiaries to, do or cause to be done all
things necessary to preserve, renew and keep in full force and effect its legal
existence and the rights, licenses, permits, privileges and franchises material
to the conduct of its business; provided that the
-61-
<PAGE>
foregoing shall not prohibit any merger, consolidation, liquidation or
dissolution permitted under Section 6.03.
SECTION 5.04 Payment of Obligations. The Company will, and will cause
each of the Subsidiaries to, pay its obligations, including tax liabilities,
that, if not paid, could result in a Material Adverse Effect before the same
shall become delinquent or in default, except where (a) the validity or amount
thereof is being contested in good faith by appropriate proceedings, (b) the
Company or such Subsidiary has set aside on its books adequate reserves with
respect thereto in accordance with GAAP and (c) the failure to make payment
pending such contest could not reasonably be expected to result in a Material
Adverse Effect.
SECTION 5.05 Maintenance of Properties; Insurance. The Company will,
and will cause each of the Restricted Subsidiaries to, (a) keep and maintain all
property material to the conduct of its business in good working order and
condition, ordinary wear and tear excepted, and (b) maintain, with financially
sound and reputable insurance companies, insurance in such amounts and against
such risks as are customarily maintained by companies engaged in the same or
similar businesses operating in the same or similar locations.
SECTION 5.06 Books and Records; Inspection Rights. The Company will,
and will cause each of the Restricted Subsidiaries to, keep proper books of
record and account in which full, true and correct entries are made of all
dealings and transactions in relation to its business and activities. The
Company will, and will cause each of the Restricted Subsidiaries to, permit any
representatives designated by the Administrative Agent or any Lender, upon
reasonable prior notice, to visit and inspect its properties, to examine and
make extracts from its books and records, and to discuss its affairs, finances
and condition with its officers and independent accountants, all at such
reasonable times and as often as reasonably requested.
SECTION 5.07 Compliance with Laws. The Company will, and will cause
each of the Subsidiaries to, comply with all Requirements of Law applicable to
it or its property, except where the failure to do so, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect.
SECTION 5.08 Use of Proceeds and Letters of Credit. The proceeds of
the Loans will be used only for working capital and other partnership purposes.
No part of the proceeds of any Loan has been or will be used, whether directly
or indirectly, for any purpose that entails a violation of any of the
Regulations of the Board, including Regulations T, U and X. The Letters of
Credit (including the Existing Letter of Credit) that have been and that are to
be issued under this Agreement shall as provided in Section 2.06(c) be subject
to an aggregate limit of $75,000,000.
SECTION 5.09 Further Assurances. The Company will cure promptly, or
cause another Loan Party to cure promptly, any defects in the creation and
issuance of any Notes and the execution and delivery of this Agreement. The
Company at its expense will promptly execute and deliver, or cause the
appropriate other Loan Party to execute and deliver, to the Administrative Agent
upon request all such other documents, agreements and instruments to
-62-
<PAGE>
comply with or accomplish the covenants and agreements of the Loan Parties in
this Agreement and the other Loan Documents to which each such Loan Party is a
Party.
SECTION 5.10 Performance of Obligations. The Company will pay the
Loans according to the reading, tenor and effect thereof; and the Company will
do and perform or cause each other Loan Party to do and perform every act and
discharge all of the Obligations to be performed and discharged by it under this
Agreement, at the time or times and in the manner specified.
SECTION 5.11 Lines of Business. The Company will, and will cause each
Restricted Subsidiary to, be and remain engaged in only those lines of business
in which the Company and such Subsidiaries are engaged on the date of this
Agreement, any additional lines of business reasonably related thereto, and no
others.
SECTION 5.12 Intercompany Notes. The Company will cause each
Subsidiary Guarantor to execute a promissory note in favor of the Company in an
original principal amount equal to the lesser of (i) the Commitment and (ii) the
actual amount from time to time outstanding of Indebtedness of such Subsidiary
to the Company (being the sum of the amounts specified pursuant to clause (i) of
the next sentence), and dated the Execution Date in the case of the Subsidiary
Guarantors party to this Agreement on such date and in the case of any other
Subsidiary Guarantor, the date such Person becomes a Subsidiary Guarantor
pursuant to Section 6.03 (collectively, the "Intercompany Notes"). The Company
will maintain accounts in which it shall record (i) the amount of the proceeds
of each Loan, and each other amount, from time to time advanced to such
Subsidiary Guarantor and the amount of each payment made by the Company to
reimburse the Issuing Bank for any drawing made under any Letter of Credit on
which such Subsidiary Guarantor is an account party; (ii) the interest rate
applicable to such advance or payment; and (iii) each payment of principal or
interest made by such Subsidiary Guarantor.
ARTICLE VI.
Negative Covenants
------------------
Until the Commitments have expired or terminated and the principal of
and interest on each Loan and all fees payable hereunder have been paid in full
and all Letters of Credit have expired or terminated and all LC Disbursements
shall have been reimbursed, the Company covenants and agrees with the Lenders
that:
SECTION 6.01 Indebtedness. The Company will not, and will not permit
any Restricted Subsidiary to, create, incur, assume or permit to exist any
Indebtedness (including any obligation of the Company or a Restricted Subsidiary
in respect of Indebtedness of an Unrestricted Subsidiary, whether by way of
guaranty or other direct or indirect support or assurance against loss provided
to the holder of such Indebtedness) except:
(a) Indebtedness created hereunder;
-63-
<PAGE>
(b) Refinancing Indebtedness;
(c) Indebtedness in respect of the SFPP First Mortgage Notes and
Indebtedness under the SFPP Revolving Credit Facility not in excess of
$380,000,000 aggregate principal amount for all such Indebtedness at any one
time outstanding; provided that neither the Company nor any other Restricted
Subsidiary shall be liable for any such Indebtedness except for any Indebtedness
for which OLP "D" may be liable solely as a result of its being the general
partner of SFPP.
(d) Indebtedness of the Company to any Restricted Subsidiary and of
any Restricted Subsidiary to the Company or any other Restricted Subsidiary,
provided that (i) any such borrowing Restricted Subsidiary (other than SFPP)
shall be a Subsidiary Guarantor, (ii) if such borrowing Restricted Subsidiary
shall be SFPP, unless at the time it incurs such Indebtedness it is a Subsidiary
Guarantor and no SFPP First Mortgage Notes are outstanding and the SFPP
Revolving Credit Facility has been repaid in full and terminated, such
Indebtedness of SFPP shall consist solely of SFPP Intracompany Refinancing
Indebtedness, and (iii) any such lending Restricted Subsidiary shall
subordinate, on terms (including terms as to maturity, required amortization,
and limitations on voluntary prepayments) reasonably satisfactory to the
Required Lenders, its right to repayment of the Indebtedness of the Company or
the borrowing Restricted Subsidiary, as the case may be, owing to it and
otherwise permitted by this Section 6.01(d) to the rights of the Lenders to
repayment of all Obligations of the Company or such borrowing Restricted
Subsidiary, as the case may be, from time to time outstanding and owing to them
under this Agreement;
(e) Indebtedness of the Company or a Restricted Subsidiary (including
any Indebtedness in respect of Guarantees contemplated by Section 6.04(e)) in an
aggregate principal amount for the Company and all Restricted Subsidiaries not
in excess of $75,000,000 at any one time outstanding;
(f) additional Indebtedness of the Company (which may be guaranteed
by one or more Restricted Subsidiaries), provided that no required principal
payment (whether at stated maturity, or by virtue of scheduled amortization,
required prepayment or redemption) shall be due in respect thereof prior to the
final maturity of the Indebtedness outstanding hereunder; and
(g) Indebtedness evidenced by the Bonds.
SECTION 6.02 Liens. The Company will not, and will not permit any
Restricted Subsidiary to, create, incur, assume or permit to exist any Lien on
any property or asset now owned or hereafter acquired by it, or assign or sell
any income or revenues (including accounts receivable) or rights in respect of
any thereof, except:
(a) Permitted Encumbrances;
(b) any Lien on any property or asset of the Company or any
Restricted Subsidiary existing on the date hereof and set forth in Schedule
6.02; provided that (i) such Lien shall not extend to any other property or
asset of the Company or such Subsidiary and (ii) such Lien shall secure only
those obligations which it secures on the date hereof and Refinancing
-64-
<PAGE>
Indebtedness thereof other than such Refinancing Indebtedness owed to the
Company or any Restricted Subsidiary;
(c) Liens on properties or assets of SFPP securing the SFPP First
Mortgage Notes and the SFPP Revolving Credit Facility, and Liens on the same
properties or assets that secure the SFPP First Mortgage Notes, or the SFPP
Revolving Credit Facility, as the case may be (and that do not extend to any
other assets), securing SFPP Refinancing Indebtedness (other than SFPP
Intracompany Refinancing Indebtedness);
(d) any Lien existing on any property or asset prior to the
acquisition thereof by the Company or any Restricted Subsidiary or existing on
any property or asset of any Person that becomes a Restricted Subsidiary after
the date hereof prior to the time such Person becomes a Restricted Subsidiary;
provided that (i) such Lien is not created in contemplation of or in connection
with such acquisition or such Person becoming a Restricted Subsidiary , as the
case may be, (ii) such Lien shall not apply to any other property or assets of
the Company or any Restricted Subsidiary, (iii) such Lien shall secure only
those obligations which it secures on the date of such acquisition or the date
such Person becomes a Restricted Subsidiary, as the case may be, and (iv) after
giving effect to such acquisition or such Person becoming a Restricted
Subsidiary, the Indebtedness secured by such Lien would be permitted by Section
6.01(e), and extensions, renewals and replacements thereof that do not increase
the outstanding principal amount thereof; and
(e) Liens on fixed or capital assets acquired, constructed or
improved by the Company or any Restricted Subsidiary; provided that (i) such
security interests secure Indebtedness permitted by clause (e) of Section 6.01,
(ii) such security interests and the Indebtedness secured thereby are incurred
prior to or within 90 days after such acquisition or the completion of such
construction or improvement, (iii) the Indebtedness secured thereby does not
exceed 80% of the cost of acquiring, constructing or improving such fixed or
capital assets and (iv) such security interests shall not apply to any other
property or assets of the Company or any Restricted Subsidiary.
SECTION 6.03 Fundamental Changes. The Company will not, and will not
permit any Restricted Subsidiary to, merge into or consolidate with any other
Person, or permit any other Person to merge into or consolidate with it, or
sell, transfer, lease or otherwise dispose of (in one transaction or in a series
of transactions) all (or substantially all) of its assets, or all or
substantially all of the stock of or other equity interest in any of its
Restricted Subsidiaries (in each case, whether now owned or hereafter acquired),
or liquidate or dissolve, except that, if at the time thereof and immediately
after giving effect thereto no Event of Default or Default shall have occurred
and be continuing (a) any Person may merge into the Company in a transaction in
which the Company is the surviving entity, (b) any Person may merge into any
Restricted Subsidiary in a transaction in which the surviving entity is a
Wholly-Owned Restricted Subsidiary, (c) any Restricted Subsidiary may sell,
transfer, lease or otherwise dispose of its assets to the Company or to a
Wholly-Owned Restricted Subsidiary (other than SFPP), (d) KMNGL may dissolve and
liquidate into OLP "A", and (e) any Restricted Subsidiary (other than a
Subsidiary Guarantor) may liquidate or dissolve if the Company determines in
good faith that such liquidation or dissolution is in the best interests of the
Company and is not materially
-65-
<PAGE>
disadvantageous to the Lenders and such liquidation or dissolution complies with
this Section 6.03.
SECTION 6.04 Investments, Loans, Advances, Guarantees and
Acquisitions; Hedging Agreements. The Company will not, and will not permit any
of its Restricted Subsidiaries to, purchase, hold or acquire (including pursuant
to any merger with any Person that was not a Wholly-Owned Restricted Subsidiary
prior to such merger) any Capital Stock, evidences of indebtedness or other
securities (including any option, warrant or other right to acquire any of the
foregoing) of, make or permit to exist any loans or advances to, Guarantee any
obligations of, or make or (in the case of investments in Shell CO2) commit to
make, or permit to exist any investment or any other interest in, any other
Person, or purchase or otherwise acquire (in one transaction or a series of
transactions) any assets of any other Person constituting a business unit,
except:
(a) the Company Guaranty and the Subsidiary Guarantors Guaranty
and Permitted Investments;
(b) investments, existing on the Execution Date, by the Company and
the Restricted Subsidiaries in the Capital Stock of their respective
Subsidiaries;
(c) investments in, loans to and Guarantees of Indebtedness or other
obligations of any Person (other than SFPP until such time as no SFPP First
Mortgage Notes are outstanding and the SFPP Revolving Credit Facility has been
repaid in full and terminated) that is a Restricted Subsidiary both before and
immediately after the making of such investment or loan, or the giving of such
Guarantee and, in the case of the Company, investments in or loans to SFPP
consisting of SFPP Intracompany Refinancing Indebtedness;
(d) investments in the Capital Stock of any other Person, if
immediately after and giving effect to the making of such investment:
(i) no Event of Default or Default shall have occurred and be
continuing or would result therefrom;
(ii) any acquired or newly-formed corporation, partnership,
association or other business entity (a "New Subsidiary") shall be a
Wholly-Owned Restricted Subsidiary whose Capital Stock is owned directly
by the Company or one or more Wholly-Owned Restricted Subsidiaries (other
than SFPP), and such New Subsidiary shall become a Restricted Subsidiary
and be engaged primarily in one or more lines of business permitted by
Section 5.11, and shall have executed a Subsidiary Guarantor Counterpart
in the form of Exhibit 6.03 (a "Subsidiary Guarantor Counterpart");
(iii)the Company and the Restricted Subsidiaries shall be in
compliance, on a pro forma basis, after giving effect to such acquisition
or formation, with the covenants contained in Article VI, recomputed as at
the last day of the most recently ended fiscal quarter of the Company and
the Restricted Subsidiaries as if such acquisition had occurred on the
first day of each relevant period for testing such compliance, and, the
Company shall have delivered to the Administrative Agent, the Issuing Bank
and the
-66-
<PAGE>
Lenders a certificate of a Responsible Officer to such effect, together
with all relevant financial information of such New Subsidiary or assets
and calculations demonstrating such compliance;
(iv) any New Subsidiary shall not be liable for any Indebtedness
(except for Indebtedness permitted by Section 6.01);
(v) the Required Lenders shall have given their prior written consent
(which consent shall not be unreasonably withheld, taking into
consideration the merits of the acquisition) in the case of any
acquisition made, directly or indirectly, with the proceeds of
Indebtedness incurred by the Company or one or more Restricted
Subsidiaries in excess of $150,000,000; and
(vi) the Administrative Agent shall have received (A) such opinions
of counsel to such New Subsidiary as the Administrative Agent, the Issuing
Bank and the Lenders may reasonably request as to the organization, good
standing and enforceability of this Agreement and the Subsidiary Guarantor
Counterpart and such other matters as the Administrative Agent, the
Issuing Bank and the Lenders may reasonably require and (B) such other
agreements, certificates, approvals, reports, consents, waivers,
estoppels, subordination agreements, filings and other documentation as
the Administrative Agent and the Required Lenders may reasonably request;.
provided, however, that notwithstanding the foregoing, the Company will cause
SFPP at such time as no default under any of its Indebtedness would result
therefrom to execute a Subsidiary Guarantor Counterpart and comply with clause
(vi) above; and
(e) (i) investments, loans and (to the extent permitted by Section
6.01(e)) Guarantees, and (ii) mandatory contributions to Shell CO2 under the
partnership agreement of Shell CO2, in an aggregate amount at any one time
outstanding for all such investments, loans, Guarantees and contributions not
exceeding $75,000,000.
Notwithstanding the foregoing provisions of this Section 6.04, the Company may
at any time or from time to time make investments, loans and Guarantees in
amounts that, in the aggregate, when made, do not exceed the net proceeds of a
substantially concurrent sale of the Company's Qualified Stock, provided,
however, that after giving effect to such investment, loan or guarantee, the
Company and the Restricted Subsidiaries shall be in compliance with the terms of
this Agreement (other than the preceding provisions of this Section 6.04 as the
same would relate to the investment, loan or Guarantee in question).
SECTION 6.05 Restricted Payments. The Company will not, and will not
permit any of the Restricted Subsidiaries to, declare or make, or agree to pay
or make, directly or indirectly, any Restricted Payment.
SECTION 6.06 Transactions with Affiliates. The Company will not, and
will not permit any of the Restricted Subsidiaries to, sell, lease or otherwise
transfer any property or assets to, or purchase, lease or otherwise acquire any
property or assets from, or otherwise engage in any other transactions with, any
of its Affiliates, except (a) in the ordinary course of
-67-
<PAGE>
business at prices and on terms and conditions not less favorable to the Company
or such Subsidiary than could be obtained on an arm's-length basis from
unrelated third parties, (b) transactions between or among the Company and
Guarantors not involving any other Affiliate, (c) any Restricted Payment
permitted by Section 6.05 and (d) loans and advances by the Company to the
General Partner to enable the General Partner to pay general and administrative
costs and expenses pursuant to the partnership agreement of the Company and in
accordance with past practices.
SECTION 6.07 Restrictive Agreements. The Company will not, and will
not permit any of the Restricted Subsidiaries to, directly or indirectly, enter
into, incur or permit to exist any agreement or other arrangement that
prohibits, restricts or imposes any condition upon the ability of (a) any such
Subsidiary to pay dividends or other distributions with respect to any shares of
its Capital Stock or to make or repay loans or advances to the Company or any
other such Subsidiary or to Guarantee Indebtedness of the Company or any other
such Subsidiary or (b) the Company or any such Subsidiary to grant Liens to
secure the Obligations (except for any agreement or arrangement with respect to
the assets subject to the Liens permitted by Section 6.02(d) and Section 6.02(e)
and except for Indebtedness issued by the Company pursuant to an indenture for
senior debt securities or pursuant to an indenture for subordinated debt
securities, each substantially in the form filed as an exhibit to the Company's
Registration Statement on Form S-3, (Registration No. 333-66931) originally
filed with the Securities and Exchange Commission on November 6, 1998, as from
time to time amended, so long as it shall permit the Liens to secure the
Obligations, or any of them, contemplated by this Agreement as in effect on the
Effective Date); provided that the foregoing shall not apply to (i) restrictions
and conditions imposed by law or by this Agreement, (ii) customary restrictions
and conditions contained in agreements relating to the sale of a Subsidiary
pending such sale, provided such restrictions and conditions apply only to the
Subsidiary that is to be sold and such sale is permitted hereunder, or (iii)
restrictions and conditions existing on the date hereof identified on Schedule
6.07 (but shall apply to any extension or renewal of, or any amendment or
modification expanding the scope of, any such restriction or condition) and (iv)
restrictions and conditions contained in the agreement pursuant to which the
SFPP First Mortgage Notes were issued and in the SFPP Revolving Credit Facility.
SECTION 6.08 Sale of Assets. The Company will not, and will not
permit any of the Restricted Subsidiaries to, sell, lease or otherwise dispose
of any of its properties or assets (other than sales of product in the ordinary
course of business) if, at the time of the proposed sale, lease or other
disposition, and giving effect thereto, the aggregate fair market value (as
determined in good faith by the Board of the Company's general partner) of all
properties and assets of the Company and its Restricted Subsidiaries so sold,
leased or otherwise disposed of during the then current fiscal year would exceed
$10,000,000.
SECTION 6.09 Financial Covenants. The Company will observe each
of the following requirements:
(a) Ratio of Indebtedness to Cash Flow. The Company will not at any
time permit the Indebtedness to Cash Flow Ratio to exceed 3.75 to 1.0.
-68-
<PAGE>
(b) Ratio of Cash Flow to Interest Expense. The Company will not at
any time permit the ratio of Company Cash Flow for the four full fiscal quarters
then most recently ended to Company Interest Expense for such four full fiscal
quarters to be less than 3.50 to 1.0.
(c) Ratio of Cash Flow to Fixed Charges. The Company will not, at the
end of any fiscal quarter, permit the ratio of Company Cash Flow for the four
full fiscal quarters then ended to Fixed Charges at the end of such fiscal
quarter to be less than 1.25 to 1.0.
SECTION 6.10 Amendments to Certain Agreements. The Company will not
and will not permit any Restricted Subsidiary (including SFPP) to amend its
partnership agreement or operating agreement or in the case of SFPP, the SFPP
Revolving Credit Facility, the SFPP First Mortgage Notes or the Note Agreement
pursuant to which such First Mortgage Notes were issued, in each case, in any
manner that could be adverse to the Lenders.
ARTICLE VII.
Events of Default
-----------------
SECTION 7.01 Events of Default and Remedies. If any of the following
events ("Events of Default") shall occur and be continuing:
(a) any installment of principal of any Loan or any reimbursement
obligation in respect of any LC Disbursement shall not be paid when and as the
same shall become due and payable, whether at the due date thereof or at a date
fixed for prepayment thereof or otherwise;
(b) any interest on any Loan or any fee or any other amount (other
than an amount referred to in clause (a) of this Article) payable under this
Agreement or any other Loan Document shall not be paid, when and as the same
shall become due and payable, and such failure shall continue unremedied for a
period of three days;
(c) any representation or warranty made or, for purposes of Article
III, deemed made by or on behalf of any Loan Party herein, at the direction of
any Loan Party or by any Loan Party in any other Loan Document or in any
document, certificate or financial statement delivered in connection with this
Agreement or any other Loan Document shall prove to have been incorrect in any
material respect when made or deemed made or reaffirmed, as the case may be;
(d) any Loan Party shall fail to observe or perform any covenant,
condition or agreement contained in Section 5.01(d)(iii), 5.03 (with respect to
such Loan Party's existence) or 5.08 or in Article VI;
(e) any Loan Party shall fail to perform or observe any other term,
covenant or agreement contained in this Agreement (other than those specified in
Section 7.01(a), Section 7.01(b) or Section 7.01(d)) or any other Loan Document
to which it is a party and, in any event, such failure shall remain unremedied
for 30 calendar days after the earlier of (i) written notice of such failure
shall have been given to the Company by the Administrative Agent or any Lender
or, (ii) an officer of any Loan Party becomes aware of such failure;
-69-
<PAGE>
(f) other than as specified in Section 7.01(a) or (b), (i) the
Company or any Restricted Subsidiary fails to make (whether as primary obligor
or as guarantor or other surety) any payment of principal of, or interest or
premium, if any, on any item or items of Indebtedness (other than as specified
in Section 7.01(a), Section 7.01(b) or Article IX or Article X) beyond any
period of grace provided with respect thereto (not to exceed 30 days); provided
that the aggregate outstanding principal amount of all Indebtedness as to which
such a payment default shall occur and be continuing is equal to or exceeds
$2,000,000, or (ii) the Company or any Restricted Subsidiary fails to duly
observe, perform or comply with any agreement with any Person or any term or
condition of any instrument, if such failure, either individually or in the
aggregate, shall have caused or shall have the ability to cause the acceleration
of the payment of Indebtedness with an aggregate face amount which is equal to
or exceeds $2,000,000; provided that this Section 7.01(f) shall not apply to
secured Indebtedness that becomes due as a result of the voluntary sale or
transfer of the property or assets securing such Indebtedness;
(g) an involuntary case shall be commenced or an involuntary petition
shall be filed seeking (i) liquidation, reorganization or other relief in
respect of the Company or any Restricted Subsidiary or its debts, or of a
substantial part of its assets, under any Federal, state or foreign bankruptcy,
insolvency, receivership or similar law now or hereafter in effect or (ii) the
appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for the Company or any Restricted Subsidiary or for a
substantial part of its assets, and, in any such case, such proceeding or
petition shall continue undismissed for 60 days or an order or decree approving
or ordering any of the foregoing shall be entered;
(h) the Company, or any Restricted Subsidiary shall (i) voluntarily
commence any proceeding or file any petition seeking liquidation, winding-up,
reorganization or other relief under any Federal, state or foreign bankruptcy,
insolvency, receivership or similar law now or hereafter in effect, (ii) consent
to the institution of, or fail to contest in a timely and appropriate manner,
any proceeding or petition described in Section 7.01(g), (iii) apply for or
consent to the appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for the Company or any Restricted Subsidiary or
for a substantial part of its assets, (iv) file an answer admitting the material
allegations of a petition filed against it in any such proceeding, (v) make a
general assignment for the benefit of creditors or (vi) take any action for the
purpose of effecting any of the foregoing;
(i) the Company or any Restricted Subsidiary shall become unable,
admit in writing or fail generally to pay its debts as they become due;
(j) the General Partner fails to make (whether as primary obligator
or as guarantor or other surety) any payment of principal of, or interest or
premium, if any, on any item or items of Indebtedness beyond any period of grace
provided with respect thereto (not to exceed 30 days); provided that the
aggregate outstanding principal amount of all such Indebtedness as to which such
a payment default shall occur and be continuing is equal to or exceeds
$5,000,000;
(k) one or more judgments for the payment of money in an aggregate
amount in excess of $5,000,000 shall be rendered against the Company, any
Restricted Subsidiary or any combination thereof and the same shall remain
undischarged for a period of 30 consecutive days
-70-
<PAGE>
during which execution shall not be effectively stayed, or any action shall be
legally taken by a judgment creditor to attach or levy upon any assets of the
Company or any Restricted Subsidiary to enforce any such judgment;
(l) an ERISA Event shall have occurred that, in the opinion of the
Required Lenders, when taken together with all other ERISA Events that have
occurred, could reasonably be expected to result in liability of the Company and
the Restricted Subsidiaries in an aggregate amount exceeding (i) $5,000,000 in
any year or (ii) $10,000,000 for all periods;
(m) either Borrower or any other Person shall petition or apply for
or obtain any order restricting payment by the Issuing Bank under any Letter of
Credit or extending the Issuing Bank's liability under such Letter of Credit
beyond the expiration date stated therein or otherwise agreed to by the Issuing
Bank;
then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, the Administrative Agent, may, and upon the written
request of the Required Lenders shall, by written notice (including notice sent
by telecopy) to the Company (a "Notice of Default") take any or all of the
following actions, without prejudice to the rights of the Administrative Agent,
any Lender or other holder of any of the Obligations to enforce its claims
against any Loan Party (provided that, if an Event of Default specified in
Section 7.01(g) or Section 7.01(h) shall occur with respect to the Company or
any Restricted Subsidiary, the result of which would occur upon the giving of a
Notice of Default as specified in clauses (i), (ii) and (v) below, shall occur
automatically without the giving of any Notice of Default): (i) declare the
Total Commitment terminated, whereupon the Commitments of the Lenders shall
forthwith terminate immediately and any accrued commitment fees shall forthwith
become due and payable without any other notice of any kind; (ii) declare the
principal of and any accrued interest in respect of all Loans, and all the other
Obligations owing hereunder and under the other Loan Documents, to be, whereupon
the same shall become, forthwith due and payable without presentment, demand,
notice of demand or of dishonor and nonpayment, protest, notice of protest,
notice of intent to accelerate, declaration or notice of acceleration or any
other notice of any kind, all of which are hereby waived by each Loan Party;
(iii) exercise any rights or remedies under the Loan Documents; (iv) terminate
any Letter of Credit which may be terminated in accordance with its terms
(whether by the giving of written notice to the beneficiary or otherwise); and
(v) direct the Company to comply, and the Company agrees that upon receipt of
such notice (or upon the occurrence of an Event of Default specified in Section
7.01(g) or Section 7.01(h)) it will comply, with the provisions of Section
2.06(k).
SECTION 7.02 Other Remedies. Upon the occurrence and during the
continuance of any Event of Default, the Administrative Agent, acting at the
request of the Required Lenders, may proceed to protect and enforce its rights,
either by suit in equity or by action at law or both, whether for the specific
performance of any covenant or agreement contained in this Agreement or in any
other Loan Document or in aid of the exercise of any power granted in this
Agreement or in any other Loan Document; or may proceed to enforce the payment
of all amounts owing to the Administrative Agent and the Lenders under the Loan
Documents and interest thereon in the manner set forth herein or therein; it
being intended that no remedy conferred herein or in any of the other Loan
Documents is to be exclusive of any
-71-
<PAGE>
other remedy, and each and every remedy contained herein or in any other Loan
Document shall be cumulative and shall be in addition to every other remedy
given hereunder and under the other Loan Documents now or hereafter existing at
law or in equity or by statute or otherwise.
SECTION 7.03 Application of Moneys During Continuation of Event of
Default . (a) So long as an Event of Default of which the Administrative Agent
shall have given notice to the Lenders shall continue, all moneys received by
the Administrative Agent from any Loan Party under the Loan Documents shall,
except as otherwise required by law, be distributed by the Administrative Agent
on the dates selected by the Administrative Agent (individually, a "Distribution
Date" and collectively, the "Distribution Dates") as follows:
first, to payment of the unreimbursed expenses for which the
Administrative Agent or any Lender is to be reimbursed pursuant to Section
11.03 and unpaid fees owing to the Administrative Agent pursuant to the
Fee Letter;
second, to the ratable payment of accrued but unpaid interest on the
Obligations;
third, to the ratable payment of unpaid principal of the Obligations;
fourth, to the ratable payment of all other amounts payable by the Loan
Parties hereunder;
fifth, to the ratable payment of all other Obligations, until all
Obligations shall have been paid in full; and
finally, to payment to the Loan Parties, or their respective successors or
assigns, or as a court of competent jurisdiction may direct, of any
surplus then remaining from such proceeds.
(b) The term "unpaid" as used in this Section 7.03 shall mean all
Obligations outstanding as of a Distribution Date (including any amounts unpaid
under clause (v) of the last sentence of Section 7.01) as to which prior
distributions have not been made, after giving effect to any adjustments which
are made pursuant to Section 11.09 of which the Administrative Agent shall have
been notified.
ARTICLE VIII.
The Administrative Agent
------------------------
SECTION 8.01 Appointment, Powers and Immunities. Each Lender hereby
irrevocably appoints and authorizes the Administrative Agent to act as its agent
hereunder and under the other Loan Documents with such powers as are
specifically delegated to the Administrative Agent by the terms of this
Agreement and such other Loan Documents, together with such other powers as are
reasonably incidental thereto. The Administrative Agent (which term as used in
this sentence and in Section 8.05 and the first sentence of Section 8.06 shall
include reference to its Affiliates and its Affiliates' officers, directors,
employees,
-72-
<PAGE>
attorneys, accountants, experts and agents): (a) shall have no duties or
responsibilities except those expressly set forth in the Loan Documents, and
shall not by reason of the Loan Documents be a trustee or fiduciary for any
Lender; (b) makes no representation or warranty to any Lender and shall not be
responsible to the Lenders for any recitals, statements, representations or
warranties contained in this Agreement, or in any certificate or other document
referred to or provided for in, or received by any of them under, this
Agreement, or for the value, validity, effectiveness, genuineness, execution,
legality, enforceability or sufficiency of this Agreement, other Loan Document
or any other document referred to or provided for herein or therein or for any
failure by any Loan Party or any other Person (other than the Administrative
Agent) to perform any of its obligations hereunder or thereunder or for the
existence or value of, or the perfection or priority of any Lien upon, any
collateral security or the financial or other condition of the Company, the
Subsidiaries or any other obligor or guarantor; (c) except pursuant to Section
8.07 shall not be required to initiate or conduct any litigation or collection
proceedings hereunder; and (d) shall not be responsible for any action taken or
omitted to be taken by it hereunder or under any other document or instrument
referred to or provided for herein or in connection herewith including its own
ordinary negligence, except for its own gross negligence, willful misconduct or
unlawful conduct. The Administrative Agent may employ agents, accountants,
attorneys and experts and shall not be responsible for the negligence or
misconduct of any such agents, accountants, attorneys or experts selected by it
in good faith or any action taken or omitted to be taken in good faith by it in
accordance with the advice of such agents, accountants, attorneys or experts.
The Administrative Agent may deem and treat the payee named in any Note as the
holder thereof for all purposes hereof unless and until a written notice of the
assignment or transfer thereof permitted hereunder shall have been filed with
the Administrative Agent. The Administrative Agent is authorized to release any
cash collateral that is permitted to be released pursuant to the terms of this
Agreement.
SECTION 8.02 Reliance by Administrative Agent. The Administrative
Agent shall be entitled to rely upon any certification, notice or other
communication (including any thereof by telephone, telex, telecopier, telegram
or cable) believed by it to be genuine and correct and to have been signed or
sent by or on behalf of the proper Person or Persons, and upon advice and
statements of legal counsel, independent accountants and other experts selected
by the Administrative Agent in good faith.
SECTION 8.03 Defaults; Events of Default. The Administrative Agent
shall not be deemed to have knowledge of the occurrence of a Default or an Event
of Default (other than the non-payment of principal of or interest on Loans or
of fees or failure to reimburse LC Disbursements) unless the Administrative
Agent has received notice from a Lender or a Borrower specifying such Default or
Event of Default and stating that such notice is a "Notice of Default."In the
event that the Administrative Agent receives such a notice of the occurrence of
a Default or Event of Default, the Administrative Agent shall give prompt notice
thereof to the Lenders. In the event of a payment Default or Event of Default,
the Administrative Agent shall give each Lender prompt notice of each such
payment Default or Event of Default.
SECTION 8.04 Rights as a Lender. With respect to its Commitments and
the Loans made by it and its issuance, or its participation in the issuance, of
each Letter of Credit, First Union National Bank (and any successor acting as
Administrative Agent) in its
-73-
<PAGE>
capacity as a Lender hereunder shall have the same rights and powers hereunder
as any other Lender and may exercise the same as though it were not acting as
the Administrative Agent, and the term "Lender" or "Lenders" shall, unless the
context otherwise indicates, include the Administrative Agent in its individual
capacity. First Union National Bank (and any successor acting as Administrative
Agent) and its Affiliates may (without having to account therefor to any Lender)
accept deposits from, lend money to and generally engage in any kind of banking,
trust or other business with any Loan Party (and any of its Affiliates) as if it
were not acting as the Administrative Agent. First Union National Bank and its
Affiliates may accept fees and other consideration from the Company or any other
Loan Party for services in connection with this Agreement or otherwise without
having to account for the same to the Lenders.
SECTION 8.05 INDEMNIFICATION. THE LENDERS AGREE TO INDEMNIFY THE
ADMINISTRATIVE AGENT AND THE SYNDICATION AGENT RATABLY IN ACCORDANCE WITH THEIR
APPLICABLE PERCENTAGES FOR THE INDEMNITY MATTERS AS DESCRIBED IN SECTION 11.03
TO THE EXTENT NOT INDEMNIFIED OR REIMBURSED BY THE COMPANY UNDER SECTION 11.03,
BUT WITHOUT LIMITING THE OBLIGATIONS OF THE COMPANY UNDER SAID SECTION 11.03 AND
FOR ANY AND ALL OTHER LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES,
ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS OF ANY KIND AND
NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST THE
ADMINISTRATIVE AGENT OR THE SYNDICATION AGENT IN ANY WAY RELATING TO OR ARISING
OUT OF: (A) THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT CONTEMPLATED BY OR
REFERRED TO HEREIN OR THE TRANSACTIONS CONTEMPLATED HEREBY, BUT EXCLUDING,
UNLESS A DEFAULT OR AN EVENT OF DEFAULT HAS OCCURRED AND IS CONTINUING, NORMAL
ADMINISTRATIVE COSTS AND EXPENSES INCIDENT TO THE PERFORMANCE OF ITS AGENCY
DUTIES, IF ANY, HEREUNDER OR (B) THE ENFORCEMENT OF ANY OF THE TERMS OF THIS
AGREEMENT OR OF ANY OTHER LOAN DOCUMENT; WHETHER OR NOT ANY OF THE FOREGOING
SPECIFIED IN THIS SECTION 8.05 ARISES FROM THE SOLE OR CONCURRENT NEGLIGENCE OF
THE ADMINISTRATIVE AGENT OR THE SYNDICATION AGENT, AS THE CASE MAY BE; PROVIDED
THAT NO LENDER SHALL BE LIABLE FOR ANY OF THE FOREGOING TO THE EXTENT THEY ARISE
FROM THE GROSS NEGLIGENCE, WILLFUL MISCONDUCT OR UNLAWFUL CONDUCT OF THE
ADMINISTRATIVE AGENT.
SECTION 8.06 Non-Reliance on Agents and other Lenders. Each Lender
acknowledges and agrees that it has, independently and without reliance on the
Administrative Agent, the Syndication Agent or any other Lender, and based on
such documents and information as it has deemed appropriate, made its own credit
analysis of the Company and the Subsidiaries and its decision to enter into this
Agreement, and that it will, independently and without reliance upon the
Administrative Agent, the Syndication Agent or any other Lender, and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own analysis and decisions in taking or not taking action
under this Agreement. Neither the Administrative Agent nor the Syndication Agent
shall be required to keep itself informed as
-74-
<PAGE>
to the performance or observance by any Loan Party of this Agreement, the other
Loan Documents or any other document referred to or provided for herein or to
inspect the properties or books of any Loan Party. Except for notices, reports
and other documents and information expressly required to be furnished to the
Lenders by the Administrative Agent hereunder, neither the Administrative Agent
nor the Syndication Agent shall have any duty or responsibility to provide any
Lender with any credit or other information concerning the affairs, financial
condition or business of any Loan Party (or any of its Affiliates) which may
come into the possession of the Administrative Agent, the Syndication Agent or
any of its respective Affiliates. In this regard, each Lender acknowledges that
Andrews & Kurth L.L.P. is acting in this transaction as special counsel to the
Administrative Agent and the Syndication Agent only. Each Lender will consult
with its own legal counsel to the extent that it deems necessary in connection
with this Agreement and other Loan Documents and the matters contemplated herein
and therein.
SECTION 8.07 Action by Administrative Agent. Except for action or
other matters expressly required of the Administrative Agent hereunder, the
Administrative Agent shall in all cases be fully justified in failing or
refusing to act hereunder unless it shall (a) receive written instructions from
the Required Lenders (or all of the Lenders as expressly required by Section
11.02) specifying the action to be taken, and (b) be indemnified to its
satisfaction by the Lenders against any and all liability and expenses which may
be incurred by it by reason of taking or continuing to take any such action. The
instructions of the Required Lenders (or all of the Lenders as expressly
required by Section 11.02) and any action taken or failure to act pursuant
thereto by the Administrative Agent shall be binding on all of the Lenders. If a
Default or Event of Default has occurred and is continuing, the Administrative
Agent shall take such action with respect to such Default or Event of Default as
shall be directed by the Required Lenders (or all of the Lenders as required by
Section 11.02) in the written instructions (with indemnities) described in this
Section 8.07; provided that, unless and until the Administrative Agent shall
have received such directions, the Administrative Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default or Event of Default as it shall deem advisable in the best
interests of the Lenders. In no event, however, shall the Administrative Agent
be required to take any action which exposes the Administrative Agent to
personal liability or which is contrary to this Agreement or applicable law.
SECTION 8.08 Resignation or Removal of Administrative Agent. Subject
to the appointment and acceptance of a successor Administrative Agent as
provided below, the Administrative Agent may resign at any time by giving notice
thereof to the Lenders and the Company, and the Administrative Agent may be
removed at any time with or without cause by the Required Lenders. Upon any such
resignation or removal, the Required Lenders shall have the right to appoint a
successor Administrative Agent. If no successor Administrative Agent shall have
been so appointed by the Required Lenders and shall have accepted such
appointment within thirty (30) days after the retiring Administrative Agent's
giving of notice of resignation or the Required Lenders' removal of the retiring
Administrative Agent, then the retiring Administrative Agent may, on behalf of
the Lenders, appoint a successor Administrative Agent. Upon the acceptance of
such appointment hereunder by a successor Administrative Agent, such successor
Administrative Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Administrative Agent, and
the retiring
-75-
<PAGE>
Administrative Agent shall be discharged from its duties and obligations
hereunder. After any retiring Administrative Agent's resignation or removal
hereunder as Administrative Agent, the provisions of this Article VIII and
Section 11.03 shall continue in effect for its benefit in respect of any actions
taken or omitted to be taken by it while it was acting as the Administrative
Agent.
SECTION 8.09 Duties of Syndication Agent. Notwithstanding the
indemnity of the Syndication Agent contained in Section 8.05 and in Section
11.03, the Syndication Agent shall not have any duty, responsibility or
liability in such capacity with respect to the administration or enforcement of
this Agreement or any other Loan Document.
ARTICLE IX.
Company Guaranty
----------------
SECTION 9.01 Company Guaranty. (a) In consideration of, and in order
to induce the Administrative Agent and the Lenders to enter into this Agreement
and to induce the Lenders to make the Loans and the Issuing Bank to maintain the
Existing Letter of Credit and to issue new Letters of Credit hereunder, the
Company hereby absolutely, unconditionally and irrevocably guarantees the
punctual payment and performance when due, whether at stated maturity, by
acceleration or otherwise, of the Obligations of the Subsidiary Borrower (as
such), and all covenants of the Subsidiary Borrower (as such), now or hereafter
existing under this Agreement and the other Loan Documents to which the
Subsidiary Borrower is a party, whether for principal, interest (including
interest accruing or becoming owing both prior to and subsequent to the
commencement of any proceeding against or with respect to the Subsidiary
Borrower under any chapter of Title 11 of the United States Code, as now or
hereafter in effect, or any successor thereto (the "Bankruptcy Code")), fees,
commissions, expenses (including reasonable attorneys' fees and expenses) or
otherwise (all such obligations being the "Subsidiary Borrower Guaranteed
Obligations"), it being understood, for the avoidance of doubt, that such term
shall not include any Obligations of the Person that is the Subsidiary Borrower
in any other capacity, e.g., as a Subsidiary Guarantor. The Company agrees to
pay any and all expenses incurred by each Lender and the Administrative Agent in
enforcing this Company Guaranty against the Company.
(b) This Company Guaranty is an absolute, unconditional, present and
continuing guaranty of payment and not of collectibility and is in no way
conditioned upon any attempt to collect from the Subsidiary Borrower or any
other Loan Party or any other action, occurrence or circumstance whatsoever.
SECTION 9.02 Continuing Guaranty. (a) The Company guarantees that the
Subsidiary Borrower Guaranteed Obligations will be paid strictly in accordance
with the terms of this Agreement and the other Loan Documents. The Company
agrees that, to the maximum extent permitted by applicable law, the Subsidiary
Borrower Guaranteed Obligations and Loan Documents to which the Subsidiary
Borrower is a party may be extended or renewed, and indebtedness thereunder
repaid and reborrowed in whole or in part, without notice to or assent by the
Company, and that it will remain bound upon this Company Guaranty
notwithstanding any extension, renewal or other alteration of any Subsidiary
Borrower
-76-
<PAGE>
Guaranteed Obligations or such Loan Documents, or any repayment and reborrowing
of Loans. To the maximum extent permitted by applicable law, except as otherwise
expressly provided in this Agreement or any other Loan Document to which the
Company is a party, the obligations of the Company under this Company Guaranty
shall be absolute, unconditional and irrevocable, and shall be performed
strictly in accordance with the terms hereof under any circumstances whatsoever,
including:
(i) any modification, amendment, supplement, renewal, extension for
any period, increase, decrease, alteration or rearrangement of all or any
part of the Subsidiary Borrower Guaranteed Obligations, or of this
Agreement or any other Loan Document executed in connection herewith, or
any contract or understanding among the Company, the Subsidiary Borrower,
any Subsidiary Guarantor, the Administrative Agent and/or the Lenders, or
any other Person, pertaining to the Subsidiary Borrower Guaranteed
Obligations;
(ii) any adjustment, indulgence, forbearance or compromise that might
be granted or given by the Lenders to the Company or any Subsidiary
Guarantor or any other Person liable on the Subsidiary Borrower Guaranteed
Obligations;
(iii) the insolvency, bankruptcy, arrangement, adjustment,
composition, liquidation, disability, dissolution or lack of power of the
Company, the Subsidiary Borrower, any Subsidiary Guarantor or any other
Person at any time liable for the payment of all or part of the Subsidiary
Borrower Guaranteed Obligations; or any dissolution of the Company, the
Subsidiary Borrower, or any Subsidiary Guarantor, or any sale, lease or
transfer of any or all of the assets of the Company, the Subsidiary
Borrower, or any Subsidiary Guarantor, or any changes in the shareholders
of the Company, the Subsidiary Borrower, or any Subsidiary Guarantor; or
any reorganization of the Company, the Subsidiary Borrower, or any
Subsidiary Guarantor;
(iv) the invalidity, illegality or unenforceability of all or any part
of the Subsidiary Borrower Guaranteed Obligations, or any document or
agreement executed in connection with the Subsidiary Borrower Guaranteed
Obligations, for any reason whatsoever, including the fact that (A) the
Subsidiary Borrower Guaranteed Obligations, or any part thereof, exceeds
the amount permitted by law, (B) the act of creating the Subsidiary
Borrower Guaranteed Obligations or any part thereof is ultra vires, (C) the
officers or representatives executing the documents or otherwise creating
the Subsidiary Borrower Guaranteed Obligations acted in excess of their
authority, (D) the Subsidiary Borrower Guaranteed Obligations or any part
thereof violate applicable usury laws, (E) the Company, the Subsidiary
Borrower or any Subsidiary Guarantor has valid defenses, claims and offsets
(whether at law or in equity, by agreement or by statute) which render the
Subsidiary Borrower Guaranteed Obligations wholly or partially
uncollectible from the Company, the Subsidiary Borrower or such Subsidiary
Guarantor, (F) the creation, performance or repayment of the Subsidiary
Borrower Guaranteed Obligations (or execution, delivery and performance of
any document or instrument representing part of the Subsidiary Borrower
Guaranteed Obligations or executed in connection with the Subsidiary
Borrower Guaranteed Obligations, or given to secure the repayment of the
-77-
<PAGE>
Subsidiary Borrower Guaranteed Obligations) is illegal, uncollectible,
legally impossible or unenforceable, or (G) this Agreement, any other Loan
Document, or any other document or instrument pertaining to the Subsidiary
Borrower Guaranteed Obligations has been forged or otherwise is irregular
or not genuine or authentic;
(v) any full or partial release of the liability of the Company, the
Subsidiary Borrower or any Subsidiary Guarantor on the Subsidiary Borrower
Guaranteed Obligations or any part thereof, or any other Person now or
hereafter liable, whether directly or indirectly, jointly, severally, or
jointly and severally, to pay, perform, guarantee or assure the payment of
the Subsidiary Borrower Guaranteed Obligations or any part thereof; it
being recognized, acknowledged and agreed by the Company that the Company
may be required to pay the Subsidiary Borrower Guaranteed Obligations in
full without assistance or support of any other Person, and the Company has
not been induced to enter into this Guaranty on the basis of a
contemplation, belief, understanding or agreement that any other Person
will be liable to perform the Subsidiary Borrower Guaranteed Obligations,
or that the Administrative Agent or any Lender will look to any other
Person to perform the Subsidiary Borrower Guaranteed Obligations;
(vi) the taking or accepting of any other security, collateral or
guaranty, or other assurance of payment, for all or any part of the
Subsidiary Borrower Guaranteed Obligations;
(vii) any release, surrender, exchange, subordination, deterioration,
waste, loss or impairment of any collateral, property or security, at any
time existing in connection with, or assuring or securing payment of, all
or any part of the Subsidiary Borrower Guaranteed Obligations;
(viii)the failure of the Administrative Agent, the Lenders or any
other Person to exercise diligence or reasonable care in the preservation,
protection, enforcement, sale or other handling or treatment of all or any
part of such collateral, property or security;
(ix) the fact that any collateral, security or Lien contemplated or
intended to be given, created or granted as security for the repayment of
the Subsidiary Borrower Guaranteed Obligations shall not be properly
perfected or created, or shall prove to be unenforceable or subordinate to
any other Lien; it being recognized and agreed by the Company that the
Company is not entering into this Company Guaranty in reliance on, or in
contemplation of the benefits of, the validity, enforceability,
collectibility or value of any of the collateral for the Subsidiary
Borrower Guaranteed Obligations;
(x) any payment by the Subsidiary Borrower or the Company to the
Administrative Agent or any Lender is held to constitute a preference under
bankruptcy laws, or for any other reason either the Administrative Agent or
any Lender is required to refund such payment or pay such amount to the
Subsidiary Borrower or any other Person; or
(xi) any other action taken or omitted to be taken with respect to
this Agreement, any other Loan Document, the Subsidiary Borrower Guaranteed
Obligations,
-78-
<PAGE>
or any security and collateral therefor, whether or not such action or
omission prejudices the Company or increases the likelihood that the
Company will be required to pay the Subsidiary Borrower Guaranteed
Obligations pursuant to the terms hereof;
it being the unambiguous and unequivocal intention of the Company that the
Company shall be obligated to pay the Subsidiary Borrower Guaranteed Obligations
when due, notwithstanding any occurrence, circumstance, event, action, or
omission whatsoever, whether contemplated or uncontemplated, and whether or not
otherwise or particularly described herein, except for the full and final
payment and satisfaction of the Subsidiary Borrower Guaranteed Obligations after
the termination of the Commitments of all Lenders and the expiration or
termination of the Existing Letter of Credit.
(b) The Company further agrees that, to the fullest extent permitted
by law, as between the Company, on the one hand, and the Lenders and the
Administrative Agent, on the other hand, (i) the maturity of the Subsidiary
Borrower Guaranteed Obligations may be accelerated as provided in Article VII
for the purposes of this Company Guaranty, notwithstanding any stay, injunction
or other prohibition preventing such acceleration of the Subsidiary Borrower
Guaranteed Obligations, and (ii) in the event of any acceleration of the
Subsidiary Borrower Guaranteed Obligations as provided in Article VII, the
Subsidiary Borrower Guaranteed Obligations (whether or not due and payable)
shall forthwith become due and payable by the Company for the purpose of this
Company Guaranty.
SECTION 9.03 Effect of Debtor Relief Laws. If after receipt of any
payment of all or any part of the Subsidiary Borrower Guaranteed Obligations,
the Administrative Agent, the Issuing Bank or any Lender is for any reason
compelled to surrender or voluntarily surrenders, such payment to any Person (a)
because such payment is or may be avoided, invalidated, declared fraudulent, set
aside, determined to be void or voidable as a preference, fraudulent conveyance,
fraudulent transfer, impermissible set-off or a diversion of trust funds or (b)
for any other reason, including (i) any judgment, decree or order of any court
or administrative body having jurisdiction over the Administrative Agent, the
Issuing Bank, any Lender or any of their respective properties or (ii) any
settlement or compromise of any such claim effected by the Administrative Agent,
the Issuing Bank or any Lender with any such claimant (including the Subsidiary
Borrower), then the Subsidiary Borrower Guaranteed Obligations or part thereof
intended to be satisfied shall be reinstated and continue, and this Company
Guaranty shall continue in full force as if such payment have not been received,
notwithstanding any revocation thereof or the cancellation of any instrument
evidencing any of the Subsidiary Borrower Guaranteed Obligations or otherwise;
and the Company shall be liable to pay the Administrative Agent, the Issuing
Bank and the Lenders, and hereby do indemnify the Administrative Agent, the
Issuing Bank and the Lenders and hold them harmless for the amount of such
payment so surrendered and all reasonable expenses (including reasonable
attorneys' fees, court costs and expenses attributable thereto) incurred by the
Administrative Agent, the Issuing Bank or any Lender in the defense of any claim
made against it that any payment received by the Administrative Agent, the
Issuing Bank or any Lender in respect of all or part of the Subsidiary Borrower
Guaranteed Obligations must be surrendered. The provisions of this paragraph
shall survive the termination of this Company Guaranty, and any satisfaction and
-79-
<PAGE>
discharge of the Subsidiary Borrower by virtue of any payment, court order or
any Federal or state law.
SECTION 9.04 Waiver. The Company hereby waives promptness, diligence,
notice of acceptance and any other notice with respect to any of the Subsidiary
Borrower Guaranteed Obligations and this Company Guaranty and waives
presentment, demand for payment, notice of intent to accelerate, notice of
dishonor or nonpayment and any requirement that the Administrative Agent or any
Lender institute suit, collection proceedings or take any other action to
collect the Subsidiary Borrower Guaranteed Obligations, including any
requirement that the Administrative Agent or any Lender exhaust any right or
take any action against the Subsidiary Borrower or any other Person or any
collateral (it being the intention of the Administrative Agent, the Lenders and
the Company that this Company Guaranty is to be a guaranty of payment and not of
collection). It shall not be necessary for the Administrative Agent or any
Lender, in order to enforce any payment by the Company hereunder, to institute
suit or exhaust its rights and remedies against the Subsidiary Borrower, any
Subsidiary Guarantor or any other Person, including others liable to pay any
Subsidiary Borrower Guaranteed Obligations, or to enforce its rights against any
security ever given to secure payment thereof. The Company hereby expressly
waives to the maximum extent permitted by applicable law each and every right to
which it may be entitled by virtue of the suretyship laws of the State of New
York or any other state in which it may be located, including any and all rights
it may have pursuant to Rule 31, Texas Rules of Civil Procedure, Section 17.001
of the Texas Civil Practice and Remedies Code and Chapter 34 of the Texas
Business and Commerce Code.
SECTION 9.05 Full Force and Effect. This Company Guaranty is a
continuing guaranty and shall remain in full force and effect until all of the
Subsidiary Borrower Guaranteed Obligations under this Agreement and the other
Loan Documents to which the Subsidiary Borrower is a party and all other amounts
payable under this Company Guaranty have been paid in full (after the
termination of the Commitments of the Lenders and the termination or expiration
of the Existing Letter of Credit). All rights, remedies and powers provided in
this Company Guaranty may be exercised, and all waivers contained in this
Company Guaranty may be enforced, only to the extent that the exercise or
enforcement thereof does not violate any provisions of applicable law which may
not be waived.
ARTICLE X.
Subsidiary Guarantors Guaranty
------------------------------
SECTION 10.01 Subsidiary Guarantors Guaranty. (a) In consideration
of, and in order to induce the Administrative Agent and the Lenders to enter
into this Agreement and to induce the Lenders to make the Loans and the Issuing
Bank to maintain the Existing Letter of Credit and to issue new Letters of
Credit hereunder, each Subsidiary Guarantor hereby absolutely, unconditionally
and irrevocably, jointly and severally guarantees the punctual payment and
performance when due, whether at stated maturity, by acceleration or otherwise,
of the Obligations of the Borrowers (as such), and all other obligations and
covenants of the Borrowers (as such), now or hereafter existing under this
Agreement and the other Loan
-80-
<PAGE>
Documents to which either Borrower is a party, whether for principal, interest
(including interest accruing or becoming owing both prior to and subsequent to
the commencement of any proceeding against or with respect to such Borrower
under the Bankruptcy Code, commitment fees, commissions, expenses (including
reasonable attorneys' fees and expenses) or otherwise, subject however to the
limitation set forth in Section 10.04 (all such obligations being the "Borrower
Guaranteed Obligations", it being understood, for the avoidance of doubt, that
such term shall not include any Obligations of either Borrower in any capacity
other than as a Borrower hereunder, e.g., as the maker of the Company Guaranty
or this Subsidiary Borrower Guaranty). Moreover, the term "Borrower Guaranteed
Obligations" shall not, as to the Person that is the Subsidiary Borrower,
include its own obligations, either as such or as a Subsidiary Guarantor. Each
Subsidiary Guarantor agrees to pay any and all expenses incurred by each Lender
and the Administrative Agent in enforcing this Subsidiary Guarantors Guaranty
against such Subsidiary Guarantor.
(b) Each Subsidiary Guarantor agrees that the amount of the Borrower
Guaranteed Obligations may at any time and from time to time exceed the amount
of the maximum liability of such Subsidiary Guarantor in respect thereof under
this Subsidiary Guarantors Guaranty (by reason of the limitations set forth in
Section 10.04) without impairing this Subsidiary Guarantors Guaranty or
affecting the rights and remedies of the Administrative Agent and the Lenders
hereunder.
(c) This Subsidiary Guarantors Guaranty is an absolute,
unconditional, present and continuing guaranty of payment and not of
collectibility and is in no way conditioned upon any attempt to collect from the
Company, any other Loan Party or any other action, occurrence or circumstance
whatsoever.
SECTION 10.02 Continuing Guaranty. (a) Each Subsidiary Guarantor
guarantees that the Borrower Guaranteed Obligations will be paid strictly in
accordance with the terms of this Agreement and the other Loan Documents. Each
Subsidiary Guarantor agrees that, to the maximum extent permitted by applicable
law, the Borrower Guaranteed Obligations and the Loan Documents may be extended
or renewed, and Loans repaid and reborrowed in whole or in part, without notice
to or assent by such Subsidiary Guarantor, and that it will remain bound upon
this Subsidiary Guarantors Guaranty notwithstanding any extension, renewal or
other alteration of any of the Borrower Guaranteed Obligations or the Loan
Documents, or any repayment and reborrowing of Loans. To the maximum extent
permitted by applicable law, except as otherwise expressly provided in this
Agreement or any other Loan Document to which such Subsidiary Guarantor is a
party, the obligations of each Subsidiary Guarantor under this Subsidiary
Guarantors Guaranty shall be absolute, unconditional and irrevocable, and shall
be performed strictly in accordance with the terms hereof under any
circumstances whatsoever, including:
(i) any modification, amendment, supplement, renewal, extension for
any period, increase, decrease, alteration or rearrangement of all or any
part of the Borrower Guaranteed Obligations or this Agreement or any other
Loan Document executed in connection herewith, or any contract or
understanding among either Borrower, any
-81-
<PAGE>
Subsidiary Guarantor, the Administrative Agent and/or the Lenders, or any
other Person, pertaining to the Borrower Guaranteed Obligations;
(ii) any adjustment, indulgence, forbearance or compromise that might
be granted or given by the Lenders to either Borrower or any Subsidiary
Guarantor or any other Person liable on the Borrower Guaranteed
Obligations;
(iii)the insolvency, bankruptcy, arrangement, adjustment,
composition, liquidation, disability, dissolution or lack of power of
either Borrower, any Subsidiary Guarantor or any other Person at any time
liable for the payment of all or part of the Borrower Guaranteed
Obligations; or any dissolution of either Borrower or any Subsidiary
Guarantor, or any sale, lease or transfer of any or all of the assets of
either Borrower or any Subsidiary Guarantor, or any changes in the holders
of the equity in either Borrower or any Subsidiary Guarantor; or any
reorganization of either Borrower or any Subsidiary Guarantor;
(iv) the invalidity, illegality or unenforceability of all or any
part of the Borrower Guaranteed Obligations, or any document or agreement
executed in connection with the Borrower Guaranteed Obligations, for any
reason whatsoever, including the fact that (A) the Borrower Guaranteed
Obligations, or any part thereof, exceeds the amount permitted by law, (B)
the act of creating the Borrower Guaranteed Obligations or any part
thereof is ultra vires, (C) the officers or representatives executing the
documents or otherwise creating the Borrower Guaranteed Obligations acted
in excess of their authority, (D) the Borrower Guaranteed Obligations or
any part thereof violate applicable usury laws, (E) either Borrower or any
Subsidiary Guarantor has valid defenses, claims and offsets (whether at
law or in equity, by agreement or by statute) which render the Borrower
Guaranteed Obligations wholly or partially uncollectible from either
Borrower or such Subsidiary Guarantor, (F) the creation, performance or
repayment of the Borrower Guaranteed Obligations (or execution, delivery
and performance of any document or instrument representing part of the
Borrower Guaranteed Obligations or executed in connection with the
Borrower Guaranteed Obligations, or given to secure the repayment of the
Borrower Guaranteed Obligations) is illegal, uncollectible, legally
impossible or unenforceable, or (G) this Agreement, any other Loan
Document, or any other document or instrument pertaining to the Borrower
Guaranteed Obligations has been forged or otherwise is irregular or not
genuine or authentic;
(v) any full or partial release of the liability of either Borrower
or any Subsidiary Guarantor on the Borrower Guaranteed Obligations or any
part thereof, or any other Person now or hereafter liable, whether
directly or indirectly, jointly, severally, or jointly and severally, to
pay, perform, guarantee or assure the payment of the Borrower Guaranteed
Obligations or any part thereof; it being recognized, acknowledged and
agreed by each Subsidiary Guarantor that such Subsidiary Guarantor may be
required to pay the Borrower Guaranteed Obligations in full without
assistance or support of any other Person, and such Subsidiary Guarantor
has not been induced to enter into this Guaranty on the basis of a
contemplation, belief, understanding or agreement that any other Person
will be liable to perform the Borrower Guaranteed Obligations, or that the
-82-
<PAGE>
Administrative Agent or any Lender will look to any other Person to
perform the Borrower Guaranteed Obligations;
(vi) the taking or accepting of any security, collateral or guaranty,
or other assurance of payment, for all or any part of the Borrower
Guaranteed Obligations;
(vii)any release, surrender, exchange, subordination, deterioration,
waste, loss or impairment of any collateral, property or security, at any
time hereafter existing in connection with, or assuring or securing
payment of, all or any part of the Borrower Guaranteed Obligations;
(viii) the failure of the Administrative Agent, the Lenders or any
other Person to exercise diligence or reasonable care in the preservation,
protection, enforcement or other handling or treatment of all or any part
of such collateral, property or security;
(ix) the fact that any collateral, security or Lien contemplated or
intended to be given, created or granted as security for the repayment of
any of the Borrower Guaranteed Obligations shall not be properly perfected
or created, or shall prove to be unenforceable or subordinate to any other
Lien; it being recognized and agreed by each Subsidiary Guarantor that
such Subsidiary Guarantor is not entering into this Subsidiary Guarantors
Guaranty in reliance on, or in contemplation of the benefits of, the
validity, enforceability, collectibility or value of any of the collateral
for the Borrower Guaranteed Obligations;
(x) any payment by the Company or any Subsidiary Guarantor to the
Administrative Agent or any Lender is held to constitute a preference
under bankruptcy laws, or for any reason either the Administrative Agent
or any Lender is required to refund such payment or pay such amount to the
Company or any other Person; or
(xi) any other action taken or omitted to be taken with respect to
this Agreement, any other Loan Document, the Borrower Guaranteed
Obligations, or any security and collateral therefor, whether or not such
action or omission prejudices any Subsidiary Guarantor or increases the
likelihood that any Subsidiary Guarantor will be required to pay the
Borrower Guaranteed Obligations pursuant to the terms hereof;
it being the unambiguous and unequivocal intention of each Subsidiary Guarantor
that such Subsidiary Guarantor shall be obligated to pay the Borrower Guaranteed
Obligations when due, notwithstanding any occurrence, circumstance, event,
action, or omission whatsoever, whether contemplated or uncontemplated, and
whether or not otherwise or particularly described herein, except for the full
and final payment and satisfaction of the Borrower Guaranteed Obligations after
the termination of the Commitments of all Lenders and the expiration or
termination of all Letters of Credit.
(b) Each Subsidiary Guarantor further agrees that, as between such
Subsidiary Guarantor, on the one hand, and the Lenders and the Administrative
Agent, on the other hand, (i) the maturity of the Borrower Guaranteed
Obligations may be accelerated as provided in Article VII for the purposes of
this Subsidiary Guarantors Guaranty, notwithstanding any stay,
-83-
<PAGE>
injunction or other prohibition preventing such acceleration of the Borrower
Guaranteed Obligations, and (ii) in the event of any acceleration of the
Obligations as provided in Article VII, the Borrower Guaranteed Obligations
(whether or not due and payable) shall forthwith become due and payable by each
Subsidiary Guarantor for the purpose of this Subsidiary Guarantors Guaranty.
SECTION 10.03 Effect of Debtor Relief Laws. If after receipt of any
payment of all or any part of the Borrower Guaranteed Obligations, the
Administrative Agent, the Issuing Bank or any Lender is for any reason compelled
to surrender or voluntarily surrenders, such payment to any Person (a) because
such payment is or may be avoided, invalidated, declared fraudulent, set aside,
determined to be void or voidable as a preference, fraudulent conveyance,
fraudulent transfer, impermissible set-off or a diversion of trust funds or (b)
for any other reason, including (i) any judgment, decree or order of any court
or administrative body having jurisdiction over the Administrative Agent, the
Issuing Bank, any Lender or any of their respective properties or (ii) any
settlement or compromise of any such claim effected by the Administrative Agent,
the Issuing Bank or any Lender with any such claimant (including the Company),
then the Borrower Guaranteed Obligations or part thereof intended to be
satisfied shall be reinstated and continue, and this Subsidiary Guarantors
Guaranty shall continue in full force as if such payment had not been received,
notwithstanding any revocation thereof or the cancellation of any Note or any
other instrument evidencing any of the Borrower Guaranteed Obligations or
otherwise; and the Subsidiary Guarantors, jointly and severally, shall be liable
to pay the Administrative Agent, the Issuing Bank and the Lenders, and hereby do
indemnify the Administrative Agent, the Issuing Bank and the Lenders and hold
them harmless for the amount of such payment so surrendered and all reasonable
expenses (including reasonable attorneys' fees, court costs and expenses
attributable thereto) incurred by the Administrative Agent, the Issuing Bank or
any Lender in the defense of any claim made against it that any payment received
by the Administrative Agent, the Issuing Bank or any Lender in respect of all or
part of the Borrower Guaranteed Obligations must be surrendered. The provisions
of this paragraph shall survive the termination of this Subsidiary Guarantors
Guaranty, and any satisfaction and discharge of the Company by virtue of any
payment, court order or any Federal or state law.
SECTION 10.04 General Limitation on Borrower Guaranteed Obligations.
In any action or proceeding involving any state corporate law, or any state or
Federal bankruptcy, insolvency, reorganization or other law affecting the rights
of creditors generally, if the obligations of any Subsidiary Guarantor under
Section 10.01 would otherwise, taking into account the provisions of Section
10.05, be held or determined to be void, invalid or unenforceable, or
subordinated to the claims of any other creditors, on account of the amount of
its liability under Section 10.01, then, notwithstanding any other provision
hereof to the contrary, the amount of such liability shall, without any further
action by such Subsidiary Guarantor, any Lender, the Administrative Agent or any
other Person, be automatically limited and reduced to the highest amount that is
valid and enforceable and not subordinated to the claims of other creditors as
determined in such action or proceeding.
SECTION 10.05 Rights of Contribution. The Subsidiary Guarantors
hereby agree, as between themselves, that if any Subsidiary Guarantor shall
become an Excess Funding
-84-
<PAGE>
Obligor (as defined below) by reason of the payment by such Subsidiary Guarantor
of any of the Borrower Guaranteed Obligations, each other Subsidiary Guarantor
shall, on demand of such Excess Funding Obligor (but subject to the next
sentence), pay to such Excess Funding Obligor an amount equal to such Subsidiary
Guarantor's Pro Rata Share (as defined below and determined, for this purpose,
without reference to the properties, debts and liabilities of such Excess
Funding Obligor) of the Excess Payment (as defined below) in respect of such
Borrower Guaranteed Obligations.
For purposes of this Section 10.05, (i) "Excess Funding Obligor"
shall mean, in respect of any of the Borrower Guaranteed Obligations, a
Subsidiary Guarantor that has paid an amount in excess of its Pro Rata Share of
such Borrower Guaranteed Obligations, (ii) "Excess Payment" shall mean, in
respect of any of the Borrower Guaranteed Obligations, the amount paid by an
Excess Funding Obligor in excess of its Pro Rata Share of such Borrower
Guaranteed Obligations and (iii) "Pro Rata Share" shall mean, for any Subsidiary
Guarantor, the ratio (expressed as a percentage) of (x) the amount by which the
aggregate fair saleable value of all properties of such Subsidiary Guarantor on
the date of this Agreement exceeds the amount of all the debts and liabilities
of such Subsidiary Guarantor (including contingent, subordinated, unmatured and
unliquidated liabilities, but excluding the obligations that have been
guaranteed by such Subsidiary Guarantor in Section 10.01) to (y) the amount by
which the aggregate fair saleable value of all assets of the Borrowers and all
the Subsidiary Guarantors exceeds the amount of all the debts and liabilities
(including contingent, subordinated, unmatured and unliquidated liabilities, but
excluding the obligations of the Borrowers and the Subsidiary Guarantors
hereunder) of the Borrowers and all the Subsidiary Guarantors, all as of the
Execution Date.
SECTION 10.06 Subrogation. Notwithstanding any payment or payments
made by any Subsidiary Guarantor hereunder, or any set-off or application by the
Administrative Agent or any Lender of any security or of any credits or claims,
no Subsidiary Guarantor will assert or exercise any rights of the Administrative
Agent or any Lender or of such Subsidiary Guarantor against either Borrower to
recover the amount of any payment made by such Subsidiary Guarantor to the
Administrative Agent or any Lender hereunder by way of any claim, remedy or
subrogation, reimbursement, exoneration, contribution, indemnity, participation
or otherwise arising by contract, by statute, under common law or otherwise, and
such Subsidiary Guarantor shall not have any right of recourse to or any claim
against assets or property of either Borrower, until all of the Borrower
Guaranteed Obligations are paid in full after the termination of the Commitments
of all Lenders and the expiration or termination of all Letters of Credit. If
any amount shall nevertheless be paid to a Subsidiary Guarantor by either
Borrower or another Subsidiary Guarantor prior to payment in full of the
Borrower Guaranteed Obligations, such amount shall be held in trust for the
benefit of the Administrative Agent and the Lenders and shall forthwith be paid
to the Administrative Agent to be credited and applied to the Borrower
Guaranteed Obligations, whether matured or unmatured. The provisions of this
paragraph shall survive the termination of this Subsidiary Guarantors Guaranty,
and any satisfaction and discharge of either Borrower by virtue of any payment,
court order or any Federal or state law.
SECTION 10.07 Subordination. If any Subsidiary Guarantor becomes the
holder of any indebtedness payable by either Borrower or another Subsidiary
Guarantor, each
-85-
<PAGE>
Subsidiary Guarantor hereby subordinates all indebtedness owing to it from such
Borrower or such other Subsidiary Guarantor to all indebtedness of such Borrower
or such other Subsidiary Guarantor to the Administrative Agent and the Lenders,
and agrees that during the continuance of any Default or Event of Default it
shall not accept any payment on the same until the first to occur of (a) the
date such Default or Event of Default no longer exists and (b) payment in full
of the Borrower Guaranteed Obligations of the Borrowers under this Agreement and
the other Loan Documents after the termination of the Commitments of the Lenders
and the termination or expiration of the Letters of Credit and all other Loan
Documents, and, while any Default or Event of Default exists, shall in no
circumstance whatsoever attempt to set-off or reduce any obligations hereunder
because of such indebtedness. If any amount shall nevertheless be paid to a
Subsidiary Guarantor by either Borrower or another Subsidiary Guarantor prior to
payment in full of the Borrower Guaranteed Obligations and, while any Default or
Event of Default exists, such amount shall be held in trust for the benefit of
the Administrative Agent and the Lenders and shall forthwith be paid to the
Administrative Agent to be credited and applied to the Borrower Guaranteed
Obligations, whether matured or unmatured.
SECTION 10.08 Waiver. Each Subsidiary Guarantor hereby waives
promptness, diligence, notice of acceptance and any other notice with respect to
any of the Borrower Guaranteed Obligations and this Subsidiary Guarantors
Guaranty and waives presentment, demand for payment, notice of intent to
accelerate, notice of dishonor or nonpayment and any requirement that the
Administrative Agent or any Lender institute suit, collection proceedings or
take any other action to collect the Borrower Guaranteed Obligations, including
any requirement that the Administrative Agent or any Lender protect, secure,
perfect or insure any Lien against any property subject thereto or exhaust any
right or take any action against the Company or any other Person or any
collateral (it being the intention of the Administrative Agent, the Lenders and
each Subsidiary Guarantor that this Subsidiary Guarantors Guaranty is to be a
guaranty of payment and not of collection). It shall not be necessary for the
Administrative Agent or any Lender, in order to enforce any payment by any
Subsidiary Guarantor hereunder, to institute suit or exhaust its rights and
remedies against either Borrower, any other Subsidiary Guarantor or any other
Person, including others liable to pay any Borrower Guaranteed Obligations, or
to enforce its rights against any security ever given to secure payment thereof.
Each Subsidiary Guarantor hereby expressly waives to the maximum extent
permitted by applicable law each and every right to which it may be entitled by
virtue of the suretyship laws of the State of New York or any other state in
which it may be located, including any and all rights it may have pursuant to
Rule 31, Texas Rules of Civil Procedure, Section 17.001 of the Texas Civil
Practice and Remedies Code and Chapter 34 of the Texas Business and Commerce
Code. Each Subsidiary Guarantor hereby waives marshaling of assets and
liabilities, notice by the Administrative Agent or any Lender of any
indebtedness or liability to which such Lender applies or may apply any amounts
received by such Lender, and of the creation, advancement, increase, existence,
extension, renewal, rearrangement or modification of the Borrower Guaranteed
Obligations. Each Subsidiary Guarantor expressly waives, to the extent permitted
by applicable law, the benefit of any and all laws providing for exemption of
property from execution or for valuation and appraisal upon foreclosure.
SECTION 10.09 Full Force and Effect. This Subsidiary Guarantors
Guaranty is a continuing guaranty and shall remain in full force and effect
until all of the
-86-
<PAGE>
Borrower Guaranteed Obligations under this Agreement and the other Loan
Documents and all other amounts payable under this Subsidiary Guarantors
Guaranty have been paid in full (after the termination of the Commitments of the
Lenders and the termination or expiration of the Letters of Credit). All rights,
remedies and powers provided in this Subsidiary Guarantors Guaranty may be
exercised, and all waivers contained in this Subsidiary Guarantors Guaranty may
be enforced, only to the extent that the exercise or enforcement thereof does
not violate any provisions of applicable law which may not be waived.
ARTICLE XI.
Miscellaneous
-------------
SECTION 11.01 Notices, Etc. The Administrative Agent, the Issuing
Bank, any Lender or the holder of any of the Obligations, giving consent or
notice or making any request of any Loan Party provided for hereunder, shall
notify each Lender (in the case of the Administrative Agent and/or the Issuing
Bank) and the Administrative Agent (in the case of a Lender) thereof. In the
event that the holder of any Note or any of the Obligations (including any
Lender) shall transfer such Note or Obligations, it shall promptly so advise the
Administrative Agent which shall be entitled to assume conclusively that no
transfer of any Note or any of the Obligations has been made by any holder
(including any Lender) unless and until the Administrative Agent receives
written notice to the contrary. Except with respect to notices and other
communications expressly permitted to be given by telephone, all notices,
consents, requests, approvals, demands and other communications (collectively
"Communications") provided for herein shall be in writing (including facsimile
Communications) and mailed, telecopied or delivered:
(a) if to the Company, to it at 1301 McKinney Street, Suite 3450,
Houston, Texas 77010, Attention of David G. Dehaemers, Jr. (Telecopy No.
(713) 844-9570);
(b) if to any other Loan Party, to it in care of the Company;
(c) if to the Administrative Agent, to it at _ First Union Capital
Markets, 1001 Fannin Street, Suite 2255, Houston, Texas 77002, Attention of
Paul Riddle (Telecopy No. 713-650-6354);
(d) if to the Issuing Bank, to it at _ First Union Capital Markets,
1001 Fannin Street, Suite 2255, Houston, Texas 77002, Attention of
Paul Riddle (Telecopy No. 713-650-6354);
(e) if to the Swingline Lender, to it at _ First Union Capital
Markets, 1001 Fannin Street, Suite 2255, Houston, Texas 77002, Attention of Paul
Riddle (Telecopy No. 713-650-6354); and
(f) If to any other Lender, as specified on the signature page for
such Lender hereto or, in the case of any Person who becomes a Lender after the
date hereof, as specified on the Assignment and Acceptance executed by such
Person or in the Administrative Questionnaire
-87-
<PAGE>
delivered by such Person or, in the case of any party hereto, such other address
or telecopy number as such party may hereafter specify for such purpose by
notice to the other parties.
All Communications shall, when mailed, telecopied or delivered, be
effective when mailed by certified mail, return receipt requested to any party
at its address specified above, on the signature page hereof or on the signature
page of such Assignment and Acceptance (or other address designated by such
party in a Communication to the other parties hereto), or telecopied to any
party to the telecopy number set forth above, on the signature page hereof or on
the signature page of such Assignment and Acceptance (or other telecopy number
designated by such party in a Communication to the other parties hereto), or
delivered personally to any party at its address specified above, on the
signature page hereof or on the signature page of such Assignment and Acceptance
(or other address designated by such party in a Communication to the other
parties hereto); provided, however, Communications to the Administrative Agent
pursuant to Article II or Article VIII shall not be effective until received by
the Administrative Agent and Communications to the Administrative Agent, the
Issuing Bank or the Swingline Lender pursuant to Article II shall be at the
Principal Office.
SECTION 11.02 Waivers; Amendments. (a) No failure or delay by the
Administrative Agent, the Issuing Bank or any Lender in exercising, and no
course of dealing with respect to, any right or power hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise of any
other right or power. No notice to or demand on any Loan Party in any case shall
entitle such Loan Party to any other or further notice or demand in similar or
other circumstances. No waiver of any provision of this Agreement or consent to
any departure therefrom shall in any event be effective unless the same shall be
permitted by Section 11.02(b), and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given.
Without limiting the generality of the foregoing, the making of a Loan or
issuance of a Letter of Credit shall not be construed as a waiver of any Default
or Event of Default, regardless of whether the Administrative Agent, any Lender
or the Issuing Bank may have had notice or knowledge of such Default at the
time.
(b) No provision of this Agreement or any other Loan Document
provision may be waived, amended or modified except pursuant to an agreement or
agreements in writing entered into by the Loan Parties and the Required Lenders
or by the Loan Parties and the Administrative Agent with the consent of the
Required Lenders; provided that no such agreement shall (i) increase the
Commitment of any Lender without the written consent of such Lender, (ii) reduce
the principal amount of any Loan or LC Disbursement or reduce the rate of
interest thereon, or reduce any fees payable hereunder, without the written
consent of each Lender affected thereby, (iii) postpone the scheduled date of
payment of the principal amount of any Loan or LC Disbursement, or any interest
thereon, or any fees payable hereunder, or reduce the amount of, waive or excuse
any such payment, or postpone the scheduled date of expiration of any
Commitment, without the written consent of each Lender affected thereby, (iv)
change Section 2.18(b) or (c) in a manner that would alter the pro rata sharing
of payments required thereby, without the written consent of each Lender, or (v)
release the Company or any Subsidiary Guarantor from their respective guarantees
contained in Article IX or Article X,
-88-
<PAGE>
change any of the provisions of this Section 11.02(b), Section 11.05 or the
definition of "Required Lenders" or any other provision hereof specifying the
number or percentage of Lenders required to waive, amend or modify any rights
hereunder or make any determination or grant any consent hereunder, without the
written consent of each Lender (it being understood that, with the consent of
Required Lenders, additional extensions of credit pursuant to this Agreement may
be included in the determination of "Required Lenders" and provisions relating
to the pro rata sharing of payments on substantially the same basis as the
Revolving Loans and Commitments are included on the Execution Date); provided
further that no such agreement shall amend, modify or otherwise affect the
rights or duties of the Administrative Agent or the Issuing Bank hereunder
without the prior written consent of the Administrative Agent or the Issuing
Bank, as the case may be.
SECTION 11.03 Payment of Expenses, Indemnities, etc. The Company
agrees:
(a) whether or not the transactions hereby contemplated are
consummated, pay all reasonable expenses of the Administrative Agent in the
administration (both before and after the execution hereof and including advice
of counsel as to the rights and duties of the Administrative Agent and the
Lenders with respect thereto) of, and in connection with the negotiation,
syndication, investigation, preparation, execution and delivery of, recording or
filing of, preservation of rights under, enforcement of, and refinancing,
renegotiation or restructuring of, the Loan Documents and any amendment, waiver
or consent relating thereto (including, without limitation, travel, photocopy,
mailing, courier, telephone and other similar expenses of the Administrative
Agent, the cost of environmental audits, surveys and appraisals at reasonable
intervals, the reasonable fees and disbursements of counsel and other outside
consultants for the Administrative Agent and, in the case of enforcement of this
Agreement and the other Loan Documents, the reasonable fees and disbursements of
counsel, including the allocated costs of inside counsel, for each of the
Administrative Agent and the Issuing Bank, and each Lender); and promptly
reimburse the Administrative Agent for all amounts expended, advanced or
incurred by the Administrative Agent or the Lenders to satisfy any obligation of
any Loan Party under this Agreement.
(b) TO INDEMNIFY THE ADMINISTRATIVE AGENT, THE SYNDICATION AGENT, THE
ISSUING BANK AND EACH LENDER AND EACH OF THEIR AFFILIATES AND EACH OF THEIR
OFFICERS, DIRECTORS, EMPLOYEES, REPRESENTATIVES, AGENTS, ATTORNEYS, ACCOUNTANTS
AND EXPERTS ("INDEMNIFIED PARTIES") FROM, HOLD EACH OF THEM HARMLESS AGAINST AND
PROMPTLY UPON DEMAND PAY OR REIMBURSE EACH OF THEM FOR, THE INDEMNITY MATTERS
WHICH MAY BE INCURRED BY OR ASSERTED AGAINST OR INVOLVE ANY OF THEM (WHETHER OR
NOT ANY OF THEM IS DESIGNATED A PARTY THERETO) AS A RESULT OF, ARISING OUT OF OR
IN ANY WAY RELATED TO (I) ANY ACTUAL OR PROPOSED USE BY EITHER BORROWER OF THE
PROCEEDS OF ANY OF THE LOANS OR ANY LETTER OF CREDIT, (II) THE EXECUTION,
DELIVERY AND PERFORMANCE OF THE LOAN DOCUMENTS, (III) THE OPERATIONS OF THE
BUSINESS OF THE COMPANY AND THE RESTRICTED SUBSIDIARIES, (IV) THE FAILURE OF THE
COMPANY
-89-
<PAGE>
OR ANY RESTRICTED SUBSIDIARY TO COMPLY WITH THE TERMS OF THIS AGREEMENT, OR WITH
ANY REQUIREMENT OF LAW, (V) ANY INACCURACY OF ANY REPRESENTATION OR ANY BREACH
OF ANY WARRANTY OF ANY LOAN PARTY SET FORTH IN ANY OF THE LOAN DOCUMENTS, (VI)
THE ISSUANCE, EXECUTION AND DELIVERY OR TRANSFER OF OR PAYMENT OR FAILURE TO PAY
UNDER ANY LETTER OF CREDIT, (VII) THE PAYMENT OF A DRAWING UNDER ANY LETTER OF
CREDIT NOTWITHSTANDING THE NON-COMPLIANCE, NON-DELIVERY OR OTHER IMPROPER
PRESENTATION OF THE MANUALLY EXECUTED DRAFT(S) AND CERTIFICATION(S) OR (VIII)
ANY OTHER ASPECT OF THE LOAN DOCUMENTS, INCLUDING THE REASONABLE FEES AND
DISBURSEMENTS OF COUNSEL AND ALL OTHER EXPENSES INCURRED IN CONNECTION WITH
INVESTIGATING, DEFENDING OR PREPARING TO DEFEND ANY SUCH ACTION, SUIT,
PROCEEDING (INCLUDING ANY INVESTIGATIONS, LITIGATION OR INQUIRIES) OR CLAIM AND
INCLUDING ALL INDEMNITY MATTERS ARISING BY REASON OF THE ORDINARY NEGLIGENCE OF
ANY INDEMNIFIED PARTY, BUT EXCLUDING ALL INDEMNITY MATTERS ARISING SOLELY BY
REASON OF CLAIMS BETWEEN THE LENDERS OR ANY LENDER AND THE ADMINISTRATIVE AGENT
OR THE SYNDICATION AGENT OR A LENDER'S SHAREHOLDERS AGAINST THE ADMINISTRATIVE
AGENT OR LENDER OR BY REASON OF THE GROSS NEGLIGENCE, WILLFUL MISCONDUCT OR
UNLAWFUL CONDUCT ON THE PART OF THE INDEMNIFIED PARTY SEEKING INDEMNIFICATION.
(c) TO INDEMNIFY AND HOLD HARMLESS FROM TIME TO TIME THE INDEMNIFIED
PARTIES FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS, COST RECOVERY ACTIONS,
ADMINISTRATIVE ORDERS OR PROCEEDINGS, DAMAGES AND LIABILITIES TO WHICH ANY SUCH
PERSON MAY BECOME SUBJECT (I) UNDER ANY ENVIRONMENTAL LAW APPLICABLE TO THE
COMPANY OR ANY SUBSIDIARY OR ANY OF THEIR PROPERTIES OR ASSETS, INCLUDING THE
TREATMENT OR DISPOSAL OF HAZARDOUS SUBSTANCES ON ANY OF THEIR PROPERTIES OR
ASSETS, (II) AS A RESULT OF THE BREACH OR NON-COMPLIANCE BY THE COMPANY OR ANY
SUBSIDIARY WITH ANY ENVIRONMENTAL LAW APPLICABLE TO THE COMPANY OR ANY
SUBSIDIARY, (III) DUE TO PAST OWNERSHIP BY THE COMPANY OR ANY SUBSIDIARY OF ANY
OF THEIR PROPERTIES OR ASSETS OR PAST ACTIVITY ON ANY OF THEIR PROPERTIES OR
ASSETS WHICH, THOUGH LAWFUL AND FULLY PERMISSIBLE AT THE TIME, COULD RESULT IN
PRESENT LIABILITY, (IV) THE PRESENCE, USE, RELEASE, STORAGE, TREATMENT OR
DISPOSAL OF HAZARDOUS SUBSTANCES ON OR AT ANY OF THE PROPERTIES OWNED OR
OPERATED BY THE BORROWER OR ANY SUBSIDIARY, OR (V) ANY OTHER ENVIRONMENTAL,
HEALTH OR SAFETY CONDITION IN CONNECTION WITH THE LOAN DOCUMENTS, PROVIDED,
HOWEVER, THAT NO INDEMNITY SHALL BE AFFORDED UNDER THIS SECTION 11.03(c) IN
RESPECT OF ANY PROPERTY OR ASSET FOR ANY OCCURRENCE ARISING FROM THE ACTS OR
OMISSIONS OF THE ADMINISTRATIVE AGENT OR ANY LENDER DURING THE PERIOD AFTER
WHICH SUCH PERSON, ITS SUCCESSORS OR ASSIGNS SHALL HAVE OBTAINED POSSESSION OF
SUCH
-90-
<PAGE>
PROPERTY OR ASSET (WHETHER BY FORECLOSURE OR DEED IN LIEU OF FORECLOSURE, AS
MORTGAGEE IN POSSESSION OR OTHERWISE).
(d) No Indemnified Party may settle any claim to be indemnified
without the consent of the indemnitor, such consent not to be unreasonably
withheld; provided, that the indemnitor may not reasonably withhold consent to
any settlement that an Indemnified Party proposes, if the indemnitor does not
have the financial ability to pay all its obligations outstanding and asserted
against the indemnitor at that time, including the maximum potential claims
against the Indemnified Party to be indemnified pursuant to this Section 11.03.
(e) In the case of any indemnification hereunder, the Administrative
Agent or Lender, as appropriate shall give notice to the Company of any such
claim or demand being made against the Indemnified Party and the Company shall
have the non-exclusive right to join in the defense against any such claim or
demand; provided that if the Company provides a defense, the Indemnified Party
shall bear its own cost of defense unless there is a conflict between the
Company and such Indemnified Party.
(f) THE FOREGOING INDEMNITIES SHALL EXTEND TO THE INDEMNIFIED PARTIES
NOTWITHSTANDING THE SOLE OR CONCURRENT NEGLIGENCE OF EVERY KIND OR CHARACTER
WHATSOEVER, WHETHER ACTIVE OR PASSIVE, WHETHER AN AFFIRMATIVE ACT OR AN
OMISSION, INCLUDING, ALL TYPES OF NEGLIGENT CONDUCT IDENTIFIED IN THE
RESTATEMENT (SECOND) OF TORTS OF ONE OR MORE OF THE INDEMNIFIED PARTIES OR BY
REASON OF STRICT LIABILITY IMPOSED WITHOUT FAULT ON ANY ONE OR MORE OF THE
INDEMNIFIED PARTIES. TO THE EXTENT THAT AN INDEMNIFIED PARTY IS FOUND TO HAVE
COMMITTED AN ACT OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OR ENGAGED IN
UNLAWFUL CONDUCT, THIS CONTRACTUAL OBLIGATION OF INDEMNIFICATION SHALL CONTINUE
BUT SHALL ONLY EXTEND TO THE PORTION OF THE CLAIM THAT IS DEEMED TO HAVE
OCCURRED BY REASON OF EVENTS OTHER THAN THE GROSS NEGLIGENCE, WILLFUL MISCONDUCT
OR UNLAWFUL CONDUCT OF THE INDEMNIFIED PARTY.
(g) The Company's obligations under this Section 11.03 shall survive
any termination of this Agreement, the payment of the Loans and the expiration
of the Letters of Credit and shall continue thereafter in full force and effect,
for a period of six years.
(h) To the extent that the Company fails to pay any amount required
to be paid by it to the Administrative Agent or the Issuing Bank under this
Section 11.03, each Lender severally agrees to pay to the Administrative Agent
or the Issuing Bank, as the case may be, such Lender's Applicable Percentage
(determined as of the time that the applicable unreimbursed expense or indemnity
payment is sought) of such unpaid amount; provided that the unreimbursed expense
or indemnified loss, claim, damage, liability or related expense, as the case
may be, was incurred by or asserted against the Administrative Agent or the
Issuing Bank in its capacity as such.
-91-
<PAGE>
(i) The Company shall pay any amounts due under this Section 11.03
within thirty (30) days of the receipt by the Company of notice of the amount
due.
SECTION 11.04 Successors and Assigns. The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns permitted hereby. Nothing in this
Agreement, expressed or implied, shall be construed to confer upon any Person
(other than the parties hereto, their respective successors and assigns
permitted hereby and, to the extent expressly contemplated hereby, the Related
Parties of each of the Administrative Agent, the Issuing Bank and the Lenders)
any legal or equitable right, remedy or claim under or by reason of this
Agreement.
SECTION 11.05 Assignments and Participations.
(a) No Loan Party may assign its rights or obligations hereunder or
under the Notes or any Letter of Credit without the prior consent of all of the
Lenders and the Administrative Agent.
(b) Any Lender may assign to one or more assignees all or a portion
of its rights and obligations under this Agreement (including all or a portion
of its Commitment and the Loans at the time owing to it); provided that (i)
except in the case of an assignment to a Lender or an Affiliate of a Lender, any
other Eligible Assignee, each of the Company and the Administrative Agent (and,
in the case of an assignment of all or a portion of a Commitment or any Lender's
obligations in respect of its LC Exposure or Swingline Exposure, the Issuing
Bank and the Swingline Lender) must give their prior written consent to such
assignment (which consent shall not be unreasonably withheld), (ii) except in
the case of an assignment to a Lender or an Affiliate of a Lender or an
assignment of the entire remaining amount of the assigning Lender's Commitment,
the amount of the Commitment of the assigning Lender subject to each such
assignment (determined as of the date the Assignment and Acceptance with respect
to such assignment is delivered to the Administrative Agent) shall not be less
than $10,000,000 unless each of the Company and the Administrative Agent
otherwise consent, (iii) each partial assignment shall be made as an assignment
of a proportionate part of all the assigning Lender's rights and obligations
under this Agreement, (iv) the parties to each assignment shall execute and
deliver to the Administrative Agent an Assignment and Acceptance, together with
a processing and recordation fee of $3,500 for each such assignment (provided
that the processing and recordation fee for each assignment made by any Lender
party to this Agreement on the Execution Date shall be $2,000), and (v) the
assignee, if it shall not be a Lender, shall deliver to the Administrative Agent
an Administrative Questionnaire; provided further that any consent of the
Company otherwise required under this Section 11.05(b) shall not be required if
an Event of Default under Section 7.01(g) or Section 7.01(h) has occurred and is
continuing. Upon acceptance and recording pursuant to Section 11.05(d), from and
after the effective date specified in each Assignment and Acceptance, the
assignee thereunder shall be a party hereto and, to the extent of the interest
assigned by such Assignment and Acceptance, have the rights and obligations of a
Lender under this Agreement, and the assigning Lender thereunder shall, to the
extent of the interest assigned by such Assignment and Acceptance, be released
from its obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all of the assigning Lender's rights and obligations under
this Agreement, such Lender shall
-92-
<PAGE>
cease to be a party hereto but shall continue to be entitled to the benefits of
Sections 2.15, 2.16, 2.17 and 11.03). Any assignment or transfer by a Lender of
rights or obligations under this Agreement that does not comply with this
paragraph shall be treated for purposes of this Agreement as a sale by such
Lender of a participation in such rights and obligations in accordance with
Section 11.05(e).
(c) The Administrative Agent, acting for this purpose as an agent of
the Loan Parties, shall maintain at one of its offices in Charlotte, North
Carolina a copy of each Assignment and Acceptance delivered to it and a register
for the recordation of the names and addresses of the Lenders, and the
Commitment of, and principal amount of the Loans and LC Disbursements owing to,
each Lender pursuant to the terms hereof from time to time (the "Register"). The
entries in the Register shall be conclusive, and each Loan Party, the
Administrative Agent, the Issuing Bank and the Lenders may treat each Person
whose name is recorded in the Register pursuant to the terms hereof as a Lender
hereunder for all purposes of this Agreement, notwithstanding notice to the
contrary. The Register shall be available for inspection by any Loan Party, the
Issuing Bank and any Lender, at any reasonable time and from time to time upon
reasonable prior notice.
(d) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee, the assignee's completed
Administrative Questionnaire (unless the assignee shall already be a Lender
hereunder), the processing and recordation fee referred to in Section 11.05(b)
and any written consent to such assignment required by Section 11.05(b), the
Administrative Agent shall accept such Assignment and Acceptance and record the
information contained therein in the Register. No assignment shall be effective
for purposes of this Agreement unless it has been recorded in the Register as
provided in this paragraph.
(e) Any Lender may, without the consent of any Loan Party, the
Administrative Agent or the Issuing Bank, sell participations to one or more
banks or other entities (a "Participant") in all or a portion of such Lender's
rights and obligations under this Agreement (including all or a portion of its
Commitment and the Loans owing to it); provided that (i) such Lender's
obligations under this Agreement shall remain unchanged, (ii) such Lender shall
remain solely responsible to the other parties hereto for the performance of
such obligations and (iii) the Company, the Administrative Agent, the Issuing
Bank and the other Lenders shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under this
Agreement. Any agreement or instrument pursuant to which a Lender sells such a
participation shall provide that such Lender shall retain the sole right to
enforce this Agreement and to approve any amendment, modification or waiver of
any provision of this Agreement; provided that such agreement or instrument may
provide that such Lender will not, without the consent of the Participant, agree
to any amendment, modification or waiver described in the first proviso to
Section 11.02(b) that affects such Participant. Subject to Section 11.05(f),
each Loan Party agrees that each Participant shall be entitled to the benefits
of Sections 2.15, 2.16 and 2.17 to the same extent as if it were a Lender and
had acquired its interest by assignment pursuant to Section 11.05(b), and be
indemnified under Section 11.03 as if it were a Lender. In addition, each
agreement creating any participation must include an agreement by the
Participant to be bound by the provisions of Section 11.12.
-93-
<PAGE>
(f) A Participant shall not be entitled to receive any greater
payment under Section 2.15 or 2.17 than the applicable Lender would have been
entitled to receive with respect to the participation sold to such Participant,
unless the sale of the participation to such Participant is made with the
Company's prior written consent. A Participant that would be a Foreign Lender if
it were a Lender shall not be entitled to the benefits of Section 2.17 unless
the Company is notified of the participation sold to such Participant and such
Participant agrees, for the benefit of the Company, to comply with Section
2.17(e) as though it were a Lender.
(g) The Lenders may furnish any information concerning the Borrower
in the possession of the Lenders from time to time to assignees and Participants
(including prospective assignees and participants); provided that, such Persons
agree to be bound by the provisions of Section 11.12 hereof.
(h) Notwithstanding anything in this Section 11.05 to the contrary,
any Lender may assign and pledge its Notes to any Federal Reserve Bank or the
United States Treasury as collateral security pursuant to Regulation A and any
operating circular issued by such Federal Reserve System and/or such Federal
Reserve Bank. No such assignment and/or pledge shall release the assigning
and/or pledging Lender from its obligations hereunder.
(i) Notwithstanding any other provisions of this Section 11.05, no
transfer or assignment of the interests or obligations of any Lender or any
grant of participations therein shall be permitted if such transfer, assignment
or grant would require a Borrower to file a registration statement with the SEC
or to qualify the Loans under the "Blue Sky" laws of any state.
SECTION 11.06 Survival; Reinstatement. (a) All covenants, agreements,
representations and warranties made by the Company herein and in the
certificates or other instruments delivered in connection with or pursuant to
this Agreement shall be considered to have been relied upon by the other parties
hereto and shall survive the execution and delivery of this Agreement and the
making of any Loans and issuance of any Letters of Credit, regardless of any
investigation made by any such other party or on its behalf and notwithstanding
that the Administrative Agent, the Issuing Bank or any Lender may have had
notice or knowledge of any Default or Event of Default or incorrect
representation or warranty at the time any credit is extended hereunder, and
shall continue in full force and effect as long as the principal of or any
accrued interest on any Loan or any fee or any other amount payable under this
Agreement is outstanding and unpaid or any Letter of Credit is outstanding and
so long as the Commitments have not expired or terminated. The provisions of
Sections 2.15, 2.16, 2.17 and 11.03 and Article VIII shall survive and remain in
full force and effect regardless of the consummation of the transactions
contemplated hereby, the repayment of the Loans, the expiration or termination
of the Letters of Credit and the Commitments or the termination of this
Agreement or any provision hereof.
(b) To the extent that any payments on the Obligations are
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required to be repaid to a trustee, debtor in possession, receiver or other
Person under any bankruptcy law, common law or equitable cause, then to such
extent, the Obligations so satisfied shall be revived and continue as if such
payment or proceeds had not been received.
-94-
<PAGE>
SECTION 11.07 Counterparts; Integration; Effectiveness. This
Agreement may be executed in counterparts (and by different parties hereto on
different counterparts), each of which shall constitute an original, but all of
which when taken together shall constitute a single contract. This Agreement,
the other Loan Documents and the Fee Letter constitute the entire contract among
the parties hereto relating to the subject matter hereof and supersede any and
all previous agreements and understandings, oral or written, relating to the
subject matter hereof (including the Information Memorandum). Except as provided
in Section 3.01, this Agreement shall become effective when it shall have been
executed by the Administrative Agent and when the Administrative Agent shall
have received counterparts hereof which, when taken together, bear the
signatures of each of the other parties hereto, and thereafter shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns. Delivery of an executed counterpart of a signature page
of this Agreement by telecopy shall be effective as delivery of a manually
executed counterpart of this Agreement.
SECTION 11.08 Severability. Any provision of this Agreement held to
be invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability of
the remaining provisions hereof; and the invalidity of a particular provision in
a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.
SECTION 11.09 Right of Setoff. If an Event of Default shall have
occurred and be continuing, each Lender is hereby authorized at any time and
from time to time, to the fullest extent permitted by law, to set off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by such Lender to or
for the credit or the account of any Loan Party against any of and all the
Obligations now or hereafter existing under this Agreement and the other Loan
Documents held by such Lender, irrespective of whether or not such Lender shall
have made any demand under this Agreement and although such Obligations may be
unmatured. The rights of each Lender under this Section 11.09 are in addition to
other rights and remedies (including other rights of setoff) which such Lender
may have.
SECTION 11.10 Governing Law; Jurisdiction; Consent to Service of
Process.
(a) This Agreement and the other Loan Documents shall be construed in
accordance with and governed by the law of the State of New York.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT AND
THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK
OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK AND, BY EXECUTION
AND DELIVERY OF THIS AGREEMENT, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY AND ASSETS, UNCONDITIONALLY,
THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS WITH RESPECT TO ANY SUCH
ACTION OR PROCEEDING. EACH LOAN PARTY HEREBY IRREVOCABLY DESIGNATES, APPOINTS
AND
-95-
<PAGE>
EMPOWERS CT CORPORATION SYSTEM, INC., WITH OFFICES ON THE DATE HEREOF AT 1633
BROADWAY, NEW YORK, NEW YORK 10019, AS ITS DESIGNEE, APPOINTEE AND AGENT TO
RECEIVE, ACCEPT AND ACKNOWLEDGE FOR AND ON ITS BEHALF, AND IN RESPECT OF ITS
PROPERTY, SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS
WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING. IF FOR ANY REASON SUCH
DESIGNEE, APPOINTEE AND AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH, EACH
SUCH LOAN PARTY AGREES TO DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT IN NEW
YORK, NEW YORK ON THE TERMS AND FOR THE PURPOSES OF THIS PROVISION SATISFACTORY
TO THE ADMINISTRATIVE AGENT. EACH LOAN PARTY FURTHER IRREVOCABLY CONSENTS TO THE
SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR
PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL,
POSTAGE PREPAID, TO IT AT ITS ADDRESS PROVIDED IN SECTION 11.01, SUCH SERVICE TO
BECOME EFFECTIVE THIRTY DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE
RIGHT OF THE ADMINISTRATIVE AGENT OR ANY LENDER TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED
AGAINST ANY LOAN PARTY IN ANY OTHER JURISDICTION.
(c) EACH OF THE LOAN PARTIES HEREBY IRREVOCABLY WAIVES ANY OBJECTION
WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE
AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (b) ABOVE AND HEREBY
FURTHER IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW,
AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(d) EACH PARTY HERETO HEREBY (I) IRREVOCABLY WAIVES, TO THE MAXIMUM
EXTENT PERMITTED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH
LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES
OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (II) CERTIFIES THAT NO PARTY
HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN
THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (III)
ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION 11.10.
-96-
<PAGE>
SECTION 11.11 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER
BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES
THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT
AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 11.11.
SECTION 11.12 Confidentiality. Each of the Administrative Agent, the
Issuing Bank and the Lenders agrees to maintain the confidentiality of the
Information (as defined below), except that Information may be disclosed (a) to
its Affiliates, directors, officers and employees and to its agents, including
accountants, legal counsel and other advisors who have been informed of the
confidential nature of the information provided, (b) to the extent requested by
any regulatory authority, including the National Association of Insurance
Commissioners or any similar organization, or any nationally recognized rating
agency that requires access to information about a Lender's investment
portfolio, (c) to the extent a Lender reasonably believes it is required by
applicable laws or regulations or by any subpoena or similar legal process, (d)
to any other party to this Agreement, (e) in connection with the exercise of any
remedies hereunder or any suit, action or proceeding relating to this Agreement
or any other Loan Document or the enforcement of rights hereunder or thereunder,
(f) subject to an understanding with such Person that such Person will comply
with this Section 11.12, to any assignee of or Participant in, or any
prospective assignee of or Participant in, any of its rights or obligations
under this Agreement, (g) with the consent of the Company or (h) to the extent
such Information (i) becomes publicly available other than as a result of a
breach of this Section 11.12 or (ii) becomes available to the Administrative
Agent, the Issuing Bank or any Lender from a source other than a Loan Party. For
the purposes of this Section 11.12, "Information" means all information received
from any Loan Party relating to any Loan Party or its business, other than any
such information that is known to a Lender, publicly known or otherwise
available to the Administrative Agent, the Issuing Bank or any Lender other than
through disclosure (a) by a Loan Party, or (b) from a source actually known to a
Lender to be bound by a confidentiality agreement or other legal or contractual
obligation of confidentiality with respect to such information; provided that,
in the case of information received from any Loan Party after the date hereof,
such information is clearly identified at the time of delivery as confidential.
Any Person required to maintain the confidentiality of Information as provided
in this Section 11.12 shall be considered to have complied with its obligation
to do so if such Person maintains the confidentiality of such Information in
accordance with procedures adopted in good faith to protect confidential
information of third parties delivered to a lender.
SECTION 11.13 Interest Rate Limitation. Notwithstanding anything
herein to the contrary, if at any time the interest rate applicable to any Loan,
together with all fees,
-97-
<PAGE>
charges and other amounts which are treated as interest on such Loan under
applicable law (collectively the "Charges"), shall exceed the maximum lawful
rate (the "Maximum Rate") which may be contracted for, charged, taken, received
or reserved by the Lender holding such Loan in accordance with applicable law,
the rate of interest payable in respect of such Loan hereunder, together with
all Charges payable in respect thereof, shall be limited to the Maximum Rate
and, to the extent lawful, the interest and Charges that would have been payable
in respect of such Loan but were not payable as a result of the operation of
this Section 11.13 shall be cumulated and the interest and Charges payable to
such Lender in respect of other Loans or periods shall be increased (but not
above the Maximum Rate therefor) until such cumulated amount, together with
interest thereon at the Federal Funds Effective Rate to the date of repayment,
shall have been received by such Lender.
SECTION 11.14 RETIRING BANKS; RELEASE. (A) Each of the parties to
the Existing Agreement is either a Continuing Bank or a Retiring Bank.
(b) Each Retiring Bank is executing this Agreement solely for the
purpose of consenting to the amendment and restatement of the Existing Credit
Agreement and to the release of the Collateral (as defined therein). Upon the
effectiveness of this Agreement, no Retiring Bank shall have any commitment or
obligation to the Borrowers under the Existing Credit Agreement and, upon the
repayment of all Obligations due to the Retiring Banks, the Loan Parties shall
have no obligation to any Retiring Bank under the Existing Credit Agreement or
this Agreement.
(c) The Lenders and the Administrative Agent acknowledge and agree
upon the Effective Date (i) the Lien on the Collateral (as defined in the
Existing Credit Agreement) will be automatically released, (ii) each of the
Company, the Subsidiary Borrower and each Subsidiary Guarantor that is a party
to a Security Document (as defined in the Existing Credit Agreement) will
automatically be released and discharged from any and all obligations and
liabilities under the Security Documents and (iii) the Security Documents (as
defined in the Existing Credit Agreement) shall cease to be of any force or
effect. The Administrative Agent is hereby authorized to deliver, and on the
Effective Date the Administrative Agent shall deliver, to the Company all stock
certificates and other collateral (as defined in the Existing Credit Agreement)
in its possession.
SECTION 11.15 EXCULPATION PROVISIONS. EACH OF THE PARTIES HERETO
SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS AND AGREES THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS
OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; THAT IT HAS IN FACT READ THIS
AGREEMENT AND IS FULLY INFORMED AND HAS FULL NOTICE AND KNOWLEDGE OF THE TERMS,
CONDITIONS AND EFFECTS OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; THAT IT
HAS BEEN REPRESENTED BY INDEPENDENT LEGAL COUNSEL OF ITS CHOICE THROUGHOUT THE
NEGOTIATIONS PRECEDING ITS EXECUTION OF THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS; AND HAS RECEIVED THE ADVICE OF ITS ATTORNEY IN ENTERING INTO THIS
AGREEMENT AND THE
-98-
<PAGE>
OTHER LOAN DOCUMENTS; AND THAT IT RECOGNIZES THAT CERTAIN OF THE TERMS OF THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS RESULT IN ONE PARTY ASSUMING THE
LIABILITY INHERENT IN SOME ASPECTS OF THE TRANSACTION AND RELIEVING THE OTHER
PARTY OF ITS RESPONSIBILITY FOR SUCH LIABILITY. EACH PARTY HERETO AGREES AND
COVENANTS THAT IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF ANY
EXCULPATORY PROVISION OF THIS AGREEMENT ON THE BASIS THAT THE PARTY HAD NO
NOTICE OR KNOWLEDGE OF SUCH PROVISION OR THAT THE PROVISION IS NOT
"CONSPICUOUS."
-99-
<PAGE>
The parties hereto have caused this Agreement to be duly executed as
of the date and year first above written.
KINDER MORGAN ENERGY PARTNERS, L.P.,
as the Company
By: Kinder Morgan G.P., Inc.,
its General Partner
By: /s/ David G. Dehaemers
--------------------------
Name: David G. Dehaemers
Title: Chief Financial Officer
Address for Notices:
1301 McKinney Street
Suite 3450
Houston, Texas 77010
Telecopier No.: (713) 844-9570
Telephone No.: (713) 844-9500
Attention: David G. Dehaemers, Jr.
Chief Executive Office and Principal Place
of Business:
1301 McKinney Street
Suite 3450
Houston, Texas 77010
<PAGE>
KINDER MORGAN OPERATING L.P. "B",
as the Subsidiary Borrower and as a Subsidiary
Guarantor
By: Kinder Morgan G.P., Inc.,
its General Partner
By: /s/ David G. Dehaemers
--------------------------
Name: David G. Dehaemers
Title: Chief Financial Officer
Address for Notices:
1301 McKinney Street
Suite 3450
Houston, Texas 77010
Telecopier No.: (713) 844-9570
Telephone No.: (713) 844-9500
Attention: David G. Dehaemers, Jr.
Chief Executive Office and Principal Place
of Business:
1301 McKinney Street
Suite 3450
Houston, Texas 77010
<PAGE>
KINDER MORGAN OPERATING L.P. "A",
as a Subsidiary Guarantor
By: Kinder Morgan G.P., Inc.,
its General Partner
By: /s/ David G. Dehaemers
--------------------------
Name: David G. Dehaemers
Title: Chief Financial Officer
Address for Notices:
1301 McKinney Street
Suite 3450
Houston, Texas 77010
Telecopier No.: (713) 844-9570
Telephone No.: (713) 844-9500
Attention: David G. Dehaemers, Jr.
Chief Executive Office and Principal Place
of Business:
1301 McKinney Street
Suite 3450
Houston, Texas 77010
<PAGE>
KINDER MORGAN OPERATING L.P. "C",
as a Subsidiary Guarantor
By: Kinder Morgan G.P., Inc.,
its General Partner
By: /s/ David G. Dehaemers
--------------------------
Name: David G. Dehaemers
Title: Chief Financial Officer
Address for Notices:
1301 McKinney Street
Suite 3450
Houston, Texas 77010
Telecopier No.: (713) 844-9570
Telephone No.: (713) 844-9500
Attention: David G. Dehaemers, Jr.
Chief Executive Office and Principal Place
of Business:
1301 McKinney Street
Suite 3450
Houston, Texas 77010
<PAGE>
KINDER MORGAN OPERATING L.P. "D",
as a Subsidiary Guarantor
By: Kinder Morgan G.P., Inc.,
its General Partner
By: /s/ David G. Dehaemers
--------------------------
Name: David G. Dehaemers
Title: Chief Financial Officer
Address for Notices:
1301 McKinney Street
Suite 3450
Houston, Texas 77010
Telecopier No.: (713) 844-9570
Telephone No.: (713) 844-9500
Attention: David G. Dehaemers, Jr.
Chief Executive Office and Principal Place
of Business:
1301 McKinney Street
Suite 3450
Houston, Texas 77010
<PAGE>
KINDER MORGAN NATURALGAS LIQUIDS CORPORATION,
as a Subsidiary Guarantor
By: /s/ David G. Dehaemers
--------------------------
Name: David G. Dehaemers
Title: Chief Financial Officer
Address for Notices:
1301 McKinney Street
Suite 3450
Houston, Texas 77010
Telecopier No.: (713) 844-9570
Telephone No.: (713) 844-9500
Attention: David G. Dehaemers, Jr.
Chief Executive Office and Principal Place
of Business:
1301 McKinney Street
Suite 3450
Houston, Texas 77010
<PAGE>
KINDER MORGAN BULK TERMINALS, INC.,
as a Subsidiary Guarantor
By: /s/ David G. Dehaemers
--------------------------
Name: David G. Dehaemers
Title: Chief Financial Officer
Address for Notices:
1301 McKinney Street
Suite 3450
Houston, Texas 77010
Telecopier No.: (713) 844-9570
Telephone No.: (713) 844-9500
Attention: David G. Dehaemers, Jr.
Chief Executive Office and Principal Place
of Business:
1301 McKinney Street
Suite 3450
Houston, Texas 77010
<PAGE>
KINDER MORGAN CO2, LLC,
as a Subsidiary Guarantor
By: Kinder Morgan Operating L.P. "A",
its Sole Member
By: Kinder Morgan G.P., Inc.,
its General Partner
By: /s/ David G. Dehaemers
--------------------------
Name: David G. Dehaemers
Title: Chief Financial Officer
Address for Notices:
1301 McKinney Street
Suite 3450
Houston, Texas 77010
Telecopier No.: (713) 844-9570
Telephone No.: (713) 844-9500
Attention: David G. Dehaemers, Jr.
Chief Executive Office and Principal Place
of Business:
1301 McKinney Street
Suite 3450
Houston, Texas 77010
<PAGE>
CONTINUING LENDER:
Revolving Loan Commitment: FIRST UNION NATIONAL BANK, as the Arranger,
$47,000,000.00 the Syndication Agent, Administrative Agent,
the Issuing Bank, the Swingline Lender and as a
Lender
By: /s/ Paul N. Riddle
--------------------------
Name: Paul N. Riddle
Title: Senior Vice President
Address for Notices:
First Union National Bank
301 South College Street, TW-10
Charlotte, North Carolina 28288-0608
Telecopier No.: (704) 383-0288
Telephone No.: (704) 383-0281
Attention: Syndication Agency Services
With copy to:
First Union Capital Markets Corp.
1001 Fannin, Suite 2255
Houston, Texas 77002
Telecopier No.: (713) 650-6354
Telephone No.: (713) 650-3716
Attention: Paul N. Riddle
<PAGE>
CONTINUING LENDER:
Revolving Loan Commitment: GOLDMAN SACHS CREDIT PARTNERS, L.P.
$8,000,000.00
By: /s/ Stephen B. King
--------------------------
Name: Stephen B. King
Title: Authorized Signatory
Address for Notices:
Goldman Sachs & Co.
85 Broad Street, 15th Floor
New York, New York 10004
Telecopier No.: (212) 357-0932
Telephone No.: (212) 902-8123
Attention: Stephen B. King
<PAGE>
CONTINUING LENDER:
Revolving Loan Commitment: BANK OF AMERICA NATIONAL TRUST
$10,000,000.00 AND SAVINGS ASSOCIATION
By: /s/ Michael J. Dillon
--------------------------
Name: Michael J. Dillon
Title: Managing Director
Address for Notices:
Bank of America NT&SA
1850 Gateway Blvd.
Concord, California 94520
Telecopier No.: (510) 603-7243
Telephone No.: (510) 675-7148
Attention: Laurie Warner
With copy to:
Pamela K. Rodgers
Bank of America NT&SA
333 Clay Street, Suite 4550
Houston, Texas 77002
Telecopier No.: (713) 651-4808
Telephone No.: (713) 651-4880
<PAGE>
CONTINUING LENDER:
Revolving Loan Commitment: BANK OF MONTREAL
$12,500,000.00
By: /s/ J.B. Whitmore
--------------------------
Name: J.B. Whitmore
Title: Director
Address for Notices:
Bank of Montreal
700 Louisiana Street
Suite 4400
Houston, Texas 77002
Telecopier No.: (713) 223-4007
Telephone No.: (713) 546-9750
Attention: Cahal B. Carmody, Director
<PAGE>
CONTINUING LENDER:
Revolving Loan Commitment: BANK OF SCOTLAND
$20,000,000.00
By: /s/ Annie Chin Tat
--------------------------
Name: Annie Chin Tat
Title: Senior Vice President
Address for Notices:
Bank of Scotland
565 Fifth Avenue
New York, New York 10017
Telecopier No.: (212) 557-9460
Telephone No.: (212) 450-0871
Attention: Annie Chin Tat
With copy to:
Bank of Scotland
1750 Two Allen Center
1200 Smith Street
Houston, Texas 77002-4312
Telecopier No.: (713) 651-9714
Telephone No.: (713) 651-1870
Attention: Janna Blanter
<PAGE>
CONTINUING LENDER:
Revolving Loan Commitment: PARIBAS
$12,500,000.00
By: /s/ Marian Livingston
--------------------------
Name: Marian Livingston
Title: Vice President
By: /s/ Michael H. Fiuzat
--------------------------
Name: Michael H. Fiuzat
Title: Vice President
Address for Notices:
Paribas
1200 Smith Street, Suite 3100
Houston, Texas 77002
Telecopier No.: (713) 659-6915
Telephone No.: (713) 659-4811
Attention: Marian Livingston
<PAGE>
CONTINUING LENDER:
Revolving Loan Commitment: BARCLAYS BANK PLC
$22,000,000.00
By: /s/ J. Onischuk
--------------------------
Name: J. Onischuk
Title: Associate Director
Address for Notices:
Barclays Bank PLC
222 Broadway
New York, New York 10038
Telecopier No.: (212) 412-7585
Telephone No.: (212) 412-7584
Attention: J. Onischuk
<PAGE>
CONTINUING LENDER:
Revolving Loan Commitment: CIBC INC.
$10,000,000.00
By: /s/ Michael A.G. Corkum
--------------------------
Name: Michael A.G. Corkum
Title: Authorized Signarory
Address for Notices:
CIBC, Inc.
Two Paces West, Suite 1200
Two Paces Ferry Road
Atlanta, Georgia 30339
Telecopier No.: (770) 319-4950
Telephone No.: (770) 319-4821
Attention: Kanthryn S. McGovern
<PAGE>
CONTINUING LENDER:
Revolving Loan Commitment: COMMERZBANK AG, ATLANTA AGENCY
$10,000,000.00
By: /s/ W. David Suttles
--------------------------
Name: W. David Suttles
Title: Vice President
By: /s/ S.R. Viswanathan
--------------------------
Name: Subash R. Viswanathan
Title: Vice President
Address for Notices:
Commerzbank AG, Atlanta Agency
Prominade 2, Suite 3500
1230 Peachtree Street, NE
Atlanta, Georgia 30309
Telecopier No.: (404) 888-6539
Telephone No.: (404) 888-6524
Attention: David Suttles, Vice President
With a copy to:
Dempsey L. Gable, Senior Vice President
Commerzbank AG, New York Branch
2 World Financial Center
New York, New York 10281-1050
Telecopier No.: (212) 266-07530
Telephone No.: (212) 266-7560
<PAGE>
CONTINUING LENDER:
Revolving Loan Commitment: CREDIT LYONNAIS NEW YORK BRANCH
$10,000,000.00
By: /s/ Philippe Soustra
--------------------------
Name: Philippe Soustra
Title: Senior Vice President
Address for Notices:
Credit Lyonnais Houston Representative Office
1000 Louisiana, Suite 5360
Houston, Texas 77002
Telecopier No.: (713) 751-0307
Telephone No.: (713) 753-8723
Attention: Bernadette Archie
<PAGE>
CONTINUING LENDER:
Revolving Loan Commitment: THE FIRST NATIONAL BANK OF CHICAGO
$39,000,000.00
By: /s/ Dixon P. Schultz
--------------------------
Name: Dixon P. Schultz
Title: First Vice President
Address for Notices:
The First National Bank of Chicago
One First National Plaza
Suite 0634, I-10
Chicago, Illinois 60670
Telecopier No.: (312) 732-4840
Telephone No.: (312) 732-3659
Attention: John Beirne
<PAGE>
CONTINUING LENDER:
Revolving Loan Commitment: NATIONSBANK, N.A., as successor by merger to
$22,000,000.00 NationsBank of Texas, N.A.
By: /s/ Michael J. Dillon
--------------------------
Name: Michael J. Dillon
Title: Managing Director
Address for Notices:
NationsBank N.A.
700 Louisiana
Houston, Texas 77002
Telecopier No.: (713) 247-6568
Telephone No.: (713) 247-6952
Attention: Paul A. Squires
<PAGE>
CONTINUING LENDER:
Revolving Loan Commitment: THE PRUDENTIAL INSURANCE COMPANY
$50,000,000.00 OF AMERICA
By: /s/ Steven D. Arnold
--------------------------
Name: Steven D. Arnold
Title: Vice President
Address for Notices:
The Prudential Insurance Company of America
c/o Prudential Capital Group
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07102-4869
Telecopier No.: (973) 802-9425
Telephone No.: (973) 802-3141
Attention: Trade Management Manager
With copy to:
The Prudential Insurance Company of America
c/o Prudential Capital Group
2200 Ross Avenue, Suite 4200 East
Dallas, Texas 75201
Attention: Managing Director
<PAGE>
CONTINUING LENDER:
Revolving Loan Commitment: SOCIETE GENERALE
$22,000,000.00
By: /s/ Richard A. Gould
----------------------------------
Name: Richard A. Gould
Title: Director
Address for Notices:
Societe Generale
2001 Ross Avenue, Suite 4800
Dallas, Texas 75201
Telecopier No.: (214) 979-0171
Telephone No.: (214) 979-2769
Attention: Lia Guerra
With copy to:
Societe Generale
1111 Bagby, Suite 2020
Houston, Texas 77002
Telecopier No.: (713) 650-0824
Telephone No.: (713) 759-6324
Attention: Richard Gould
<PAGE>
CONTINUING LENDER:
Revolving Loan Commitment: PNC BANK, NATIONAL ASSOCIATION
$10,000,000.00
By: /s/ John R. Way
--------------------------
Name: John R. Way
Title: Assistant Vice President
Address for Notices:
249 5th Avenue
Pittsburgh, Pennsylvania 15222
Telecopier No.: (412) 762-2571
Telephone No.: (412) 762-5290
Attention: John R. Way
With a copy to:
Tina Lanuka
Two PNC Plaza, Third Floor
Old Liberty Avenue
Pittsburgh, Pennsylvania 15222
Telecopier: (412) 768-4586
Telephone: (412) 768-5876
<PAGE>
CONTINUING LENDER:
Revolving Loan Commitment: UNION BANK OF CALIFORNIA
$10,000,000.00
By: /s/ Gary Shekerjian
--------------------------
Name: Gary Shekerjian
Title: Assistant Vice President
Address for Notices:
Union Bank of California, N.A.
Energy Department
500 North Akard St., Suite 4200
Dallas, Texas 75201
Attention: Gary E. Shekerjian
<PAGE>
CONTINUING LENDER:
Revolving Loan Commitment: WELLS FARGO BANK (TEXAS), NA
$10,000,000.00
By: /s/ J. Alan Alexander
--------------------------
Name: J. Alan Alexander
Title: Vice President
Address for Notices:
Wells Fargo Bank (Texas), NA
Energy Department
1000 Louisiana, Third Floor
Houston, Texas 77002
Telecopier No.: (713) 739-1087
Telephone No.: (713) 319-1368
Attention: J. Alan Alexander
With copy to:
Oscar Enriquez
201 Third Street, 8th Floor
San Francisco, California 94103
Telecopier No.: (415) 979-0675
Telephone No.: (415) 477-5425
<PAGE>
RETIRING LENDERS:
BANK ONE, TEXAS, NA
By: /s/ Damien G. Meiburger
--------------------------
Name: Damien G. Meiburger
Title: Senior Vice President
<PAGE>
RETIRING BANK:
DEN NORSKE BANK ASA
By: /s/ Charles E. Hall
--------------------------
Name: Charles E. Hall
Title: Senior Vice President
By: /s/ Byron L. Cooley
--------------------------
Name: Byron L. Cooley
Title: Senior Vice President
FIRST AMENDMENT
TO
AMENDED AND RESTATED
CREDIT AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this
"Amendment") dated as of December 21, 1998 is among:
(a) Kinder Morgan Energy Partners, L.P., a Delaware limited
partnership (the "Company");
(b) Kinder Morgan Operating L.P. "B", a Delaware limited
partnership (the "Subsidiary Borrower");
(c) Kinder Morgan Operating L.P. "A", a Delaware limited partnership
("OLP `A'"); Kinder Morgan Operating L.P. "C", a Delaware limited partnership
("OLP `C'"); Kinder Morgan Operating L.P. "D", a Delaware limited partnership
("OLP `D'"); Kinder Morgan Natural Gas Liquids Corporation, a Delaware
corporation ("KMNGL"); Kinder Morgan CO2 LLC, a Delaware limited liability
company ("KMCO2"); and Kinder Morgan Bulk Terminals, Inc., a Louisiana
corporation ("KMBT", and together with OLP "A", OLP "C", OLP "D", KMNGL, KMCO2,
and the Subsidiary Borrower in its capacity as a guarantor pursuant to Article X
of the Credit Agreement (as defined below), collectively, the "Subsidiary
Guarantors");
(d) the banks and other financial institutions listed on the
signature pages hereof under the caption "Continuing Lender", (collectively, the
"Lenders"); and
(e) First Union National Bank, a national banking association,
individually as a Lender, as an arranger (in such capacity, the "Arranger"), as
a syndication agent for the other Lenders (in such capacity, the "Syndication
Agent"), as the issuing bank (in such capacity, the
-1-
<PAGE>
"Issuing Bank"), as the swingline lender (in such capacity, the "Swingline
Lender") and as administrative agent for the Lenders (in such capacity, the
"Administrative Agent").
PRELIMINARY STATEMENT
---------------------
The Company, the Subsidiary Borrower, the Subsidiary Guarantors,
the Lenders , the Syndication Agent, the Arranger, the Issuing Bank, the
Swingline Lender, and the Administrative Agent have entered into an Amended and
Restated Credit Agreement dated as of December 1, 1998 (as so amended and
restated, and as amended, modified, supplemented and/or restated from time to
time, the "Credit Agreement"). All capitalized terms defined in the Credit
Agreement and not otherwise defined herein shall have the same meanings herein
as in the Credit Agreement. The Company, the Subsidiary Borrower, the Subsidiary
Guarantors, the Lenders, the Syndication Agent, the Arranger, the Issuing Bank,
the Swingline Lender, and the Administrative Agent have agreed, upon the terms
and conditions specified herein, to amend the Credit Agreement as hereinafter
set forth:
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the parties hereto, the Company, the Subsidiary Borrower, the
Subsidiary Guarantors, the Lenders, the Syndication Agent, the Arranger, the
Issuing Bank, the Swingline Lender, and the Administrative Agent hereby agree as
follows:
SECTION 1. Amendment to Section 1.01, Defined Terms, of the Credit
Agreement. The definition of the term "Restricted Payment" contained in Section
1.01 of the Credit Agreement is hereby deleted in its entirety and the following
substituted therefor:
"Restricted Payment" means any distribution (whether in cash,
securities or other property) with respect to any partnership interest
in the Company, or any payment (whether in cash, securities or other
property), including any deposit, on
-2-
<PAGE>
account of the purchase, redemption, retirement, acquisition,
cancellation or termination of any such partnership interest or any
option or other right to acquire any such partnership interest;
provided, however, (A) that distributions with respect to the
partnership interests in the Company that do not exceed, with respect
to any fiscal quarter of the Company, the amount of Available Cash
for such quarter shall not constitute Restricted Payments so long as
in each case, both before and after the making of such distribution,
no Event of Default or Default shall have occurred and be continuing,
(B) that any partnership interest split, partnership interest reverse
split, dividend of Company partnership interests or similar
transaction will not constitute a Restricted Payment, and (C) that
the application by the Company of an aggregate amount not in excess
of $20,000,000.00 to the purchase, redemption, retirement,
cancellation, or termination of partnership interests in the Company
will not constitute a Restricted Payment, so long as, both before and
after any such purchase, redemption, retirement, cancellation, or
termination, no Event of Default or Default shall have occurred and
be continuing.
SECTION 2. Conditions of Effectiveness. This Amendment shall become
effective when the Company, the Subsidiary Borrower, the Subsidiary Guarantors,
and the Required Lenders shall have executed a counterpart hereof and delivered
the same to the Administrative Agent or, in the case of any Lender as to which
an executed counterpart hereof shall not have been so delivered, the
Administrative Agent shall have received written confirmation by telecopy or
other similar writing from such Lender of execution of a counterpart hereof by
such Lender.
SECTION 3. Representations and Warranties True; No Default or Event
of Default. The Company hereby represents and warrants to the Administrative
Agent, the Lenders, the Arranger, the Issuing Bank, the Swingline Lender, and
the Syndication Agent that after giving effect to the execution and delivery of
this Amendment: (a) the representations and warranties set forth in the Credit
Agreement are true and correct on the date hereof as though made on and as of
such date, and (b) no event has occurred and is continuing that constitutes
either a Default or an Event of Default.
-3-
<PAGE>
SECTION 4. Reference to the Credit Agreement and Effect on the Notes
and Other Documents Executed Pursuant to the Credit Agreement.
(a) Upon the effectiveness of this Amendment, each reference in the
Credit Agreement to "this Agreement," "hereunder," "herein," "hereof" or words
of like import shall mean and be a reference to the Credit Agreement, as amended
hereby.
(b) Upon the effectiveness of this Amendment, each reference in the
Notes and the other documents and agreements delivered or to be delivered
pursuant to the Credit Agreement shall mean and be a reference to the Credit
Agreement, as amended hereby.
(c) The Credit Agreement and the Notes and other documents and
agreements delivered pursuant to the Credit Agreement, and modified by the
amendment referred to above, shall remain in full force and effect and are
hereby ratified and confirmed.
SECTION 5. Execution in Counterparts. This Amendment may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute but one and the
same instrument.
SECTION 6. GOVERNING LAW; BINDING EFFECT. THIS AMENDMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
AND APPLICABLE FEDERAL LAW AND SHALL BE BINDING UPON THE COMPANY, THE SUBSIDIARY
BORROWER, THE SUBSIDIARY GUARANTORS, THE ADMINISTRATIVE AGENT, THE SYNDICATION
AGENT, THE ARRANGER, THE ISSUING BANK, THE SWINGLINE LENDER, AND THE LENDERS AND
THEIR RESPECTIVE SUCCESSORS AND ASSIGNS.
-4-
<PAGE>
SECTION 7. Headings. Section headings in this Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose.
SECTION 8. ENTIRE AGREEMENT. THIS AMENDMENT, THE CREDIT AGREEMENT
(INCLUDING THE EXHIBITS AND SCHEDULES THERETO), AS AMENDED HEREBY, THE COMPANY,
SUBSIDIARY BORROWER, AND SUBSIDIARY GUARANTORS COUNTERPARTS, IF ANY, THE
ASSIGNMENT AND ACCEPTANCES, IF ANY, THE LOAN DOCUMENTS, AND THE FEE LETTER
EMBODY THE ENTIRE AGREEMENT AND UNDERSTANDING AMONG THE COMPANY, THE SUBSIDIARY
BORROWER, THE SUBSIDIARY GUARANTORS, THE ADMINISTRATIVE AGENT, THE SYNDICATION
AGENT, THE ARRANGER, THE ISSUING BANK, THE SWINGLINE LENDER, AND THE LENDERS
RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF AND SUPERSEDE ALL PRIOR
PROPOSALS, AGREEMENTS AND UNDERSTANDINGS RELATING TO SUCH SUBJECT MATTER.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed effective as of the date first stated herein, by their respective
officers thereunto duly authorized.
KINDER MORGAN ENERGY PARTNERS, L.P.,
as the Company
By: Kinder Morgan G.P., Inc.,
its General Partner
By: /s/ David G. Dehaemers, Jr.
__________________________________
Name: David G. Dehaemers, Jr.
Title: Chief Financial Officer
Address for Notices:
-------------------
1301 McKinney Street
Suite 3450
Houston, Texas 77010
Telecopier No.: (713) 844-9570
Telephone No.: (713) 844-9500
Attention: David G. Dehaemers, Jr.
Chief Executive Office and Principal Place
of Business:
1301 McKinney Street
Suite 3450
Houston, Texas 77010
-6-
<PAGE>
KINDER MORGAN OPERATING L.P. "B",
as the Subsidiary Borrower and as a Subsidiary
Guarantor
By: Kinder Morgan G.P., Inc.,
its General Partner
By: /s/ David G. Dehaemers, Jr.
__________________________________
Name: David G. Dehaemers, Jr.
Title: Chief Financial Officer
Address for Notices:
-------------------
1301 McKinney Street
Suite 3450
Houston, Texas 77010
Telecopier No.: (713) 844-9570
Telephone No.: (713) 844-9500
Attention: David G. Dehaemers, Jr.
Chief Executive Office and Principal Place
of Business:
1301 McKinney Street
Suite 3450
Houston, Texas 77010
-7-
<PAGE>
KINDER MORGAN OPERATING L.P. "A",
as a Subsidiary Guarantor
By: Kinder Morgan G.P., Inc.,
its General Partner
By: /s/ David G. Dehaemers, Jr.
__________________________________
Name: David G. Dehaemers, Jr.
Title: Chief Financial Officer
Address for Notices:
-------------------
1301 McKinney Street
Suite 3450
Houston, Texas 77010
Telecopier No.: (713) 844-9570
Telephone No.: (713) 844-9500
Attention: David G. Dehaemers, Jr.
Chief Executive Office and Principal Place
of Business:
1301 McKinney Street
Suite 3450
Houston, Texas 77010
-8-
<PAGE>
KINDER MORGAN OPERATING L.P. "C",
as a Subsidiary Guarantor
By: Kinder Morgan G.P., Inc.,
its General Partner
By: /s/ David G. Dehaemers, Jr.
__________________________________
Name: David G. Dehaemers, Jr.
Title: Chief Financial Officer
Address for Notices:
1301 McKinney Street
Suite 3450
Houston, Texas 77010
Telecopier No.: (713) 844-9570
Telephone No.: (713) 844-9500
Attention: David G. Dehaemers, Jr.
Chief Executive Office and Principal Place
of Business:
1301 McKinney Street
Suite 3450
Houston, Texas 77010
-9-
<PAGE>
KINDER MORGAN OPERATING L.P. "D",
as a Subsidiary Guarantor
By: Kinder Morgan G.P., Inc.,
its General Partner
By: /s/ David G. Dehaemers, Jr.
__________________________________
Name: David G. Dehaemers, Jr.
Title: Chief Financial Officer
Address for Notices:
-------------------
1301 McKinney Street
Suite 3450
Houston, Texas 77010
Telecopier No.: (713) 844-9570
Telephone No.: (713) 844-9500
Attention: David G. Dehaemers, Jr.
Chief Executive Office and Principal Place
of Business:
1301 McKinney Street
Suite 3450
Houston, Texas 77010
-10-
<PAGE>
KINDER MORGAN NATURAL GAS LIQUIDS CORPORATION,
as a Subsidiary Guarantor
By: /s/ David G. Dehaemers, Jr.
________________________________________
Name: David G. Dehaemers, Jr.
Title: Chief Financial Officer
Address for Notices:
-------------------
1301 McKinney Street
Suite 3450
Houston, Texas 77010
Telecopier No.: (713) 844-9570
Telephone No.: (713) 844-9500
Attention: David G. Dehaemers, Jr.
Chief Executive Office and Principal Place
of Business:
1301 McKinney Street
Suite 3450
Houston, Texas 77010
-11-
<PAGE>
KINDER MORGAN BULK TERMINALS, INC.,
as a Subsidiary Guarantor
By: /s/ David G. Dehaemers, Jr.
________________________________________
Name: David G. Dehaemers, Jr.
Title: Chief Financial Officer
Address for Notices:
-------------------
1301 McKinney Street
Suite 3450
Houston, Texas 77010
Telecopier No.: (713) 844-9570
Telephone No.: (713) 844-9500
Attention: David G. Dehaemers, Jr.
Chief Executive Office and Principal Place
of Business:
1301 McKinney Street
Suite 3450
Houston, Texas 77010
-12-
<PAGE>
KINDER MORGAN CO2, LLC,
as a Subsidiary Guarantor
By: Kinder Morgan Operating L.P. "A",
its Sole Member
By: Kinder Morgan G.P., Inc.,
its General Partner
By: /s/ David G. Dehaemers, Jr.
__________________________________
Name: David G. Dehaemers, Jr.
Title: Chief Financial Officer
Address for Notices:
-------------------
1301 McKinney Street
Suite 3450
Houston, Texas 77010
Telecopier No.: (713) 844-9570
Telephone No.: (713) 844-9500
Attention: David G. Dehaemers, Jr.
Chief Executive Office and Principal Place
of Business:
1301 McKinney Street
Suite 3450
Houston, Texas 77010
-13-
<PAGE>
CONTINUING LENDER:
Revolving Loan Commitment: FIRST UNION NATIONAL BANK, as the Arranger,
$47,000,000.00 the Syndication Agent, Administrative Agent,
the Issuing Bank, the Swingline Lender and
as a Lender
By: /s/ Paul N. Riddle
____________________________________
Name: Paul N. Riddle
Title: Senior Vice President
Address for Notices:
-------------------
First Union National Bank
301 South College Street, TW-10
Charlotte, North Carolina 28288-0608
Telecopier No.: (704) 383-0288
Telephone No.: (704) 383-0281
Attention: Syndication Agency Services
With copy to:
------------
First Union Capital Markets Corp.
1001 Fannin, Suite 2255
Houston, Texas 77002
Telecopier No.: (713) 650-6354
Telephone No.: (713) 650-3716
Attention: Paul N. Riddle
-14-
<PAGE>
CONTINUING LENDER:
Revolving Loan Commitment: GOLDMAN SACHS CREDIT PARTNERS L.P.
$8,000,000.00
By: /s/ Stephen B. King
____________________________________
Name: Stephen B. King
Title: Authorized Signatory
Address for Notices:
-------------------
Goldman Sachs & Co.
85 Broad Street, 15th Floor
New York, New York 10004
Telecopier No.: (212) 357-0932
Telephone No.: (212) 902-8123
Attention: Stephen B. King
-15-
<PAGE>
CONTINUING LENDER:
Revolving Loan Commitment: BANK OF AMERICA NATIONAL TRUST
$10,000,000.00 AND SAVINGS ASSOCIATION
By: /s/ Daryl G. Patterson
____________________________________
Name: Daryl G. Patterson
Title: Vice President
Address for Notices:
-------------------
Bank of America NT&SA
1850 Gateway Blvd.
Concord, California 94520
Telecopier No.: (510) 603-7243
Telephone No.: (510) 675-7148
Attention: Laurie Warner
With copy to:
------------
Pamela K. Rodgers
Bank of America NT&SA
333 Clay Street, Suite 4550
Houston, Texas 77002
Telecopier No.: (713) 651-4808
Telephone No.: (713) 651-4880
-16-
<PAGE>
CONTINUING LENDER:
Revolving Loan Commitment: BANK OF MONTREAL
$12,500,000.00
By: /s/ Cathal B. Carmody
____________________________________
Name: Cathal B. Carmody
Title: Director
Address for Notices:
-------------------
Bank of Montreal
700 Louisiana Street
Suite 4400
Houston, Texas 77002
Telecopier No.: (713) 223-4007
Telephone No.: (713) 546-9750
Attention: Cahal B. Carmody, Director
-17-
<PAGE>
CONTINUING LENDER:
Revolving Loan Commitment: BANK OF SCOTLAND
$20,000,000.00
By: /s/ Annie Chin Tat
____________________________________
Name: Annie Chin Tat
Title: Senior Vice President
Address for Notices:
-------------------
Bank of Scotland
565 Fifth Avenue
New York, New York 10017
Telecopier No.: (212) 557-9460
Telephone No.: (212) 450-0871
Attention: Annie Chin Tat
With copy to:
------------
Bank of Scotland
1750 Two Allen Center
1200 Smith Street
Houston, Texas 77002-4312
Telecopier No.: (713) 651-9714
Telephone No.: (713) 651-1870
Attention: Janna Blanter
-18-
<PAGE>
CONTINUING LENDER:
Revolving Loan Commitment: PARIBAS
$12,500,000.00
By: /s/ Barton D. Schouest
____________________________________
Name: Barton D. Schouest
Title: Managing Director
By: /s/ Betsy R. Jocher
____________________________________
Name: Betsy R. Jocher
Title: Assistant Vice President
Address for Notices:
-------------------
Paribas
1200 Smith Street, Suite 3100
Houston, Texas 77002
Telecopier No.: (713) 659-6915
Telephone No.: (713) 659-4811
Attention: Marian Livingston
-19-
<PAGE>
CONTINUING LENDER:
Revolving Loan Commitment: BARCLAYS BANK PLC
$22,000,000.00
By: /s/ J. Onischuk
____________________________________
Name: J. Onischuk
Title: Associate Director
Address for Notices:
-------------------
Barclays Bank PLC
222 Broadway
New York, New York 10038
Telecopier No.: (212) 412-7585
Telephone No.: (212) 412-7584
Attention: J. Onischuk
-20-
<PAGE>
CONTINUING LENDER:
Revolving Loan Commitment: CIBC INC.
$10,000,000.00
By: /s/ Roger Colden
____________________________________
Name: Roger Colden
Title: Executive Director
CIBC Oppenheimer Corp.
As Agent
Address for Notices:
-------------------
CIBC, Inc.
Two Paces West, Suite 1200
Two Paces Ferry Road
Atlanta, Georgia 30339
Telecopier No.: (770) 319-4950
Telephone No.: (770) 319-4821
Attention: Kanthryn S. McGovern
-21-
<PAGE>
CONTINUING LENDER:
Revolving Loan Commitment: COMMERZBANK AG, ATLANTA AGENCY
$10,000,000.00
By: /s/ Harry P. Yergey
____________________________________
Name: Harry P. Yergey
Title: SVP & Manager
By: /s/ W. David Suttles
____________________________________
Name: W. David Suttles
Title: Vice President
Address for Notices:
-------------------
Commerzbank AG, Atlanta Agency
Prominade 2, Suite 3500
1230 Peachtree Street, NE
Atlanta, Georgia 30309
Telecopier No.: (404) 888-6539
Telephone No.: (404) 888-6524
Attention: David Suttles, Vice President
With a copy to:
--------------
Dempsey L. Gable, Senior Vice President
Commerzbank AG, New York Branch
2 World Financial Center
New York, New York 10281-1050
Telecopier No.: (212) 266-07530
Telephone No.: (212) 266-7560
-22-
<PAGE>
CONTINUING LENDER:
Revolving Loan Commitment: CREDIT LYONNAIS NEW YORK BRANCH
$10,000,000.00
By: /s/ Xavier Ratouis
____________________________________
Name: Xavier Ratouis
Title: Senior Vice President
Address for Notices:
-------------------
Credit Lyonnais Houston Representative
Office
1000 Louisiana, Suite 5360
Houston, Texas 77002
Telecopier No.: (713) 751-0307
Telephone No.: (713) 753-8723
Attention: Bernadette Archie
-23-
<PAGE>
CONTINUING LENDER:
Revolving Loan Commitment: THE FIRST NATIONAL BANK OF CHICAGO
$39,000,000.00
By: /s/ Dixon P. Schultz
____________________________________
Name: Dixon P. Schultz
Title: First Vice President
Address for Notices:
-------------------
The First National Bank of Chicago
One First National Plaza
Suite 0634, I-10
Chicago, Illinois 60670
Telecopier No.: (312) 732-4840
Telephone No.: (312) 732-3659
Attention: John Beirne
-24-
<PAGE>
CONTINUING LENDER:
Revolving Loan Commitment: NATIONSBANK, N.A., as successor by
$22,000,000.00 merger to NationsBank of Texas, N.A.
By: /s/ Daryl G. Patterson
____________________________________
Name: Daryl G. Patterson
Title: Vice President
Address for Notices:
-------------------
NationsBank N.A.
700 Louisiana
Houston, Texas 77002
Telecopier No.: (713) 247-6568
Telephone No.: (713) 247-6952
Attention: Paul A. Squires
-25-
<PAGE>
CONTINUING LENDER:
Revolving Loan Commitment: THE PRUDENTIAL INSURANCE COMPANY
$50,000,000.00 OF AMERICA
By: /s/ Steven D. Arnold
____________________________________
Name: Steven D. Arnold
Title: Vice President
Address for Notices:
-------------------
The Prudential Insurance Company of
America
c/o Prudential Capital Group
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07102-4869
Telecopier No.: (973) 802-9425
Telephone No.: (973) 802-3141
Attention: Trade Management Manager
With copy to:
The Prudential Insurance Company of
America
c/o Prudential Capital Group
2200 Ross Avenue, Suite 4200 East
Dallas, Texas 75201
Attention: Managing Director
-26-
<PAGE>
CONTINUING LENDER:
Revolving Loan Commitment: SOCIETE GENERALE
$22,000,000.00
By: /s/ Richard A. Gould
____________________________________
Name: Richard A. Gould
Title: Director
Address for Notices:
-------------------
Societe Generale
2001 Ross Avenue, Suite 4800
Dallas, Texas 75201
Telecopier No.: (214) 979-0171
Telephone No.: (214) 979-2769
Attention: Lia Guerra
With copy to:
------------
Socie'te' Ge'ne'rale
1111 Bagby, Suite 2020
Houston, Texas 77002
Telecopier No.: (713) 650-0824
Telephone No.: (713) 759-6324
Attention: Richard Gould
-27-
<PAGE>
CONTINUING LENDER:
Revolving Loan Commitment: PNC BANK, NATIONAL ASSOCIATION
$10,000,000.00
By: /s/ John R. Way
____________________________________
Name: John R. Way
Title: Assistant Vice President
Address for Notices:
-------------------
249 5th Avenue
Pittsburgh, Pennsylvania 15222
Telecopier No.: (412) 762-2571
Telephone No.: (412) 762-5290
Attention: John R. Way
With a copy to:
Tina Lanuka
Two PNC Plaza, Third Floor
Old Liberty Avenue
Pittsburgh, Pennsylvania 15222
Telecopier: (412) 768-4586
Telephone: (412) 768-5876
-28-
<PAGE>
CONTINUING LENDER:
Revolving Loan Commitment: UNION BANK OF CALIFORNIA, N.A.
$10,000,000.00
By: /s/ Gary Shekerjian
____________________________________
Name: Gary Shekerjian
Title: Assistant Vice President
Address for Notices:
-------------------
Union Bank of California, N.A.
Energy Department
500 North Akard St., Suite 4200
Dallas, Texas 75201
Attention: Gary E. Shekerjian
-29
<PAGE>
CONTINUING LENDER:
Revolving Loan Commitment: WELLS FARGO BANK (TEXAS), NA
$10,000,000.00
By: /s/ J. Alan Alexander
____________________________________
Name: J. Alan Alexander
Title: Vice President
Address for Notices:
-------------------
Wells Fargo Bank (Texas), NA
Energy Department
1000 Louisiana, Third Floor
Houston, Texas 77002
Telecopier No.: (713) 739-1087
Telephone No.: (713) 319-1368
Attention: J. Alan Alexander
With copy to:
------------
Oscar Enriquez
201 Third Street, 8th Floor
San Francisco, California 94103
Telecopier No.: (415) 979-0675
Telephone No.: (415) 477-5425
================================================================================
AMENDED AND RESTATED CREDIT AGREEMENT
dated as of June 18, 1998,
by and among
KINDER MORGAN, INC.,
as Borrower,
the Lenders referred to herein,
and
FIRST UNION NATIONAL BANK,
as Administrative Agent
================================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS.........................................................1
SECTION 1.1. Definitions...................................................1
SECTION 1.2. General......................................................15
SECTION 1.3. Other Definitions and Provisions.............................16
ARTICLE II REVOLVING CREDIT FACILITY.........................................16
SECTION 2.1. Revolving Credit Loans.......................................16
SECTION 2.2. Procedure for Advances of Revolving Credit Loans.............16
SECTION 2.3. Repayment of Revolving Credit Loans..........................17
SECTION 2.4. Revolving Credit Notes.......................................17
SECTION 2.5. Permanent Reduction of the Revolving Credit Commitment.......18
SECTION 2.6. Termination of the Revolving Credit Facility.................18
SECTION 2.7. Use of Proceeds..............................................18
SECTION 2.8. Security.....................................................18
ARTICLE III LETTER OF CREDIT FACILITY........................................18
SECTION 3.1. L/C Commitment...............................................18
SECTION 3.2. Procedure for Issuance of Letters of Credit..................19
SECTION 3.3. Letter of Credit Fees and Other Charges......................19
SECTION 3.4. L/C Participations...........................................20
SECTION 3.5. Reimbursement Obligation of the Borrower.....................21
SECTION 3.6. Obligations Absolute.........................................21
SECTION 3.7. Effect of Application........................................22
ARTICLE IV TERM LOAN FACILITY................................................22
SECTION 4.1. Term Loans...................................................22
SECTION 4.2. Procedure for Advance of Term Loans..........................22
SECTION 4.3. Repayment of Term Loans......................................22
SECTION 4.4. Optional Prepayments of Term Loans...........................22
SECTION 4.5. Term Notes...................................................23
SECTION 4.6. Use of Proceeds..............................................23
SECTION 4.7. Security.....................................................23
ARTICLE V GENERAL LOAN PROVISIONS............................................23
SECTION 5.1. Interest.....................................................23
SECTION 5.2. Fees.........................................................25
SECTION 5.3. Notice and Manner of Conversion or Continuation of Loans.....25
SECTION 5.4. Mandatory Prepayments of Loans...............................26
SECTION 5.5. Manner of Payment............................................27
SECTION 5.6. Crediting of Payments and Proceeds...........................28
SECTION 5.7. Adjustments..................................................28
SECTION 5.8. Nature of Obligations of Lenders Regarding Extensions of
Credit; Assumption by the Administrative Agent...............28
SECTION 5.9. Changed Circumstances........................................29
i
<PAGE>
SECTION 5.10. Indemnity....................................................31
SECTION 5.11. Capital Requirements.........................................31
SECTION 5.12. Taxes........................................................31
ARTICLE VI CLOSING; CONDITIONS OF CLOSING AND BORROWING......................33
SECTION 6.1. Closing......................................................33
SECTION 6.2. Conditions to Closing and Extensions of Credit...............33
SECTION 6.3. Conditions to All Extensions of Credit.......................36
ARTICLE VII REPRESENTATIONS AND WARRANTIES OF THE BORROWER...................37
SECTION 7.1. Representations and Warranties...............................37
SECTION 7.2. Survival of Representations and Warranties, Etc..............43
ARTICLE VIII FINANCIAL INFORMATION AND NOTICES...............................43
SECTION 8.1. Financial Statements.........................................44
SECTION 8.2. Compliance Certificates......................................44
SECTION 8.3. Other Reports................................................44
SECTION 8.4. Notice of Litigation and Other Matters.......................45
SECTION 8.5. Accuracy of Information......................................46
ARTICLE IX AFFIRMATIVE COVENANTS.............................................46
SECTION 9.1. Preservation of Corporate Existence and Related Matters......46
SECTION 9.2. Maintenance of Property......................................46
SECTION 9.3. Insurance....................................................46
SECTION 9.4. Accounting Methods and Financial Records.....................47
SECTION 9.5. Payment and Performance of Obligations.......................47
SECTION 9.6. Compliance With Laws and Approvals...........................47
SECTION 9.7. Environmental Laws...........................................47
SECTION 9.8. Compliance with ERISA........................................47
SECTION 9.9. Compliance With Agreements...................................48
SECTION 9.10. Conduct of Business..........................................48
SECTION 9.11. Visits and Inspections.......................................48
SECTION 9.12. Additional Collateral........................................48
SECTION 9.13. Kinder Morgan G.P. Security Agreement........................48
SECTION 9.14. Further Assurances...........................................49
ARTICLE X FINANCIAL COVENANTS................................................49
SECTION 10.1. Leverage Ratio...............................................49
SECTION 10.2. Combined Leverage Ratio......................................49
SECTION 10.3 Interest Coverage Ratio......................................49
SECTION 10.4 Combined Interest Coverage Ratio.............................50
ARTICLE XI NEGATIVE COVENANTS................................................50
SECTION 11.1. Limitations on Debt..........................................50
SECTION 11.2. Limitations on Liens.........................................51
SECTION 11.3. Limitations on Loans, Advances, Investments and Acquisitions.52
SECTION 11.4. Limitations on Mergers and Liquidation.......................53
SECTION 11.5. Limitations on Sale of Assets................................53
SECTION 11.6. Limitations on Dividends and Distributions...................54
SECTION 11.7. Limitations on Exchange and Issuance of Capital Stock........54
ii
<PAGE>
SECTION 11.8. Transactions with Affiliates.................................55
SECTION 11.9. Certain Accounting Changes...................................55
SECTION 11.10. Material Amendments.........................................55
SECTION 11.11. Operating Leases............................................55
SECTION 11.12. Restrictive Agreements......................................55
ARTICLE XII DEFAULT AND REMEDIES.............................................55
SECTION 12.1. Events of Default............................................55
SECTION 12.2. Remedies.....................................................58
SECTION 12.3. Rights and Remedies Cumulative; Non-Waiver; etc..............59
ARTICLE XIII THE ADMINISTRATIVE AGENT........................................59
SECTION 13.1. Appointment..................................................59
SECTION 13.2. Delegation of Duties.........................................59
SECTION 13.3. Exculpatory Provisions.......................................59
SECTION 13.4. Reliance by the Administrative Agent.........................60
SECTION 13.5. Notice of Default............................................60
SECTION 13.6. Non-Reliance on the Administrative Agent and Other Lenders...60
SECTION 13.7. Indemnification..............................................61
SECTION 13.8. The Administrative Agent in Its Individual Capacity..........61
SECTION 13.9. Resignation of the Administrative Agent; Successor
Administrative Agent.........................................62
ARTICLE XIV MISCELLANEOUS....................................................62
SECTION 14.1. Notices......................................................62
SECTION 14.2. Expenses; Indemnity..........................................63
SECTION 14.3. Set-off......................................................64
SECTION 14.4. Governing Law................................................64
SECTION 14.5. Consent to Jurisdiction......................................64
SECTION 14.6. Binding Arbitration; Waiver of Jury Trial....................64
SECTION 14.7. Reversal of Payments.........................................65
SECTION 14.8. Injunctive Relief............................................66
SECTION 14.9. Accounting Matters...........................................66
SECTION 14.10. Successors and Assigns; Participations......................66
SECTION 14.11. Amendments, Waivers and Consents............................69
SECTION 14.12. Performance of Duties.......................................70
SECTION 14.13. All Powers Coupled with Interest............................70
SECTION 14.14. Survival of Indemnities.....................................70
SECTION 14.15. Titles and Captions.........................................70
SECTION 14.16. Severability of Provisions..................................70
SECTION 14.17. Counterparts................................................70
SECTION 14.18. Term of Agreement...........................................71
iii
<PAGE>
EXHIBITS
Exhibit A - Form of Amended and Restated Revolving Credit Note
Exhibit B - Form of Term Loan Note
Exhibit C-1 - Form of Notice of Revolving Credit Borrowing
Exhibit C-2 - Form of Notice of Term Loan Borrowing
Exhibit C-3 - Form of Notice of Conversion/Continuation
Exhibit D - Form of Notice of Prepayment
Exhibit E - Form of Notice of Account Designation
Exhibit F - Form of Officer's Compliance Certificate
Exhibit G - Form of Assignment and Acceptance
Exhibit H - Form of Amended and Restated Security Agreement
SCHEDULES
Schedule 1 - Lenders and Commitments
Schedule 7.1(a) - Jurisdictions of Organization and Qualification
Schedule 7.1(b) - Subsidiaries and Capitalization
Schedule 7.1(e) - Compliance with Laws and Governmental Approvals
Schedule 7.1(h) - Environmental Matters
Schedule 7.1(i) - ERISA Plans
Schedule 7.1(l) - Material Contracts
Schedule 7.1(m) - Labor and Collective Bargaining Agreements
Schedule 7.1(s) - Debt and Guaranty Obligations
Schedule 7.1(t) - Litigation
Schedule 11.2 - Existing Liens
Schedule 11.3 - Existing Loans, Advances and Investments
Schedule 11.8 - Affiliate Transactions
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT, dated as of the 18th day of June,
1998, by and among KINDER MORGAN, INC., a corporation organized under the laws
of Delaware (the "Borrower"), the Lenders who are or may become a party to this
Agreement (the "Lenders"), and FIRST UNION NATIONAL BANK, as Administrative
Agent for the Lenders.
STATEMENT OF PURPOSE
--------------------
Pursuant to the Credit Agreement dated as of February 14, 1997 by and among
the Borrower, the lenders party thereto (the "Original Lenders") and First Union
National Bank (f/k/a First Union National Bank of North Carolina), as agent (the
"Original Agent") as amended by the letter agreement dated August 4, 1997 from
the Borrower to the Original Agent, the First Amendment to Credit Agreement
dated as of September 26, 1997 among the Borrower, the Original Lenders and the
Original Agent and the Second Amendment to Credit Agreement dated as of December
31, 1997 among the Borrower, the Original Lenders and the Original Agent (as so
amended, the "Existing Facility"), the Original Lenders agreed to extend certain
credit facilities to the Borrower. The Borrower and the Lenders now desire to
amend and restate the Existing Facility in its entirety pursuant to the terms
and conditions of this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, such parties
hereby agree as follows:
ARTICLE I
---------
DEFINITIONS
-----------
SECTION 1.1. Definitions. The following terms when used in this Agreement
shall have the meanings assigned to them below:
"Administrative Agent" means First Union in its capacity as Administrative
Agent hereunder, and any successor thereto appointed pursuant to Section 13.9.
"Administrative Agent's Office" means the office of the Administrative
Agent specified in or determined in accordance with the provisions of Section
14.1.
"Affiliate" means, with respect to any Person, any other Person (other
than a Subsidiary) which directly or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
such first Person or any of its Subsidiaries. The term "control" means (a) the
power to vote five percent (5%) or more of the securities or other equity
interests of a Person having ordinary voting power, or (b) the possession,
directly or indirectly, of any other power to direct or cause the direction of
the management and policies of a Person, whether through ownership of voting
securities, by contract or otherwise.
"Aggregate Commitment" means the aggregate amount of the Lenders'
Commitments hereunder, as such amount may be reduced or modified at any time or
from time to time pursuant to the terms hereof. On the Closing Date, the
Aggregate Commitment shall be One Hundred Million Dollars ($100,000,000).
<PAGE>
"Agreement" means this Amended and Restated Credit Agreement, as amended,
restated or otherwise modified from time to time.
"Applicable Law" means all applicable provisions of constitutions,
statutes, laws, rules, treaties, regulations and orders of all Governmental
Authorities and all orders and decrees of all courts and arbitrators.
"Application" means an application, in the form specified by the Issuing
Lender from time to time, requesting the Issuing Lender to issue a Letter of
Credit.
"Assignment and Acceptance" shall have the meaning assigned thereto in
Section 14.10.
"Base Rate" means, at any time, the higher of (a) First Union's Prime Rate
or (b) the Federal Funds Rate plus 1/2 of 1%; each change in the Base Rate shall
take effect simultaneously with the corresponding change or changes in the Prime
Rate or the Federal Funds Rate.
"Base Rate Loan" means any Loan bearing interest at a rate based upon the
Base Rate as provided in Section 5.1(a).
"Borrower" means Kinder Morgan, Inc. in its capacity as borrower hereunder.
"Business Day" means (a) for all purposes other than as set forth in clause
(b) below, any day other than a Saturday, Sunday or legal holiday on which banks
in Charlotte, North Carolina and New York, New York, are open for the conduct of
their commercial banking business, and (b) with respect to all notices and
determinations in connection with, and payments of principal and interest on,
any LIBOR Rate Loan, any day that is a Business Day described in clause (a) and
that is also a day for trading by and between banks in Dollar deposits in the
London interbank market.
"Capital Asset" means, with respect to any Person, any asset that should,
in accordance with GAAP, be classified and accounted for as a capital asset on a
Consolidated balance sheet of such Person.
"Capital Expenditures" means, with respect to any Person for any period,
the aggregate cost of all Capital Assets acquired by such Person during such
period, as determined in accordance with GAAP.
"Capital Lease" means, with respect to any Person, any lease of any
property that should, in accordance with GAAP, be classified and accounted for
as a capital lease on a Consolidated balance sheet of such Person.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, rights to purchase, warrants, options, participations or other
equivalents (however designated) of such Person's equity, including all common
stock and preferred stock, any limited or general partnership interest and any
limited liability company membership.
2
<PAGE>
"Cash Equivalents" shall have the meaning assigned thereto in Section
11.3(b).
"Change in Control" shall have the meaning assigned thereto in Section
12.1(h).
"Closing Date" means the date of this Agreement or such later Business Day
upon which each condition described in Article VI shall be satisfied or waived
in all respects in a manner acceptable to the Administrative Agent.
"Code" means the Internal Revenue Code of 1986, and the rules and
regulations thereunder, each as amended or supplemented from time to time.
"Collateral" means any collateral pledged by the Borrower, its
shareholders, or any of their Subsidiaries to the Administrative Agent, for the
ratable benefit of itself and the Lenders, in order to secure the Obligations or
any portion thereof.
"Combined Debt" means Debt of the Borrower and its Consolidated
Subsidiaries (including Kinder Morgan G.P.), Kinder Morgan Energy and its
Restricted Subsidiaries (excluding the Debt of SFPP), calculated on a combined
basis in accordance with GAAP.
"Combined Interest Expense" means Interest Expense of the Borrower and its
Consolidated Subsidiaries (including Kinder Morgan G.P.), Kinder Morgan Energy
and its Restricted Subsidiaries (excluding Interest Expense in respect of the
Debt of SFPP), calculated on a combined basis in accordance with GAAP.
"Commitment" means, as to any Lender, the sum of such Lender's Revolving
Credit Commitment and Term Loan Commitment.
"Consolidated" means, when used with reference to financial statements or
financial statement items of any Person or Persons, such statements or items on
a consolidated basis in accordance with applicable principles of consolidation
under GAAP.
"Consolidated Subsidiaries" shall mean each Subsidiary of the Borrower
(whether now existing or hereafter acquired or created) the financial statements
of which shall be (or should have been) consolidated with the financial
statements of the Borrower in accordance with GAAP. As of the Closing Date,
Kinder Morgan G.P. is the only Consolidated Subsidiary of the Borrower.
"Credit Facilities" means the collective reference to the Revolving Credit
Facility, the L/C Facility and the Term Loan Facility.
"Custodian and Negative Pledge Agreement" means that certain Custodian and
Negative Pledge Agreement executed by Kinder Morgan G.P., the Administrative
Agent and First Union, in its capacity as custodian, on or prior to the Closing
Date.
"Debt" means, with respect to any Person at any date and without
duplication, the sum of the following calculated in accordance with GAAP: (a)
all liabilities, obligations and indebtedness for borrowed money including but
not limited to obligations evidenced by bonds, debentures, notes
3
<PAGE>
or other similar instruments of any such Person, (b) all obligations of such
Person under conditional sale or other title retention agreements relating to
property acquired by such Person, (c) all obligations to pay the deferred
purchase price of property or services of any such Person, except trade payables
arising in the ordinary course of business not more than ninety (90) days past
due, (d) the portion of obligations of any such Person as lessee under Capital
Leases that is properly classified as a liability on a balance sheet in
accordance with GAAP, (e) the lesser of (i) Debt of any other Person secured by
a Lien on any asset of any such Person or (ii) the fair market value of such
assets subject to such Lien, (f) all Guaranty Obligations of any such Person
(except those permitted by Section 11.1(f)), (g) all obligations, contingent or
otherwise, of any such Person relative to the face amount of letters of credit,
whether or not drawn, including without limitation any Reimbursement Obligation,
and banker's acceptances issued for the account of any such Person and (h) all
net obligations incurred by any such Person pursuant to Hedging Agreements.
"Default" means any of the events specified in Section 12.1 which with the
passage of time, the giving of notice or any other condition, would constitute
an Event of Default.
"Dollars" or "$" means, unless otherwise qualified, dollars in lawful
currency of the United States.
"EBITDA" means (without duplication), with respect to any Person for any
period, the Net Income of such Person for such period determined in accordance
with GAAP, increased (to the extent deducted in determining such earnings for
such period) by the sum of (a) all income taxes (including state franchise taxes
based upon income) of such Person paid or accrued according to GAAP for such
period; (b) Interest Expense of such Person for such period; and (c)
depreciation and amortization of such Person for such period determined in
accordance with GAAP; provided, that if during any period such Person (the
"Acquiring Person") acquires any other Person or all or substantially all of the
assets of such other Person, the EBITDA attributable to such assets or an amount
equal to the percentage of ownership of the Acquiring Person in such other
Person times the EBITDA of such other Person, for such period determined on a
pro forma basis (which determination, in each case, may take into account
adjustments for cost savings and shall be subject to the approval of the
Required Lenders, not to be unreasonably withheld) may be included as EBITDA of
the Acquiring Company for such period.
"Employee Benefit Plan" means any employee benefit plan within the meaning
of Section 3(3) of ERISA which (a) is maintained for employees of the Borrower
or any ERISA Affiliate or (b) has at any time within the preceding six years
been maintained for the employees of the Borrower or any current or former ERISA
Affiliate.
"Environmental Laws" means any and all federal, state and local laws,
statutes, ordinances, rules, regulations, permits, licenses, approvals,
interpretations and orders of courts or Governmental Authorities, relating to
the protection of human health or the environment, including, but not limited
to, requirements pertaining to the manufacture, processing, distribution, use,
treatment, storage, disposal, transportation, handling, reporting, licensing,
permitting, investigation or remediation of Hazardous Materials.
4
<PAGE>
"ERISA" means the Employee Retirement Income Security Act of 1974, and the
rules and regulations thereunder, each as amended or modified from time to time.
"ERISA Affiliate" means any Person who together with the Borrower is
treated as a single employer within the meaning of Section 414(b), (c), (m) or
(o) of the Code or Section 4001(b) of ERISA.
"Eurodollar Reserve Percentage" means, for any day, the percentage
(expressed as a decimal and rounded upwards, if necessary, to the next higher
1/100th of 1%) which is in effect for such day as prescribed by the Federal
Reserve Board (or any successor) for determining the maximum reserve requirement
(including without limitation any basic, supplemental or emergency reserves) in
respect of Eurocurrency liabilities or any similar category of liabilities for a
member bank of the Federal Reserve System in New York City.
"Event of Default" means any of the events specified in Section 12.1,
provided that any requirement for passage of time, giving of notice, or any
other condition, has been satisfied.
"Excess Cash Flow" means, with respect to the Borrower and its Consolidated
Subsidiaries for any period, the sum of the following for such period (a) KMI
Cash Flow plus any extraordinary cash gains minus (b) the sum of (i) Interest
Expense, (ii) Capital Expenditures and (iii) taxes paid or payable in cash.
"Existing Facility" shall have the meaning assigned thereto in the
Statement of Purpose.
"Extensions of Credit" means (a) with respect to all Lenders, the aggregate
principal amount of all outstanding Loans and L/C Obligations and (b) with
respect to each Lender, the sum of (i) such Lender's Revolving Credit Commitment
Percentage of the outstanding Revolving Credit Loans and L/C Obligations and
(ii) such Lender's Term Loan Percentage of the Term Loans.
"FDIC" means the Federal Deposit Insurance Corporation, or any successor
thereto.
"Federal Funds Rate" means, the rate per annum (rounded upwards, if
necessary, to the next higher 1/100th of 1%) representing the daily effective
federal funds rate as quoted by the Administrative Agent and confirmed in
Federal Reserve Board Statistical Release H.15 (519) or any successor or
substitute publication selected by the Administrative Agent. If, for any reason,
such rate is not available, then "Federal Funds Rate" shall mean a daily rate
which is determined, in the opinion of the Administrative Agent, to be the rate
at which federal funds are being offered for sale in the national federal funds
market at 9:00 a.m. (Charlotte time). Rates for weekends or holidays shall be
the same as the rate for the most immediate preceding Business Day.
"Fee Letter" means the separate fee letter agreement executed by the
Borrower and First Union on the Closing Date.
"First Union" means First Union National Bank, a national banking
association, and its successors.
5
<PAGE>
"Fiscal Quarter" means, with respect to the Borrower and its Subsidiaries,
any three-month period ending on the last day of March, June, September or
December.
"Fiscal Year" means the fiscal year of the Borrower and its Subsidiaries
ending on December 31.
"GAAP" means generally accepted accounting principles, as recognized by the
American Institute of Certified Public Accountants and the Financial Accounting
Standards Board, consistently applied and maintained on a consistent basis for
the Borrower and its Subsidiaries throughout the period indicated and, subject
to Section 14.9, consistent with the prior financial practice of the Borrower
and its Subsidiaries.
"Governmental Approvals" means all authorizations, consents, approvals,
licenses and exemptions of, registrations and filings with, and reports to, all
Governmental Authorities.
"Governmental Authority" means any nation, province, state or political
subdivision thereof, and any government or any Person exercising executive,
legislative, regulatory or administrative functions of or pertaining to
government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.
"Guaranty Obligation" means, with respect to any Person , without
duplication, any obligation, contingent or otherwise, of any such Person
pursuant to which such Person has directly or indirectly guaranteed any Debt or
other obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of any
such Person (a) to purchase or pay (or advance or supply funds for the purchase
or payment of) such Debt or other obligation (whether arising by virtue of
partnership arrangements, by agreement to keep well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
condition or otherwise) or (b) entered into for the purpose of assuring in any
other manner the obligee of such Debt or other obligation of the payment thereof
or to protect such obligee against loss in respect thereof (in whole or in
part); provided, that the term Guaranty Obligation shall not include
endorsements for collection or deposit in the ordinary course of business.
"Hazardous Materials" means any substances or materials (a) which are or
become defined as hazardous wastes, hazardous substances, pollutants,
contaminants, chemical substances or mixtures or toxic substances under any
Environmental Law, (b) which are toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic or otherwise harmful to human
health or the environment and are or become regulated by any Governmental
Authority, (c) the presence of which require investigation or remediation under
any Environmental Law or common law, (d) the discharge or emission or release of
which requires a permit or license under any Environmental Law or other
Governmental Approval, (e) which are deemed to constitute a nuisance, a trespass
or pose a health or safety hazard to persons or neighboring properties, (f)
which are materials consisting of underground or aboveground storage tanks,
whether empty, filled or partially filled with any substance, or (g) which
contain, without limitation, asbestos, polychlorinated biphenyls, urea
formaldehyde foam insulation, petroleum hydrocarbons, petroleum derived
substances or waste, crude oil, nuclear fuel, natural gas or synthetic gas.
6
<PAGE>
"Hedging Agreement" means any agreement with respect to an interest rate
swap, collar, cap, floor or a forward rate agreement or other agreement
regarding the hedging of interest rate risk exposure executed in connection with
hedging the interest rate exposure of the Borrower under this Agreement, and any
confirming letter executed pursuant to such hedging agreement, all as amended,
restated or otherwise modified.
"Interest Expense" means, without duplication, with respect to any Person
for any period, the aggregate amount of interest, whether expensed or
capitalized, paid, accrued or scheduled to be paid during such period in respect
of the Debt of such Person including (a) the interest portion of any deferred
payment obligation, (b) the portion of any rental obligation in respect of
Capital Leases allocable to interest expenses and (c) any non-cash interest
payments or accruals of such Person, all determined in accordance with GAAP.
Interest Expense shall be adjusted in a manner reasonably satisfactory to the
Administrative Agent to include on a pro forma basis as of the first day of any
calculation period any Interest Expense on Debt attributable to any acquisition
consummated during such period and exclude on a pro forma basis as of the first
day of any calculation period any Interest Expense on Debt attributable to any
Subsidiary or assets sold during such period (to the extent any such Debt is
discharged in connection with any such sale).
"Interest Period" shall have the meaning assigned thereto in Section
5.1(b).
"Issuing Lender" means First Union, in its capacity as issuer of any Letter
of Credit, or any successor thereto.
"Kinder Morgan Energy" means Kinder Morgan Energy Partners, L.P., a
Delaware limited partnership.
"Kinder Morgan G.P." means Kinder Morgan G.P., Inc., a Delaware
corporation.
"KMEP Cash Flow" means (without duplication), for any period, the sum of
(a) OLP "A" EBITDA for such period, (b) the EBITDA of OLP "B" for such period,
(c) the EBITDA of OLP "C" for such period, (d) cash distributions actually
received by Kinder Morgan Energy from OLP "D" for such period in respect of its
Capital Stock (but not in excess of an amount equal to the EBITDA of SFPP for
the same period less the sum for such period of (i) all scheduled payments of
principal in respect of Debt of SFPP not refinanced, including the principal
component of any such payments in respect of Capital Leases, (ii) Interest
Expense of SFPP, and (iii) without duplication the amount of all Maintenance
Capital Expenditures), (e) the EBITDA of any other Wholly-Owned Restricted
Subsidiary, and (f) cash distributions actually received by Kinder Morgan Energy
from any other Restricted Subsidiary (other than a Wholly-Owned Restricted
Subsidiary); provided, that, if during any period Kinder Morgan Energy acquires
any Person or all or substantially all of the assets of any Person, the EBITDA
attributable to such assets or an amount equal to the percentage of ownership of
Kinder Morgan Energy in such Person times the EBITDA of such Person, for such
period determined on a pro forma basis (which determination, in each case, may
take into account adjustments for cost savings and shall be subject to approval
of the Required Lenders, not to be unreasonably withheld) may be included as
KMEP Cash Flow for such period, if on the date of such acquisition no Debt
(other than Debt otherwise permitted under any credit facility restricting the
Debt incurred or
7
<PAGE>
maintained by Kinder Morgan Energy) is incurred by reason of and giving effect
to such acquisition and such Person or the entity acquiring such assets, as the
case may be, is a Restricted Subsidiary.
"KMEP Operating Subsidiaries" means OLP "A", OLP "B", OLP "C", OLP "D", and
any other operating partnerships (or partnerships created or acquired to own
interests in operating partnerships), hereafter established or acquired by
Kinder Morgan Energy.
"KMI Cash Flow" means (without duplication), with respect to the Borrower
and its Consolidated Subsidiaries for any period, EBITDA for such period, plus
all cash distributions received by the Borrower and its Consolidated
Subsidiaries for such period in excess of Net Income.
"KMI Dividend" means dividends to the shareholders of the Borrower in an
amount not to exceed Seventy-Five Million Dollars ($75,000,000) a portion of
which shall be paid on the Closing Date and portion of which shall be paid
during 1998.
"L/C Commitment" means One Million Dollars ($1,000,000).
"L/C Facility" means the letter of credit facility established pursuant to
Article III hereof.
"L/C Obligations" means at any time, an amount equal to the sum of (a) the
aggregate undrawn and unexpired amount of the then outstanding Letters of Credit
and (b) the aggregate amount of drawings under Letters of Credit which have not
then been reimbursed pursuant to Section 3.5.
"L/C Participants" means the collective reference to all the Lenders other
than the Issuing Lender.
"Lender" means each Person executing this Agreement as a Lender set forth
on the signature pages hereto and each Person that hereafter becomes a party to
this Agreement as a Lender pursuant to Section 14.10.
"Lending Office" means, with respect to any Lender, the office of such
Lender maintaining such Lender's Extensions of Credit.
"Letters of Credit" shall have the meaning assigned thereto in Section
3.1(a).
"Leverage Ratio" means, as of any date of determination, the ratio
determined in accordance with Section 10.1 as of the Fiscal Quarter ending on or
most recently prior to such date of determination.
"LIBOR" means the rate for deposits in Dollars for a period equal to the
Interest Period selected which appears on the Telerate Page 3750 at
approximately 11:00 a.m. London time, two (2) Business Days prior to the
commencement of the applicable Interest Period. If, for any reason, such rate is
not available, then "LIBOR" shall mean the rate per annum at which, as
determined by the Administrative Agent, Dollars in the amount of $5,000,000 are
being offered to leading banks at
8
<PAGE>
approximately 11:00 a.m. London time, two (2) Business Days prior to the
commencement of the applicable Interest Period for settlement in immediately
available funds by leading banks in the London interbank market for a period
equal to the Interest Period selected.
"LIBOR Rate" means a rate per annum (rounded upwards, if necessary, to the
next higher 1/100th of 1%) determined by the Administrative Agent pursuant to
the following formula:
LIBOR Rate = LIBOR
------------------------------
1.00-Eurodollar Reserve Percentage
"LIBOR Rate Loan" means any Loan bearing interest at a rate based upon the
LIBOR Rate as provided in Section 5.1(a).
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purposes of this Agreement, a Person shall be deemed to own subject to a
Lien any asset which it has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, Capital Lease or other
title retention agreement relating to such asset.
"Loan" means any Revolving Credit Loan or any Term Loan made to the
Borrower pursuant to Articles II and IV, and all such Loans collectively as the
context requires.
"Loan Documents" means, collectively, this Agreement, the Notes, the
Applications, any Hedging Agreement executed by any Lender, the Custodian and
Negative Pledge Agreement, the Security Agreement and each other document,
instrument and agreement executed and delivered by the Borrower, its
Subsidiaries or their counsel in connection with this Agreement or otherwise
referred to herein or contemplated hereby, all as may be amended, restated or
otherwise modified.
"LP Units" means the limited partner units of Kinder Morgan Energy.
"Maintenance Capital Expenditures" means cash Capital Expenditures made to
maintain the throughput, deliverable capacity, terminaling capacity, or
fractionation capacity (assuming normal operating conditions, including
down-time and maintenance) of the assets of Kinder Morgan Energy and its
Restricted Subsidiaries, taken as a whole, and shall, therefore, not include
cash capital expenditures made in respect of capital additions and improvements.
Where cash capital expenditures are made in part to effectuate the capacity
maintenance level referred to in the immediately preceding sentence and in part
for other purposes, the good faith allocation thereof by Kinder Morgan G.P.
between the part used to maintain such capacity level and the part used for
other purposes shall be conclusive.
"Material Adverse Effect" means, with respect to the Borrower or any of its
Subsidiaries, a material adverse effect on the properties, business, operations
or condition (financial or otherwise) of any such Persons taken as a whole or
the ability of any such Person to perform its obligations under any Loan
Document or Material Contract, in each case to which it is a party.
9
<PAGE>
"Material Contract" means (a) any contract or other agreement, written or
oral, of the Borrower or any of its Consolidated Subsidiaries involving monetary
liability of or to any such Person in an amount in excess of $300,000 per annum
or (b) any other contract or agreement, written or oral, of the Borrower or any
of its Consolidated Subsidiaries the failure to comply with which could
reasonably be expected to have a Material Adverse Effect.
"Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate is making, or
is accruing an obligation to make, contributions within the preceding six years.
"Net Cash Proceeds" means, as applicable, (a) with respect to any sale or
other disposition of assets, the gross cash proceeds received by the Borrower or
any of its Consolidated Subsidiaries from such sale less the sum of (i) all
income taxes and other taxes assessed by a Governmental Authority as a result of
such sale and any other reasonable fees and expenses incurred in connection
therewith and (ii) the principal amount of, premium, if any, and interest on any
Debt secured by a Lien on the asset (or a portion thereof) sold, which Debt is
required to be repaid in connection with such sale, (b) with respect to any
offering of Capital Stock or other equity securities or issuance of Debt, the
gross cash proceeds received by the Borrower or any of its Consolidated
Subsidiaries therefrom less all legal, underwriting and other reasonable fees
and expenses incurred in connection therewith and (c) with respect to any
payment under an insurance policy or in connection with a condemnation
proceeding, the amount of cash proceeds received by the Borrower or its
Consolidated Subsidiaries from an insurance company or Governmental Authority
net of all reasonable expenses of collection less the amount of such proceeds
which the Borrower or its Consolidated Subsidiaries has or will, in a reasonably
prompt manner, apply to the repair or replacement of the assets affected by such
loss or proceeding .
"Net Income" means for any Person for any period, the net income or (net
loss) of such Person for such period (taken as a cumulative whole), as
determined in accordance with GAAP, provided that there shall be excluded,
without duplication, from such net income (to the extent otherwise included
therein):
(a) net extraordinary gains and losses (other than, in the case of
losses, losses resulting from charges against net income to establish or
increase reserves for potential environmental liabilities and reserves for
exposure of such Person under rate cases);
(b) net gains or losses in respect of dispositions of assets other
than in the ordinary course of business;
(c) any gains or losses attributable to write-ups or write-downs of
assets; and
(d) proceeds of any key man insurance, or any insurance on property,
plant or equipment.
"Notes" means the Revolving Credit Notes, the Term Notes, or any
combination thereof, made by the Borrower payable to the order of each of the
Lenders, any amendments and
10
<PAGE>
modifications thereto, any substitutes therefor, and any replacements,
restatements, renewals or extensions thereof, in whole or in part; "Note" means
any of such Notes.
"Notice of Account Designation" means a notice given by the Borrower to the
Administrative Agent with respect to the distribution of Loan proceeds,
substantially in the form of Exhibit E.
"Notice of Conversion/Continuation" means a notice given by the Borrower to
the Administrative Agent substantially in the form of Exhibit C-3.
"Notice of Payment" means a Notice given by the Borrower to the
Administrative Agent with respect to any optional repayment of Loans,
substantially in the form of Exhibit D.
"Notice of Revolving Credit Borrowing" means the notice given by the
Borrower to the Administrative Agent substantially in the form of Exhibit C-1.
"Notice of Term Loan Borrowing" means the notice given by the Borrower to
the Administrative Agent substantially in the form of Exhibit C-2.
"Obligations" means, in each case, whether now in existence or hereafter
arising: (a) the principal of and interest on (including interest accruing after
the filing of any bankruptcy or similar petition) the Loans, (b) the L/C
Obligations, (c) all payment and other obligations owing by the Borrower to any
Lender or the Administrative Agent under any Hedging Agreement with any Lender
(which such Hedging Agreement is permitted or required hereunder) and (d) all
other fees and commissions (including attorney's fees), charges, indebtedness,
loans, liabilities, financial accommodations, obligations, covenants and duties
owing by the Borrower to the Lenders or the Administrative Agent, under or in
respect of this Agreement, any Note, any Letter of Credit or any of the other
Loan Documents.
"Officer's Compliance Certificate" means the certificate appropriately
completed and substantially in the form of Exhibit F.
"OLP "A"" means Kinder Morgan Operating L.P. "A", a Delaware limited
partnership.
"OLP "B"" means Kinder Morgan Operating L.P. "B", a Delaware limited
partnership.
"OLP "C"" means Kinder Morgan Operating L.P. "C", a Delaware limited
partnership.
"OLP "D"" means Kinder Morgan Operating L.P. "D", a Delaware limited
partnership.
"OLP "A" EBITDA" " means (without duplication), for any period, the sum of
(a) the EBITDA of OLP "A" for such period (not including, however, the EBITDA of
any Person in which OLP "A" owned Capital Stock at any time during such period),
plus (b) the aggregate of all distributions actually received by OLP "A" in
respect of such period from any Person in which OLP "A" owned Capital Stock
during all or any portion of such period.
11
<PAGE>
"Other Taxes" shall have the meaning assigned thereto in Section 5.12(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
agency.
"Pension Plan" means any Employee Benefit Plan, other than a Multiemployer
Plan, which is subject to the provisions of Title IV of ERISA or Section 412 of
the Code and which (a) is maintained for employees of the Borrower or any ERISA
Affiliates or (b) has at any time within the preceding six years been maintained
for the employees of the Borrower or any of their current or former ERISA
Affiliates.
"Person" means an individual, corporation, limited liability company,
partnership, association, trust, business trust, joint venture, joint stock
company, pool, syndicate, sole proprietorship, unincorporated organization,
Governmental Authority or any other form of entity or group thereof.
"Prime Rate" means, at any time, the rate of interest per annum publicly
announced from time to time by First Union as its prime rate. Each change in the
Prime Rate shall be effective as of the opening of business on the day such
change in the Prime Rate occurs. The parties hereto acknowledge that the rate
announced publicly by First Union as its Prime Rate is an index or base rate and
shall not necessarily be its lowest or best rate charged to its customers or
other banks.
"Register" shall have the meaning assigned thereto in Section 14.10(d).
"Reimbursement Obligation" means the obligation of the Borrower to
reimburse the Issuing Lender pursuant to Section 3.5 for amounts drawn under
Letters of Credit.
"Required Lenders" means any combination of Lenders holding at least
seventy-five percent (75%) of the Extensions of Credit.
"Restricted Subsidiary" means any Subsidiary of Kinder Morgan Energy other
than an Unrestricted Subsidiary. The Board of Directors of the Borrower, by a
board resolution, may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided, that (a) before and after giving effect thereto no Default
or Event of Default shall have occurred and be continuing, (b) the Borrower
shall be in compliance, on a pro forma basis, after giving effect to such
designation, with the covenants contained in Article X, recomputed as at the
last day of the most recently ended Fiscal Quarter of the Borrower as if such
designation had occurred on the first day of each relevant period for testing
such compliance and (c) the Borrower shall have delivered to the Administrative
Agent and the Lenders a certificate of the chief financial officer to such
effect, together with all relevant financial information and calculations
demonstrating such compliance. For such purposes of this definition and of
Article X, a newly designated or acquired Restricted Subsidiary shall be deemed
to have incurred or made on the date of its designation or acquisition, as the
case may be, all such Debt, Liens and investments then outstanding as would be
reflected on its balance sheet, prepared in accordance with GAAP, as at such
date. A true and correct list of the Restricted Subsidiaries of Kinder Morgan
Energy as of the Closing Date is set forth on Schedule 7.1(a).
12
<PAGE>
"Revolving Credit Commitment" means (a) as to any Lender, the obligation of
such Lender to make Revolving Credit Loans to and issue or participate in
Letters of Credit issued for the account of the Borrower hereunder in an
aggregate principal amount at any time outstanding not to exceed the amount set
forth opposite such Lender's name on Schedule 1, as such amount may be reduced
or modified at any time or from time to time pursuant to Sections 2.5 and 14.10
and (b) as to all Lenders, the aggregate commitment of all Lenders to make
Revolving Credit Loans and issue or participate in Letters of Credit, as such
amount may be reduced or modified at any time or from time to time pursuant to
such Sections. The Revolving Credit Commitment of all Lenders on the Closing
Date shall be Fifteen Million Dollars ($15,000,000).
"Revolving Credit Commitment Percentage" means, as to the respective
Revolving Credit Commitment of any Lender at any time, the ratio of (a) the
amount of the Revolving Credit Commitment of such Lender to (b) all of the
Revolving Credit Commitments of all Lenders.
"Revolving Credit Facility" means the revolving credit facility established
pursuant to Article II hereof.
"Revolving Credit Loans" means the revolving credit loans to be made to the
Borrower pursuant to Section 2.1.
"Revolving Credit Notes" means the separate Amended and Restated Revolving
Credit Notes made by the Borrower payable to the order of each Lender,
substantially in the form of Exhibit A hereto, evidencing the Revolving Credit
Facility, and any amendments and modifications thereto, any substitutes
therefor, and any replacements, restatements, renewals or extension thereof, in
whole or in part.
"Revolving Credit Termination Date" means the earliest of the dates
referred to in Section 2.6.
"SEC" means the Securities and Exchange Commission or any successor
Governmental Authority.
"Security Agreement" means the Amended and Restated Security Agreement of
even date executed by the Borrower in favor of the Administrative Agent for the
ratable benefit of itself and the Lenders, substantially in the form of Exhibit
H, as amended, restated or otherwise modified and each other agreement or
writing pursuant to which the Borrower or any Subsidiary thereof pledges or
grants a security interest in any property or assets securing the Obligations.
"SFPP" means SFPP, L.P., a Delaware limited partnership.
"Solvent" means, as to the Borrower and its Consolidated Subsidiaries on a
particular date, that any such Person (a) has capital sufficient to carry on its
business and transactions and all business and transactions in which it is about
to engage and is able to pay its debts as they mature, (b) owns property having
a value, both at fair valuation and at present fair saleable value, greater than
the amount required to pay its probable liabilities (including contingencies),
and (c) does not
13
<PAGE>
believe that it will incur debts or liabilities beyond its ability to pay such
debts or liabilities as they mature.
"Subsidiary" means as to any Person, any corporation, partnership or other
entity of which more than fifty percent (50%) of the outstanding Capital Stock
or other ownership interests having ordinary voting power to elect a majority of
the board of directors or other managers of such corporation, partnership or
other entity is at the time, directly or indirectly, owned by or the management
is otherwise controlled by such Person (irrespective of whether, at the time,
Capital Stock of any other class or classes of such corporation shall have or
might have voting power by reason of the happening of any contingency). Unless
otherwise qualified references to "Subsidiary" or "Subsidiaries" herein shall
refer to those of the Borrower. For purposes of this Agreement, Kinder Morgan
Energy, the KMEP Operating Subsidiaries and their respective Subsidiaries shall
be deemed to be Subsidiaries of the Borrower commencing on the Closing Date.
"Taxes" shall have the meaning assigned thereto in Section 5.12(a).
"Term Loans" means the term loans made to the Borrower pursuant to Section
4.1.
"Term Loan Commitment" means (a) as to any Lender, the obligation of such
Lender to make a Term Loan for the account of the Borrower hereunder in an
aggregate principal amount not to exceed the amount set forth opposite such
Lender's name on Schedule 1 and (b) as to all Lenders, the aggregate commitment
of all Lenders to make Term Loans. The Term Loan Commitment of all Lenders as of
the Closing Date shall be Eighty-Five Million Dollars ($85,000,000).
"Term Loan Percentage" means, as to any Lender, (a) prior to making the
Term Loans, the ratio of (i) the Term Loan Commitment of such Lender to (ii) the
Term Loan Commitments of all Lenders and (b) after the Term Loans are made, the
ratio of (i) the outstanding principal balance of the Term Loan of such Lender
to (ii) the aggregate outstanding principal balance of the Term Loans of all
Lenders.
"Term Loan Facility" means the term loan facility established pursuant to
Article IV hereof under which the Lenders make Term Loans to the Borrower.
"Term Loan Maturity Date" means May 31, 2000.
"Term Notes" means the Term Notes made by the Borrower payable to the order
of each of the Lenders, substantially in the form of Exhibit B hereto,
evidencing the Term Loan Facility, and any amendments, modifications and
supplements thereto, any substitutes therefor, and any replacements,
restatements, renewals or extensions thereof, in whole or in part.
"Termination Event" means: (a) a "Reportable Event" described in Section
4043 of ERISA, (b) the withdrawal of the Borrower or any ERISA Affiliate from a
Pension Plan during a plan year in which it was a "substantial employer" as
defined in Section 4001(a)(2) of ERISA, (c) the termination of a Pension Plan,
the filing of a notice of intent to terminate a Pension Plan or the treatment of
a Pension Plan amendment as a termination under Section 4041 of ERISA, (d) the
institution of proceedings to terminate, or the appointment of a trustee with
respect to, any Pension
14
<PAGE>
Plan by the PBGC, (e) any other event or condition which would constitute
grounds under Section 4042(a) of ERISA for the termination of, or the
appointment of a trustee to administer, any Pension Plan, (f) the partial or
complete withdrawal of the Borrower or any ERISA Affiliate from a Multiemployer
Plan, (g) the imposition of a Lien pursuant to Section 412 of the Code or
Section 302 of ERISA, (h) any event or condition which results in the
reorganization or insolvency of a Multiemployer Plan under Sections 4241 or 4245
of ERISA, or (i) any event or condition which results in the termination of a
Multiemployer Plan under Section 4041A of ERISA or the institution by PBGC of
proceedings to terminate a Multiemployer Plan under Section 4042 of ERISA.
"Uniform Customs" the Uniform Customs and Practice for Documentary Credits
(1994 Revision), International Chamber of Commerce Publication No. 500.
"UCC" means the Uniform Commercial Code as in effect in the State of North
Carolina.
"United States" means the United States of America.
"Unrestricted Subsidiary" means (a) any Subsidiary of an Unrestricted
Subsidiary or (b) any Subsidiary of Kinder Morgan Energy or of a Restricted
Subsidiary that is designated as an Unrestricted Subsidiary by a board
resolution of the Borrower in accordance with the requirements of the following
sentence with the consent of the Required Lenders (which consent shall not be
unreasonably withheld). The Borrower may hereafter designate any Subsidiary of
Kinder Morgan Energy or of a Restricted Subsidiary (other than OLP "A", OLP "B",
OLP "C", OLP "D" and SFPP) to be an Unrestricted Subsidiary by a board
resolution of the Borrower, as evidenced by written notice thereof delivered to
the Administrative Agent, if at the time of and after giving effect to such
designation, (i) no Default or Event of Default shall have occurred and be
continuing, (ii) such Subsidiary does not own or hold any Capital Sock of, or
any Lien on any property of, Kinder Morgan Energy or any Restricted Subsidiary
and (iii) such Subsidiary does not own or hold any Debt of Kinder Morgan Energy
or any Restricted Subsidiary that would not be permitted pursuant to any credit
facility governing the Debt of Kinder Morgan Energy or any of its Restricted
Subsidiaries as if incurred on the date of such designation. As of the date
hereof, Kinder Morgan Energy has no Unrestricted Subsidiaries.
"Wholly-Owned Restricted Subsidiary" means a Restricted Subsidiary of which
all issued and outstanding Capital Stock (excluding (a) in the case of a
corporation, directors' qualifying shares, (b) in the case of a limited
partnership, a 1.5% general partner interest and (c) in the case of a limited
liability company, a 1.5% member interest) is directly or indirectly owned by
Kinder Morgan Energy or any of its Restricted Subsidiaries.
SECTION 1.2. General. Unless otherwise specified, a reference in this
Agreement to a particular section, subsection, Schedule or Exhibit is a
reference to that section, subsection, Schedule or Exhibit of this Agreement.
Wherever from the context it appears appropriate, each term stated in either the
singular or plural shall include the singular and plural, and pronouns stated in
the masculine, feminine or neuter gender shall include the masculine, the
feminine and the neuter. Any reference herein to "Charlotte time" shall refer to
the applicable time of day in Charlotte, North Carolina.
15
<PAGE>
SECTION 1.3. Other Definitions and Provisions.
(a) Use of Capitalized Terms. Unless otherwise defined therein, all
capitalized terms defined in this Agreement shall have the defined meanings when
used in this Agreement, the Notes and the other Loan Documents or any
certificate, report or other document made or delivered pursuant to this
Agreement.
(b) Miscellaneous. The words "hereof", "herein" and "hereunder" and words
of similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement.
ARTICLE II
----------
REVOLVING CREDIT FACILITY
-------------------------
SECTION 2.1. Revolving Credit Loans. Subject to the terms and conditions of
this Agreement, each Lender severally agrees to make Revolving Credit Loans to
the Borrower from time to time from the Closing Date through the Revolving
Credit Termination Date as requested by the Borrower in accordance with the
terms of Section 2.2; provided, that (a) the aggregate principal amount of all
outstanding Revolving Credit Loans (after giving effect to any amount requested)
shall not exceed the Revolving Credit Commitment of all the Lenders less the L/C
Obligations and (b) each Lender's Revolving Credit Commitment Percentage of the
sum of the aggregate principal amount of all outstanding Revolving Credit Loans
and L/C Obligations shall not at any time exceed such Lender's Revolving Credit
Commitment. Each Revolving Credit Loan by a Lender shall be in a principal
amount equal to such Lender's Revolving Credit Commitment Percentage of the
aggregate principal amount of Revolving Credit Loans requested on such occasion.
Subject to the terms and conditions hereof, the Borrower may borrow, repay and
reborrow Revolving Credit Loans hereunder until the Revolving Credit Termination
Date.
SECTION 2.2. Procedure for Advances of Revolving Credit Loans.
(a) Requests for Borrowing. The Borrower shall give the Administrative
Agent a Notice of Revolving Credit Borrowing not later than 11:00 a.m.
(Charlotte time) (i) at least one (1) Business Day before each Base Rate Loan
and (ii) at least three (3) Business Days before each LIBOR Rate Loan, of its
intention to borrow, specifying (A) the date of such borrowing, which shall be a
Business Day, (B) the amount of such borrowing, which shall be (x) with respect
to Base Rate Loans in an aggregate principal amount of $500,000 or a whole
multiple of $100,000 in excess thereof and (y) with respect to LIBOR Rate Loans
in an aggregate principal amount of $500,000 or a whole multiple of $100,000 in
excess thereof, (C) whether the Revolving Credit Loans are to be LIBOR Rate
Loans or Base Rate Loans, and (D) in the case of a LIBOR Rate Loan, the duration
of the Interest Period applicable thereto. Notices received after 11:00 a.m.
(Charlotte time) shall be deemed received on the next Business Day. The
Administrative Agent shall promptly notify the Lenders of each Notice of
Revolving Credit Borrowing.
(b) Disbursement of Revolving Credit Loans. Not later than 2:00 p.m.
(Charlotte time) on the proposed borrowing date, each Lender will make available
to the Administrative Agent, for
16
<PAGE>
the account of the Borrower, at the office of the Administrative Agent in funds
immediately available to the Administrative Agent, such Lender's Revolving
Credit Commitment Percentage of the Revolving Credit Loans to be made on such
borrowing date. The Borrower hereby irrevocably authorizes the Administrative
Agent to disburse the proceeds of each borrowing requested pursuant to this
Section 2.2 in immediately available funds by transferring such proceeds to the
deposit account designated by the Borrower in the Notice of Account Designation
delivered on the Closing Date or any date thereafter (any such subsequent notice
to supersede any prior notice). Subject to Section 5.8 hereof, to the extent
that any Lender has not made available to the Administrative Agent its Revolving
Credit Commitment Percentage of any Revolving Credit Loan requested pursuant to
this Section 2.2, the Administrative Agent shall not be obligated to disburse
such portion of the proceeds of such Revolving Credit Loan.
SECTION 2.3. Repayment of Revolving Credit Loans.
(a) Repayment on Revolving Credit Termination Date. The Borrower shall
repay the outstanding principal amount of all Revolving Credit Loans in full,
together with all accrued but unpaid interest thereon, on the Revolving Credit
Termination Date.
(b) Mandatory Repayments. If at any time the outstanding principal amount
of all Revolving Credit Loans exceeds the Revolving Credit Commitment of all the
Lenders less the L/C Obligations, the Borrower shall repay immediately upon
notice from the Administrative Agent, by payment to the Administrative Agent for
the account of the Lenders, the Revolving Credit Loans in an amount equal to
such excess. Each such repayment shall be accompanied by any amount required to
be paid pursuant to Section 5.10 hereof.
(c) Optional Repayments. The Borrower may at any time and from time to
time repay the Revolving Credit Loans, in whole or in part, upon at least three
(3) Business Days irrevocable notice to the Administrative Agent with respect to
LIBOR Rate Loans and one (1) Business Day irrevocable notice with respect to
Base Rate Loans, in the form of Notice of Payment attached hereto as Exhibit D,
specifying the date and amount of repayment and whether the repayment is of
LIBOR Rate Loans, Base Rate Loans, or a combination thereof, and, if a
combination thereof, the amount allocable to each. Upon receipt of such notice,
the Administrative Agent shall promptly notify each Lender. If any such notice
is given, the amount specified in such notice shall be due and payable on the
date set forth in such notice. Partial repayments shall be in an aggregate
amount of $500,000 or a whole multiple of $100,000 in excess thereof with
respect to Base Rate Loans, and $500,000 or a whole multiple of $100,000 in
excess thereof with respect to LIBOR Rate Loans. Each such repayment shall be
accompanied by any amount required to be paid pursuant to Section 5.10 hereof.
SECTION 2.4. Revolving Credit Notes. Each Lender's Revolving Credit Loans
and the obligation of the Borrower to repay such Revolving Credit Loans shall be
evidenced by a Revolving Credit Note executed by the Borrower payable to the
order of such Lender representing the Borrower's obligation to pay such Lender's
Revolving Credit Commitment in accordance with the terms hereof. Each Revolving
Credit Note shall be dated the date hereof and shall bear interest on the unpaid
principal amount thereof at the applicable interest rate per annum specified in
Section 5.1.
17
<PAGE>
SECTION 2.5. Permanent Reduction of the Revolving Credit Commitment.
(a) The Borrower shall have the right at any time and from time to time,
upon at least five (5) Business Days prior written notice to the Administrative
Agent, to permanently reduce, in whole at any time or in part from time to time,
without premium or penalty, the Revolving Credit Commitment in an aggregate
principal amount not less than $5,000,000 or any whole multiple of $1,000,000 in
excess thereof.
(b) Each permanent reduction permitted pursuant to this Section 2.5 shall
be accompanied by a payment of principal sufficient to reduce the aggregate
principal amount of Revolving Credit Loans and L/C Obligations after such
reduction to the Revolving Credit Commitment as so reduced. Any reduction of the
Revolving Credit Commitment to zero shall be accompanied by payment of all
outstanding Obligations with respect to the Revolving Credit Facility (and
furnishing of cash collateral satisfactory to the Administrative Agent for all
L/C Obligations) and termination of the Revolving Credit Commitment and the
Revolving Credit Facility. Such cash collateral shall be applied in accordance
with Section 12.2(b). If the reduction of the Revolving Credit Commitment
requires the repayment of any LIBOR Rate Loan, such reduction may be made only
on the last day of the then current Interest Period applicable thereto unless
such repayment is accompanied by any amount required to be paid pursuant to
Section 5.10 hereof.
SECTION 2.6. Termination of the Revolving Credit Facility. The Revolving
Credit Facility shall terminate on the earliest of (a) May 31, 2000, (b) the
date of termination by the Borrower pursuant to Section 2.5, and (c) the date of
termination by the Administrative Agent on behalf of the Lenders pursuant to
Section 12.2(a) (the "Revolving Credit Termination Date").
SECTION 2.7. Use of Proceeds. The Borrower shall use the proceeds of the
Revolving Credit Loans solely (a) prior to August 15, 1998, for general
corporate purposes in an amount not greater than $5,600,000 and (b) to finance
investments permitted by Section 11.3(d).
SECTION 2.8. Security. The Obligations of the Borrower under the Revolving
Credit Facility shall be secured as provided in the Security Agreement.
ARTICLE III
-----------
LETTER OF CREDIT FACILITY
-------------------------
SECTION 3.1. L/C Commitment.
(a) Subject to the terms and conditions hereof, the Issuing Lender, in
reliance on the agreements of the other Lenders set forth in Section 3.4(a),
agrees to issue standby letters of credit ("Letters of Credit") for the account
of the Borrower on any Business Day from the Closing Date through but not
including the Revolving Credit Termination Date in such form as may be approved
from time to time by the Issuing Lender; provided, that the Issuing Lender shall
have no obligation to issue any Letter of Credit if, after giving effect to such
issuance, (a) the L/C Obligations would exceed the L/C Commitment or (b) the
aggregate principal amount of the Revolving Credit Loans
18
<PAGE>
and L/C Obligations then outstanding would exceed the Revolving Credit
Commitment of all Lenders.
(b) Each Letter of Credit shall (i) be denominated in Dollars in a minimum
amount of $50,000, (ii) be a standby letter of credit issued to support
obligations of the Borrower or any of its Subsidiaries incurred in the ordinary
course of business, (iii) expire on a date satisfactory to the Issuing Lender,
which date shall be no later than the Revolving Credit Termination Date and (iv)
be subject to the Uniform Customs and, to the extent not inconsistent therewith,
the laws of the State of North Carolina. The Issuing Lender shall not at any
time be obligated to issue any Letter of Credit hereunder if such issuance would
conflict with, or cause the Issuing Lender or any L/C Participant to exceed any
limits imposed by, any Applicable Law. References herein to "issue" and
derivations thereof with respect to Letters of Credit shall also include
extensions or modifications of any existing Letters of Credit, unless the
context otherwise requires.
SECTION 3.2. Procedure for Issuance of Letters of Credit. The Borrower may
from time to time request that the Issuing Lender issue a Letter of Credit by
delivering to the Issuing Lender at the Administrative Agent's Office an
Application therefor, completed to the satisfaction of the Issuing Lender, and
such other certificates, documents and other papers and information as the
Issuing Lender may request. Upon receipt of any Application, the Issuing Lender
shall process such Application and the certificates, documents and other papers
and information delivered to it in connection therewith in accordance with its
customary procedures and shall, subject to Section 3.1 and Article VI hereof,
promptly issue the Letter of Credit requested thereby (but in no event shall the
Issuing Lender be required to issue any Letter of Credit earlier than three (3)
Business Days after its receipt of the Application therefor and all such other
certificates, documents and other papers and information relating thereto) by
issuing the original of such Letter of Credit to the beneficiary thereof or as
otherwise may be agreed by the Issuing Lender and the Borrower. The Issuing
Lender shall furnish to the Borrower a copy of such Letter of Credit and furnish
to each Lender a copy of such Letter of Credit and the amount of each Lender's
L/C Participation therein, all promptly following the issuance of such Letter of
Credit.
SECTION 3.3. Letter of Credit Fees and Other Charges.
(a) The Borrower shall pay to the Administrative Agent, for the account of
the Issuing Lender and the L/C Participants, a letter of credit fee with respect
to each Letter of Credit in an amount equal to the product of (i) the daily
average amount available to be drawn under such Letter of Credit for the
applicable Fiscal Quarter times (ii) 2.25% per annum; provided, that each Letter
of Credit shall bear a minimum letter of credit fee of $500. The Borrower shall
pay such letter of credit fee quarterly in arrears on the last Business Day of
each Fiscal Quarter and on the Revolving Credit Termination Date. The
Administrative Agent shall, promptly following its receipt thereof, distribute
such fee to the Lenders pro rata in accordance with their respective Revolving
Commitment Percentages.
(b) In addition to the foregoing letter of credit fee, the Borrower shall
pay to the Administrative Agent, for the account of the Issuing Lender, a facing
fee of one-eighth of one percent (1/8%) per annum on the face amount of each
Letter of Credit, payable quarterly in arrears on the last Business Day of each
Fiscal Quarter and on the Revolving Credit Termination Date. The
19
<PAGE>
Administrative Agent shall, promptly following its receipt thereof, distribute
such fee to the Issuing Lender.
(c) The Borrower shall pay or reimburse the Issuing Lender for such normal
and customary non-duplicative costs and expenses as are incurred or charged by
the Issuing Lender in issuing, effecting payment under, amending or otherwise
administering any Letter of Credit.
SECTION 3.4. L/C Participations.
(a) The Issuing Lender irrevocably agrees to grant and hereby grants to
each L/C Participant, and, to induce the Issuing Lender to issue Letters of
Credit hereunder, each L/C Participant irrevocably agrees to accept and purchase
and hereby accepts and purchases from the Issuing Lender, on the terms and
conditions hereinafter stated, for such L/C Participant's own account and risk
an undivided interest equal to such L/C Participant's Revolving Credit
Commitment Percentage in the Issuing Lender's obligations and rights under each
Letter of Credit issued hereunder and the amount of each draft paid by the
Issuing Lender thereunder. Each L/C Participant unconditionally and irrevocably
agrees with the Issuing Lender that, if a draft is paid under any Letter of
Credit for which the Issuing Lender is not reimbursed in full by the Borrower in
accordance with the terms of this Agreement, such L/C Participant shall pay to
the Issuing Lender upon demand at the Issuing Lender's address for notices
specified herein an amount equal to such L/C Participant's Revolving Credit
Commitment Percentage of the amount of such draft, or any part thereof, which is
not so reimbursed.
(b) Upon becoming aware of any amount required to be paid by any L/C
Participant to the Issuing Lender pursuant to Section 3.4(a) in respect of any
unreimbursed portion of any payment made by the Issuing Lender under any Letter
of Credit, the Issuing Lender shall notify each L/C Participant of the amount
and due date of such required payment and such L/C Participant shall pay to the
Issuing Lender the amount specified on the applicable due date. If any such
amount is paid to the Issuing Lender after the date such payment is due, such
L/C Participant shall pay to the Issuing Lender on demand, in addition to such
amount, the product of (i) such amount, times (ii) the daily average Federal
Funds Rate as determined by the Administrative Agent during the period from and
including the date such payment is due to the date on which such payment is
immediately available to the Issuing Lender, times (iii) a fraction the
numerator of which is the number of days that elapse during such period and the
denominator of which is 360. A certificate of the Issuing Lender with respect to
any amounts owing under this Section shall be conclusive in the absence of
manifest error. With respect to payment to the Issuing Lender of the
unreimbursed amounts described in this Section 3.4(b), if the L/C Participants
receive notice that any such payment is due (A) prior to 1:00 p.m. (Charlotte
time) on any Business Day, such payment shall be due that Business Day, and (B)
after 1:00 p.m. (Charlotte time) on any Business Day, such payment shall be due
on the following Business Day.
(c) Whenever, at any time after the Issuing Lender has made payment under
any Letter of Credit and has received from any L/C Participant its Revolving
Credit Commitment Percentage of such payment in accordance with this Section
3.4, the Issuing Lender receives any payment related to such Letter of Credit
(whether directly from the Borrower or otherwise), or any payment of interest on
account thereof, the Issuing Lender will distribute to such L/C Participant its
pro rata
20
<PAGE>
share thereof; provided, that in the event that any such payment received by the
Issuing Lender shall be required to be returned by the Issuing Lender, such L/C
Participant shall return to the Issuing Lender the portion thereof previously
distributed by the Issuing Lender to it.
SECTION 3.5. Reimbursement Obligation of the Borrower. The Borrower agrees
to reimburse the Issuing Lender on each date on which the Issuing Lender
notifies the Borrower of the date and amount of a draft paid under any Letter of
Credit for the amount of (a) such draft so paid and (b) any taxes, fees, charges
or other costs or expenses incurred by the Issuing Lender in connection with
such payment. Each such payment shall be made to the Issuing Lender at its
address for notices specified herein in lawful money of the United States and in
immediately available funds. Interest shall be payable on any and all amounts
remaining unpaid by the Borrower under this Article III from the date such
amounts become payable (whether at stated maturity, by acceleration or
otherwise) until payment in full at the rate which would be payable on any
outstanding Base Rate Loans which were then overdue. If the Borrower fails to
timely reimburse the Issuing Lender on the date the Borrower receives the notice
referred to in this Section 3.5, the Borrower shall be deemed to have timely
given a Notice of Revolving Credit Borrowing to the Administrative Agent
pursuant to Section 2.2 requesting the Lenders to make a Revolving Credit Loan
on such date in an amount equal to the amount of such drawing and, subject to
the satisfaction or waiver of the conditions precedent specified in Article VI,
the Lenders shall make Revolving Credit Loans in such amount, the proceeds of
which shall be applied to reimburse the Issuing Lender for the amount of the
related drawing and costs and expenses.
SECTION 3.6. Obligations Absolute. The Borrower's obligations under this
Article III (including without limitation the Reimbursement Obligation) shall be
absolute and unconditional under any and all circumstances and irrespective of
any set-off, counterclaim or defense to payment which the Borrower may have or
have had against the Issuing Lender or any beneficiary of a Letter of Credit.
The Borrower also agrees with the Issuing Lender that the Issuing Lender shall
not be responsible for, and the Borrower's Reimbursement Obligation under
Section 3.5 shall not be affected by, among other things, the validity or
genuineness of documents or of any endorsements thereon, even though such
documents shall in fact prove to be invalid, fraudulent or forged, or any
dispute between or among the Borrower and any beneficiary of any Letter of
Credit or any other party to which such Letter of Credit may be transferred or
any claims whatsoever of a Borrower against any beneficiary of such Letter of
Credit or any such transferee. The Issuing Lender shall not be liable for any
error, omission, interruption or delay in transmission, dispatch or delivery of
any message or advice, however transmitted, in connection with any Letter of
Credit, except for errors or omissions caused by the Issuing Lender's gross
negligence or willful misconduct. The Borrower agrees that any action taken or
omitted by the Issuing Lender under or in connection with any Letter of Credit
or the related drafts or documents, if done in the absence of gross negligence
or willful misconduct and in accordance with the standards of care specified in
the Uniform Customs and, to the extent not inconsistent therewith, the UCC shall
be binding on the Borrower and shall not result in any liability of the Issuing
Lender to the Borrower. The responsibility of the Issuing Lender to the Borrower
in connection with any draft presented for payment under any Letter of Credit
shall, in addition to any payment obligation expressly provided for in such
Letter of Credit, be limited to determining that the documents (including each
draft) delivered under such Letter of Credit in connection with such presentment
are in conformity with such Letter of Credit.
21
<PAGE>
SECTION 3.7. Effect of Application. To the extent that any provision of any
Application related to any Letter of Credit is inconsistent with the provisions
of this Article III, the provisions of this Article III shall apply.
ARTICLE IV
----------
TERM LOAN FACILITY
------------------
SECTION 4.1. Term Loans. Subject to the terms and conditions of this
Agreement, each Lender severally agrees to make Term Loans to the Borrower on
the Closing Date in a principal amount equal to such Lender's Term Loan
Commitment.
SECTION 4.2. Procedure for Advance of Term Loans.
(a) The Borrower shall give the Administrative Agent a Notice of Term Loan
Borrowing prior to 11:00 a.m. (Charlotte time) on the Closing Date, requesting
that the Lenders make the Term Loans as a Base Rate Loan on such date in an
amount equal to the aggregate Term Loan Commitment.
(b) To the extent any conversion of the applicable interest rate is
effected pursuant to Section 5.3, each borrowing of a Base Rate Loan shall be in
an aggregate principal amount of at least $5,000,000 or any integral multiple of
$1,000,000 in excess thereof and each borrowing of a LIBOR Rate Loan shall be in
an aggregate principal amount of $5,000,000 or any integral multiple of
$1,000,000 in excess thereof.
(c) Not later than 1:00 p.m. (Charlotte time) on the Closing Date, each
Lender will make available to the Administrative Agent for the account of the
Borrower, at the office of the Administrative Agent in funds immediately
available to the Administrative Agent, the amount of such Lender's Term Loan.
The Borrower hereby irrevocably authorizes the Administrative Agent to disburse
the proceeds of the Term Loans in immediately available funds by wire transfer
in accordance with the Notice of Account Designation delivered pursuant to
Section 6.2(f).
SECTION 4.3. Repayment of Term Loans. The Borrower shall repay the
outstanding principal amount of the Term Loans in full, together with accrued
interest thereon, on the Term Loan Maturity Date.
SECTION 4.4. Optional Prepayments of Term Loans. The Borrower shall have
the right at any time and from time to time upon delivery to the Administrative
Agent of a Notice of Payment at least three (3) Business Days prior to the
repayment of any LIBOR Rate Loan and one (1) Business Day prior to the repayment
of any Base Rate Loan to repay the Term Loans in whole or in part without
premium or penalty; provided, that any voluntary prepayment of the Term Loans
prior to December 15, 1998 shall be accompanied by a prepayment fee equal to one
percent (1%) of the principal amount of such Term Loans to be prepaid. Upon
receipt of such Notice of Payment, the Administrative Agent shall promptly
notify each Lender. If any such Notice of
22
<PAGE>
Payment is given, the amount specified in such notice shall be due and payable
on the date set forth in such notice. Each optional prepayment of the Term Loans
hereunder shall be in an aggregate principal amount of at least $2,000,000 or
any whole multiple of $1,000,000 in excess thereof with respect to Base Rate
Loans and $2,000,000 or any whole multiple of $1,000,000 in excess thereof with
respect to LIBOR Rate Loans. Each such repayment shall be accompanied by any
amount required to be paid pursuant to Section 5.10 hereof
SECTION 4.5. Term Notes. Each Lender's Term Loans and the obligation of the
Borrower to repay such Term Loans shall be evidenced by a Term Note, payable to
the order of such Lender representing the Borrower's obligation to pay such
Lender's Term Loan Commitment in accordance with the terms hereof. Each Term
Note shall be dated the Closing Date and shall bear interest on the unpaid
principal amount thereof at the applicable interest rate per annum specified in
Section 5.1.
SECTION 4.6. Use of Proceeds. The Borrower shall use the proceeds of the
Term Loans solely to (a) finance the KMI Dividend; provided, that any proceeds
of the Term Loans not used to pay the KMI Dividend on the Closing Date shall be
invested in accordance with Section 11.3(b) pending payment of the KMI Dividend,
(b) repay the Existing Facility and (c) pay certain fees and expenses incurred
in connection with the transactions contemplated hereby.
SECTION 4.7. Security. The Obligations of the Borrower under the Term Loan
Facility shall be secured as provided in the Security Agreement.
ARTICLE V
---------
GENERAL LOAN PROVISIONS
-----------------------
SECTION 5.1 Interest.
(a) Interest Rate Options. Subject to the provisions of this Section 5.1,
at the election of the Borrower, the aggregate principal balance of the Notes or
any portion thereof shall bear interest at (i) the Base Rate plus 0.50% or (ii)
the LIBOR Rate plus 3.00%; provided, the LIBOR Rate shall not be available until
three (3) Business Days after the Closing Date. The Borrower shall select the
rate of interest and Interest Period, if any, applicable to any Loan at the time
a Notice of Borrowing is given pursuant to Section 2.2 and 4.2 or at the time a
Notice of Conversion/Continuation is given pursuant to Section 5.3. Each Loan or
portion thereof bearing interest based on the Base Rate shall be a "Base Rate
Loan" and each Loan or portion thereof bearing interest based on the LIBOR Rate
shall be a "LIBOR Rate Loan". Any Loan or any portion thereof as to which the
Borrower has not duly specified an interest rate as provided herein shall be
deemed a Base Rate Loan.
(b) Interest Periods. In connection with each LIBOR Rate Loan, the
Borrower, by giving notice at the times described in Section 5.1(a), shall elect
an interest period (each, an "Interest Period") to be applicable to such LIBOR
Rate Loan, which Interest Period shall be a period of one (1), two (2) or three
(3) months; provided that:
23
<PAGE>
(i) the Interest Period shall commence on the date of advance of or
conversion to any LIBOR Rate Loan and, in the case of immediately successive
Interest Periods, each successive Interest Period shall commence on the date on
which the next preceding Interest Period expires;
(ii) if any Interest Period would otherwise expire on a day that is
not a Business Day, such Interest Period shall expire on the next succeeding
Business Day; provided, that if any Interest Period with respect to a LIBOR Rate
Loan would otherwise expire on a day that is not a Business Day but is a day of
the month after which no further Business Day occurs in such month, such
Interest Period shall expire on the next preceding Business Day;
(iii) any Interest Period with respect to a LIBOR Rate Loan that
begins on the last Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at the end of such
Interest Period) shall end on the last Business Day of the relevant calendar
month at the end of such Interest Period;
(iv) no Interest Period shall extend beyond the Revolving Credit
Termination Date or the Term Loan Maturity Date, as applicable, and no Interest
Periods shall be selected by the Borrower which would result in the repayment of
any LIBOR Rate Loan prior to the end of an Interest Period; and
(v) there shall be no more than five (5) Interest Periods
outstanding at any time.
(c) Default Rate. Upon the occurrence and during the continuance of an
Event of Default, (i) the Borrower shall no longer have the option to request
LIBOR Rate Loans, (ii) all outstanding LIBOR Rate Loans shall bear interest at a
rate per annum two percent (2%) in excess of the rate then applicable to LIBOR
Rate Loans until the end of the applicable Interest Period and thereafter at a
rate equal to two percent (2%) in excess of the rate then applicable to Base
Rate Loans, and (iii) all outstanding Base Rate Loans shall bear interest at a
rate per annum equal to two percent (2%) in excess of the rate then applicable
to Base Rate Loans. Interest shall continue to accrue on the Notes after the
filing by or against the Borrower of any petition seeking any relief in
bankruptcy or under any act or law pertaining to insolvency or debtor relief,
whether state, federal or foreign.
(d) Interest Payment and Computation. Interest on each Base Rate Loan
shall be payable in arrears on the last Business Day of each Fiscal Quarter.
Interest on each LIBOR Rate Loan shall be payable on the last day of each
Interest Period applicable thereto. All interest rates, fees and commissions
provided hereunder shall be computed on the basis of a 360-day year and
assessed for the actual number of days elapsed.
(e) Maximum Rate. In no contingency or event whatsoever shall the
aggregate of all amounts deemed interest hereunder or under any of the Notes
charged or collected pursuant to the terms of this Agreement or pursuant to any
of the Notes exceed the highest rate permissible under any Applicable Law which
a court of competent jurisdiction shall, in a final determination, deem
applicable hereto. In the event that such a court determines that the Lenders
have charged or received interest hereunder in excess of the highest applicable
rate, the rate in effect hereunder
24
<PAGE>
shall automatically be reduced to the maximum rate permitted by Applicable Law
and the Lenders shall at the Administrative Agent's option promptly refund to
the Borrower any interest received by Lenders in excess of the maximum lawful
rate or shall apply such excess to the principal balance of the Obligations. It
is the intent hereof that the Borrower not pay or contract to pay, and that
neither the Administrative Agent nor any Lender receive or contract to receive,
directly or indirectly in any manner whatsoever, interest in excess of that
which may be paid by the Borrower under Applicable Law.
SECTION 5.2. Fees.
(a) Commitment Fee. Commencing on the Closing Date, the Borrower shall
pay to the Administrative Agent, for the account of the Lenders, a
non-refundable commitment fee at a rate per annum equal to 1/2 of 1% on the
average daily unused portion of the Revolving Credit Commitment. The commitment
fee shall be payable in arrears on the last Business Day of each Fiscal Quarter
during the term of this Agreement commencing June 30, 1998 (on a prorated basis
through such date), and on the Revolving Credit Termination Date. Such
commitment fee shall be distributed by the Administrative Agent to the Lenders
pro rata in accordance with the Lenders' respective Revolving Credit Commitment
Percentages.
(b) Administrative Agent's and Other Fees. In order to compensate the
Administrative Agent for structuring and syndicating the Loans and for its
obligations hereunder, the Borrower agrees to pay to the Administrative Agent,
for its account, the fees set forth in the Fee Letter.
SECTION 5.3. Notice and Manner of Conversion or Continuation of Loans.
Provided that no Event of Default has occurred and is then continuing, the
Borrower shall have the option to (a) (i) convert at any time all or any portion
of its outstanding Base Rate Loans that are Revolving Credit Loans in a
principal amount equal to $500,000 or any whole multiple of $100,000 in excess
thereof into LIBOR Rate Loans and (ii) convert at any time all or any portion of
its outstanding Base Rate Loans that are Term Loans in a principal amount of
$5,000,000 or any whole multiple of $1,000,000 in excess thereof into LIBOR Rate
Loans, or (b) upon the expiration of any Interest Period, (i) convert all or any
part of its outstanding LIBOR Rate Loans that are Revolving Credit Loans in a
principal amount equal to $500,000 or a whole multiple of $100,000 in excess
thereof into Base Rate Loans, (ii) convert all or any part of its outstanding
LIBOR Rate Loans that are Term Loans in a principal amount equal to $5,000,000
or a whole multiple of $1,000,000 in excess thereof into Base Rate Loans, or
(iii) continue such LIBOR Rate Loans as LIBOR Rate Loans. Whenever the Borrower
desires to convert or continue Loans as provided above, the Borrower shall give
the Administrative Agent a Notice of Conversion/ Continuation not later than
11:00 a.m. (Charlotte time) three (3) Business Days before the day on which a
proposed conversion or continuation of such Loan is to be effective specifying
(A) the Loans to be converted or continued, and, in the case of any LIBOR Rate
Loan or to be converted or continued, the last day of the Interest Period
therefor, (B) the effective date of such conversion or continuation (which shall
be a Business Day), (C) the principal amount of such Loans to be converted or
continued, and (D) the Interest Period to be applicable to such converted or
continued LIBOR Rate Loan. The Administrative Agent shall promptly notify the
Lenders of such Notice of Conversion/Continuation.
25
<PAGE>
SECTION 5.4. Mandatory Prepayments of Loans.
(a) Change in Control; Sale of All Assets. The Borrower shall prepay the
entire outstanding amount of all Extensions of Credit plus any accrued interest
thereon upon the earlier of (i) a Change in Control and (ii) a sale of all or
substantially all of the assets of the Borrower.
(b) Debt Proceeds. The Borrower shall make a mandatory principal
prepayment of the Extensions of Credit in an amount equal to one hundred percent
(100%) of the Net Cash Proceeds from any incurrence of Debt by the Borrower or
any of its Consolidated Subsidiaries (other than Debt permitted pursuant to
Section 11.1).
(c) Equity Proceeds. The Borrower shall make a mandatory principal
prepayment of the Extensions of Credit in an amount equal to one hundred percent
(100%) of the aggregate Net Cash Proceeds from any offering of Capital Stock or
other equity securities by the Borrower or any of its Consolidated Subsidiaries.
(d) Asset Sale Proceeds. The Borrower shall make a mandatory principal
prepayment of the Extensions of Credit in an amount equal to one hundred percent
(100%) of the Net Cash Proceeds from the sale or other disposition of assets by
the Borrower or any of its Consolidated Subsidiaries pursuant to Section
11.5(f).
(e) Insurance and Condemnation Proceeds. The Borrower shall make a
mandatory principal prepayment of the Extensions of Credit in an amount equal to
one hundred percent (100%) of the Net Cash Proceeds received by the Borrower or
any of its Consolidated Subsidiaries from any payment under any property or
casualty insurance policy or from any condemnation proceeding.
(f) Excess Cash Flow. Subject to Section 5.4(g)(ii), the Borrower shall
make a mandatory principal prepayment of the Loans in an amount equal to (i)
fifty percent (50%) of Excess Cash Flow, if any, of the Borrower and its
Consolidated Subsidiaries for the period commencing on the July 1, 1998 and
ending on December 31, 1998 and (ii) seventy-five percent (75%) of Excess Cash
Flow, if any, of the Borrower and its Consolidated Subsidiaries for the period
commencing on January 1, 1999 and ending on March 31, 1999, for the period
commencing on April 1, 1999 and ending on June 30, 1999, for the period
commencing on July 1, 1999 and ending on September 30, 1999, for the period
commencing on October 1, 1999 and ending on December 31, 1999 and for the period
commencing on January 1, 2000 and ending on March 31, 2000. With respect to each
period described above (each a "Calculation Period"), the Borrower shall provide
the Administrative Agent a written calculation of Excess Cash Flow in form and
substance satisfactory to the Administrative Agent no later than 11:00 a.m. ten
(10) days after the end of the applicable Calculation Period.
(g) Notice; Manner of Payment.
(i) Sections 5.4(a) through 5.4(e). Upon the occurrence of any event
triggering the prepayment requirement under Sections 5.4(a) through and
including
26
<PAGE>
5.4(e), the Borrower shall give prompt written notice of such event and the
amount of the corresponding prepayment to the Administrative Agent and upon
receipt of such notice, the Administrative Agent shall promptly so notify
the Lenders. Such prepayment shall be made within three (3) Business Days
after the date of consummation of such transaction described in Sections
5.4(a) through and including 5.4(e). Each mandatory prepayment under such
Sections shall be applied as follows: (i) first, to reduce the outstanding
principal balance of the Term Loans on a pro rata basis, (ii) second, to
the extent of any excess, to reduce the outstanding principal balance of
the Revolving Credit Loans on a pro rata basis and (iii) third, to the
extent of any excess, to the cash collateral account described in Section
12.2(b) hereof to the extent of any L/C Obligations then outstanding. Each
prepayment under this Section 5.4(g)(i) shall be accompanied by any payment
required under Section 5.10.
(ii) Section 5.4(f). Each mandatory repayment under Section 5.4(f)
shall be made within ten (10) days after the end of the applicable
Calculation Period and shall be accompanied by the calculation described in
Section 5.4(f); provided, that all Excess Cash Flow accruing for the
Calculation Period referred to in Section 5.4(f)(i) prior to January 1,
1999 shall be deposited in an investment account with the Administrative
Agent pending payment of such amount to the Lenders on or prior to January
10, 1999. Each mandatory repayment under Section 5.4(f) shall be applied as
follows: (i) first, to reduce the outstanding principal balance of the Term
Loans on a pro rata basis, (ii) second, to the extent of any excess, to
reduce the outstanding principal balance of the Revolving Credit Loans on a
pro rata basis and (iii) third, to the extent of any excess, to the cash
collateral account described in Section 12.2(b) hereof to the extent of any
L/C Obligations then outstanding. Each prepayment under this Section
5.4(g)(ii) shall be accompanied by any payment required under Section 5.10.
SECTION 5.5. Manner of Payment. Each payment by the Borrower on account of
the principal of or interest on the Revolving Credit Loans or of any fee,
commission or other amounts (including the Reimbursement Obligation) payable to
the Lenders under this Agreement with respect to the Revolving Credit Loans, the
Letters of Credit or any Revolving Credit Note shall be made not later than 1:00
p.m. (Charlotte time) on the date specified for payment under this Agreement to
the Administrative Agent at the Administrative Agent's Office for the account of
the Lenders (other than as set forth below) pro rata in accordance with their
respective Revolving Credit Commitment Percentages, in Dollars, in immediately
available funds and shall be made without any set-off, counterclaim or deduction
whatsoever. Each payment by the Borrower on account of the principal of or
interest on the Term Loans or of any fee, commission or other amounts payable to
the Lenders under this Agreement with respect to the Term Loans or any Term Note
shall be made in like manner, except for the account of the Lenders pro rata in
accordance with their respective Term Loan Percentages. Any payment received
after such time but before 2:00 p.m. (Charlotte time) on such day shall be
deemed a payment on such date for the purposes of Section 12.1, but for all
other purposes shall be deemed to have been made on the next succeeding Business
Day. Any payment received after 2:00 p.m. (Charlotte time) shall be deemed to
have been made on the next succeeding Business Day for all purposes. Upon
receipt by the Administrative Agent of each such payment, the Administrative
Agent shall distribute to each Lender at its address for notices set forth
herein its pro rata share of such payment in accordance with this Section 5.5
and shall wire advice
27
<PAGE>
of the amount of such credit to each Lender. Each payment to the Administrative
Agent of Administrative Agent's or Issuing Lender's fees or expenses shall be
made for the account of the Administrative Agent or Issuing Lender, as the case
may be, and any amount payable to any Lender under Sections 5.9, 5.10, 5.11,
5.12 or 14.2 shall be paid to the Administrative Agent for the account of the
applicable Lender.
SECTION 5.6. Crediting of Payments and Proceeds. In the event that the
Borrower shall fail to pay any of the Obligations when due and the Obligations
have been accelerated pursuant to Section 12.2, all payments received by the
Lenders upon the Notes and the other Obligations and all net proceeds from the
enforcement of the Obligations shall be applied first to all expenses then due
and payable by the Borrower hereunder, then to all indemnity obligations then
due and payable by the Borrower hereunder, then to all Administrative Agent's
and Issuing Lender's fees then due and payable, then to all commitment and other
fees and commissions then due and payable, then to accrued and unpaid interest
on the Notes, the Reimbursement Obligation and any termination payments due in
respect of a Hedging Agreement with any Lender (which such Hedging Agreement is
permitted or required hereunder) (pro rata in accordance with all such amounts
due), then to the principal amount of the Notes and Reimbursement Obligation and
then to the cash collateral account described in Section 12.2(b) hereof to the
extent of any L/C Obligations then outstanding, in that order.
SECTION 5.7. Adjustments. If any Lender (a "Benefited Lender") shall at any
time receive any payment of all or part of the Obligations, or interest thereon,
or if any Lender shall at any time receive any collateral in respect to the
Obligations (whether voluntarily or involuntarily, by set-off or otherwise) in a
greater proportion than any such payment to and collateral received by any other
Lender, if any, in respect of such other Lender's Extensions of Credit, or
interest thereon, such Benefited Lender shall purchase for cash from the other
Lenders such portion of each such other Lender's Extensions of Credit, or shall
provide such other Lenders with the benefits of any such collateral, or the
proceeds thereof, as shall be necessary to cause such Benefited Lender to share
the excess payment or benefits of such collateral or proceeds ratably with each
of the Lenders; provided, that if all or any portion of such excess payment or
benefits is thereafter recovered from such Benefited Lender, such purchase shall
be rescinded, and the purchase price and benefits returned to the extent of such
recovery, but without interest. The Borrower agrees that each Lender so
purchasing a portion of another Lender's Extensions of Credit may exercise all
rights of payment (including, without limitation, rights of set-off) with
respect to such portion as fully as if such Lender were the direct holder of
such portion.
SECTION 5.8. Nature of Obligations of Lenders Regarding Extensions of
Credit; Assumption by the Administrative Agent. The obligations of the Lenders
under this Agreement to make the Loans and issue or participate in Letters of
Credit are several and are not joint or joint and several. Unless the
Administrative Agent shall have received notice from a Lender prior to a
proposed borrowing date that such Lender will not make available to the
Administrative Agent such Lender's ratable portion of the amount to be borrowed
on such date (which notice shall not release such Lender of its obligations
hereunder), the Administrative Agent may assume that such Lender has made such
portion available to the Administrative Agent on the proposed borrowing date in
accordance with Section 2.2(b) and 4.2, and the Administrative Agent may, in
reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If such amount
28
<PAGE>
is made available to the Administrative Agent on a date after such borrowing
date, such Lender shall pay to the Administrative Agent on demand an amount,
until paid, equal to the product of (a) the amount of such borrowing not made
available by such Lender in accordance with the terms hereof, times (b) the
daily average Federal Funds Rate during such period as determined by the
Administrative Agent, times (c) a fraction the numerator of which is the number
of days that elapse from and including such borrowing date to the date on which
such amount of such borrowing not made available by such Lender in accordance
with the terms hereof shall have become immediately available to the
Administrative Agent and the denominator of which is 360. A certificate of the
Administrative Agent with respect to any amounts owing under this Section shall
be conclusive, absent manifest error. If such amount is not made available to
the Administrative Agent by such Lender within three (3) Business Days of such
borrowing date, the Administrative Agent shall be entitled to recover such
amount made available by the Administrative Agent with interest thereon at the
rate per annum applicable to Base Rate Loans hereunder, on demand, from the
Borrower. The failure of any Lender to make its Revolving Credit Commitment
Percentage or Term Loan Percentage, as applicable, of any Loan available shall
not relieve it or any other Lender of its obligation, if any, hereunder to make
its Revolving Credit Commitment Percentage or Term Loan Percentage, as
applicable, of such Loan available on such borrowing date, but no Lender shall
be responsible for the failure of any other Lender to make its Revolving Credit
Commitment Percentage or Term Loan Percentage, as applicable, of such Loan
available on the borrowing date.
SECTION 5.9. Changed Circumstances.
(a) Circumstances Affecting LIBOR Rate Availability. If with respect to
any Interest Period the Administrative Agent or any Lender (after consultation
with Administrative Agent) shall determine that, by reason of circumstances
affecting the foreign exchange and interbank markets generally, deposits in
eurodollars, in the applicable amounts are not being quoted via Telerate Page
3750 or offered to the Administrative Agent or such Lender for such Interest
Period, then the Administrative Agent shall forthwith give notice thereof to the
Borrower. Thereafter, until the Administrative Agent notifies the Borrower that
such circumstances no longer exist, the obligation of the Lenders to make LIBOR
Rate Loans and the right of the Borrower to convert any Loan to or continue any
Loan as a LIBOR Rate Loan shall be suspended, and the Borrower shall repay in
full (or cause to be repaid in full) the then outstanding principal amount of
each such LIBOR Rate Loans together with accrued interest thereon, on the last
day of the then current Interest Period applicable to such LIBOR Rate Loan or
convert the then outstanding principal amount of each such LIBOR Rate Loan to a
Base Rate Loan as of the last day of such Interest Period.
(b) Laws Affecting LIBOR Rate Availability. If, after the date hereof,
the introduction of, or any change in, any Applicable Law or any change in the
interpretation or administration thereof by any Governmental Authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by any Lender (or any of their respective Lending
Offices) with any request or directive (whether or not having the force of law)
of any such Governmental Authority, central bank or comparable agency, shall
make it unlawful or impossible for any of the Lenders (or any of their
respective Lending Offices) to honor its obligations hereunder to make or
maintain any LIBOR Rate Loan, such Lender shall promptly give notice thereof to
the Administrative Agent and the Administrative Agent shall
29
<PAGE>
promptly give notice to the Borrower and the other Lenders. Thereafter, until
the Administrative Agent notifies the Borrower that such circumstances no longer
exist, (i) the obligations of the Lenders to make LIBOR Rate Loans and the right
of the Borrower to convert any Loan or continue any Loan as a LIBOR Rate Loan
shall be suspended and thereafter the Borrower may select only Base Rate Loans
hereunder, and (ii) if any of the Lenders may not lawfully continue to maintain
a LIBOR Rate Loan to the end of the then current Interest Period applicable
thereto as a LIBOR Rate Loan, the applicable LIBOR Rate Loan shall immediately
be converted to a Base Rate Loan for the remainder of such Interest Period.
(c) Increased Costs. If, after the date hereof, the introduction of, or
any change in, any Applicable Law, or in the interpretation or administration
thereof by any Governmental Authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by any of the
Lenders (or any of their respective Lending Offices) with any request or
directive (whether or not having the force of law) of such Governmental
Authority, central bank or comparable agency:
(i) shall subject any of the Lenders (or any of their respective
Lending Offices) to any tax, duty or other charge with respect to any Note,
Letter of Credit or Application or shall change the basis of taxation of
payments to any of the Lenders (or any of their respective Lending Offices) of
the principal of or interest on any Note, Letter of Credit or Application or any
other amounts due under this Agreement in respect thereof (except for changes in
the rate of tax on the overall net income of any of the Lenders or any of their
respective Lending Offices imposed by the jurisdiction in which such Lender is
organized or is or should be qualified to do business or such Lending Office is
located); or
(ii) shall impose, modify or deem applicable any reserve (including,
without limitation, any imposed by the Board of Governors of the Federal Reserve
System), special deposit, insurance or capital or similar requirement against
assets of, deposits with or for the account of, or credit extended by any of the
Lenders (or any of their respective Lending Offices) or shall impose on any of
the Lenders (or any of their respective Lending Offices) or the foreign exchange
and interbank markets any other condition affecting any Note;
and the result of any of the foregoing is to increase the costs to any of the
Lenders of maintaining any LIBOR Rate Loan, or issuing or participating in
Letters of Credit or to reduce the yield or amount of any sum received or
receivable by any of the Lenders under this Agreement or under the Notes in
respect of a LIBOR Rate Loan or Letter of Credit or Application, then such
Lender shall promptly notify the Administrative Agent, and the Administrative
Agent shall promptly notify the Borrower of such fact and demand compensation
therefor and, within fifteen (15) days after such notice by the Administrative
Agent, the Borrower shall pay to such Lender such additional amount or amounts
as will compensate such Lender or Lenders for such increased cost or reduction.
The Administrative Agent will promptly notify the Borrower of any event of which
it has knowledge which will entitle such Lender to compensation pursuant to this
Section 5.9(c); provided, that the Administrative Agent shall incur no liability
whatsoever to the Lenders or the Borrower in the event it fails to do so. The
amount of such compensation shall be determined, in the applicable Lender's
reasonable discretion, based upon the assumption that such Lender funded its
Revolving Credit Commitment Percentage or Term Loan Percentage, as applicable,
of the LIBOR Rate Loans in the
30
<PAGE>
London interbank market and using any reasonable attribution or averaging
methods which such Lender deems appropriate and practical. A certificate of such
Lender setting forth the basis for determining such amount or amounts necessary
to compensate such Lender shall be forwarded to the Borrower through the
Administrative Agent and shall be conclusively presumed to be correct save for
manifest error.
SECTION 5.10. Indemnity. The Borrower hereby indemnifies each of the
Lenders against any loss or expense which may arise or be attributable to each
Lender's obtaining, liquidating or employing deposits or other funds acquired to
effect, fund or maintain any Loan (a) as a consequence of any failure by the
Borrower to make any payment when due of any amount due hereunder in connection
with a LIBOR Rate Loan, (b) due to any failure of the Borrower to borrow on a
date specified therefor in a Notice of Revolving Credit Borrowing, Notice of
Term Loan Borrowing or Notice of Continuation/Conversion or (c) due to any
payment, prepayment or conversion of any LIBOR Rate Loan on a date other than
the last day of the Interest Period therefor. The amount of such loss or expense
shall be determined, in the applicable Lender's reasonable discretion, based
upon the assumption that such Lender funded its Revolving Credit Commitment
Percentage or Term Loan Percentage, as applicable, of the LIBOR Rate Loans in
the London interbank market and using any reasonable attribution or averaging
methods which such Lender deems appropriate and practical. A certificate of such
Lender setting forth the basis for determining such amount or amounts necessary
to compensate such Lender shall be forwarded to the Borrower through the
Administrative Agent and shall be conclusively presumed to be correct save for
manifest error.
SECTION 5.11. Capital Requirements. If either (a) the introduction of, or
any change in, or in the interpretation of, any Applicable Law or (b) compliance
with any guideline or request from any central bank or comparable agency or
other Governmental Authority (whether or not having the force of law), has or
would have the effect of reducing the rate of return on the capital of, or has
affected or would affect the amount of capital required to be maintained by, any
Lender or any corporation controlling such Lender as a consequence of, or with
reference to the Commitments and other commitments of this type, below the rate
which the Lender or such other corporation could have achieved but for such
introduction, change or compliance (but in each case excluding taxes payable on
the net income of any Lender), then within five (5) Business Days after written
demand by any such Lender, the Borrower shall pay to such Lender from time to
time as specified by such Lender additional amounts sufficient to compensate
such Lender or other corporation for such reduction. A certificate as to such
amounts submitted to the Borrower and the Administrative Agent by such Lender,
shall, in the absence of manifest error, be presumed to be correct and binding
for all purposes.
SECTION 5.12. Taxes.
(a) Payments Free and Clear. Any and all payments by the Borrower
hereunder or under the Notes or the Letters of Credit shall be made free and
clear of and without deduction for any and all present or future taxes, levies,
imposts, deductions, charges or withholding, and all liabilities with respect
thereto excluding, (i) in the case of each Lender and the Administrative Agent,
income and franchise taxes imposed by the jurisdiction under the laws of which
such Lender or the Administrative Agent (as the case may be) is organized or is
or should be qualified to do
31
<PAGE>
business or any political subdivision thereof and (ii) in the case of each
Lender, income and franchise taxes imposed by the jurisdiction of such Lender's
Lending Office or any political subdivision thereof (all such non-excluded
taxes, levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes"). If the Borrower shall be required by law to
deduct any Taxes from or in respect of any sum payable hereunder or under any
Note or Letter of Credit to any Lender or the Administrative Agent, (A) the sum
payable shall be increased as may be necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 5.12) such Lender or the Administrative Agent (as the case may be)
receives an amount equal to the amount such party would have received had no
such deductions been made, (B) the Borrower shall make such deductions, (C) the
Borrower shall pay the full amount deducted to the relevant taxing authority or
other authority in accordance with applicable law, and (D) the Borrower shall
deliver to the Administrative Agent evidence of such payment to the relevant
taxing authority or other authority in the manner provided in Section 5.12(d).
(b) Stamp and Other Taxes. In addition, the Borrower shall pay any present
or future stamp, registration, recordation or documentary taxes or any other
similar fees or charges or excise or property taxes, levies of the United States
or any state or political subdivision thereof or any applicable foreign
jurisdiction which arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement, the
Loans, the Letters of Credit, the other Loan Documents, or the perfection of any
rights or security interest in respect thereto (hereinafter referred to as
"Other Taxes").
(c) Indemnity. The Borrower shall indemnify each Lender and the
Administrative Agent for the full amount of Taxes and Other Taxes (including,
without limitation, any Taxes and Other Taxes imposed by any jurisdiction on
amounts payable under this Section 5.12) paid by such Lender or the
Administrative Agent (as the case may be) and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted.
Such indemnification shall be made within thirty (30) days from the date such
Lender or the Administrative Agent (as the case may be) makes written demand
therefor.
(d) Evidence of Payment. Within thirty (30) days after the date of any
payment of Taxes or Other Taxes, the Borrower shall furnish to the
Administrative Agent, at its address referred to in Section 14.1, the original
or a certified copy of a receipt evidencing payment thereof or other evidence of
payment satisfactory to the Administrative Agent.
(e) Delivery of Tax Forms. Each Lender organized under the laws of a
jurisdiction other than the United States or any state thereof shall deliver to
the Borrower, with a copy to the Administrative Agent, on the Closing Date or
concurrently with the delivery of the relevant Assignment and Acceptance, as
applicable, (i) two United States Internal Revenue Service Forms 4224 or Forms
1001, as applicable (or successor forms) properly completed and certifying in
each case that such Lender is entitled to a complete exemption from withholding
or deduction for or on account of any United States federal income taxes, and
(ii) an Internal Revenue Service Form W-8 or W-9 or successor applicable form,
as the case may be, to establish an exemption from United States backup
withholding taxes. Each such Lender further agrees to deliver to the Borrower,
with a copy to the Administrative Agent, a Form 1001 or 4224 and Form W-8 or
W-9,
32
<PAGE>
or successor applicable forms or manner of certification, as the case may be, on
or before the date that any such form expires or becomes obsolete or after the
occurrence of any event requiring a change in the most recent form previously
delivered by it to the Borrower, certifying in the case of a Form 1001 or 4224
that such Lender is entitled to receive payments under this Agreement without
deduction or withholding of any United States federal income taxes (unless in
any such case an event (including without limitation any change in treaty, law
or regulation) has occurred prior to the date on which any such delivery would
otherwise be required which renders such forms inapplicable or the exemption to
which such forms relate unavailable and such Lender notifies the Borrower and
the Administrative Agent that it is not entitled to receive payments without
deduction or withholding of United States federal income taxes) and, in the case
of a Form W-8 or W-9, establishing an exemption from United States backup
withholding tax.
(f) Survival. Without prejudice to the survival of any other agreement of
the Borrower hereunder, the agreements and obligations of the Borrower contained
in this Section 5.12 shall survive the payment in full of the Obligations and
the termination of the Credit Facilities.
ARTICLE VI
----------
CLOSING; CONDITIONS OF CLOSING AND BORROWING
--------------------------------------------
SECTION 6.1. Closing. The closing shall take place at the offices of
Kennedy Covington Lobdell & Hickman, L.L.P. on June 18, 1998, or on such other
date as the parties hereto shall mutually agree.
SECTION 6.2. Conditions to Closing and Extensions of Credit. The obligation
of the Lenders to close this Agreement and to make the initial Loan or issue the
initial Letter of Credit is subject to the satisfaction of each of the following
conditions:
(a) Executed Loan Documents. The following Loan Documents shall have been
duly authorized and executed by the parties thereto, shall be in full force and
effect and no default shall exist thereunder, and original counterparts thereof
shall have been duly delivered to the Administrative Agent:
(i) this Agreement;
(ii) the Notes;
(iii) the Security Agreement; and
(iv) the Negative Pledge and Custodian Agreement.
33
<PAGE>
(b) Closing Certificates; etc.
(i) Officers's Certificate of the Borrower. The Administrative Agent
shall have received a certificate from the chief executive officer or chief
financial officer of the Borrower, in form and substance satisfactory to the
Administrative Agent, to the effect that all representations and warranties of
the Borrower and Kinder Morgan G.P. contained in this Agreement and the other
Loan Documents are true, correct and complete; that the Borrower and Kinder
Morgan G.P. are not in violation of any of the covenants contained in this
Agreement and the other Loan Documents; that, after giving effect to the
transactions contemplated by this Agreement, no Default or Event of Default has
occurred and is continuing; and that the Borrower has satisfied each of the
closing conditions in all material respects.
(ii) Certificate of Secretary of the Borrower and Kinder Morgan G.P..
The Administrative Agent shall have received a certificate of the secretary or
assistant secretary of the Borrower and Kinder Morgan G.P. certifying that
attached thereto is a true and complete copy of the charter documents of the
Borrower or Kinder Morgan G.P., as applicable, and all amendments thereto,
certified as of a recent date by the appropriate Governmental Authority in its
jurisdiction of incorporation; that attached thereto is a true and complete copy
of the by-laws of the Borrower or Kinder Morgan G.P., as applicable, as in
effect on the date of such certification; that attached thereto is a true and
complete copy of resolutions duly adopted by the board of directors of the
Borrower or Kinder Morgan G.P., as applicable, authorizing the execution,
delivery and performance of the Loan Documents to which it is a party; and as to
the incumbency and genuineness of the signature of each officer of the Borrower
or Kinder Morgan G.P. executing Loan Documents to which it is a party.
(iii) Certificates of Good Standing. The Administrative Agent shall
have received long-form certificates as of a recent date of the good standing of
the Borrower and Kinder Morgan G.P. under the laws of its jurisdiction of
organization and each other jurisdiction where the Borrower or Kinder Morgan
G.P., as applicable, is qualified to do business.
(iv) Opinions of Counsel. The Administrative Agent shall have received
favorable opinions of counsel to the Borrower and Kinder Morgan G.P. addressed
to the Administrative Agent and the Lenders with respect to the Borrower, Kinder
Morgan G.P., the Loan Documents, the Collateral and such other matters as the
Lenders shall request.
(v) Solvency Opinion. The Administrative Agent shall have received a
favorable opinion of an independent valuation firm reasonably satisfactory to
the Administrative Agent, addressed to the Administrative Agent and the Lenders
in form and substance satisfactory to the Administrative Agent, that the
Borrower and each of its Consolidated Subsidiaries are Solvent both before and
after giving effect to the KMI Dividend.
(vi) Tax Forms. The Administrative Agent shall have received copies of
the United States Internal Revenue Service forms required by Section 5.12(e)
hereof.
34
<PAGE>
(c) Collateral.
(i) Filings and Recordings. All filings and recordations that are
necessary to perfect the security interests of the Lenders in the Collateral
shall have been filed or recorded in all appropriate locations.
(ii) Pledged Collateral. The Administrative Agent shall have
received original stock certificates, or such other certificates evidencing the
ownership interests pledged pursuant to the Security Agreement, together with
an undated stock power for each such certificate duly executed in blank by the
registered owner thereof.
(iii) Lien Search. The Administrative Agent shall have received the
results of a Lien search of all filings made against the Borrower and Kinder
Morgan G.P. under the Uniform Commercial Code as in effect in any state in which
any of their chief executive offices or Collateral is located, indicating among
other things that their assets are free and clear of any Lien except for the
Liens permitted by Section 11.2.
(iv) Insurance. The Administrative Agent shall have received
certificates of insurance in the form required under Section 9.3 and the
Security Agreement and otherwise in form and substance reasonably satisfactory
to the Administrative Agent.
(d) Consents; Defaults.
(i) Governmental and Third Party Approvals. All necessary
approvals, authorizations and consents, if any be required, of any Person and
of all Governmental Authorities and courts having jurisdiction with respect
to the transactions contemplated hereby shall have been obtained.
(ii) No Injunction, Etc. No action, proceeding, investigation,
regulation or legislation shall have been instituted, threatened or proposed
before any Governmental Authority to enjoin, restrain, or prohibit, or to
obtain substantial damages in respect of, or which is related to or arises out
of this Agreement or the other Loan Documents, or which, in the Administrative
Agent's discretion, would make it inadvisable to consummate the transactions
contemplated by this Agreement and the other Loan Documents.
(iii) No Event of Default. No Default or Event of Default shall
have occurred and be continuing.
(e) Financial Matters.
(i) Financial Statements. The Administrative Agent shall have
received the unaudited quarterly and audited annual Consolidated financial
statements of the Borrower and its Consolidated Subsidiaries referred to in
Section 7.1(n), all in form and substance satisfactory to the Administrative
Agent.
35
<PAGE>
(ii) Financial Condition Certificate. The Borrower shall have
delivered to the Administrative Agent a certificate, in form and substance
satisfactory to the Administrative Agent, and certified as accurate by the
chief executive officer, chief financial officer or treasurer of the Borrower,
that (A) the Borrower and each of its Consolidated Subsidiaries are Solvent, (B)
the Borrower's payables are current and not past due except for items being
contested in good faith not to exceed $300,000, (C) attached thereto is a pro
forma balance sheet of the Borrower and its Consolidated Subsidiaries setting
forth on a pro forma basis the financial condition of the Borrower and its
Consolidated Subsidiaries on a Consolidated basis as of the end of the most
recently completed Fiscal Quarter, reflecting on a pro forma basis the effect of
the transactions contemplated hereby, including all fees and expenses in
connection therewith and evidencing compliance on a pro forma basis with the
covenants contained in Article X and XI hereof and (D) attached thereto are the
financial projections previously delivered to the Administrative Agent
representing the good faith opinion of the senior management of the Borrower as
to the projected results contained therein.
(iii) Payment at Closing; Fee Letter. There shall have been paid by
the Borrower to the Administrative Agent and the Lenders the fees set forth
or referenced in the Fee Letter and any other accrued and unpaid fees or
commissions due hereunder (including, without limitation, legal fees and
expenses), and to any other Person such amount as may be due thereto in
connection with the transactions contemplated hereby, including all taxes, fees
and other charges in connection with the execution, delivery, recording, filing
and registration of any of the Loan Documents. The Administrative Agent shall
have received duly authorized and executed copies of the Fee Letter.
(f) Miscellaneous.
(i) Notice of Borrowing and Account Designation. The Administrative
Agent shall have received the Notice of Revolving Credit Borrowing and the
Notice of Term Loan Borrowing with respect to the Loans to be made on the
Closing Date; provided that only Base Rate Loans shall be available on the
Closing Date. The proceeds of the Loans made on the Closing Date shall be
utilized in accordance with the sources and uses table attached to such notices.
The Borrower shall also have delivered to the Administrative Agent a Notice of
Account Designation with respect to the Loans to be made on the Closing Date.
(ii) Proceedings and Documents. All documents, opinions,
certificates and other instruments and all proceedings in connection with the
transactions contemplated hereby shall be satisfactory in form and substance to
the Lenders.
(iii) Due Diligence. The Administrative Agent and the Lenders shall
have completed to their satisfaction their due diligence reviews of the Borrower
and its Subsidiaries in connection with the transactions contemplated hereby.
SECTION 6.3. Conditions to All Extensions of Credit. The obligations of the
Lenders to make any Loan or issue any Letter of Credit is subject to the
satisfaction of the following conditions precedent on the relevant borrowing or
issue date, as applicable:
(a) Continuation of Representations and Warranties. The representations
and warranties contained in Article VII shall be true and correct on and as of
such borrowing or issuance
36
<PAGE>
date with the same effect as if made on and as of such date except for any such
representations or warranties made as of a specific date which shall be true as
of such date.
(b) No Existing Default. No Default or Event of Default shall have
occurred and be continuing hereunder (i) on the borrowing date with respect to
such Loan or after giving effect to the Loans to be made on such date or (ii) or
the issue date with respect to such Letter of Credit or after giving affect to
such Letters of Credit on such date.
(c) Certificates; Additional Documents. The Administrative Agent shall
have received the current Officer's Compliance Certificate, and each additional
document, instrument or other item of information reasonably requested by the
Administrative Agent in connection with the corresponding Extension of Credit.
ARTICLE VII
-----------
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
----------------------------------------------
SECTION 7.1. Representations and Warranties. To induce the Administrative
Agent to enter into this Agreement and the Lenders to make the Loans or issue or
participate in the Letters of Credit, the Borrower hereby represents and
warrants to the Administrative Agent and Lenders that:
(a) Organization; Power; Qualification. Each of the Borrower and its
Subsidiaries is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or formation, has the power and
authority to own its properties and to carry on its business as now being and
hereafter proposed to be conducted and is duly qualified and authorized to do
business in each jurisdiction in which the character of its properties or the
nature of its business requires such qualification and authorization except
where the failure to be so qualified could not be reasonably expected to have a
Material Adverse Effect. The jurisdictions in which the Borrower and its
Subsidiaries as of the Closing Date are organized and qualified to do business
are described on Schedule 7.1(a).
(b) Ownership. Each Subsidiary of the Borrower is listed on Schedule
7.1(b). The capitalization of the Borrower and its Consolidated Subsidiaries as
of the Closing Date consists of the number of shares, authorized, issued and
outstanding, of such classes and series, with or without par value, described on
Schedule 7.1(b). All outstanding shares have been duly authorized and validly
issued and are fully paid and nonassessable. The shareholders of the
Consolidated Subsidiaries of the Borrower and the number of shares owned by each
as of the Closing Date are described on Schedule 7.1(b). There are no
outstanding stock purchase warrants, subscriptions, options, securities,
instruments or other rights of any type or nature whatsoever, which are
convertible into, exchangeable for or otherwise provide for or permit the
issuance of Capital Stock of the Borrower or its Consolidated Subsidiaries as of
the Closing Date, except as described on Schedule 7.1(b).
(c) Authorization of Agreement, Loan Documents and Borrowing. The Borrower
and its Consolidated Subsidiaries have the right, power and authority and have
taken all necessary corporate and other action to authorize the execution,
delivery and performance of this Agreement
37
<PAGE>
and each of the other Loan Documents to which it is a party in accordance with
their respective terms. This Agreement and each of the other Loan Documents have
been duly executed and delivered by the duly authorized officers of the Borrower
and Kinder Morgan G.P., and each such document constitutes the legal, valid and
binding obligation of the Borrower and Kinder Morgan G.P., enforceable in
accordance with its terms, except as such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar state or federal
debtor relief laws from time to time in effect which affect the enforcement of
creditors' rights in general and the availability of equitable remedies.
(d) Compliance of Agreement, Loan Documents and Borrowing with Laws, Etc.
The execution, delivery and performance by the Borrower and its Consolidated
Subsidiaries of the Loan Documents to which each such Person is a party, in
accordance with their respective terms, the borrowings hereunder and the
transactions contemplated hereby do not and will not, by the passage of time,
the giving of notice or otherwise, (i) require any Governmental Approval or
violate any Applicable Law relating to the Borrower or any of its Consolidated
Subsidiaries, (ii) conflict with, result in a breach of or constitute a default
under the articles of incorporation, bylaws or other organizational documents of
the Borrower or any of its Subsidiaries or any material indenture, agreement or
other instrument to which such Person is a party or by which any of its
properties may be bound or any Governmental Approval relating to such Person, or
(iii) result in or require the creation or imposition of any Lien upon or with
respect to any property now owned or hereafter acquired by such Person other
than Liens arising under the Loan Documents.
(e) Compliance with Law; Governmental Approvals. Except as set forth on
Schedule 7.1(e) and further except for such matters as could not reasonably be
expected to have a Material Adverse Effect on the Borrower and its Subsidiaries,
each of the Borrower and its Subsidiaries (i) has all Governmental Approvals
required by any Applicable Law for it to conduct its business, each of which is
in full force and effect, is final and not subject to review on appeal and is
not the subject of any pending or, to its knowledge, threatened attack by direct
or collateral proceeding, and (ii) is in compliance with each Governmental
Approval applicable to it and in compliance with all other Applicable Laws
relating to it or any of its respective properties.
(f) Tax Returns and Payments. Each of the Borrower and its Subsidiaries
has duly filed or caused to be filed all federal, state, local and other tax
returns required by Applicable Law to be filed, and has paid, or made adequate
provision for the payment of, all federal, state, local and other taxes,
assessments and governmental charges or levies upon it and its property, income,
profits and assets which are due and payable except for those being contested in
good faith. No Governmental Authority has asserted any Lien or other claim
against the Borrower or any Subsidiary thereof with respect to unpaid taxes
which has not been discharged or resolved except for those being contested in
good faith. The charges, accruals and reserves on the books of the Borrower and
any of its Subsidiaries in respect of federal, state, local and other taxes for
all Fiscal Years and portions thereof since the organization of the Borrower and
any of its Subsidiaries are in the judgment of the Borrower adequate, and the
Borrower does not anticipate any additional material taxes or assessments for
any of such years.
(g) Intellectual Property Matters. Each of the Borrower and its
Subsidiaries owns or possesses rights to use all franchises, licenses,
copyrights, copyright applications, patents, patent
38
<PAGE>
rights or licenses, patent applications, trademarks, trademark rights, trade
names, trade name rights, copyrights and rights with respect to the foregoing
which are required to conduct its business except where the failure to have such
rights could not reasonably be expected to have a Material Adverse Effect on the
Borrower and its Subsidiaries. No event has occurred which permits, or after
notice or lapse of time or both would permit, the revocation or termination of
any such material rights, and neither the Borrower nor any Subsidiary thereof is
liable in any material amount to any Person for infringement under Applicable
Law with respect to any such rights as a result of its business operations.
(h) Environmental Matters. Except as set forth on Schedule 7.1(h) and
further except for such matters as could not reasonably be expected to have a
Material Adverse Effect on the Borrower and its Subsidiaries:
(i) The properties of the Borrower and its Subsidiaries do not
contain, and to their knowledge have not previously contained, any Hazardous
Materials in amounts or concentrations which constitute or constituted a
violation of, applicable Environmental Laws;
(ii) Such properties and all operations conducted in connection
therewith are in compliance, and have been in compliance, with all applicable
Environmental Laws, and there is no contamination at, under or about such
properties or such operations which could interfere with the continued operation
of such properties or impair the fair saleable value thereof;
(iii) Neither the Borrower nor any Subsidiary thereof has received
any notice of violation, alleged violation, non-compliance, liability or
potential liability regarding environmental matters or compliance with
Environmental Laws with regard to any of their properties or the operations
conducted in connection therewith, nor does the Borrower or any Subsidiary
thereof have knowledge or reason to believe that any such notice will be
received or is being threatened;
(iv) Hazardous Materials have not been transported or disposed of
from the properties of the Borrower and its Subsidiaries in violation of, or in
a manner or to a location which could give rise to liability under,
Environmental Laws, nor have any Hazardous Materials been generated, treated,
stored or disposed of at, on or under any of such properties in violation of, or
in a manner that could give rise to liability under, any applicable
Environmental Laws;
(v) No judicial proceedings or governmental or administrative
action is pending, or, to the knowledge of the Borrower, threatened, under any
Environmental Law to which the Borrower or any Subsidiary thereof is or will be
named as a party with respect to such properties or operations conducted in
connection therewith, nor are there any consent decrees or other decrees,
consent orders, administrative orders or other orders, or other administrative
or judicial requirements outstanding under any Environmental Law with respect to
such properties or such operations; and
(vi) There has been no release, or to the best of the Borrower's
knowledge, the threat of release, of Hazardous Materials at or from such
properties, in violation of or in amounts or in a manner that could give rise to
liability under Environmental Laws.
39
<PAGE>
(i) ERISA.
(i) As of the Closing Date, neither the Borrower nor any ERISA
Affiliate maintains or contributes to, or has any obligation under, any Employee
Benefit Plans other than those identified, as of the Closing Date, on Schedule
7.1(i);
(ii) The Borrower and each ERISA Affiliate is in compliance with all
applicable provisions of ERISA and the regulations and published interpretations
thereunder with respect to all Employee Benefit Plans except for any required
amendments for which the remedial amendment period as defined in Section 401(b)
of the Code has not yet expired and except for matters that could not reasonably
be expected to have a Material Adverse Effect on the Borrower and its
Subsidiaries. Each Employee Benefit Plan that is intended to be qualified under
Section 401(a) of the Code has been determined by the Internal Revenue Service
to be so qualified, and each trust related to such plan has been determined to
be exempt under Section 501(a) of the Code. No material liability has been
incurred by the Borrower or any ERISA Affiliate which remains unsatisfied for
any taxes or penalties with respect to any Employee Benefit Plan or any
Multiemployer Plan;
(iii) No Pension Plan has been terminated, nor has any accumulated
funding deficiency (as defined in Section 412 of the Code) been incurred
(without regard to any waiver granted under Section 412 of the Code), nor has
any funding waiver from the Internal Revenue Service been received or requested
with respect to any Pension Plan, nor has the Borrower or any ERISA Affiliate
failed to make any contributions or to pay any amounts due and owing as required
by Section 412 of the Code, Section 302 of ERISA or the terms of any Pension
Plan prior to the due dates of such contributions under Section 412 of the Code
or Section 302 of ERISA, nor has there been any event requiring any disclosure
under Section 4041(c)(3)(C) or 4063(a) of ERISA with respect to any Pension Plan
except in each case as could not reasonably be expected to have a Material
Adverse Effect on the Borrower and its Subsidiaries;
(iv) Neither the Borrower nor any ERISA Affiliate has except in each
case as could not reasonably be expected to have a Material Adverse Effect on
the Borrower and its Subsidiaries: (A) engaged in a nonexempt prohibited
transaction described in Section 406 of the ERISA or Section 4975 of the Code,
(B) incurred any liability to the PBGC which remains outstanding other than the
payment of premiums and there are no premium payments which are due and unpaid,
(C) failed to make a required contribution or payment to a Multiemployer Plan,
or (D) failed to make a required installment or other required payment under
Section 412 of the Code;
(v) No Termination Event has occurred or is reasonably expected to
occur; and
(vi) No proceeding, claim, lawsuit and/or investigation is existing
or, to the best knowledge of the Borrower after due inquiry, threatened
concerning or involving any (A) employee welfare benefit plan (as defined in
Section 3(1) of ERISA) currently maintained or contributed to by the Borrower or
any ERISA Affiliate, (B) Pension Plan or (C) Multiemployer Plan except in each
case as could not reasonably be expected to have a Material Adverse Effect on
the Borrower and its Subsidiaries.
40
<PAGE>
(j) Margin Stock. Neither the Borrower nor any Subsidiary thereof is
engaged principally or as one of its activities in the business of extending
credit for the purpose of "purchasing" or "carrying" any "margin stock" (as each
such term is defined or used in Regulations G and U of the Board of Governors of
the Federal Reserve System). No part of the proceeds of any of the Loans or
Letters of Credit will be used for purchasing or carrying margin stock or for
any purpose which violates, or which would be inconsistent with, the provisions
of Regulation T, U or X of such Board of Governors.
(k) Government Regulation. Neither the Borrower nor any Subsidiary
thereof is an "investment company" or a company "controlled" by an "investment
company" (as each such term is defined or used in the Investment Company Act of
1940, as amended) and neither the Borrower nor any Subsidiary thereof is, or
after giving effect to any Extension of Credit will be, subject to regulation
under the Public Utility Holding Company Act of 1935 or the Interstate Commerce
Act, each as amended, or any other Applicable Law which limits its ability to
incur or consummate the transactions contemplated hereby.
(l) Material Contracts. Schedule 7.1(l) sets forth a complete and
accurate list of all Material Contracts of the Borrower and its Consolidated
Subsidiaries in effect as of the Closing Date not listed on any other Schedule
hereto; other than as set forth in Schedule 7.1(l), each such Material Contract
is, and after giving effect to the consummation of the transactions contemplated
by the Loan Documents will be, in full force and effect in accordance with the
terms thereof. The Borrower has delivered to the Administrative Agent a true and
complete copy of each Material Contract required to be listed on Schedule
7.1(l).
(m) Employee Relations. Each of the Borrower and its Subsidiaries has a
stable work force in place as of the Closing Date and is not, except as set
forth on Schedule 7.1(m), party to any collective bargaining agreement nor has
any labor union been recognized as the representative of its employees. The
Borrower knows of no pending, threatened or contemplated strikes, work stoppage
or other collective labor disputes involving its employees or those of its
Subsidiaries.
(n) Financial Statements. The (i) audited Consolidated balance sheets of
the Borrower and its Consolidated Subsidiaries as of December 31, 1997 and the
related statements of income and retained earnings and cash flows for the Fiscal
Years then ended and (ii) unaudited Consolidated balance sheet of the Borrower
and its Consolidated Subsidiaries as of March 31, 1998 and related unaudited
interim statements of revenue and retained earnings, copies of which have been
furnished to the Administrative Agent and each Lender, fairly present the
assets, liabilities and financial position of the Borrower and its Consolidated
Subsidiaries as at such dates, and the results of the operations and changes of
financial position for the periods then ended subject however to the absence of
footnotes from the unaudited balance sheet and statements and the effect of
normal period-to-period adjustments. All such financial statements, including
the related schedules and notes thereto, have been prepared in accordance with
GAAP (except as noted). The Borrower and its Consolidated Subsidiaries have no
Debt (other than Debt permitted by Section 11.1(f)), obligation or other unusual
forward or long-term commitment which is not fairly reflected in the foregoing
financial statements or in the notes thereto.
41
<PAGE>
(o) No Material Adverse Change. Since December 31, 1997, there has been
no material adverse change in the properties, business, operations, or financial
condition of the Borrower and its Subsidiaries and no event has occurred or
condition arisen that could reasonably be expected to have a Material Adverse
Effect.
(p) Solvency. As of the Closing Date and after giving effect to each
Extension of Credit made hereunder, the Borrower and each of its Consolidated
Subsidiaries will be Solvent.
(q) Titles to Properties. Each of the Borrower and its Subsidiaries has
such title to the real property owned or leased by it as is necessary or
desirable to the conduct of its business and valid and legal title to all of its
personal property and assets, including, but not limited to, those reflected on
the balance sheets of the Borrower and its Subsidiaries delivered pursuant to
Section 7.1(n), except those which have been disposed of by the Borrower or its
Subsidiaries subsequent to such date which dispositions have been in the
ordinary course of business or as otherwise expressly permitted hereunder.
(r) Liens. None of the properties and assets of the Borrower or any
Consolidated Subsidiary thereof is subject to any Lien, except Liens permitted
pursuant to Section 11.2. Except for filings pursuant to the Existing Facility,
no financing statement under the Uniform Commercial Code of any state which
names the Borrower or any Consolidated Subsidiary thereof or any of their
respective trade names or divisions as debtor and which has not been terminated,
has been filed in any state or other jurisdiction and neither the Borrower nor
any Subsidiary thereof has signed any such financing statement or any security
agreement authorizing any secured party thereunder to file any such financing
statement, except to perfect those Liens permitted by Section 11.2 hereof.
(s) Debt. Schedule 7.1(s) is a complete and correct listing of all Debt
of the Borrower and its Consolidated Subsidiaries as of the Closing Date in
excess of $300,000 (other than Debt permitted pursuant to Section 11.1(f)). The
Borrower and its Consolidated Subsidiaries have performed and are in compliance
in all material respects with all of the terms of such Debt and all instruments
and agreements relating thereto, and no default or event of default, or event or
condition which with notice or lapse of time or both would constitute such a
default or event of default on the part of the Borrower or its Consolidated
Subsidiaries exists with respect to any such Debt.
(t) Litigation. As of the Closing Date, except as set forth on Schedule
7.1(t), there are no actions, suits or proceedings pending nor, to the knowledge
of the Borrower, threatened against or in any other way relating adversely to or
affecting the Borrower or any Subsidiary thereof or any of their respective
properties in any court or before any arbitrator of any kind or before or by any
Governmental Authority except for matters which could not reasonably be expected
to have a Material Adverse Effect on the Borrower and its Subsidiaries.
(u) Absence of Defaults. No event has occurred or is continuing which
constitutes a Default or an Event of Default, or which constitutes, or which
with the passage of time or giving of notice or both would constitute, a default
or event of default by the Borrower or any Consolidated Subsidiary thereof under
any Material Contract or judgment, decree or order to which the Borrower or its
Consolidated Subsidiaries is a party or by which the Borrower or its
Consolidated Subsidiaries or any of their respective properties may be bound or
which would
42
<PAGE>
require the Borrower or its Consolidated Subsidiaries to make any payment
thereunder prior to the scheduled maturity date therefor except for matters
which could not reasonably be expected to have a Material Adverse Effect on the
Borrower and its Subsidiaries.
(v) Public Filings. There have been no material misstatements or omissions
in any annual report on Form 10-K, quarterly report on Form 10-Q, current report
on Form 8-K, or any amendment to any of the foregoing filed by Kinder Morgan
Energy with the SEC with respect to the Fiscal Year ended December 31, 1997 or
thereafter.
(x) Accuracy and Completeness of Other Information. To the Borrower's
knowledge, all written information, reports and other papers and data produced
by or on behalf of the Borrower or any Subsidiary thereof and furnished to the
Lenders in connection with this Agreement were, at the time the same were so
furnished, complete and correct in all respects to the extent necessary to give
the recipient a true and accurate knowledge of the subject matter thereof. No
document furnished or written statement made to the Administrative Agent or the
Lenders by the Borrower or any Subsidiary thereof in connection with the
negotiation, preparation or execution of this Agreement or any of the Loan
Documents contains or will contain, to the Borrower's knowledge, any untrue
statement of a fact material to the creditworthiness of the Borrower or its
Subsidiaries or omits or will omit to state a fact necessary in order to make
the statements contained therein not misleading. The Borrower is not aware of
any facts which it has not disclosed in writing to the Administrative Agent
having a Material Adverse Effect, or insofar as the Borrower can now foresee,
could reasonably be expected to have a Material Adverse Effect.
SECTION 7.2. Survival of Representations and Warranties, Etc. All
representations and warranties set forth in this Article VII and all
representations and warranties contained in any certificate, or any of the Loan
Documents (including but not limited to any such representation or warranty made
in or in connection with any amendment thereto) shall constitute representations
and warranties made under this Agreement. All representations and warranties
made under this Agreement shall be made or deemed to be made at and as of the
Closing Date, shall survive the Closing Date and shall not be waived by the
execution and delivery of this Agreement, any investigation made by or on behalf
of the Lenders or any borrowing hereunder.
ARTICLE VIII
------------
FINANCIAL INFORMATION AND NOTICES
---------------------------------
Until all the Obligations have been paid and satisfied in full and the
Credit Facilities terminated, unless consent has been obtained in the manner set
forth in Section 14.11 hereof, the Borrower will furnish or cause to be
furnished to the Administrative Agent at the Administrative Agent's Office at
the address set forth in Section 14.1 hereof and to the Lenders at their
respective addresses as set forth on Schedule 1, or such other office as may be
designated by the Administrative Agent and Lenders from time to time:
43
<PAGE>
SECTION 8.1. Financial Statements.
(a) Quarterly Financial Statements. As soon as practicable and in any
event within sixty (60) days after the end of each Fiscal Quarter, an unaudited
Consolidated and consolidating balance sheet of the Borrower and its
Consolidated Subsidiaries as of the close of such Fiscal Quarter and unaudited
Consolidated and consolidating statements of income, retained earnings and cash
flows for the Fiscal Quarter then ended and that portion of the Fiscal Year then
ended, along with the corresponding figures for the preceding Fiscal Year and
prepared by the Borrower in accordance with GAAP and, if applicable, containing
disclosure of the effect on the financial position or results of operations of
any change in the application of accounting principles and practices during the
period, and certified by the chief financial officer of the Borrower to present
fairly in all material respects the financial condition of the Borrower and its
Consolidated Subsidiaries as of their respective dates and the results of
operations of the Borrower and its Consolidated Subsidiaries for the respective
periods then ended, subject to normal year end adjustments.
(b) Annual Financial Statements. As soon as practicable and in any event
within one-hundred twenty (120) days after the end of each Fiscal Year, an
audited Consolidated and consolidating balance sheet of the Borrower and its
Consolidated Subsidiaries as of the close of such Fiscal Year and audited
Consolidated and consolidating statements of income, retained earnings and cash
flows for the Fiscal Year then ended, including the notes thereto, along with
the corresponding figures for the preceding Fiscal Year and audited by an
independent certified public accounting firm acceptable to the Administrative
Agent (which acceptance shall not be unreasonably withheld) in accordance with
GAAP and, if applicable, containing disclosure of the effect on the financial
position or results of operation of any change in the application of accounting
principles and practices during the year, and accompanied by a report thereon by
such certified public accountants that is not qualified with respect to scope
limitations imposed by the Borrower or any of its Consolidated Subsidiaries or
with respect to accounting principles followed by the Borrower or any of its
Consolidated Subsidiaries not in accordance with GAAP.
SECTION 8.2. Compliance Certificates. At each time financial statements are
delivered pursuant to Sections 8.1 (a) or (b), the Borrower shall deliver to the
Administrative Agent (a) an Officer's Compliance Certificate duly executed by
the chief executive officer or chief financial officer of the Borrower, and (b)
in the case of financial statements delivered pursuant to Section 8.1(b), a
certificate of the independent public accountants certifying such financial
statements stating that in making the examination necessary for the
certification of such financial statements, they obtained no knowledge of any
Default or Event of Default, or if such is not the case, specifying such Default
or Event of Default and its nature and period of existence.
SECTION 8.3. Other Reports.
(a) Promptly upon receipt thereof, copies of all reports, if any,
submitted to the Borrower or its Board of Directors or any Subsidiary by its
independent public accountants in connection with their auditing function,
including, without limitation, any management report and any management
responses thereto;
44
<PAGE>
(b) Promptly upon its becoming available, each financial statement,
report, notice or proxy statement sent by the Borrower or any of its
Subsidiaries to shareholders or partners generally and each regular or periodic
report and any final, effective registration statement or prospectus or written
communication (other than transmittal letters) filed by the Borrower or any of
its Subsidiaries with or received by the Borrower or any of its Subsidiaries in
connection therewith from any securities exchange or the SEC or any successor
agency which could reasonably be expected to have a Material Adverse Effect; and
(c) Such other information regarding the operations, business affairs and
financial condition of the Borrower or any of its Subsidiaries as the
Administrative Agent or any Lender may reasonably request.
SECTION 8.4. Notice of Litigation and Other Matters. Prompt (but in no
event later than five (5) Business Days after an officer of the Borrower obtains
knowledge thereof) telephonic and written notice of:
(a) the commencement of all proceedings and investigations by or before
any Governmental Authority and all actions and proceedings in any court or
before any arbitrator against or involving the Borrower or any Subsidiary
thereof or any of their respective properties, assets or businesses which in any
such case could reasonably be expected to have a Material Adverse Effect;
(b) any notice of any violation received by the Borrower or any Subsidiary
thereof from any Governmental Authority including, without limitation, any
notice of violation of Environmental Laws which in any such case could
reasonably be expected to have a Material Adverse Effect;
(c) any labor controversy that has resulted in, or threatens to result in,
a strike or other work action against the Borrower or any Subsidiary thereof
which in any such case could reasonably be expected to have a Material Adverse
Effect;
(d) any attachment, judgment, lien, levy or order that may be assessed
against or threatened against the Borrower or any Subsidiary thereof which could
reasonably be expected to have a Material Adverse Effect;
(e) any Default or Event of Default, or any event which constitutes or
which with the passage of time or giving of notice or both would constitute a
default or event of default under any Material Contract to which the Borrower or
any of its Consolidated Subsidiaries is a party or by which the Borrower or any
Consolidated Subsidiary thereof or any of their respective properties may be
bound;
(f) (i) any unfavorable determination letter from the Internal Revenue
Service regarding the qualification of an Employee Benefit Plan under Section
401(a) of the Code (along with a copy thereof), (ii) all notices received by the
Borrower or any ERISA Affiliate of the PBGC's intent to terminate any Pension
Plan or to have a trustee appointed to administer any Pension Plan, (iii) all
notices received by the Borrower or any ERISA Affiliate from a Multiemployer
Plan sponsor concerning the imposition or amount of withdrawal liability
pursuant to Section 4202 of ERISA and
45
<PAGE>
(iv) the Borrower obtaining knowledge or reason to know that the Borrower or any
ERISA Affiliate has filed or intends to file a notice of intent to terminate any
Pension Plan under a distress termination within the meaning of Section 4041(c)
of ERISA; and
(g) any event which makes any of the representations set forth in Section
7.1 inaccurate in any respect.
SECTION 8.5. Accuracy of Information. All written information, reports,
statements and other papers and data furnished by or on behalf of the Borrower
to the Administrative Agent or any Lender (other than financial forecasts)
whether pursuant to this Article VIII or any other provision of this Agreement,
or any of the Security Agreement, shall be, at the time the same is so
furnished, complete and correct in all material respects to the extent necessary
to give the Administrative Agent or any Lender complete, true and accurate
knowledge of the subject matter based on the Borrower's knowledge thereof.
ARTICLE IX
----------
AFFIRMATIVE COVENANTS
---------------------
Until all of the Obligations have been paid and satisfied in full and the
Credit Facilities terminated, unless consent has been obtained in the manner
provided for in Section 14.11, the Borrower hereby covenants to the
Administrative Agent and Lenders that:
SECTION 9.1. Preservation of Corporate Existence and Related Matters.
Except as permitted by Section 11.4, the Borrower will and will cause its
Consolidated Subsidiaries to preserve and maintain its separate corporate
existence and all rights, franchises, licenses and privileges necessary to the
conduct of its business, and qualify and remain qualified as a foreign
corporation and authorized to do business in each jurisdiction in which the
failure to so qualify would have a Material Adverse Effect.
SECTION 9.2. Maintenance of Property. The Borrower will and will cause its
Subsidiaries to protect and preserve all properties useful in and material to
its business, including copyrights, patents, trade names and trademarks;
maintain in good working order and condition (ordinary wear and tear excepted)
all buildings, equipment and other tangible real and personal property material
to its operations; and from time to time make or cause to be made all renewals,
replacements and additions to such property necessary for the conduct of its
business as then contemplated, so that the business carried on in connection
therewith may be properly and advantageously conducted at all times.
SECTION 9.3. Insurance. The Borrower will and will cause its Subsidiaries
to maintain insurance with financially sound and reputable insurance companies
against such risks and in such amounts as are customarily maintained by similar
businesses and as may be required by Applicable Law and the Security Agreement,
and on the Closing Date and from time to time thereafter deliver to the
Administrative Agent upon its request a detailed list of the insurance then in
effect, stating the names of the insurance companies, the amounts and rates of
the insurance, the dates of the expiration thereof and the properties and risks
covered thereby.
46
<PAGE>
SECTION 9.4. Accounting Methods and Financial Records. The Borrower will
and will cause its Subsidiaries to maintain a system of accounting, and keep
such books, records and accounts (which shall be true and complete in all
material respects) as may be required or as may be necessary to permit the
preparation of financial statements in accordance with GAAP and in compliance
with the regulations of any Governmental Authority having jurisdiction over it
or any of its properties.
SECTION 9.5. Payment and Performance of Obligations. The Borrower will and
will cause its Subsidiaries to pay and perform all Obligations under this
Agreement and the other Loan Documents, and, except for matters that could not
reasonably be expected to have a Material Adverse Effect, pay or perform (a) all
taxes, assessments and other governmental charges that may be levied or assessed
upon it or any of its property, and (b) all other indebtedness, obligations and
liabilities in accordance with customary trade practices; provided, that the
Borrower or such Subsidiary may contest any item described in this Section 9.5
in good faith so long as adequate reserves are maintained with respect thereto
in accordance with GAAP.
SECTION 9.6. Compliance With Laws and Approvals. The Borrower will and will
cause its Subsidiaries to observe and remain in compliance with all Applicable
Laws and maintain in full force and effect all Governmental Approvals, in each
case applicable to the conduct of its business except where the failure to do so
could not reasonably be expected to have a Material Adverse Effect..
SECTION 9.7. Environmental Laws. In addition to and without limiting the
generality of Section 9.6 and except for matters that could not reasonably be
expected to have a Material Adverse Effect, the Borrower will and will cause its
Subsidiaries to (a) comply with, and ensure such compliance by all tenants and
subtenants, if any, with, all applicable Environmental Laws and obtain and
comply with and maintain, and ensure that all tenants and subtenants obtain and
comply with and maintain, any and all licenses, approvals, notifications,
registrations or permits required by applicable Environmental Laws and (b)
conduct and complete all investigations, studies, sampling and testing, and all
remedial, removal and other actions required under Environmental Laws, and
promptly comply with all lawful orders and directives of any Governmental
Authority regarding Environmental Laws.
SECTION 9.8. Compliance with ERISA. In addition to and without limiting the
generality of Section 9.6 and except for matters that could not reasonably be
expected to have a Material Adverse Effect, the Borrower will and will cause its
Subsidiaries to (a) comply with all applicable provisions of ERISA and the
regulations and published interpretations thereunder with respect to all
Employee Benefit Plans, (b) not take any action or fail to take action the
result of which could be a liability to the PBGC or to a Multiemployer Plan, (c)
not participate in any prohibited transaction that could result in any civil
penalty under ERISA or tax under the Code, (d) operate each Employee Benefit
Plan in such a manner that will not incur any tax liability under Section 4980B
of the Code or any liability to any qualified beneficiary as defined in Section
4980B of the Code and (e) furnish to the Administrative Agent upon the
Administrative Agent's request such additional information about any Employee
Benefit Plan as may be reasonably requested by the Administrative Agent.
47
<PAGE>
SECTION 9.9. Compliance With Agreements. Except where the failure to comply
could not reasonably be expected to have a Material Adverse Effect, the Borrower
will and will cause its Subsidiaries to comply in all respects with each term,
condition and provision of all leases, agreements and other instruments entered
into in the conduct of its business including, without limitation, any Material
Contract; provided, that the Borrower or such Subsidiary may contest any such
lease, agreement or other instrument in good faith through applicable
proceedings so long as adequate reserves are maintained in accordance with GAAP.
SECTION 9.10. Conduct of Business. The Borrower will and will cause its
Consolidated Subsidiaries to engage only in businesses in substantially the same
fields as the businesses conducted on the Closing Date and in lines of business
reasonably related thereto and in lines of business in which Kinder Morgan
Energy and the KMEP Operating Subsidiaries are engaged. The Borrower will cause
Kinder Morgan Energy and the KMEP Operating Subsidiaries to engage only in
activities of the type and in such amounts as will allow Kinder Morgan Energy to
continue to qualify for an exception from treatment of a publicly traded
partnership as a corporation under Section 7704 of the Code.
SECTION 9.11. Visits and Inspections. Permit representatives of the
Administrative Agent or any Lender, from time to time upon notice and during
normal business hours to visit and inspect its properties (such visits and
inspections to occur not more frequently than once per Fiscal Quarter and in a
manner to avoid any disruption of its business activities so long as no Default
or Event of Default has occurred or is continuing); inspect, audit and make
extracts from its books, records and files, including, but not limited to,
management letters prepared by independent accountants; and discuss with its
principal officers, and its independent accountants, its business, assets,
liabilities, financial condition, results of operations and business prospects.
SECTION 9.12. Additional Collateral.
(a) Upon the acquisition by the Borrower of any property (real or
personal) or assets, or the formation or acquisition of any new Consolidated
Subsidiary, cause to be executed and delivered to the Administrative Agent, a
Security Agreement in form and substance satisfactory to the Administrative
Agent duly executed by the Borrower in favor of the Administrative Agent for the
ratable benefit of itself and the Lenders in order to secure the Obligations and
such other documents requested by the Administrative Agent to confirm all assets
of the Borrower constitute Collateral.
(b) Upon the delivery of any additional Security Agreements and Collateral
pursuant to this Section 9.12, deliver to the Administrative Agent favorable
legal opinions addressed to the Administrative Agent and Lenders in form and
substance satisfactory thereto with respect to such Security Agreement and
additional Collateral and such other documents and closing certificates as may
be reasonably requested by the Administrative Agent or Required Lenders
consistent with the terms of Article VI.
SECTION 9.13. Kinder Morgan G. P. Security Agreement. If the Leverage Ratio
pursuant to Section 10.1 of this Agreement as of March 31, 1999 is greater than
2.5 to 1.0 as evidenced by the financial statements delivered to the Lenders
pursuant to Section 8.1(a), then, at
48
<PAGE>
the Administrative Agent's request, the Borrower shall cause Kinder Morgan G.P.
to execute and deliver to the Administrative Agent no later than ten (10) days
following the date such financial statements are delivered (or in any event
within five (5) days following the date such statements are required to be
delivered), a Security Agreement in form and substance satisfactory to the
Administrative Agent granting to the Administrative Agent, for benefit of itself
and the Lenders, a security interest in the L.P. Units owned by Kinder Morgan G.
P.
SECTION 9.14. Further Assurances. Make, execute and deliver all such
additional and further acts, things, deeds and instruments as the Administrative
Agent or any Lender may reasonably require to document and consummate the
transactions contemplated hereby and to vest completely in and insure the
Administrative Agent and the Lenders their respective rights under this
Agreement, the Notes, the Letters of Credit and the other Loan Documents.
ARTICLE X
---------
FINANCIAL COVENANTS
-------------------
Until all of the Obligations have been paid and satisfied in full and the
Credit Facilities terminated, unless consent has been obtained in the manner set
forth in Section 14.11 hereof, the Borrower will not:
SECTION 10.1. Leverage Ratio. As of the end of any Fiscal Quarter during
any period set forth below, permit the ratio of (a) Debt of the Borrower and its
Consolidated Subsidiaries as of such Fiscal Quarter end to (b) KMI Cash Flow for
the period of four (4) consecutive Fiscal Quarters ending on such Fiscal Quarter
end, to exceed the corresponding ratio set forth below:
Period Ratio
------ -----
July 1, 1998 - June 30, 1999 3.50 to 1.00
July 1, 1999 and thereafter 3.00 to 1.00
SECTION 10.2. Combined Leverage Ratio. As of the end of any Fiscal Quarter
during any period set forth below, permit the ratio of (a) Combined Debt as of
such Fiscal Quarter End to (b) KMEP Cash Flow for the period of four (4)
consecutive Fiscal Quarters ending on such Fiscal Quarter end, to exceed the
corresponding ratio set forth below:
Period Ratio
------ -----
July 1, 1998 - June 30, 1999 4.50 to 1.00
July 1, 1999 and thereafter 4.35 to 1.00
SECTION 10.3 Interest Coverage Ratio. As of the end of any Fiscal Quarter
during any period set forth below, permit the ratio of (a) KMI Cash Flow for the
period of four (4) consecutive Fiscal Quarters ending on such Fiscal Quarter end
to (b) Interest Expense of the
49
<PAGE>
Borrower and its Consolidated Subsidiaries for such four (4) Fiscal Quarter
period, to be less than the corresponding ratio set forth below:
Period Ratio
------ -----
July 1, 1998 - June 30, 1999 2.50 to 1.00
July 1, 1999 and thereafter 3.00 to 1.00
SECTION 10.4 Combined Interest Coverage Ratio. As of the end of any Fiscal
Quarter during any period set forth below, permit the ratio of (a) KMEP Cash
Flow for the period of four (4) consecutive Fiscal Quarters ending on such
Fiscal Quarter end to (b) Combined Interest Expense for such four (4) Fiscal
Quarter period, to be less than the corresponding ratio set forth below:
Period Ratio
------ -----
July 1, 1998 - June 30, 1999 2.50 to 1.00
July 1, 1999 and thereafter 3.00 to 1.00
For the purposes of calculating KMI Cash Flow and KMEP Cash Flow in
Sections 10.1 through and including 10.4 with respect to (i) the Fiscal Quarter
ending September 30, 1998, such KMI Cash Flow and KMEP Cash Flow shall equal
such KMI Cash Flow and KMEP Cash Flow for such Fiscal Quarter times four (4),
(ii) the Fiscal Quarter ending December 31, 1998, such KMI Cash Flow and KMEP
Cash Flow shall equal such KMI Cash Flow and KMEP Cash Flow for the period of
two (2) consecutive Fiscal Quarters ending on such Fiscal Quarter end times two
(2) and (iii) for the Fiscal Quarter ending March 31, 1999, such KMI Cash Flow
and KMEP Cash Flow shall equal such KMI Cash Flow and KMEP Cash Flow for the
period of three (3) consecutive Fiscal Quarters ending on such Fiscal Quarter
end times four-thirds (4/3).
ARTICLE XI
----------
NEGATIVE COVENANTS
------------------
Until all of the Obligations have been paid and satisfied in full and the
Credit Facilities terminated, unless consent has been obtained in the manner set
forth in Section 14.11 hereof, the Borrower covenants and agrees that:
SECTION 11.1. Limitations on Debt. The Borrower will not and will not
permit any of its Consolidated Subsidiaries to create, incur, assume or suffer
to exist any Debt except:
(a) the Obligations;
(b) Debt of the Borrower incurred in connection with any Hedging Agreement
with a counterparty and upon terms and conditions reasonably satisfactory to the
Administrative Agent;
50
<PAGE>
(c) Debt of the Borrower and any of its Consolidated Subsidiaries existing
on the Closing Date and not otherwise permitted under this Section 11.1, as set
forth on Schedule 7.1(s) and the renewal and refinancing (but not the increase)
thereof;
(d) Debt incurred in connection with Capitalized Leases in an aggregate
amount not to exceed in the case of the Borrower, $50,000, and in the case of
its Consolidated Subsidiaries $600,000, on any date of determination;
(e) purchase money Debt of the Borrower and its Consolidated Subsidiaries
in an aggregate amount not to exceed in the case of the Borrower, $50,000, and
in the case of its Consolidated Subsidiaries $600,000, on any date of
determination;
(f) Debt of Kinder Morgan G.P. arising by operation of law solely as a
result of Kinder Morgan G.P. being the general partner of Kinder Morgan Energy
and any of the KMEP Operating Subsidiaries or any other partnership of which it
is a partner;
(g) other Debt not to exceed in the case of the Borrower, $50,000, and in
the case of its Consolidated Subsidiaries $600,000, in the aggregate at any
time; and
(h) Debt permitted under Section 11.3.
provided, that none of the Debt permitted to be incurred by this Section shall
restrict, limit or otherwise encumber (by covenant or otherwise) the ability of
any Subsidiary of the Borrower to make any payment to the Borrower or any of its
Subsidiaries (in the form of dividends, intercompany advances or otherwise) for
the purpose of enabling the Borrower to pay the Obligations.
SECTION 11.2. Limitations on Liens. The Borrower will not and will not
permit its Consolidated Subsidiaries to create, incur, assume or suffer to
exist, any Lien on or with respect to any of its assets or properties (including
without limitation shares of Capital Stock, L.P. Units or other ownership
interests), real or personal, whether now owned or hereafter acquired, except:
(a) Liens for taxes, assessments and other governmental charges or levies
not yet due or as to which the period of grace, if any, related thereto has not
expired or which are being contested in good faith and by appropriate
proceedings if adequate reserves are maintained to the extent required by GAAP;
(b) the claims of materialmen, mechanics, carriers, warehousemen,
processors or landlords for labor, materials, supplies or rentals incurred in
the ordinary course of business, (i) which are not overdue for a period of more
than thirty (30) days or (ii) which are being contested in good faith and by
appropriate proceedings;
(c) Liens consisting of deposits or pledges made in the ordinary course of
business in connection with, or to secure payment of, obligations under workers'
compensation, unemployment insurance or similar legislation or obligations under
customer service contracts;
51
<PAGE>
(d) Liens constituting encumbrances in the nature of zoning restrictions,
easements and rights or restrictions of record on the use of real property,
which in the aggregate are not substantial in amount and which do not, in any
case, detract from the value of such property or impair the use thereof in the
ordinary conduct of business;
(e) Liens in favor of the Administrative Agent for the ratable benefit of
the Administrative Agent and the Lenders;
(f) Liens not otherwise permitted by this Section 11.2 and in existence on
the Closing Date and described on Schedule 11.2; and the replacement or
extension thereof to the extent the related Debt is permitted pursuant to
Section 11.1(c);
(g) Judgment Liens which do not create an Event of Default under Sections
12.1(m) or (o); and
(h) Liens securing Debt permitted under Section 11.1(d), (e) and (g);
provided that (i) such Liens shall be created substantially simultaneously with
the acquisition of the related asset, (ii) such Liens do not at any time
encumber any property other than the property financed by such Debt, (iii) the
amount of Debt secured thereby is not increased and (iv) the principal amount of
Debt secured by any such Lien shall at no time exceed one hundred percent (100%)
of the original purchase price of such property at the time it was acquired.
SECTION 11.3. Limitations on Loans, Advances, Investments and Acquisitions.
The Borrower will not and will not permit any of its Consolidated Subsidiaries
to purchase, own, invest in or otherwise acquire, directly or indirectly, any
Capital Stock, interests in any partnership or joint venture (including without
limitation the creation or capitalization of any Subsidiary), evidence of Debt
or other obligation or security, substantially all or a portion of the business
or assets of any other Person or any other investment or interest whatsoever in
any other Person, or make or permit to exist, directly or indirectly, any loans,
advances or extensions of credit to, or any investment in cash or by delivery of
property in, any Person, or enter into, directly or indirectly, any commitment
or option in respect of the foregoing except:
(a) investments in Subsidiaries existing on the Closing Date, intercompany
loans and advances between the Borrower and its Consolidated Subsidiaries and
the other existing loans, advances and investments described on Schedule 11.3;
(b) investments in (i) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or any agency thereof
maturing within one (1) year from the date of acquisition thereof, (ii)
commercial paper maturing no more than one (1) year from the date of creation
thereof and currently having one of the two highest ratings obtainable from
either Standard & Poor's Rating's Group, a Division of McGraw-Hill Corporation
or Moody's Investors Service, Inc., (iii) certificates of deposit maturing no
more than one (1) year from the date of creation thereof issued by commercial
banks incorporated under the laws of the United States of America, each having
combined capital, surplus and undivided profits of not less than $500,000,000
and having a rating of "A" or better by a nationally recognized rating agency
(collectively, "Cash
52
<PAGE>
Equivalents"); provided, that the aggregate amount invested in such certificates
of deposit shall not at any time exceed $5,000,000 for any one such certificate
of deposit and $10,000,000 for any one such bank, or (iv) time deposits maturing
no more than 30 days from the date of creation thereof with commercial banks or
savings banks or savings and loan associations each having membership either in
the FDIC or the deposits of which are insured by the FDIC and in amounts not
exceeding the maximum amounts of insurance thereunder;
(c) investments by the Borrower or any Consolidated Subsidiary in the form
of acquisitions of all or substantially all of the business or a line of
business (whether by the acquisition of Capital Stock, assets or any combination
thereof) of any other Person if such acquisition has been previously approved in
writing by the Required Lenders;
(d) investments by the Borrower or any Consolidated Subsidiary in the form
of capital contributions as required by the partnership agreements of Kinder
Morgan Energy, the KMEP Operating Subsidiaries and any other partnership of
which the Borrower or any of its Consolidated Subsidiaries is or becomes a
partner; provided, that (i) the direct ownership interest of the Borrower or any
such Consolidated Subsidiary in each such partnership is not greater than 2.0%
and (ii) the Borrower shall demonstrate to the satisfaction of the
Administrative Agent pro forma compliance with the financial covenants contained
in Article X after giving pro forma effect to such investment; and
(e) investments by the Borrower or any Consolidated Subsidiary in respect
of the creation of any additional Subsidiaries except for Subsidiaries with the
following characteristics: (i) the Subsidiaries are Subsidiaries of Kinder
Morgan Energy, (ii) the Borrower is not a partner or member of such Subsidiary,
and (iii) if Kinder Morgan G.P. is a partner or member of such Subsidiary its
direct ownership interest is not greater than 2.0%.
SECTION 11.4. Limitations on Mergers and Liquidation. The Borrower will not
and will not permit any of its Consolidated Subsidiaries to merge, consolidate
or enter into any similar combination with any other Person or liquidate,
wind-up or dissolve itself (or suffer any liquidation or dissolution) except:
(a) any Wholly-Owned Subsidiary of the Borrower may merge with or be wound
up into the Borrower or any other Wholly-Owned Subsidiary of the Borrower (as
long as the Borrower is the survivor of any such transaction involving the
Borrower); and
(b) any Wholly-Owned Subsidiary may merge into the Person such
Wholly-Owned Subsidiary was formed to acquire in connection with an acquisition
permitted by Section 11.3(c).
SECTION 11.5. Limitations on Sale of Assets. The Borrower will not and will
not permit its Consolidated Subsidiaries to convey, sell, lease, assign,
transfer or otherwise dispose of any of its property, business or assets
(including, without limitation, the sale of any receivables and leasehold
interests and any sale-leaseback or similar transaction), whether now owned or
hereafter acquired except:
(a) the sale of Inventory in the ordinary course of business;
53
<PAGE>
(b) the sale of obsolete assets no longer used or usable in the business
of the Borrower or any of its Consolidated Subsidiaries;
(c) the transfer of assets to the Borrower or any Wholly-Owned Subsidiary
of the Borrower pursuant to Section 11.4(a);
(d) the sale or discount without recourse of accounts receivable arising
in the ordinary course of business in connection with the compromise or
collection thereof;
(e) the sale or disposition of assets by the Borrower or any of its
Consolidated Subsidiaries in the ordinary course of business in an aggregate
amount not to exceed $500,000 at any time during the term of this Agreement;
(f) any other sale or disposition of assets by the Borrower or it
Consolidated Subsidiaries in the ordinary course of business, as long as the Net
Cash Proceeds are applied as set forth in Section 5.4(d); and
(g) the sale or disposition of assets as permitted by Section 11.6.
SECTION 11.6. Limitations on Dividends and Distributions. The Borrower will
not and will not permit any of its Consolidated Subsidiaries to declare or pay
any dividends upon any of its Capital Stock; purchase, redeem, retire or
otherwise acquire, directly or indirectly, any shares of its Capital Stock, or
make any distribution of cash, property or assets among the holders of shares of
its Capital Stock, or make any change in its capital structure that could
reasonably be expected to have a Material Adverse Effect; provided that:
(a) the Borrower may pay the KMI Dividend;
(b) the Borrower or any Consolidated Subsidiary may pay dividends in
shares of its own Capital Stock;
(c) any Consolidated Subsidiary may pay cash dividends to the Borrower;
and
(d) the Borrower may from time to time pay cash dividends to its
shareholders or redeem shares of its Capital Stock in an amount equal to any
remaining Excess Cash Flow after all mandatory prepayments of Excess Cash Flow
then due have been made pursuant to Section 5.4(f) and Section 5.4(g)(ii).
SECTION 11.7. Limitations on Exchange and Issuance of Capital Stock. The
Borrower will not and will not permit any of its Consolidated Subsidiaries
hereafter to (a) issue, sell or otherwise dispose of any class or series of
Capital Stock that, by its terms or by the terms of any security into which it
is convertible or exchangeable, is, or upon the happening of an event or passage
of time would be, (i) convertible or exchangeable into Debt or (ii) required to
be redeemed or repurchased, including at the option of the holder, in whole or
in part, or has, or upon the happening of an event or passage of time would
have, a redemption or similar payment due or (b)
54
<PAGE>
issue any Capital Stock of a Subsidiary (excluding Kinder Morgan Energy and its
Subsidiaries) except to the Borrower and Kinder Morgan G.P.
SECTION 11.8. Transactions with Affiliates. Except as provided on Schedule
11.8, the Borrower will not and will not permit any Consolidated Subsidiary
thereof to directly or indirectly: (a) make any loan or advance to, or purchase
or assume any note or other obligation to or from, any of its officers,
directors, shareholders or other Affiliates, or to or from any member of the
immediate family of any of its officers, directors, shareholders or other
Affiliates, or subcontract any operations to any of its Affiliates, or (b) enter
into, or be a party to, any transaction with any of its Affiliates, except
pursuant to the reasonable requirements of its business and upon fair and
reasonable terms that are no less favorable to it than it would obtain in a
comparable arm's length transaction with a Person not its Affiliate.
SECTION 11.9. Certain Accounting Changes. The Borrower will not and will
not permit any of its Consolidated Subsidiaries to change its Fiscal Year end,
or make any change in its accounting treatment and reporting practices except as
required by GAAP.
SECTION 11.10. Material Amendments. The Borrower will not and will not
permit any of its Consolidated Subsidiaries to amend or modify its articles of
incorporation, by-laws, corporate structure, capitalization, partnership
agreements or any other agreement relating to its partnership interests in any
way that could reasonably be expected to have a Material Adverse Effect.
SECTION 11.11. Operating Leases. The Borrower will not and will not permit
any of its Consolidated Subsidiaries to enter into lease agreements (whether for
real or personal property), other than Capital Leases, under which the aggregate
amount of all lease payments pursuant to such lease agreements exceed $50,000 in
the case of the Borrower and $600,000 in the case of its Consolidated
Subsidiaries in any period of twelve (12) consecutive calendar months.
SECTION 11.12. Restrictive Agreements. The Borrower will not and will not
permit any of its Consolidated Subsidiaries to enter into any Debt which
contains any negative pledge on the assets of the Borrower or any of its
Consolidated Subsidiaries or any covenants materially more restrictive than the
provisions of Articles IX, X and XI hereof, or which restricts, limits or
otherwise encumbers its ability to incur Liens on or with respect to any of its
assets or properties other than the assets or properties securing such Debt.
ARTICLE XII
-----------
DEFAULT AND REMEDIES
--------------------
SECTION 12.1. Events of Default. Each of the following shall constitute an
Event of Default, whatever the reason for such event and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment or order of any court or any order, rule or regulation of any
Governmental Authority or otherwise:
55
<PAGE>
(a) Default in Payment of Principal of Loans and Reimbursement
Obligations. The Borrower shall default in any payment of principal of any Loan,
Note or Reimbursement Obligation when and as due (whether at maturity, by reason
of acceleration or otherwise).
(b) Other Payment Default. The Borrower shall default in the payment when
and as due (whether at maturity, by reason of acceleration or otherwise) of
interest on any Loan, Note or Reimbursement Obligation or the payment of any
other Obligation, and such default shall continue unremedied for three (3)
Business Days.
(c) Misrepresentation. Any representation or warranty made or deemed to
be made by the Borrower or any of its Consolidated Subsidiaries under this
Agreement, any Loan Document or any amendment hereto or thereto, shall at any
time prove to have been incorrect or misleading in any material respect when
made or deemed made.
(d) Default in Performance of Certain Covenants. The Borrower shall
default in the performance or observance of any covenant or agreement contained
in Sections 8.4(e) or Articles X or XI of this Agreement.
(e) Default in Performance of Other Covenants and Conditions. The Borrower
or any of its Consolidated Subsidiaries shall default in the performance or
observance of any term, covenant, condition or agreement contained in this
Agreement (other than as specifically provided for otherwise in this Section
12.1) or any other Loan Document and such default shall continue for a period of
thirty (30) days after written notice thereof has been given to the Borrower by
the Administrative Agent.
(f) Hedging Agreement. Any termination payment shall be due by the
Borrower under any Hedging Agreement and such amount is not paid within Five (5)
Business Days of the due date thereof.
(g) Debt Cross-Default. The Borrower or any of its Consolidated
Subsidiaries shall (i) default in the payment of any Debt (other than the Notes
or any Reimbursement Obligation) the aggregate outstanding amount of which Debt
is in excess of $300,000 beyond the period of grace if any, provided in the
instrument or agreement under which such Debt was created, or (ii) default in
the observance or performance of any other agreement or condition relating to
any Debt (other than the Notes or any Reimbursement Obligation) the aggregate
outstanding amount of which Debt is in excess of $300,000 or contained in any
instrument or agreement evidencing, securing or relating thereto or any other
event shall occur or condition exist, the effect of which default or other event
or condition is to cause, or to permit the holder or holders of such Debt (or a
trustee or agent on behalf of such holder or holders) to cause, with the giving
of notice if required, any such Debt to become due prior to its stated maturity
(any applicable grace period having expired).
(h) Change in Control. Any person or group of persons (within the meaning
of Section 13(d) of the Securities Exchange Act of 1934, as amended), other than
Richard D. Kinder and William V. Morgan (directly or indirectly) shall obtain
ownership or control in one or more series of transactions of more than fifty
percent (50%) of the common stock or fifty
56
<PAGE>
percent (50%) of the voting power of the Borrower entitled to vote in the
election of the board of directors of the Borrower (any such event, a "Change of
Control").
(i) Voluntary Bankruptcy Proceeding. The Borrower shall (i) commence a
voluntary case under the federal bankruptcy laws (as now or hereafter in
effect), (ii) file a petition seeking to take advantage of any other laws,
domestic or foreign, relating to bankruptcy, insolvency, reorganization, winding
up or composition for adjustment of debts, (iii) consent to or fail to contest
in a timely and appropriate manner any petition filed against it in an
involuntary case under such bankruptcy laws or other laws, (iv) apply for or
consent to, or fail to contest in a timely and appropriate manner, the
appointment of, or the taking of possession by, a receiver, custodian, trustee,
or liquidator of itself or of a substantial part of its property, domestic or
foreign, (v) admit in writing its inability to pay its debts as they become due,
(vi) make a general assignment for the benefit of creditors, or (vii) take any
corporate action for the purpose of authorizing any of the foregoing.
(j) Involuntary Bankruptcy Proceeding. A case or other proceeding shall
be commenced against the Borrower in any court of competent jurisdiction seeking
(i) relief under the federal bankruptcy laws (as now or hereafter in effect) or
under any other laws, domestic or foreign, relating to bankruptcy, insolvency,
reorganization, winding up or adjustment of debts, or (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like for the Borrower or for all
or any substantial part of its assets, domestic or foreign, and such case or
proceeding shall continue undismissed or unstayed for a period of sixty (60)
consecutive days, or an order granting the relief requested in such case or
proceeding (including, but not limited to, an order for relief under such
federal bankruptcy laws) shall be entered.
(k) Failure of Agreements. Any provision of this Agreement or of any
other Loan Document shall for any reason cease to be valid and binding in all
material respects on the Borrower or Subsidiary party thereto or any such Person
shall so state in writing, or this Agreement or any other Loan Document shall
for any reason cease to create a valid and perfected first priority Lien on, or
security interest in, any of the collateral purported to be covered thereby, in
each case other than in accordance with the express terms hereof or thereof.
(l) Termination Event. The occurrence of any of the following events: (i)
the Borrower or any ERISA Affiliate fails to make full payment when due of all
amounts which, under the provisions of any Pension Plan or Section 412 of the
Code, the Borrower or any ERISA Affiliate is required to pay as contributions
thereto, (ii) an accumulated funding deficiency in excess of $5,000,000 occurs
or exists, whether or not waived, with respect to any Pension Plan, (iii) a
Termination Event or (iv) the Borrower or any ERISA Affiliate as employers under
one or more Multiemployer Plan makes a complete or partial withdrawal from any
such Multiemployer Plan and the plan sponsor of such Multiemployer Plans
notifies such withdrawing employer that such employer has incurred a withdrawal
liability requiring payments in an amount exceeding $5,000,000.
(m) Judgment. A judgment or order for the payment of money which causes
the aggregate amount of all such judgments to exceed $5,000,000 in any Fiscal
Year shall be entered
57
<PAGE>
against the Borrower or any of its Consolidated Subsidiaries by any court and
such judgment or order shall continue undischarged, unstayed or unbonded for a
period of thirty (30) days.
(o) Kinder Morgan G.P., etc. Kinder Morgan G.P. or any other Consolidated
Subsidiary takes, suffers or permits to exist any of the events or conditions
referred to in paragraphs (i), (j) or (m).
(p) Kinder Morgan Energy, etc. Kinder Morgan Energy, the KMEP Operating
Subsidiaries or any of their respective Subsidiaries takes, suffers or permits
to exist any of the events or conditions referred to in paragraphs (i) or (j)
hereof which would result in a Material Adverse Effect for Kinder Morgan Energy
and its Subsidiaries taken as a whole.
(q) Kinder Morgan Energy, etc. Debt Cross-Default.Kinder Morgan Energy or
any of its Subsidiaries shall default in the payment when due of any principal
of or interest on any of its Debt, the aggregate amount of which equals or
exceeds $5,000,000.
SECTION 12.2. Remedies. Upon the occurrence and continuance of an Event of
Default, with the consent of the Required Lenders, the Administrative Agent may,
or upon the request of the Required Lenders, the Administrative Agent shall, by
notice to the Borrower:
(a) Acceleration; Termination of Credit Facilities. Declare the principal
of and interest on the Loans, the Notes and the Reimbursement Obligations at the
time outstanding, and all other amounts owed to the Lenders and to the
Administrative Agent under this Agreement or any of the other Loan Documents
(including, without limitation, all L/C Obligations, whether or not the
beneficiaries of the then outstanding Letters of Credit shall have presented the
documents required thereunder) and all other Obligations, to be forthwith due
and payable, whereupon the same shall immediately become due and payable without
presentment, demand, protest or other notice of any kind, all of which are
expressly waived, anything in this Agreement or the other Loan Documents to the
contrary notwithstanding, and terminate the Credit Facilities; provided, that
upon the occurrence of an Event of Default specified in Section 12.1(i) or (j),
the Credit Facilities shall be automatically terminated and all Obligations
shall automatically become due and payable.
(b) Letters of Credit. With respect to all Letters of Credit with respect
to which presentment for honor shall not have occurred at the time of an
acceleration pursuant to the preceding paragraph, require the Borrower at such
time to deposit in a cash collateral account opened by the Administrative Agent
an amount in cash equal to the aggregate then undrawn and unexpired amount of
such Letters of Credit. Amounts held in such cash collateral account shall be
applied by the Administrative Agent to the payment of drafts drawn under such
Letters of Credit, and the unused portion thereof after all such Letters of
Credit shall have expired or been fully drawn upon, if any, shall be applied to
repay the other Obligations. After all such Letters of Credit shall have expired
or been fully drawn upon, the Reimbursement Obligation shall have been satisfied
and all other Obligations shall have been paid in full, the balance, if any, in
such cash collateral account shall be returned to the Borrower.
58
<PAGE>
(c) Rights of Collection. Exercise on behalf of the Lenders all of its
other rights and remedies under this Agreement, the other Loan Documents and
Applicable Law, in order to satisfy all of the Borrower's Obligations.
SECTION 12.3. Rights and Remedies Cumulative; Non-Waiver; etc.. The
enumeration of the rights and remedies of the Administrative Agent and the
Lenders set forth in this Agreement is not intended to be exhaustive and the
exercise by the Administrative Agent and the Lenders of any right or remedy
shall not preclude the exercise of any other rights or remedies, all of which
shall be cumulative, and shall be in addition to any other right or remedy given
hereunder or under the Loan Documents or that may now or hereafter exist in law
or in equity or by suit or otherwise. No delay or failure to take action on the
part of the Administrative Agent or any Lender in exercising any right, power or
privilege shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or privilege preclude other or further
exercise thereof or the exercise of any other right, power or privilege or shall
be construed to be a waiver of any Event of Default. No course of dealing
between the Borrower, the Administrative Agent and the Lenders or their
respective agents or employees shall be effective to change, modify or discharge
any provision of this Agreement or any of the other Loan Documents or to
constitute a waiver of any Event of Default.
ARTICLE XIII
------------
THE ADMINISTRATIVE AGENT
------------------------
SECTION 13.1. Appointment. Each of the Lenders hereby irrevocably
designates and appoints First Union as Administrative Agent of such Lender under
this Agreement and the other Loan Documents and each such Lender irrevocably
authorizes First Union as Administrative Agent for such Lender, to take such
action on its behalf under the provisions of this Agreement and the other Loan
Documents and to exercise such powers and perform such duties as are expressly
delegated to the Administrative Agent by the terms of this Agreement and such
other Loan Documents, together with such other powers as are reasonably
incidental thereto. Notwithstanding any provision to the contrary elsewhere in
this Agreement or such other Loan Documents, the Administrative Agent shall not
have any duties or responsibilities, except those expressly set forth herein and
therein, or any fiduciary relationship with any Lender, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or the other Loan Documents or otherwise exist
against the Administrative Agent.
SECTION 13.2. Delegation of Duties. The Administrative Agent may execute
any of its respective duties under this Agreement and the other Loan Documents
by or through agents or attorneys-in-fact and shall be entitled to advice of
counsel concerning all matters pertaining to such duties. The Administrative
Agent shall not be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by the Administrative Agent with reasonable care.
SECTION 13.3. Exculpatory Provisions. Neither the Administrative Agent nor
any of its officers, directors, employees, agents, attorneys-in-fact,
Subsidiaries or Affiliates shall be (a) liable for any action lawfully taken or
omitted to be taken by it or such Person under or in connection with this
Agreement or the other Loan Documents (except for actions occasioned solely by
its or such
59
<PAGE>
Person's own gross negligence or willful misconduct), or (b) responsible in any
manner to any of the Lenders for any recitals, statements, representations or
warranties made by the Borrower or any of its Subsidiaries or any officer
thereof contained in this Agreement or the other Loan Documents or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Administrative Agent under or in connection with, this
Agreement or the other Loan Documents or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or the other Loan
Documents or for any failure of the Borrower or any of its Subsidiaries to
perform its obligations hereunder or thereunder. The Administrative Agent shall
not be under any obligation to any Lender to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, this Agreement, or to inspect the properties, books or records of the
Borrower or any of its Subsidiaries.
SECTION 13.4. Reliance by the Administrative Agent. The Administrative
Agent shall be entitled to rely, and shall be fully protected in relying, upon
any note, writing, resolution, notice, consent, certificate, affidavit, letter,
cablegram, telegram, telecopy, telex or teletype message, statement, order or
other document or conversation believed by it to be genuine and correct and to
have been signed, sent or made by the proper Person or Persons and upon advice
and statements of legal counsel (including, without limitation, counsel to the
Borrower), independent accountants and other experts selected by the
Administrative Agent. The Administrative Agent may deem and treat the payee of
any Note as the owner thereof for all purposes unless such Note shall have been
transferred in accordance with Section 14.10 hereof. The Administrative Agent
shall be fully justified in failing or refusing to take any action under this
Agreement and the other Loan Documents unless it shall first receive such advice
or concurrence of the Required Lenders (or, when expressly required hereby or by
the relevant other Loan Document, all the Lenders) as it deems appropriate or it
shall first be indemnified to its satisfaction by the Lenders against any and
all liability and expense which may be incurred by it by reason of taking or
continuing to take any such action except for its own gross negligence or
willful misconduct. The Administrative Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement and the
Notes in accordance with a request of the Required Lenders (or, when expressly
required hereby, all the Lenders), and such request and any action taken or
failure to act pursuant thereto shall be binding upon all the Lenders and all
future holders of the Notes.
SECTION 13.5. Notice of Default. The Administrative Agent shall not be
deemed to have knowledge or notice of the occurrence of any Default or Event of
Default hereunder unless it has received notice from a Lender or the Borrower
referring to this Agreement, describing such Default or Event of Default and
stating that such notice is a "notice of default". In the event that the
Administrative Agent receives such a notice, it shall promptly give notice
thereof to the Lenders. The Administrative Agent shall take such action with
respect to such Default or Event of Default as shall be reasonably directed by
the Required Lenders; provided that unless and until the Administrative Agent
shall have received such directions, the Administrative Agent may (but shall not
be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable in the
best interests of the Lenders.
SECTION 13.6. Non-Reliance on the Administrative Agent and Other Lenders.
Each Lender expressly acknowledges that neither the Administrative Agent nor any
of its respective officers, directors, employees, agents, attorneys-in-fact,
Subsidiaries or Affiliates has made any
60
<PAGE>
representations or warranties to it and that no act by the Administrative Agent
hereinafter taken, including any review of the affairs of the Borrower or any of
its Subsidiaries, shall be deemed to constitute any representation or warranty
by the Administrative Agent to any Lender. Each Lender represents to the
Administrative Agent that it has, independently and without reliance upon the
Administrative Agent or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, financial and other
condition and creditworthiness of the Borrower and its Subsidiaries and made its
own decision to make its Loans and issue or participate in Letter of Credit
hereunder and enter into this Agreement. Each Lender also represents that it
will, independently and without reliance upon the Administrative Agent or any
other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit analysis, appraisals
and decisions in taking or not taking action under this Agreement and the other
Loan Documents, and to make such investigation as it deems necessary to inform
itself as to the business, operations, property, financial and other condition
and creditworthiness of the Borrower and its Subsidiaries. Except for notices,
reports and other documents expressly required to be furnished to the Lenders by
the Administrative Agent hereunder or by the other Loan Documents, the
Administrative Agent shall not have any duty or responsibility to provide any
Lender with any credit or other information concerning the business, operations,
property, financial and other condition or creditworthiness of the Borrower or
any of its Subsidiaries which may come into the possession of the Administrative
Agent or any of its respective officers, directors, employees, agents,
attorneys-in-fact, Subsidiaries or Affiliates.
SECTION 13.7. Indemnification. The Lenders agree to indemnify the
Administrative Agent in its capacity as such and (to the extent not reimbursed
by the Borrower and without limiting the obligation of the Borrower to do so),
ratably according to their respective Extensions of Credit, from and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind whatsoever which
may at any time (including, without limitation, at any time following the
payment of the Notes or any Reimbursement Obligation) be imposed on, incurred by
or asserted against the Administrative Agent in any way relating to or arising
out of this Agreement or the other Loan Documents, or any documents contemplated
by or referred to herein or therein or the transactions contemplated hereby or
thereby or any action taken or omitted by the Administrative Agent under or in
connection with any of the foregoing; provided that no Lender shall be liable
for the payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting solely from the Administrative Agent's bad faith, gross negligence or
willful misconduct. The agreements in this Section 13.7 shall survive the
payment of the Notes, any Reimbursement Obligation and all other amounts payable
hereunder and the termination of this Agreement.
SECTION 13.8. The Administrative Agent in Its Individual Capacity. The
Administrative Agent and its respective Subsidiaries and Affiliates may make
loans to, accept deposits from and generally engage in any kind of business with
the Borrower as though the Administrative Agent were not an Administrative Agent
hereunder. With respect to any Extensions of Credit made or renewed by it and
any Note issued to it, the Administrative Agent shall have the same rights and
powers under this Agreement and the other Loan Documents as any Lender and may
exercise the same as though it were not an Administrative Agent, and the terms
"Lender" and "Lenders" shall include the Administrative Agent in its individual
capacity.
61
<PAGE>
SECTION 13.9. Resignation of the Administrative Agent; Successor
Administrative Agent. Subject to the appointment and acceptance of a successor
as provided below, the Administrative Agent may resign at any time by giving
notice thereof to the Lenders and the Borrower. Upon any such resignation, the
Required Lenders shall have the right to appoint a successor Administrative
Agent, which successor shall have minimum capital and surplus of at least
$500,000,000. If no successor Administrative Agent shall have been so appointed
by the Required Lenders and shall have accepted such appointment within thirty
(30) days after the Administrative Agent's giving of notice of resignation, then
the Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative Agent, which successor shall have minimum capital and surplus of
at least $500,000,000. Upon the acceptance of any appointment as Administrative
Agent hereunder by a successor Administrative Agent, such successor
Administrative Agent shall thereupon succeed to and become vested with all
rights, powers, privileges and duties of the retiring Administrative Agent, and
the retiring Administrative Agent shall be discharged from its duties and
obligations hereunder. After any retiring Administrative Agent's resignation
hereunder as Administrative Agent, the provisions of this Section 13.9 shall
continue in effect for its benefit in respect of any actions taken or omitted to
be taken by it while it was acting as Administrative Agent.
ARTICLE XIV
-----------
MISCELLANEOUS
-------------
SECTION 14.1. Notices.
(a) Method of Communication. Except as otherwise provided in this
Agreement, all notices and communications hereunder shall be in writing, or by
telephone subsequently confirmed in writing. Any notice shall be effective if
delivered by hand delivery or sent via telecopy, recognized overnight courier
service or certified mail, return receipt requested, and shall be presumed to be
received by a party hereto (i) on the date of delivery if delivered by hand or
sent by telecopy, (ii) on the next Business Day if sent by recognized overnight
courier service and (iii) on the third Business Day following the date sent by
certified mail, return receipt requested. A telephonic notice to the
Administrative Agent as understood by the Administrative Agent will be deemed to
be the controlling and proper notice in the event of a discrepancy with or
failure to receive a confirming written notice.
(b) Addresses for Notices. Notices to any party shall be sent to it at
the following addresses, or any other address as to which all the other parties
are notified in writing.
If to the Borrower: Kinder Morgan, Inc.
1301 McKinney Street
Suite 3450
Houston, Texas 77010
Attention: Richard D. Kinder
Telephone No.(713) 844-9500
Telecopy No.:(713) 844-9570
62
<PAGE>
If to First Union as First Union National Bank
Administrative Agent: One First Union Center, DC-4
301 South College Street
Charlotte, North Carolina 28288-0608
Attention: Syndication Agency Services
Telephone No.: (704) 374-2698
Telecopy No.: (704) 383-0288
If to any Lender: To the Address set forth on
Schedule 1 hereto
(c) Administrative Agent's Office. The Administrative Agent hereby
designates its office located at the address set forth above, or any subsequent
office which shall have been specified for such purpose by written notice to the
Borrower and Lenders, as the Administrative Agent's Office referred to herein,
to which payments due are to be made and at which Extensions of Credit will be
disbursed.
SECTION 14.2. Expenses; Indemnity. The Borrower will (a) pay all reasonable
out-of-pocket expenses of the Administrative Agent in connection with: (i) the
preparation, execution and delivery of this Agreement and each other Loan
Document, whenever the same shall be executed and delivered, including without
limitation all reasonable out-of-pocket syndication and due diligence expenses
and reasonable fees and disbursements of counsel for the Administrative Agent,
(ii) the preparation, execution and delivery of any waiver, amendment or consent
by the Administrative Agent or the Lenders relating to this Agreement or any
other Loan Document, including without limitation reasonable fees and
disbursements of counsel for the Administrative Agent and (iii) the
administration and enforcement of any rights and remedies of the Administrative
Agent and Lenders under the Credit Facilities, including consulting with
appraisers, accountants, engineers, attorneys and other Persons concerning the
nature, scope or value of any right or remedy of the Administrative Agent or any
Lender hereunder or under any other Loan Document or any factual matters in
connection therewith, which expenses shall include without limitation the
reasonable fees and disbursements of such Persons, and (b) defend, indemnify and
hold harmless the Administrative Agent and the Lenders, and their respective
parents, Subsidiaries, Affiliates, employees, agents, officers and directors,
from and against any losses, penalties, fines, liabilities, settlements,
damages, costs and expenses, suffered by any such Person in connection with any
claim, investigation, litigation or other proceeding, including without
limitation, claims by a third Person with respect to the provision of the
financing contemplated hereby (whether or not the Administrative Agent or any
Lender is a party thereto) and the prosecution and defense thereof, arising out
of or in any way connected with the Agreement, any other Loan Document or the
Loans, including without limitation reasonable attorney's and consultant's fees,
except to the extent that any of the foregoing directly result from the gross
negligence or willful misconduct of the party seeking indemnification therefor
or arises solely in connection with any claim or dispute among the Lenders
regarding their respective rights, duties or performance hereunder so long as
such claim or dispute does not involve any action or inaction on the part of the
Borrower or any of its Subsidiaries.
63
<PAGE>
SECTION 14.3. Set-off. In addition to any rights now or hereafter granted
under Applicable Law and not by way of limitation of any such rights, upon and
after the occurrence of any Event of Default and during the continuance thereof,
the Lenders and any assignee or participant of a Lender in accordance with
Section 14.10 are hereby authorized by the Borrower at any time or from time to
time, without notice to the Borrower or to any other Person, any such notice
being hereby expressly waived, to set off and to appropriate and to apply any
and all deposits (general or special, time or demand, including, but not limited
to, indebtedness evidenced by certificates of deposit, whether matured or
unmatured) and any other indebtedness at any time held or owing by the Lenders,
or any such assignee or participant to or for the credit or the account of the
Borrower against and on account of the Obligations irrespective of whether or
not (a) the Lenders shall have made any demand under this Agreement or any of
the other Loan Documents or (b) the Administrative Agent shall have declared any
or all of the Obligations to be due and payable as permitted by Section 12.2 and
although such Obligations shall be contingent or unmatured.
SECTION 14.4. Governing Law. This Agreement, the Notes and the other Loan
Documents, unless otherwise expressly set forth therein, shall be governed by,
construed and enforced in accordance with the laws of the State of North
Carolina, without reference to the conflicts or choice of law principles
thereof.
SECTION 14.5. Consent to Jurisdiction. The Borrower hereby irrevocably
consents to the personal jurisdiction of the state and federal courts located in
Mecklenburg County, North Carolina, in any action, claim or other proceeding
arising out of any dispute in connection with this Agreement, the Notes and the
other Loan Documents, any rights or obligations hereunder or thereunder, or the
performance of such rights and obligations. The Borrower hereby irrevocably
consents to the service of a summons and complaint and other process in any
action, claim or proceeding brought by the Administrative Agent or any Lender in
connection with this Agreement, the Notes or the other Loan Documents, any
rights or obligations hereunder or thereunder, or the performance of such rights
and obligations, on behalf of itself or its property, in the manner specified in
Section 14.1. Nothing in this Section 14.5 shall affect the right of the
Administrative Agent or any Lender to serve legal process in any other manner
permitted by Applicable Law or affect the right of the Administrative Agent or
any Lender to bring any action or proceeding against the Borrower or its
properties in the courts of any other jurisdictions.
SECTION 14.6. Binding Arbitration; Waiver of Jury Trial.
(a) Binding Arbitration. Upon demand of any party, whether made before or
after institution of any judicial proceeding, any dispute, claim or controversy
arising out of, connected with or relating to the Notes or any other Loan
Document ("Disputes"), between or among parties to the Notes or any other Loan
Document shall be resolved by binding arbitration conducted under and governed
by the Commercial Financial Disputes Arbitration Rules (the "Arbitration Rules")
of the American Arbitration Association (the "AAA") and the Federal Arbitration
Act. Disputes may include, without limitation, tort claims, counterclaims,
disputes as to whether a matter is subject to arbitration, claims brought as
class actions, or claims arising from documents executed in the future. A
judgment upon the award may be entered in any court having jurisdiction.
Notwithstanding the foregoing, this arbitration provision does not apply to
disputes under or related to swap agreements.
64
<PAGE>
All arbitration hearings shall be conducted in Charlotte, North Carolina. A
hearing shall begin within ninety (90) days of the demand for arbitration and
all hearings shall be concluded within one hundred twenty (120) days of demand
for arbitration. These time limitations may not be extended unless a party shows
cause for extension and then for no more than a total of sixty (60) days. The
expedited procedures set forth in Rule 51, et seq. of the Arbitration Rules
shall be applicable to claims of less than $1,000,000. Arbitrators shall be
licensed attorneys selected from the Commercial Financial Dispute Arbitration
Panel of the AAA. The parties do not waive Federal or state substantive law
except and provided herein.
Notwithstanding the preceding binding arbitration provisions, the parties
agree to preserve, without diminution, certain remedies that any party may
exercise before or after an arbitration proceeding is brought. The parties shall
have the right to proceed in any court of proper jurisdiction or by self-help to
exercise or prosecute the following remedies, as applicable: (i) all rights to
foreclose against any real or personal property or other security by exercising
a power of sale under applicable law by judicial foreclosure including a
proceeding to confirm the sale; (ii) all rights of self-help including peaceful
occupation of real property and collection of rents, set-off, and peaceful
possession of personal property; (iii) obtaining provisions/or ancillary
remedies including injunctive relief, sequestration, garnishment, attachment,
appointment of receiver and filing an involuntary bankruptcy proceeding; and
(iv) when applicable, a judgment by confession of judgment. Any claim or
controversy with regard to any party's entitlement to such remedies is a
dispute.
Each party agrees that it shall not have a remedy of punitive exemplary
damages against the other in any Dispute and hereby waives any right or claim to
punitive or exemplary damages they have now or which may arise in the future in
connection with any Dispute, whether the Dispute is resolved by arbitration or
judicially. The parties acknowledge that by agreeing to binding arbitration they
have irrevocably waived any right they may have to a jury trial with regard to a
Dispute.
(b) Jury Trial. TO THE EXTENT PERMITTED BY LAW, THE ADMINISTRATIVE AGENT,
EACH LENDER AND THE BORROWER HEREBY IRREVOCABLY WAIVE THEIR RESPECTIVE RIGHTS TO
A JURY TRIAL WITH RESPECT TO ANY ACTION, CLAIM OR OTHER PROCEEDING ARISING OUT
OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT, THE NOTES OR THE OTHER LOAN
DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER, OR THE PERFORMANCE
OF SUCH RIGHTS AND OBLIGATIONS.
SECTION 14.7. Reversal of Payments. To the extent the Borrower makes a
payment or payments to the Administrative Agent for the ratable benefit of the
Lenders or the Administrative Agent receives any payment or proceeds of the
collateral which payments or proceeds or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside and/or
required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then, to
the extent of such payment or proceeds repaid, the Obligations or part thereof
intended to be satisfied shall be revived and continued in full force and effect
as if such payment or proceeds had not been received by the Administrative
Agent.
65
<PAGE>
SECTION 14.8. Injunctive Relief.
(a) The Borrower recognizes that, in the event the Borrower fails to
perform, observe or discharge any of its obligations or liabilities under this
Agreement, any remedy of law may prove to be inadequate relief to the Lenders.
Therefore, the Borrower agrees that the Lenders, at the Lenders' option, shall
be entitled to temporary and permanent injunctive relief in any such case
without the necessity of proving actual damages.
(b) The Administrative Agent, Lender and Borrower (on behalf of itself and
its Subsidiaries) hereby agrees that no such Person shall have a remedy of
punitive or exemplary damages against any other party to a Loan Document and
each such Person hereby waives any right or claim to punitive or exemplary
damages that they may now have or may arise in the future in connection with any
Dispute, whether such Dispute is resolved through arbitration or judicially.
(c) The parties agree that they shall not have a remedy of punitive or
exemplary damages against any other party in any Dispute and hereby waive any
right or claim to punitive or exemplary damages they have now or which may arise
in the future in connection with any Dispute whether the Dispute is resolved by
arbitration or judicially.
SECTION 14.9. Accounting Matters. All financial and accounting
calculations, measurements and computations made for any purpose relating to
this Agreement, including, without limitation, all computations utilized by the
Borrower or any Subsidiary thereof to determine compliance with any covenant
contained herein, shall, except as otherwise expressly contemplated hereby or
unless there is an express written direction by the Administrative Agent and
Required Lenders to the contrary agreed to by the Borrower, be performed in
accordance with GAAP as in effect on the Closing Date. In the event that changes
in GAAP shall be mandated by the Financial Accounting Standards Board, or any
similar accounting body of comparable standing, or shall be recommended by the
Borrower's certified public accountants, to the extent that such changes would
modify such accounting terms or the interpretation or computation thereof, such
changes shall be followed in defining such accounting terms only from and after
the date the Borrower and the Required Lenders shall have amended this Agreement
to the extent necessary to reflect any such changes in the financial covenants
and other terms and conditions of this Agreement.
SECTION 14.10. Successors and Assigns; Participations.
(a) Benefit of Agreement. This Agreement shall be binding upon and inure
to the benefit of the Borrower, the Administrative Agent and the Lenders, all
future holders of the Notes, and their respective successors and assigns, except
that the Borrower shall not assign or transfer any of its rights or obligations
under this Agreement without the prior written consent of each Lender.
(b) Assignment by Lenders. Each Lender may, with the consent of the
Administrative Agent and, so long as no Default or Event of Default shall have
occurred and be continuing, the Borrower, which consents shall not be
unreasonably withheld, assign to one or more Eligible Assignees
66
<PAGE>
all or a portion of its interests, rights and obligations under this Agreement
(including, without limitation, all or a portion of the Obligations at the time
owing to it and the Notes held by it); provided that:
(i) if less than all of the assigning Lender's Commitment is to be
assigned, the Commitment so assigned shall not be less than (A) $10,000,000 if
such assignment is made by First Union in connection with the initial
syndication of the Commitments and (B) $5,000,000 in connection with any
assignment by a Lender thereafter;
(ii) the parties to each such assignment shall execute and deliver
to the Administrative Agent, for its acceptance and recording in the Register,
an Assignment and Acceptance in the form of Exhibit G attached hereto (an
"Assignment and Acceptance"), together with any Note or Notes subject to such
assignment;
(iii) such assignment shall not, without the consent of the Borrower,
require the Borrower to file a registration statement with the Securities and
Exchange Commission or apply to or qualify the Loans or the Notes under the blue
sky laws of any state; and
(iv) the assigning Lender shall pay to the Administrative Agent an
assignment fee of $3,000 upon the execution by such Lender of the Assignment and
Acceptance; provided that no such fee shall be payable upon any assignment by a
Lender to an Affiliate thereof.
Upon such execution, delivery, acceptance and recording, from and after the
effective date specified in each Assignment and Acceptance, which effective date
shall be at least five (5) Business Days after the execution thereof, (A) the
assignee thereunder shall be a party hereto and, to the extent provided in such
Assignment and Acceptance, have the rights and obligations of a Lender hereby
and (B) the Lender thereunder shall, to the extent provided in such assignment,
be released from its obligations under this Agreement.
(c) Rights and Duties Upon Assignment. By executing and delivering an
Assignment and Acceptance, the assigning Lender thereunder and the assignee
thereunder confirm to and agree with each other and the other parties hereto as
set forth in such Assignment and Acceptance.
(d) Register. The Administrative Agent shall maintain a copy of each
Assignment and Acceptance delivered to it and a register for the recordation of
the names and addresses of the Lenders and the amount of the Obligations with
respect to each Lender from time to time (the "Register"). The entries in the
Register shall be conclusive, in the absence of manifest error, and the
Borrower, the Administrative Agent and the Lenders may treat each person whose
name is recorded in the Register as a Lender hereunder for all purposes of this
Agreement. The Register shall be available for inspection by the Borrower or
Lender at any reasonable time and from time to time upon reasonable prior
notice.
(e) Issuance of New Notes. Upon its receipt of an Assignment and
Acceptance executed by an assigning Lender and an Eligible Assignee together
with any Note or Notes subject to such assignment and the written consent to
such assignment, the Administrative Agent
67
<PAGE>
shall, if such Assignment and Acceptance has been completed and is substantially
in the form of Exhibit G:
(i) accept such Assignment and Acceptance;
(ii) record the information contained therein in the Register;
(iii) give prompt notice thereof to the Lenders and the Borrower; and
(iv) promptly deliver a copy of such Assignment and Acceptance to
the Borrower.
Within five (5) Business Days after receipt of notice, the Borrower shall
execute and deliver to the Administrative Agent, in exchange for the surrendered
Note or Notes, a new Note or Notes to the order of such Eligible Assignee in
amounts equal to the Commitment assumed by it pursuant to such Assignment and
Acceptance and a new Note or Notes to the order of the assigning Lender in an
amount equal to the Commitment retained by it hereunder. Such new Note or Notes
shall be in an aggregate principal amount equal to the aggregate principal
amount of such surrendered Note or Notes, shall be dated the effective date of
such Assignment and Acceptance and shall otherwise be in substantially the form
of the assigned Notes delivered to the assigning Lender. Each surrendered Note
or Notes shall be canceled and returned to the Borrower.
(f) Participations. Each Lender may sell participations to one or more
banks or other entities in all or a portion of its rights and obligations under
this Agreement (including, without limitation, all or a portion of its
Commitment and the Notes held by it); provided that:
(i) each such participation shall be in an amount not less than
$5,000,000;
(ii) such Lender's obligations under this Agreement (including,
without limitation, its Commitment) shall remain unchanged;
(iii) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations;
(iv) such Lender shall remain the holder of the Notes held by it for
all purposes of this Agreement;
(v) the Borrower, the Administrative Agent and the other Lenders
shall continue to deal solely and directly with such Lender in connection with
such Lender's rights and obligations under this Agreement;
(vi) such Lender shall not permit such participant the right to
approve any waivers, amendments or other modifications to this Agreement or any
other Loan Document other than waivers, amendments or modifications which would
reduce the principal of or the interest rate on any Loan or Reimbursement
Obligation, extend the term or increase the amount of the Commitment, reduce the
amount of any fees to which such participant is entitled, extend any
68
<PAGE>
scheduled payment date for principal of any Loan or, except as expressly
contemplated hereby or thereby, release substantially all of the Collateral; and
(vii) any such disposition shall not, without the consent of the
Borrower, require the Borrower to file a registration statement with the
Securities and Exchange Commission to apply to qualify the Loans or the Notes
under the blue sky law of any state.
(g) Disclosure of Information; Confidentiality. The Administrative Agent
and the Lenders shall hold all non-public information with respect to the
Borrower and its Subsidiaries obtained pursuant to the Loan Documents in
accordance with their customary procedures for handling confidential
information; provided, that the Administrative Agent may disclose information
relating to this Agreement to Gold Sheets and other similar bank trade
publications and provided further, that the Administrative Agent and the Lenders
may disclose any such information to the extent such disclosure is required by
law or requested by any regulatory authority. Any Lender may, in connection with
any assignment, proposed assignment, participation or proposed participation
pursuant to this Section 14.10, disclose to the assignee, participant, proposed
assignee or proposed participant, any information relating to the Borrower
furnished to such Lender by or on behalf of the Borrower; provided, that prior
to any such disclosure, each such assignee, proposed assignee, participant or
proposed participant shall agree with the Borrower or such Lender to preserve
the confidentiality of any confidential information relating to the Borrower
received from such Lender.
(h) Certain Pledges or Assignments. Nothing herein shall prohibit any
Lender from pledging or assigning any Note to any Federal Reserve Bank in
accordance with Applicable Law.
SECTION 14.11. Amendments, Waivers and Consents. Except as set forth below,
any term, covenant, agreement or condition of this Agreement or any of the other
Loan Documents may be amended or waived by the Lenders, and any consent given by
the Lenders, if, but only if, such amendment, waiver or consent is in writing
signed by the Required Lenders (or by the Administrative Agent with the consent
of the Required Lenders) and delivered to the Administrative Agent and, in the
case of an amendment, signed by the Borrower; provided, that no amendment,
waiver or consent shall:
(a) (i) increase the Revolving Credit Commitment of any Lender, (ii)
reduce the rate of interest or fees payable on any Revolving Credit Loan or
Reimbursement Obligation, (iii) extend the originally scheduled time or times of
payment of the principal of any Revolving Credit Loan or Reimbursement
Obligation or the time or times of payment of interest on any Revolving Credit
Loan or Reimbursement Obligation or any fee or commission with respect thereto,
(iv) permit any subordination of the principal or interest on any Revolving
Credit Loan or Reimbursement Obligation or (v) extend the time of the obligation
of the Revolving Commitment Lenders to make or issue or participate in Letters
of Credit, in any case, without the written consent of each Lender holding
Revolving Credit Loans or a Revolving Credit Commitment,
(b) (i) increase the Term Loan Commitment of any Lender, (ii) reduce the
rate of interest or fees payable on any Term Loan, (iii) permit any
subordination of the principal or interest
69
<PAGE>
on any Term Loan or (iv) extend the originally scheduled time or times of
payment of the principal of any Term Loan or the time or times of payment of
interest on any Term Loan or any fee or commission with respect thereto, in any
case, without the written consent of each Lender holding a Term Loan, or
(c) release any material portion of the Collateral or release the
Security Agreement (other than as specifically permitted in this Agreement or
the Security Agreement), amend the provisions of this Section 14.11 or, amend
the definition of Required Lenders without the written consent of each Lender.
In addition, no amendment, waiver or consent to the provisions of (a) Article
XIII shall be made without the written consent of the Administrative Agent and
(b) Article III without the written consent of the Issuing Lender.
SECTION 14.12. Performance of Duties. The Borrower's obligations under this
Agreement and each of the Loan Documents shall be performed by the Borrower at
its sole cost and expense.
SECTION 14.13. All Powers Coupled with Interest. All powers of attorney and
other authorizations granted to the Lenders, the Administrative Agent and any
Persons designated by the Administrative Agent or any Lender pursuant to any
provisions of this Agreement or any of the other Loan Documents shall be deemed
coupled with an interest and shall be irrevocable so long as any of the
Obligations remain unpaid or unsatisfied or the Credit Facilities have not been
terminated.
SECTION 14.14. Survival of Indemnities. Notwithstanding any termination of
this Agreement, the indemnities to which the Administrative Agent and the
Lenders are entitled under the provisions of this Article XIV and any other
provision of this Agreement and the Loan Documents shall continue in full force
and effect and shall protect the Administrative Agent and the Lenders against
events arising after such termination as well as before.
SECTION 14.15. Titles and Captions. Titles and captions of Articles,
Sections and subsections in this Agreement are for convenience only, and neither
limit nor amplify the provisions of this Agreement.
SECTION 14.16. Severability of Provisions. Any provision of this Agreement
or any other Loan Document which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective only to the extent
of such prohibition or unenforceability without invalidating the remainder of
such provision or the remaining provisions hereof or thereof or affecting the
validity or enforceability of such provision in any other jurisdiction.
SECTION 14.17. Counterparts. This Agreement may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and shall be binding
upon all parties, their successors and assigns, and all of which taken together
shall constitute one and the same agreement.
70
<PAGE>
SECTION 14.18. Term of Agreement. This Agreement shall remain in effect
from the Closing Date through and including the date upon which all Obligations
shall have been paid and satisfied in full. No termination of this Agreement
shall affect the rights and obligations of the parties hereto arising prior to
such termination.
71
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers, all as of the day and year first
written above.
[CORPORATE SEAL] KINDER MORGAN, INC.
By: /s/William V. Morgan
----------------------------------
Name: William V. Morgan
Title: President
FIRST UNION NATIONAL BANK,
as Administrative Agent and Lender
By: /s/Ted Gardner
----------------------------------
Name: Ted Gardner
Title: Senior Vice President
72
<PAGE>
SCHEDULE 1
LENDERS AND COMMITMENTS
-----------------------
COMMITMENT
AND COMMITMENT
LENDER PERCENTAGE ADDRESS
- ------ ---------- -------
First Union $100,000,000 One First Union Center, DC-4
National Bank 100% 301 South College Street
Charlotte, NC 28288-0735
Attention: Ms. Nicole Ray
Telephone No.: 374-4909
Telecopy No.: 374-3300
FIRST AMENDMENT
THIS FIRST AMENDMENT to the Credit Agreement referred to below (this
"First Amendment"), is made and entered into as of this 26th day of August, 1998
by and among KINDER MORGAN, INC., a corporation organized under the laws of
Delaware (the "Borrower"), the Lenders party to the Credit Agreement (as defined
below) and identified on the signature pages hereto, and FIRST UNION NATIONAL
BANK, as Administrative Agent for the Lenders.
Statement of Purpose
The Lenders have extended certain credit facilities to the Borrower
pursuant to the Amended and Restated Credit Agreement dated as of June 18, 1998
(as further amended, restated, supplemented or otherwise modified, the "Credit
Agreement"), by and among the Borrower, the Lenders and the Administrative
Agent.
The Borrower has requested that the Lenders amend the Credit Agreement to,
among other things, revise certain provisions of the Credit Agreement, and the
Lenders have agreed to do so, but only on the terms and conditions set forth
below in this First Amendment.
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
1. Definitions. All capitalized undefined terms used in this First
Amendment shall have the meanings assigned thereto in the Credit Agreement.
2. Amendments.
(a) Section 1.1 is hereby modified to add in appropriate alphabetical
order the following defined term:
""Eligible Assignee" means, with respect to any assignment of the
rights, interest and obligations of a Lender hereunder, a Person that is
at the time of such assignment (a) a commercial bank organized under the
laws of the United States or any state thereof, having combined capital
and surplus in excess of $500,000,000, (b) a commercial bank organized
under the laws of any other country that is a member of the Organization
of Economic Cooperation and Development, or a political subdivision of any
such country, having combined capital and surplus in excess of
$500,000,000, (c) a finance company, insurance company or other financial
institution which in the ordinary course of business extends credit of the
type extended hereunder and that has total assets in excess of
$1,000,000,000, (d) already a Lender hereunder (whether as an original
party to this Agreement or as the assignee of another Lender), (e) the
successor (whether by transfer of assets, merger or otherwise) to all or
substantially all of the commercial lending business of the assigning
Lender, or (f) any other Person that has been approved in writing as an
Eligible Assignee by the Administrative Agent and, so long as no Default
or Event of Default has occurred and is continuing, the Borrower."
<PAGE>
(b) Section 1.1 of the Credit Agreement shall be amended by deleting the
definition of "KMI Cash Flow" and inserting the following new definition in lieu
thereof:
""KMI Cash Flow" means (without duplication), with respect to the
Borrower and its Consolidated Subsidiaries for any period, cash
distributions received during such period by Kinder Morgan G.P. from
Kinder Morgan Energy and the KMEP Operating Subsidiaries less all expenses
of the Borrower and its Consolidated Subsidiaries for such period
(excluding Interest Expense, income taxes, depreciation, amortization and
expenses of Kinder Morgan G.P. which are customarily reimbursed by Kinder
Morgan Energy and the KMEP Operating Subsidiaries in accordance with the
terms of the Second Amendment to Amended and Restated Agreement of Limited
Partnership of Kinder Morgan Energy Partners, L.P. dated as of February
14, 1997)."
(c) Section 2.7 of the Credit Agreement shall be amended in its entirety
by inserting the following Section 2.7 in lieu thereof:
"SECTION 2.7. Use of Proceeds. The Borrower shall use the proceeds of
the Revolving Credit Loans solely (a) prior to August 19, 1998, for future
general corporate purposes in an amount not greater than $5,600,000, (b)
prior to December 31, 1998, to finance investments permitted by Section
11.3(d), make dividends and distributions permitted by Section 11.6(e) and
pay income taxes and Interest Expense and (c) on or after December 31,
1998, to finance investments permitted by Section 11.3(d)."
(d) Section 2.3(b) of the Credit Agreement shall be amended in its
entirety by inserting the following in lieu thereof:
"(b) Mandatory Repayments.
(i) If at any time the outstanding principal amount of all
Revolving Credit Loans exceeds the Revolving Credit Commitment of all
the Lenders less the L/C Obligations, the Borrower shall repay
immediately upon notice from the Administrative Agent, by payment to
the Administrative Agent for the account of the Lenders, the
Revolving Credit Loans in an amount equal to such excess. Each such
repayment shall be accompanied by any amount required to be paid
pursuant to Section 5.10 hereof.
(ii) If on January 10, 1999, the outstanding principal
amount of all Revolving Credit Loans exceeds $10,000,000, the
Borrower shall immediately repay such outstanding Revolving Credit
Loans in an amount equal to such excess over $10,000,000; provided,
that such repayment shall not result in a corresponding reduction to
the Aggregate Commitment. Each such repayment shall be accompanied by
any amount required to be paid pursuant to Section 5.10 hereof."
2
<PAGE>
(e) Section 4.2(c) of the Credit Agreement shall be amended by adding the
following sentence to the end of such Section:
"Any amount borrowed under this Section 4.2 and subsequently
repaid or prepaid may not be reborrowed."
(f) Section 5.12(e) of the Credit Agreement shall be amended in its
entirety by inserting the following in lieu thereof:
"(e) Delivery of Tax Forms. Each Lender organized under the laws of a
jurisdiction other than the United States or any state thereof shall
deliver to the Borrower, with a copy to the Administrative Agent, on the
Closing Date or concurrently with the delivery of the relevant Assignment
and Acceptance, as applicable, (i) two United States Internal Revenue
Service Forms 4224 or Forms 1001, as applicable (or successor forms)
properly completed and certifying in each case that such Lender is
entitled to a complete exemption from withholding or deduction for or on
account of any United States federal income taxes, and (ii) an Internal
Revenue Service Form W-8 or W-9 or successor applicable form, as the case
may be, to establish an exemption from United States backup withholding
taxes. Each such Lender further agrees to deliver to the Borrower, with a
copy to the Administrative Agent, a Form 1001 or 4224 and Form W-8 or W-9,
or successor applicable forms or manner of certification, as the case may
be, on or before the date that any such form expires or becomes obsolete
or the occurrence of any event requiring a change in the most recent form
previously delivered by it to the Borrower, certifying in the case of a
Form 1001 or 4224 that such Lender is entitled to receive payments under
this Agreement without deduction or withholding of any United States
federal income taxes (unless in any such case an event (including without
limitation any change in treaty, law or regulation) has occurred prior to
the date on which any such delivery would otherwise be required which
renders such forms inapplicable or the exemption to which such forms
relate unavailable and such Lender gives prompt and timely written
notification to the Borrower and the Administrative Agent that it is not
entitled to receive payments without deduction or withholding of United
States federal income taxes) and, in the case of a Form W-8 or W-9,
establishing an exemption from United States backup withholding tax.
Notwithstanding anything in this Section 5.12(e) to the contrary, a
Lender organized under the laws of a jurisdiction other than the United
States or any state thereof shall not be required to deliver Forms 4224 or
Forms 1001 as otherwise required by this Section 5.12(e) if such Lender is
entitled to a complete exemption from withholding or deduction for or on
account of any United States federal income taxes by application of the
"portfolio interest" exception to the payment of such taxes under Section
871(h) or 881(c) of the Code (the "Portfolio Interest Exception") and such
Lender delivers to the Borrower, with a copy to the Administrative Agent,
on the Closing Date or concurrently with the delivery of the relevant
Assignment and Acceptance, as applicable, two United States Internal
Revenue Service Forms W-8 (or successor forms) properly completed and, by
the delivery thereof in lieu of Forms 4224 or Forms 1001, such Lender
hereby certifies that such Lender is eligible for, and is otherwise
entitled to a complete exemption from
3
<PAGE>
withholding or deduction for or on account of any United States federal
income taxes by application of, the Portfolio Interest Exception; and such
Lender further agrees to deliver to the Borrower, with a copy to the
Administrative Agent, a Form W-8 (or successor form or manner of
certification of Lender's continued eligibility of the Portfolio Interest
Exception) on or before the date that such form expires or becomes
obsolete or the occurrence of any event requiring a change in the most
recent form previously delivered by it to the Borrower (and by the
delivery of such replacement form such Lender hereby certifies that such
Lender remains eligible for the Portfolio Interest Exception), unless in
any such case an event (including without limitation any change in treaty,
law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders such form inapplicable
or the Portfolio Interest Exception unavailable, in which event the Lender
hereby agrees to, and shall otherwise be required to, give prompt and
timely written notification to the Borrower and the Administrative Agent
that it is not entitled to receive payments without deduction or
withholding of United States federal income taxes."
(g) Section 7.1(b) of the Credit Agreement shall be amended by deleting
the first sentence thereof and by inserting the following in lieu thereof:
"Each Subsidiary of the Borrower as of the Closing Date is listed
on Schedule 7.1(b)."
(h) Section 7.1(m) of the Credit Agreement shall be amended by deleting
the first sentence thereof and by inserting the following in lieu thereof:
"As of the Closing Date, each of the Borrower and its Subsidiaries
has a stable work force in place and is not, as of the Closing Date and
except as set forth on Schedule 7.1(m), party to any collective bargaining
agreement nor has any labor union been recognized as the representative of
its employees."
(i) Section 11.6 of the Credit Agreement shall be amended by deleting the
word "and" at the end of paragraph (c) thereof and by deleting the period "."at
the end of paragraph (d) thereof and inserting "; and" at the end of paragraph
(d) thereof and by inserting the following new paragraph (e) immediately
following paragraph (d) as follows:
"(e) prior to December 31, 1998, the Borrower may from time to time
pay cash dividends to its shareholders with the proceeds of the Revolving
Credit Loans so long as an amount equal to the outstanding principal
amount of Revolving Credit Loans in excess of $10,000,000 is deposited in
an investment account with the Administrative Agent."
(j) Section 14.10(b)(i) of the Credit Agreement shall be amended in its
entirety by inserting the following in lieu thereof:
"(i) if less than all of the assigning Lender's Commitment is to
be assigned, the Commitment so assigned shall not be less than (A)
$10,000,000 if such assignment is made by First Union in connection with
the initial syndication of the
4
<PAGE>
Commitments, except as otherwise agreed to by First Union and the Borrower
and (B) $5,000,000 in connection with any assignment by a Lender
thereafter;"
(k) Section 14.10(d) of the Credit Agreement shall be amended by adding
the following sentence to the end of such Section:
"No assignment pursuant to this Section 14.10 shall be effective
unless and until it has been recorded in the Register as provided in this
Section 14.10."
(l) Exhibit F to the Credit Agreement is hereby amended in its entirety by
inserting Schedule 1 hereto in lieu thereof.
3. Conditions. The effectiveness of this First Amendment shall be
conditioned upon the following:
(a) Execution. Receipt by the Administrative Agent of this First
Amendment duly executed by the Borrower, Administrative Agent and the
Lenders.
(b) Additional Items. Receipt by the Administrative Agent of any
other document or instrument reasonably requested by it in connection with
the execution of this First Amendment.
4. Limited Amendment. Except as expressly amended herein, the Credit
Agreement and each other Loan Document shall continue to be, and shall remain,
in full force and effect. This First Amendment shall not be deemed (a) to be a
waiver of, or consent to, or a modification or amendment of, any other term or
condition of the Credit Agreement or any other Loan Documents or (b) to
prejudice any other right or rights which the Administrative Agent or Lenders
may now have or may have in the future under or in connection with the Credit
Agreement or the Loan Documents or any of the instruments or agreements referred
to therein, as the same may be amended, restated or otherwise modified from time
to time.
5. Representations and Warranties. By its execution hereof, the Borrower
hereby certifies on behalf of itself and its Subsidiaries that each of the
representations and warranties set forth in the Credit Agreement and the other
Loan Documents is true and correct as of the date hereof as if fully set forth
herein (except for any such representations and warranties made as of a specific
date which shall be true and correct as of such date) and that as of the date
hereof no Default or Event of Default has occurred and is continuing.
6. Governing Law. This First Amendment shall be governed by and construed
in accordance with the laws of the State of North Carolina.
7. Counterparts. This First Amendment may be executed in separate
counterparts, each of which when executed and delivered is an original but all
of which taken together constitute one and the same instrument.
[Signature Pages Follow]
5
<PAGE>
IN WITNESS HEREOF, the parties hereto have caused this First Amendment to
be duly executed as of the date and year first above written.
KINDER MORGAN, INC.
as Borrower
By: /s/William V. Morgan
----------------------------------
Name: William V. Morgan
Title: President
FIRST UNION NATIONAL BANK,
as Administrative Agent and Lender
By: /s/Ted A. Gardner
----------------------------------
Name: Ted A. Gardner
Title: Senior Vice President
SECOND AMENDMENT
THIS SECOND AMENDMENT to the Credit Agreement referred to below and
amendment to Section 8 of the Security Agreement (this "Second Amendment"), is
made and entered into as of this 8th day of September, 1998 by and among KINDER
MORGAN, INC., a corporation organized under the laws of Delaware (the
"Borrower"), the Lenders party to the Credit Agreement (as defined below) and
identified on the signature pages hereto, and FIRST UNION NATIONAL BANK, as
Administrative Agent for the Lenders.
Statement of Purpose
The Lenders have extended certain credit facilities to the Borrower
pursuant to the Amended and Restated Credit Agreement dated as of June 18, 1998
as amended by the First Amendment dated as of August 26, 1998 (as so amended and
as further amended, restated, supplemented or otherwise modified, the "Credit
Agreement"), by and among the Borrower, the Lenders and the Administrative
Agent.
The Borrower has requested that the Lenders amend the Credit Agreement to,
among other things, revise certain provisions of the Credit Agreement and
Section 8 of the Security Agreement, and the Lenders have agreed to do so, but
only on the terms and conditions set forth below in this Second Amendment.
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
1. Definitions. All capitalized undefined terms used in this Second
Amendment shall have the meanings assigned thereto in the Credit Agreement.
2. Amendments to Credit Agreement.
(a) Section 1.1 is hereby modified to amend in its entirety the definition
of "Eligible Assignee" by inserting the following in lieu thereof:
""Eligible Assignee" means, with respect to any assignment of the
rights, interest and obligations of a Lender hereunder, a Person that is
at the time of such assignment (a) a commercial bank organized under the
laws of the United States or any state thereof, having combined capital
and surplus in excess of $500,000,000, (b) a commercial bank organized
under the laws of any other country that is a member of the Organization
of Economic Cooperation and Development, or a political subdivision of any
such country, having combined capital and surplus in excess of
$500,000,000, (c) a finance company, insurance company or other financial
institution or fund (whether a corporation, partnership, trust or other
entity) which in the ordinary course of business extends credit of the
type extended hereunder and that has total assets in excess of
$100,000,000, (d) already a Lender hereunder (whether as an original party
to this Agreement or as the assignee of another Lender) or any Affiliate
of a Lender, (e) the successor (whether by transfer of assets, merger
<PAGE>
or otherwise) to all or substantially all of the commercial lending or
private placement business of the assigning Lender, or (f) any other
Person that has been approved in writing as an Eligible Assignee by the
Administrative Agent and, so long as no Default or Event of Default has
occurred and is continuing, the Borrower."
(b) Section 5.6 of the Credit Agreement shall be amended in its entirety
by inserting the following in lieu thereof:
"SECTION 5.6. Crediting of Payments and Proceeds. In the event that
the Borrower shall fail to pay any of the Obligations when due and the
Obligations have been accelerated pursuant to Section 12.2, all payments
received by the Lenders upon the Notes and the other Obligations and all
net proceeds from the enforcement of the Obligations shall be applied
first to all expenses then due and payable by the Borrower hereunder, then
to all indemnity obligations then due and payable by the Borrower
hereunder, then to all Administrative Agent's and Issuing Lender's fees
then due and payable, then to all commitment and other fees and
commissions then due and payable, then to accrued and unpaid interest on
the Notes, the Reimbursement Obligation and any termination payments due
in respect of a Hedging Agreement with any Lender (which such Hedging
Agreement is permitted or required hereunder) (pro rata in accordance with
all such amounts due), then to the principal amount of the Notes and
Reimbursement Obligation (pro rata in accordance with all such amounts
due) and then to the cash collateral account described in Section 12.2(b)
hereof to the extent of any L/C Obligations then outstanding, in that
order."
(c) The first six lines of Section 14.10(b) of the Credit Agreement shall
be amended in their entirety by inserting the following in lieu thereof:
"(b) Each Lender may assign to one or more Eligible Assignees
all or a portion of its interests, rights and obligations under this
Agreement (including, without limitation, all or a portion of the
Obligations at the time owing to it and the Notes held by it); provided,
that: "
(d) Section 14.10(g) of the Credit Agreement shall be amended in its
entirety by inserting following in lieu thereof:
"(g) Disclosure of Information; Confidentiality. The
Administrative Agent and the Lenders shall hold all non-public information
with respect to the Borrower and its Subsidiaries obtained pursuant to the
Loan Documents in accordance with customary procedures for handling
third-party non-public information; provided, that the Administrative
Agent may disclose information relating to this Agreement to Gold Sheets
and other similar bank trade publications and provided further, that the
Administrative Agent and the Lenders may disclose any such information (i)
to its Affiliates, directors, officers and employees and to its agents,
including accountants, legal counsel and other advisors who have been
informed of the confidential nature of the information provided and who
have each agreed, for the benefit of the Borrower, to preserve the
confidentiality of the non-public information and who each have a
reasonable need for such information in connection with the Credit
Agreement, (ii) to the extent requested by any regulatory
2
<PAGE>
authority, including, in the ordinary course of business, the National
Association of Insurance Commissioners or any similar organization, or any
nationally recognized rating agency that requires access to information
about a Lender's investment portfolio, and (iii) to the extent a Lender
reasonably believes it is required by applicable laws or regulations or by
any subpoena or similar legal process; provided, that with respect to the
disclosures set forth in clause (iii), unless prohibited by law, prompt
notice of such disclosures shall be given to the Borrower. Any Lender may,
in connection with any assignment, proposed assignment, participation or
proposed participation pursuant to this Section 14.10, disclose to the
assignee, participant, proposed assignee or proposed participant, any
information relating to the Borrower furnished to such Lender by or on
behalf of the Borrower; provided, that prior to any such disclosure, each
such assignee, proposed assignee, participant or proposed participant
shall agree with the Borrower or such Lender to preserve the
confidentiality of any confidential information relating to the Borrower
received from such Lender. For purposes of this Section 14.10(g),
"non-public information" does not include information to the extent that
(i) such information was publicly known or otherwise known by the
Administrative Agent or any Lender at the time of disclosure (except to
the extent such information is wrongfully obtained by the Administrative
Agent or any Lender), (ii) such information is or becomes part of the
public domain except for a disclosure prohibited hereunder by the
Administrative Agent or any Lender or any person to whom the
Administrative Agent or any Lender has disclosed the non-public
information, or (iii) such information is received by the Administrative
Agent or the Lenders without an obligation of confidentiality from a third
party which to the knowledge of the Administrative Agent or any Lender is
not wrongfully in possession of the same and having no known direct or
indirect obligation of confidentiality to the Borrower for same.
(e) Section 14.11(a) shall be amended in its entirety by inserting the
following in lieu thereof:
"(a) (i) increase the Revolving Credit Commitment of any Lender,
(ii) reduce the principal amount, rate of interest or fees payable on any
Revolving Credit Loan or Reimbursement Obligation, (iii) extend the
originally scheduled time or times of payment of the principal of any
Revolving Credit Loan or Reimbursement Obligation or the time or times of
payment of interest on any Revolving Credit Loan or Reimbursement
Obligation or any fee or commission with respect thereto, (iv) permit any
subordination of the principal or interest on any Revolving Credit Loan or
Reimbursement Obligation or (v) extend the time of the obligation of the
Revolving Commitment Lenders to make or issue or participate in Letters of
Credit, in any case, without the written consent of each Lender holding
Revolving Credit Loans or a Revolving Credit Commitment,"
(f) Section 14.11(b) shall be amended in its entirety by inserting the
following in lieu thereof:
"(b) (i) increase the Term Loan Commitment of any Lender, (ii) reduce
the rate of interest or fees payable on any Term Loan, (iii) permit any
subordination of the principal or interest on any Term Loan or (iv) extend
the originally scheduled time or times of
3
<PAGE>
payment of the principal of any Term Loan or the time or times of payment
of interest on any Term Loan or any fee or commission with respect
thereto, in any case, without the written consent of each Lender holding a
Term Loan or (v) reduce the principal amount of any Term Loan without the
written consent of the affected Lender, or"
3. Amendment to Security Agreement. Section 8 of the Security Agreement is
hereby amended by deleting the reference to "Section 5.5" of the Credit
Agreement contained therein and inserting a reference to "Section 5.6" of the
Credit Agreement in lieu thereof.
4. Conditions. The effectiveness of this Second Amendment shall be
conditioned upon the following:
(a) Execution. Receipt by the Administrative Agent of this Second
Amendment duly executed by the Borrower, Administrative Agent and the
Lenders.
(b) Additional Items. Receipt by the Administrative Agent of any
other document or instrument reasonably requested by it in connection with
the execution of this Second Amendment.
5. Limited Amendment. Except as expressly amended herein, the Credit
Agreement, the Security Agreement and each other Loan Document shall continue to
be, and shall remain, in full force and effect. This Second Amendment shall not
be deemed (a) to be a waiver of, or consent to, or a modification or amendment
of, any other term or condition of the Credit Agreement, the Security Agreement
or any other Loan Documents or (b) to prejudice any other right or rights which
the Administrative Agent or Lenders may now have or may have in the future under
or in connection with the Credit Agreement, the Security Agreement or the other
Loan Documents or any of the instruments or agreements referred to therein, as
the same may be amended, restated or otherwise modified from time to time.
6. Representations and Warranties. By its execution hereof, the Borrower
hereby certifies on behalf of itself and its Subsidiaries that each of the
representations and warranties set forth in the Credit Agreement and the other
Loan Documents is true and correct as of the date hereof as if fully set forth
herein (except for any such representations and warranties made as of a specific
date which shall be true and correct as of such date) and that as of the date
hereof no Default or Event of Default has occurred and is continuing.
7. Governing Law. This Second Amendment shall be governed
by and construed in accordance with the laws of the State of
North Carolina.
8. Counterparts. This Second Amendment may be executed in separate
counterparts, each of which when executed and delivered is an original but all
of which taken together constitute one and the same instrument.
[Signature Pages Follow]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to
be duly executed as of the date and year first above written.
[CORPORATE SEAL] KINDER MORGAN, INC.,
as Borrower
By /s/William V. Morgan
---------------------------------
Name: William V. Moran
Title: President
FIRST UNION NATIONAL BANK, as
Administrative Agent and Lender
By /s/Ted A. Gardner
---------------------------------
Name: Ted A. Gardner
Title: Senior Vice President
[Second Amendment]
SUBSIDIARIES
Kinder Morgan Operating L.P. "A", a Delaware limited partnership.
Kinder Morgan Operating L.P. "B", a Delaware limited partnership.
Kinder Morgan Operating L.P. "C", a Delaware limited partnership.
Kinder Morgan Operating L.P. "D", a Delaware limited partnership.
Kinder Morgan Natural Gas Liquids Corporation, a Delaware corporation.
Kinder Morgan CO2, LLC, a Delaware limited liability company.
Mont Belvieu Associates, a Texas general partnership.
Heartland Partnership, a Texas general partnership.
SFPP L.P., a Delaware limited partnership.
Kinder Morgan Bulk Terminals Inc., a Louisiana corporation.
River Consulting, Inc., a Louisiana corporation.
Western Plant Services, Inc., a California corporation.
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated February 21, 1997 included in Kinder Morgan Energy Partners, L.P.'s
Annual Report on Form 10-K for the fiscal year ended December 31, 1998, into the
Company's previously filed Registration Statement Nos. 333-66931, as amended,
333-56343, 333-25995, and 333-62155.
/s/ Arthur Andersen LLP
____________________________________
ARTHUR ANDERSEN LLP
Houston, Texas
March 11, 1999
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (Nos. 333-25995,
333-62155, and 333-66931) and the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-56343) of Kinder Morgan Energy Partners, L.P. of
our report dated March 10, 1999 appearing on page F-2 of this Form 10-K.
/s/ PricewaterhouseCoopers LLP
______________________________
PRICE WATERHOUSECOOPERS LLP
Houston, Texas
March 11, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial
information extracted from the Consolidated
Statements of Income, Cash Flows and Partners'
Capital for the three years ended December 31,
1998 and the Consolidated Balance Sheets as of
December 31, 1998 and 1997 and the Notes thereto,
for Kinder Morgan Energy Partners, L.P. and
subsidiaries and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000888228
<NAME> Kinder Morgan Energy Partners, L.P.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 31,735
<SECURITIES> 0
<RECEIVABLES> 44,125
<ALLOWANCES> 0
<INVENTORY> 5,541
<CURRENT-ASSETS> 81,401
<PP&E> 1,836,719
<DEPRECIATION> 73,333
<TOTAL-ASSETS> 2,152,272
<CURRENT-LIABILITIES> 57,482
<BONDS> 611,571
0
0
<COMMON> 0
<OTHER-SE> 1,360,663
<TOTAL-LIABILITY-AND-EQUITY> 2,152,272
<SALES> 322,617
<TOTAL-REVENUES> 322,617
<CGS> 5,860
<TOTAL-COSTS> 182,712
<OTHER-EXPENSES> (19,740)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,856
<INCOME-PRETAX> 118,789
<INCOME-TAX> 1,572
<INCOME-CONTINUING> 117,217
<DISCONTINUED> 0
<EXTRAORDINARY> (13,611)
<CHANGES> 0
<NET-INCOME> 103,606
<EPS-PRIMARY> 1.75
<EPS-DILUTED> 1.75
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial
information extracted from the Consolidated
Statements of Income, Cash Flows and Partners'
Capital for the three years ended December 31,
1998 and the Consolidated Balance Sheets as of
December 31, 1998 and 1997 and the Notes thereto,
for Kinder Morgan Energy Partners, L.P. and
subsidiaries and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0001073984
<NAME> Kinder Morgan Operating L.P. "A"
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> dec-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial
information extracted from the Consolidated
Statements of Income, Cash Flows and Partners'
Capital for the three years ended December 31,
1998 and the Consolidated Balance Sheets as of
December 31, 1998 and 1997 and the Notes thereto,
for Kinder Morgan Energy Partners, L.P. and
subsidiaries and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0001073985
<NAME> Kinder Morgan Operating L.P. "B"
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial
information extracted from the Consolidated
Statements of Income, Cash Flows and Partners'
Capital for the three years ended December 31,
1998 and the Consolidated Balance Sheets as of
December 31, 1998 and 1997 and the Notes thereto,
for Kinder Morgan Energy Partners, L.P. and
subsidiaries and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0001073986
<NAME> Kinder Morgan Operating L.P. "C"
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial
information extracted from the Consolidated
Statements of Income, Cash Flows and Partners'
Capital for the three years ended December 31,
1998 and the Consolidated Balance Sheets as of
December 31, 1998 and 1997 and the Notes thereto,
for Kinder Morgan Energy Partners, L.P. and
subsidiaries and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0001073987
<NAME> Kinder Morgan Operating L.P. "D"
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial
information extracted from the Consolidated
Statements of Income, Cash Flows and Partners'
Capital for the three years ended December 31,
1998 and the Consolidated Balance Sheets as of
December 31, 1998 and 1997 and the Notes thereto,
for Kinder Morgan Energy Partners, L.P. and
subsidiaries and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0001073988
<NAME> Kinder Morgan Natural Gas Liquids Corporation
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial
information extracted from the Consolidated
Statements of Income, Cash Flows and Partners'
Capital for the three years ended December 31,
1998 and the Consolidated Balance Sheets as of
December 31, 1998 and 1997 and the Notes thereto,
for Kinder Morgan Energy Partners, L.P. and
subsidiaries and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0001073989
<NAME> Kinder Morgan CO2, LLC
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial
information extracted from the Consolidated
Statements of Income, Cash Flows and Partners'
Capital for the three years ended December 31,
1998 and the Consolidated Balance Sheets as of
December 31, 1998 and 1997 and the Notes thereto,
for Kinder Morgan Energy Partners, L.P. and
subsidiaries and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0001073991
<NAME> Kinder Morgan Bulk Terminals, Inc.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
