<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM
------------ TO
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COMMISSION FILE NO. 1-11680
LEVIATHAN GAS PIPELINE PARTNERS, L.P.
(Exact name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
DELAWARE 76-0396023
(State of Organization) (I.R.S. Employer
Identification No.)
</TABLE>
EL PASO ENERGY BUILDING
1001 LOUISIANA
HOUSTON, TEXAS 77002
(Address of Principal Executive Offices, including Zip Code)
(713) 420-2131
(Registrant's Telephone Number, including Area Code)
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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 TWELVE MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] No [ ]
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<PAGE> 2
LEVIATHAN GAS PIPELINE PARTNERS, L.P.
AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION............................... 1
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheet as of September 30, 1998
(unaudited) and December 31, 1997...................... 1
Unaudited Consolidated Statement of Operations for the
Three and Nine Months Ended September 30, 1998 and
1997, respectively..................................... 2
Unaudited Consolidated Statement of Cash Flows for the
Nine Months Ended September 30, 1998 and 1997.......... 3
Consolidated Statement of Partners' Capital for the Nine
Months Ended September 30, 1998 (unaudited)............ 4
Notes to Consolidated Financial Statements (unaudited).... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 12
PART II. OTHER INFORMATION.................................. 20
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security
Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES.................................................. 21
</TABLE>
i
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 3,191 $ 6,430
Accounts receivable....................................... 3,152 1,953
Accounts receivable from affiliates....................... 2,762 6,608
Other current assets...................................... 128 653
-------- --------
Total current assets.............................. 9,233 15,644
-------- --------
Equity investments.......................................... 185,148 182,301
-------- --------
Property and equipment:
Pipelines................................................. 55,123 78,244
Platforms and facilities.................................. 121,321 97,882
Oil and gas properties, at cost, using successful efforts
method................................................. 122,431 120,296
-------- --------
298,875 296,422
Less accumulated depreciation, depletion, amortization and
impairment............................................. 91,868 95,783
-------- --------
Property and equipment, net....................... 207,007 200,639
-------- --------
Investment in Tatham Offshore, Inc. (Note 2)................ -- 7,500
Other noncurrent assets..................................... 3,912 3,758
-------- --------
Total assets...................................... $405,300 $409,842
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued liabilities.................. $ 6,343 $ 12,522
Accounts payable to affiliates............................ 1,866 1,032
-------- --------
Total current liabilities......................... 8,209 13,554
Deferred federal income taxes............................... 1,037 1,399
Notes payable............................................... 291,000 238,000
Other noncurrent liabilities................................ 10,019 13,304
-------- --------
Total liabilities................................. 310,265 266,257
-------- --------
Minority interest........................................... (866) (381)
-------- --------
Partners' capital........................................... 95,901 143,966
-------- --------
Total liabilities and partners' capital........... $405,300 $409,842
======== ========
</TABLE>
The accompanying notes are an integral part of this financial statement.
1
<PAGE> 4
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------- ----------------------
1998 1997 1998 1997
------- ------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Oil and gas sales........................... $ 6,536 $14,665 $ 22,270 $ 49,124
Gathering, transportation and platform
services................................. 5,084 3,430 12,866 14,005
Equity in earnings.......................... 6,610 7,379 19,181 21,599
------- ------- -------- --------
18,230 25,474 54,317 84,728
------- ------- -------- --------
Costs and expenses:
Operating expenses.......................... 3,013 2,628 8,558 8,674
Depreciation, depletion and amortization.... 7,052 11,535 21,897 39,474
Impairment, abandonment and other........... (1,131) -- (1,131) 21,222
General and administrative expenses and
management fee........................... 6,433 4,368 13,937 10,219
------- ------- -------- --------
15,367 18,531 43,261 79,589
------- ------- -------- --------
Operating income.............................. 2,863 6,943 11,056 5,139
Interest income and other..................... 395 159 552 1,322
Interest and other financing costs............ (5,281) (3,886) (13,711) (10,350)
Minority interest in loss (income)............ 15 (35) 12 34
------- ------- -------- --------
(Loss) income before income taxes............. (2,008) 3,181 (2,091) (3,855)
Income tax benefit............................ (202) (93) (371) (238)
------- ------- -------- --------
Net (loss) income............................. $(1,806) $ 3,274 $ (1,720) $ (3,617)
======= ======= ======== ========
Weighted average number of Units
outstanding................................. 24,367 24,367 24,367 24,367
======= ======= ======== ========
Basic and diluted net (loss) income per
Unit........................................ $ (0.06)(a) $ 0.12 $ (0.06)(a) $ (0.14)
======= ======= ======== ========
</TABLE>
- ---------------
(a) Excludes 930,000 and 1,500 outstanding unit options to purchase an equal
number of Common Units of the Partnership at $27.1875 per Common Unit and
$27.34375 per Common Unit, respectively, as the exercise prices of the unit
options were greater than the average market price of the Common Units.
The accompanying notes are an integral part of this financial statement.
2
<PAGE> 5
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (1,720) $ (3,617)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Amortization of debt issue costs....................... 765 721
Depreciation, depletion and amortization............... 21,897 39,474
Impairment, abandonment and other...................... (1,131) 21,222
Minority interest in loss.............................. (12) (34)
Equity in earnings..................................... (19,181) (21,599)
Distributions from equity investments.................. 20,880 19,310
Deferred income taxes.................................. (362) (250)
Other noncash items.................................... (218) (3,467)
Changes in operating working capital:
(Increase) decrease in accounts receivable........... (1,199) 4,080
Decrease in accounts receivable from affiliates...... 3,846 5,086
Decrease in other current assets..................... 525 465
Decrease in accounts payable and accrued
liabilities......................................... (13,287) (10,761)
Increase (decrease) in payable to affiliates......... 834 (1,255)
-------- --------
Net cash provided by operating activities......... 11,637 49,375
-------- --------
Cash flows from investing activities:
Additions to pipelines, platforms and facilities.......... (15,437) (12,261)
Equity investments........................................ (4,516) (23)
Acquisition and development of oil and gas properties..... (828) (11,212)
Other..................................................... 650 176
-------- --------
Net cash used in investing activities............. (20,131) (23,320)
-------- --------
Cash flows from financing activities:
Decrease in restricted cash............................... -- 716
Proceeds from notes payable............................... 87,000 44,000
Repayments of notes payable............................... (34,000) (51,000)
Debt issue costs.......................................... (927) (93)
Distributions to partners................................. (46,818) (33,822)
-------- --------
Net cash provided by (used in) financing
activities....................................... 5,255 (40,199)
-------- --------
Decrease in cash and cash equivalents....................... (3,239) (14,144)
Cash and cash equivalents at beginning of year.............. 6,430 16,489
-------- --------
Cash and cash equivalents at end of period.................. $ 3,191 $ 2,345
======== ========
Cash paid for interest, net of amounts capitalized.......... $ 12,875 $ 9,640
Cash paid for income taxes.................................. $ -- $ 2
</TABLE>
The accompanying notes are an integral part of this financial statement.
3
<PAGE> 6
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERENCE PREFERENCE COMMON COMMON GENERAL
UNITS UNITHOLDERS UNITS UNITHOLDERS PARTNER(a) TOTAL
---------- ----------- ------ ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Partners' capital at December
31, 1997..................... 18,075 $ 163,426 6,292 $(15,400) $ (4,060) $143,966
Net income (loss) for the nine
months ended September 30,
1998 (unaudited)............. -- 19 -- (1,413) (326) (1,720)
Conversion of Preference Units
into Common Units
(unaudited).................. (17,058) (127,842) 17,058 127,842 -- --
Cash distributions
(unaudited).................. -- (28,016) -- (9,753) (8,576) (46,345)
------- --------- ------ -------- -------- --------
Partners' capital at September
30, 1998 (unaudited)......... 1,017 $ 7,587 23,350 $101,276 $(12,962) $ 95,901
======= ========= ====== ======== ======== ========
</TABLE>
- ---------------
(a) Leviathan Gas Pipeline Company owns a 1% general partner interest in
Leviathan Gas Pipeline Partners, L.P. (Notes 1 and 4).
The accompanying notes are an integral part of this financial statement.
4
<PAGE> 7
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION:
Leviathan Gas Pipeline Partners, L.P. (the "Partnership"), a publicly held
Delaware limited partnership, is primarily engaged in the gathering and
transportation of natural gas and crude oil through pipeline systems located in
the Gulf of Mexico (the "Gulf") and in the development and production of oil and
gas reserves. The Partnership's assets include interests in (i) eight natural
gas pipeline systems, (ii) a crude oil pipeline system, (iii) six strategically
located multi-purpose platforms, (iv) four producing oil and gas properties and
(v) a dehydration facility.
Leviathan Gas Pipeline Company ("Leviathan"), a Delaware corporation and wholly
owned subsidiary of Leviathan Holdings Company ("Leviathan Holdings"), a wholly
owned subsidiary of DeepTech International Inc. ("DeepTech"), is the general
partner of the Partnership, and as such, performs all management and operational
functions for the Partnership and its subsidiaries. On August 14, 1998, DeepTech
became a wholly owned subsidiary of El Paso Energy Corporation ("El Paso
Energy"). See Note 2.
As of September 30, 1998, the Partnership had 1,016,506 Preference Units and
23,350,388 Common Units outstanding. Preference Units and Common Units totaling
18,075,000 are owned by the public, representing a 72.7% effective limited
partner interest in the Partnership. Leviathan, through its ownership of
6,291,894 Common Units, its 1% general partner interest in the Partnership and
its approximate 1% nonmanaging interest in certain of the Partnership's
subsidiaries, owns a 27.3% effective interest in the Partnership. See Note 4 for
a discussion of the conversion of Preference Units into Common Units.
The accompanying consolidated financial statements have been prepared without
audit pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, the statements reflect all normal recurring adjustments
which are, in the opinion of management, necessary for a fair statement of the
results of operations for the period covered by such statements. These interim
financial statements should be read in conjunction with the audited consolidated
financial statements and notes thereto contained in the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1997.
Effective January 1, 1998, the Partnership adopted Statement of Financial
Accounting Standard ("SFAS") No. 131, "Disclosures About Segments of an
Enterprise and Related Information". SFAS No. 131 establishes standards for the
method public entities report information about operating segments in both
interim and annual financial statements issued to shareholders and requires
related disclosures about products and services, geographic areas and major
customers. The Partnership is currently evaluating the disclosure requirements
of this statement, as this statement does not apply to interim financial
statements in the initial year of its adoption. However, comparative financial
information for interim periods in the initial year of application must be
reported in financial statements for interim periods in the second year of
application.
NOTE 2 -- RECENT EVENTS:
Merger
Effective August 14, 1998, El Paso Energy completed the acquisition of DeepTech
by merging a wholly owned subsidiary of El Paso Energy with and into DeepTech
(the "Merger") pursuant to the Agreement and Plan of Merger dated as of February
27, 1998 (as amended, the "Merger Agreement"). The material terms of the Merger
and the transactions contemplated by the Merger Agreement and other agreements
as these agreements relate to the Partnership are as follows:
(a) El Paso Energy acquired the minority interests of Leviathan Holdings
and two other subsidiaries of DeepTech primarily held by DeepTech
management for an aggregate of $55.0 million. As a result, El Paso
Energy owns 100% of Leviathan's general partner interest in the
Partnership and an overall 27.3% effective interest in the
Partnership.
5
<PAGE> 8
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(b) In June 1998, Tatham Offshore, Inc. ("Tatham Offshore"), an
affiliate of the Partnership through August 14, 1998, canceled its
reversionary interests in certain oil and gas properties owned by
the Partnership.
(c) On August 14, 1998, Tatham Offshore transferred its remaining assets
located in the Gulf to the Partnership in consideration of the
redemption by Tatham Offshore of its 7,500 shares of Series B 9%
Senior Convertible Preferred Stock (the "Senior Preferred Stock")
owned by the Partnership (the "Redemption Agreement"). Under the
terms of the Redemption Agreement, the Partnership exchanged the
Senior Preferred Stock for 100% of Tatham Offshore's right, title
and interest in and to Viosca Knoll Blocks 772, 773, 774, 817, 818
and 861 (subject to an existing production payment obligation), West
Delta Block 35, Ewing Bank Blocks 871, 914, 915 and 916 and the
platform located at Ship Shoal Block 331. The net cash expenditure
of the Partnership under the Redemption Agreement totaled $0.8
million representing (i) $2.8 million of abandonment costs relating
to wells located at Ewing Bank Blocks 914 and 915 offset by (ii)
$2.0 million of net cash generated from producing properties from
January 1, 1998 through August 14, 1998. In addition, the
Partnership assumed all remaining abandonment and restoration
obligations associated with the platform and leases.
(d) Pursuant to the Merger Agreement, employees of DeepTech who were
terminated on August 14, 1998, received certain severance payments
from DeepTech. DeepTech employees hired by El Paso Energy who are
terminated during the six months after August 14, 1998, will receive
certain severance payments from El Paso Energy.
Mr. Grant E. Sims and Mr. James H. Lytal, the Chief Executive Officer and the
President, respectively, of the Partnership entered into employment agreements
with El Paso Energy effective as of August 14, 1998, and will continue to serve
as the Chief Executive Officer and the President, respectively, of the
Partnership for a term of five years. However, pursuant to the terms of their
respective employment agreements, Messrs. Sims and Lytal have the right to
terminate such agreements upon thirty days notice and El Paso Energy has the
right to terminate such agreements under certain circumstances.
Recent Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133
requires that entities recognize all derivative investments as either assets or
liabilities on the balance sheet and measure those instruments at fair value.
Changes in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and, if it is, the type of hedge
transaction. For fair-value hedge transactions in which the Partnership is
hedging changes in an asset's, liability's or firm commitment's fair value,
changes in the fair value of the derivative instrument will generally be offset
in the income statement by changes in the hedged item's fair value. For
cash-flow hedge transactions, in which the Partnership is hedging the
variability of cash flows related to a variable-rate asset, liability, or a
forecasted transaction, changes in the fair value of the derivative instrument
will be reported in other comprehensive income. The gains and losses on the
derivative instrument that are reported in other comprehensive income will be
reclassified as earnings in the periods in which earnings are impacted by the
variability of the cash flows of the hedged item. The ineffective portion of all
hedges will be recognized in current-period earnings. This statement is
effective for fiscal years beginning after June 15, 1999. The Partnership has
not yet determined the impact that the adoption of SFAS No. 133 will have on its
earnings or financial position.
6
<PAGE> 9
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- EQUITY INVESTMENTS:
The Partnership owns interests of 50% in Viosca Knoll Gathering Company ("Viosca
Knoll"), 36% in Poseidon Oil Pipeline Company, L.L.C. ("POPCO"), 25.7% in
Nautilus Pipeline Company, L.L.C. ("Nautilus"), 25.7% in Manta Ray Offshore
Gathering Company, L.L.C. ("Manta Ray Offshore"), 50% in Stingray Pipeline
Company ("Stingray"), 40% in High Island Offshore System ("HIOS"), 33 1/3% in
U-T Offshore System ("UTOS") and 50% in West Cameron Dehydration Company, L.L.C.
("West Cameron Dehy"). The summarized financial information for these
investments, which are accounted for using the equity method, is as follows:
UNAUDITED SUMMARIZED HISTORICAL OPERATING RESULTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998
---------------------------------------------------------------------------------------------
WEST
VIOSCA CAMERON MANTA RAY
HIOS KNOLL STINGRAY DEHY POPCO UTOS OFFSHORE NAUTILUS TOTAL
-------- ------- -------- ------- ------- ------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenue.......... $ 31,801 $21,216 $ 17,237 $1,945 $30,477 $ 3,840 $ 7,039 $ 3,992
Other income............... 180 34 606 7 245 86 219 57
Operating expenses......... (13,249) (1,916) (11,517) (136) (3,066) (1,893) (2,671) (1,284)
Depreciation............... (3,576) (2,907) (5,131) (12) (6,590) (419) (3,235) (4,369)
Interest expense........... -- (3,131) (1,083) -- (6,552) -- -- --
-------- ------- -------- ------ ------- ------- ------- -------
Net earnings (loss)........ 15,156 13,296 112 1,804 14,514 1,614 1,352 (1,604)
Ownership percentage....... 40% 50% 50% 50% 36% 33.3% 25.7% 25.7%
-------- ------- -------- ------ ------- ------- ------- -------
6,062 6,648 56 902 5,225 537 347 (412)
Adjustments:
- -- Depreciation(a)......... 580 -- 558 -- -- 25 (261) --
- -- Contract
amortization(a)........ (79) -- (119) -- -- -- -- --
- -- Other................... (8) -- (37) 3 (90) 13 -- (769)(c)
-------- ------- -------- ------ ------- ------- ------- -------
Equity in earnings
(loss)................... $ 6,555 $ 6,648 $ 458 $ 905 $ 5,135 $ 575 $ 86 $(1,181) $19,181
======== ======= ======== ====== ======= ======= ======= ======= =======
Distributions(b)........... $ 7,640 $ 7,450 $ 1,000 $ 825 $ 3,132 $ 333 $ 500 $ -- $20,880
======== ======= ======== ====== ======= ======= ======= ======= =======
</TABLE>
- ---------------
(a) Adjustments result from purchase price adjustments made in accordance with
Accounting Principles Board Opinion No. 16, "Business Combinations."
(b) Future distributions could be restricted by the terms of the equity
investees' respective credit agreements.
(c) Primarily relates to a revision of the allowance for funds used during
construction ("AFUDC") which represents the estimated costs, during the
construction period, of funds used for construction purposes.
7
<PAGE> 10
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
UNAUDITED SUMMARIZED HISTORICAL OPERATING RESULTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
---------------------------------------------------------------------------------
WEST MANTA
VIOSCA CAMERON RAY
HIOS KNOLL STINGRAY DEHY POPCO UTOS OFFSHORE TOTAL
-------- ------- -------- ------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenue........... $ 34,115 $16,171 $18,471 $1,752 $18,375 $ 2,836 $ 3,889
Other income................ 298 14 730 18 102 32 234
Operating expenses.......... (11,792) (1,402) (9,928) (121) (4,573) (1,891) (1,299)
Depreciation................ (3,582) (1,791) (5,409) (12) (4,376) (424) (1,188)
Interest expense............ -- (1,374) (1,072) -- (3,733) -- --
-------- ------- ------- ------ ------- ------- -------
Net earnings................ 19,039 11,618 2,792 1,637 5,795 553 1,636
Ownership percentage........ 40% 50% 50% 50% 36% 33.3% 25.7%
-------- ------- ------- ------ ------- ------- -------
7,616 5,809 1,396 818 2,086 184 420
Adjustments:
- -- Depreciation(a).......... 634 -- 718 -- -- 27 --
- -- Contract
amortization(a)......... (79) -- (255) -- -- -- --
- -- Other.................... (98) -- (37) -- (180) (23) 2,563(b)
-------- ------- ------- ------ ------- ------- -------
Equity in earnings.......... $ 8,073 $ 5,809 $ 1,822 $ 818 $ 1,906 $ 188 $ 2,983 $21,599
======== ======= ======= ====== ======= ======= ======= =======
Distributions(c)............ $ 9,400 $ 5,825 $ 1,375 $ 650 $ -- $ 200 $ 1,860 $19,310
======== ======= ======= ====== ======= ======= ======= =======
</TABLE>
- ---------------
(a) Adjustments result from purchase price adjustments made in accordance with
Accounting Principles Board Opinion No. 16, "Business Combinations."
(b) Represents additional net earnings specifically allocated to the
Partnership related to the assets contributed by the Partnership to Manta
Ray Offshore. Pursuant to the terms of the arrangement, the Partnership
managed the operations of the assets contributed to Manta Ray Offshore and
was permitted to retain approximately 100% of the net earnings from such
assets during the construction phase of the expansion to the Manta Ray
Offshore system (January 17, 1997 through December 31, 1997). Effective
January 1, 1998, Manta Ray Offshore began allocating all net earnings in
accordance with ownership percentages.
(c) Future distributions could be restricted by the terms of the equity
investees' respective credit agreements.
NOTE 4 -- PARTNERS' CAPITAL INCLUDING CASH DISTRIBUTIONS:
Cash distributions
During and after the Preference Period (as defined in the Partnership
Agreement), distributions by the Partnership of its Available Cash (as defined
in the Partnership Agreement) were and are effectively made 98% to Unitholders
and 2% to Leviathan, subject to the payment of incentive distributions to
Leviathan if certain target levels of cash distributions to Unitholders are
achieved (the "Incentive Distributions"). As an incentive, the general partner's
interest in the portion of quarterly cash distributions in excess of $0.325 per
Unit and less than or equal to $0.375 per Unit is increased to 15%. For
quarterly cash distributions over $0.375 per Unit but less than or equal to
$0.425 per Unit, the general partner receives 25% of such incremental amount and
for all quarterly cash distributions in excess of $0.425 per Unit, the general
partner receives 50% of the incremental amount. During and after the Preference
Period, the Preference Units are entitled to receive from Available Cash a
minimum quarterly distribution for each quarter of $0.275 per Preference Unit,
plus any arrearage in the payment of the minimum quarterly distribution for
prior quarters, before any distribution of Available Cash is made to holders of
Common Units for such quarter. After the Preference Period, the Preference Units
are not entitled to receive any more than the minimum quarterly distribution,
plus any arrearage in the payment of the minimum quarterly distribution from
prior quarters, if any, per quarter.
8
<PAGE> 11
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In February 1998, the Partnership paid a cash distribution of $0.50 per
Preference and Common Unit for the period from October 1, 1997 through December
31, 1997 and an Incentive Distribution of $2.4 million to Leviathan, as general
partner. In May and August 1998, the Partnership paid a cash distribution of
$0.525 per Preference and Common Unit for the periods from January 1, 1998
through March 31, 1998 and from April 1, 1998 through June 30, 1998,
respectively, and an Incentive Distribution of $3.0 million to Leviathan for
each of these periods. On October 20, 1998, the Partnership declared a cash
distribution of $0.275 per Preference Unit and $0.525 per Common Unit for the
period from July 1, 1998 through September 30, 1998 which will be paid on
November 13, 1998 to all holders of record of Common Units and Preference Units
as of October 30, 1998. Leviathan will receive an Incentive Distribution of $2.8
million for the three months ended September 30, 1998.
Conversion of Preference Units into Common Units
On May 7, 1998, the Partnership notified the holders of its 18,075,000 then
outstanding Preference Units of their right to convert their Preference Units
into an equal number of Common Units within a 90-day period. On August 5, 1998,
the conversion period expired and holders of 17,058,494 Preference Units,
representing 94.4% of the Preference Units then outstanding, had elected to
convert to Common Units. As a result, the Preference Period ended and the Common
Units (including the 6,291,894 Common Units held by Leviathan) became the
primary listed security on the New York Stock Exchange ("NYSE") under the symbol
"LEV". A total of 1,016,506 Preference Units remain outstanding and now trade as
the Partnership's secondary listed security on the NYSE under the symbol
"LEV.P".
The remaining Preference Units retain their distribution preferences over the
Common Units; that is, Preference Units will be paid up to the minimum quarterly
distribution of $0.275 per Unit before any quarterly distributions are made to
the Common Units or Leviathan, as general partner. However, Preference Units
will not receive any distributions in excess of the minimum quarterly
distribution of $0.275 per Unit. Only Common Units and Leviathan, as general
partner, will be eligible to receive any of such excess distributions.
In accordance with the Partnership Agreement, holders of the remaining
Preference Units will not have another opportunity to convert their Preference
Units into Common Units until May 1999 and again in May 2000. Thereafter, any
remaining Preference Units may, under certain circumstances, be subject to
redemption.
NOTE 5 -- RELATED PARTY TRANSACTIONS:
Management fees. For the nine months ended September 30, 1998, Leviathan charged
the Partnership $7.4 million pursuant to the Partnership Agreement which
provides for reimbursement of expenses Leviathan incurs as general partner of
the Partnership, including reimbursement of expenses incurred by DeepTech and El
Paso Energy in providing management services to Leviathan and the Partnership.
Joint Ventures. Viosca Knoll is owned 50% by a subsidiary of the Partnership and
50% by a wholly owned indirect subsidiary of El Paso Energy. Viosca Knoll is
managed by a committee consisting of representatives from each of the partners.
The Partnership is the operator of Viosca Knoll and has contracted the wholly
owned indirect subsidiary of El Paso Energy to maintain the pipeline and
Leviathan to perform financial, accounting and administrative services. The
Viosca Knoll gathering system interconnects with six interstate pipelines in the
South Pass and Main Pass areas of the Gulf. One of these interstate pipelines is
owned by an affiliate of El Paso Energy.
Property Acquisition. In October 1998, the Partnership purchased a 100% working
interest in Ewing Bank Blocks 958, 959, 1002 and 1003 (the Sunday Silence field)
from a wholly-owned subsidiary of DeepTech for approximately $11.6 million. The
Sunday Silence field, discovered in July 1994, is contained within four lease
blocks in the Ewing Bank area of the Gulf in approximately 1,500 feet of water
and has received a royalty
9
<PAGE> 12
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
abatement from the Minerals Management Service for the first 52.5 million
barrels of oil equivalent to be produced from the field. The Partnership is
drilling a delineation well which is expected to be completed in December 1998
at a cost of approximately $15.1 million.
Other. In 1995, the Partnership adopted the Unit Rights Appreciation Plan (the
"Plan") to provide the Partnership with the ability of making awards of Unit
Rights, as hereinafter defined, to certain officers and employees of the
Partnership or its affiliates as an incentive for these individuals to continue
in the service of the Partnership or its affiliates. Under the Plan, the
Partnership granted 1,200,000 Unit Rights to certain officers and employees of
the Partnership or its affiliates that provided for the right to purchase, or
realize the appreciation of, a Preference Unit or Common Unit (see Note 4) (a
"Unit Right"), pursuant to the provisions of the Plan. The exercise prices
covered by the Unit Rights granted pursuant to the Plan ranged from $15.6875 to
$21.50, the closing prices of the Preference Units as reported on the NYSE on
the grant date of the respective Unit Rights. As a result of the "change of
control" occurring upon the closing of the Merger, the Unit Rights fully vested
and certain of the holders of the Unit Rights elected to be paid $7.3 million,
the amount equal to the difference between the grant price of the Unit Rights
and the average of the high and low sales price of the Common Units on the date
of exercise. As of September 30, 1998, the Partnership had accrued $1.4 million
related to the appreciation and vesting of the remaining 215,000 outstanding
Unit Rights. In October 1998, the Partnership paid the holder of the remaining
Unit Rights $1.3 million upon the exercise of the remaining Unit Rights and the
Plan was terminated.
In August 1998, the Partnership adopted the 1998 Omnibus Compensation Plan (the
"Omnibus Plan") and the 1998 Unit Option Plan for Non-Employee Directors (the
"Director Plan" and together with the Omnibus Plan the "Option Plans"). The
Option Plans provide the Partnership with the ability to issue unit options to
attract and retain the services of knowledgeable directors, officers and key
management personnel. Unit options to purchase a maximum of 3,000,000 Common
Units and 100,000 Common Units of the Partnership may be issued pursuant to the
Omnibus Plan and the Director Plan, respectively. As of September 30, 1998, the
Partnership had granted 930,000 unit options at $27.1875 per unit option and
1,500 unit options at $27.34375 per unit option under the Omnibus Plan and the
Director Plan, respectively.
Pursuant to the former Leviathan non-employee director compensation
arrangements, the Partnership was obligated to pay each non-employee director
2 1/2% of the general partner's Incentive Distribution as a profit participation
fee. During the nine months ended September 30, 1998, the Partnership paid the
three non-employee directors of Leviathan a total of $0.6 million as a profit
participation fee. As a result of the Merger, the three non-employee directors
resigned and the compensation arrangements were terminated.
In March 1998, Tatham Offshore eliminated its 7,500 shares of 9% Senior
Convertible Preferred Stock issued to the Partnership and replaced this stock
with its Senior Preferred Stock. In connection with the Redemption Agreement
discussed in Note 2, the Senior Preferred Stock and all related unpaid dividends
were exchanged for certain oil and gas properties and an offshore platform.
NOTE 6 -- COMMITMENTS AND CONTINGENCIES:
Hedging Activities
The Partnership hedges a portion of its oil and natural gas production to reduce
the Partnership's exposure to fluctuations in market prices of oil and natural
gas and to meet certain requirements of the Partnership Credit Facility (as
defined herein). The Partnership uses various financial instruments whereby
monthly settlements are based on differences between the prices specified in the
instruments and the settlement prices of certain futures contracts quoted on the
New York Mercantile Exchange ("NYMEX") or certain other indices. The Partnership
settles the instruments by paying the negative difference or receiving the
positive difference between the applicable settlement price and the price
specified in the contract. The instruments utilized by the
10
<PAGE> 13
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Partnership differ from futures contracts in that there is no contractual
obligation which requires or allows for the future delivery of the product.
Gains or losses on hedging activities are recognized as oil and gas sales in the
period in which the hedged production is sold.
At September 30, 1998, the Partnership had open sales hedges on approximately
25,000 million British thermal units ("MMbtu") of natural gas per day for the
remaining period in 1998 at an average price of $2.375 per MMbtu and open
purchase hedges of approximately 25,000 MMbtu of natural gas per day for the
remaining period in 1998 at an average price of $2.24 per MMbtu. In addition,
the Partnership had entered into commodity sales swap transactions for calendar
1999 of (i) 5,000 MMbtu per day at a fixed price to be determined at the
Partnership's option equal to the January 1999 Natural Gas Futures Contract on
NYMEX as quoted at any time during 1998, to and including the last three trading
days of the January 1999 contract, minus $0.25 per MMbtu and (ii) 5,000 MMbtu
per day at a fixed price to be determined at the Partnership's option equal to
the January 1999 Natural Gas Futures Contract on NYMEX as quoted at any time
during 1998, to and including the last three trading days of the January 1999
contract, minus $0.28 per MMbtu. The Partnership has also entered into a
commodity purchase swap transaction for calendar 1999 for 5,000 MMbtu per day at
a fixed price to be determined at the Partnership's option equal to the December
1998 Natural Gas Futures Contract on NYMEX as quoted at any time from July 23,
1998, to and including two days prior to the last three trading days of the
December 1998 contract, minus $0.17 per MMbtu.
At September 30, 1998, the Partnership had open sales hedges on approximately
992 barrels of oil per day for the remaining period in 1998 at an average price
of $20.43 per barrel and open purchase hedges of approximately 1,000 barrels of
oil per day for the remaining period in 1998 at an average price of $17.81 per
barrel.
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<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Partnership's
consolidated financial statements and notes thereto included in "Item 1.
Consolidated Financial Statements" and is intended to assist in the
understanding of the Partnership's financial condition and results of operations
for the three months and nine months ended September 30, 1998. Unless the
context otherwise requires, all references herein to the Partnership with
respect to the operations and ownership of the Partnership's assets are also
references to its subsidiaries.
OVERVIEW
The Partnership's assets include interests in (i) eight natural gas pipeline
systems (the "Gas Pipelines"), (ii) a crude oil pipeline system, (iii) six
strategically located multi-purpose platforms, (iv) four producing oil and gas
properties and (v) a dehydration facility.
The Gas Pipelines, strategically located primarily offshore Louisiana and
eastern Texas, gather and transport natural gas for producers, marketers,
pipelines and end-users for a fee. The Gas Pipelines include approximately 1,167
miles of pipeline with a throughput capacity of 6.5 billion cubic feet ("Bcf")
of gas per day. Each of the Gas Pipelines interconnects with one or more long
line transmission pipelines that provide access to multiple markets in the
eastern half of the United States. The Partnership's interest in the Gas
Pipelines consists of: a 100% interest in each of Manta Ray Gathering Company,
L.L.C., Green Canyon Pipe Line Company, L.L.C. and Tarpon Transmission Company
("Tarpon"); a 50% partnership interest in each of Stingray and Viosca Knoll; a
40% partnership interest in HIOS; a 33 1/3% partnership interest in UTOS; and an
effective 25.7% interest in each of Manta Ray Offshore and Nautilus.
The Partnership owns a 36% interest in POPCO which owns and operates the
Poseidon Oil Pipeline ("Poseidon"). Poseidon, a major new sour crude oil
pipeline system built in response to an increased demand for additional sour
crude oil pipeline capacity in the central Gulf, consists of 297 miles of
16-inch to 24-inch pipeline with a capacity of approximately 400,000 barrels per
day and is currently delivering an average of approximately 111,000 barrels of
oil per day. POPCO placed the third phase of Poseidon in service in December
1997.
The Partnership operates and owns interests in six strategically located
multi-purpose platforms in the Gulf that have processing capabilities which
complement the Partnership's pipeline operations and play a key role in the
development of oil and gas reserves. The platforms are used to interconnect the
offshore pipeline network and to provide an efficient means to perform pipeline
maintenance and to operate compression, separation, processing and other
facilities. In addition, the multi-purpose platforms serve as landing sites for
deeper water production and as sites for the location of gas compression
facilities and drilling operations.
The Partnership owns an interest in and is operator of three producing leases in
the Gulf. The Viosca Knoll Block 817 wells (100% working interest owned by the
Partnership) are currently producing a gross aggregate average of approximately
57 million cubic feet ("MMcf") of gas per day. The Garden Banks Block 72 wells
(50% working interest owned by the Partnership) are currently producing a gross
aggregate average of approximately 1,690 barrels of oil and 5 MMcf of gas per
day. The Garden Banks Block 117 wells (50% working interest owned by the
Partnership) are currently producing a gross aggregate average of approximately
1,420 barrels of oil and 3 MMcf of gas per day.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1998 Compared With Three Months Ended September
30, 1997
Oil and gas sales totaled $6.5 million for the three months ended September 30,
1998 as compared with $14.7 million for the same period in 1997. The decrease is
attributable to (i) substantially lower realized oil and gas prices, (ii)
decreased production as a result of two tropical storms and Hurricane Georges
passing through the Gulf during the third quarter of 1998 and (iii) normal
production declines from the Partnership's oil and gas properties. During the
three months ended September 30, 1998, the Partnership produced and sold 2,562
MMcf of gas and 116,000 barrels of oil at average prices of $1.87 per thousand
cubic feet ("Mcf") and
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<PAGE> 15
$14.73 per barrel, respectively. During the same period in 1997, the Partnership
produced and sold 4,703 MMcf of gas and 197,000 barrels of oil at average prices
of $2.25 per Mcf and $20.46 per barrel, respectively.
Revenue from gathering, transportation and platform services totaled $5.1
million for the three months ended September 30, 1998 as compared with $3.4
million for the same period in 1997. The change primarily reflects an increase
of $2.0 million in platform services revenue from the Partnership's East Cameron
Block 373 platform that was placed in service in April 1998. Throughput volumes
for the Partnership's wholly owned gathering systems decreased approximately 21%
during the third quarter of 1998 as compared with the same period in 1997
primarily because of reduced gas production resulting from two tropical storms
and Hurricane Georges passing through the Gulf during the third quarter of 1998.
Revenue from the Partnership's equity interests in Stingray, HIOS, UTOS, Viosca
Knoll, POPCO, Manta Ray Offshore, Nautilus and West Cameron Dehy (the "Equity
Investees") totaled $6.6 million for the three months ended September 30, 1998
as compared with $7.4 million for the same period in 1997. The decrease
primarily reflects decreases of (i) $0.6 million related to Stingray and HIOS as
a result of increased maintenance costs and decreased throughput and (ii) $1.3
million related to nonrecurring start-up costs, prior period adjustments and a
change in equity ownership of Nautilus and Manta Ray Offshore offset by an
increase of $1.1 million primarily from POPCO and Viosca Knoll as a result of
increased throughput. Total gas throughput volumes for the Equity Investees
increased approximately 23% from the third quarter of 1997 to the third quarter
of 1998 primarily as a result of increased throughput on the Viosca Knoll,
Nautilus and Manta Ray Offshore systems. Oil volumes from Poseidon totaled 9.0
million barrels and 5.3 million barrels for the three months ended September 30,
1998 and 1997, respectively. The Equity Investees were also impacted by two
tropical storms and Hurricane Georges passing through the Gulf during the third
quarter of 1998.
Operating expenses for the three months ended September 30, 1998 totaled $3.0
million as compared to $2.6 million for the same period in 1997. The increase is
primarily attributable to higher operating costs associated with the East
Cameron Block 373 platform placed in service in April 1998, the acquisition of
the Ship Shoal Block 331 platform in August 1998 and additional activities
associated with the Ship Shoal Block 332 platform offset by lower operating and
transportation costs associated with the Partnership's oil and gas properties.
Depreciation, depletion and amortization totaled $7.1 million for the three
months ended September 30, 1998 as compared with $11.5 million for the same
period in 1997. The decrease of $4.4 million reflects a decrease of $4.8 million
in depreciation and depletion on oil and gas wells and facilities located on the
Viosca Knoll Block 817, Garden Banks Block 72 and the Garden Banks Block 117 as
a result of decreased production from these leases offset by an increase of $0.4
million in depreciation on pipelines, platforms and facilities as a result of
placing the East Cameron Block 373 platform in service in April 1998 and
acquiring of the Ship Shoal Block 331 platform in August 1998.
Impairment, abandonment and other totaled ($1.1 million) for the three months
ended September 30, 1998 and represented the excess of estimated costs over
actual costs incurred associated with the abandonment of the Partnership's Ewing
Bank flowlines.
General and administrative expenses, including the management fee allocated from
Leviathan, totaled $6.4 million for the three months ended September 30, 1998 as
compared with $4.4 million for the same period in 1997. The increase of $2.0
million primarily reflects additional direct general and administrative expenses
related to (i) the vesting and appreciation of Unit Rights granted to certain
officers and employees and (ii) the incentive payments to Leviathan's three
former non-employee directors pursuant to compensation arrangements. See "Item
1. Consolidated Financial Statements -- Notes to Consolidated Financial
Statements -- Note 5 -- Related Party Transactions -- Other."
Interest income and other totaled $0.4 million for the three months ended
September 30, 1998 as compared with $0.2 million for the same period in 1997.
Interest and other financing costs, net of capitalized interest, for the three
months ended September 30, 1998 totaled $5.3 million as compared with $3.9
million for the same period in 1997. During the three months
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<PAGE> 16
ended September 30, 1998 and 1997, the Partnership had outstanding indebtedness
averaging approximately $280.5 million and $218.5 million, respectively.
Net loss for the three months ended September 30, 1998 totaled $1.8 million, or
$0.06 per Unit, as compared with net income of $3.3 million, or $0.12 per Unit,
for the three months ended September 30, 1997 as a result of the items discussed
above.
Nine Months Ended September 30, 1998 Compared With Nine Months Ended September
30, 1997
Oil and gas sales totaled $22.3 million for the nine months ended September 30,
1998 as compared with $49.1 million for the same period in 1997. The decrease is
attributable to (i) substantially lower realized oil and gas prices, (ii)
decreased production as a result of two tropical storms and Hurricane Georges
passing through the Gulf during the third quarter of 1998, (iii) normal
production declines from the Partnership's oil and gas properties and (iv) the
lack of acceptable markets downstream of the Viosca Knoll system. The production
decline attributable to the capacity constraints of the downstream transporter
was alleviated during the third quarter of 1998. During the nine months ended
September 30, 1998, the Partnership produced and sold 7,435 MMcf of gas and
424,000 barrels of oil at average prices of $2.06 per Mcf and $16.04 per barrel,
respectively. During the same period in 1997, the Partnership produced and sold
16,410 MMcf of gas and 606,000 barrels of oil at average prices of $2.19 per Mcf
and $21.20 per barrel, respectively.
Revenue from gathering, transportation and platform services totaled $12.9
million for the nine months ended September 30, 1998 as compared with $14.0
million for the same period in 1997. The decrease primarily reflects decreases
of (i) $2.8 million related to the cessation of production in May 1997 from the
only well connected to the Ewing Bank system, (ii) $1.3 million as a result of
lower throughput on the Green Canyon system and the contribution of a
significant portion of the Manta Ray system to Manta Ray Offshore on January 17,
1997 resulting in revenue from these assets being included in equity in earnings
for all of the nine months in the period ended September 30, 1998 as compared
with a portion of the nine months ended September 30, 1997 and (iii) $0.4
million in platform revenue services from the Partnership's Viosca Knoll Block
817 platform as a result of lower oil and gas volumes processed on the platform
due to capacity constraints of the downstream transporter which was alleviated
during the third quarter of 1998, offset by an increase of $3.4 million in
platform services revenue from the Partnership's East Cameron Block 373 platform
which was placed in service in April 1998. Throughput volumes for the
Partnership's wholly owned gathering systems increased approximately 1% from the
first nine months of 1998 as compared with the same period in 1997.
Revenue from the Partnership's Equity Investees totaled $19.2 million for the
nine months ended September 30, 1998 as compared with $21.6 million for the same
period in 1997. The decrease of $2.4 million primarily reflects decreases of (i)
$2.9 million related to Stingray and HIOS as a result of increased maintenance
costs and decreased throughput and (ii) $4.1 million related to nonrecurring
start-up costs, prior period adjustments and a change in equity ownership of
Nautilus and Manta Ray Offshore offset by an increase of $4.6 million from
POPCO, Viosca Knoll and UTOS as a result of increased throughput. Total gas
throughput volumes for the Equity Investees increased approximately 19% from the
nine months ended September 30, 1997 to the same period in 1998 primarily as a
result of increased throughput on the Viosca Knoll, UTOS, Nautilus and Manta Ray
Offshore systems. Oil volumes from Poseidon totaled 24.7 million barrels and
13.3 million barrels for the nine months ended September 30, 1998 and 1997,
respectively. The Equity Investees were also impacted by two tropical storms and
Hurricane Georges passing through the Gulf during the third quarter of 1998.
Operating expenses for the nine months ended September 30, 1998 totaled $8.6
million as compared to $8.7 million for the same period in 1997. The decrease is
primarily attributable to lower operating and transportation costs associated
with the Partnership's oil and gas properties offset by higher operating costs
associated with the East Cameron Block 373 platform placed in service in April
1998, the acquisition of the Ship Shoal Block 331 platform in August 1998 and
additional activities associated with the Ship Shoal Block 332 platform.
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<PAGE> 17
Depreciation, depletion and amortization totaled $21.9 million for the nine
months ended September 30, 1998 as compared with $39.5 million for the same
period in 1997. The decrease of $17.6 million reflects decreases of (i) $14.7
million in depreciation and depletion on oil and gas wells and facilities
located on the Viosca Knoll Block 817, Garden Banks Block 72 and the Garden
Banks Block 117 as a result of decreased production from these leases and (ii)
$2.9 million in depreciation on pipelines, platforms and facilities as a result
of the Partnership fully depreciating its investment in the Ewing Bank and Ship
Shoal systems in June 1997.
Impairment, abandonment and other totaled ($1.1 million) for the nine months
ended September 30, 1998 and represented the excess of estimated costs over
actual costs incurred associated with the abandonment of the Partnership's Ewing
Bank flowlines. Impairment, abandonment and other totaled $21.2 million for the
nine months ended September 30, 1997 and consisted of a non-recurring charge to
reserve the Partnership's investment in certain gathering facilities and other
assets associated with Tatham Offshore's Ewing Bank 914 #2 well and Ship Shoal
Block 331 property, to accrue the Partnership's abandonment obligations
associated with the gathering facilities serving these properties, to reserve
the Partnership's noncurrent receivable related to the prepayment of the demand
charge obligations under certain agreements related to the Ewing Bank and Ship
Shoal leases and to accrue certain abandonment obligations associated with its
oil and gas properties.
General and administrative expenses, including the management fee allocated from
Leviathan, totaled $13.9 million for the nine months ended September 30, 1998 as
compared with $10.2 million for the same period in 1997. The increase of $3.7
million reflects increases of (i) $0.9 million in management fees allocated by
Leviathan to the Partnership and (ii) $2.8 million in direct general and
administrative expenses of the Partnership primarily related to (x) the
appreciation and vesting of Unit Rights granted to certain officers and
employees and (y) incentive payments to Leviathan's three former non-employee
directors pursuant to compensation arrangements. See "Item 1. Consolidated
Financial Statements -- Notes to Consolidated Financial Statements -- Note
5 -- Related Party Transactions -- Other."
Interest income and other totaled $0.6 million for the nine months ended
September 30, 1998 as compared with $1.3 million for the same period in 1997.
Interest and other financing costs, net of capitalized interest, for the nine
months ended September 30, 1998 totaled $13.7 million as compared with $10.4
million for the same period in 1997. During the nine months ended September 30,
1998 and 1997, the Partnership capitalized $0.6 million and $1.5 million,
respectively, of interest costs in connection with construction projects and
drilling activities in progress during such periods. During the nine months
ended September 30, 1998 and 1997, the Partnership had outstanding indebtedness
averaging approximately $264.5 million and $223.5 million, respectively.
Net loss for the nine months ended September 30, 1998 totaled $1.7 million, or
$0.06 per Unit, as compared with a net loss of $3.6 million, or $0.14 per Unit,
for the nine months ended September 30, 1997 as a result of the items discussed
above.
LIQUIDITY AND CAPITAL RESOURCES
Sources of Cash. The Partnership intends to satisfy its capital requirements and
other working capital needs primarily from cash on hand, cash from operations,
borrowings under the Partnership Credit Facility (discussed below) and,
depending on capital requirements and related market conditions, issuing
additional debt and/or equity. Net cash provided by operating activities for the
nine months ended September 30, 1998 totaled $11.6 million. At September 30,
1998, the Partnership had cash and cash equivalents of $3.2 million.
Cash from operations is derived from (i) payments for gathering gas through the
Partnership's 100% owned pipelines, (ii) platform access and processing fees,
(iii) cash distributions from Equity Investees and (iv) the sale of oil and gas
attributable to the Partnership's interest in its producing properties. Oil and
gas properties are depleting assets and will produce reduced volumes of oil and
gas in the future unless additional wells are drilled or recompletions of
existing wells are successful. See "-- Overview" for current production rates
from these properties.
The Partnership's cash flows from operations will be affected by the ability of
each Equity Investee to make distributions. Distributions from such entities are
subject to the discretion of their respective management
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<PAGE> 18
committees. Further, each of Stingray, POPCO and Viosca Knoll is party to a
credit agreement under which it has outstanding obligations that may restrict
the payments of distributions to its owners. Distributions to the Partnership
from Equity Investees during the nine months ended September 30, 1998 totaled
$20.9 million.
The Partnership Credit Facility is a revolving credit facility providing for up
to $350 million of available credit subject to customary terms and conditions,
including certain debt incurrence limitations. Proceeds from the Partnership
Credit Facility are available to the Partnership for general partnership
purposes, including financing of capital expenditures, for working capital, and
subject to certain limitations, for paying distributions to the Unitholders. The
Partnership Credit Facility can also be utilized to issue letters of credit as
may be required from time to time; however, no letters of credit are currently
outstanding. The Partnership Credit Facility matures in December 1999; is
guaranteed by Leviathan and each of the Partnership's subsidiaries; and is
secured by the management agreement with Leviathan as amended or supplemented
from time to time, substantially all of the assets of the Partnership and
Leviathan's 1% general partner interest in the Partnership and approximate 1%
interest in certain subsidiaries of the Partnership. In April 1998, the
Partnership Credit Facility was amended to allow for the Merger, the
consummation of the Redemption Agreement and certain other transactions. In
August 1998, the Partnership Credit Facility was amended to, among other things,
increase the credit facility by $50 million to $350 million of available credit.
As of September 30, 1998, the Partnership had $291.0 million outstanding under
its credit facility bearing interest at an average floating rate of 7.1% per
annum. Currently, approximately $30.0 million of additional funds are available
under the Partnership Credit Facility.
In March 1998, Stingray amended an existing term loan agreement to provide for
additional borrowings of $11.1 million and to extend the maturity date of the
loan from December 31, 2000 to March 31, 2003. The amended agreement requires
Stingray to make 18 quarterly principal payments of $1.6 million commencing on
December 31, 1998. The term loan agreement is principally secured by current and
future gas transportation contracts between Stingray and its customers. As of
September 30, 1998, Stingray had $28.5 million outstanding under its term loan
agreement bearing interest at an average floating rate of 6.5625% per annum.
POPCO has a revolving credit facility, as amended, (the "POPCO Credit Facility")
with a group of commercial banks to provide up to $150 million for the
construction and expansion of Poseidon and for other working capital needs of
POPCO. POPCO's ability to borrow money under the facility is subject to certain
customary terms and conditions, including borrowing base limitations. The POPCO
Credit Facility is secured by a substantial portion of POPCO's assets and
matures on April 30, 2001. As of September 30, 1998, POPCO had $128.0 million
outstanding under its credit facility bearing interest at an average floating
rate of 6.7% per annum. Currently, approximately $20.5 million of additional
funds are available under the POPCO Credit Facility.
Viosca Knoll has a revolving credit facility, as amended, (the "Viosca Knoll
Credit Facility") with a syndicate of commercial banks to provide up to $100
million for the addition of compression to the Viosca Knoll system and for other
working capital needs of Viosca Knoll, including funds for a one-time
distribution of $25 million to its partners. Viosca Knoll's ability to borrow
money under the facility is subject to certain customary terms and conditions,
including borrowing base limitations. The Viosca Knoll Credit Facility is
secured by a substantial portion of Viosca Knoll's assets and matures on
December 20, 2001. As of September 30, 1998, Viosca Knoll had $66.2 million
outstanding under its credit facility bearing interest at an average floating
rate of 6.4% per annum. Currently, approximately $33.3 million of additional
funds are available under the Viosca Knoll Credit Facility.
Uses of Cash. The Partnership's capital requirements consist primarily of (i)
quarterly distributions to holders of Preference Units and Common Units and to
Leviathan as general partner, including Incentive Distributions, as applicable,
(ii) expenditures for the maintenance of its pipelines and related
infrastructure and the acquisition and construction of additional pipelines and
related facilities for the gathering, transportation and processing of oil and
gas in the Gulf, (iii) expenditures related to its producing oil and gas
properties, (iv) expenditures relating to the acquisition and development of the
Sunday Silence field discussed in "Item 1. Consolidated Financial
Statements -- Notes to Consolidated Financial Statements -- Note 5 -- Related
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<PAGE> 19
Party Transactions -- Property Acquisition," (v) expenditures related to the
abandonment of the Ewing Bank flowlines of $2.9 million, (vi) management fees
and other operating expenses, (vii) contributions to Equity Investees as
required to fund capital expenditures for new facilities, (viii) debt service on
its outstanding indebtedness and (ix) the payment of the accelerated
appreciation of Unit Rights discussed in "Item 1. Consolidated Financial
Statements -- Notes to Consolidated Financial Statements -- Note 5 -- Related
Party Transactions -- Other."
On October 20, 1998, the Partnership declared a cash distribution of $0.275 per
Preference Unit and $0.525 per Common Unit for the period from July 1, 1998
through September 30, 1998 which will be paid on November 13, 1998 to all
holders of record of Common Units and Preference Units as of October 30, 1998.
See "Item 1. Consolidated Financial Statements -- Notes to Consolidated
Financial Statements -- Note 4 -- Partners' Capital -- Cash Distributions" and
"-- Conversion of Preference Units into Common Units."
For the nine months ended September 30, 1998, the Partnership paid Leviathan
Incentive Distributions totaling $8.3 million and will pay Leviathan an
Incentive Distribution of $2.8 million in November 1998. The Partnership
believes that it will be able to continue to pay at least the current quarterly
cash distributions of $0.275 per Preference Unit and $0.525 per Common Unit for
the foreseeable future. At these distribution rates, the quarterly Partnership
distributions total $15.6 million in respect to the Preference Units, Common
Units and the general partner interests ($62.5 million on an annual basis,
including $25.6 million to Leviathan).
In April 1998, the Partnership completed the construction and installation of a
new platform and processing facilities at East Cameron Block 373. This platform,
which cost approximately $30.2 million, is strategically located to exploit
reserves in the East Cameron and Garden Banks area of the Gulf and is the
terminus for an extension of the Stingray system. The Partnership funded the
cost of the platform and facilities with borrowings under the Partnership Credit
Facility.
The Partnership anticipates that its capital expenditures and equity investments
for the remaining portion of 1998 and 1999 will relate to continuing acquisition
and construction activities. The Partnership anticipates funding such cash
requirements primarily with available cash flow, borrowings under the
Partnership Credit Facility and, depending on the capital requirements and
related market conditions, issuing additional debt and/or equity.
Any substantial capital expenditures by Stingray, POPCO and Viosca Knoll are
anticipated to be funded by borrowings under their respective credit facilities.
The Partnership's cash capital expenditures and equity investments for the nine
months ended September 30, 1998 were $20.8 million. The Partnership may in the
future contribute existing assets (including cash) to new joint ventures as
partial consideration for its ownership interest therein.
Interest costs incurred by the Partnership related to the Partnership Credit
Facility totaled $14.3 million for the nine months ended September 30, 1998. The
Partnership capitalized $0.6 million of such interest costs in connection with
construction projects in progress during the period.
YEAR 2000
The Year 2000 issue is the result of computer programs that were written using
two digits rather than four to define the year. The Partnership has established
a project team to coordinate the five phases of its Year 2000 project to ensure
that the Partnership's key automated systems and related processes will remain
functional through Year 2000. The phases include: (i) awareness, (ii)
assessment, (iii) remediation, (iv) testing, and (v) implementation of the
necessary modifications. The key automated systems of the Partnership consist of
(a) hardware and equipment, (b) embedded chip systems in equipment and (c) third
party-developed software. The Partnership has hired outside consultants and is
involved in several industry trade-groups to supplement the Partnership's
project team.
The awareness phase recognizes the importance of Year 2000 issues and its impact
on the Partnership. Through the project team, the Partnership has established an
awareness program which includes participation
17
<PAGE> 20
of management in each business area. Even though the awareness phase is
substantially completed, the Partnership will continually update awareness
efforts throughout the Year 2000 project.
The assessment phase consists of conducting an inventory of its key automated
systems and related processes, analyzing and assigning levels of criticality to
those systems and processes, identifying and prioritizing resource requirements,
developing validation strategies and testing plans and evaluating business
partner relationships. The Partnership estimates that it is more than half way
complete with the portion of the assessment phase to determine the nature and
impact of the Year 2000 date change for hardware and equipment, embedded chip
systems, and third-party developed software. The assessment phase of the project
involves, among other things, efforts to obtain representations and assurances
from third parties, including Equity Investees, partners and third party
customers and vendors, that their hardware and equipment products, embedded chip
systems and software products being used by or impacting the Partnership are or
will be modified to be Year 2000 compliant. To date, the responses from such
third parties are inconclusive. Although the Partnership intends to interact
only with those third parties that have Year 2000 compliant computer systems, it
is impossible for the Partnership to monitor all such systems. As a result, the
Partnership cannot predict the potential consequences if its Equity Investees,
partners, customers or vendors are not Year 2000 compliant. The Partnership is
currently evaluating the exposure associated with such business partner
relationships.
The Partnership expects that the remediation phase, which involves converting,
modifying, replacing or eliminating selected key automated systems, will be
substantially completed by mid-1999. The testing phase represents the validation
process for key automated systems. The Partnership is utilizing test tools and
written procedures to document and validate, as necessary, its unit, system,
integration and acceptance testing. The testing phase is also anticipated to be
substantially completed by mid-1999. While the Partnership has substantially
begun work on both the remediation and testing phases, the Partnership estimates
that approximately three-quarters of the work for these phases remain.
The implementation phase represents placing the converted or replaced key
automated systems into operations. In some cases, the implementation phase will
consist of developing and executing contingency plans needed to support business
functions and processes that may be interrupted by Year 2000 failures which are
outside the Partnership's control. Contingency plans will be developed to
prepare for failures of the Partnership's key automated systems not reasonably
foreseen. The implementation phase is expected to be substantially completed by
mid-1999. The Partnership is in the early stages of this phase.
While the total cost of the Partnership's Year 2000 project is still being
evaluated, the Partnership estimates that the costs incurred in 1998, 1999 and
2000 associated with assessing, remediating and testing hardware and equipment,
embedded chip systems, and third-party developed software is anticipated not to
exceed $1.0 million, all of which will be expensed.
The Partnership's present intention is that in the event the Partnership
completes an acquisition of, or makes a material investment in, substantial
facilities or another business entity, the Partnership will incorporate such
facilities or entity into its Year 2000 program. Accordingly, the Partnership
may incur substantial costs as a result of such acquisition or investment. This
cost will be in addition to the costs of the Year 2000 assessment, if any, made
by the Partnership with respect to such facilities or entity prior to the
acquisition or investment.
The Partnership's goal is to ensure that all of its critical systems and
processes that are under its direct control remain functional. However, certain
systems and processes may be interrelated with systems outside the control of
the Partnership for which there can be no assurance that all implementations
will be successful. The Partnership's present analysis of its most reasonably
likely worst case scenario for Year 2000 disruptions includes Year 2000 failures
in the telecommunications and electricity industries, as well as interruptions
from suppliers that might cause disruptions in the Partnership's operations,
thus causing temporary financial losses and an inability to meet its obligations
to customers. Accordingly, the Partnership's contingency plan may also consider
any significant failures related to the most reasonably likely worst case
scenario, as they may occur. The plan is expected to assess the risk of a
significant failure to critical processes performed by the Partnership. This
assessment is expected to also factor in the severity and duration of the impact
of a
18
<PAGE> 21
significant failure. From this analysis, the Year 2000 contingency plan should
be developed to mitigate the risk identified by the assessment of the most
reasonably likely worst case scenario.
Management does not expect the costs of the Partnership's Year 2000 project will
have a material adverse effect on the Partnership's financial position, results
of operations or cash flows. Based on information available at this time,
however, the Partnership cannot conclude that any failure of the Partnership, or
third-party partners and other entities to achieve Year 2000 compliance will not
adversely effect the Partnership. Specific factors which may affect the success
of the Partnership's Year 2000 efforts and the occurrence of Year 2000
disruption or expense include failure of the Partnership or its outside
consultants to properly identify deficient systems, the failure of the selected
remedial action to adequately address the deficiencies, failure of the
Partnership's outside consultants to complete the remediation in a timely manner
(due to shortages of qualified labor or other factors), unforeseen expenses
related to the remediation of existing systems or the transition to replacement
systems, and the failure of third parties, including Equity Investees to become
compliant or to adequately notify the Partnership of potential noncompliance.
UNCERTAINTY OF FORWARD-LOOKING STATEMENTS AND INFORMATION
This quarterly report contains certain forward-looking statements and
information that are based on management's beliefs as well as assumptions made
by and information currently available to management. Such statements are
typically punctuated by words or phrases such as "anticipate," "estimate,"
"project," "should," "may," "management believes," and words or phrases of
similar import. Although management believes that such statements and
expressions are reasonable and made in good faith, it can give no assurance that
such expectations will prove to have been correct. Such statements are subject
to certain risks, uncertainties and assumptions. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated, estimated
or projected. Among the key factors that may have a direct bearing on the
Partnership's results of operations and financial condition are: (i) competitive
practices in the industry in which the Partnership competes, (ii) the impact of
current and future laws and government regulations affecting the industry in
general and the Partnership's operations in particular, (iii) environmental
liabilities to which the Partnership may become subject in the future that are
not covered by an indemnity or insurance, (iv) the throughput levels achieved by
the Gas Pipelines, Poseidon and any future pipelines in which the Partnership
owns an interest, (v) the ability to access additional reserves to offset the
natural decline in production from existing wells connected to the Gas Pipelines
and Poseidon, (vi) changes in gathering, transportation, processing, handling
and other rates due to changes in governmental regulation and/or competitive
factors, (vii) the impact of oil and natural gas price fluctuations, (viii) the
production rates and reserve estimates associated with the Partnership's
producing oil and gas properties, (ix) significant changes from expectations of
capital expenditures and operating expenses and unanticipated project delays,
(x) the ability of the Equity Investees to make distributions to the Partnership
and (xi) the effect of the Year 2000 date change. The Partnership disclaims any
obligation to update any forward-looking statements to reflect events or
circumstances after the date hereof.
19
<PAGE> 22
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<C> <S>
3.1 Certificate of Limited Partnership of the Partnership (filed
as Exhibit 3.1 to the Partnership's Registration Statement
on Form S-1, File No. 33-55642, and incorporated herein by
reference).
3.2 Amended and Restated Agreement of Limited Partnership of the
Partnership (filed as Exhibit 10.41 to Amendment No. 1 to
DeepTech's Registration Statement on Form S-1, File No.
33-73538, and incorporated herein by reference).
3.3 Amendment Number 1 to the Amended and Restated Agreement of
Limited Partnership of the Partnership (filed as Exhibit
10.1 to the Partnership's Current Report on Form 8-K dated
December 31, 1996, and incorporated herein by reference).
*10.1 Leviathan Gas Pipeline Partners, L.P. 1998 Omnibus
Compensation Plan Effective as of August 14, 1998.
*10.2 Leviathan 1998 Unit Option Plan for Non-Employee Directors
Effective as of August 14, 1998.
*10.3 Amendment No. 3, dated as of August 12, 1998, to the Second
Amended and Restated Credit Agreement, dated as of March 23,
1995, as amended and restated through December 13, 1996,
among Leviathan Gas Pipeline Partners, L.P., a Delaware
limited partnership, the banks and other financial
institutions (the "Lenders"), The Chase Manhattan Bank, a
New York banking corporation, as administrative agent for
the Lenders and ING (U.S.) Capital Corporation, a Delaware
corporation, as co-arranger for the Lenders.
*27. Financial Data Schedule.
</TABLE>
- ---------------
* Filed herewith.
(b) Reports on Form 8-K
The Partnership filed a Current Report on Form 8-K with the Securities
and Exchange Commission on September 16, 1998 reporting the Change in
Control of the general partner of the Partnership.
20
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned and thereunto duly authorized.
LEVIATHAN GAS PIPELINE
PARTNERS, L.P.
(Registrant)
By: LEVIATHAN GAS PIPELINE
COMPANY, its General Partner
Date: November 12, 1998
By: /s/ D. MARK LELAND
----------------------------------
D. Mark Leland
Vice President and Controller
(Principal Accounting Officer)
By: /s/ KEITH B. FORMAN
----------------------------------
Keith B. Forman
Chief Financial Officer
21
<PAGE> 24
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1 -- Certificate of Limited Partnership of the Partnership
(filed as Exhibit 3.1 to the Partnership's Registration
Statement on Form S-1, File No. 33-55642, and
incorporated herein by reference).
3.2 -- Amended and Restated Agreement of Limited Partnership of
the Partnership (filed as Exhibit 10.41 to Amendment No.
1 to DeepTech's Registration Statement on Form S-1, File
No. 33-73538, and incorporated herein by reference).
3.3 -- Amendment Number 1 to the Amended and Restated Agreement
of Limited Partnership of the Partnership (filed as
Exhibit 10.1 to the Partnership's Current Report on Form
8-K dated December 31, 1996, and incorporated herein by
reference).
*10.1 -- Leviathan Gas Pipeline Partners, L.P. 1998 Omnibus
Compensation Plan Effective as of August 14, 1998.
*10.2 -- Leviathan 1998 Unit Option Plan for Non-Employee
Directors Effective as of August 14, 1998.
*10.3 -- Amendment No. 3, dated as of August 12, 1998, to the
Second Amended and Restated Credit Agreement, dated as of
March 23, 1995, as amended and restated through December
13, 1996, among Leviathan Gas Pipeline Partners, L.P., a
Delaware limited partnership, the banks and other
financial institutions (the "Lenders"), The Chase
Manhattan Bank, a New York banking corporation, as
administrative agent for the Lenders and ING (U.S.)
Capital Corporation, a Delaware corporation, as
co-arranger for the Lenders.
*27. -- Financial Data Schedule.
</TABLE>
- ---------------
* Indicates documents filed as part of this report.
<PAGE> 1
EXHIBIT 10.1
LEVIATHAN GAS PIPELINE
PARTNERS, L.P.
1998 OMNIBUS COMPENSATION
PLAN
EFFECTIVE AS OF AUGUST 14, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
SECTION 1 PURPOSES.................................................... 1
SECTION 2 DEFINITIONS................................................. 1
2.1 Beneficiary................................................. 1
2.2 Board of Directors.......................................... 1
2.3 Cause....................................................... 1
2.4 Code........................................................ 2
2.5 Common Units................................................ 2
2.6 Company..................................................... 2
2.7 Exchange Act................................................ 2
2.8 Fair Market Value........................................... 2
2.9 General Partner............................................. 2
2.10 Management Committee........................................ 2
2.11 Maximum Annual Employee Grant............................... 2
2.12 Participant................................................. 2
2.13 Performance Goals........................................... 2
2.14 Performance Period.......................................... 2
2.15 Permanent Disability or Permanently Disabled................ 3
2.16 Plan Administrator.......................................... 3
2.17 Restricted Units............................................ 3
2.18 Rule 16b-3.................................................. 3
2.19 Section 16 Insider.......................................... 3
2.20 Subsidiary.................................................. 3
2.21 Unit Option................................................. 3
2.22 Unit Option Price........................................... 3
SECTION 3 ADMINISTRATION.............................................. 3
SECTION 4 ELIGIBILITY................................................. 4
SECTION 5 UNITS AVAILABLE FOR THE PLAN................................ 4
SECTION 6 UNITS OPTIONS............................................... 5
SECTION 7 UNITS APPRECIATION RIGHTS................................... 8
SECTION 8 RESTRICTED UNITS............................................ 9
SECTION 9 REGULATORY APPROVALS AND LISTING............................ 10
SECTION 10 EFFECTIVE DATE AND TERM OF PLAN............................. 10
SECTION 11 GENERAL PROVISIONS.......................................... 11
SECTION 12 COMPLIANCE WITH RULE 16b-3.................................. 12
SECTION 13 AMENDMENT, TERMINATION OR DISCONTINUANCE OF THE PLAN........ 12
</TABLE>
i
<PAGE> 3
LEVIATHAN GAS PIPELINE PARTNERS, L.P.
1998 OMNIBUS COMPENSATION PLAN
SECTION 1
PURPOSES
The purposes of the Leviathan Gas Pipeline Partners, L.P. 1998 Omnibus
Compensation Plan (the "Plan") are to promote the interests of Leviathan Gas
Pipeline Partners, L.P., a Delaware limited partnership (the "Company") and its
unitholders by strengthening its ability to attract and retain officers and key
management employees ("key management employees" means those employees who hold
the position of department director) in the employ of the Company, the General
Partner (as defined below) or their affiliates by furnishing suitable
recognition of their ability and industry which contributed materially to the
success of the Company and to align the interests and efforts of the Company's
and General Partner's officers and key management employees to the long-term
interests of the Company's unitholders. The Plan provides for the grant of unit
options, unit appreciation rights and restricted units in accordance with the
terms and conditions set forth below.
SECTION 2
DEFINITIONS
Unless otherwise required by the context, the following terms when used in
the Plan shall have the meanings set forth in this Section 2:
2.1 BENEFICIARY
The person or persons designated by the Participant pursuant to Section
6.4(f) of this Plan to whom payments are to be paid pursuant to the terms of the
Plan in the event of the Participant's death.
2.2 BOARD OF DIRECTORS
The Board of Directors of the General Partner.
2.3 CAUSE
The Company may terminate the Participant's employment for Cause. A
termination for Cause is a termination evidenced by a resolution adopted in good
faith by two-thirds (2/3) of the Board of Directors that the Participant (i)
willfully and continually failed to substantially perform the Participant's
duties with the Company (other than a failure resulting from the Participant's
incapacity due to physical or mental illness) which failure continued for a
period of at least thirty (30) days after a written notice of demand for
substantial performance had been delivered to the Participant specifying the
manner in which the Participant has failed to substantially perform or (ii)
willfully engaged in conduct which is demonstrably and materially injurious to
the Company, monetarily or otherwise; provided, however, that no termination of
the Participant's employment shall be for Cause as set forth in clause (ii)
above until (A) there shall have been delivered to the Participant a copy of a
written notice setting forth that the Participant was guilty of the conduct set
forth in clause (ii) above and specifying the particulars thereof in detail and
(B) the Participant shall have been provided an opportunity to be heard by the
Board of Directors (with the assistance of the Participant's counsel if the
Participant so desires). No act, nor failure to act, on the Participant's part
shall be considered "willful" unless the Participant has acted, or failed to
act, with an absence of good faith and without a reasonable belief that the
Participant's action or failure to act was in the best interest of the Company.
Notwithstanding anything contained in the Plan to the contrary, no failure to
perform by the Participant after notice of termination is given by the
Participant shall constitute Cause.
<PAGE> 4
2.4 CODE
The Internal Revenue Code of 1986, as amended and in effect from time to
time, and the temporary or final regulations of the Secretary of the U.S.
Treasury adopted pursuant to the Code.
2.5 COMMON UNITS
The Common Units of the Company, as defined and described in the Amended
and Restated Agreement of Limited Partnership of the Company, dated February 19,
1993, as amended from time to time.
2.6 COMPANY
Leviathan Gas Pipeline Partners, L.P., a Delaware limited partnership, and
any successor in interest.
2.7 EXCHANGE ACT
The Securities Exchange Act of 1934, as amended.
2.8 FAIR MARKET VALUE
As applied to a specific date, Fair Market Value shall be deemed to be the
mean between the highest and lowest quoted selling prices at which Common Units
are sold on such date as reported in the New York Stock Exchange
("NYSE")-Composite Transactions by The Wall Street Journal on such date, or if
no Common Units were traded on such date, on the next preceding day on which
Common Units were so traded.
2.9 GENERAL PARTNER
General Partner means Leviathan Gas Pipeline Company, a Delaware
corporation and the general partner of the Company.
2.10 MANAGEMENT COMMITTEE
A committee consisting of the Chairman of the Board of the General Partner
and such other senior officers as the Chairman of the Board shall designate.
2.11 MAXIMUM ANNUAL EMPLOYEE GRANT
The Maximum Annual Employee Grant set forth in Section 5.3.
2.12 PARTICIPANT
An eligible employee to whom a unit option, unit appreciation right or
Restricted Unit is granted under the Plan as set forth in Section 4.
2.13 PERFORMANCE GOALS
The Plan Administrator shall establish one or more performance goals
("Performance Goals") for each Performance Period in writing. Such Performance
Goals shall be set no later than the commencement of the applicable Performance
Period, or such later date as may be permitted with respect to
"performance-based" compensation under Section 162(m) of the Code.
2.14 PERFORMANCE PERIOD
That period of time during which Performance Goals are measured to
determine the vesting or granting of unit options, unit appreciation rights or
Restricted Units, as the Plan Administrator may determine.
2
<PAGE> 5
2.15 PERMANENT DISABILITY OR PERMANENTLY DISABLED
A Participant shall be deemed to have become Permanently Disabled for
purposes of the Plan if the Chairman of the Board of the General Partner shall
find upon the basis of medical evidence satisfactory to the Chairman of the
Board that the Participant is totally disabled, whether due to physical or
mental condition, so as to be prevented from engaging in further employment by
the Company, the General Partner or any of their affiliate, and that such
disability will be permanent and continuous during the remainder of the
Participant's life; provided, that with respect to Section 16 Insiders such
determination shall be made by the Plan Administrator.
2.16 PLAN ADMINISTRATOR
The Compensation Committee of the Board of Directors of the General Partner
or any other committee appointed and/or authorized pursuant to Section 3 to
administer the Plan, including the Management Committee.
2.17 RESTRICTED UNITS
Common Units granted under the Plan that are subject to the requirements of
Section 8 and such other restrictions as the Plan Administrator deems
appropriate. References to Restricted Units in this Plan shall include
Performance Restricted Units (as defined in Section 5.2) unless the context
otherwise requires.
2.18 RULE 16B-3
Rule 16b-3 of the General Rules and Regulations under the Exchange Act.
2.19 SECTION 16 INSIDER
Any person who is selected by the Plan Administrator to receive unit
options, unit appreciation rights or Restricted Units pursuant to the Plan and
who is subject to the requirements of Section 16 of the Exchange Act, and the
rules and regulations promulgated thereunder.
2.21 UNIT OPTION
An option to acquire a Common Unit of the Company at the unit option price,
and which is not intended to meet the requirements of an incentive option as
defined in Section 422 of the Code.
2.22 UNIT OPTION PRICE
The price at which each unit option is exercisable for a Common Unit.
SECTION 3
ADMINISTRATION
3.1 With respect to awards made under the Plan to Section 16 Insiders, the
Plan shall be administered by the Compensation Committee of the General
Partner's Board of Directors, which shall be constituted at all times so awards
to Section 16 Insiders pursuant to this Plan shall qualify as an exception to
liability under Section 16(b) of the Exchange Act, so long as any of the
Company's equity securities are registered pursuant to Section 12(b) or 12(g) of
the Exchange Act. Except as provided below, and as may be required by Section
16(b) of the Exchange Act, the Plan shall be administered by the Management
Committee. The Management Committee shall interpret the Plan, prescribe, amend,
and rescind rules relating to it, select eligible Participants, make grants to
Participants who are not Section 16 Insiders, and take all other actions
necessary for its administration, which actions shall be final and binding upon
all Participants.
3.2 Except for the terms and conditions explicitly set forth in the Plan,
the Management Committee shall have sole authority to construe and interpret the
Plan, to establish, amend and rescind rules and
3
<PAGE> 6
regulations relating to the Plan, to select persons eligible to participate in
the Plan, to grant unit options, unit appreciation rights and Restricted Units
thereunder, to administer the Plan, to make recommendations to the Board of
Directors, and to take all such steps and make all such determinations in
connection with the Plan and the unit options, unit appreciation rights and
Restricted Units granted thereunder as it may deem necessary or advisable, which
determination shall be final and binding upon all Participants. The Plan
Administrator shall cause the Company at its expense to take any action related
to the Plan which may be necessary to comply with the provisions of any federal
or state law or any regulations issued thereunder.
3.3 Each member of any committee acting as Plan Administrator, while
serving as such, shall be considered to be acting in his or her capacity as a
director of the General Partner. Members of the Board of Directors and members
of any committee acting under the Plan shall be fully protected in relying in
good faith upon the advice of counsel and shall incur no liability except for
gross negligence or willful misconduct in the performance of their duties.
SECTION 4
ELIGIBILITY
To be eligible for selection by the Plan Administrator to participate in
the Plan, an individual must be an officer or key management employee of the
Company, the General Partner, or any their affiliates, as of the date on which
the Plan Administrator grants to such individual a unit option, unit
appreciation right or Restricted Units or a person who, in the judgment of the
Plan Administrator, holds a position of responsibility and is able to contribute
substantially to the Company's continued success. Members of the Board of
Directors of the General Partner who are full-time salaried officers shall be
eligible to participate. Members of the Board of Directors who are not employees
are not eligible to participate in this Plan.
SECTION 5
UNITS AVAILABLE FOR THE PLAN
5.1 Subject to Section 5.4, the maximum number of units that may be issued
for which unit options, unit appreciation rights and Restricted Units may at any
time be granted under the Plan is three million (3,000,000) Common Units, from
units held in the Company's treasury or out of the authorized but unissued units
of the Company, or the General Partner, as appropriate, or partly out of each,
as shall be determined by the Plan Administrator.
5.2 Notwithstanding the foregoing, and subject to Section 5.4, the number
of units for which Restricted Units may be granted pursuant to Section 8 of the
Plan may not exceed five hundred thousand (500,000) Common Units, unless the
granting or vesting of such Restricted Units is in compliance with the
performance-based requirements of Section 162(m) of the Code ("Performance
Restricted Units"). The grant of Performance Restricted Units is not limited by
this Section 5.2.
5.3 The maximum number of units with respect to which awards under this
Plan may be granted to any eligible employee in any one year shall not exceed:
(a) five hundred thousand (500,000) in the case of unit options (and unit
appreciation rights) and (b) five hundred thousand (500,000) in the case of
Restricted Units (whether or not such Restricted Units are Performance
Restricted Units). The foregoing maximums shall be referred to collectively as
the "Maximum Annual Employee Grant."
5.4 In the event of a recapitalization, unit split, unit dividend,
exchange of units, merger, reorganization, change in corporate structure or
units of the Company or similar event, the Board of Directors, upon the
recommendation of the Plan Administrator, may make appropriate adjustments in
the number of units authorized for the Plan, the Maximum Annual Employee Grant
and, with respect to outstanding unit options, unit appreciation rights and
Restricted Units, the Plan Administrator may make appropriate adjustments in the
number of units and the Unit Option Price.
4
<PAGE> 7
SECTION 6
UNIT OPTIONS
6.1 Unit options may be granted to eligible employees in such number, and
at such times during the term of the Plan as the Plan Administrator shall
determine, the Plan Administrator taking into account the duties of the
respective employees, their present and potential contributions to the success
of the Company, and such other factors as the Plan Administrator shall deem
relevant in accomplishing the purposes of the Plan. The granting of a unit
option shall take place when the Plan Administrator by resolution, written
consent or other appropriate action determines to grant such a unit option to a
particular Participant at a particular price. Each unit option shall be
evidenced by a written instrument delivered by or on behalf of the Company
containing provisions not inconsistent with the Plan.
6.2 All unit options under the Plan shall be granted subject to the
following terms and conditions:
(a) Unit Option Price
The Unit Option Price shall be determined by the Plan Administrator,
but shall not be less than one hundred percent (100%) of the Fair Market
Value of the Common Units on the date the unit option is granted.
(b) Duration of Unit Options
Unit options shall be exercisable at such time and under such
conditions as set forth in the unit option grant, but in no event shall any
unit option be exercisable later than the tenth anniversary of the date of
its grant.
(c) Exercise of Unit Options
Unless otherwise provided by the Plan Administrator, a Participant may
not exercise a unit option until the Participant has completed one (1) year
of continuous employment with the Company, the General Partner or any of
their affiliates from and including the date on which the unit option is
granted. This requirement is waived in the event of death or Permanent
Disability of a Participant before such period of continuous employment is
completed and may be waived or modified in the agreement evidencing the
option or by resolution adopted at any time by the Plan Administrator.
Thereafter, Common Units covered by a unit option may be purchased at one
time or in such installments over the balance of the unit option period as
may be provided in the unit option grant. Any units not purchased on the
applicable installment date may be purchased thereafter at any time prior
to the final expiration of the unit option. To the extent that the right to
purchase units has accrued thereunder, unit options may be exercised from
time to time by written notice to the Company or General Partner, as
appropriate, setting forth the number of units with respect to which the
unit option is being exercised, and such additional information as may be
required by the Plan Administrator.
(d) Payment
The purchase price of units purchased under unit options shall be paid
in full to the Company upon the exercise of the unit option by delivery of
consideration equal to the product of the Option Price and the number of
units purchased (the "Purchase Price"). Such consideration may be either
(i) in cash or (ii) at the discretion of the Plan Administrator, in Common
Units already owned by the Participant for at sufficient time (generally
six (6) months) to not result in an accounting charge to the Company, or
any combination of cash and Common Units. The Fair Market Value of such
Common Units as delivered shall be valued as of the day prior to delivery.
The Plan Administrator can determine at the time the unit option is granted
that additional forms of payment will be permitted. To the extent permitted
by the Plan Administrator and applicable laws and regulations (including,
but not limited to, federal tax and securities laws, regulations and state
corporate law), an option may also be exercised by delivery of a properly
executed exercise notice together with irrevocable instructions to a broker
to promptly deliver to the Company the amount of sale or loan proceeds to
pay the Purchase Price. A Participant shall have none of the rights of a
unit holder until the units of Common Units are issued to the Participant.
5
<PAGE> 8
If specifically authorized in the unit option grant, a Participant may
elect to pay all or a portion of the Purchase Price by having Common Units
with a Fair Market Value equal to all or a portion of the Purchase Price be
withheld from the units issuable to the Participant upon the exercise of
the unit option. The Fair Market Value of such Common Units as is withheld
shall be determined as of the same day as the exercise of the unit option.
In the event a unit option grant to a Section 16 Insider provides that the
Purchase Price may be paid in whole or in part by having units with a Fair
Market Value equal to all or a portion of the Purchase Price withheld from
the units issuable to the Participant upon the exercise of the unit option,
the withholding of units issuable upon the exercise of a unit option to pay
the Purchase Price by a Section 16 Insider must be in accordance with
applicable requirements of an exemption to liability under Section 16(b) or
the rules promulgated thereunder.
(e) Restrictions
The Plan Administrator shall determine and reflect in the unit option
grant, with respect to each unit option, the nature and extent of the
restrictions, if any, to be imposed on the units of Common Units which may
be purchased thereunder, including, but not limited to, restrictions on the
transferability of such units acquired through the exercise of such unit
options for such periods as the Plan Administrator may determine and,
further, that in the event a Participant's employment by the Company, the
General Partner or any of their affiliates, terminates during the period in
which such units are nontransferable, the Participant shall be required to
sell such units back to the Company at such prices as the Plan
Administrator may specify in the unit option.
(f) Nontransferability of Unit Options
During a Participant's lifetime, a unit option may be exercisable only
by the Participant. Unit options granted under the Plan and the rights and
privileges conferred thereby shall not be subject to execution, attachment
or similar process and may not be transferred, assigned, pledged or
hypothecated in any manner (whether by operation of law or otherwise) other
than by will or by the applicable laws of descent and distribution.
Notwithstanding the foregoing, to the extent permitted by applicable law,
the Plan Administrator may permit a recipient of a unit option to designate
in writing during the Participant's lifetime a Beneficiary to receive and
exercise the Participant's unit options in the event of such Participant's
death (as provided in Section 6.2(i)). If any Participant attempts to
transfer, assign, pledge, hypothecate or otherwise dispose of any option
under the Plan or of any right or privilege conferred thereby, contrary to
the provisions of the Plan, or suffers the sale or levy or any attachment
or similar process upon the rights and privileges conferred hereby, all
affected unit options held by such Participant shall be immediately
forfeited.
(g) Purchase for Investment
The Plan Administrator shall have the right to require that each
Participant or other person who shall exercise a unit option under the
Plan, and each person into whose name Common Units shall be issued pursuant
to the exercise of a unit option, represent and agree that any and all
Common Units purchased pursuant to such unit option are being purchased for
investment only and not with a view to the distribution or resale thereof
and that such units will not be sold except in accordance with such
restrictions or limitations as may be set forth in the unit option. This
Section 6.2(g) shall be inoperative during any period of time when the
Company has obtained all necessary or advisable approvals from governmental
agencies and has completed all necessary or advisable registrations or
other qualifications of Common Units as to which unit options may from time
to time be granted as contemplated in Section 9.
(h) Termination of Employment
Upon the termination of a Participant's employment for any reason
other than death or Permanent Disability, the Participant's unit option
shall be exercisable only to the extent that it was then exercisable and,
unless the term of the unit options expires sooner, such unit options shall
expire according to the following schedule; provided, that the Plan
Administrator may at any time determine in a particular case
6
<PAGE> 9
that specific limitations and restrictions under the Plan shall not apply,
or that a unit option should expire sooner or should terminate when the
Participant's employment status ceases:
(i) Retirement
The unit option shall expire, unless exercised, thirty-six (36)
months after the Participant's retirement from the Company, the General
Partner or any of their affiliates.
(ii) Disability
The unit option shall expire, unless exercised, thirty-six (36)
months after the Participant's Permanent Disability.
(iii) Termination
Subject to subparagraph (iv) below, the unit option shall expire,
unless exercised, three (3) months after a Participant resigns or is
terminated as an employee of the Company, the General Partner or any of
their affiliates, other than for Cause, unless the Chairman of the Board
of the General Partner shall have determined in a specific case that the
unit option should expire sooner or should terminate when the
Participant's employment status ceases; provided, however, that for
Section 16 Insiders, such determination shall be made by the Plan
Administrator.
(iv) All Other Terminations
Notwithstanding subparagraphs (iii) and (iv) above, the unit option
shall expire upon termination of employment for Cause, unless exercised,
one year after the Participant's termination of employment on account of
disability (as defined in Section 22(e)(3) of the Code) and shall expire
three (3) months after the Participant's termination of employment other
than on account of death, Permanent Disability or termination for Cause.
(i) Death of Participant
Upon the death of a Participant, whether during the Participant's
period of employment or during the thirty-six (36) month period referred to
in Sections 6.2(h)(i), (ii) and (iii), the unit option shall expire, unless
the original term of the unit option expires sooner, twelve (12) months
after the date of the Participant's death, unless the unit option is
exercised within such twelve (12) month period by the Participant's
Beneficiary, legal representatives, estate or the person or persons to whom
the deceased's unit option rights shall have passed by will or the laws of
descent and distribution; provided, that the Plan Administrator shall
determine in a particular case that specific limitations and restrictions
under the Plan shall not apply. Notwithstanding any other Plan provisions
pertaining to the times at which unit options may be exercised, no unit
option shall continue to be exercisable, pursuant to Section 6.2(h) or this
Section 6.2(i), at a time that would violate the maximum duration of
Section 6.2(b).
(j) Deferral Election
A Participant may elect irrevocably (at a time and in a manner
determined by the Plan Administrator) prior to exercising a unit option
granted under the Plan that issuance of Common Units upon exercise of such
unit option shall be deferred until a pre-specified date in the future or
until the Participant ceases to be employed by the Company or any of its
Subsidiaries, as elected by the Participant. After the exercise of any such
unit option and prior to the issuance of any deferred units, the number of
Common Units issuable to the Participant shall be credited to a memorandum
deferred account and any dividends or other distributions paid on the
Common Units shall be deemed reinvested in additional Common Units until
all credited units shall become issuable pursuant to the Participant's
election.
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<PAGE> 10
SECTION 7
UNIT APPRECIATION RIGHTS
7.1 The Plan Administrator may grant unit appreciation rights to
Participants in connection with any unit option granted under the Plan, either
at the time of the grant of such unit option or at any time thereafter during
the term of the unit option. Such unit appreciation rights shall cover the same
units covered by the unit options (or such lesser number of Common Units as the
Plan Administrator may determine) and shall, except as provided in Section 7.3,
be subject to the same terms and conditions as the related unit options and such
further terms and conditions not inconsistent with the Plan as shall from time
to time be determined by the Plan Administrator.
7.2 Each unit appreciation right shall entitle the holder of the related
unit option to surrender to the Company unexercised the related unit option, or
any portion thereof, and to receive from the Company in exchange therefor an
amount equal to the excess of the Fair Market Value of one Common Unit on the
date the right is exercised over the Option Price per share times the number of
units covered by the unit option, or portion thereof, which is surrendered.
Payment shall be made in Common Units valued at Fair Market Value as of the date
the right is exercised, or in cash, or partly in units and partly in cash, at
the discretion of the Plan Administrator. Notwithstanding the foregoing and to
the extent required by an applicable exemption to liability under Section 16(b),
a payment, in whole or in part, of cash upon exercise of a unit appreciation
right by a Section 16 Insider may be made only if the Plan Administrator
approves such election to receive cash and the right is exercised in accordance
with the requirements of such exemption under Section 16(b). Unit appreciation
rights may be exercised from time to time upon actual receipt by the Company of
written notice stating the number of Common Units with respect to which the unit
appreciation right is being exercised. The value of any fractional units shall
be paid in cash.
7.3 Unit appreciation rights are subject to the following restrictions:
(a) Each unit appreciation right shall be exercisable at such time or
times as the unit option to which it relates shall be exercisable, or at
such other times as the Plan Administrator may determine; provided,
however, that such right shall not be exercisable until the Participant
shall have completed a six (6) month period of continuous employment with
the Company or any of its Subsidiaries immediately following the date on
which the unit appreciation right is granted. In the event of death or
Permanent Disability of a Participant during employment but before the
Participant has completed such period of continuous employment, such unit
appreciation right shall be exercisable; but only within the period
specified in the related unit option. Notwithstanding the foregoing, a unit
appreciation right may not be exercised for cash by a Section 16 Insider
unless such exercise is pursuant to an exemption to liability under Section
16(b) or rules promulgated thereunder.
(b) The Plan Administrator in its sole discretion may approve or deny
in whole or in part a request to exercise a unit appreciation right. Denial
or approval of such request shall not require a subsequent request to be
similarly treated by the Plan Administrator.
(c) The right of a Participant to exercise a unit appreciation right
shall be canceled if and to the extent the related unit option is
exercised. To the extent that a unit appreciation right is exercised, the
related unit option shall be deemed to have been surrendered unexercised
and canceled.
(d) A holder of unit appreciation rights shall have none of the rights
of a units holder until Common Units, if any, are issued to such holder
pursuant to such holder's exercise of such rights.
(e) The acquisition of Common Units pursuant to the exercise of a unit
appreciation right shall be subject to the same restrictions as would apply
to the acquisition of Common Units acquired upon acquisition of the related
unit option, as set forth in Section 6.2.
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<PAGE> 11
SECTION 8
RESTRICTED UNITS
8.1 Subject to Sections 5.2 and 5.3, Restricted Units (including
Performance Restricted Units as described in Section 8.2 below) may be granted
to Participants in such number and at such times during the term of the Plan as
the Plan Administrator shall determine, taking into account the duties of the
respective Participants, their present and potential contributions to the
success of the Company, and such other factors as the Plan Administrator shall
deem relevant in accomplishing the purposes of the Plan. The granting of
Restricted Units shall take place when the Plan Administrator by resolution,
written consent or other appropriate action determines to grant such Restricted
Units to a particular Participant. Each grant shall be evidenced by a written
instrument delivered by or on behalf of the Company containing provisions not
inconsistent with the Plan. The Participant receiving a grant of Restricted
Units shall be recorded as a unitholder of the Company. Each Participant who
receives a grant of Restricted Units shall have all the rights of a unit holder
with respect to such units (except as provided in the restrictions on
transferability), including, but not limited to, the right to distributions on
such Common Units; provided, however, that no Participant awarded Restricted
Units shall have any right as a unit holder with respect to any units subject to
the Participant's Restricted Units grant prior to the date of issuance to the
Participant of a certificate or certificates for such units.
8.2 Notwithstanding any other provision to the contrary in this Section 8,
before Performance Restricted Units can be granted or vested, as applicable, the
Plan Administrator shall:
(a) Determine the Performance Goals applicable to the particular
Performance Period; and
(b) Certify in writing that such Performance Goals for a particular
Performance Period have been attained.
8.3 A grant of Restricted Units shall entitle a Participant to receive, on
the date or dates designated by the Plan Administrator, upon payment to the
Company of the par value, if applicable, of the Common Units in a manner
determined by the Plan Administrator, the number of Common Units selected by the
Plan Administrator. The Plan Administrator may require, under such terms and
conditions as it deems appropriate or desirable, that the certificates (if
issued) for Restricted Units delivered under the Plan may be held in custody by
a bank or other institution, or that the Company may itself hold such units in
custody until the Restriction Period (as defined in Section 8.4) expires or
until restrictions thereon otherwise lapse, and may require, as a condition of
any issuance of Restricted Units that the Participant shall have delivered a
units power endorsed in blank relating to the Restricted Units.
8.4 During a period of years following the date of grant, as determined by
the Plan Administrator, which shall in no event be less than one (1) year (the
"Restriction Period"), the Restricted Units may not be sold, assigned,
transferred, pledged, hypothecated or otherwise encumbered or disposed of by the
recipient, except in the event of death or Permanent Disability, the transfer to
the Company as provided under the Plan or the Plan Administrator's waiver or
modification of such restrictions in the agreement evidencing the grant of
Restricted Units, or by resolution of the Plan Administrator adopted at any
time.
8.5 Except as provided in Section 8.6, if a Participant terminates
employment with the Company for any reason before the expiration of the
Restriction Period, all Restricted Units still subject to restriction shall be
forfeited by the Participant to the Company. In addition, in the event of any
attempt by the Participant to sell, exchange, transfer, pledge or otherwise
dispose of Restricted Units in violation of the terms of the Plan, such units
shall be forfeited to the Company.
8.6 The Restriction Period for any Participant shall be deemed to end and
all restrictions on Restricted Units shall lapse, upon the Participant's death
or Permanent Disability or any termination of employment determined by the Plan
Administrator to end the Restriction Period.
8.7 When the restrictions imposed by Section 8.4 expire or otherwise lapse
with respect to one or more Restricted Units, the Company shall deliver to the
Participant (or the Participant's legal representative,
9
<PAGE> 12
Beneficiary or heir) one (1) Common Unit for each Restricted Unit. At that time,
the agreement referred to in Section 8.1, as it relates to such units, shall be
terminated.
8.8 Subject to Section 8.3 (and Section 8.2 in the case of Performance
Restricted Units), a Participant entitled to receive Restricted Units under the
Plan shall be issued a certificate or shall have a book entry account
established for such units. Such certificate or account shall be registered in
the name of the Participant, and shall bear an appropriate legend reciting the
terms, conditions and restrictions, if any, applicable to such units and shall
be subject to appropriate stop-transfer orders.
SECTION 9
REGULATORY APPROVALS AND LISTING
9.1 The Company shall not be required to issue any certificate or
establish any account for Common Units upon the exercise of a unit option or a
unit appreciation right granted under the Plan, with respect to a grant of
Restricted Units or Common Units awarded as payment of vested units prior to:
(a) obtaining any approval or ruling from the Securities and Exchange
Commission, the Internal Revenue Service or any other governmental agency
which the Company or the General Partner, in its sole discretion, shall
determine to be necessary or advisable;
(b) listing of such units on any stock exchange on which the Common
Units may then be listed; or
(c) completing any registration or other qualification of such units
under any federal or state laws, rulings or regulations of any governmental
body which the Company or the General Partner, in its sole discretion,
shall determine to be necessary or advisable.
All certificates or accounts for Common Units delivered under the Plan
shall also be subject to such stop-transfer orders and other restrictions as the
Plan Administrator may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which Common Units is then listed and any applicable federal or State securities
laws, and the Plan Administrator may cause a legend or legends to be placed on
any such certificates or accounts to make appropriate reference to such
restrictions. The foregoing provisions of this paragraph shall not be effective
if and to the extent that the Common Units delivered under the Plan are covered
by an effective and current registration statement under the Securities Act of
1933, as amended, or if and so long as the Plan Administrator determines that
application of such provisions is no longer required or desirable. In making
such determination, the Plan Administrator may rely upon an opinion of counsel
for the Company or the General Partner.
SECTION 10
EFFECTIVE DATE AND TERM OF PLAN
The Plan shall be effective as of August 14, 1998, and shall terminate ten
(10) years therefrom, unless terminated earlier pursuant to Section 13, herein.
Unit options, unit appreciation rights and Restricted Units theretofore granted
may extend beyond that date and the terms and conditions of the Plan shall
continue to apply thereto and to Common Units acquired thereunder. To the extent
required for compliance with Section 16(b) and rules promulgated thereunder,
Common Units underlying unit options, unit appreciation rights and Restricted
Units granted to Section 16 Insiders may not be sold until a date at least six
(6) months after the date such General Partner approval of the Plan is obtained,
and unit appreciation rights that are granted subject to General Partner
approval of the Plan to Section 16 Insiders may not be exercised for cash until
a date at least six (6) months after the date such General Partner approval is
obtained.
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SECTION 11
GENERAL PROVISIONS
11.1 Nothing contained in the Plan, or in any unit option, unit
appreciation right or Restricted Unit granted pursuant to the Plan, shall confer
upon any employee any right with respect to continuance of employment by the
Company, the General Partner or any of their affiliates, nor interfere in any
way with the right of the Company, the General Partner or any of their
affiliates to terminate the employment of such employee at any time with or
without assigning any reason therefor.
11.2 Grants, vesting or payment of unit options, unit appreciation rights
or Restricted Units shall not be considered as part of a Participant's salary or
used for the calculation of any other pay, allowance, pension or other benefit
unless otherwise permitted by other benefit plans provided by the Company, the
General Partner or any of their affiliates, or required by law or by contractual
obligations of the Company, the General Partner or any of their affiliates.
11.3 The right of a Participant or Beneficiary to the payment of any
compensation under the Plan may not be assigned, transferred, pledged or
encumbered, nor shall such right or other interests be subject to attachment,
garnishment, execution or other legal process.
11.4 Leaves of absence for such periods and purposes conforming to the
personnel policy of the Company, the General Partner or any of their affiliates,
as applicable, shall not be deemed terminations or interruptions of employment,
unless a Participant commences a leave of absence from which he or she is not
expected to return to active employment with the Company, the General Partner or
any of their affiliates.
11.5 In the event a Participant is transferred from the Company to the
General Partner or other affiliate, or vice versa, or is promoted or given
different responsibilities, the unit options, unit appreciation rights and
Restricted Units granted to the Participant prior to such date shall not be
affected.
11.6 The Plan shall be construed and governed in accordance with the laws
of the State of Texas, except that it shall be construed and governed in
accordance with applicable federal law in the event that such federal law
preempts state law.
11.7 Appropriate provision shall be made for all taxes required to be
withheld in connection with the exercise, grant or other taxable event with
respect to unit option, unit appreciation rights and Restricted Units under the
applicable laws or regulations of any governmental authority, whether federal,
state or local and whether domestic or foreign, including, but not limited to,
the required withholding of a sufficient number of units otherwise issuable to a
Participant to satisfy the said required minimum tax withholding obligations. If
provided in the grant, a Participant is permitted to deliver Common Units
(including units acquired pursuant to the exercise of a unit option or unit
appreciation right other than the unit option or unit appreciation right
currently being exercised, to the extent permitted by applicable regulations)
for payment of withholding taxes on the exercise of a unit option or unit
appreciation right, or upon the grant or vesting of Restricted Units. At the
election of the Plan Administrator or, subject to approval of the Plan
Administrator at its sole discretion, at the election of a Participant, Common
Units may be withheld from the units issuable to the Participant upon the
exercise of a unit option or unit appreciation right or upon the vesting of the
Restricted Units to satisfy tax withholding obligations. The Fair Market Value
of Common Units as delivered pursuant to this Section 11.7 shall be valued as of
the day prior to delivery, and shall be calculated in accordance with Section
2.8. The election by a Section 16 Insider to have Common Units withheld to pay
tax obligations in connection with the exercise of a unit option or unit
appreciation right or the vesting of Restricted Units must be made in accordance
with the provisions, if any, of Section 16 and the rules promulgated thereunder.
Any Participant that makes a Section 83(b) election under the Code shall,
within ten (10) days of making such election, notify the Company in writing of
such election and shall provide the Company with a copy of such election form
filed with the Internal Revenue Service.
Tax advice should be obtained by the Participant prior to the Participant's
(i) entering into any transaction under or with respect to the Plan, (ii)
designating or choosing the times of distributions under the Plan, or (iii)
disposing of any Common Units issued under the Plan.
11
<PAGE> 14
SECTION 12
COMPLIANCE WITH SECTION 16
The Company's intention is that, so long as any of the Company's equity
securities are registered pursuant to Section 12(b) or 12(g) of the Exchange
Act, with respect to awards granted to or held by Section 16 Insiders, the Plan
shall comply in all respects with Rule 16b-3 or any successor rule or rule of
similar application under Section 16 of the Exchange Act or rules thereunder. If
any Plan provision is later found not to be in compliance with Rule 16b-3 or
such other rules promulgated under Section 16 of the Exchange Act, that
provision shall be deemed modified as necessary to meet the requirements of
Section 16.
Notwithstanding anything in the Plan to the contrary, the Board, in its
absolute discretion, may bifurcate the Plan so as to restrict, limit, or
condition the applicability of any provision of the Plan to Participants who are
Section 16 Insiders without so restricting, limiting, or conditioning the Plan
with respect to other Participants.
SECTION 13
AMENDMENT, TERMINATION OR DISCONTINUANCE OF THE PLAN
13.1 Subject to the Board of Directors of the General Partner and Section
13.2, the Plan Administrator may from time to time make such amendments to the
Plan as it may deem proper and in the best interest of the Company without
further approval of the General Partner of the Company, including, but not
limited to, any amendment necessary to ensure that the Company may obtain any
regulatory approval referred to in Section 11; provided, however, that no change
in any unit option, unit appreciation right or Restricted Units theretofore
granted may be made without the consent of the Participant which would impair
the right of the Participant to acquire or retain Common Units or cash that the
Participant may have acquired as a result of the Plan.
13.2 To the extent required for compliance with applicable law or
regulation, including Section 16(b), the Plan Administrator and the Board of
Directors may not amend the Plan without the approval of the sole stockholder of
the General Partner to:
(a) materially increase the number of units or rights that may be
issued under the Plan to Section 16 Insiders;
(b) otherwise materially increase the benefits accruing to the
Participants under the Plan.
13.4 The Board of Directors of the General Partner may at any time suspend
the operation of or terminate the Plan with respect to any Common Units or
rights which are not at that time subject to unit option, unit appreciation
right or grant of Restricted Units, not yet granted.
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<PAGE> 15
IN WITNESS WHEREOF, the Company has caused the Plan to be executed
effective as of August 14, 1998.
LEVIATHAN GAS PIPELINE COMPANY,
General Partner
By /s/ H. BRENT AUSTIN
------------------------------------
Title: Executive Vice President
ATTEST:
By /s/ DAVID L. SIDDALL
----------------------------------
Title: Corporate Secretary
13
<PAGE> 1
EXHIBIT 10.2
LEVIATHAN
1998 UNIT OPTION PLAN FOR
NON-EMPLOYEE DIRECTORS
EFFECTIVE AS OF AUGUST 14, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
SECTION 1 PURPOSE..................................................... 1
SECTION 2 UNITS SUBJECT TO THE PLAN................................... 1
SECTION 3 ADMINISTRATION OF THE PLAN.................................. 1
SECTION 4 PARTICIPATION IN THE PLAN................................... 1
SECTION 5 UNIT OPTION GRANTS AND TERMS................................ 2
SECTION 6 GENERAL PROVISIONS.......................................... 3
SECTION 7 EFFECTIVE DATE AND DURATION OF PLAN......................... 4
SECTION 8 COMPLIANCE WITH SECTION 16.................................. 4
SECTION 9 AMENDMENT, TERMINATION OR DISCONTINUANCE OF THE PLAN........ 4
</TABLE>
<PAGE> 3
LEVIATHAN
1998 UNIT OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
SECTION 1
PURPOSE
The purpose of the Leviathan 1998 Unit Option Plan for Non-Employee
Directors (the "Plan") is to attract and retain the services of experienced and
knowledgeable non-employee Directors of Leviathan Gas Pipeline Company (the
"Company"), the general partner of Leviathan Gas Pipeline Partners, L.P. (the
"Partnership"), and to provide an incentive for such Directors to increase their
proprietary interests in the Partnership's long-term success and progress.
SECTION 2
UNITS SUBJECT TO THE PLAN
2.1 Subject to Section 2.2, the maximum number of common units of the
Partnership (the "Common Units"), for which unit options may be granted under
the Plan is one hundred thousand (100,000) (the "Units"). The Units shall be
Common Units held in the Company's or the Partnership's, as appropriate,
treasury or issued out of the authorized but unissued units of the Partnership,
or partly out of each, as shall be determined by the Plan Administrator.
2.2 In the event of a recapitalization, unit split, unit dividend,
exchange of shares or units, merger, reorganization, change in corporate
structure or units of the Partnership or similar event, the Board of Directors
of the Company (the "Board"), may make appropriate adjustments in the number of
units authorized for the Plan and, with respect to outstanding unit options, the
Plan Administrator may make appropriate adjustments in the number of units and
the unit option price. In the event of any adjustment in the number of Units
covered by any unit option, any fractional units resulting from such adjustment
shall be disregarded and each such unit option shall cover only the number of
full units resulting from such adjustment.
SECTION 3
ADMINISTRATION OF THE PLAN
Unless otherwise determined by the Board and subject to Section 9, the Plan
shall be administered by a management committee (the "Plan Administrator")
consisting of the Chairman of the Board of the Company and such other senior
officers of the Company or its affiliates as the Chairman of the Board shall
designate. The Plan Administrator shall interpret the Plan, shall prescribe,
amend and rescind rules relating to it from time to time as it deems proper and
in the best interests of the Company and the Partnership, and shall take any
other action necessary for the administration of the Plan.
SECTION 4
PARTICIPATION IN THE PLAN
Each member of the Board elected or appointed who is not otherwise an
employee of the Company, the Partnership or any subsidiary thereof (a
"Participant") shall receive unit option grants as provided in the Plan.
<PAGE> 4
SECTION 5
UNIT OPTION GRANTS AND TERMS
Each unit option granted to a Participant under the Plan and the issuance
of Units thereunder shall be subject to the following terms:
5.1 UNIT OPTION GRANTS
A Participant shall automatically receive (a) a grant of unit options to
purchase one thousand five hundred (1,500) Units when the Participant is
initially elected or appointed as a Director of the Company and (b) a grant of
unit options to purchase one thousand (1,000) Units on each date the Participant
is reelected as a Director of the Company at the Annual Meeting of Stockholders
of the Company (the "Annual Meeting"), beginning with the Annual Meeting in
1999.
Each option granted under the Plan shall be evidenced by a written
instrument delivered by or on behalf of the Plan Administrator containing terms,
provisions and conditions not inconsistent with the Plan.
5.2 VESTING OF UNIT OPTIONS
Each unit option granted to a Participant under the Plan shall be fully
vested and immediately exercisable upon grant.
5.3 UNIT OPTION PRICE
The unit option price for a unit option granted under the Plan shall be the
fair market value of the Units covered by the unit option at the time the unit
option is granted. For purposes of the Plan, "fair market value" shall be the
mean between the highest and lowest quoted selling prices at which the Common
Units were sold on such date as reported in the NYSE Composite Transactions by
The Wall Street Journal on such date or, if no Common Units were traded on such
date, on the next preceding date on which Common Units were so traded.
5.4 TIME AND MANNER OF EXERCISE OF A UNIT OPTION
Each unit option may be exercised in whole or in part at any time and from
time to time; provided, however, that no fewer than one hundred (100) Units (or
the remaining Units then purchasable under the unit option, if less than one
hundred (100) Units) may be purchased upon exercise of any unit option hereunder
and that only whole Units will be issued pursuant to the exercise of any unit
option.
The purchase price of units purchased under unit options shall be paid in
full to the Company upon the exercise of the unit option by delivery of
consideration equal to the product of the unit option price and the number of
units purchased (the "Purchase Price"). Such consideration may be paid (i) in
cash or by check; (ii) in Common Units already owned by the Participant for a
sufficient time (generally six (6) months) to not result in an accounting charge
to the Company, or any combination of cash and Common Units, with the fair
market value of such Common Units valued as of the day prior to delivery; or
(iii) by delivery of a properly executed exercise notice, together with
irrevocable instructions to a broker in a form satisfactory to the Plan
Administrator to promptly deliver to the Company the amount of sale or loan
proceeds to pay the Purchase Price. The Plan Administrator can specify that unit
options granted or to be granted shall permit additional techniques to pay the
Purchase Price. A Participant shall have none of the rights of a unitholder
until the Common Units are issued to the Participant.
5.5 TERM OF UNIT OPTIONS
Each unit option shall expire ten (10) years from the date of the granting
thereof, but shall be subject to earlier termination as follows:
(a) In the event that an Participant ceases to be a Director of the
Company for any reason other than the death of the Participant, the unit
options granted to such Participant shall expire unless
2
<PAGE> 5
exercised by him or her within thirty-six (36) months after the date such
Participant ceases to be a Director of the Company.
(b) In the event of the death of a Participant, whether during the
Participant's service as a Director or during the thirty-six (36) month
period referred to in Section 5.5(a), the unit options granted to such
Participant shall be exercisable, and such unit options shall expire unless
exercised within twelve (12) months after the date of the Participant's
death, by the legal representatives or the estate of such Participant, by
any person or persons whom the Participant shall have designated in writing
on forms prescribed by and filed with the Company or, if no such
designation has been made, by the person or persons to whom the
Participant's rights have passed by will or the laws of descent and
distribution.
5.6 TRANSFERABILITY
During an Participant's lifetime, a unit option may be exercised only by
the Participant. Unit options granted under the Plan and the rights and
privileges conferred thereby shall not be subject to execution, attachment or
similar process and may not be transferred, assigned, pledged or hypothecated in
any manner (whether by operation of law or otherwise) other than by will or the
applicable laws of descent and distribution except that, to the extent permitted
by applicable law, including Section 16, and Rules promulgated thereunder by the
Securities and Exchange Commission, of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the Plan Administrator may permit a recipient of a
unit option to designate in writing during the Participant's lifetime a
beneficiary to receive and exercise unit options in the event of the
Participant's death (as provided in Section 5.5(b)). Any attempt to transfer,
assign, pledge, hypothecate or otherwise dispose of any unit option under the
Plan or of any right or privilege conferred thereby, contrary to the provisions
of the Plan, or the sale or levy or any attachment or similar process upon the
rights and privileges conferred thereby, shall be null and void.
5.7 DEFERRAL ELECTION
A Participant may elect irrevocably at any time (at a time and in a manner
determined by the Plan Administrator) prior to exercising a unit option granted
under the Plan that issuance of Units upon exercise of such unit option shall be
deferred until a pre-specified date in the future or until a Participant ceases
to serve as a Director of the Company, as elected by the Participant. After the
exercise of any such unit option and prior to the issuance of any deferred
units, the number of Units issuable to the Participant shall be credited to a
memorandum deferred account and any dividends or other distributions paid on the
Common units shall be deemed reinvested in additional Common Units until all
credited Units shall become issuable pursuant to the Participant's election.
SECTION 6
GENERAL PROVISIONS
6.1 Neither the Plan, nor the granting of a unit option, nor any other
action taken pursuant to the Plan shall constitute or be evidence of any
agreement or understanding, express or implied, that a Participant has a right
to continue as a Director for any period of time or at any particular rate of
compensation.
6.2 The Company shall not be required to issue any certificate or
certificates for Units upon the exercise of a unit option granted under the
Plan, or record as a holder of record of Units the name of the individual
exercising a unit option under the Plan, (a) without obtaining to the complete
satisfaction of the Plan Administrator the approval of all regulatory bodies
deemed necessary by the Plan Administrator, and (b) without complying, to the
Plan Administrator's complete satisfaction, with all rules and regulations under
federal, state or local law deemed applicable by the Plan Administrator.
6.3 All costs and expenses of the adoption and administration of the Plan
shall be borne by the Company or the Partnership, as appropriate.
3
<PAGE> 6
6.4 The Plan shall be construed and governed in accordance with the laws
of the State of Texas, except that it shall be construed and governed in
accordance with applicable federal law in the event that such federal law
preempts state law.
6.5 Appropriate provision shall be made for all taxes required to be
withheld in connection with the exercise or other taxable event with respect to
unit options under the applicable laws or regulations of any governmental
authority, whether federal, state or local and whether domestic or foreign.
By participating in the Plan, each Participant shall agree that he or she
is responsible for obtaining qualified tax advice prior to the Participant's (i)
entering into any transaction under or with respect to the Plan, (ii)
designating or choosing the times of distributions under the Plan, or (iii)
disposing of any Common Units issued under the Plan.
SECTION 7
EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan shall be effective as of August 14, 1998, subject to the approval
of the plan by the Company's sole stockholder, with such approval to be obtained
within 12 months from the effective date hereof. The Plan shall continue in
effect until it is terminated by action of the Board or the Company's
stockholder, but such termination shall not affect the then-outstanding terms of
any unit options or the Company's obligation to issue Units under any
then-exercised unit options as to which a deferral election has been made under
Section 5.7.
SECTION 8
COMPLIANCE WITH SECTION 16
The Company's intention is that, so long as any of the Partnership's equity
securities are registered pursuant to Section 12(b) or 12(g) of the Exchange
Act, with respect to awards granted to or held by Section 16 Insiders, the Plan
shall comply in all respects with Rule 16b-3 or any successor rule or rule of
similar application under Section 16 of the Exchange Act or rules thereunder,
and, if any Plan provision is later found not to be in compliance with such
exemption under Section 16, that provision shall be deemed modified as necessary
to meet the requirements of such applicable exemption.
SECTION 9
AMENDMENT, TERMINATION OR DISCONTINUANCE OF THE PLAN
9.1 Subject to the Board and Section 9.2, the Plan Administrator may from
time to time make such amendments to the Plan as it may deem proper and in the
best interest of the Company and the Partnership, including, but not limited to,
any amendment necessary to ensure that the Company and Partnership may obtain
any regulatory approval referred to in Section 6.2; provided, however, that
unless the Plan Administrator determines that such change does not materially
impair the value of the unit options, no change in any unit option theretofore
granted may be made which would impair the right of the Participant to acquire
Units or retain Units that the Participant may have acquired as a result of the
Plan without the consent of the Participant.
9.2 The Board may at any time suspend the operation of or terminate the
Plan with respect to any Units which are not at that time subject to any
outstanding unit options.
4
<PAGE> 7
IN WITNESS WHEREOF, the Company has caused the Plan to be executed on
behalf of the Partnership, effective as of August 14, 1998.
LEVIATHAN GAS PIPELINE COMPANY
By /s/ H. BRENT AUSTIN
------------------------------------
Title: Executive Vice President
ATTEST:
By /s/ DAVID L. SIDDALL
----------------------------------
Title: Corporate Secretary
5
<PAGE> 1
EXHIBIT 10.3
AMENDMENT NO. 3
AMENDMENT NO. 3, dated as of August 12, 1998 (this "Amendment"), to the
Second Amended and Restated Credit Agreement, dated as of March 23, 1995, as
amended and restated through December 13, 1996 (as amended, supplemented or
otherwise modified prior to the date hereof, the "Credit Agreement"), among
LEVIATHAN GAS PIPELINE PARTNERS, L.P., a Delaware limited partnership (the
"Borrower"), the banks and other financial institutions (the "Lenders") parties
hereto, THE CHASE MANHATTAN BANK, a New York banking corporation, as
administrative agent (in such capacity, the "Administrative Agent") for the
Lenders and ING (U.S.) CAPITAL CORPORATION, a Delaware corporation, as
co-arranger for the Lenders (the "Co-Arranger").
WITNESSETH:
WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed to make,
and have made, extensions of credit to the Borrower; and
WHEREAS, the Borrower has requested that certain provisions of the Credit
Agreement be amended and waived in the manner provided for in this Amendment;
and
WHEREAS, the consent of the Required Lenders has been obtained; and
WHEREAS, the Administrative Agent, the Co-Arranger and the Required Lenders
are willing to agree to such amendments and waivers, but only on the terms and
subject to the conditions set forth in this Amendment;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the sufficiency of which is hereby acknowledged, the
Borrower, the Administrative Agent, the Co-Arranger and the Required Lenders
hereby agree as follows:
1. Definitions. Unless otherwise defined herein, terms defined in the
recitals to this Amendment have the meanings specified therein, and terms
defined in the Credit Agreement (including all amendments thereto) are used
herein as therein defined.
2. Amendments to Credit Agreement.
(a) Amendment to Recitals. The second "Whereas" clause in the recitals is
amended by deleting the amount "$300,000,000" and substituting therefor the
amount "$350,000,000."
(b) The definition of "Management Agreement" is hereby deleted in its
entirety and replaced with the following new definition for the same defined
term:
"Management Agreement": (i) the First Amended and Restated Management
Agreement, dated as of June 27, 1994, between DeepTech and the General
Partner, as amended by the First Amendment thereto dated as of January 1,
1995, and as further amended, modified or supplemented from time to time in
accordance with subsection 8.9 or (ii) any other agreement or arrangement,
reasonably acceptable to the Administrative Agent, providing management,
administrative, operational and other functions to the Borrower adequate to
allow the Borrower to conduct operations consistent with prior practices.
(c) Amendment to Revolving Credit Commitments. Schedule I is amended by
deleting the amounts contained in the Revolving Credit Commitment column and
substituting therefor the corresponding amounts contained in Schedule I attached
to this Amendment. On the Amendment Effective Date (as defined below) the
aggregate Revolving Credit Commitments will be increased to $350,000,000 and the
Revolving Credit Commitment of each Lender will be as set forth on Schedule I
attached hereto.
3. Waivers to Credit Agreement. (a) It is the intention of the Borrower,
the Administrative Agent, the Co-Arranger and the Lenders that the provisions in
the Credit Agreement relating to the Incurrence
1
<PAGE> 2
Limitation not be effective from the Amendment Effective Date through January
31, 1999. Each of the Administrative Agent, the Co-Arranger and the Lenders
hereby waives compliance by the Borrower with the requirements of subsections
2.4, 3.1(a), 4.1(c) and 7.2(b)(ii)(y) during the period beginning the Amendment
Effective Date through and including January 31, 1999 to the extent and only to
the extent that such subsections relate to the Incurrence Limitation. All
provisions waived as a result of this paragraph shall become binding once again
as of February 1, 1999.
(b) Each of the Administrative Agent, the Co-Arranger and the Lenders
hereby waives compliance by the Borrower with the requirements of subsections
8.1(d) and 8.1(e) during the period beginning the Amendment Effective Date
through and including January 31, 1999.
4. Commitment Fee. From the Amendment Effective Date through and including
January 31, 1999, the commitment fee under subsection 2.5 of the Credit
Agreement payable to each Lender shall be computed at the rate per annum equal
to the then Applicable Margin therefor as set forth under the column heading
"Commitment Fee" on the average daily amount of the Available Revolving Credit
Commitment of such Lender.
5. Revolving Credit Notes. The Borrower will execute and deliver to the
Administrative Agent a new Revolving Credit Note for each Lender which requests
the same in the amount of the Revolving Credit Commitment of such Lender after
giving effect to this Amendment. Each such Lender will return the existing
Revolving Credit Note held by it to the Administrative Agent.
6. Conditions to Effectiveness. This Amendment shall become effective on
the date (the "Amendment Effective Date") on which all of the following
conditions precedent have been satisfied or waived:
(a) The Borrower, the Administrative Agent and the Required Lenders
shall have executed and delivered to the Administrative Agent this
Amendment, and the other Loan Parties shall have executed and delivered to
the Administrative Agent the attached Acknowledgment ("Acknowledgment")
approving this Amendment.
(b) The Administrative Agent shall have received from the Borrower (i)
for the account of each Lender which executes and delivers this Amendment
on or prior to the Amendment Effective Date, the fees associated with this
Amendment and (ii) for the account of the Administrative Agent and the Co-
Arranger, such additional fees as are separately agreed with the Borrower.
(c) The Administrative Agent shall have received a certificate of each
of the Borrower, Leviathan and each Subsidiary of the Borrower which is a
Loan Party, dated the Amendment Effective Date, as to the incumbency and
signature of the officers of each such Person executing this Amendment and
the Acknowledgment, satisfactory in form and substance to the
Administrative Agent, executed by the Chief Executive Officer, Chief
Operating Officer, Chief Financial Officer, President, Treasurer or any
Vice President and the Secretary or any Assistant Secretary of each such
Person.
(d) The Administrative Agent shall have received the executed legal
opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P., counsel to the
Borrower and the other Loan Parties, in form and substance reasonably
satisfactory to the Administrative Agent.
(e) The Administrative Agent shall have received a copy of the
resolutions, in form and substance satisfactory to the Administrative
Agent, of the Board of Directors of the General Partner authorizing on
behalf of the Borrower the execution, delivery and performance of this
Amendment, certified by the Secretary or an Assistant Secretary of the
General Partner on behalf of the Borrower as of the Amendment Effective
Date, which certificate shall be in form and substance satisfactory to the
Administrative Agent and shall state that the resolutions thereby certified
have not been amended, modified, revoked or rescinded.
(f) The Administrative Agent shall have received a copy of the
resolutions, in form and substance satisfactory to the Administrative
Agent, of the Board of Directors of Leviathan authorizing the execution,
delivery and performance of the Acknowledgment, certified by the Secretary
or an Assistant Secretary of Leviathan as of the Amendment Effective Date,
which certificate shall be in form and
2
<PAGE> 3
substance satisfactory to the Administrative Agent and shall state that the
resolutions thereby certified have not been amended, modified, revoked or
rescinded.
(g) The Administrative Agent shall have received a copy of the
resolutions, in form and substance satisfactory to the Administrative
Agent, of the Managing Member or the Board of Directors, as applicable, of
each Subsidiary of the Borrower which is a party to the Acknowledgment
authorizing the execution, delivery and performance of the Acknowledgment,
certified by the Secretary or an Assistant Secretary of such Subsidiary as
of the Amendment Effective Date, which certificate shall be in form and
substance satisfactory to the Administrative Agent and shall state that the
resolutions thereby certified have not been amended, modified, revoked or
rescinded.
7. General.
(a) Representations and Warranties. After giving effect to this Amendment,
the Borrower represents that the representations and warranties made by the Loan
Parties in the Loan Documents are true and correct in all material respects on
and as of the Amendment Effective Date (unless such representations or
warranties are stated to refer to a specific earlier date, in which case such
representations and warranties shall be true and correct in all material
respects as of such earlier date) as if made on and as of the Amendment
Effective Date and no Default or Event of Default will have occurred and be
continuing.
(b) Payment of Expenses. The Borrower agrees to pay or reimburse the
Administrative Agent for all of its out-of-pocket costs and reasonable expenses
incurred in connection with this Amendment, any other documents prepared in
connection herewith and the transactions contemplated hereby, including, without
limitation, the reasonable fees and disbursements of counsel to the
Administrative Agent.
(c) No Other Amendments; Confirmation. Except as expressly amended,
modified and supplemented hereby, the provisions of the Credit Agreement, the
Notes and the other Loan Documents are and shall remain in full force and
effect.
(d) Governing Law; Counterparts. (i) THIS AMENDMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
(ii) This Amendment may be executed by one or more of the parties to this
Amendment on any number of separate counterparts, and all of said counterparts
taken together shall be deemed to constitute one and the same instrument.
[The remainder of this page has been left blank intentionally.]
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered as of the day and year first above written.
LEVIATHAN GAS PIPELINE PARTNERS,
L.P.
By /s/ KEITH FORMAN
-----------------------------------
Name: Keith Forman
Title: Chief Financial Officer
THE CHASE MANHATTAN BANK,
as Administrative Agent and Lender
By /s/ PETER M. LING
-----------------------------------
Name: Peter M. Ling
Title: Vice President
ING (U.S.) CAPITAL CORPORATION, as
Co-Arranger and Lender
By /s/ FRANK P. FERRARA
-----------------------------------
Name: Frank P. Ferrara
Title: Senior Associate
DEN NORSKE BANK ASA
By /s/ BYRON L. COOLEY
-----------------------------------
Name: Byron L. Cooley
Title: Senior Vice President
By /s/ CHARLES E. HALL
-----------------------------------
Name: Charles E. Hall
Title: Senior Vice President
4
<PAGE> 5
WELLS FARGO BANK TEXAS, N.A.
By /s/ CHRISTINA FAITH
---------------------------------
Name: Christina Faith
Title: Assistant Vice President
MEESPIERSON CAPITAL CORP.
By /s/ DARRELL W. HALLEY
-----------------------------------
Name: Darrell W. Halley
Title: Senior Vice President
By /s/ KL
-----------------------------------
Name: KL
Title: Managing Director
BANK OF SCOTLAND
By /s/ JANET TAFFE
-----------------------------------
Name: Janet Taffe
Title: Assistant Vice President
PARIBAS
By /s/ DOUGLAS R. LIFTMAN
-----------------------------------
Name: Douglas R. Liftman
Title: Vice President
By /s/ MARIAN LIVINGSTON
-----------------------------------
Name: Marian Livingston
Title: Vice President
5
<PAGE> 6
CREDIT LYONNAIS CAYMAN ISLAND BRANCH
By /s/ WALTER N. BRENNER
---------------------------------
Name: Walter N. Brenner
Title: Authorized Signatory
FIRST UNION NATIONAL BANK
By /s/ ROBERT R. WETTEROFF
-----------------------------------
Name: Robert R. Wetteroff
Title: Senior Vice President
ARAB BANKING CORPORATION (B.S.C.)
By /s/ SHELDON TILNEY
-----------------------------------
Name: Sheldon Tilney
Title: Deputy General Manager
CREDIT AGRICOLE INDOSUEZ
By /s/ DEAN BALICE
-----------------------------------
Name: Dean Balice
Title: Senior Vice President
Branch Manager
By /s/ DAVID BOUNL
-----------------------------------
Name: David Bounl, F.V.P.
Title: Head of Corporate Banking
Chicago
PNC BANK, NATIONAL ASSOCIATION
By /s/ JOHN R. WAY
-----------------------------------
Name: John R. Way
Title: Assistant Vice President
6
<PAGE> 7
THE BANK OF NOVA SCOTIA
By /s/ F.C.W. ASHBY
---------------------------------
Name: F.C.W. Ashby
Title: Senior Manager Loan
Operations
HIBERNIA NATIONAL BANK
By /s/ GARY C. CULBERTSON
-----------------------------------
Name: Gary C. Culbertson
Title: Assistant Vice President
7
<PAGE> 8
ACKNOWLEDGMENT
The undersigned guarantors hereby consent and agree to the foregoing
Amendment and confirm that their respective obligations under the Loan Documents
remain in full force and effect and, among other things, apply to the increase
in the Revolving Credit Commitments effected by the Amendment:
LEVIATHAN GAS PIPELINE COMPANY
By: /s/ KEITH FORMAN
----------------------------------
Name: Keith Forman
Title:
DELOS OFFSHORE COMPANY, L.L.C.
By: /s/ KEITH FORMAN
----------------------------------
Name: Keith Forman
Title:
EWING BANK GATHERING COMPANY, L.L.C.
By: /s/ KEITH FORMAN
----------------------------------
Name: Keith Forman
Title:
FLEXTREND DEVELOPMENT COMPANY,
L.L.C.
By: /s/ KEITH FORMAN
----------------------------------
Name: Keith Forman
Title:
8
<PAGE> 9
GREEN CAYNON PIPELINE COMPANY,
L.L.C.
By: /s/ KEITH FORMAN
----------------------------------
Name: Keith Forman
Title:
LEVIATHAN OIL TRANSPORT SYSTEMS,
L.L.C.
By: /s/ KEITH FORMAN
----------------------------------
Name: Keith Forman
Title:
MANTA RAY GATHERING COMPANY, L.L.C.
By: /s/ KEITH FORMAN
----------------------------------
Name: Keith Forman
Title:
POSEIDON PIPELINE COMPANY, L.L.C.
By: /s/ KEITH FORMAN
----------------------------------
Name: Keith Forman
Title:
SAILFISH PIPELINE COMPANY, L.L.C.
By: /s/ KEITH FORMAN
----------------------------------
Name: Keith Forman
Title:
9
<PAGE> 10
STINGRAY HOLDING, L.L.C.
By: /s/ KEITH FORMAN
--------------------------------
Name: Keith Forman
Title:
TARPON TRANSMISSION COMPANY
By: /s/ KEITH FORMAN
----------------------------------
Name: Keith Forman
Title:
TRANSCO HYDROCARBONS COMPANY, L.L.C.
By: /s/ KEITH FORMAN
----------------------------------
Name: Keith Forman
Title:
TEXAM OFFSHORE GAS TRANSMISSION,
L.L.C.
By: /s/ KEITH FORMAN
----------------------------------
Name: Keith Forman
Title:
TRANSCO OFFSHORE PIPELINE
COMPANY, L.L.C.
By: /s/ KEITH FORMAN
----------------------------------
Name: Keith Forman
Title:
10
<PAGE> 11
VK DEEPWATER GATHERING COMPANY,
L.L.C.
By: /s/ KEITH FORMAN
----------------------------------
Name:
Title:
VK-MAIN PASS GATHERING COMPANY,
L.L.C.
By: /s/ KEITH FORMAN
----------------------------------
Name:
Title:
11
<PAGE> 12
SCHEDULE I
LENDERS, COMMITMENTS AND COMMITMENT PERCENTAGES
<TABLE>
<CAPTION>
REVOLVING CREDIT COMMITMENT
LENDER NAME AND ADDRESS COMMITMENT PERCENTAGE
- ----------------------- ---------------- --------------
<S> <C> <C>
The Chase Manhattan Bank.................................... $33,083,333.34 9.45238095429%
ING (U.S.) Capital Corporation.............................. $33,083,333.34 9.45238095429%
Den norske Bank ASA......................................... $30,333,333.33 8.66666666571%
Wells Fargo Bank (Texas), N.A. ............................. $30,333,333.33 8.66666666571%
MeesPierson N.V. ........................................... $30,750,000.00 8.78571428571%
Credit Lyonnais Cayman Island Branch........................ $30,750,000.00 8.78571428571%
Bank of Scotland............................................ $25,000,000.00 7.14285714286%
Bank of Nova Scotia......................................... $23,750,000.00 6.78571428571%
Paribas..................................................... $23,333,333.33 6.66666666571%
First Union Bank of North Carolina.......................... $23,333,333.33 6.66666666571%
PNC Bank.................................................... $23,750,000.00 6.78571428571%
Credit Agricole............................................. $17,500,000.00 5.00000000000%
Hibernia National Bank...................................... $15,000,000.00 4.28571428571%
Arab Banking Corporation (B.S.C.)........................... $10,000,000.00 2.85714285714%
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Leviathan
Gas Pipeline Partners, L.P. and subsidiaries consolidated financial statements
at September 30, 1998 included in its Form 10-Q for the period ended September
30, 1998 and is qualified in its entirety by reference to such Form 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,191
<SECURITIES> 0
<RECEIVABLES> 5,914
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,233
<PP&E> 298,875
<DEPRECIATION> 91,868
<TOTAL-ASSETS> 405,300
<CURRENT-LIABILITIES> 8,209
<BONDS> 291,000
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 405,300
<SALES> 22,270
<TOTAL-REVENUES> 54,317
<CGS> 8,558
<TOTAL-COSTS> 8,558
<OTHER-EXPENSES> 20,766
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,711
<INCOME-PRETAX> (2,091)
<INCOME-TAX> (371)
<INCOME-CONTINUING> (1,720)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,720)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
